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Bunker Profile


Standard of excellence

Todd McKenna

the Salvage & For Greater Special Ops Good

Executive Achievement

Resolve Marine’s

Joseph Farrell September-October 2009

Captain Douglas Martin President & General Manager SMIT Salvage Americas

Caspar Domstorff Director SMIT Salvage

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Case Study:

SMIT Salvage

MarEx takes an intimate look at one of the world’s oldest and most recognizable maritime brand names. By Joseph Keefe

11 | Bunker Profile

Executive Achievement

by Marex staff

Founder & President, Resolve Marine Group, Inc.

Todd McKenna, Partner, Glander International Inc.


Caspar Domstorff & Douglas Martin

A Conversation With the Director SMIT Salvage, Caspar Domstorff, and the President & General Manager, SMIT Salvage Americas, Douglas Martin. by Joseph Keefe

8 | Joseph E. Farrell by MarEx Staff

40 | Maritime Claims

Phil Brickman on the complex issue of obtaining security for.… By Philip C. Brickman

Executive Interview:


44 | Protecting the Supply Chain World commerce will continue despite the threat of…

Washington Insider

13 | Cosco Busan Guilty Plea Highlights Complacency and Bolsters the Case for Reform On August 13, 2009, the ship manager of the Cosco Busan… by Larry Kiern

by gordon feller

48 | Silent but Deadly Undersea Threat: Four Billion Gallons of Oil


18 | Security & Defense Shipboard Security and Vessel Defense

by joseph keefe

By Captain Jeffrey L. Kuhlman

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Find the right company to fit your machinery needs.

22 | When Will Tanker Stocks Rebound?

Earnings Touched Bottom in the Second Quarter. The Third Quarter Could Be Worse. by Jack O’Connell



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publisher Tony Munoz :: Editor in Chief Joseph A. Keefe :: Senior Copy Editor John J. O’Connell, Jr. :: Art Director Evan Naylor :: Assistant Art Director Daniel Bastien :: Senior Vice President Sales & Marketing Brett Keil :: Advertising Sales Manager Elizabeth Johnson :: Sales Associate Irena Ortlani :: Sales Associate - Germanic Europe Hansjorg Brans :: Director of Sales - Asia Philipho Yuan :: Internet Services Manager Steven Gonzalez :: Circulation Manager Caroline Stephenson :: Circulation Auditors Jennifer Bessette & Chris Clarke The Maritime Executive, LLC (ISSN 1096-2751) 3200 S. Andrews Avenue, Ste. 100 Fort Lauderdale, FL 33316 Telephone: +1 954 848 9955 Toll-Free: 866 884 9034 Fax: +1 954 848 9948

For subscriptions please visit The Maritime Executive (ISSN 1096-2751) is published bi-monthly by The Maritime Executive, LLC, 3200 S. Andrews Avenue, Suite 100, Fort Lauderdale, FL 33306, Tel. (866) 884-9034. SUBSCRIPTIONS: Domestic subscription rates are $36, per year. International subscription rates are $86, per year. Application to mail at periodicals postage rates is pending at Fort Lauderdale, FL and additional mailing offices. For single copies of the magazine or reprints of articles appearing in this magazine, contact The Maritime Executive at (866) 884-9034. COPYRIGHT: Š Copyright 1996 by The Maritime Executive. All rights reserved. The Maritime Executive is fully protected by copyright law, and nothing that appears in it may be reproduced, wholly or in part, without written permission. We cannot be responsible for the claims of manufacturers in any of the items. Editorial manuscripts and photos will be handled with care but no liability is assumed for them. POSTMASTER: Please send address changes to The Maritime Executive, 3200 S. Andrews Avenue, Suite 100, Fort Lauderdale, FL 33316. Change of address notices should be sent promptly with old as well as new address and with ZIP code or postal zone. Allow 30 days for change of address.


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Not Out of the Woods Yet: But Don’t Bet Against It…



I’m going to bet the entire contents of my kids’ 529 accounts that you didn’t know that, due to the faltering economy, the most pronounced shortage of qualified merchant mariners in decades is all but over. I’m just kidding, but don’t get too excited if you knew the correct answer; it’s currently looking like comJoseph Keefe munity college anyway for my offspring after the toughest Editor in Chief year that most of us can ever remember. I’m also not foolish enough to think the maritime industry is out of the woods just yet. I just wouldn’t bet against it, either. Here’s why: Federal Reserve Chairman Ben Bernanke recently said that the recession has ended. Although he qualified those remarks by saying, “It’s still going to feel like a very weak economy for some time,” some market indicators would tend to support the notion of pending recovery. That said, and using the “time-honored Keefe family tradition of buying high and selling low,” this might be your signal to sell. Still, the maritime industry itself has weathered a lot more than just the global recession in the past 18 months, and we’re still around and ticking. It hasn’t been easy. For example, it can be argued that the regulatory oversight of marine vessels and the people who operate them has lagged behind what has long been imposed upon the airline, railroad and trucking industries. If so, those days are clearly over. The crushing burden that STCW, OPA 90, ISM, ISPS, TWIC and a hundred other new protocols have on today’s ships and mariners is clear. And yet ocean freight is still moving, albeit a little slower than before. Ashore, new auto fuel-economy rules proposed by the federal DOT and EPA – a major move by the U.S. toward cracking down on greenhouse-gas emissions – are being panned by some as inadequate. From the standpoint of the environmentalists, it will never be enough. In truth, the tightening of emission standards ashore will pale compared to what is forecast for large oceangoing vessels. And that’s just one of many facets of ocean transportation that will be affected by the massive “green tsunami” yet to come. The August U.S. Coast Guard announcement of a

proposed standard for ballast water treatment (BWT), long awaited by a host of maritime stakeholders, provides for general agreement with an IMO standard that has been in place since 2004. The proposal, while falling short of what some states would liked to have seen, represents progress and also provides clear guidance to ship owners. Nevertheless, some would prefer a standard that is 1,000 times (you read that right) more stringent, something which cannot yet be determined with any degree of accuracy. Meanwhile, and as authorized by the Clean Water Act, a National Pollutant Discharge Elimination System (NPDES) permit program, which regulates sources that discharge pollutants into U.S. waters, is impacting marine operators. The EPA is encouraging vessel operators to apply electronically for coverage under the Vessel General Permit (VGP). That sounds easy enough, but failure to submit, no later than 19 September 2009, a Notice of Intent (NOI) relating to continued discharges incidental to the normal operation of the vessel can result in onerous penalties. As you read this in October, you could already be in trouble. Today’s ultimate environmental irony may just be contained in the climate change that is slowly extending navigation seasons in the Northern Hemisphere. Recent reports of two vessels reaching a Siberian destination by means of the Northeast Passage could mean that the retreat of Arctic ice may ultimately obviate the need for that gas pipeline in Alaska after all, delighting and horrifying environmentalists in the very same breath. A little bit of horizontal drilling by the oil majors, using ten percent of the environmental footprint that we saw just three decades ago, and we’ll be back in business on the waterfront. Back to reality now and with as much as 12 percent of the world’s container capacity idled, it is a little soon to take Mr. Bernanke at his word. Nevertheless, I don’t know of any other sector in the economy that has taken the collective body blows of regulatory oversight and economic downturn that the world of marine transportation has recently endured. I do not say that lightly: My wife has made a career in banking. We’ve seen it all this year, I assure you. On the waterfront, those who stay smart – and aggressive – will live to fight on in the new economy. We’ll be there to cover the battle objectively, through compelling case studies, innovative product assessments and a unique eye on the regulatory environment. We’re not yet out of the woods, but I can see the light at the edge of the forest. Can you? Mar Ex

Joseph Keefe can be contacted at with comments, input and questions on this editorial or any other piece in this magazine. The Maritime Executive welcomes your participation in our editorial content.


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Joseph E. Farrell



Founder & President, Resolve Marine Group, Inc. Measuring success in the maritime industry often involves the usual metrics: dollars, headcount, etc. For Joe Farrell, however, the growth of his hugely successful firm tells only a fraction of the story. That’s because Farrell’s real passion involves an unwavering respect for the environment and a desire to not only preserve but improve it wherever possible. It could be argued that Resolve’s story is more about the environment than it is about

salvage. It turns out, though, that the two are inextricably linked.

A Different Course, A Logical Outcome

The Founder and President of Resolve Marine Group, Inc. grew up in Quincy, MA, where at the tender age of 18 he joined the U.S. Coast Guard with the intention of becoming a diver. After being told “no” (because of a physical issue), he characteristically went ahead and became a diver anyway. His four years in the Coast Guard involved stints aboard an icebreaker where he dove in Arctic waters for almost Solutions on Target! two years following his graduation from the Introducing the new SS109HT U.S. Navy diving high torque robotic positioning device. Delivers an impressive school. 14 ft-lbs of torque at up 20 At 20, Fardeg/second, all in the same package size as our standard rell became the SS109. youngest E-6 in See our entire line of robust the USCG and security & video surveillance volunteered to systems, services and equipment on our website: be an Explosives Adviser, a job that entailed supervising the offloading of ammunition ships in the Saigon River and offshore San Diego 619.275.5533 Qui Nhon. His Houston 281.596.7568 diving career

By MarEx Staff then continued with service at the U.S. Navy’s Atlantic Underwater Test and Evaluation Center (AUTEC). For the next four years, now as a civilian diver, he would jump out of helicopters in full scuba dive gear and recover torpedoes. Eventually, Farrell went to work onboard a 158-foot Ocean Salvage tug where, after a couple of years, he used the ship (with the owner’s permission) to perform two salvage jobs. With the proceeds from those assignments he bought the ship and renamed her Resolve. As Farrell kicked off his now-storied career in the world of salvage, it is not illogical that a guy who spent most of his early career in one form of danger or another would later devote himself to mitigating those risks. What came first ultimately sowed the seeds for the success that would come later.

Coast Guard Roots: Marine Safety in Practice

Given Joe Farrell’s roots, it is not surprising that his attention to detail, especially where Coast Guard matters are concerned, is second to none. Today, Resolve’s Fire Response Division gives Farrell’s firm the unique status of being the only ship-salvage company in the world with an inhouse firefighting strike team which also runs its own state-of-the-art shipboard firefighting school. Over a 12-year-period, Resolve has trained over 16,000 professional mariners and port fire departments. Beyond this impressive statistic is the 2002



Sinking oil carrying tank-barge.



certificate awarded by the UK’s Coast Guard (MCA), the first of its kind for any shipboard firefighting training center in the United States. Of the firefighting school, Farrell says, “OPA 90 was a line in the sand. I could see what was coming down the road, and so we got involved with firefighting through our inhouse strike team. But there isn’t always a disaster to go and fight, so those personnel also teach at the school.” Where others look for economy of scale in equipment or waterborne platforms, Farrell looks to his personnel: “We call it ‘teaching potential clients how to not get into trouble.’ It is perhaps not helpful to the salvage bottom line, but it is the right thing to do.” Indeed.

The Environment First

In addition to its firefighting capabilities, Resolve’s commitment to the environment is manifested by being the named emergency vessel response company for approximately 40 percent of all oil tankers coming into U.S. waters (more than 4,800 vessels). There is even more to this commitment, however, and it is here

where “green” is most evident. Farrell – over the course of three decades – has redefined the limits of what is considered the role of a salvor. In 2006, Resolve created the world’s largest artificial reef after a two-year effort culminated with the sinking of the 910-foot retired aircraft carrier Oriskany in the Gulf of Mexico. “Reefing” is fast becoming a popular method of disposing of old ships, and Joe Farrell’s Resolve team is at the forefront of this effort, having sunk more vessels for artificial reefs than any other company. Farrell’s passion for the environment extends into many areas, including an innovative method of “reverse engineering” to counteract beach erosion. This goes hand-inhand with his coral reef restoration projects, some of which involve “triage on coral,” where his teams jump right into the remediation process as part of the salvage job itself. With permits from the state of Florida to do so, he reports, “We are seeing wonderful results with the process of growing coral.” It was also no surprise that Resolve Marine Group was well represented Y






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bunker profile at September’s “Wrecks of the World” (WOW) conference at MITAGS. For Joe Farrell, salvage is no longer just retrieving what has been damaged or lost; it involves saving the environment. Whether that involves wrecks full of oil, reefing, or restoring beach areas, Farrell will be in there swinging and probably spearheading the effort.

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Entrepreneurial Spirit: Growing Worldwide



In 2005 Ernst & Young named Joe Farrell “Florida’s Entrepreneur of the Year for Services.” But for Farrell, who started Resolve from the bridge of a salvage vessel as the owner-operator and developed it into a world-class salvage company, the journey has been anything but easy. “We’ve had to be frugal,” he insists, adding, “We put cash into equipment and people – not offices.” The strategy has served him well. The Resolve group of companies is still privately owned. This year, flying in the face of a severe recession, Farrell is taking the firm, formerly focused primarily on the Americas, global. In September Farrell reported that Resolve was expanding into a UK-based logistics center, with similar plans for Asia in the not-too-distant future.

Looking Forward: Limited Only by Time and Rooted Deeply in Family

Joe credits his success to “the good Lord above having a good sense of humor in keeping me around.” At 59, Farrell also laments, “I need to move faster to get all these things done.” Fortunately, he’ll have plenty of help. Blessed with what he characterizes as “the best people in the industry,” Resolve is also a family affair. Son Joey is a graduate of the Massachusetts Maritime Academy and has completed work on his Naval Architecture and Ocean Engineering degree. Of course, he also works for Resolve. A daughter, Summer Joe, is studying Marine Affairs at the University of Miami and, for the last two summers, has been tagging and releasing sharks in Bimini. Joe’s oldest daughter, Lana, will graduate as a nurse from the University of Florida next year. It is, perhaps, no accident that all have gravitated into fields that involve helping others. Today, Resolve has evolved into a multifaceted organization, offering a variety of cost-effective, safety response training programs as well as special marine projects through its subsidiaries, Resolve Salvage & Fire, Resolve Maritime Academy and Resolve Marine Services. Although still very much involved, Joe Farrell will tell you that Resolve is much bigger than its Founder. His 100 full-time employees (expanding as needed during big projects) include salvage masters, marine engineers, salvage divers, welders, and logistics coordinators. He told MarEx he has few regrets and many ambitions for what is to come. That much is obvious. Mar Ex


Build BunkerProfile

By MarEx Staff

Todd McKenna Partner, Glander International Inc. When MarEx wants to get a bit of “Kentucky windage” on the global fuels industry, chances are Todd McKenna, a partner at Glander International, is called. Why? Well, for openers, Glander is one of the oldest bunker brokerage firms in the world and McKenna, along with his partners, Michael Cammarata, Lawrence Messina, and Anthony Cammarata, is a seasoned executive strategically plugged into the highly competitive global fuel marketplace. A graduate of the U.S. Merchant Marine Academy with a degree in Marine Engineering (1988), McKenna joined Wartsila as a service engineer right out of school, a stint which included a nine-month training program in Finland. He sailed for Boston Carriers for a year before getting married. As he wanted to start a family, he took a job with New Sulzer Diesel as a service engineer before going to work at Chevron Marine Lubricants in sales. While he had enjoyed being an engineer, fuel brokering was a fast-paced, dynamic arena where he could use his engineering background and an engaging personality to succeed in what has become a highly competitive industry. It also provided him with a wealth of data about emerging trends in the petroleum and transportation industries, thereby making him a valuable source of information for vessel operators, suppliers, buyers, and a few of us in

the media. McKenna says the old adage that “sales is a people business” is truly understated. Being allowed to come out of the engine room and into the “light of day” has put him on the front lines of the global petroleum marketplace. He knows his business and his clients and, in today’s difficult economic times and roughand-tumble business environment, reducing an operator’s fuel costs is a feat not soon forgotten. Glander has its sensors on the pulse of the shipping industry and petroleum marketplace, negotiating, buying, and working closely with the oil majors and independent suppliers in providing marine fuels and lubricants for its clients. “We’ve been in business since 1961 because we buy right, control costs and solve problems,” said McKenna, who joined the company 11 years ago and has been a partner for the last six years. MarEx asked McKenna about the growing problem of emissions from ships and what the industry is doing about it. He responded that it is the single most important issue facing the fuel industry and that there is an all-out push to reduce sulfur oxide emissions. “The economic downturn has resulted in a six percent reduction in demand for bunkers from 2008. When you combine this with a 20 percent increase in available tonnage, C








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bunker profile standardization is only now being addressed. Legislatively, the feasibility and economics of establishing standards may be impractical to implement and even more difficult to enforce, but rigorous quality management by refiners will provide end-users a better basis for selecting the appropriate product and will better align all stakeholder interests.” Concerning the global recession, McKenna says it’s been a rollercoaster for bunker rates over the last few years. In 2007 and 2008 marine fuels were tied to the rising cost of crude oil. Around the world, ports were posting all-time highs in daily prices, and there appeared to be no relief in sight as crude raced to a record high of $147 a barrel in May of 2008 and Goldman Sachs predicted $200 oil within six months. Instead, the opposite happened. Oil prices tumbled as the credit markets collapsed, and the spread of the global economic recession drove bunker prices down as much as 40 percent from their 2008 highs. “The current global economic slowdown is projected to be more severe and, perhaps, longer than we expected,” said McKenna. “This will lead to further reductions in demand and cost, which will be good news for shipowners who faced huge increases in recent years. This is a tough recession. No one has been untouched by it, but there are Mar Ex better times ahead.”



it means there are a lot of idle ships out there. But we still have to deal with the reduction of emissions no matter what,” McKenna said. “The new regulations on bunkers will result in the use of seven types of fuel, defined in terms of sulfur content, over the next 20 years. Assuming the global cap on sulfur content is 0.5 percent, four residual and three distillate specifications will be used.” Additionally, he noted, “Compliance with IMO recommendations will mean a considerable amount of new investment and changes in operations. And this could turn into a fierce battle between refiners and ship owners as to which group will be required to make the investment. Beyond these two players are lawmakers and environmentalists, who will have a clear and unbalanced say about the specifications of the new marine bunker fuels.” About one-third of the world’s fuel oil production is used by marine diesel engines. The remaining two-thirds are used by power plants and heavy industry, whose massive furnaces are insensitive to variations in the quality of fuel oils. “Marine engines are much more vulnerable to quality grades and, most often, vessels have to take bunkers from the nearest refinery or distribution facility,” McKenna said. “It is evident there are no easy answers. Product quality management for fuel oil is in its formative years, and global

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Written by Larry Kiern, Winston & Strawn LLP

Washington Insider



Cosco Busan Guilty Plea Highlights Complacency and Bolsters the Case for Reform On August 13, 2009, the ship manager of the Cosco Busan, Fleet Management Ltd. of Hong Kong, pleaded guilty in federal court in San Francisco and accepted responsibility for the costly oil spill that polluted San Francisco Bay on November 7, 2007. Details disclosed in the company’s factual statement accompanying its plea agreement and the terms of the rigorous compliance program tell a cautionary tale and bolster the need for key marine safety reforms pending before Congress.

The Guilty Plea

Following almost two years of legal wrangling with prosecutors, Fleet Management found itself boxed in and pleaded guilty to two felony charges for false statements and obstruction of justice and a misdemeanor charge for negligent oil pollution in violation of the Clean Water Act. The company agreed to pay $10 million in monetary penalties and to implement an “enhanced” compliance plan (ECP). Fleet Management admitted fault because it failed to provide adequate training to the ship’s new captain and crew, who under the circumstances should never have gotten the vessel underway in the dense fog in the first place. They also failed to properly monitor the pilot’s naviga-

tion and misdirected him into the bridge tower. The pilot was previously sentenced to 10 months in federal prison after pleading guilty to misdemeanor charges of oil pollution causing the deaths of migratory birds. Importantly, Fleet Management also admitted to obstructing justice and lying to the Coast Guard investigators after the incident. C







A Cautionary Tale of Mismanagement


The company’s factual statement highlights its multiple material failures to ensure fundamental safe manning and navigation practices. Two weeks before the incident, the company changed out the entire crew without providing for a proper turnover. Only one crewman, the third officer, previously served on the vessel and worked for the company. The company provided the new crew no training on the critical navigational equipment and bridge management procedures for the vessel. Although the company initially assigned a deck superintendent with the new master and crew, he failed to verify that they were competent and skilled at operating navigational equipment and that they were complying with the company’s safety management system for navigation. On the morning of the incident,

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washington insider



the vessel’s master failed to exercise proper independent professional judgment in the interest of safety and simply deferred to the pilot’s opinion that the vessel should proceed despite the dense fog. According to the master, “he was concerned that if he caused an unwarranted delay in the ship’s departure and resulting expenses that he could suffer adverse personal consequences.” The master also failed to ensure that there was a proper navigational passage plan, including proper briefing and discussion with the navigational team before getting underway. Once underway, the master and crew left the vessel’s navigation to the pilot. They failed to perform the most basic navigational tasks, including taking fixes, monitoring the vessel’s progress, and warning of hazards. Then, to make matters worse, the master and pilot failed to communicate clearly about the location of the bridge tower – the critical object to avoid -- and the master directed the pilot right into it. This performance demonstrated both an astonishing level of complacency and a remarkable absence of situational awareness. Moreover, as a practical matter the Coast Guard failed to perform its basic marine safety responsibilities. According to the National Transportation Safety Board investigation, the agency failed to provide proper medical oversight to the licensed pilot and unambiguous information to the vessel about its proximity to the bridge tower. Thus, important systemic government safeguards were absent. The company’s statement further admits that immediately after the incident its key personnel lied to the Coast Guard and obstructed justice by presenting falsified navigation charts showing fixes that were never taken. “[I]n the month following the incident while the crew remained aboard the vessel, company representatives, including two of its superintendents, the master, and other ship’s

officers, concealed ship records and created materially false, fictitious, and forged documents . . . including multiple berth to berth passage plans.” No doubt this lying and obstruction of justice explain the heavy fine and the third-party oversight ordered in this case.

Congress, to mandate double-hulled fuel tanks, improvements to the Coast Guard’s vessel traffic systems, and real medical review for fitness of Coast Guard-licensed pilots to provide additional layers of safety.

The “Enhanced” Compliance Plan

As if there weren’t already enough ballast water regulations in the United States, the U.S. Coast Guard has belatedly reentered the regulatory quagmire. This year, as a result of the regulatory actions of key maritime states (California, New York and Michigan), allowed by the Clean Water Act, the Coast Guard’s longstanding ballast water exchange regime fails to provide uniformity. Faced with its own irrelevancy on such a key issue and the arrival of the environmentally proactive Obama Administration, the Coast Guard has issued a new proposed rule, which would adopt the short-term standards set by the International Maritime Organization (IMO) and employ ambitious technology-forcing standards long advocated by environmentalists to stimulate the development of new ballast water treatment systems. As recently as December 2008, the EPA emphatically rejected ballast water treatment systems in promulgating its Vessel General Permit (VGP) under the Clean Water Act. Following an exhaustive review of all the public comments, EPA concluded that “treatment technologies that effectively reduce viable living organisms in a manner that is safe, reliable, and demonstrated to work onboard vessels are not yet commercially available.” Recounting its review of multiple scientific studies, EPA emphasized that “[b]ased on an evaluation of such studies, requiring a numeric effluent limit for the discharge of living organisms is not practicable, achievable, or available at this time.” The Coast Guard charted a different course. It emphasized that

As part of the plea agreement, the company consented to ECP terms aimed principally at ensuring safe navigation. First, the company must designate a “senior corporate officer” as the “Corporate Compliance Manager,” charged with responsibility to “assure compliance” and “supplied with funds, support staff, and other resources . . . necessary to implement the ECP.” Second, the company must communicate to its personnel its “commitment to navigational safety” and “transparency in audits” while taking appropriate action, including dismissal, against employees hindering the plan. Third, the company must submit to additional audits by an independent third-party and reviewed by a court-appointed monitor. Fourth, the ECP mandates specific training programs aimed at key aspects of the company’s operation that failed, including command orientation, safety management, and the operation of electronic navigation equipment. Finally, the ECP requires specific certification and documentation of key navigational operations, including voyage planning and master-pilot communication and planning. The failure of our nation’s marine safety system to prevent the Cosco Busan incident illustrates that the existing safety management regime remains inadequate when a company treats it as simply a paper exercise and does not verify real compliance. Systemic failures like this underscore the pressing need for legislative reforms, such as measures pending before the

Coast Guard Wades Into the Ballast Water Debate


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ballast water treatment technology has been approved by the IMO and other governments that achieves the de facto short-term IMO standard, which it believes constitutes a significant improvement over the existing ballast water exchange regime. Thus, the Coast Guard’s notice differs from the EPA’s conclusion and is surely the result of a change in executive branch leadership, not science. What will prove challenging, even for the Obama Administration, is the Coast Guard’s proposal to adopt a “phase-two standard . . . that is potentially 1,000 times more stringent.” The Coast Guard notice acknowledges that its proposed phase-two standard mirrors the U.S.’s position before the IMO and “the more stringent standard established by several states” under the Clean Water Act. Therefore, having adopted the technology-forcing strategy, the outcome will ultimately turn on what is both technologically achievable and practical. Simply put, the proposed rule would set a deadline for vessels built before 2012 to meet the existing IMO standard by 2014-2016 depending on ballast water capacity. The Coast Guard would mandate phase-two compliance by a vessel’s first drydocking in 2016 unless a

vessel has complied with phase one, in which case it would have five years to bring its system up to phase-two compliance. Whether or not the more demanding phase-two standard will apply turns on the Coast Guard’s practicality review scheduled for 2013. The importance of this review cannot be overstated, especially considering the industry’s sad experience with the flawed and impractical oily waterseparator technology imposed by the MARPOL Annex I regime. The Obama Administration should coordinate this process by formally involving both the Coast Guard and the EPA so that the maritime industry does not face differing answers from each agency. It makes little sense for the Coast Guard to conduct this exercise only to have the EPA use its Clean Water Act authority to promulgate different standards. Moreover, if the Obama Administration could provide a unified position on the implementation of technology-forcing standards by 2013 based on systems that are practical, then key states that have unilaterally pressed for tougher standards might accede to the federal position. The result would be to restore greater uniformity to ballast water regulation in the United States.


Considering the new political reality in Washington, D.C., the maritime industry must redouble its efforts to verify compliance with safety and environmental standards. Otherwise, more embarrassing incidents may follow, thereby further damaging the industry’s reputation, even if the criticism is unwarranted. Additionally, the industry should engage proactively to constructively shape new regulatory programs, like ballast water treatment, so that those systems are practical and compliance can be readily achieved. Needless to say, practical solutions remain essential to compliance. Mar Ex

Larry Kiern is a partner at Winston & Strawn LLP, an international law firm of 900 lawyers. His practice concentrates on maritime issues, including legislative, regulatory, and litigation matters. Before joining Winston & Strawn, he was a Captain and law specialist in the U.S. Coast Guard who served as the Legislative Counsel and Deputy Chief of the Coast Guard’s Congressional Affairs Office.

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Shipboard Security and Vessel Defense


There are as many eyes focused on the problem of shipboard security and vessel defense as there are proposed solutions. Those interested in the problem typically have their minds set on specific models: Somalian piracy or maritime terrorism (the Cole incident). Relatively few consider the entire problem, which also includes civil unrest and civil threats. Advocates of maritime security efforts are intelligent people with the “greater good” in mind, but they often lose sight of the larger picture and pigeon-hole their views.

Fixation on Somalia


International Maritime Bureau (IMB) reports indicate that regional piracy in the Malacca Strait, Singapore Strait and

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South China Sea, as well as Somalia, is becoming more active. Yet the public remains riveted on Somalia alone. According to a recent report, two armed attacks took place off Nigeria and two more in the South China Sea. The 15 July 2009 report from the IMB states that piracy, worldwide, more than doubled during the first six months of 2009. Looking at methods for defense against piracy, too much attention is paid to the Somali model. Somali pirates use a different modus operandi than most pirates elsewhere. The Somalis prefer daylight, while most others prefer night. Somalis prefer light-colored vessels, while dark colors are common elsewhere. Somalis use mother ships, while most other attackers do not. We can accept this one-dimensional view from the news media and politicians, but we professionals must keep a broader perspective. When we talk of counterterrorism at sea, we hear about the USS Cole and the Achille Lauro. Both of these attacks resulted in the loss of innocent lives at the hands of extremists. However, the lessons learned, though many, are not all-encompassing. A devastating threat potential lies in the use of a captured vessel as a weapons-delivery system. As evidence of this, we cite the boarding of a VLCC, in which the attackers took the ship’s plans and wanted information on handling the vessel at sea but had no interest in docking it. They then left the ship otherwise untouched. Does this sound at all like flight lessons in Florida prior to 9/11? What would the result of such an attack be? In 1947 a nitrate-loaded ship exploded near Texas City, Texas. The explosion sank other vessels and completely demolished the harbor area, killing thousands. During World War II, in both Halifax and Vancouver, ammunition ships exploded, killing thousands. What would happen today if a terroristcontrolled LNG carrier sailed into Boston harbor? Think of a bioagent or chemical agent dumped or spread by aerosol from a captured vessel in New York harbor. If you think this cannot happen, recall just a couple of months ago when a vessel with a Russian crew of 15 was captured in the Baltic Sea and sailed undetected through the English Channel. She could have entered any number of key ports or commercial centers. Ships travel globally and must maintain security always and everywhere, even if a coastal state fails to do so. When rioters descend upon a harbor area, ships in the harbor must remain secure. The ISPS Code directs that three threat levels are available to meet the security needs of the maritime industry. Within this structure, the ship’s Master and the









marex-rhc-deepsea_203x276mm.pdf 23-9-2009 15:07:25













s e p tem b er / o ct o b er 2 0 0 9

oped kuhlman

Towards a Solution

Vessel security has seldom gotten more than rhetorical attention, and there is little true training or even the desire to elevate ship security and vessel defense to levels needed in today’s world. However, the IMO recently issued a circular, MSC.1/Circ 1334, which expresses, in ANNEX sections 19 and 21, the need for crew training and the training of law enforcement personnel assigned to marine



Port Facility Security Officer must agree upon the security level to be observed and who is to provide what security. Consider, however, the possibility that the Port Facility Security Officer may be incapable of meeting his obligations or may be dead as a result of being involved in a coup. What happens then? These risks from civil unrest are seldom discussed and virtually never effectively addressed. Hypothetically, a vessel six hours out of port may receive a communication that there is a bomb planted aboard by an irate stevedore. The ship’s crew must deal with this. One could say, “Muster the crew in a safe place,” but where is that safe place? Similarly, all vessels are supposed to search for stowaways prior to leaving port. Stowaways stow away for a reason. They can be extremely dangerous, even deadly.

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duties aboard commercial vessels. The circular mentions only antipiracy needs and ignores the other threat areas. In the U.S., Congressman Frank LoBiondo (R-NJ) has authored a Bill (HR 3376, The United States Mariner and Vessel Protection Act of 2009) requiring the training of crews and protection from liability of mariners who injure or kill an attacker in self-defense. These efforts reflect the mindset we need to resolve the real-world needs of shipboard security and vessel defense. We must consider all potential threats and train for them. Once this is done, we must equip and support our vessels accordingly. This is not an American problem. This is a global problem. To address it properly, international agreements should ensure that countries be mutually supportive of one another in their training and response programs. Mar Ex

Capt. Jeffrey L. Kuhlman, who currently works in Africa, is the originator of the Castle Shipboard Security Program in association with the Sig Sauer Academy. He has multiple degrees in business and education and extensive military and maritime training and experience. Member: USSA, IASCP, SSCA, and NRA.


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When Will Tanker Stocks Rebound? Despite persistent strength in crude oil prices, the stocks of companies that transport the stuff – and its derivative products – continue to flounder and have been all but given up for dead by most investors. And with good reason. Their prices have fallen faster than the overall market, and they have been slow to recover. Based on their latest earnings announcements, the prognosis is not

good. Worldwide oil demand is projected to decline for the second year in a row in 2009 and recover only slightly in 2010. The supply of new ships coming into the market continues at a record pace. Caught between falling demand and rising supply, freight rates – and tanker company earnings – have plummeted to their lowest levels in years. Time was, and it wasn’t so long

ago, when these companies and their stocks were riding high. The period from the beginning of 2003 to mid-2008 saw a massive increase in global trade. Container volumes soared, as did commodity prices and demand for all things made in China. Shipping companies responded by raising rates, building more ships, and tapping the public equity markets. Small, privately held companies, some

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Earnings Touched Bottom in the Second Quarter. The Third Quarter Could Be Worse. the action. Shipping had at long last become “respectable” as an investment option. It had come of age and was now one of the big boys, right up there with railroads and airlines, stocks to be taken seriously. Alas, those were the good old days and, from the look of things, they may never return. Caution and restraint are the new order of the day. “The core of our long-term strategy – conservative financial management and balanced growth – remains intact, and we have ample liquidity to manage the turmoil ahead and take advantage of opportunities as they arise,” stated Morton Arntzen, CEO of Overseas

Making the Most of a Bad Situation

s e p tem b er / o ct o b er 2 0 0 9

with as few as four or five ships, were coming to market on what seemed like a weekly basis, along with their bigger and better-financed brethren. They boasted margins of 50 percent and higher and promised outsized dividends. With freight rates on an uninterrupted upward path, they were literally coining money, and there seemed to be no end in sight. Their biggest problem was finding enough people to man their vessels. It was truly the Golden Age of Shipping, and for the first time there were enough companies to choose from and enough shares to go around so that everyone could get a piece of

Shipholding Group. Like several of its peers, OSG reported a second quarter loss. Sounding a similar theme, the CEO of Tsakos Energy Navigation, Nick Tsakos, noted, “Our objective remains to operate the fleet with the highest possible utilization rate, efficiently, cost-effectively and profitably.” Tsakos was one of the few companies to manage a profit in the period. “Ample liquidity,” “the highest possible utilization rate,” and the ability to “take advantage of opportunities as they present themselves” – these are the recurring notes in the survival mantra of CEOs in a radically reset world. Let’s look at each of them in turn.


Cash is king, the old saying goes, and so “ample liquidity” comes first. In the face of falling freight rates, comTHE MARITIME EXECUTIVE

s e p tem b er / o ct o b er 2 0 0 9




panies have cut back on expenditures, reduced costs, lowered their dividends, and cancelled or walked away from contracts for future vessel deliveries in an all-out effort to conserve cash. The falloff in freight rates has in fact been horrendous. Compared to a year ago, the decline has averaged, as measured by the Baltic Dirty Tanker Index, 66 percent. This is like cutting your income by two-thirds. How do you survive when that happens? For many companies, rates have fallen to the level of cash breakeven and threaten to decline even further. The anecdotal evidence is everywhere. Frontline, the biggest operator in the tanker space, reported rates for its VLCCs traveling from the Middle East to Japan had fallen by 53 percent between the first and second quarters of 2009 alone. Similarly, Suezmax rates for the West Africa – U.S. Atlantic Coast run fell by 52 percent.

Evidence that the rate of decline is accelerating is found in the fact that, more than midway through the third quarter, VLCC rates are down 74 percent from the year-earlier period. The situation is no different on the product tanker side. TORM, the leading product tanker operator, lost $33 million in the second quarter and forecast breakeven results for the full year. Its rates were down 51 percent from a year ago for its largest carriers and 33 percent for its smaller vessels. It noted that “a historically high number of newbuildings came into the market,” adding to the oversupply of vessels and putting further downward pressure on rates. As rates collapsed, vessel utilization became more important than ever, and those companies that relied more heavily on longer-term time charters rather than the volatile spot market seem to have fared best. This no

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doubt accounts for Tsakos’ continued earnings strength in a difficult market. Companies that previously relied heavily on the spot market – Frontline among them – have shifted their emphasis to period charters in an effort to achieve a balanced chartering strategy and, with it, predictable earnings. Utilization has been further boosted by the storage phenomenon, whereby tankers are being used in unprecedented numbers to stockpile crude oil inventories until such time as oil prices rise and the crude can be offloaded at a substantial profit. An estimated 10 percent (50 vessels) of the world’s VLCC fleet is currently employed as floating storage. A similar development is taking place in the CPP (“clean petroleum products”) market, whereby distillates – primarily diesel fuel – are being held in floating storage until market conditions improve. The third leg of the survival strat-

Chart 1: Tanker stocks COMPANY (Symbol)

Recent Price

YTD Change* Yield

Teekay (TK) TORM (TRMD) Nordic American (NAT) Tsakos Energy Nav. (TNP) Overseas Shp. Grp. (OSG) Frontline (FRO) General Maritime (GMR)

$19.42 9.66 29.50 15.96 34.48 21.56 7.72

-1% -11 -12 -13 -18 -27 -29

Sources: Barron’s, Company Reports.



egy, the ability to pounce when opportunity presents, would seem to be moot. While vessel values have fallen sharply, newbuildings continue to enter an already oversupplied market. Scrappings of older, single-hull tonnage have been slower than expected, nor has the expected bankruptcy of weaker companies occurred. There’s a long way to go, of course, and we’re not out of the woods yet, but the emphasis today is clearly on hoarding cash and maximizing vessel utilization. No one is spending money they don’t have to.

Bright Spots?

Okay, so why would anyone even consider these companies as investment opportunities? Well, for one thing they all pay attractive dividends. As seen in Chart 1, these range from five percent on the low end to 15 percent at the top. How safe are they? Well, most have already been cut in an effort to conserve cash, and it’s unlikely they’ll be cut again any time soon. Frontline cut its by half, General Maritime by 75 percent, Nordic American Tankers by 43 percent. The short-term prognosis is good. On the theory that these stocks have been beaten down enough and are due for a rebound, Capital Link Shipping’s Tanker Index is down 46 percent from a year ago and 16 percent year to date. Meanwhile, the Dow is up about 10 percent so far this year, and the broader S&P 500 is up 14 percent. Even the Dow Transports have shown life – up seven percent since the first of the year. None of the

6.6% 14.5 6.8 10.7 5.1 4.6 6.5

2009 EPS**

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stocks in Chart 1 has shown a gain in 2009, so maybe they are due. Looking at the broader economy, there are green shoots all around. The big hope, of course, is China, which is importing more and more oil from West Africa and Latin America and boosting ton-mile demand in the process. China is also expanding its refining and storage capacities as it seeks to satisfy growing domestic energy demand and provide a measure of security against shortages. Beyond that, the world is expected to show positive economic growth next year of about 2.5 percent, compared to a contraction of 1.4 percent this year, according to the latest IMF estimates. This is good news for oil demand and oil producers and should help boost tanker rates accordingly. Not convinced? Still have your doubts? Well, so do I. But that’s the challenge of investing. It’s fraught with uncertainty. There are right moves and wrong moves. “We outmistaked them,” deadpanned Florida State coach Bobby Bowden in explaining his team’s opening-game loss to Miami. And therein may lie the secret to investment success: Try not to “outmistake” yourself. MarEx Jack O’Connell, the senior copy editor of this magazine and a former maritime executive, is a private investor who may own shares in some of the companies mentioned in his columns. The views expressed in this column are his and his alone and are not in any way to be construed as investment advice.

S E P T E M B E R / O C T OB E R 2 0 0 9




Is at the Heart of This Global Salvage Power’s Success and Staying Power. By Joseph Keefe

As MarEx takes an intimate look at one of the world’s oldest and most recognizable maritime brand names, it’s tempting to talk about a lot more than just salvage. In fact, to talk about salvage in the context of SMIT’s involvement in the business also means having to include its other activities. That’s because SMIT’s integrated suite of marine services is organized into four Divisions: Harbour Towage, Terminals (including management services to offshore and onshore terminals), Transport & Heavy Lift and, of course, Salvage. With nearly 50 locations around the world, the integrated company that has earned a reputation for combining expertise and experience with high-quality equipment is also a well-known salvor. But how SMIT conducts business in that sector is inextricably linked to its worldwide services provided to shipping companies, producers in the oil and LNG industries, insurers, and a host of others. That’s a good thing for everyone – and, as it turns out – for SMIT’s bottom line too.


“While each Division remains a profit center, the synergies between them allow SMIT to keep a keen eye on the balance between steady and cyclical income. Unlike many other salvors, SMIT Salvage is able to take full advantage of its multidimensional service load. The result is a truly unique business model.”

(Continued next page.)



While each Division remains a profit center, the synergies between them allow SMIT to keep a keen eye on the balance between steady and cyclical income. Unlike many other salvors, SMIT Salvage is able to take full advantage of its multidimensional service load. The result is a truly unique business model. Main building panorama. Obvious synergies between Harbour Towage, Terminals, and Transport & Heavy Lift are easy enough to see, but for SMIT Salvage real economy of scale is achieved by knowing that the more than 400 vessels in the SMIT fleet are not wholly dependent on salvage activities. With virtually no overhead of dedicated salvage vessels (with notable exceptions), SMIT Salvage concentrates on positioning the right mix of personnel (250 full-time) and equipment in four salvage-specific “logistics centers” (Rotterdam, Singapore, Cape Town and Houston). Meanwhile, large ocean-going tugs between assignments will frequently take up salvage station while waiting for the next charter. At SMIT, this is called its “proven” strategy of “integrated marine services.” The SMIT global network, supplemented by an extensive array of service providers and strategic business partners, shows how an integrated strategy aids SMIT Salvage in its mission. In fact, all other SMIT employees support the Salvage Division in one way or another. Behind the scenes, for example, SMIT’s marketing people from the Harbour Towage Division will sell salvage services during business calls to various ship owners around the world. Arguably, SMIT

S E P T E M B E R / O C T OB E R 2 0 0 9

Integrated and Diversified

SMIT SALVAGE Salvage is today the world’s best-equipped salvor, providing global coverage for both emergency response and wreck-removal work.

S E P T E M B E R / O C T OB E R 2 0 0 9

Staying Power



One way of differentiating salvage companies from one another is their individual financial ability to settle disputes on the merits of the case – something that can take a long time in given circumstances. The settlement of a previous year’s work assignment more than twelve months after the fact can put a strain on the dedicated, standalone salvor. Not so at SMIT, where the flexibility and wherewithal to remain solvent until a settlement can be agreed upon rest on the backs of three other robust maritime divisions. Although SMIT Salvage’s management claims to remain currently busy with a good balance of high-quality wreckremoval and emergency-response work, this isn’t always the case. Nevertheless, the Salvage Division’s contribution to the total bottom line can be as high as 25 percent in a given year. According to Director SMIT Salvage Caspar Domstorff their first half 2009 profits were “exceptionally high, improving significantly on the 2008 result.” He added, “We are optimistic that our professional personnel, infrastructure and approach to the full spectrum of marine

salvage works will yield good results again this year.”

Experience: Deep in More Ways Than One

In a business where experience and know-how are everything, SMIT Salvage has few peers, especially in the executive suite. Caspar Domstorff joined SMIT in 2007 and became Director SMIT Salvage in 2008. Before that, he was owner and Director of GB Diving, which was acquired by SMIT in 2007. Caspar started his career in the maritime industry with an Antwerp-based international diving company specializing in underwater vessel maintenance and subsea repairs. With a diving background and knowledge of remote technology (ROVs), he worked with subsea companies in both technical and management roles. On the American side of the pond, Douglas Martin took a more circuitous route to the top of SMIT Salvage Americas, Inc. As an Unlimited Tonnage Master, Martin also boasts experience as a field engineer with underwater ROV/submersibles. In 1997 he left a career spent primarily on tankers to join SMIT. In a very short period of time he had risen to Salvage Master and, in 2008, assumed his current role with the firm. With a career that included a stop at MEBA’s Engineering School, where he served as an instructor and developed course curriculum for USCG/

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STCW certification courses, this SUNY Maritime graduate is as well-rounded as anyone in the business today. Both Martin and Domstorff remain dedicated to hiring proven maritime professionals and then training them inhouse for the specialty work of salvage. Having the luxury of drawing from within the diverse SMIT organization is an added advantage, as the concept of integrated marine services provides interesting career opportunities for employees, which in turn safeguards expertise within the SMIT group. Today, SMIT Salvage is a preferred destination for salvage professionals – and those who would like to enter the business as well. Martin told MarEx in September that, “To manage and control all aspects of these complex projects, it is mandatory that you know exactly who your people are, what their abilities are and what their competency and experience are.” That combination of ingredients lends itself to winning the most complex and difficult of assignments. SMIT’s recent portfolio of salvage work includes the MSC Napoli grounding and many recent projects like the Constanza M, a drifting tanker in the Black Sea; Vincenzo Florio, a RoRo ferry on fire in Italy; collision of vessels in Turkey; remotely operated deepwater oil recovery from the vessel Ice Prince in the English Channel; chemical tanker Maria M in Sweden;



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bulk carrier Full City in Norway; bulk carrier Austanger in Argentina; multiple cases in South Africa and Asia, etc., etc. At the moment there are ongoing complex wreck removals of drilling rigs and parts in the Gulf of Mexico supported by our sheerlegs Taklift 1 and in Qatar using our sheerlegs Smit Cyclone and a DPII saturation DSV outfitted by our SMIT Subsea department. Busy times for Smit’s global organization and flying squads all over the world.

SMIT’s 2007 acquisition of subsea/ROV contractor GB Diving was a key move in more ways than one. For one thing, it eventually culminated in Caspar Domstorff’s appointment to a top spot at SMIT Salvage, but it also brought a new dimension of expertise and equipment under the SMIT brand. Professional, in-house diving know-how, expertise and capacity are a necessity when operating on this scale, especially in salvage. Beyond this, however – and in keeping with SMIT’s integrated marine services strategy – the resources, when not in use for salvage, rarely lay idle. SMIT also provides a wide range of diving and subsea services for the oil and gas industry and for inland (civil) requirements. Included is the use of ROVs in deep ocean



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The very definition of salvage in 2009 is perhaps much different than what might have been the common perception of the industry just 20 years ago. Just as today’s successful salvor embraces an acute awareness of environmental concerns, so too has SMIT. It was therefore a natural fit for SMIT Salvage to enter into a joint venture in the United States with Donjon Marine Co., Inc. The joint venture company, existing for the sole purpose of providing the mandatory OPA 90 salvage coverage, is called Donjon-SMIT. Any assignment, whether working with Donjon-SMIT for an OPA 90-contracted marine casualty or on a SMIT Salvage job, involves working closely with the authorities to assure that they understand the safety aspects of any salvage operation as well as the associated risks. Caspar



“ The terms under which salvage is undertaken can be just as important to the environment as how well the job is performed. For example, SMIT Salvage mostly uses the Lloyd’s Open Form 2000 No Cure No Pay Contract for emergency response work. The Lloyd’s Open Form (LOF) has evolved over time to provide significant focus on the environment and the monetary value put on it. In the past, a tempting option for the salvor in the case of a questionable financial settlement might be to abandon the operation. ”



Domstorff goes on to say, “The salvage industry as a whole is an environmentally aware and sensitive industry. As such, it is important that the efforts of salvage to protect and save the environment are recognized.” The terms under which salvage is undertaken can be just as important to the environment as how well the job is performed. For example, SMIT Salvage mostly uses the Lloyd’s Open Form 2000 No Cure No Pay Contract for emergency response work. The Lloyd’s Open Form (LOF) has evolved over time to provide significant focus on the environment and the monetary value put on it. In the past, a tempting option for the salvor in the case of a questionable financial settlement might be to abandon the operation. Caspar Dormstorff explains, “Over time, a number of modifications have been added to the LOF to encourage salvors to continue with their efforts when the salvage fund may be insufficient to cover costs. In fact, Article 14 and/or SCOPIC are geared towards the protection of the environment and not towards the traditional ‘no cure, no pay’ principles.”

Global Reach

MarEx put Caspar Domstorff on the spot when we asked, “Can anyone else in the international salvage game match the breadth and numbers of SMIT’s equipment and personnel?” Without hesitation he responded, “We feel that not to be the case.” Coming from another source, that kind of attitude might be viewed as bravado. On the other hand, SMIT’s network within the group connected with the strategic positions of unique salvage logistics centers provides ample meat to that kind of claim. Ultimately, the far-flung logistics centers provide the foundation for SMIT Salvage to be a truly global organization. SMIT’s global reach extends beyond mere numbers of personnel and equipment stacked in a warehouse. Douglas Martin adds, “Being a global organization requires far more than geographical placement. The commitment to culture and embracing differences is a major factor to success.” This, combined with the backing of the SMIT “integrated marine services” philosophy, makes it difficult for other, standalone salvage firms to compete on a level playing field. That said, Domstorff insists, “There will always be competition and that is a healthy situation whether we are competing with global competitors or local salvage companies. We take that challenge seriously.”

Changing Salvage – For the Greater Good

If the days of “pirate” salvage operations are not yet over, then their days are certainly numbered. No one understands this metric better than two of SMIT Salvage’s top executives. The effort by SMIT to separate its salvage profile from the perceptions of the industry’s past is yielding dividends. Good for the environment and conducive to safety, the policy is also paying off at the bank. Says Martin, “We recognize the views of our clients and their needs and we devote considerable effort to exposing them to our business needs as well. Confidence and respect between parties to believe the other will act fair and reasonably is our goal.” Care of the client at SMIT takes many forms. SMIT’s clear spokesperson policy when it comes to media involvement is a perfect example. There are many large salvage cases in which the mainstream population will never know SMIT is involved. And, well aware of the difficulties facing a particular client in a crisis situation, the group’s Corporate Communications Department works hand-in-hand with the client to guide them through the process. The ultimate goal is to develop a lasting relationship with the client and not just a short-term one way “win.” Perhaps what sets SMIT Salvage apart from all others is its formidable stable of dedicated resources and professional salvors. In a business where size does matter, what one does with those resources is equally important. As such, and while SMIT boasts of its integrated company approach, that philosophy does not lend itself to renting out its salvage kit to others or using it for anything other than what it was intended for. SMIT salvage teams and equipment leave the logistics centers for one purpose: to perform salvage. The spirit of yesterday’s salvor is alive and well at SMIT. That being said, this professional salvage company is not the risk-taker of yesterday. Instead, calculated but wellassessed risks – all involving a clear view of the competitive pressures playing a role in the form of the contract offered, comprehensive SHE-Q issues, politics, weather, environmental concerns, and new or proven technologies to be utilized – are the decision tools of today’s SMIT Salvage. SMIT, the global salvage company since 1842, wouldn’t have it any other way. MarEx


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Director SMIT Salvage

Douglas Martin President & General Manager SMIT Salvage Americas

ollow along as the leaders of a global salvage giant explain what makes SMIT

Salvage a truly international player in perhaps the most interesting, if not the most dangerous, game in the maritime industry. SMIT’s success is unquestionable and, as MarEx readers will discover, none of that happens by “accident.” MarEx: You joined SMIT Salvage in 2007 and became Director in 2008. Before that, you were owner and Director of GB Diving, which was acquired by SMIT in 2007. Talk a bit about the importance – the role, if you will – of diving in the business of salvage. Caspar Domstorff: I have been in the subsea and maritime industries since the mid-1980s and have been working with SMIT as a subsea contractor and in other roles for many years. We knew each other very well, and the acquisition rapidly expanded SMIT’s diving and ROV capabilities. Although diving is not required for all salvage operations, professional in-house diving know-how, expertise and capacity are a necessity when operating on this scale. As a worldwide maritime service provider and salvage/subsea contractor, SMIT has a wide range of different diving disciplines, covering services for the oil and gas industry, inland (civil) requirements and, of course, salvage. Professional salvage and subsea operations require an in-house commitment to the highest industry standards, the latest technology and professional training.

MarEx: Your career path thus far has been an interesting one, spanning the full range of maritime disciplines, both ashore and afloat. What took you ultimately to the salvage game to stay? Douglas Martin: In 1980 I was a cadet aboard the T/S Empire State when we made a port call in Rotterdam. When heading ashore there, I was amazed by the sight of the salvage tug Smit Rotterdam. The tug was nearly as big as our training ship. We had the good fortune of meeting the tug’s crew and they regaled us with sea stories of salvage. I thought to myself, “How can anyone ever have the experience to get into this line of work?” Some 16 years later, while at sea, I received mail from my wife which included a SUNY alumni newsletter. In the letter there was an advertisement for a SMIT Apprentice Salvage Master. Prerequisites included a Master’s license, engineering degree or background, ROV/underwater experience and a host of other requirements – all of which I had. Recalling my Smit Rotterdam experience, I then started the application, interview and hiring process. It was not an easy decision to leave the mountains of Vermont for the suburbs of Houston, but the opportunity to

SMIT SALVAGE MarEx: Salvors can experience high “inventory” and fixed costs when there is no work to be had. This can cause problems for a one-dimensional company. SMIT has many other business lines. Talk about the economies of scale that this can provide and, if applicable, the business advantage it can create for SMIT. Domstorff: We adhere to the fundamental principle that each Division must independently be a good business unto itself. That said, to ignore the synergies and interdependence between the Divisions would be shortsighted. Obviously, the salvage business is unpredictable by nature and therefore the advantages of our multidimensional company definitely provide us with a unique business model. One of the “powers of SMIT” is the ownership of over 400 vessels that are not dependent on salvage activities to validate their existence. SMIT Salvage therefore can provide service without taking on the overhead of dedicated salvage vessels. Dedicated station salvage tugs have become nearly obsolete with the exception of government sponsored ETVs (Emergency Towing Vessels). Today’s commercial salvage tugs are vessels of opportunity. Between assignments, our large ocean-going tugs will frequently take up salvage station while waiting for the next charter. MarEx: Salvage terms have, in the past, been done by some on a “no cure – no pay” basis. Is that still the case with most

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work with the global leaders in the marine salvage industry was an opportunity I could not pass up. The rest is history. MarEx: The SMIT group of companies covers a wide range of activities. This interview centers chiefly on SMIT’s salvage activities. What percentage of your total business do salvage revenues represent today? Also, the first half 2009 profits of this Division were exceptionally high, improving significantly on the 2008 result. Some of this is due to “settlement of previous year’s” work. Do revenues typically lag this far behind the time that work is actually done? Domstorff: By nature, salvage is unpredictable and therefore varies in workload as well as turnover and profit. It is therefore difficult to predict from year-to-year, but we generally estimate that the contribution of our salvage activities ranges between 10 and 25 percent of the total SMIT group. As for your second question, one of the attributes that differentiate salvage companies from one another is the financial resources and stability to settle cases on the merits. This can take some time for complex, unusual salvage cases. This is not unusual, but quick settlement is not unusual either. The salvage industry requires flexibility and, when necessary, the wherewithal to remain solvent until a settlement can be agreed upon. Most cases are settled quickly and amicably. Today, we remain busy with a good balance of high-quality wreck-removal and emergency-response work.

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salvage operations? How does SMIT typically structure its salvage contracts? Domstorff: We mostly use the Lloyd’s Open Form 2000 No Cure No Pay Contract (LOF) for emergency-response work. The evolution of the LOF is very interesting, especially with regards to the “No Cure, No Pay” format. The biggest difference between today’s LOF contracts as compared to the past is the significant focus on the environment and the monetary value put on it. For example, if a ship, cargo and bunkers were significantly contaminated by sea water, the salvage fund from which an award would be based might not cover the cost of the salvage operation, making it a tempting option for the salvor to abandon the project. Over time a number of modifications have been added to the LOF to encourage salvors to continue with their efforts when the salvage fund may be insufficient to cover the costs of the operation. These forms of encouragement, geared towards the protection of the environment, are not based on traditional principles. However, the true “No Cure - No Pay” principle is alive and best represented by cases where a crew abandons ship on the high seas and a full salvage effort is mobilized to save the ship. Which contract we would favor depends on the individual situation. In summary, we strive to have a clear view of all the risks involved, including operations, politics, weather, environmental concerns, new or proven technologies

to be utilized, and whether or not the project fits our profile. MarEx: Talk about SMIT’s “proven” strategy of integrated marine services. Give us an example of that concept in action. Martin: Sure. Last week a bulk carrier ran aground in the River Plate in Argentina. The vessel required tug attendance, lightering and refloating. A salvage team from Houston joined vessels from SMIT Harbour Towage Argentina and local partners to execute the salvage operation. SMIT Harbour Towage Argentina provides harbour towage services, but when marine casualties occur they immediately become our eyes on the ground, informing us of the casualty and assisting our teams arriving in country. Local operating companies have the knowledge and contacts to liaise with local government agencies. With many worldwide salvage locations, supported by dedicated sales organizations in London, Greece, Japan, Brazil and Korea, a global network and strategic business partners, our integrated marine services make SMIT Salvage the best-equipped salvor to provide global salvage coverage for both emergency-response and wreck-removal work. Beyond this, SMIT employees enjoy the possibility of diverse and interesting career opportunities, which keeps the expertise within the SMIT group. MarEx: Let’s compare the overall size of SMIT’s salvage activities to that of other operators. How many dedicated

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salvage employees do you now have, how many offices and where are they located? Domstorff: Our main salvage offices with warehousing facilities are located in Rotterdam, Cape Town, Houston and Singapore. In addition, we have our commercial representative offices in key markets. While about 250 employees are dedicated to the Salvage Division, all other SMIT employees support this Division when necessary. Our marketing people from the Harbour Towage Division sells salvage services, and the Transport & Heavy Lift Division provides similar operational synergies. MarEx: The total SMIT fleet is comprised of more than 400 vessels. How many of these are dedicated to the Salvage Division? Do you regularly deploy these assets as necessary across different lines of business? Domstorff: The Salvage Division does not have dedicated floating assets. Our focus is on dedicated salvage personnel, portable salvage equipment, innovation and business development. With that said, the Salvage Division does have some dedicated floating assets, but these are confined to units such as our 1,000-ton lifting capacity crane barge Smit Cyclone, stationed in Singapore. Our business lends itself to charter opportunities across business lines. We call this “Fit for purpose, the best tool for the right project.” As such, we consider these intercompany relationships to be very important. MarEx: Your four international “logistics centers” are unique to the Salvage Division. Talk about the capabilities of each and why they are so essential to your operations. Martin: Our unique logistics centers provide the foundation for SMIT Salvage to be a truly global organization, which requires far more than geographical placement. Hence the commitment to culture and recognizing and embracing differences is a key factor in our success. There will always be competition, and that is a healthy situation whether we are competing with global competitors or local salvage companies. Others consider us the ones to beat. We take that challenge seriously, but no one else in the international salvage game can match the breadth and numbers of SMIT’s equipment and personnel. MarEx: In the traditional role of the salvor, operators have not always been receptive to a profession that is sometimes a necessary but unwelcome cost. How has the role of the salvor and its relationship with the maritime industry evolved over the years? Martin: At one time, salvors and pirates were closely associated. In today’s sophisticated financial climate, we strive to differentiate ourselves from this image. As marine casualty responders, we believe that professional salvors are the first line of defense. We did not cause the incident; we are there to help. Sometimes this seems forgotten. We maintain dedicated, highly trained personnel and equipment resources immediately available for marine casualty response. That is one of the major differences between professional salvors and opportunity-based companies. Our global offices and warehouses have significant resources of equipment and personnel, which depart only when

they are enroute to a salvage case. MarEx: Salvage and wreck removal are the staples of the trade, but the environmental benefits of all of this sometimes get lost in the mix. Tell our readers about SMIT’s environmental initiatives. Domstorff: It is critical that the efforts of salvage to protect the environment are recognized. Presently, there is a committee working on an environmental salvage component to the Lloyd’s Open Form agreement. Most parties agree there is merit in these efforts, but this is a work in progress. From the salvage perspective, the goal is to keep pollutants in the ship. Where pollutants do enter the environment, the Oil Spill Response community comes into play. That said, the first line of defense for the environment is salvage. In sensitive areas involving coral and grasses, when ships run aground, salvors must pay particular attention to the manner in which they refloat the casualty so as to avoid additional damage to the environment. For example, we had a case where a cement ship went aground on top of a coral reef. The ship was at risk of breaking up and we lightered the cargo through a complex salvage solution and the ship refloated as quickly as possible. No additional coral damage was realized, but this involved the understanding between salvors and government environmental agencies to proceed with the refloating if salvors needed to “pull” the ship, even if it meant additional damage to the reef. This was permitted for the greater good, in order to prevent the breaking-up of the casualty. In this case, no additional reef damage was realized. MarEx: The U.S. Coast Guard defines marine safety, which is critical to any salvage operation. Talk about parallels there and how the Coast Guard interacts with salvage operators especially yours. Martin: In the U.S., regulations require certain ships trading in U.S. ports to have named salvors in the Vessel Response Plan. There, SMIT has a joint venture with Donjon Marine Co., Inc. Donjon-SMIT exists for the sole purpose of providing OPA 90 salvage coverage. Both Donjon-SMIT and SMIT Salvage work closely with the U.S. Coast Guard and other similar groups around the world – assessing, defining, and ultimately assuming the necessary risks in a responsible manner. Salvage is not a “daredevil” activity. Any operation will have an assigned risk factor, a severity factor, and a mitigation factor. These factors go into formulae to determine whether any operation – using risk-analysis tools – is prudent to undertake. This is the key to creating “buy in” by regulators, clients, concerned parties and, last but not least, SMIT management. MarEx: Tell our readers about your toughest, most highprofile and memorable salvage jobs. Domstorff: Sure. Our most recent high-profile case was certainly the LOF case of the MSC Napoli. In this case, significant media attention and technical challenges were encountered. A number of years earlier, Doug was the salvage master during the emergency response aspect of the New Carissa casualty in Oregon, which involved round-the-clock, live news coverage

SMIT SALVAGE effective communication with the client and the media. Give us SMIT’s philosophy on media relations during the course of an assignment. Martin: SMIT has a very clear spokesperson policy. And as appealing as it may be to have a moment in the spotlight, this can easily be to the disadvantage of our client. We are extremely conscious of the difficulties faced by our clients and the potential repercussions that unnecessary statements can cause. Typically, necessary statements are made through our Corporate Communications Department, but never without direct consultation with the client. MarEx: Salvors have been referred to as “risk takers” by nature. Is that not the very definition of yesterday’s salvor? Talk about your visions for tomorrow’s salvors and specifically SMIT’s place within that vision. Domstorff: The spirit of the salvor is alive and well. That said, the properly equipped and well-managed salvage company of today can rapidly assess any complex situation and respond with smart solutions and fast decisions. Some of those include – from time to time – calculated but well-assessed risks. This is how we – SMIT, the global salvage company since 1842 – would like to be recognized in the world. MarEx: Thank you both for your time and a very informative look at SMIT and the world of salvage. MarEx


during the critical days. One of the most difficult cases was the wreck removal of the Global Mariner in the Orinoco River of Venezuela. In this case, we were very concerned about the safety of the divers. All of these cases were challenging and involved issues and events that we will never forget. MarEx: The American Salvage Association and the International Salvage Union – along with a host of others – sponsored the recent “Wrecks of the World” Conference. The event explored issues related to 8,500+ sunken vessels around the globe. As a member of both ASA and ISU, tell us why this is particularly important and how SMIT fits into the effort. Domstorff: The WOW Conference is clearly a step in the right direction. The risk of major pollution from any one of these many wrecks is very real, and SMIT has been at the forefront of this issue for many years. Unfortunately, funding has largely been available on an emergency basis only. It is our hope that a systematic program of removing oil from wrecks will eventually be established. After a detailed cost-benefit analysis, we would like to see governments sponsor the removal of oil from wrecks on a non-emergency basis, starting with those identified as having the highest pollution potential. MarEx: In any salvage operation, the ability to get the job done is only one part of the equation. Another key aspect is



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18-8-2009 9:20:14

Maritime claims

By Philip C. Brickman

s e p tem b er / o ct o b er 2 0 0 9

Maritime Claims in Uncertain Economic Times



Phil Brickman, attorney and partner with the law firm of Fowler Rodriguez Valdes-Fauli, weighs in on the complex issues of obtaining security for judgments, unpaid invoices and other maritime claims in uncertain economic times, as well as on recent developments in Supplemental Rule B Maritime Attachments. The uncertain state of the world economy has created a rising need for maritime businesses to utilize procedural tools available under U.S. maritime law to obtain security for past due invoices and broken charter parties, collect unpaid freight, and secure arbitration awards. The Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (“Supplemental Rules”) provide maritime businesses with the unique ability to monetarily secure these claims. Recently, the U.S. Federal Courts have rendered opinions addressing the attachment of electronic funds transfers (EFT) in intermediary banks, seizing assets of corporate alter egos, and setting standards for reducing the amount of attached assets.

Supplemental Rule B

Supplemental Rule B is a procedural mechanism by which jurisdiction is obtained over a foreign entity that has no presence in a particular judicial district by attaching its property as it passes through a particular district in the stream of commerce. Rule B applies to in personam actions only, as opposed to in rem actions, for the enforcement of maritime liens against a vessel itself. A plaintiff seeking attachment must demonstrate that (1) it has a prime facie admiralty claim, (2) the named defendants cannot be found within the federal judicial district, (3) the attached defendants’ property is within the district, and (4)

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there is no statutory or maritime law barring attachment. Attachments are typically challenged on the grounds of (1) failure to state a prima facie maritime claim, (2) the property at issue is not subject to maritime attachment, and (3) a defendant is “found within the district” for purposes of Rule B attachment.

Electronic Funds Transfers

The practice of attaching EFTs being routed by foreign banks through New York financial institutions has increased dramatically in recent years. In attaching an EFT, a plaintiff encounters unique issues particular to the nature of that asset. Because an EFT is sometimes an instantaneous transaction, attaching parties have become creative when serving process on the garnishee (i.e., financial institution) to ensure seizure of the asset. In addition, there are legal impediments to attaching property acquired after the garnishee order has been served with process, so the timing of attachment is critical. A plaintiff must sufficiently allege in the complaint that a defendant’s property will be in the hands of garnishees at the time it is served with the writ of attachment. In a recent New York Federal District Court case (Cala Rosa Marine, Co., Ltd. v. Sucres, 613 F. Supp. 2d 426 (S.D.N.Y. 2009)), the Court addressed an attaching party’s request for continuous service. The plaintiff was seeking to secure a claim arising out of a breach of charter party. Included with the required pleadings was a proposed attachment order that contained a provision for continuous service of process and also that the process would be effective on the garnishee bank throughout the remainder of the day upon which service is made and continuing to the next business day. The plaintiff also requested that the Court appoint a special process server, along with the U.S. Marshal, to serve the attachment order and any supplemental process on the garnishee bank. This would allow the plaintiff to attach the defendant’s EFT funds that arrived after process had been initially served. Without continuous service, it would be practically impossible to attach EFTs.

Maritime claims is registered with the New York Department of State and is found within the district for purposes of Rule B, then the alter ego corporation is also not subject to maritime attachment because it too is found within the district.

Reduction of Security

The Second Federal Circuit recently considered the standards that should be applied when reducing the amount of maritime attachment under Supplemental Rule E. During the course of a dispute, a claim may be reduced, possibly resulting in a reduction of security. District Courts have discretion to make a preliminary assessment of the reasonableness of a plaintiff’s claimed damages when setting security. The Court should be satisfied that the plaintiff’s claims are not frivolous but should not require the plaintiffs to prove damages with exactitude. In Transportes (Transportes Navieros y Terrestres v. Fairmount Heavy Transport, 2009 U.S. App. Lexis 13394 (2d Cir. 2009)), the plaintiff sought over ten million dollars for damages arising from an alleged cancelled charterer party and lost net earnings under that charter party. In assessing the defendant’s request to reduce security, the Court noted that the plaintiff’s damages were unreasonable and reduced the security to an amount it was more likely to recover.

Alter Ego

Federal Courts recently addressed the issue of whether a corporate alter ego or parent company is considered “found within the district” for purposes of Rule B. In a case from the Second Federal Circuit, the plaintiff sought a writ of attachment against two defendants. One defendant, ICI, was a party to a charterer agreement with the plaintiff and also registered with the New York Department of State. The other company, Weaver, was not registered as a New York corporation but was alleged to be the corporate alter ego of ICI. Weaver filed a motion to vacate the attachment on the grounds that if it was not the alter ego of ICI, then there would be no prima facie maritime claim against it; or, alternatively, if Weaver was the alter ego of ICI, then Weaver would be considered “found within the district” because ICI was registered with the New York Department of State. The Court held that if a corporation


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In its opinion, the Court noted the Second Circuit Court of Appeals’ decision in Reibor (Reibor International Limited v. Cargo Carriers Limited, 759 F.2d 262 (2d Cir. 1985)), which prohibits attaching after-acquired property, meaning that a plaintiff cannot attach property that was not in the hands of the garnishee at the time the attachment order was served. The Court elected to follow New York State law and concluded that a garnishing bank may consent to continuous service, but a court cannot require continuous service because it may result in disruptions in commerce. The U.S. Second Circuit Court of Appeals has determined that EFT funds remain the property of the originator while in the hands of an intermediary bank and, therefore, are subject to a Rule B maritime attachment. The Court affirmed that EFT funds are an asset subject to maritime attachment, which is consistent with traditional admiralty principles that Rule B can provide for jurisdiction over defendants where its assets can be found, instead of requiring a plaintiff to search the globe for delinquent debtors. To properly attach EFT funds, the plaintiff must set forth enough facts to render it plausible that a defendant’s property will be in the hands of the garnishee at the time the writ of attachment is served. In Peninsula Petroleum (Peninsula Petroleum, Ltd. v. New Econ Line Pte., Ltd., 2009 AMC 643 (S.D.N.Y. 2009)), the attaching plaintiff’s petition lacked sufficient specificity to show that it would be plausible that the defendant’s property would be in the hands of the garnishee at the time the attachment order was served. The Court denied the plaintiff’s motion seeking a writ of attachment for failing to allege the required specificity and instead showing “little more than a speculative hope that the defendant’s assets, in the form of EFTs, will fortuitously appear” in one of several financial institutions. A plaintiff must show the Court that there is a likelihood that certain funds will be in the hands of specified banks at a specified time.

Maritime claims Attorney’s Fees

september / october 2 0 0 9

Attorney’s fees may sometimes be awarded if the defendant is successful in vacating an attachment. In a case decided in the Southern District of New York, a marine terminal operator had provided prior services to a vessel and sought to attach the vessel owner’s assets in New York for failure to pay past due invoices. The vessel owner directly asked the plaintiff to vacate its attachment, citing a bareboat charter party that had been in effect between the head owner and charterer. A bareboat charter serves to shift all responsibilities for costs incurred from the head owner to the charterer and, therefore, there is no claim against the head owner for breach of charter party by third parties that have subsequently contracted with the charterer. Despite the bareboat charter agreement, the plaintiff refused to lift the attachment. Thereafter, the head owner moved to vacate the attachment. The Court ruled that the bareboat charter prevented the plaintiff from sustaining a

valid prima facie case against the head owner and vacated the attachment. Attorney’s fees were awarded to the head owner because the attaching plaintiff refused to release the attached funds after being informed of the existing bareboat charter.


Rule B attachment remains a very effective tool by which companies can obtain security for unpaid invoices, ongoing arbitration disputes, judgments or other maritime claims. However, businesses seeking attachment must be certain that all requirements for maintaining the attachment are satisfied and that the methods of a particular attachment will ensure that the desired security will remain in place. In some cases courts may award attorneys fees upon vacating wrongful or deficient attachments, particularly when the attaching party has been informed of the deficiency but refuses to release the asset. Mar Ex

Philip C. Brickman obtained his law degree from Tulane University in 1998. He has practiced all aspects of maritime and environmental law, representing major international and domestic marine, liability and energy underwriters, members of the international group of protection and indemnity associations, vessel owners and energy companies. In addition to maritime and environmental law, he is experienced in commercial and general casualty defense litigation. Mr. Brickman has extensive personal experience in investigating major shipping casualties, pollution incidents, stowaway attempts and drug smuggling onboard cargo vessels.



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Protecting the Supply Chain World commerce will continue despite the threat of terrorism and the reality of a global downturn – but only with the help of emerging new technologies. If containerized traffic is the lifeblood of the global economy, accounting for 90 percent of world trade, then protecting that commerce should be JOB 1, even in the middle of the worst worldwide recession since the Great Depression. Here in the United States, there are 361 ports that receive as many as 11 million containers annually carrying $600 billion worth of goods. And that doesn’t even account for the associated tanker, LNG, breakbulk and cruise ship throughput sharing the very same piers. Although there are some who think that the dual national priorities of making ports and container traffic safer while facilitating the efficient flow of goods are mutually exclusive, by definition, nothing could be further from the truth. In simple terms, two events are mutually exclusive if they cannot occur at the same time and have no outcomes in common. Today, protecting ports and the commerce that flows through their intermodal hubs involves various challenges. These fall into four broad categories: vessel, cargo, people and infrastructure – with the additional variable of time. In today’s world, moving goods while ensuring a high level of security involves 21st century technology that provides immediate alerts of security breaches, wirelessly, virtually anywhere, anytime. Inextricably connected – and growing – supply chain management and security issues will dominate port management for the foreseeable future. A


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central notion is therefore emerging: Improving security can happen at the same time as the smooth flow of legitimate cargo. A key to making that happen will be technology.

Real Solutions Involve Quality, Real-Time Data

SaviTrak™ is a managed information service where customers “pay by the drink” for near real-time information on the location, security status and condition of the products inside the container. Savi Networks, a Lockheed Martin joint venture with Hutchison Port Holdings, utilizes all types of automatic identification and data collection technologies (such as GPS, RFID and cellular) to provide a network for monitoring international cargo shipments. Savi Networks uses e-Seals with mechanical locks and electronic detection capabilities. Neil Smith, CEO of Savi Networks, argues that “by integrating GPS-based, real-time cargo location and security information into a Web-based intelligence service like SaviTrak™, we’re responding to the critical need to monitor, manage and secure shipments around the world, efficiently and economically, through the most advanced tracking system available.” Smith bills SaviTrak™ as an easy-to-use, affordable turnkey service that enhances existing systems, providing all authorized participants a common view of the supply chain in real time.

Real Threats: High-Tech Solutions

The threats posed by radiological weapons of mass destruction, or a nuclear weapon arriving through the intermodal commerce system, are sobering and very real. Numerous U.S. federal agencies, led by DOD, DOT (especially TSA) and DHS, are spending massive sums to increase surveillance and improve detection capability. A variety of companies have developed technological solutions that aim to fill the gap. California-based Textron Defense Systems (TDS) answered the call by developing the Adaptable Radiation Area Monitor (ARAM). ARAM provides a state-of-theart solution to monitoring what the company calls “the


Smaller Players Introduce Their Own Cutting-Edge Solutions

become transparent; the user simply requests image data from some vantage point relative to the ship or port. The system should launch, direct, recover and recharge helicopters without any human interaction. With an automatic launch station and, say, four helicopters, continuous ISR coverage would be possible. Vehicle replacement cost is low (less than $15,000), and the three-to-five-pound vehicles pose minimal risk to ships and personnel. One firm thinks it has a promising candidate for this type of operation. Henrik Christophersen, CTO and VP of Business Development at California-based Adaptive Flight Corp., says, “Helicopter guidance technology has come a long way in the last decade. Adaptive Flight’s Hornet UAV is commercially available and has proven itself a promising candidate for close-support maritime ISR applications.” Christophersen admits that “some work remains on the horizon.” This involves development of stationary, fully automated VTOL UAV launch-and-recovery stations (Adaptive Flight calls it the “Hornet’s Nest”). He adds that while these stations may be only a couple of years away, the task of autonomously landing a helicopter on a ship in heavy seas still poses a challenge.

RFID: Still Viable, Still Developing

Northrop Grumman’s Manager of its Automatic Identifica-

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The big companies are not the only solution providers, and expensive systems are not the only technological alternatives. Inexpensive and lightweight Unmanned Aerial Vehicles (UAVs) have the potential to support a wide range of safety- and security-related tasks on, and around, ships and ports. And now these applications may extend to preventing and predicting piracy attacks at sea. UAV applications for maritime security are likely to focus on providing real-time aerial video and situational awareness for crew and port personnel in charge of navigation, operational safety and security. Like a joystick-guided seagull with a video downlink, the UAV becomes the eye-inthe-sky, which can be commanded to fly high above a ship maneuvering into a crowded port, directed to inspect an approaching skiff in pirate-infested waters, or used by port security personnel to take a closer look at a new arrival. The UAV is billed as being easy to launch and recover from the ship, yet robust enough to operate in adverse weather and demonstrate 3D-agility as it maneuvers within a few feet of any “target of interest.” To design a robotic seagull is probably still beyond our capabilities, but small helicopters offer a suitable alternative. Small, unmanned autonomous helicopters offer many advantages over fixed-wing UAVs (airplanes) for closesupport maritime applications, known simply as “Intelligence, Surveillance and Recon,” or ISR. Helicopters perform well in adverse weather and the Vertical Takeoff and Landing (VTOL) capability make them suitable for complete hands-off operation from a ship or port. This is particularly true for electrically powered helicopters. UAVs

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natural flow of commerce without interruption.” ARAM is a spectroscopic monitoring system designed to detect and identify concealed nuclear/radioactive material in real time. ARAM is adaptable: It can be configured for fixed portal deployment (called RadPort), mobile and portable applications (RadTruck), and a man-portable backpack (RadPack). ARAM is currently in use in a variety of applications including port security and border crossing. “There is great demand for reliable and versatile monitoring systems at U.S. and international ports and other strategic sites. The focus is to protect against the potential terrorist threat,” said TDS Director of Emerging Systems, Brian Adlawan. “Several factors contribute to the maturity of ARAM in the field, including adaptability, ease of use, interoperability, and minimized cost of ownership.” Adlawan declined to disclose where their devices were in use.


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tion Technology Center, Sam McClintock, readily admits that “The commercial market for RFID – and all other types of automatic identification technology – is flat. This is a reflection of the current economy. Many firms are hesitant to invest in new technology unless the need is immediate.� However, the cost to implement RFID continues to decrease each year; innovation in the field continues, and industries around the world are deploying billions of dollars of various RFID tags each year. Northrop was recently awarded contracts from DOD for passive and active RFID support. In active RFID, the U.S. Army Product Manager for Joint–Automatic Identification Technology opened up the new ISO 18000-7 standards among four major companies to encourage more innovation and competition. Active RFID is already deployed at almost every major commercial port and in some form at military ports, and continues to expand. Northrop has supported the U.S. Army’s Worldwide Port System for more than 10 years. Today, Northrop expects to expand its support to other DOD and government offices at port areas. This could include new ISO 18000-7 active RFID tags and equipment and, of course, the migration of legacy systems to new enterprise applications. Even McClintock readily admits that “RFID is not a panacea for all security issues, but it will continue to evolve and expand to become one of the cornerstones of port security – improving the security of cargo and port assets, tracking movements, and using new embedded sensor technology.� These RFID-driven security enhancements all point toward the goal of achieving tighter integration in supply chain management.



Domain Awareness: Not Just Another ClichĂŠ

Long after former U.S. Coast Guard Commandant James Loy coined the phrase “domain THE WORLD’S LEADING awarenessâ€? as it MANUFACTURER references mariOF UNDERWATER time security, a LIFT BAGS product named Athena has hit the market. Characterized as a “multi-domain situational Available in lift capacities from 25lbs to 77,000lbs awareness deciin open bottom and enclosed models. sion support Large inventory, ABS approved, IMCA Compliant system,â€? RaytheUNDERWATER LIFT BAGS on, the company ENGINEERED FROM THE BOTTOM UP! behind it, says PO Box 2030, North Kingstown, Rhode Island, 02852, USA 0HONE  s4OLL&REE  s&AX   it “integrates 7EBSITEWWW35"3!,6%COMs% MAIL2ICHARD 3UBSALVECOM

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information from numerous sources – including sensors, video, geo-location data, tracking and operational information – into one user-friendly “decision support tool.� With a look and feel common to existing command-and-control centers, Athena is also user-friendly. Recently, Athena was deployed as the backbone of the Port Area Waterside Surveillance System (PAWSS) in the new Emergency Operations Center for the Port of Providence, RI. With a network of sensors from the southern entrance of Narragansett Bay to the Port of Providence 25 miles north, PAWSS allows decision-makers at the Providence Emergency Management Agency to spot and evaluate threats early and ensure a quick response. In this case, Athena integrates multiple sources of information to provide the advance warning and improved situational awareness needed to maintain port security. At the PAWSS ribbon-cutting ceremony, Representative Jim Langevin (D – RI), a member of the House Armed Services Committee and the House Permanent Select Committee on Intelligence, concluded that “Good information is the point of the spear. It all comes down to prevention, detection, and response. Good, timely information is a key component of those three elements and will keep our citizens safe.�

Exposing Weaknesses: Proposing New Solutions

Powers International’s Powers-SecuredŽ Satellite System (PSSS) offers a “chain-of-custody� method of providing visibility and security to the global supply chain beginning with “stuffing� at origin to unloading at destination. Besides optimizing the supply chain, it complies with WCO Standards and ISO 28000 (International Supply Chain Security Management Standard) to include C-TPAT and the EU’s AEO container security programs.  It protects the shipper and importer because of the new role and legal status of electronically stored information included in recent changes to the Federal Rules of Civil Procedure. Unlike CSI’s 24-hour rule, Customs authorities, shippers, importers and carriers can know the actual and verified contents of the container at “stuffing� through an accountable, vetted, identified person who supervises, accounts for cargo accuracy, and arms and seals the container.  The container is then monitored to destination, detecting breaches in any part of the container and reporting them to not just the user but also to local authorities. It can detect and report explosives, shielded radiation, and other elements in the container’s environment – all in real time. Powers International, LLC’s Chairman Jim Giermanski told MarEx, “Powers-SecuredŽ Satellite System is now being piloted in the EU’s Seventh Framework Program. It’s licensee in the EU, European DataComm, is conducting


There is room for caution: Based on his research, Henry H. Willis, Senior Policy Researcher at RAND Corporation, has been arguing that “Capital investments that port authorities and terminal operators consider for container security must be justified within the context of other investment opportunities to improve the reliability, security, and efficiency of port operations.” Before acquiring any new technology, Willis thinks it’s vitally important to consider the full lifecycle costs and benefits of the technology, including but not limited to the net effect on terminal operations. Beyond the obvious cost-benefit analysis for any new system, however, lurks the reality of a sour, slowly recovering economy. Hence, the obvious need for port security, balanced against the need to swiftly keep commerce moving, is now forming the perfect storm that comes from diminished assets with which ports, shippers and governments can obtain these technologies. With as much as 11 percent of the world’s container fleet now idle, no



High-Tech Security: Measuring Three Times, Cutting Once

one really knows when the financial pendulum will eventually swing the other way. Until then, and knowing that “one size does not fit all,” buyers will continue to weigh all options before plunking down a sizable portion of their capex budget on a system that must (a) provide maximum security, (b) enhance cargo movement, and, at the same time (c) not break the bank. Tying all of that together will be a monumental task. Technology just might be the White Knight to step in and get it done. MarEx s e p tem b er / o ct o b er 2 0 0 9

these pilots with firms such as DHL, COSCO, and Kuehne & Nagle in cooperation with the WCO. Additional countries like China, South Africa, and Mexico will soon join in evaluating and using the PSSS, chain-of-custody solution.” For emphasis he added, “While some send registered, certified letters, we send registered, certified containers.” CSI, on the other hand, is dependent on data provided by the shipper without any accountability as to actual contents or verification at stuffing and without container security between origin and the port. Additionally, CSI requires transmission of the manifest 24 hours before lading the goods into the vessel. PSSS can report at origin before the container reaches the port, while protecting the container from breaches enroute to the port.  Finally, if the container arrives with contraband or with cargo missing, the accountable, supervising agent at origin or destination is subject to being fired or prosecuted – a stark difference from CSI.

Silent but Deadly Undersea Threat: Four Billion Gallons of Oil

By Joseph Keefe

Slightly off your radar screen, the “Wrecks of the World: Hidden Risks of the Deep” (WOW) Conference held in Linthicum, MD in September highlighted a ticking time bomb. As industry and the regulatory arms converged at MITAGS to contemplate the mitigation and removal of as many as

4.3 billion gallons of oil lurking on some 8,500 shipwrecks around the globe, an emerging environmental threat became apparent. For those who did not attend the conference, this is also probably a good time for you to turn up the “gain” on your radar. Those dots on the screen are not “clutter.”

Hardly the Exception to the Rule

The poster child for this type of effort is arguably best represented by the sinking of the SOLAR I off the coast of the Philippines on August 11, 2006. The doomed vessel went down in bad weather off the small island of Guimaras, spilling an estimated

undersea threat table 1: Types of Vessels by Age

Non-Tank Vessels

Tank Vessels 18

All Vessels

<10 years



10+ years




20+ years




30+ years




40+ years




50+ years








70+ years




80+ years










Courtesy: Environmental Research Consulting

50,000 gallons of fuel oil. Another 450,000 gallons were thought to be still onboard the vessel, resting 900 meters below the surface. Bunker fuel continued to leak out from the sunken tanker, initially at slow rates. Halfway around the world, the cargo ship Runner 4 went down in Estonian waters in March of 2006

after a collision with an icebreaker. This vessel had onboard as much as one hundred tons of fuel and lube oils. The SOLAR I and the Runner 4 were notable and newsworthy as new casualties. Thousands of other vessels, however, lay in similar predicaments all over the globe, shrouded by time and indifference. In reality, these

Emerging Threat or Much Ado About Nothing? As the salvage community, represented chiefly by the American Salvage Association (ASA) and the International Salvage Union (ISU), contemplate what to do about the emerging problem, some doubt the serious nature of the threat and cite “natural oil seepage” as a more substantial source of oil in the world’s oceans. Although as many as 176 million gallons of oil are released by Mother Nature annually, Dr. Dagmar Etkin, President of Environmental Research Consulting, reported that the “high” estimate of oil emanating from global wrecks could be 25 times the annual natural seepage rate.

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90+ years TOTAL

other vessels – many in advanced states of decay – are ticking time bombs, every bit as dangerous as the more high-profile wrecks.



undersea threat table 2: Advantages of a Cost-Benefit Approach » Data for identification of wrecks of concern; » Data for identification of wrecks to “monitor”; » Data for prioritization of wrecks for removal; » Quantitative data for decision-makers; » Preview of spill and removal scenarios for contingency planning, and » Contingency planning for prioritizing resources.

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Courtesy: Environmental Research Consulting


The threat represented by seeping oil from the world’s sunken wrecks has been characterized as a hidden cancer on the ocean environment. And with 75 percent of these wrecks of World War II vintage or older, the magnitude of the problem comes into clear focus and can no longer be denied. Identifying, prioritizing and funding the elimination of these threats is another problem altogether.

A Gathering Storm: Mustering the Troops THE MARITIME EXECUTIVE

Significant challenges lay ahead.

Demonstrating the importance of the issue to the general public, the media and the governments of the countries affected is the starting point. Next comes demonstrating the benefits of a “proactive” approach to these wrecks versus the “reactive” approach employed so far. The argument for a “proactive” approach using “costbenefit analysis” is gathering steam. That analysis involves many variables, including but not limited to: »» Identifying the sunken wrecks; »» Prioritizing the most dangerous of these threats;

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»» Monitoring the wrecks for leakage or potential thereof; »» Analyzing the impact of intervention on the environment versus “leaving it alone.” Not every wreck will need mitigation, but a substantial number will require surveys and then periodic monitoring. The wrecks themselves come in varying conditions, ranging from chronic leakers like the USS Arizona (two gallons daily) to those considered “episodic” in nature, where quantities will be released mysteriously for a time before stopping again. Other wrecks will sit dormant for decades until affected by a catastrophic event and then release oil in larger amounts. Table 2 shows the benefits of preparing now for what may come later. Ultimately, the liability represented by failing to act may far outweigh the costs of doing the right thing. Still, the

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undersea threat

program will be a tough sell, especially in America where health care, bank bailouts and unemployment are the high-priority budget-eaters of today. Still, the 280 million gallons of oil thought to be lurking inside 1,500 wrecks off the coast of the United States in the North Atlantic ought to give many some pause.

Financing the Solution: No Easy Answers

The commercial advantage of Bluefin’s swappable batteries is that a freshly charged set can be installed in minutes as illustrated here with the Bluefin-12 AUV.

According to Blank Rome attorney Jonathon Waldron, “The owner is liable.” He qualified that statement by admitting that most wrecks are so old that owners will be difficult to pursue and even harder to find. In the end, the oil from the wrecks, if it is to be removed, will be funded by local governments.

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Operators launch the two-man portable Bluefin-9 off a RHIB in Boston Harbor.

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undersea threat


At September’s WOW conference, as many as ten maritime attorneys – domestic and international – put their own particular spin on liability, indemnification, insurance, P&I cover and at least a dozen other “funding” mechanisms related to getting these wrecks identified and the threats mitigated. One of them pointed out that the American pollution fund now stands at about $1.3 billion. But, at the end of the day, more than 100 attendees were no closer to understanding where the money would come from and when that might happen. The U.S. government, for example, thinks that an annual outlay of $12 million is plenty to eliminate the threat of more than 100 decaying, obsolete vessels lying at anchor in Beaumont, TX, Suisan Bay, CA, and Hampton Roads, VA. Arguably, those vessels – some of which contain bunker residues and other toxic substances – represent as big a threat as those buried in the Atlantic. Meanwhile, the estimated cost to pump out one submerged tanker off the coast of Estonia was put at €2.32 million ($3.41 million).

International Cooperation: Coordinating a Proactive Response

exceptions. Sweden and Norway (since 1992) have been actively identifying and at least beginning to address the sunken vessels in their own waters. Separately, France and Italy have begun their own cooperative effort. Finally, there is hope that international ratification of the 2007 Wreck Removal Convention will eventually come to pass. When and if that might happen is anyone’s guess, but the convention will come into force after ratification by at least ten states. The convention seeks to lay down a uniform set of rules for dealing with a wreck and its removal and also, importantly, with the issue of compulsory insurance and the right of action directly against that insurer.


Although a concerted international effort to address the threat of these sunken wrecks is lacking, there are

The Bluefin-21 AUV is recovered after performing a mission at sea.


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undersea threat

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Industry Rolling Up Its Sleeves: Ready for Prime Time?



With regard to the “nuts and bolts” of this issue, Hans van Rooij, Principal at Global Marine Solutions, maintains that, although technology to attack these problems is improving rapidly, the salvage industry is lagging behind the subsea industry. Still, van Rooij insists, “Technology is improving and becoming more cost-effective.” One firm taking particular interest in the gathering inertia is Bluefin Robotics, a manufacturer of Autonomous Underwater Vehicles (AUVs), derivative systems, and related technology. Bluefin is in the business of bringing innovative and technologically advanced AUV solutions to military, commercial (oil and gas survey, sea floor mapping) and scientific markets. Michael Donovan of Bluefin is cognizant of the impact that

AUV technology might have on wreck removal. Donovan told MarEx in September, “This is a logical market for our proven technology, especially when there is a need to quickly collect precise sonar imagery for salvage planning and execution.” Martin Dean, Managing Director of Advanced Underwater Surveys Ltd (ADUS), also attended the WOW conference. ADUS, a small company spun out from university research, specializes in high-resolution, multibeam sonar wreck surveys. ADUS produces 4D interactive visualizations, which salvors can use to assess wrecks containing hazardous or noxious substances. Originally developed as an innovative technique meant primarily for marine archaeologists investigating wrecks for the UK government, ADUS has since discovered a more commercial market beyond heritage management.

Reality Meets the Bottom Line

Heightened awareness is a good thing. In this climate, however, it may not be enough. It may be obvious that a proactive approach to eliminating the threat of pollution is the right thing to do, but the best of intentions will miss the mark unless they are reinforced by real action. The salvage community is ready and – bolstered by existing and new technology – is well up to the task. With the ball squarely in the courts of the flag states, the first issue that needs to be resolved is funding. The salvors can take it from there. MarEx

On the Web: Advanced Underwater Surveys Ltd (ADUS): Bluefin Robotics Corporation: www. Environmental Research Consulting:

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Deck Machinery Directory



Burrard iron works


BURRARD IRON WORKS LTD. who have been in the marine equipment business in Vancouver since 1912 recently delivered the HJ 250 HP electric hawser winch for the SEASPAN RESOLUTION which carries 1,000 ft of 3-1/4â&#x20AC;? diam. line.

Davit Sales Inc. established in 1980 to sell and service high quality products to the marine industry and to provide Naval Architect / Marine services. One of the foremost dealers in the US for Custom Marine Pedestal Cranes, Oil Boom containment systems, Oil recovery equipment, Boom storage and rapid deployment equipment.

Burrard Iron Works t: +1 604 684 2491

DMW Marine


The DMW Marine crane model 250.000 EX2, one of several large knuckle booms, is approved by RINA and ABS with a capacity of 20 tonnes at 12.15 meters. Delivered recently for installation on the Atlantic Hawk, this required a constant tension winch, load monitoring devices and many sophisticated options for handling a dive boat with men on board.

HYPAC is a world leading Australian designer and ABS approved manufacturer of high performance lightweight and conventional deck machinery. The product range includes anchor winches, ramp winches, mooring winches and capstans, rescue and tender boat davits. These standard and tailor made solutions are delivered worldwide in accordance with ABS, BV, DNV, GL & LRS requirements.

DMW Marine t: +1 610 363 3846

Markey Machinery Co, Inc.

palfinger systems

Designers and builders of high performance Hawser and escort winches, towing winches, dual purpose anchor handling/escort winches, anchor windlasses, capstans and specialized oceanographic winches. Available as electric, hydraulic or diesel power. Whatever your needs, Markey provides the solution!

Palfinger systems GmbH is a private owned Company, developed from the amalgamation of Crane Power GmbH and HTC Systems GmbH & CoKGBased on 75 years experience of Palfinger in building cranes and hydraulic systems, we offer innovative, efficient and custom-tailored options for a wide range of applications.

Markey Machinery Co, Inc. t: +1 206 622 4697

Davit Sales Inc. t: +1 914 962 4544

Hypac t: +61 8 8333 0222

Palfinger Systems t: +43 (0)662 88 00 33

smith berger Marine

timberland equipment

Smith Berger Marine, Inc. designs and manufactures mooring and towing systems for all type of vessels. Our standard products include fairleaders, deck sheaves, flag blocks, chain stoppers, tow pins, shark jaws and stern rollers. Custom designs and load monitoring are our specialty. Contact Smith Berger for your next project!

TIMBERLAND EQUIPMENT LIMITED custom engineers and manufactures dependable and durable marine winches, designed to improve efficiency and safety. TIMBERLANDâ&#x20AC;&#x2122;s engineering experience with hoisting and winching equipment dates back to 1947 and also extends to electrical transmission and distribution, offshore marine, construction and mining markets. TIMBERLAND sells equipment to over 50 countries through a worldwide service network.

Smith Berger Marine, Inc. t: +1 206 764 4650

Timberland Equipment Limited t: +1 519 537 6262

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Bunker Profile


Standard of excellence

Todd McKenna

the Salvage & For Greater Special Ops Good

Executive Achievement

Resolve Marine’s

Joseph Farrell September-October 2009

Captain Douglas Martin President & General Manager SMIT Salvage Americas

Caspar Domstorff Director SMIT Salvage

 Global SaleS and Support  extenSive ranGe of productS and ServiceS  onGoinG product development

damen aSd tuG 3213 damen Stan tuG 1605 damen Stan tuG 2208 damen Stan tuG 2909 damen aSd tuG 2810 damen aSd tuG 3211

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clockwise from top left

the Netherlands

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The Maritime Executive Magazine - September/October 2009  

The Maritime Executive Magazine, Articles, News and Pressreleases relating to the Maritime Industry

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