DEPARTMENT OF TRANSPORTATION

STATEMENT OF MARITIME ADMINISTRATOR

SEAN T. CONNAUGHTON

BEFORE THE

SUB-COMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION

OF THE

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

UNITED STATES HOUSE OF REPRESENTATIVES

ON THE

DEVELOPMENT OF SHORT SEA SHIPPING

FEBRUARY 15, 2007

Good morning, Mr. Chairman and Members of the Committee. It is indeed a pleasure to be here today to discuss the Department of Transportation’s efforts to build a public-private maritime partnership that will both improve our transportation efficiencies and grow our economy. Today’s hearing initiates a dialogue that will lead to the expansion of the Nation’s marine transportation system. I think that it is fitting that my first Congressional hearing as Maritime Administrator is on the topic of short sea shipping[1] or, as I have begun to call it, America’s Marine Highway. I believe this term more accurately describes the nation’s waterborne transportation system and the promise of its extensive capacity.

I would first like to provide you with some of the history of America’s Marine Highway initiative, and discuss with you some of our plans for the future. Early this decade, the Department of Transportation’s leadership recognized the need to address landside congestion through the expanded use of waterborne transportation alternatives, specifically through the use of the marine highway. When moving high volume and bulk freight, short sea shipping is more cost effective, is more fuel efficient per cargo ton mile, and is a vital alternative transportation mode in a natural disaster. When fully integrated into the Nation’s transportation system, the marine highway will facilitate enhanced freight flow, expand freight capacity, reduce congestion, and improve air quality.

As a former County Official in Northern Virginia, I am keenly aware of how surface transportation congestion adversely impacts our daily lives. The impact on our productivity is enormous. We lose 44 billion person hours a year due to transportation delays[2] – translating into billions of dollars of lost productivity. And, I also know first hand that we cannot pave ourselves out of this situation.

A robust U.S. economy depends on the efficient movement of freight to stimulate domestic production and satisfy consumer demand. Consider these facts – since 1995, container growth has increased by at least 10% every year and this growth is expected to continue. By 2020, every major U.S. container port is expected to double the volume of cargo it must process, with East Coast ports tripling in volume and some West Coast ports quadrupling in volume. The United States is expected to import 30 million containers in 2010 and 40 million in 2020. The domestic tonnage of freight carried by all U.S. systems will increase by 67%, while international trade is expected to at least double. Presently, this domestic freight is carried almost exclusively by road or rail -- coastal shipping handles only two percent of our domestic freight, even though coastal counties hold more than half of the Nation’s population.

This massive growth means that our Nation must expand its overall port volume capacity by 10% yearly just to sustain this expected growth – an annual capacity growth greater than the overall size of the ports of Seattle and Tacoma combined. As Maritime Administrator, I am one of the people responsible for finding a solution to our growing congestion problems and I look forward to working with the Committee to determine “where we go from here” in our quest to find solutions to a capacity crisis that threatens to overwhelm our existing transportation system.

Clearly, the Nation’s marine highway can help mitigate this congestion. The world’s waterways are an infinite system, and our marine highways have infinite capacity. Unlike rail and roads, there are no fixed infrastructure costs to develop transportation routes, and ships can carry more cargo per dollar than any other method of transport. The full scope of America’s Marine Highway – a system that includes not only our coastal waters, but our inland waterway system and the Great Lakes, is enormous – and, if properly utilized and integrated, can help us expand our way out of the crises before us. That is why I am here today and, why I am so pleased that the Members of this Committee have made the decision to investigate the advantages of our marine transportation system.

It is my hope that your discussions will lay the groundwork for legislative initiatives that will add new, permanent capacity to our Nation’s freight delivery systems and grow our economy. Now, I am not naive enough to think that our marine highway will solve our congestion problems overnight – after all, much of the vessel capacity we will need to accommodate our projected trade growth is still on the drawing board.

However, a minimal reduction in the anticipated growth of trucks on highways can make a significant difference. For example, one 80,000 pound tractor-trailer truck does as much damage to pavement as 9,600 cars. Alternatively, the use of America’s Marine Highway would reduce the costs of road maintenance and possibly extend the Present Serviceability Rating (PSR) of roadways. Accordingly, this will benefit the public, as well as State and Federal entities – and assist our transportation planners to properly allocate vital public resources.

America’s Marine Highway has existed since our Nation’s founding. It is used today to transport over 1 billion tons of domestic cargo on an annual basis, and clearly has room to grow. Transporting freight by water has traditionally been for the movement of bulk commodities such as coal, petroleum, grain, and lumber. Current waterway operations thrive along the Mississippi and Ohio River systems, across the Great Lakes, through the St. Lawrence Seaway, and along some coastal routes. They already accommodate 13% of the national cargo tonnage for less than 2% of the national freight bill.

An excellent illustration is the use of barges in the Mississippi River system. The river transports over 312 million tons of cargo per year between its upper reaches in Minnesota and its lower parts into the Gulf of Mexico.[3] If this system had to be replaced, it would require over 12.4 million semi-trucks or 3.12 million rail cars to make up the capacity difference.[4] Annually, in rail capacity alone this would consist of 31,000 trains pulling one hundred cars each.[5]

In an attempt to develop our own water transportation initiative, we looked to Europe. The European Union (EU) moves approximately 40% of all its freight on the water. The EU Commission has vigorously supported the concept of an integrated marine highway system for over twenty years, and has recently set aside over one hundred million euros in a multi-year program to provide incentives to shift freight from the congested landside modes to the water. In October 2006, the Commission awarded 16 projects totaling 21.7 million euros in an effort to divert truck growth (134,000 truck loads) to the water.

As educational tools to facilitate a public dialogue on the issue of increased waterborne freight movement, the Maritime Administration (MARAD) has sponsored annual industry-wide conferences and initiated or participated in a number of studies to examine the viability of alleviating surface transportation congestion through increased waterborne freight movements. Three major short sea shipping conferences, sponsored by MARAD, were designed to create awareness and open opportunities for the commercial industry regarding the use of the marine highway. The 2002-2004 conference series emphasized the advantages of short sea shipping to transportation planners and the maritime stakeholder community as a means to accommodate trade growth. The conferences catalogued the business dynamics of successful and failed domestic waterborne services. The meetings also addressed issues of facility design, workforce development, the identification of potential research and development needs, expanded freight planning, integration of short sea shipping services into the transportation planning process, and public awareness.

In 2003, as a direct result of stakeholder requests made at the Agency’s first Short Sea Shipping Conference, MARAD founded the Short Sea Shipping Cooperative Program (SCOOP). SCOOP is an industry-centered organization which provides a forum for industry, labor, government, and related transportation stakeholder groups to share resources and information in the development of the Nation’s marine highway services.

In September 2006, MARAD, in cooperation with SCOOP, hosted the first in a nation-wide series of domestic shipper and short sea shipping operator workshops. The workshop facilitated opportunities for discussion among domestic shippers, third party logistics companies, truckers, and domestic marine operators to engage in dialogue regarding the feasibility and development of specific short sea shipping services in the United States. Another in this series of workshops is scheduled later this month in St. Petersburg, Florida.

One outcome of this series is the realization that large shippers are currently not in a position to utilize inter-coastal shipping as those services are currently configured. Transportation cost and “just-in-time” delivery have been a major deterrent to any real commitment to the use of waterborne transportation by the Nation’s shipper community. But, while time sensitive performance is important, it was determined that shippers will utilize water transportation alternatives as long as the marine operator can meet pre-agreed delivery times at a lower cost. (Generally, smaller niche market shipping companies handle less time sensitive cargo, such as hazardous materials, more suitable to waterborne transportation services.)

Therefore, workshop participants have suggested an expanded outreach emphasis on attracting mid-sized shippers to inter-coastal marine operations. Participants also had a clear understanding that freight congestion will ultimately require a larger share of the nation’s freight to move from the surface transportation system to water. The workshops are generating a greater interest by industry in the mitigation of congestion, improving safety, and the development of greater efficiencies within the transportation system. It is important to note that the workshop series is also attracting significant interest by the nation’s marine operators. The ultimate goal of this effort are successful shipper-operator business arrangements that more fully utilize the promise of our marine highway – business arrangements that begin to break the shipper “truck addiction.”.

In the spring of 2006, the Maritime Administration and Transport Canada jointly sponsored the North American Short Sea Shipping Conference in Vancouver, Canada. At this meeting, our NAFTA trading partners expressed interest in viable alternatives to reduce congestion, improve reliability, increase capacity, efficiency, economic performance, and extend the environmental sustainability of the transportation system. A Trilateral Declaration was signed at the Vancouver Conference among Canada, Mexico and the United States, committing the three nations to expand marine highway operations in North America by establishing a Steering Committee focused on the creation of a trilateral strategy.

The Trilateral Conference participants also agreed to foster the use of short sea shipping operations by developing an interactive website that will provide information and encourage business communications among North American shippers and marine operators. To this end, MARAD is developing the North American Short Sea Shipping Electronic Information Clearinghouse (Clearinghouse), an interactive website, to provide information and encourage business communications between shippers and operators. In addition to providing updates on current short sea shipping events, and other useful information links, the Clearinghouse will permit shippers to electronically request assistance in locating qualified marine carriers for the movement of domestic freight. When fully operational, the webpage will be available to thousands of North American shippers and marine operators to facilitate the increased utilization of waterborne transportation sources in the movement of freight.

Since 1999, MARAD has initiated or participated in studies to examine the condition of the Nation’s marine transportation system (MTS) with the prime purpose of addressing surface transportation congestion through the development of waterborne transportation alternatives for the movement of freight.[6] The input for this particular report came from regional listening sessions, a National Conference on the Marine Transportation System, and through the MTS Task Force. The “needs assessment,” the first of its kind, and the regional listening sessions, laid the groundwork for the creation of the Secretary of Transportation’s Marine Transportation System National Advisory Council (MTSNAC) and the overall MTS initiative. The MTSNAC provides a structured approach for non-Federal stakeholders to provide input on national-level issues.[7]

The U.S. Chamber of Commerce (Chamber) released a study in March 2003, which outlined the ability of the national transportation system to respond to changing and increasing trade patterns. This study was one of the first to call for a national freight policy within the Department to include a national intermodal planning and development initiative, a coherent environmental regulatory process, up-to-date freight data collection, and the integration of the modes and labor into the planning equation.[8] The Chamber report was also one of the first studies to clearly document the dangers of ignoring the dramatic increase in trade and the resulting impact on the Nation’s transportation system. The study clearly supports the conclusion that the Nation cannot build itself out of this impending capacity crunch.

In 2005, the Government Accountability Office (GAO) submitted a report recommending that the Department of Transportation and MARAD “develop a more thorough understanding of short sea shipping issues before defining a Federal role involving substantial investment and, to encourage other public-decision makers to use a systematic approach to investment decisions involving freight mobility projects.”[9] The study, produced at the request of the ranking Members of both the Senate Commerce and House Transportation and Infrastructure Committees, essentially recommended further analysis of the issue of short sea shipping before significant public resources were committed to the development of this type of marine transportation system.[10] Our efforts to investigate and promote the idea of short sea shipping have not required a large expenditure of public monies. MARAD has, instead, focused on the development of a public-private partnership to investigate, educate, and recommend proposals to ease our growing freight capacity issues.

By way of example, MARAD, in November 2005, consulted in the production of the

I-95 Corridor Coalition’s “Short Sea-Study and Coastal Shipping Options Study.” The I-95 Corridor Coalition is a public-private partnership composed of State DOT agencies and transportation planning organizations along the Eastern seaboard, and the study assessed commodity flows and attempted to determine the viability and sustainability of a short sea shipping service along the Maine to Florida transportation corridor.

Phase II of the study commenced in late 2006 and sought to incorporate the participation of metropolitan planning organizations (MPOs) to bring water-based transportation, especially short sea shipping services, into the overall local transportation planning process.

The Coalition study found:

The I-95 Northeast and Mid-Atlantic corridor is physically suited for short sea operations.[11] Congestion drives the business model for short sea shipping.[12] In less than 15 years, the Corridor transportation system will be strained beyond capacity -- truck traffic on the I-95 Corridor is expected to increase from 32,000 trailers daily in 2004 to 58,000 trucks per day by 2020. State and MPOs must play a critical role in waterborne transportation development.[13]

Additionally, the Department’s Office of the Secretary (OST) recently completed a study assessing the feasibility of short sea shipping operations along four potential domestic U.S. traffic lanes or corridors and determining if such services could serve as an economically viable alternative to overland freight transportation. The study was specific to the U.S. domestic market and excluded Canada and Mexico water transportation routes. The study found that the primary economic advantage of short sea shipping is its ability to generate significant economies of scale by moving large numbers of highway trailer-loads on a single vessel providing numerous labor, energy, environmental, and infrastructure advantages.

The OST study found:

There are significant perceived opportunities for short sea services in the domestic freight transportation market. Short sea shipping, as MARAD defines it, is currently in operation in the contiguous domestic trade. Short sea shipping can be particularly competitive for heavy and/or hazardous shipments currently moving over the road such as chemicals (a recurring finding in many studies). There are also significant interregional container flows (10 million container shipments per year from the Gulf to the New York region). Interviews with truckers revealed “interest with healthy skepticism” about short sea shipping, but ports and vessel operators were “supportive” or expressed “strong interest” in the concept.

Of the corridors studied, short sea shipping appears to be competitive with other modes for service across Lake Michigan (above Chicago), and from the Gulf to the East coast, especially for chemical and bulk products. The study concluded by recommending that DOT encourage and facilitate short sea shipping by taking on a role similar to that of a “business development” department in a large corporation (e.g., market research and strategic plan development).

If the right incentives are offered to the maritime industry and its supporting agencies, every citizen from our dockworkers to the American consumer will benefit. Removing a significant portion of container freight from the highways and railroads would have the effect of increasing capacity on our surface modes as they exist in their present size and operating methods.

Coastal shipping operators and those contemplating start-up services have identified the Harbor Maintenance Tax (HMT) as a major impediment to profitable domestic waterborne freight movements (notably goods moving in containers). The maritime industry has consistently pointed out that the HMT is particularly burdensome for container feeder services since the tax is assessed twice, once for the international movement and again on the domestic waterborne leg of the trip. Trucks and trains do not pay the HMT. As such, potential marine highway operators envision themselves at a competitive disadvantage when considering a new service (since any potential business plan must include the payment of a tax that may or may not be ultimately collected). Further, the elimination of the HMT for the domestic movement of cargo containers would have negligible impact on our nation’s Treasury. A SCOOP commissioned study dated October 2005, ”Short Sea Shipping and the Harbor Maintenance Tax” found that domestic container HMT movements only yielded the Treasury $1.7 million - $1.9 million per year.[14]

As you know, legislative proposals to waive the HMT have been introduced in Congress. In the last Congress, Congressmen Philip English (R) of Pennsylvania, Chris Shays (R) of Connecticut, Dave Weldon (R) of Florida, and Congresswoman Stephanie Jones (D) of Ohio introduced legislation to exempt either truck cargo, containerized cargo carried between mainland U.S. ports or certain geographic areas from the tax. No committee action was taken on any of these proposals. However, Congresswoman Jones re-introduced HMT exemption legislation this week.

Recent interest in eliminating the Great Lakes region HMT is shipper and port driven due to the desire to stimulate cross-lake services that avoid the additional hours necessary to move cargo around the Lakes on a crowded surface transportation system. This type of industry interest and activity may serve as a catalyst for Congressional action, especially if a possible proposal can be crafted to carve-out an affordable “first step” in eliminating the HMT for a specific market. Any related development of new Great Lake marine highway services will ultimately provide this Committee with a “test case” model to gauge the impact of HMT relief on industry growth. The expansion of marine highway services on the Great Lakes will ease surface congestion, improve “just-in-time” delivery, and grow the Midwest economy.

A related effort to eliminate certain customs fees to achieve some type of modal shift in the Gulf of Mexico might also serve as a stimulant for start-up cross Gulf marine services.

Any new proposal to eliminate all, or a portion, of the HMT will require significant stakeholder support to achieve ultimate passage. Waiving the HMT, in specific markets, as well as eliminating certain custom fees, will clearly encourage greater use of the marine highway, reduce landside congestion, and ultimately enhance just-in-time delivery.

The Maritime Administration seeks a larger role in the development of new North American marine highway services designed to mitigate congestion (especially border and corridor related congestion). Expanding waterway use is the only policy choice that offers this unique and direct outcome, short of constructing new capacity. Accordingly, the Maritime Administration seeks to identify and catalogue obstacles to waterborne trade and explore viable legislative and policy proposals for the elimination of those obstacles. We will also seek to integrate the marine highway into the national, state, and local transportation planning process. Specific efforts are underway to facilitate a series of national “one on one” dialogues between transportation users and providers in an ongoing effort to, identify impediments to the expanded utilization of waterborne transportation, accelerate the modal shift from surface to waterborne transportation, and build consensus support for a policy reform package.

MARAD is also actively working to highlight existing marine highway services that illustrate, in a practical way, the promise of the marine highway. For example, Columbia Coastal Transport is a reliable U.S.-flag barge operator that works in close cooperation with carriers, ports, and labor to provide essential containerized cargo feeder services linking ports in North America. Its five barge services link the ports of New York, New Jersey, and Boston; New York, Baltimore, and Norfolk; Norfolk and Baltimore; and, Charleston, Savannah and Miami. Recently, the company announced a new service linking the ports of Baltimore and Philadelphia. They offer complete transportation services for project cargo including: heavy lift truck hauls; rail coordination; lift-on/lift-off service; roll-on-roll-off barges with access to shallow and undeveloped ports; and, a full array of port logistics services. Columbia Coastal services by-pass much of the I-95 surface corridor and offer shippers a reliable, cost-effective, and environmentally-friendly transportation alternative to a congested surface transportation system.

Osprey Lines is another prime example of a marine operator that plays a vital transportation role, in this case moving agricultural products in the country’s heartland. Osprey first initiated services between Memphis and New Orleans in 2004. The company now offers container-on-barge services to ports in the Gulf of Mexico and along the U.S. inland waterway system including Houston, Lake Charles, New Orleans, Baton Rouge, Memphis, Chicago, Pascagoula, and Mobile. Its primary customers are ocean carriers who use Osprey’s container on barge services to re-position containers for their customers at various locations on our Nation’s inland waterways. These containers are then loaded mostly by agricultural shippers who use Osprey’s services to return them to deep water ports in the Gulf of Mexico. Osprey, like Columbia Coastal, uses the marine highway to offer a low-cost transportation alternative to product providers and shippers – and, to the benefit of the American consumer.

The increased use of water to move cargo is evident along many crowded coastal transportation corridors and border crossings. Cargo ferry services are coming on-line to avoid choke points along the coasts and in the Great Lakes. These services have sprung up out of economic necessity to avoid land-based obstacles that inhibit the timely and cost efficient movement of cargo and passengers. I believe it is the role of government to provide these emerging services with the tools to succeed and expand. It is clear, that given the proper tools, many other successful niche market marine services can emerge, not only as a solution to some of our freight flow and congestion issues but, as a catalyst for the development of our Nation’s underutilized port capacity.

Maritime community stakeholders have sent the message that the time for talk is now at an end. They want affirmative action that focuses on the expansion of America’s marine highway -- action to achieve a true modal shift that will ease landside congestion problems, improve transportation efficiencies, and grow our economy. Clearly, our freight congestion problems will not be solved without an active public-private partnership that focuses on initiatives designed to eliminate obstacles to the expansion of our transportation choices -- a marine stakeholder driven partnership that begins at the local level and ensures an integrated transportation planning process. This partnership will build on the successful marine highway services I have discussed before the Committee today and fulfill the vision of a truly intermodal National transportation system. Congress plays an integral role in this partnership – the way forward in solving our freight congestion problems begins here in this Committee.

I stand ready to assist you in addressing an issue that is vital to our continued economic security – the development of America’s marine highway. I want to thank the Members of this Committee and Chairman Oberstar for their leadership in holding this hearing today. I will be happy to answer any questions you might have.

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[1] Short Sea Shipping is defined as commercial waterborne transportation that does not transit an ocean. It is an alternative form of commercial transportation that utilizes inland and coastal waterways to move commercial freight from major domestic ports to its destination.

[2] Texas Transportation Institute as cited by the U.S. Department of Transportation press release: http://fhwa.dot.gov/pressroom/fhwa0220.htm

[3] U.S. Waterway Transportation System – Transportation Facts, USACE, December 2005 (latest available).

[4] Based on truck capacities of 25 tons each and rail cars of 100 tons each as cited at Port of Tulsa, OK fact sheet: http://www.tulsaweb.com/port/facts/htm.

[5] Rail cars carrying 100 tons each applied to trains of 100 rail cars each. Ibid.

[6] U.S. Department of Transportation, An Assessment of the U.S. Marine Transportation System: A Report to Congress, ONE DOT (Washington, D.C.: September 1999).

[7] Council recommendations, which may reflect broad-based consensus, could provide support to advance Administration goals, such as seeking legislative change to address a specific problem or to improve the MTS.

[8] U.S. Chamber of Commerce, Trade and Transportation: A Study of North American Port and Intermodal Systems, National Chamber Foundation pp.30-31 (Washington, D.C.: March 2003).

[9] GAO, Freight Transportation: Short Sea Shipping Option Shows Importance of Systematic Approach to Public Investment Decisions, GAO-05-768 (Washington, D.C.: July 2005).

[10]Ibid., p. 48

[11] The region’s economy and industry base is very diverse…as a result, a wide variety of commodity types are shipped into, and out of, the Coalition’s region. There are many potential markets for short sea shipping operations, particularly in areas with underutilized port capacity.

[12] U.S. freight transportation demand is projected to increase 60% percent by 2020 (five trillion ton miles).

[13] The Coalition is working to convince local MPOs to include water transportation issues in their overall transportation plans.

[14] The report Short Sea Shipping and the Harbor Maintenance Tax can be found on the Short Sea Shipping Cooperative Program website: www.shortsea.us.