Transcript: Cal Maritime Sealift & Seapower Capabilities and Emerging Technologies Symposium

Thursday, October 6, 2022

Remarks of Rear Admiral Ann Phillips (USN, Ret.)
Maritime Administrator
Cal Maritime Sealift & Seapower
Capabilities and Emerging Technologies Symposium
October 5-6, 2022

Good morning, ladies and gentlemen, fellow flag officers and service members, esteemed representatives from the maritime community, and mariners of yesterday, today and tomorrow!

On behalf of the Maritime Administration and of Transportation Secretary Pete Buttigieg, I am honored to join you here for the MARITIME 2022 - SEALIFT & SEAPOWER SYMPOSIUM, which enables us to examine the crucial role the maritime industry plays in the sustainment of America's dominance on the high seas and in the defense, protection, and security of our nation-as well as how the industry is changing to meet today's unique challenges.

Thank you, Admiral Cropper, and I also thank your staff here at CAL Maritime for hosting this timely Symposium and for all that you are doing to advance our maritime industry.

And I thank the Navy League of the United States for your work on this event and for continuing to build awareness of the critical role of our sealift capacity.

I am honored to join my colleague, Rear Admiral Wettlaufer, and other distinguished federal and industry leaders to discuss America's sealift enterprise, including the many elements that are required to support this essential capability.

As a retired U.S. Navy Rear Admiral, I can tell you that enduring commitment to historic naval elements of deterrence, sea control, power projection, and maritime security remains essential to America's national security strategy.

And as the Maritime Administrator, I work closely with my colleagues-particularly Admiral Wettlaufer-to understand and ensure MARAD meets our evolving sealift needs.

I have been asked to focus on sealift and shipyard repair capacity-and I will do that, including talking about our work employing commercial best practices to support shipbuilding and repair.

But I also want to talk broadly about the many initiatives we have underway within MARAD to support our sealift enterprise.

In June, we were honored to have the Commander of the U.S. Transportation Command, General Jacqueline Van Ovost, speak at the graduation of the U.S. Merchant Marine Academy.

Addressing our graduates-our nation's newest merchant mariners-she said that, quote, "as a maritime nation, our national security depends on the Merchant Marine."
However, General Van Ovost also warned the graduates that they, quote, "are about to face challenges our country has not encountered since WWII."

She also warned that, and again I quote, "Contested waters will stress our logistics lines all the way from home port."

We have to be able to meet this potential challenge. And to do that, it is also critical to recognize that there is an essential interdependence between the commercial and military requirements of the maritime industry-in our shipbuilding base and, more broadly, across the entire enterprise.

A healthy commercial maritime industry is critical to support DoD force mobilizations.

Further, the size of our fleet determines the number of billets available to mariners with unlimited credentials, both officers and ratings, who can meet our sealift sustainment needs.

As I will discuss, MARAD works at these overlapping intersections to strengthen our sealift enterprise by supporting our commercial sealift, managing the operations of our government-owned Ready Reserve Force, and helping to train the next generation of mariners.

STATUS OF THE MERCHANT MARINE

A few months ago, in the U.S. Capitol in Washington, MARAD helped unveil the Congressional Gold Medal for the Merchant Mariners of World War II.

The medal honors the more than 240,000 merchant mariners who sailed the American convoys that President Roosevelt called, quote, "the arsenal of democracy." American merchant mariners and American ships delivered the supplies we needed to defeat tyranny during World War II.

It is important to note, however, that this American fleet was dwindling at the onset of World War II and had to be rebuilt at great urgency to meet our war needs.

After World War II, America owned the majority of the world's shipping tonnage. However, today, while approximately 70 percent by volume or weight of our cargoes come to us directly by the sea, commercial vessels sailing under the U.S. flag carry less than two percent of these cargoes.

In 2012, there were 106 ships in the foreign trade flying the U.S. flag. Four years later, there were just 77 vessels in international trade sailing under our flag.

Today, from that low point, we have grown back to 87 foreign trading ships under the U.S. flag. However, this is still a tiny fraction of the number of ships that were sailing under our flag after World War II-and it creates numerous challenges.

MARINER AVAILABILITY

As I said earlier, the number of ships under our flag determines the number of commercial billets available to our mariners.

MARAD's most recent study assessing mariner availability-which was completed in 2017 at the request of Congress-estimated that there was a shortfall of approximately 1,800 mariners-and that's assuming all mariners are willing and available to serve when called upon.

However, recent anecdotal evidence suggests the mariner shortage may be worse. And I can tell you that whenever I meet with industry or labor, the issue of mariner availability is repeatedly raised.

The merchant marine, like every industry, has been profoundly affected by the COVID pandemic.

MARAD is deeply concerned by studies warning that the stress of being a mariner is taking a stark toll on those who sail. MARAD supported and facilitated a 2021 University of Washington study that found that approximately one-fifth of mariners were at risk for major depressive disorder.

And almost 23% were found to be at risk for generalized anxiety disorder-a number notably higher than among employees in other industries.

These findings are startling-and MARAD has been working to raise the alarm and to provide access to information about support systems on which mariners can draw when they need assistance.

On September 23, I convened a forum attended by more than 75 industry stakeholders to discuss the mariner shortage.

We discussed these critical issues, and we also discussed the fact that fundamental to making any headway in mariner availability is providing better work/life balance to today's merchant mariners-comparable to the quality of work life that workers in other sectors of the economy expect.

There must be a clear recognition that mariners do not just work on their ships-they also live on them. They deserve a commitment from their employers to a high-quality work/life balance, safety at sea, and mental health support, along with digital connectivity on board their ship.

In fact, it is time for us to look at connectivity as an investment in operational efficiency and the health and welfare of crew, and not as a luxury.

And then there are basic human resource managerial issues such as career planning for mariners and support for professional development aspirations.

Also, lest we forget, there is a simple expectation of every mariner today-better treatment in future years than what they experienced during the early months of the COVID pandemic.

Further, as I will discuss in more detail in a moment, we must ensure that mariners' working environment is safe-and that the maritime industry is a place where every mariner can succeed on the basis of their professionalism and skill.

We must work together to address all these issues-while growing our fleet-so that we can ensure that our merchant mariners will be there whenever they are needed.

SEALIFT ENTERPRISE

What else is MARAD doing to strengthen our sealift enterprise? This is an extraordinary time at our agency and I'm very pleased to talk about the many lines of effort we have underway to meet our nation's sealift needs.

FEDERAL SEALIFT

Let me talk first about our federal sealift programs. As I discussed, MARAD is in its 76th year of maintaining the Nation's reserve of sealift ships, including the Ready Reserve fleet, which as of today, is a fleet of 43 vessels that we maintain on a reduced operating status to be ready to sail within five days of activation.

We are in the process of conducting an urgent recapitalization of this fleet. In March of this year-and for the first time in nearly 30 years-we announced the purchase of two vessels to continue modernizing the Ready Reserve fleet.

These two ships, the former HONOR and former FREEDOM, joined the Ready Reserve as CAPE ARUNDEL and CAPE CORTES, adding more than 432,000 square feet of total sealift capacity and 316,000 square feet of military cargo capacity.

And these vessels were purchased using commercial best practices.

Specifically, we engaged a vessel acquisition manager (VAM), an integrated program office that includes MARAD and Naval Sea Systems Command members to identify, survey, and choose these vessels for purchase.

The vessels are also being upgraded in U.S. shipyards to add additional capacities.

We understand that we have to be effective stewards of taxpayer resources, and we are pioneering new procurement mechanisms that can both support our sealift enterprise and serve as models of best practices going forward. I will talk more about this effort in a moment.

COMMERICAL SEALIFT SUPPORT

In addition to operating the Ready Reserve, MARAD implements several critical programs to support our commercial sealift, including the Maritime Security Program and our cargo preference programs. Let me talk about these briefly.

Maritime Security Program

While MARAD's Ready Reserve fleet provides an effective and rapid source of ships for strategic deployment, even the RRF and the sealift capabilities of Military Sealift Command together could not sustain a serious and prolonged military deployment overseas.

Additional support from a commercial U.S.-flag merchant marine is essential for strategic sealift requirements, as was proven in all American wars of the twentieth century.

In 1996, the Maritime Security Act of 1996 established the Maritime Security Program (MSP). The MSP maintains a fleet of 60 modern, privately owned U.S.-flag ships, active in international commercial trade and available on-call to meet U.S. Department of Defense (DOD) contingency requirements.

The current MSP fleet provides cargo capacity that now exceeds 3.4 million square feet-the highest level in the program's history-and it employs some 2,400 U.S. mariners.

These ships will each receive payments that total $5.3 million in Fiscal Year 2023 for operating in international trade under the U.S. flag.

However, these ships must also have cargoes-and here is another point at which the elements of our various policies intersect to support our sealift enterprise.

Cargo Preference Programs

A few weeks ago, I testified before the House Subcommittee on Coast Guard and Maritime Transportation regarding our cargo preference programs. Put simply, without cargoes, ships will leave the U.S. flag, our modest fleet will continue to dwindle, and we would risk our ability to move military cargoes on American vessels.

One of MARAD's responsibilities is to ensure that federal agencies meet their obligations to move cargoes on U.S.-flagged vessels consistent with federal law. DOD must move 100% of its cargoes on U.S.-flagged vessels and, generally, civilian agencies must move 50% of their cargoes on U.S.-flagged vessels.

We are working with the Biden-Harris Administration's Made In America Office to help agencies understand cargo preference requirements. In addition, I have written to all federal departments and agencies explaining how MARAD can help them ensure they meet their obligations under cargo preference laws and regulations.

MARAD has also been evaluating options for a cargo preference rulemaking. We understand that success will entail addressing multiple priorities, including the critical importance of supporting our U.S.-flagged fleet while also ensuring that urgent aid and supplies are transported with expediency, consistent with America's commitment to those in need and our many foreign policy objectives.

To lay the foundation for a rulemaking effort that navigates this intersection, MARAD plans to issue a Request for Information (RFI) shortly to seek input from all stakeholders-and we will appreciate your input during that process.

3-Year Wait Elimination Proposal

Even as we work to strengthen existing programs, the Biden-Harris Administration is committed to growing our U.S.-flagged fleet and has several new policy efforts underway to do so.

As you know, one of the current challenges with meeting preference requirements is ensuring we have both enough vessels and the wide mix of vessel types to carry the many types of cargoes that the government impels.

To help attract additional vessels to our flag, the Biden-Harris Administration has proposed that Congress eliminate the 3-year period that vessels entering the U.S. flag must currently wait before they are eligible to carry preference cargoes.

This would ensure that vessels that choose to sail under the U.S.-flag can carry preference cargoes as soon as they enter the flag.

Tanker Security Program

Moreover, in the 2023 Presidential Budget Proposal, the Administration requested that Congress fully fund the new Tanker Security Program (TSP) at $60 million, which would support up to 10 U.S. flagged vessels.

A study required by the 2020 National Defense Authorization Act found a substantial risk to the nation associated with heavy reliance on foreign-flagged tankers, particularly in a contested environment.

The TSP, which will be modeled on the highly successful Maritime Security Program, and will be comprised of active, commercially viable, militarily useful, privately owned product tank vessels. These vessels will provide assured access to up to 10 U.S.-flagged tankers available to support the Department of Defense's global operations.

I am pleased to report that MARAD has completed a draft of an Interim Final Rule that is currently in interagency review.

MARINER EDUCATION

Let me now turn to discuss our mariner education programs.

As you know, the Maritime Administration encompasses the U.S. Merchant Marine Academy in Kings Point, New York.

The U.S. Merchant Marine Academy is vital to our sealift enterprise. It educates more than 200 entry-level graduates each year with unlimited tonnage licenses-and it is the primary source of our Strategic Sealift Officers.

As Administrator, I am committed to advancing the urgent effort, directed by Secretary Buttigieg, to strengthen the Academy.

We are working to address long-standing infrastructure needs. We are also expanding the support available to our midshipmen; working to strengthen diversity, equity, and inclusion; and, of course, continuing to our critical efforts to strengthen safety at sea.

As I discussed earlier, we believe that every mariner has the right to expect that every workplace will be one where essential values of mutual respect and dignity are firmly upheld. I know you all share this commitment.

Late last year, as you know, we paused Sea Year training at the U.S. Merchant Marine Academy so we could strengthen both the measures we require of the vessel operators carrying cadets and also our own institutional policies, procedures, and training instructions to improve safety and support a culture of respect.

In response to a request from Congress for a public plan to improve safety, MARAD developed a program called "Every Mariner Builds a Respectful Culture," or EMBARC.

This program enumerates policies intended to help prevent sexual assault and sexual harassment, to support survivors, and to support a culture of accountability.

Carriers must now adopt these policies before cadets can embark on their vessels. And, critically, we intend these policies not only to strengthen cadet safety, but to be the first steps in what must be an ongoing effort to strengthen the safety culture for every mariner.

That is why we have required these practices to be implemented in vessels' Safety Management System: to make sure this is a safety priority for every mariner aboard a vessel.

I deeply appreciate the support of our state maritime academies-including Cal Maritime-for these efforts. Only working together can we ensure that the merchant marine fully reflects our nation's values-and that there is no place for any form of abuse, violence, or harassment.

SHIPBUILDING & SHIPYARD REPAIR

Now, let me drill into the topic that is on the agenda next to my name-shipbuilding and ship repair.

In March of last year, MARAD released a report entitled "The Economic Importance of the U.S. Private Shipbuilding and Repair Industry."

This report, which is available on our website, found that in 2019, the U.S. private shipbuilding and repairing industry directly provided 107,180 jobs, $9.9 billion in labor income, and $12.2 billion in gross domestic product to the national economy.

Including direct, indirect, and induced impacts, on a nationwide basis, total economic activity associated with the industry reached 393,390 jobs, $28.1 billion of labor income, and $42.4 billion in GDP in 2019. These figures demonstrate the critical importance of our shipbuilding base to our national economy.

The study found that there are 154 private shipyards in the United States, spread across 29 states and the U.S. Virgin Islands, that are classified as active shipbuilders. In addition, there are more than 300 shipyards engaged in ship repairs or capable of building ships but not actively engaged in shipbuilding.

The next statistics I will discuss reveal yet again how interdependent our military and commercial requirements are in sustaining the sealift enterprise.

U.S. shipbuilders delivered 608 vessels of all types in 2020, up from 577 vessels in 2019.

However, our study found that 14 of the 15 deliveries of large deep-draft vessels were to the U.S. government: seven to the U.S. Navy and seven to the U.S. Coast Guard.

Frankly, this is consistent with the fact that the ocean-going vessels sailing internationally under the U.S. flag now-and providing our commercial sealift sustainment capacity-are all foreign built.

Further, our study found that more than 60 percent of vessels delivered during the last six years have been inland tank and dry cargo barges. This demonstrates how critical the Jones Act industry is to supporting our shipbuilding base.

SMALL SHIPYARD GRANTS

And now this is where MARAD sails into the picture with our support for shipbuilding!

A key program through which we provide support to the shipbuilding and ship repair industry is MARAD's Small Shipyard Grant program.

The program was established to provide grants for capital and related improvements for qualified small shipyard facilities that will be effective in fostering efficiency, competitive operations, and quality ship construction, repair and reconfiguration. Grant funds may also be used for maritime training programs to foster technical skills and operational productivity.

Since 2008, MARAD's Small Shipyard Grant Program has awarded $282.2 million to nearly 300 shipyards in 32 states and territories throughout the U.S.

Mostly recently, this summer we announced $19.6 million in grant awards to 24 small shipyards in 19 states through the program.

FEDERAL SHIP FINANCING PROGRAM

Further, for those who may not be familiar with it, the Federal Ship Financing Program-commonly called "Title XI" because of its location in the Merchant Marine Act of 1936-provides full faith and credit guarantees to promote the growth and modernization of the U.S. merchant marine and U.S. shipyards.

It has the ability to provide guaranteed loans for a longer term, higher loan-to-value amount, and lower interest rate than are typically available through privately lenders-and this program is available to help finance new construction or refinance vessels that are already constructed.

Since 1993, Title XI has provided $9.3 billion in loan guarantees.
Earlier this month, we announced our most recent Title XI loan guarantee, which supports three new towboats and 17 barges operated by Canal Barge Company.

The Title XI statute was amended in 2019 to make several important changes to the program. One of those changes was to designate the Federal Financing Bank as the "preferred lender" for the program. This reduces the cost of the loan guarantees and gives MARAD flexibility with its guaranteed loans that it did not have before.

MARAD was also authorized to designate "Vessels of National Interest." This designation enables us to prioritize and expedite specific applications.

I recently designated the vessels that service offshore wind farm facilities as Vessel of National Interest-and these are the first vessels to be designated under this authority.

This designation reflects the Administration's commitment to supporting construction of vessels to service offshore wind terminals in support of the Biden-Harris Administration's commitment to reaching 30 gigawatts of offshore wind energy by the year 2030.

STATE MARITIME ACADEMIES

And now, as I close, let me talk about MARAD's role as an actual shipbuilder.

MARAD provides extensive support to our state maritime academies as part of our mission of supporting mariner education. But in the interests of time, let me focus on one aspect of that support-our construction of the new National Security Multi-mission Vessels (NSMV).
Just last week, I was honored to attend the keel laying in the Philly Shipyard for the second NSMV, the PATRIOT STATE.

And I note that just 10 months ago, Admiral Cropper joined our Deputy Administrator, Lucinda Lessley, in the keel laying for the first NSMV, the EMPIRE STATE. Ladies and gentlemen, today, that vessel-the first-ever purpose-built training ship in the nation's history-has already been launched!

And the PATRIOT STATE will be delivered in early 2024!

In the Navy, I was the commissioning Commanding Officer of USS MUSTIN, and I know just how complex a ship construction effort is.

It takes incredible organization, attention to detail, and pure grit to keep such work on time, on budget, and with the standard of quality this ship clearly displays.

The construction of the National Security Multi-mission Vessels is proceeding at astounding speed-and without a doubt, the NSMV will revolutionize mariner education at our State Maritime Academies. Each NSMV includes state-of-the-art multi-purpose classrooms, equipment simulators, and a separate engineering control room and training bridge.

The classrooms and labs include equipment that provides hands-on training and skills development required for mariner licensing. These ships will be the envy of every seagoing nation.

And let me note that in the Fiscal Year 2022 budget, the Congress approved funding for the fifth and final planned NSMV, which will be delivered to Cal Maritime in 2026.

In addition to being educational platforms, the NSMVs are national assets that will also support the federal response to national disasters such as hurricanes and humanitarian crises.

These ships have enhanced medical facilities, helicopter landing pads, roll-on/roll-off ramps, and the ability to berth up to 1,000 people in times of need-and all of these capabilities can be put to use to meet the urgent needs of those in harm's way.

These vessels-the first that MARAD has built in decades-are also unique because we are using commercial best practices to design, build, and manage with a private company, TOTE, as our contracted Vessel Construction Manager.

The use of the commercial shipbuilding business model is saving American taxpayers hundreds of millions of dollars and several years in development and construction time.

This new innovative approach taken by MARAD has delivered a firm fixed price contract and firm fixed delivery schedule at an average program cost of $322 million per ship.

In fact, the traditional Government procurement process normally used to build ships yielded cost estimates of as much as $750 million in average costs per ship-PER SHIP-for the NSMV program. And construction would have been MUCH slower than the pace we are seeing now.

Our highly competitive and streamlined process can be used in the future by other Federal entities to procure ships in a way that reduces risk to the U.S. Government and mitigates the potential for cost overruns and unnecessary delays.

The construction also maximizes the use of U.S. made components to include American steel from Indiana and North Carolina.

And the ships are being built to American Bureau of Ships (ABS), Coast Guard, and SOLAS requirements.

I can also tell you that leaders in Washington are taking note of what's happening here-and the lessons that the example of the NSMV can teach our nation about shipbuilding-particularly when it comes to meeting our sealift needs.

CONCLUSION

The U.S. Merchant Marine through Strategic Sealift provides the Nation's "fourth arm of defense" and has historically organized, trained, and equipped to perform three essential functions: sea control, power projection, and maritime security.

And just as the merchant mariners of World War II who were honored with the Congressional Gold Medal, today's mariners are ready to answer the call.

The Maritime Administration is working to ensure that these mariners have the ships and training and resources they need to meet our evolving sealift needs-and to meet the logistics needs in contested waters of which General Van Ovost warned.

And with the unprecedented commitment of the Biden-Harris Administration, we are growing our fleet, pioneering new models to build ships on time and on budget, and ensuring that our sealift enterprise is always ready to deliver for our nation!

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