Transcript: Navy League of the United States Breakfast Remarks

Wednesday, February 8, 2023

REMARKS AS DELIVERED BY

MARITIME ADMINISTRATOR REAR ADM. (RET) ANN PHILLIPS

AT NAVY LEAGUE OF THE UNITED STATES BREAKFAST

WASHINGTON, D.C.

INTRODUCTION

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

Thank you, MCPON Mike Stevens, Admiral Jamie Foggo, Admiral Sinc Harriss and Jon Kasking for the warm reception this morning.

On behalf of the Maritime Administration and Transportation Secretary Pete Buttigieg, I am honored to join you this morning to talk about my priorities as the Maritime Administrator.

To be crystal clear-our U.S. maritime industry is essential to ensuring that our nation is a "Maritime Nation."
As Admiral Alfred Thayer Mahan stated, quote, "Control of the sea, by maritime commerce and naval supremacy together, means predominant influence in the world."

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

And I thank the Navy League of the United States for continuing to build awareness of the critical role of our sealift capacity, merchant marine, and maritime industrial base.

I have read your new Maritime Policy Statement and acknowledge this important work, led by Rear Admiral Sinc Harris. I commend you on creating greater awareness of the many challenges facing our maritime sectors.

MARAD is directed by the 2023 National Defense Authorization Act to employ a Federally Funded Research Development Center to inform a national maritime strategy, in coordination with the Department of Homeland Security and the Coast Guard. We are taking steps to identify the FFRDC that can assist in this effort.

One thing that won't change, however, is MARAD's critical mission: To foster, promote, and develop the maritime industry of the United States to meet the Nation's economic and security needs. MARAD is a unique agency within DOT and the Department understands ours is a critical national security mission.

As the Maritime Administrator, I work closely with my colleagues-particularly General Jackie Van Ovost, the Commander of the U.S. Transportation Command, and in the Navy, VADM Williamson, the N4, and Admiral Wettlaufer at Military Sealift Command-to understand and ensure MARAD meets our nation's evolving sealift needs.

In June of last year, we were honored to have General 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 must be able to meet this potential challenge. And to do that, it is critical to recognize that there is an essential interdependence between the commercial and military elements of the maritime industry.

Just last week, I spent over an hour with General Van Ovost discussing the state of maritime readiness.

She needs us to be ready to fight-tonight if needed-and frankly I need her to help ensure we have the critical sealift capabilities we need to unilaterally provide sealift in peace, crisis, and war so that we can guarantee logistics capabilities to place combat power at the place and time of our choosing anywhere on the globe.

Against this backdrop, I want to discuss the specific challenges we face in the areas of:

• Mariner availability, and industry culture;
• Recapitalization of the surge sealift Ready Reserve Force; and
• Keeping old ships ready to sail.

Ladies and gentlemen, there are two essential facts that underpin this discussion.

First, a healthy commercial maritime industry is critical to support DoD force mobilizations.

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

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

Let me start by discussing our merchant marine.

Last year, 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 the 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 most of the world's shipping tonnage. However, today, while approximately 70 percent by weight of our import and export cargoes enter and leave the country 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 85 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.

Keep in mind the issues of supply chain resilience that made headlines during the COVID pandemic as you consider how our U.S. import and export ocean trade moves: About 75% of our trade by weight is carried on these top 5 flags: Panama, Liberia, Marshall Islands, Singapore, and Bahamas.

No surprise there. China and Hong Kong flag ships collectively carry about 10% of the trade.

But the U.S. flag carries about 1 ½ percent of our trade. That's right, our U.S.-flagged vessels are carrying less than 2% of our import-export waterborne foreign commerce.

I would offer that that 1 ½ percent hardly meets the statutory requirement that the United States have a merchant marine sufficient to carry … a, quote, "substantial part" of the waterborne export and import foreign commerce of the United States.

MARINER AVAILABILITY

These numbers also have another significant consequence. 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-19 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 U.S. 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.

In September of last year, I convened a forum attended by more than 75 industry stakeholders to discuss the mariner shortage.

Among many issues, we discussed the fact that 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-is fundamental to making any headway in mariner availability.

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, including safety at sea, along with digital connectivity and modern quality of life on board their ships.

In fact, it is time for us to look at connectivity as an essential investment in operational efficiency and the health and welfare of crew.

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

EMBARC

Further, we must ensure that mariners' working environments are safe-and that the maritime industry is a place where every mariner can succeed on the basis of their professionalism and skill.

As you all know, in late 2021, we paused the at-sea training of Midshipmen at the U.S. Merchant Marine Academy so that we could implement new measures to strengthen protections for our cadets and spur culture change across the industry.

The program we introduced was called the Every Mariner Builds a Respectful Culture or EMBARC-and I am pleased to announce that there are now 16 carriers enrolled in the program.

It has been MARAD's requirement since December 2021 that commercial operators must adopt EMBARC standards before cadets can embark on their vessels. But now, the National Defense Authorization Act (NDAA) for Fiscal Year 2023 mandates BY LAW that commercial carriers comply with EMBARC before they can train cadets.

The NDAA also mandates BY LAW that carriers' sexual assault and harassment prevention and response policies be implemented in their vessels' Safety Management Systems. This was a central tenet of the EMBARC program and one we implemented to make sure this is a safety priority for every mariner aboard a vessel.

While we are still working to fully assess the many provisions included in the NDAA related to EMBARC, I'll emphasize that developing a final rule on EMBARC is a very high priority for MARAD.

I will also note that the NDAA also requires certain vessels sailing under the U.S. flag to implement specific measures introduced in EMBARC regardless of whether they ever train a cadet.

I know that culture change is happening-and I emphasize to you that EVERYONE in this room has a critical role to play in supporting continued change.

And before I move on, let me again thank General Van Ovost, Admiral Wettlaufer, and everyone at TRANSCOM and the Military Sealift Command for their support of our EMBARC program and for providing the sea time needed to ensure the Merchant Marine Academy Class of 2023 will graduate on time in June.

SEALIFT ENTERPRISE

Let me also discuss everything else MARAD is 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. MARAD is in its 77th year of maintaining the Nation's reserve of sealift ships, including the Ready Reserve Force fleet, which as of today, is a fleet of 45 vessels that we maintain on a reduced operating status to be ready to sail within five days of activation.

Seven sealift vessels are being transferred from MSC to MARAD at the direction of the DEPSECDEF and we are taking on the role of the "single surge fleet manager."

We are also in the process of conducting the urgent recapitalization of this fleet. In March of last 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 FREEDOM, joined the Ready Reserve Fleet as the 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) with 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 and work should be completed this spring.

While this is the "worst" market timing to buy ships, we are nearing the purchase of the next several ships-newer RO/Ros-to join the RRF. And we're not stopping there as the current authorization allows us to purchase 9 ships in total.

Granted that we'll still need many more after that, and we will work with Navy and USTRANSCOM on the pathway forward with Congress.

In the 2023 National Defense Authorization Act, MARAD was directed to develop a Roll-On/Roll-Off ship design for the construction of 10 new vessels for the RRF to begin in 2024.

The NDAA also directs MARAD to enter into an agreement with a commercial Vessel Construction Manager to build the new ships-following the management model we are using to construct the new National Security Multi-mission Vessels (NSMV).

Of note, no funding was appropriated in FY 2023 for this effort.

That said, let me say that these provisions expand on the incredible work we have ongoing building the NSMVs.

Just a couple of weeks ago, I was honored to attend the "first steel cutting" in the Philly Shipyard for the fourth NSMV, the LONE STAR STATE.

That's right we now have four NSMVs under construction, with the EMPIRE STATE already launched.

We will take delivery of EMPIRE STATE later this year. And then 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.

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 vessels-the first that MARAD has built in six decades-are also unique because we are using commercial best practices to design, build, and manage them 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 is delivering at average program cost of $322 million per ship.
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.

And the ships are being built to American Bureau of Ships (ABS), Coast Guard, and SOLAS requirements, and fully comply to be eligible for a coastwise endorsement under the Jones Act.

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.

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

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, and the Tanker Security Program. Let me talk about these briefly.

Maritime Security Program

While MARAD's Ready Reserve fleet provides critical 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.

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

Last year, I testified before the House Subcommittee on Coast Guard and Maritime Transportation regarding our cargo preference programs. As I said then, 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 at least 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.

The 2023 NDAA has directed MARAD to implement a final rulemaking within 270 days of its passage.

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 considered several new policy efforts to do so.

As you know, one of the current challenges with meeting cargo 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 proposed that Congress eliminate the 3-year period that vessels entering the U.S. flag must currently wait before they are eligible to carry civilian agency 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. In return, once under the U.S. flag, the vessels would be restricted from flagging out for 3 years.

Unfortunate, this proposal was not adopted by the Congress.

Tanker Security Program

Finally, as I know you are aware, 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.

In response to this study, a new Tanker Security Program, or TSP, was created. The TSP, which will be modeled on the highly successful Maritime Security Program, will be comprised of active, commercially viable, militarily useful, privately owned product tank vessels.

I am pleased to report that at the end of last year, MARAD issued the updated Voluntary Tanker Agreement and an Interim Final Rule.

And the application period for tankers that want to apply to enroll in the TSP closes on February 17th.
We anxiously await the review process to award the new TSP agreements which increase the number of tankers under our flag.

I also note that the NDAA authorized the TSP to grow to 20 tankers in FY 2024, and the program has been funded at $60 million in each of the FY 2022 and FY 2023 appropriations measures.

CONCLUSION

As I close, let me reiterate the key frame within which to see the critical importance of the U.S. merchant marine.

By providing strategic sealift, our merchant marine constitutes our nation's "fourth arm of defense" and has been historically organized, trained, and equipped to perform three essential functions: sea control, power projection, and maritime security.

Our merchant marine-including the ships under the U.S. flag and our mariners-are critical to strengthening national and economic security, and expanding our world presence.

I greatly appreciate that the Navy League of the United States always carries this message while recognizing the service of our citizen mariners and the U.S.-flag ships on which they sail. Thank you for that.

The Maritime Administration is working to ensure that our mariners have the ships, 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, recapitalizing the Ready Reserve, pioneering new models to build ships on time and on budget, and supporting our mariner pool and advancing culture change throughout the industry.

Through these efforts, we are working to ensure that our sealift enterprise is ready to deliver for our nation!

Thank you for the opportunity to join you today!

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