Horizon Lines and a Jones Act rival have been slapped with another lawsuit stemming from a US federal antitrust investigation into price-fixing along domestic trade routes.

In 2009, Santa Maria discovered a new U.S. Department of Transportation grant that might support building new marine highway ships in partnership with ports looking to expand shipping.

The Obama administration’s 2009 American Recovery and Reinvestment Act authorizes $1.5 billion in grants for transportation applications that emphasize long-term economic growth, transportation infrastructure improvements and long-term job creation. These are known as TIGER discretionary grants (Transportation Investment Generating Economic Recovery).

Marine highway ships capable of reducing long-haul trucking via ships can address TIGER grant criteria for “port infrastructure investments including projects that connect ports to other modes of transportation and improve the efficiency of freight movement.”

In May of 2009, the grant possibility was brought to my attention by my old “wing man” Butch Crane who read about it on the internet and forwarded a reference.

As soon as I read the grant application information, I knew the marine highway concept would be a strong candidate for the TIGER program. The problem was that we needed a public agency partner-such as a port- to sponsor the project on our behalf and we needed one fast. What we envisaged was developing a shipping service that could reduce long-haul trucking along a specific highway corridor. Next we needed the public agency, a city or port, to sponsor the grant and have the grant pay for construction of the ships and terminal handling equipment including a crane. But first we needed to find a place to operate the service.

I called our contractor Dan Snitchler and warned him that we were gearing up for another attempt to get a ship in the water. I asked Dan, who lives near Bremerton, Washington to drive to Portland, Oregon and look at some possible shipbuilding sites along the Columbia river that a lawyer friend had suggested.

A year earlier, in the summer of 2008, Dan and I had traveled to Holland to look at several shipyard sites organized by engine room designer, mustard provider and friend, Willem Visscher.

Over the years, I was losing credibility with more and more people, Dan and Willem now formed a small group that still kept faith that I would somehow find a way to get a ship in the water.

The visit proved very useful because Dan’s construction expertise helped him visualize how the design of Dutch shipyards using small plots of land, could be transposed into a U.S. setting and result in a cost-efficient shipyard design. As a result, Dan was developing the expertise to oversee the design and construction of a facility in a number of different settings.

A Green Ship Possibility For The Columbia River

Dan’s trip paid off the next day after he drove along the Columbia river east of Portland. That evening he called to tell me that he had seen a very promising site at the Port of the Dalles, a town about an hour’s drive east of Portland on the Columbia river. Dan met with a port official and reported that there was a possible twenty-acre site that might be suitable for a shipyard and best of all it was located on a rock base!

The importance of this is that when we had tried to design drydocks in muddy places like Raymond, Washington and other proposed waterfront sites, the soil would have required substantial piles be inserted into the ground to support the heavy weight of a drydock and steel hulled vessel. At the Dalles site, this would not have been the case. Dan believed we could blast a drydock out of the rock giving us a natural stability that would save millions of dollars in piling and related costs.

A week later, I flew up to Portland and drove out with Dan to see the site and meet with one of the port commissioners, the city manager and several business leaders. I explained that the port could sponsor our TIGER grant proposal to build small fuel-efficient ships to serve Columbia River ports and feed them into the Port of Portland. The new Dalles shipyard could generate 60 jobs at the outset with more jobs later.

The shipyard would act as a catalyst for green ships and promote more waterborne traffic along the Columbia River. This would take trucks off Oregon and Washington roads adjoining the river, create new business for the ports and replace trucking and old tug/barge engines with modern fuel efficient marine engines. I was confident that the new ships’ fuel savings would be so overwhelming that Santa Maria could compete with a truck or tug/barge.

The officials at the meeting were supportive, but we needed to do more market research to identify potential customers for the Columbia River service.

Dan and I drove on from our Dalles meeting and went up river to Pasco, Washington, Umatilla, Oregon and Lewiston, Idaho. The vistas along the Columbia were breathtaking and so were the Columbia river dams that had developed a massive hydroelectricity capability, supported irrigation, farming, flood control, and a series of locks that expedited vessel links from Lewiston, Idaho westwards to Portland and the Pacific Ocean. We hoped to utilize the hydroelectric power from the dams to support new container cranes and ships that would be plugged in to shore power while loading and unloading. These were small steps but they would further reduce emissions and fuel consumption and shift the vessel operation to a renewal energy source – water.

During our talks with port officials and shippers, Dan and I discovered that the mood amongst the ports was grim because of declining ocean-carrier vessel services at the Port of Portland. The economic downturn meant that carriers were reducing the number of ports they served and Portland lacked sufficient volume to justify the continued number of vessel calls. As a result, there were fewer carriers stopping and fewer opportunities for the Columbia river ports to export and import by river transport. The situation was so bad that the Port of Pasco shut down its port operations. So, instead of shipping containers by water to Portland, the biggest Pasco agricultural exporter was trucking its export containers to the Seattle/Tacoma ports at a huge expense.

The Columbia port officials expressed frustration with the lack of support from Portland and were looking at ways to by-pass the port by shipping loads on trains going to Seattle/Tacoma or via a tug/barge service. The problem was the tugs were slow and the rail service was spotty and delays frequent. So the challenge for Santa Maria was to develop a strategy to help Portland and the other ports.

Dan contracted with an engineer to produce plans for the new shipyard based on concepts developed by our shipyard consultant, Arie Baars. Within a matter of weeks Santa Maria had detailed drawings for the proposed Dalles shipyard and Dan began getting bids for the cost of construction.
Linking Columbia River Ports To Asia

To develop a new marketing strategy, Dan and I persuaded the Dalles port director to arrange a meeting with a Portland port official to see if we could come up with a strategy to revitalize the river ports. At the meeting, the Portland official was sympathetic to the plight of the smaller ports, but felt Portland was a victim of the big ocean carriers’ cutbacks and could do little to help. We suggested applying for the TIGER grant to help build a fleet of new vessels to reduce fuel, emissions and travel time required by the older tug/barges serving the Columbia river ports.

To complement this, we proposed that Portland work with us to charter a small fleet of foreign flag vessels to make calls at Portland and provide direct service to major export markets in Japan, Korea and Taiwan. With the global market decline, charter/lease rates were cheap for foreign flag vessels (U.S. vessels were legally required only between U.S. ports) and so we could contract for these vessels at a low rate. The big cost was loading and unloading the containers from the ships. Some shippers showed interest until we told them that their freight rates might go up as much as $1,000 per container. This was inevitable as the ocean carriers were increasingly reluctant to continue to subsidize the cost of trans-oceanic freight. Even so, the higher freight rates could be reduced and shippers make money by establishing a more customized service utilizing the new river ships and onto the smaller foreign-flag ships to carry the ocean freight. With that service, Oregon, Washington and Idaho shippers could reliably retrieve empty containers and fill them back up with cargo for the next export shipment. The reliability of sourcing empty containers based on the existing ocean carrier service was a problem, because the supply of containers varied. This was the hidden cost of the low rates provided by the ocean carriers. Under our new plan, there would always be an adequate supply of empty containers for the shippers, because the participants in the service would always get their empty containers back when the outbound ships returned with their inbound empties. We proposed a cooperative-type service in which the participants would control their own destinies and not rely on variances in the ocean carrier service. In any case, the ocean carriers’ focus was on imports to the United States, not exports from the United States. Under the Santa Maria, proposal Columbia river shippers could plan on growing their business and sales knowing they had a specific number of containers to fill for each vessel sailing. Unfortunately, shippers did not want to make the upfront investment to lower their energy costs and reduce their dependence on trucking. In fact, one port official warned me of “push back” when shippers learned of a scheme to raise their freight rates, even though it would lower them in the long-term. A final factor in the equation was that the decline in the U.S. dollar was already making U.S. exports cheap in Asian markets, because Asian currencies were increasing relative to the U.S. dollar. Unfortunately, we could find no backers so the water service opportunity would have to wait for another day.

Rejection By The Port Of Portland

Dan and I did not give up: we tried to build support for our cause by inviting Portland port officials to meet with the port executives of Umatilla, Dalles, Pasco and Lewiston at the end of July, 2009. The meeting got off to a good start with the small ports sharing their concerns. Then a Portland official announced that his port was also seeking a TIGER grant and did not welcome competition from the other ports, because it might undermine Portland’s chances of getting the money.

I took issue with this implied disrespect to the smaller ports by the Portland port official and re-iterated this message to a senior Portland official the next day. I thought we had come to an understanding, but in a recap memo afterwards, the official criticized our efforts to help the Columbia river ports as unworkable. So the chance of working with Portland and developing an alternative strategy for the Columbia river ports was lost.

The Adventures Of Developing A Green River Ship Design

As Dan and I struggled with the politics, I needed to make an emergency trip to Holland to find a design that would meet the Columbia river needs and help us qualify for the TIGER grant. Our old naval architect Hans Stam had left his old company and had gone to work for a German shipyard. A second Dutch designer did not provide river craft designs and things might have gotten very grim except for the intervention of my old friend Willem Visscher, who had arranged the shipyard site visits that had been so useful in 2008.

This time I asked Willem to find us a new ship designer and even though he was just going on vacation, Willem found the time to help and off we went.

A German designer was advertising his vessel as promising big improvements in fuel efficiency as an inland waterway carrier. We could get a first hand look, he said, because the vessel was stopping at a small river port in Germany not far from the Dutch border. The German designer called me to tell me his vessel was ideal for what we wanted to build in the United States, but still had some problems to be ironed out. Willem drove us down to the small German port where we found the vessel and discovered what the small problems were. While I diverted the ship designer’s representative so he could tell me what a great innovative vessel we had before us, I asked Willem to talk with the vessel’s captain and get at the truth. The captain told Willem that the new vessel had a number of design flaws including a new front end (the bow) that was going to need to be replaced! Even better, the captain said the vessel had so many other problems that the original crew he sailed with had abandoned ship! The skipper was only staying on board out of loyalty to the owner.

Clearly, we needed an alternative. The next day, Willem drove me to his office at Wolfard & Wessels Werktuigbouw, which produces engine room designs. The company has been very supportive of Santa Maria in the hopes that we will one day, finally, generate them so income. At the office, Willem asked his colleagues for suggestions as to who might help Santa Maria design a new river carrier. Franklin Advocaat, a senior engineer, recalled working with a small group, TSD Engineering, near the city and port of Rotterdam. He picked up the phone and called the office and arranged for Willem and I to meet TSD the next day.

When we arrived, Wiboud le Nobel, the owner, and Frank Leendersten, TSD’s manager, showed us some existing designs that we could adapt for the river service. While driving down to Rotterdam, I called my old friend Tiijs Verschoor, the retired Dutch captain and shipowner, and discovered that he knew Leendersten and gave him a solid endorsement. So within the space of a couple of days of my arrival in Holland, we found ourselves a new designer and design that offered to be fuel-efficient and capable of reducing carbon emissions. Saved by my Dutch friends, I flew back home.

At this point, we would be proposing TIGER funding to build a new shipyard, new ships and provide new container cranes that operated with cleaner electrical power instead of diesel power. I was worried that we were trying to do too much and that the U.S. Department of Transportation people might not support financing a new shipyard. So I developed a fallback position by asking two Columbia river shipyards to provide us bids on building the ships. If we got the approval for the shipyard that would have been even better, but either way we could finally get Santa Maria ships built.

Then disaster struck, again.

The Port Of The Dalles Rejection

One month before the TIGER grant application was to be submitted, the Dalles port director sent me an email announcing that the port was withdrawing from the project because it seemed too ambitious and challenging. We had been getting some mixed signals: port officials did not seem to want to part with the waterfront site for a shipyard (the real estate issue again). So even though they had agreed to our letter of intent to buy the property, in part because of the number of jobs a shipyard would bring to the community, the port decided to change its mind.

Our Oregon legal counsel, Kit Jensen, contacted the port’s attorney by phone requesting an explanation and was told that the internet giant, Google, had renewed its option on the land that the port had promised to sell to Santa Maria for a shipyard. So while we were furiously working to develop a marketing plan for the river ports, taking on the Port of Portland, working with the local community college to develop a welder training program, soliciting bids from local contractors and meeting with city and federal officials about the necessary permits, Dalles port officials were secretly negotiating a deal with Google for the land. The Dalles port officials had been less than candid with us, and many people in town were upset at the turn of events. Unfortunately, there was no time to fight this. The TIGER grant application was due on September 15th, 2009 and we now had only four weeks to find a new sponsor and develop a new trade.

Teaming Up With The Port Of Astoria

Luckily I had stayed in touch with officials at the Oregon Port of Astoria, located at the Pacific Ocean entrance to the Columbia river. Santa Maria and the port had been working together to try and develop a waterfront industrial site, North Tongue Point for shipbuilding and a possible container ship terminal. The private owner of the property had indicated an interest in selling the property but negotiations had dragged on and on and so we had looked at other locations.

After our latest rejection, I contacted the port’s director, Jack Crider, and flew up from Santa Rosa to meet with him and look at his terminal space in downtown Astoria. It was small but sufficient to load and unload containers. We could start a vessel service there and hope the Tongue Point site became available. I began making phone calls to Pacific Coast freight experts and was told that Port Hueneme in Ventura County outside of Los Angeles had a banana import facility that brought cargoes from Central America that were subsequently trucked from Ventura to Seattle and Portland-a distance of around 1,000 miles one way. So Astoria might be an ideal port for this service. My contacts helped me develop a quick market analysis which projected employing two small container ships each carrying two hundred truckloads a week between Astoria and Port Hueneme. Bananas, apples and other goods were cargoes the ships could transport.

When we ran the financial numbers for the proposed ship, operations, cargo handling and fuel, we found that we could profitably run the service and cut the existing trucking rate by over 10% with the small container ships. The margin would be even greater if the service expanded so we could build bigger ships.

With that market analysis in hand, I called Jack Crider and proposed that the Port of Astoria include two container ships as part of Astoria’s TIGER grant proposal that also included upgrading the port’s rail line to the docks so as to eventually provide container rail service. That rail service could be used to transport containers by train between Astoria, Portland and Seattle/Tacoma further reducing the trucking costs, fuel consumption and emissions. Crider and I agreed that we might have a fit.

As an enhancement to the low-carbon service we had in mind, Santa Maria designed its ships so that engines would be turned off in port and all electrical needs supplied by cleaner shore power.
Santa Maria also brought an old friend from the 2001 Hawaii project, Brian Spain, together with the Port of Astoria to add an Austrian-built Liebherr mobile harbor crane to the application so that the port would have a new crane to perform its cargo-handling functions powered by electricity rather than diesel fuel. To our knowledge, Liebherr is the only mobile harbor crane that is powered by electricity.

Port And Union Concerns Over Marine Highway Shipping

The cost of container loading and unloading is critical to keeping a ship’s operation costs competitive with trucking. In some places, U.S. port and cargo-handling costs would make a profitable service impossible. On the Pacific Coast, the International Longshore and Warehouse Union (ILWU) represent dock workers who have had escalating conflicts about manning and costs with the Pacific coast employers: this resulted in the employers locking out union longshoremen in 2002 leading to major disruptions of foreign freight shipments in many parts of the United States.

For the ships to compete with trucks, the cost of loading and unloading containers needs to be maintained within a certain price range. The same holds true for pier leasing charges charged by the ports. Santa Maria has tried to convince ports and the ILWU that new Marine Highway ships will create new jobs and business for the ports, especially for the smaller ones. I continue that education effort.

I am a former ILWU member, myself, and worked at a Southern California warehouse. Ironically, the ILWU founder, Harry Bridges, helped increase new ocean carrier business to Pacific Coast ports by agreeing to a streamlining of longshore manning gangs for ships in exchange for increased compensation for workers.

Santa Maria obtained a budgetary figure for loading and unloading of its ships from a stevedore employing ILWU workers, but has as yet no agreement with the Ports or their stevedores. These figures have been shared with the Port of Astoria, which has raised no objection.

After my meeting with Jack Crider in Astoria I flew down to Los Angeles and drove up to Ventura County, where I met with the Port Hueneme director.

Tony Taormina is an old friend from the days I had lived in San Francisco. He told me that while he was supportive of the idea he would need to have his staff take a look at the economic pluses and minuses. Taormina warned me that the port’s analysis could result in rejection of the Marine Highway service even if the grant funds were approved by the U.S. Department of Transportation. So, we did not receive the Port Hueneme endorsement for the project by the time of the September application, which hurt our chances of success.

Port Of Astoria Approval

The Santa Maria team prepared for a pivotal meeting with the Port of Astoria commissioners to consider our proposal scheduled for Thursday August 27th. I asked Dan Snitchler to speak on Santa Maria’s behalf, as my mother had taken ill and I was flying out to Nice, France to be at her bedside.

I did not make it: my mother Athena died shortly before I got on the plane headed for Europe.

On the 28th, when I arrived in Munich to change planes for Nice, I got a call from Dan saying that his presentation helped persuade the Astoria port commissioners to include Santa Maria’s proposal in its TIGER grant application for an Astoria-Port Hueneme vessel service. This meant Santa Maria producing a new business plan for the service in record time. Fortunately our intrepid Copenhagen finance specialist, Bo Braestrup, went straight to work developing the financial projections for the plan while our freight experts fed him information on cargo volumes and rates. Kit Jensen and Dan provided additional support data. Bo and I had worked on so many business plans together that he was able to produce the document within a matter of days.

The grant proposal would allow the port to order the ships and charter them to Santa Maria. We envisaged an agreement whereby Santa Maria would pay for the cost of operating the vessels on its own account and also pay the port lease payments for the right to operate their ships. Oregon law allowed for ports to engage in such joint ventures. Santa Maria would market the vessel to shippers to generate revenues.

During the construction phase at the shipyard, Santa Maria would supervise the construction on behalf of the port and bring in qualified supervisors to over see the shipyard’s progress, costs and quality. Santa Maria would be compensated by the port through grant funding. The shipyard would be paid to build the ships and the designers’ costs.

In the event that Santa Maria’s venture failed, the ships would revert back to the port who would seek a new operator.

With the mission changed from a river service to an ocean service, I called Frank Leendersten in Holland and told him that the river boat design was out and a small ocean-going freighter was in. Luckily, the TSD people did not go in to shock and over the next couple of weeks developed a new design for an ocean-going vessel. The TSD team’s accomplishment in such a short period of time was something close to miraculous: they developed a very hydrodynamic design, teamed with Willem and his team to develop the diesel electric engine room and doubled the cargo-carrying capacity from its original configuration. We forwarded this design to a Portland barge builder, who provided us a price for the two ships that could be incorporated into the TIGER proposal.

The Champion Of Hopeless Causes

The Obama administration’s program had offered us a rare opportunity to fund the new ships using a government grant. As a demonstration project, the service could prove the viability of new green ships. In the long term, there will be no grants and the service must be economically viable enough for a financial lender to endorse. The federally-backed loan guarantees, proposed by the Green Marine Highway would provide a long-term solution. In either case, it is a federal initiative that gave us the best chance of jump starting the marine highway service.

Bo, Dan and Kit supported the Port of Astoria’s consultant, Vicki Goodman, who researched and wrote the TIGER application and miraculously by September 14th, she had completed the proposal and submitted it to the U.S. Department of Transportation before the September 15th deadline.

Unfortunately, in February of 2010, when the U.S. Department of Transportation announced the selection of TIGER grant winners, the Port of Astoria and Santa Maria were not among them. In looking at those applicants who did win, it appears that the addition of a port partner with the Port of Astoria would have strengthened our case.

So, I remain the champion of hopeless causes, but no cause is hopeless forever.

Mare Island was a sister yard to the Philadelphia Naval Shipyard, which had been successfully revitalized by the $400 million subsidy provided by Pennsylvania and U.S. funding. Today, the Philadelphia shipyard is a vibrant economic driver for the Philadelphia area and is building new tankers.

Years after the departure of the U.S. Navy from Vallejo, the Mare Island’s drydocks remain vacant. This is not an accident. The property is currently under a State of California public use requirement that stipulates marine uses that have yet to be fulfilled. Unfortunately, the California State Lands Commission gave temporary ownership of the land to a real estate developer — the Lennar Corporation — that rejected Santa Maria’s bids to build ships at the former shipyard.

While Santa Maria met all financial criteria requested by the Lennar Corporation, one of the largest U.S. homebuilders and the Mare Island drydocks landlord, two separate attempts to negotiate a lease ended in rejection.

Lennar officials, who were supported by Vallejo city officials, insisted they were not blocking shipbuilding at the site in favor of real estate development. They said they rejected Santa Maria’s proposals because we were a start-up company and our finances were, in their words, “questionable.”

Accusing Santa Maria of questionable finances was ironic since both Lennar Mare Island’s parent and the City of Vallejo declared bankruptcy in 2008 (see below).

In 2005, thanks to the efforts of our Dutch naval architect, Hans Stam, we received an expression of interest from a European shipbuilder. The shipowner invited us to submit a bid for the construction of a couple of small cargo ships at Mare Island. The opportunity could have demonstrated our ability to start construction with a small vessel and build an American ship for a foreign buyer.

The letter, dated September 19, 2005, sought a proposal to build “a series of five (5) short sea container vessels” capable of carrying 200 twenty foot containers and two general cargo ships with an option of two more. In all, a possible nine-ship order that would have created a new container shipyard on the U.S. Pacific Coast and help demonstrate the potential of our shipbuilding team and its capabilities.

A nine-ship contract could have created hundreds of new jobs and a new industry for California’s economy.

I presented the letter to the Lennar negotiators and pleaded with them to lease one of the vacant drydocks.

The Lennar negotiators refused and continued to stall lease negotiations for another year, when Lennar and the City of Vallejo cut off negotiations with Santa Maria.

The opportunity for Vallejo and California was lost.

When Vallejo city officials refused to intervene and California state officials continued to look the other way, I went to the Kiwanis Club in Vallejo to ask for help. I have been a Kiwanis member since 1989 when I joined the Santa Rosa Suburban club. Over the years I have received a great deal of moral support from fellow Kiwanians in Santa Rosa and elsewhere who have rooted for a small businessman attempting a new shipbuildingventure. Although I don’t have much to show for my efforts, fellow Kiwanians have kept faith with me in spite of the setbacks. It is what makes Kiwanis such a great organization.

And so I walked in on the Vallejo Kiwanis Club unannounced and asked for help. The members were startled to hear my story and in the absence of a speaker for the meeting that day, invited me to tell my story. The upshot was that one Kiwanian, Marilyn Nickles, thought reviving shipbuilding was sufficiently important for Vallejo to mobilize public support. Marilyn got on the phone and began calling former Mare Island Naval shipyard workers, such as Stan Golovich, and sympathetic community activists, such as Myrna Hayes. Thanks to Marilyn’s efforts, The Times Herald, the local newspaper, ran several stories about the dispute between Santa Maria and Lennar. I commissioned a poll of Vallejo voters, which found that over 60% of eligible voters favored re-establishing shipbuilding at Mare Island. Despite this, the Vallejo City Council refused to intervene.

In 2007, right before the California real estate collapse, Lennar sold its interest in LandSource Communities, which includes Lennar Mare Island, to the California Public Employees Retirement System (Calpers) for $707 million, according to the Wall Street Journal. In 2008, with the real estate market imploding, LandSource declared bankruptcy, “wiping out much of the Calpers investment”, the newspaper said.

Also in 2008, the City of Vallejo, the supporter of Lennar’s real estate plans, declared bankruptcy.

The San Francisco Bay Guardian noted in a June 13, 2008, story that LandSource’s bankruptcy undermined Lennar’s promises of economic development to Vallejo, San Francisco and other California communities:
“Just as folks in San Francisco are beginning to wonder if Lennar is planning to mothball the Hunters Point Shipyard in face of a $25 million funding gap (reportedly related to lowered land prices), comes word that folks in Vallejo are beginning to wonder what Lennar Mare Island’s June 8 bankruptcy will means for their city’s already strained finances.
On Sunday June 8, Lennar Mare Island LLC, which has been involved in redeveloping the former naval station at Mare Island for eleven years. petitioned for a Chapter 11 bankruptcy, along with its parent company LandSource and 19 other Lennar-related subsidiaries.
The move came several couple of months after LandSource defaulted on a $1.24 billion loan–and five days after the June 3 election, in which Lennar Homes of California spent $5 million to pass Prop. G, which gives it the right to develop luxury condos at Candlestick Point, as well as at Hunters Point Shipyard.
It turns out that while California public employees suffered loses from their Lennar investment, Lennar sold off most of its interest in advance of the LandSource bankruptcy and is now planning on buying back LandSource assets at a discount. The Wall Street Journal reported that Lennar is now poised to pick up assets from the LandSource bankruptcy “at a significant discount”. In a March 20th, 2009, issue headlined “Lennar to Buy Back Land at Discount,” the newspaper reported: “Now Lennar is negotiating with creditors of LandSource to create a new company that would acquire much of the land out of bankruptcy….”

In November of 2009, American homebuilders, including Lennar were beneficiaries of a $33 billion tax refunds or relief passed by Congress as part of an extension to unemployment benefits, according to a New York Times report:
“On Nov. 6, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009 into law, extending unemployment benefits by 20 weeks and renewing the first-time homebuyer tax credit until next April.
But tucked inside the law was another prize: a tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004. The tax cuts will generate corporate refunds or relief worth about $33 billion, according to an administration estimate….
Among the biggest beneficiaries are home builders, analysts say. Once again, at the front of the government assistance line, stand some of the very companies that contributed mightily to the credit crisis by building and financing too many homes.”

The report went on to say that money spent lobbying Congress by Lennar and other home builders focused on winning the tax refunds or relief:

“The Center for Responsive Politics reports that through Oct. 26 of this year, home builders paid $6 million to their lobbyists. Last year, the industry spent $8.2 million lobbying.
Much of this year’s lobbying expenditures were focused on arguing for the tax loss carry-forward, documents show.

Among individual companies, Lennar spent $240,000 lobbying while companies affiliated with Hovnanian Enterprises spent $222,000. Pulte Homes spent $210,000 this year.

That’s some return on investment. After spending its $210,000, Pulte will receive $450 million in refunds. And Hovnanian, after spending its $222,000, will get as much as $275 million.

Meanwhile, the bag that we taxpayers are left holding gets bigger and bigger. ”

Clearly, the independence of Hawaii Stevedores provided a terminal handling opportunity for competitors of Matson and Horizon and not surprisingly this situation was not allowed to continue. Horizon, which had employed Hawaii Stevedores to load and unload its ships, began efforts to buy the company in 2006. The acquisition was completed a year later. The disappearance of Hawaii Stevedores as an independent entity left no stevedore to load and unload ocean container ships at Hawaii’s major freight hub on Oahu.

Subsequently, in 2008, a U.S. Justice Department investigation into alleged price fixing in the Alaska, Hawaii and Puerto Rico markets led to some jail sentences in the Puerto Rico market. The trade magazine American Shipper, in its Oct. 2, 2008, edition, reported that:

“Five executives from Horizon Lines and Sea Star Line have agreed to plead guilty and serve jail sentences in charges resulting from an investigation into what the U.S. Justice Department described as a wide-ranging conspiracy to rig bids, fix prices and allocate market shares for customers transporting goods between the continental United States and Puerto Rico.

These are the first charges in the Antitrust Division’s ongoing investigation into collusion in the coastal shipping industry,’ the Justice Department said.

It’s not clear how wide-ranging that investigation is. The government has sought information not only from the other Puerto Rico liner carriers Crowley and Trailer Bridge, but also Matson Navigation, a carrier that serves Hawaii and Guam. Matson said earlier this year that it “understands that while the investigation currently is focused on the Puerto Rico trade, it also includes competitive practices in connection with all domestic trades, including the Alaska, Hawaii and Guam trades.”

In 2009, Horizon Lines posted a $31 million loss in the second quarter of 2009. This was related to the economic downturn and a $20 million settlement related to law suits linked to its pricing and competitive practices.

Horizon has a great deal of debt and concerns have been expressed about the company’s long-term viability. If the company were to go bankrupt, it may not be able to continue to operate, and it would leave Matson as the only carrier serving Hawaii and reduce competition in the Alaska and Puerto Rico trades. This poses a national security threat as well as a threat to competition. I attempted to warn U.S. Senators on the Commerce, Science and Transportation committee of the danger and continue to do so.

In May 2010, Hawaii shippers sued Matson and Horizon Lines alleging long-term anti-competitive practices by the two carriers, according to the maritime newspaper TradeWinds:

“Horizon Lines and a Jones Act rival have been slapped with another lawsuit stemming from a US federal antitrust investigation into price-fixing along domestic trade routes.

Honolulu-based Alexander & Baldwin and its boxship subsidiary Matson Navigation were also named in the class action suit filed by a consortium led by Hawaiian freight forwarders, according to documents filed in the US District Court for the Western District of Washington at Seattle.

The amended lawsuit, filed on behalf of shippers who have used the companies’ Hawaii to Guam shipping services, is one of nearly 35 class action complaints filed against Jones Act shipowners over the past two years.

According to the lawsuit, Horizon and Matson violated US anti-completion laws by coordinating a nearly decade-long conspiracy to hike fuel surcharges, reduce shipping capacity and allocate customers.
While the hits keep coming for coastwise shippers caught up in the US Department of Justice ongoing antitrust probe, most of the class action claims have focused on Puerto Rican trade routes.” [1]

1) TradeWinds, U.S. Anti-Trust Battle Wages On, June 1, 2010

• The new ships proposed in 2001 would have been far more fuel-efficient than the twenty-year old gas-guzzling ships operating in the Hawaii market.
• Matson and Horizon Lines passed on their higher ship fuel costs to shippers and consumers. Santa Maria’s fuel-efficient ships would have offered a cheaper alternative.
• The entrance of a new container shipping line would have enhanced competition in the Hawaii market.
• The new ships could have been deployed as part of a new fleet of shallow draft military sealift ships during the 2003 invasion of Iraq, and would have improved maritime supply lines.
• The new Santa Maria ships could have demonstrated the potential to shift truckloads onto ships, as detailed by the green marine highway proposal.
• The new ships would have given to the Bender shipyard a jump on building container ships for the marine highway market.

Unfortunately, proposed Santa Maria shipbuilding site plans were rejected not only at Sparrow’s Point, Maryland in 2007, but also at sites in California, Oregon, Washington, Texas, Pennsylvania, Virginia and Georgia. A reason for most rejections was the desire by ports and other landowners to obtain a higher price for their waterfront property than is available from industrial users such as shipbuilders.

At the beginning of this story, I quoted the criticism of Santa Maria’s proposal to revive the Sparrows Point, Maryland shipyard by Maritime Business Strategies. In 2007, I sought the help of a marine finance expert at Bears Stearns to develop a financing strategy for the Maryland shipyard. Subsequently, Bear Stearns’ collapse in 2008 would begin the banking crisis.

As a client of Bear Stearns I arranged the meeting through my broker. During a phone call, the Bear Stearns banker — one of the top marine financiers in the United States — said it might be possible to finance our project. He doubted that Bear Stearns would support it, but he said he was interested enough to schedule a meeting and discuss a strategy that might help us win approval from other financiers, who would share the risk. The banker told me that the success of the new Aker Philadelphia Shipyard in building new U.S. tankers was a promising sign for investing in American shipbuilding. He thought that the conventional view that American yards were not competitive might be open to reevaluation.

The meeting was set up so that the banker could advise Santa Maria on a strategy. The banker was aware of the Ocean Blue effort (see earlier) to compete in Hawaii, and I hoped this would lend credibility to a revival of Santa Maria’s shipbuilding efforts.

The problem, of course, was that if Ocean Blue, which had already built container ships, could not obtain investor backing, how could Santa Maria?

That still did not prepare me for what happened at the Bear Stearns meeting. In February of 2007, I arrived at the bank’s New York office and was ushered into a conference room where the banker shortly appeared. By prior arrangement, Bo Braestrup was once again on the phone from Copenhagen, prepared to explain how the Santa Maria ships built at a fixed price could undercut Matson/Horizon and be profitable in the Hawaii market. It was a drill that we had done many times before with the Maritime Administration, American Marine Advisors, Trust Company of the West and others.

I never got a chance to make my case.

From almost the moment I began speaking, the banker told me that I was wasting his time. When I tried to continue my presentation, he began shouting, “You’re not listening to what I’m saying!” When I still didn’t get the message, the banker insisted that I leave his office.

While it was difficult to follow much of the shouting, it was clear that the banker no longer thought much of the idea of financing a fleet of new American-built ships. He gave the strong impression that he thought this was speculative nonsense and hopeless for finance approval.

At no time during our meeting, such as it was, did the banker provide me with an evaluation of Santa Maria’s proposed service. Santa Maria’s basic argument — that new fuel-efficient ships could undercut the freight rates charged by older, less efficient ships — was not considered.

Ironically, Bear Stearns was taking the lead in speculative banking investments that caused its own collapse in 2008. The banker who met with me is in marine finance and had nothing to do with this. However, his disinterest is further evidence of why the United States needs a new financing vehicle to support new shipbuilding.

After the rejection at Bear Stearns, we lost any hope of leasing the Sparrows Point drydock, because we continued to lack the financial backing to build ships. The lack of Title XI funding also hurt our prospects. The Sparrows Point owner decided to sell the property rather than lease it to us.

What we discovered was the reputation of American shipbuilders was so negative with financiers that even the fund manager of the union representing shipyard workers would not lend money for us to build a ship. There were exceptions to this in the construction of tug, barge and oil drilling platforms where American builders had a good reputation. The problem was in self-propelled ships.

We had had prior contact with the manager representing the Boilermakers Union, which operated a fund to invest in new shipbuilding projects that employed Boilermaker union members.

As we had a shipbuilding site in mind nearby, I approached the Boilermakers Union in Portland, Oregon and proposed that we negotiate a contract to employ union members at our shipyard in exchange for applying to the shipbuilding fund to provide us the necessary loan to build the ship.

The Boilermaker fund was managed by Trust Company of the West (TCW), a company which managed $79 billion in equities and fixed income assets in 2002 when we went to visit them.

In 2009, TCW advertised that among its “flagship products” are “Mortgage-backed Securities.”  This is an investment that helped trigger the 2008 financial meltdown. On its website, TCW reports that its assets went from $147 billion in 2007 to $103 billion in 2008.

The union fund was run by a TCW manager who I first met in his New York office in 1998. He had sent me a letter expressing interest in our venture to build new container ships.

With that end in mind, we opened negotiations with the Boilermakers local in Portland, Oregon. In our negotiations, we agreed to employ unionized shipyard workers, some of whom had recently lost their jobs. Santa Maria and the union agreed on a contract in record time. The union leaders wanted to see us succeed. The contract was, however, contingent on Santa Maria receiving financing from the shipbuilding fund run by the Trust Company of the West.

In October 2002, Izzy and I traveled to New York with Larry Cohen, our legal counsel, to make our case to the TCW manager. Bo Braestrup, our financial advisor, was on the telephone from Copenhagen.

The manager emerged from his office holding our business plan in hand, and proceeded to give us a lecture about the inadvisability of challenging Matson and questioning whether there really was a market for another carrier in Hawaii.

We argued that many Hawaii shippers objected to the high freight rates, and we had shippers’ written statements to prove it.

We next discussed whether a start-up shipyard could get a performance bond. The manager was very concerned about the issue. He did not know that while these bonds are standard for the construction industry, they are not standard for shipbuilding.

Steve Johnsen, the former president of Norfolk-based Flagship Group, Ltd., has been Santa Maria’s insurance advisor for years, as well as an advisor on shipbuilding sites and many other issues. Johnsen explained the performance bond issue to me in a June 2009 email that reflected similar conditions in 2002 when we had our TCW meeting:

“Performance bonds are a financial guarantee from an insurance company….. They are issued on behalf of shipyards as a financial guarantee of the bonding company at a limit of the value of the contracted job to provide funds that would complete the contracted job, when a shipyard fails to complete the job under the terms of the completed contract. In my thirty seven years of representing various building and repair yards, bonds have been very difficult to obtain no matter how financially sound…. a yard might be. The current economic conditions affecting the financial institutions, including insurance companies,  have only made bonds that much less available especially considering the already limited markets that might supply performance bonds, and  the limited number of yards seeking them, as well as  the fixed rates that are filed for this class of business. All in all, a rather daunting task for even the very best.”

In the absence of bonding, letters of credit have been used as a means of assuring completion. At our 2002 meeting, we agreed that a completion guarantee was necessary in case of a failure and that we would work to meet the TCW fund manager’s concerns.

We then went on to detail the managerial team we intended to bring in from Europe, the support from CIG and others, and pointed out that we would be hiring experienced Boilermaker shipyard workers from Portland, who  had the expertise to do the job.

It was clear the manager was not enthusiastic about our proposal and so I asked him to explain his concerns so that we could address them.

“I would rather put the money under a mattress than invest it in shipbuilding,” he answered.

Naturally, we were a little taken aback. This was, after all, the manager of the Boilermakers union fund. After some hesitation, I replied: “But we are employing American workers and Boilermaker union members who have lost their jobs.”

To which the TCW manager responded, “That’s irrelevant from a fiduciary point of view.”

In fairness to the manager, the concerns about American shipbuilding and cost overruns were well known.

I had to go back to Portland to tell the Boilermaker union officials that we could not obtain the financing.

In our case this would result in a decrease from a 13+ crew to a 9-10 crew size.

We submitted our application to the Coast Guard based on  a ship smaller than the proposed Bender ships. The vessel was based on an existing CIG design that had the capacity to carry 300 twenty foot unit (teu) containers and would operate from California to Hawaii.

Hans came to our rescue with this existing ship design following the AMA rejection, because Izzy and I could meet the equity requirements of a prospective banker. Unfortunately, we were not able to find financing from banks even for this smaller vessel.

So while the effort did not benefit Santa Maria, it provides for a lower manning platform so that future marine highway ships will be much more cost competitive.

We contracted for the services of  Frank Whipple, a retired U.S. Coast Guard officer, who I had met in Hawaii. Whipple was sympathetic to the need for change and in  February 2002,  arranged a meeting with Coast Guard Rear Admiral Paul Pluta and his aide, Captain J.P. Brusseau, whose responsibilities included marine safety. Frank, Virgil Elkinton, Izzy and I attended the meeting. I told the Coast Guard officers that, from both an economic and national security standpoint, the United States could not afford to continue its dependency on foreign flag carriers. I said that I believed that coastal shipping, as used in Europe and Asia, would inevitably come to the United States. It was vitally important that the Coast Guard review its manning regulations to take into account the more automated engine room designs in commercial vessels.

Izzy, as an experienced vessel operator and expert on marine propulsion, argued that foreign flagged ships operated safely with less manning than U.S. vessels.

Admiral Pluta told us that he was very sympathetic to our proposal. While serving in the 1991 Gulf War, he had become concerned with how many foreign flag carriers were transporting U.S. military goods into a war zone. Reducing that reliance would enhance national security, he felt.

The admiral felt that sourcing more military cargoes on U.S. vessels was important. He delegated authority to Captain Brusseau to work with us and develop a manning letter for our proposed 300 teu vessel that would recognize new automated manning standards.

Captain Brusseau moved quickly to address our issues, but he did run into substantial opposition from within Coast Guard ranks. Officers were concerned that reducing manning in the engine room would undermine safety. There was also concern about the how the maritime unions would respond, since they might challenge the Coast Guard’s actions.

Virgil Elkinton did an outstanding job of mobilizing support. He was a captain on U.S. Maritime Administration  and foreign flag ships. He was a former member of the American Maritime Officers union, and got his old union to endorse our position. Tom Bethel, now president of the AMO, sent an extremely supportive letter to the Coast Guard recognizing the need for automation and reduced manning.

Virgil also enlisted the services of Horst Sewerson, a retired chief engineer living in the state of  Washington, who was trained on European ships. Sewerson was able to articulate why the more automated engines were safe, and had sufficient back-up systems to identify an engine room problem without visual inspection.

As always, Hans Stam provided key support and documentation of vessel operations with automated engine rooms. Larry Cohen provided legal research and advice.

Another supporter came from Wartsila, the marine engine builder. Olli Koivisto and Rick Shilling, the U.S.-based sales team, provided valuable data that showed the automated engine rooms were standard and safe for foreign flag operators all over the world.

I was unable to attend the pivotal meeting with the Coast Guard in Washington, D.C., but Virgil and Frank Whipple did. I listened in by phone as Captain Brusseau chaired the meeting. Virgil reported that there were more than 15 Coast Guard officers the room.  Several officers strongly opposed changing crewing regulations, and I began to think that our effort was in danger of being rejected or postponed.

Then our captain, Virgil Elkinton, spoke. His speech invoked his years of experience as a mariner and captain, including his Gulf War service. He stated that change was being accepted all over the world in the maritime industry, but not in the United States. He expressed concern about the lack of responsiveness in the United States, and he challenged the assembled officers to embrace globally-accepted practices and working conditions that would help restore U.S. competitiveness. Virgil spoke passionately, in a strong, authoritative voice. He spoke with the voice of an experienced master mariner who had once again taken the bridge to command his ship.

The response was a respectful silence. Virgil had spoken the truth, and everyone there knew it. Santa Maria got its manning letter supporting more automated engine rooms, which would benefit all U.S. vessel operators.