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April 2008

Cutting Edge Business Models:SubseaMaritime SoftwareShipbuilding

Exclusive Interviews:USCG ADM Thad AllenMARAD Chief Sean Connaughton

John JanikPresident & CEO

Amy GardnerVice President Finance & Administration

John NorwoodVice President Business Development

April 2008

Designing a World of Power

the maritime executive 1

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executive achievementDeepwater and rOv technologyBY JOSEPH KEEFE

executive interviewJohn Janik, President and ceO, ePD, inc.BY tONY muNOZ

24case Study : ePDDesigning a World of PowerBY tONY muNOZ

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8 real talk: OilWith Dr. michael economidesBY MAREX STAFF

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Washington insiderWashington’s energy agenda awaits a New PresidentBY LarrY KierN

12 Nautical NodesBY BarrY ParKer

maraD’s New Focus utility, credibility and PartnershipBY JOSePh KeeFe

Looking Forward thad allen also honors the pastBY JOSePh KeeFe

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imOSintegrating Data to create Sound maritime Business StrategyBY marex StaFF

BOurBON Goes Down underthe Subsea market BeckonsBY JOSePh KeeFe

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upgrades & DowngradesBuy Low, Sell highBY JacK O’cONNeLL

18 managing “risky Business”Kommer Damen Sits on top of the Global Small vessel Shipyard marketBY JOSePh KeeFe

editorialBenchmarking the marex reader: Who are You?BY JOSePh KeeFe

6

NeW Featurecrossword Puzzle-by myles mellor

56

ePD Photos by tim Fulton

4 the maritime executive

editorialstaff

editor in chief Tony Munoz

[email protected]

managing editorJoseph A. Keefe

[email protected]

senior copy editorJohn J. O’Connell, Jr.

[email protected]

senior vice president sales & marketingBrett Keil

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sales & marketing executiveIrena Ortlani

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art director - partnerDaniel Bastien

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art director - partnerEvan Naylor

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internet services managerMatthew Miller

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sales associate - Germanic EuropeHansjorg Brans

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sales associate - Eastern EuropeMaciej Wedzinski

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published byTM Marketing Group, LLC

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editorial

JOSEPH KEEFEManaging Editor

Marine equipmentmanufacturers

59%

Ship owners, operators, managers, charterers, and brokers

Shipbuilders and repairers

16%

Naval architects, lawyers, consultants, and insurers

12%

6%

Government Other

5% 2%

Canada

Asia & Middle East

Scandinavia

Eastern Europe South &Central America

Other(Africa,

Australia,Misc. Island

Nations)

Western Europe & Mediterranean

38%

28%

8%

20%

2%3%1%

West Coast

Gulf Coast Midwest

East Coast

Other

29%

28% 15%

26%

2%

Markets Served: International Circulation: Domestic Circulation:Distribution of The Maritime Executive:

You’ve just opened up the maritime industry’s premier business journal. That’s a good start, but it barely scratches the surface of where I want to go with this edition’s lead editorial. That’s because I’m far more interested in why you read THE MARITIME EXECUTIVE than I am in securing your business, your print advertising or anything else even remotely related to all

of that. This is your business journal. The fact that we are still around, cranking out quality articles designed to help you better run your business and deal with the regulatory climate that impinges on those efforts, is ample testimony to that claim.

Over the past twelve months, and as I travel around the country to conduct interviews and attend trade shows, I constantly get asked the same question, over and over again: “I love the magazine, but – um – how are you guys doing?” We are doing fine, thank you very much for asking. And, if you are at this moment reading someone else’s copy of MarEx, then I invite you to visit our Web site and buy a sub-scription. While that’s about as far as you’ll ever see me cross the line from editorial into sales, I’m also aware that, without readers and subscribers, I’ll someday have to adjust my stock answer above.

I take a lot of soundings on a weekly basis from all phases of the maritime markets and the com-monly held perception out there – erroneous, as it turns out – is that our primary competitors consist of a handful of other well-established trade magazines. You may remember that I mentioned this twice in the first paragraph, but in case you missed it then, I’ll say it again: This is a business journal. As you turn the pages of this or any other back issue of MarEx, there is one thing that you just won’t find, and that’s a press release.

There’s a place for corporate news releases and we have one, too. It’s not in this magazine. Instead, we have a uniquely designed space on our weekly e-newsletter and, when you click on this highly visible “flash graphic,” you can read all about the latest and greatest in products and services designed specifi-cally for the maritime and shipping industries. If you haven’t yet signed up for that free vehicle, then I encourage you to do so as soon as possible.

Bringing your attention back to this print edition of MarEx, however, you’ll find no fewer than five case studies that detail various products and businesses. Some of those companies advertise in THE MARITIME EXECUTIVE; some do not. All of those articles have compelling stories to tell and go to the heart of how to successfully run a business in the toughest business climate that I can think of: mari-time. But that’s why you are here, isn’t it?

Defining our competition isn’t necessarily an apples-to-apples exercise. Certainly, I know who we compete with for print advertising. But when you place an ad in this publication (I’m dangerously close to that sales firewall again, I know) I would also hope that your motivation for doing so is to reach a far different audience. Enough said. And you’ve got work to do, in any event.

Waiting for you and starting on page 16 of this edition of MarEx are exclusive interviews – conduct-ed within 24 hours of one another – with the two men who, between them, largely control the maritime regulatory climate in America today. Regardless of what you think of MARAD Chief Sean Connaughton or Coast Guard Commandant ADM Thad Allen, you will surely agree that some of what they have to say is interesting. I’m certain that a good portion of it will someday, maybe sooner rather than later, impact your bottom line.

Thanks for picking up this edition of MarEx and tuning in. I’m going to go out on the proverbial limb and predict that it won’t disappoint you. I should clarify one more thing, however: “How we are doing,” down the road, depends largely on you. And no one has ever been denied the opportunity to have their voice heard in MarEx. Don’t hesitate to let me know your thoughts on anything in this maga-zine or, for that matter, our e-newsletter. The issues and subjects that we touch upon online and within these pages in the future should revolve around you and your business. And they always will.

Benchmarking the MarEx Reader: Who Are You?

MarEx

MANAGING EDITOR JOSEPH KEEFE can be contacted at [email protected] with com-ments, input and questions on this editorial or any other piece in this magazine. The Maritime Executive welcomes your participation in our editorial content.



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executiveachievementexecutiveachievementexecutiveachievement

In the middle 1980s, and with the oil boom long since gone, the city of Houston literally emptied out as thousands of offshore workers lost their jobs, their homes and, per-haps more importantly, the business of off-shore oil development lost its core of skilled labor. Most would never return. At the time, crude oil prices dropped to as low as $17 per barrel in an atmosphere where most business models said that a minimum price of $25 per barrel was needed in order to make offshore exploration and production anywhere close to being a profitable venture.

In recent weeks, the price of a barrel of crude oil has exceeded and settled out, at the close of several trading sessions, at more than $110 per barrel. Although that number includes a healthy allowance for a quarter century of inflation, there is little argument that the business of offshore, deepwater oil exploration will enjoy a period of sustained, robust growth. Hand-in-hand with that met-ric is the reality that anyone capable of design-ing, building and supporting a wide range of technologies and systems for remote interven-tion operations and applications will be well-positioned to experience not only substantial revenues, but also real growth. One such company that appears to be ideally ready to

meet the coming deepwater challenge head-on is the Aberdeen-based Triton Group Holdings (Triton). This did not happen by accident.

Martin Anderson: More Than an Idea Man

Martin Anderson is the Chief Executive Officer of Triton, appointed CEO in February 2007 when Triton Group was established following the acquisition of Perry Slingsby Systems. Before that, he was Managing Director and CEO of Perry Slingsby, a posi-tion he had held since 2003. But Martin has worked in the oil and gas industry since 1984, mostly in the subsea construction project management and contracting sectors. And while his undergraduate degree in Offshore Mechanical Engineering and his MBA make him a nominally good choice to run this sort of outfit, it is ultimately his vision for what is to come and how the Triton Group will fit into it that is the cornerstone of the Triton “buy-and-build” strategy. What that strategy entails makes a great deal of sense.

Triton Group Holdings: Narrow Focus, Big Ideas…

Triton is an international group of busi-nesses offering a range of control system-

based products and complementary ser-vices. Products include the widest range of market-leading electric and hydraulic ROVs for inspection, survey and light intervention applications, and deepwater heavy construc-tion applications.

The Group also offers a comprehensive range of ancillary remote intervention prod-ucts and tooling systems as well as operation-al services such as training programs, offshore personnel recruitment, equipment rentals, management and servicing. Today, Triton

Deepwater and ROV Technology: Business Models That Work

triton Group Goes Deep by Building From – and for – the core

martin anderson, ceO, triton Group

By Joseph Keefe



consists of six highly complementary compa-nies, each acquired within the last 14 months. Those firms include Cynergetix, GEMS, Perry Slingsby, Subco, UKPS and Sub-Atlantic Ltd. All of them revolve, in some shape or form, around subsea activities, deepwater markets and the business of ROVs.

The Triton Business Model – And a Case Study Comparison

Anderson calls the Triton business model, “Buy-and-build.” What that means is that he and Triton have set out on a course to build a suite of complementary companies that can benefit each of the other components while driving interior, organic growth of the individual parts. A casual observer might conclude that Anderson could de clare “game over” or “mission accomplished,” especially after examining the already impressive suite of companies that he has already – and rather quickly – amassed. But Anderson is anything but done.

The Triton Group is a 100-percent pri-vately held firm, with the private equity firm of SCF Partners as the primary shareholder. There are, of course, any number of venture capital and private equity investment firms out there that buy, sell and ultimately hope to profit from that cycle of capital invest-ment. Sometimes a venture capital firm will buy a company with a set formula, unique to its particular investment strategy, with the ultimate intention of shedding that particular component after building value in the busi-ness. Still others buy a company with the intention of doing nothing more than break-ing up its individual product lines and selling the parts for more than it paid for the whole. The Triton philosophy is nowhere to be found in either of these business models.

J.F. Lehman & Company, run notably by its namesake and former Secretary of the U.S. Navy, buys companies within its core areas of interest: typically aerospace, maritime and military applications. With the intent of making those companies better, stronger and often increasing employee headcount, it has

been enormously successful at the strategy. Built into all of that, however, is the knowl-edge that the firm will someday shed that particular asset once the corporate financial goal has been realized.

At the Triton Group, Martin Anderson has made it a point to accomplish the same JFL-inspired goals with each of his six firms, with one notable exception. He insists, “Unless there is a reason to sell, then we will keep all of our assets. Ultimately, what is right for Triton is right for business.” That having been said, Anderson also states, “We are keeping all of our options open.” In the meantime, the Triton suite of highly technical companies creates economies of scale not previously pos-sible, eliminating the middle man in certain transactions and combining infrastructure to provide more efficient delivery of products and services.

Group Growth – Not In-vestments: Carefully Chosen Components

Staying true to the Triton goal of ensur-ing that each acquired component provides value to the core goals of the Group, Martin Anderson has assembled a logical and sequen-tial line-up with which to move forward. Starting in February 2007, Triton Group Holdings acquired Perry Slingsby Systems Ltd. and Perry Slingsby Systems Inc. (PSS) from Technip. At the time, Triton Group Holdings was a new entity, established specifically for this transaction with the principal shareholder being the Houston-based SCF Partners. As an immediate signal to industry of the nature and intent of the Triton Group, the manage-ment team of PSS became investors in Triton Group Holdings along with SCF.

Thus, with the acquisition of PSS, the strategy of developing an international group capable of designing, building and support-ing a wide range of remote intervention products and technologies was born. This move was quickly followed by five others, starting with the purchase of Sub-Atlantic Ltd. in April 2007.

Also based in Aberdeen, Sub-Atlantic designs and manufactures small to medium-size electric ROV systems and components. In addition, its hydraulic thrusters are sup-plied to the vast majority of work-class ROV builds. Sub-Atlantic’s core business of small video ROVs immediately plugged what Martin Anderson characterizes as “a prod-uct gap” in the Perry Slingsby portfolio. In fact, Perry Slingsby was already a customer of Sub-Atlantic at the time of the purchase. The two firms are expected to provide good synergy between their product lines as electric technology evolves in response to the need for deepwater construction vehicles to provide improved maneuverability via lighter vehicles.

The Sub-Atlantic purchase was followed by a flurry of “buy-and-build” activity by the Triton Group in August 2007. The addition of UK Project Support Limited (UKPS) to the Triton fold gave Triton a new and immedi-ate dimension to offer to industry. Supplying ROV and technical personnel to the subsea oil and gas construction industry worldwide since 1985, UKPS has also developed, along the way, one of the biggest databases of ROV, survey and other technical personnel disci-plines available to the subsea sector. Its tech-nical expertise in the use of ROV and subsea equipment has the potential to help any of the other Triton companies as they improve what they manufacture; market what they sell, and contribute to a myriad of other tech-nical specialties.

The acquisition of Subco, also in August 2007, brought a new arrow to the Triton quiver of subsea/ROV services. Subco, while a relatively small company to begin with, is notably a specialist in the rental of ROV equipment. Triton’s ability to enhance its ROV sales and delivery schemes was an immediate byproduct of the Subco purchase. Now, Triton was uniquely positioned to provide a tempo-rary replacement to a client (who might have lost an asset through damage or in a repair period), while providing an extended building time for one of its manufacturing arms. And, of course, in this way a Subco lease would

been enormously successful at the strategy.



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Culminating an extremely busy August for the fledgling Group, Singapore-based Cynergetix was acquired for the primary pur-pose of providing a bigger presence for Triton in the region. Cynergetix services the offshore oil and gas industry, in particular the inspec-tion, diving subsea engineering, survey, main-tenance and Remote Operated Vehicle (ROV) sectors of the wider Asia Pacific region. Already a PSS-registered service agent at the time of the purchase, Cynergetix now oper-ates as the Triton Group’s “support center,” further cementing its global footprint.

Rounding out the current Triton portfolio, and perhaps signaling to the rest of the busi-ness sector that it was anything but done, the acquisition of GEMS provides Triton with an important business advantage that it had not previously had the capacity to deliver. Martin Anderson adds, “We now offer equipment to market with complementary engineering and analytical data service.” With the deal com-pleted only in January of this year, Houston-based GEMS (Geoscience Earth & Marine Services) is a geophysical and geotechnical engineering consulting group providing services to a wide range of industries, includ- MarEx

ing oil and gas. GEMS has been involved in deepwater projects in the Gulf of Mexico and numerous projects worldwide. Its services include 2-D/3-D high-resolution geophysical assessments, geotechnical engineering/con-sultation, and integrated engineering sciences. Its U.S. Gulf Coast location provides ample warning to competitors that Triton is moving rapidly into the expanding offshore, deepwa-ter markets.

A Different Slant on Com-bining Assets to Create Economies of Scale

Martin Anderson didn’t invent the concept of combining complementary assets to create better internal efficiencies. At Triton, how-ever, he goes about it with a slightly different take on how that will work. Anderson adds, “By buying complementary businesses that already have good cash flow, good people and good market share, we create an atmosphere and infrastructure where we can generate organic growth from the sum of all the indi-vidual parts.”

Another less visible part of the Triton strategy is to keep the individual brands of the firm’s six components in place. This accomplishes many things, but in general

the Group’s philosophy is that the employees tend to be loyal to the brand and, in turn, the brand is loyal to the employees. Beyond this, Triton maintains a firewall of sorts between the various brands, satisfying external legal requirements as well as driving internal growth of the individual parts. In the end, though, Anderson says, “This is very much about Group growth as opposed to just investing. We invest in companies that are already interested in growth and exhibit an entrepreneurial spirit.”

Martin Anderson declined to be more specific about what could come next for this interesting and exciting company. And while he refused to rule out the possibility of anoth-er layer of private equity or perhaps even an IPO down the road, it seems apparent that he and the entire Triton management team are intent on building a world-class business with global reach. With more than 100 years of combined experience contained within the expanded business portfolio – as well as the prospect of a rapidly burgeoning and robust deepwater building program – there may be little incentive to do anything more than con-tinue on down the path that he has already begun to blaze. And who could blame him if he did?



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washingtoninsider

Washington’s energy agenda awaits a New PresidentPresidential Primaries Signal New Presidential Leadership on Energy Policy

washington insider

By Larry Kiern, Winston & Strawn LLP

The Republican and Democratic party primaries have established that whichever party prevails in November, the election of the next President of the United States will mark a material departure from the Bush Administration’s pro-development fossil fuel energy agenda. For the past eight years, for-mer Texas oil men President George Bush and Vice President Dick Cheney proved reliable allies of the domestic oil and gas industry. However, in an important development, it is now clear that, absent intervening events or remarkable flip-flops by the remain-ing candidates, the next President will not advocate expanding domestic development of America’s enormous fossil fuel energy reserves. Additionally, the next President will likely depart from other key aspects of the Bush Administration’s energy policy.

As highlighted in this column in October 2007, oil and gas reserves in the United States remain immense, yet largely untapped. The U.S. Geological Survey estimates that there are in excess of 100 billion barrels of oil and 1,000 trillion cubic feet of natural gas in the United States. Importantly, these estimates do not even include the newly discovered reaches of Alaska’s continental shelf exposed by the receding Arctic ice cap. Yet these enormous reserves remain locked-up, firmly off limits to development. That means, of course, that these reserves remain wholly unavailable to help the United States cope with $110-plus per barrel oil and recurring foreign threats to cut off oil supplies to the United States. The policy decisions that led to this lock-up resulted from decades-old environmental decisions borne of the fears of

environmental harm from development that no longer presents a serious risk. Therefore, our next President will not likely push for development of either the enormous oil and gas reserves of Alaska or our nation’s coastal zone. The primary election results might also be interpreted as reflecting a national prefer-ence for a different energy strategy. Beyond their shared opposition to the development of domestic oil and gas reserves, the likely party nominees for President also share remarkably similar positions on other key energy policies.

The opposition of the likely Democratic nominees to development of domestic oil and gas reserves has been manifest from before the start of the campaign. No matter which Democratic candidate garners the party’s nomination, Senators Clinton and Obama have largely mirrored each other’s positions on energy policy. Importantly, they firmly opposed proposals to expand domestic fos-sil fuel exploration and production. Instead, they have both favored reducing America’s dependence on foreign energy resources by promoting the development of domestic renewable sources, e.g., biofuels, solar, and wind. They both have also called for an 80 percent cut in greenhouse gas emissions and enactment of a domestic cap-and-trade sys-tem to encourage businesses to reduce these emissions. While they both have declined to rule out expansion of nuclear energy develop-ment, they have expressed reservations about the persistent obstacles to expansion of that energy source presented by nuclear waste storage and economics.

Now that it is clear that Senator John McCain will be the Republican presidential

nominee, it is also clear that the domestic fossil fuel development agenda of the Bush Administration has sustained a severe setback. Like his Democratic opponents, Senator McCain has a consistent record of opposi-tion to opening the Alaska National Wildlife Refuge (ANWR) for development. He has also opposed other proposals to provide ener-gy companies incentives to develop domestic fossil fuel resources. Additionally, even if he proves amenable to opening offshore explora-tion, experience shows that this is very dif-ficult to accomplish. Coastal state senators from both parties have proven formidable obstacles to such initiatives, which floundered during the Bush Administration even with the support of the President.

Likewise, Senator McCain shares remark-ably similar positions with his Democratic opponents on other key energy issues. Like Senators Obama and Clinton, Senator McCain supports a sharp cut in carbon diox-ide emissions and enactment of a cap-and-trade system. He also supports government incentives for the development of alternative fuels. Like his opponents, he has decided to emphasize renewable energy sources as the solution. His election-year conversion to the wisdom of ethanol subsidies illus-trates his preference for renewable fuels. His support for nuclear energy seems more straightforward and is not encumbered by his Democratic opponents’ reservations. In sum-mary, when compared to his former competi-tors for the Republican nomination, Senator McCain’s positions on energy policy set him apart from the Republican orthodoxy, and he seems to have truly earned his reputation as

washingtoninsider


a maverick whose positions are more in line with the Democrats than his own party.

Therefore, the next President is likely to steer the ship of state on a new course on energy policy, away from an emphasis on domestic oil and gas development. And, bar-ring unforeseen events or remarkable changes of heart, it will be left to others to unlock the enormous untapped oil and gas capacity of the United States.

Stalemate Likely in the InterimAgainst this election-year backdrop, it

seems highly unlikely that President Bush and the Democratic-led Congress will accom-plish much that is new in the field of energy legislation this year. With the enact-ment of the Energy Independence and Security Act of 2007, which President Bush signed into law on December 19, 2007, it appears that the current leadership of the legislative and the executive branches has occupied what common ground they find politically achievable for now. That legislation heavily emphasized conservation measures and the development of renewable fuels. It did not open America’s fossil fuel reserves for new development despite President Bush’s call for “open access to domestic energy sources.”

So far this year the House of Representatives has passed a tax bill that shifts tax benefits from the oil and gas industry to stimulate renewable energy sources, and the Bush Administration has issued a veto threat. For its part, the Administration has not yet signaled achievable compromises on the key issues that separate the parties. And it is unlikely that the Democratic leadership of the Congress will engage in further serious nego-tiation with the Bush Administration over major energy policy matters in what remains of the 110th Congress. The Democratic-led House will more likely enact provisions that will invite further Presidential veto threats and have little chance of passage by the Senate.

Instead, Democratic Congressional lead-ers will likely resolve to await the outcome of the November elections. Hungry for a return to a real governing majority, as compared to their current technical majority, Democratic Congressional leaders are hoping for sub-

stantial victories in both the Presidential and Congressional elections. They have been repeatedly stung by the defeats President Bush scored with his veto pen that have frustrated key planks of the Democratic majority’s legis-lative program. With a growing exodus from Congress of Republican incumbents and more Republicans than Democrats apparently vulnerable in Senate contests, the Democratic Congressional leadership will likely foresee a more favorable political climate for its agenda on these key energy issues next year after the November election when they hope to have both a Democratic President and an expand-ed Democratic Congressional majority.

Current Alaska Development Faces New Challenges

Notwithstanding the Congressional bar to future development of ANWR, other oil and gas-rich regions of Alaska not covered by the Congressional moratorium are still being developed under careful govern-ment regulation by the Department of Interior. Yet developers face lawsuits in federal courts over permits granted by the Minerals Management Service (MMS). Environmental opponents of exploration and development have repeatedly charged that environmental safeguards approved by the federal government remain insufficient.

Additionally, in mid-January 2008, Chairman Ed Markey of the House Select Committee on Energy Independence and Global Warming raised a new objection to oil and gas development in Alaska’s Chukchi Sea. He pointed to the recent proposal of the U.S. Fish and Wildlife Service to list the polar bear as a threatened species because of global warming, which has reduced the bear’s Arctic ice cap habitat. According to Chairman Markey, “We shouldn’t sell the drilling rights in this important polar bear habitat before deciding how we are going to protect them.” Once again, the MMS, which

had approved the project following an envi-ronmental review, found itself the target of environmental critics who challenged the agency’s thoroughness. Defending the agency, the Committee’s Ranking Member, James Sensenbrenner, said that the polar bear had become a “political tool” to block the project. But questions about the polar bear are not isolated because similar concerns have also been raised about the walrus, suggesting that the Endangered Species Act may yet prove the ultimate environmental obstacle to ongo-ing development of warming Arctic waters. Thus, even those remaining areas of Alaska that are not subject to the ANWR morato-

rium continue to face formidable challenges from those adamantly opposed to domestic development.

Additionally, Alaskan officials have not suc-ceeded in assembling the partnership necessary to construct the mas-sive Alaska gas pipeline project as provided by the Alaska Gasline Inducement Act (AGIA).

This project aims to bring to market in the lower 48 states billions of cubic feet of natural gas from Alaska’s North Slope that is not sub-ject to the ANWR moratorium. Differences continue to separate the major gas produc-ers and the State of Alaska about how this project should be accomplished, and major gas producers have not supported the AGIA framework. For example, ConocoPhillips recently announced that it was proceeding with its own plans for a pipeline, and BP expressed the view that over time the major producers and the state would see merit in other approaches.

Environmental Protection Has Become the New Energy Policy

Truth is often stranger than fiction, and such is the case with the emerging state of our nation’s energy policy. Notwithstanding the imperative for increased development of fos-sil fuel resources to keep the world economy functioning and despite the importance to the United States of adequate oil supplies for its national security and economic vitality, the political trendline has shifted decisively against development of oil and gas reserves in the United States. So when Exxon recently announced that it would spend $125 billion

the opposition of the likely Democratic nominees to development of domestic oil and gas reserves has been manifest from before the start of the campaign…Likewise, Senator mccain shares re-markably similar positions with his Democratic opponents on other key energy issues


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over the next five years for exploration and development of new production capacity, it should be understood that neither Exxon’s massive investment nor that of other oil majors will be made in the reserves America has put off limits.

The political impetus for change, as mani-fested in the policy positions of the remaining Presidential candidates, has moved decidedly toward protecting the environment by devel-oping renewable energy sources. Remarkably, it appears that America’s emerging energy policy is first and foremost an environmental protection policy.

Even when the most recent conserva-tive resurgence in America reached its political high-water mark from 2003 to 2007, when the Bush Administration enjoyed a Republican-controlled Congress, the nation was at war, and threats to America’s oil sup-plies were palpable, conservative leaders still could not muster the votes for Congress to open either ANWR or the coastal continental United States for oil and gas development. And the pro-development tide that was part of that conservative high-water mark now appears on the ebb.

Since then, a heightened sense of envi-ronmental concern arising from increased sensitivity to global warming appears to have overtaken much of the American electorate. A growing consensus of scientists worldwide has concluded that mankind is responsible for the warming of the planet and that the consequences could be very serious over the coming decades. In the popular culture, former Vice President Al Gore’s film, An Inconvenient Truth, captured the imagina-tion of millions of Americans by expressing the scientific consensus in a powerful form of mass entertainment. Now the remaining candidates for President all endorse the need for strong action to confront global warming, and Congress and many states are develop-

ing their own proposals. Even the Bush Administration has reluctantly acknowledged the problem.

Likewise, in the maritime world there is no longer any serious debate about curbing air emissions from vessels. The current debate focuses on how to speed further dramatic reductions in sulfur emissions. Remarkably, one of the maritime industry’s leading trade groups, Intertanko, has advocated a contro-versial proposal to convert marine fuels from residuals to distillates. Such a proposal would have seemed folly to many in the industry just a few years ago. But reports from the recent deliberations of delegates to the International Maritime Organization (IMO) in London suggest that this is now the leading proposal to address the problem of sulfur emissions from vessels.

The Intertanko proposal is directly attrib-utable to the growing environmental con-cerns being expressed in many nations about the public health harms caused by vessel emissions, and some industry leaders realize that the maritime industry can ill afford dif-fering individual national laws that render the global world of shipping a patchwork quilt of varying fuel regulations that become unwork-able. Therefore, industry leaders appear to have recognized the collective wisdom of get-ting ahead of this political trend by propos-ing a dramatic reduction of sulfur emissions in return for maintaining a largely uniform and workable system for operating vessels in international trade. To be sure, there will be a commensurate increase in fuel costs, which will have to be passed along to shippers and charterers and ultimately to the consumers who are demanding cleaner air.

Another important change has occurred that was completely unintended and has profoundly affected energy policy in the United States. Because of the war in Iraq, which caused the loss of Iraq’s oil supplies

from the world mar-ket, and increasing growth in world oil consumption, we have witnessed since 2003 oil prices skyrocket from $25 a barrel to $110 a barrel. That is, in a relatively short period of time the price of oil has more than quadrupled. In effect, America today unintention-

ally pays a de facto oil tax it refused to levy upon itself intentionally. The consequences of this remarkable de facto tax on oil include the transfer thus far of approximately $124 billion from American consumers to foreign oil-producing countries. Simultaneously, this enormous outflow of American wealth abroad has contributed to the dramatic decline in the value of the dollar, which imposes on Americans an additional de facto tax in the form of increased prices Americans must pay for imported goods, upon which we now are so dependent in a global economy.

These economic burdens present a double-whammy to Americans pocketbooks. In terms of national energy policy, they likely have the unintended and felicitous conse-quences of causing more Americans to con-serve energy while simultaneously spurring the investments to develop alternatives to imported oil and gas. However, the economic viability of the new alternative energy sources, which the Presidential candidates endorse, remains unclear. And if energy costs continue to soar, voters may find cause to reconsider the decisions to lock up America’s oil and gas.

ConclusionNo matter which of the major political

parties prevails in November, America’s new President appears poised to break dramati-cally with the pro-domestic oil and gas devel-opment policy of the Bush Administration. The immediate future promises a new energy policy grounded principally in environmental protection. Whether this policy will prove practical remains to be seen. The harsh real-ity is that even with costly government sub-sidies, renewable energy sources will provide only a small percentage of our nation’s energy needs for the foreseeable future. Meanwhile, we remain particularly vulnerable to foreign oil and gas suppliers.

Larry Kiern is a partner at Winston & Strawn LLP, an international law firm of 900 lawyers. His practice concentrates on maritime issues, including legislative, regulatory, and litigation matters. Before joining

Winston & Strawn, he was a Captain and law specialist in the U.S. Coast Guard who served as the Legislative Counsel and Deputy Chief of the Coast Guard’s Congressional Affairs Office.

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china feeding the dragon

MARINER RETENTION AND RECRUITMENT

Job One for MARAD in 2007 was to attack the most serious problem facing the American and worldwide shipping game: Getting mariners trained and back onto ships where they are desperately needed. In response, Connaughton used new laws that incentivize hopeful LNG terminal opera-tors to put Americans on their foreign ton-nage and helped engineer numerous pacts with ship operators in all modes of ocean transport. This produced new cadet berths and could pave the way for U.S. mariners to eventually serve in some of the most lucrative billets afloat.

Connaughton says, “The Merchant Marine Academy depends entirely on commercial berths, and we were having difficulty getting berths for these students. So we simply had to get more berths. On the state school side of the equation, right now, demand for gradu-

MARAD’s New Focus: Utility, Credibility and PartnershipSean connaughton enters the Final Year of his tenure by Steering the u.S. mari-time administration in the right Direction

By Jo

seph

Kee

fe

ates is also very strong. The question is, then, how do we get more cadets coming through the system?”

In the end, it was not a hard sell to get the companies to sign on, and Connaughton promised more agreements to come. In February, the protocol to determine how to best allocate the berths had not yet been final-ized. The goal is to be fair to all the schools, and Connaughton envisions a self-regulating program for the schools themselves. He added, “We are in the process of rewriting our relationships with the state schools as well as King’s Point.”

The MARAD effort to expand the mariner base does not end at the academies. Work is progressing on a model curriculum for towboat operators on small vessels, and there is real interest in maritime high schools. Connaughton concedes that some of the existing programs are maritime in name only. He aims to change that metric.

HANDICAPPING MARAD’S FY ’09 BUDGET

The latest MARAD budget request, within the overall DOT budget, is roughly equivalent to last year’s numbers – assuming it all gets funded. Connaughton says that the numbers are deceiving and insists, “Our budget is dramatically higher than the numbers that were announced because, like all of our RRF (Ready Reserve Force) activities, these are on a reimbursable basis. We get around $300 million for that, and we also get around $300 million for our ocean freight differential – that’s the cargo preference side. We also have some other accounts so our overall budget is around $1 billion, of which $300,000 is discretionary.” Those numbers do not tell the full story.

Where MARAD saw real funding progress was is in the Maritime Security Program. This is the year, by law, that MARAD was authorized to increase the MSP payments by $300,000 per vessel. That bumped up the budget by $18 million. It was no surprise, of course, that the Administration has decided not to support Title XI, the government-sponsored ship loan program. In the end, all that’s left in that budget are funds to adminis-ter the current accounts.

The requested funds for ship disposal were down a little from the previous year, but Connaughton counters, “We’re actu-ally breaking even, if not making a little bit of money on some of these disposals. That money goes right back into the revolving account, so we don’t need as much money as we did in the past.” Finally, the proposed General Provision to the Student Incentive Program (SIP) actually doubled, from $4,000 to $8,000 per academic year.

In February, and less than one year until the end of his tenure as Maritime Administrator, MarEx caught up with Sean Connaughton in Washington. On that frosty winter day, it was clear that MARAD’s Chief Execu-tive was not about to coast through his final months of service. Like the Coast Guard, MARAD has over the years taken more than its share of heat for being a less-than-effective advocate for the maritime industry it is supposed to serve. But 2007 was anything but business as usual for the Transportation Department’s least visible, and probably least understood, compo-nent. Transportation Secretary Mary Peters should be thankful for that. Read more to see why.

continued on page 46



Allen has done a lot of selling in the past six months. More accessible to industry and on the move more often than any of his pre-decessors, he also spends a large amount of his time on Capitol Hill. Because he constant-ly meets with industry stakeholders, getting him to slow down long enough to take his temperature on the full range of his responsi-bilities is usually next to impossible.

In mid-February, Managing Editor Joseph Keefe was privileged to get two hours of Allen’s undivided attention as he flew to Houston for an industry function. The details of this exclusive interview, providing direct and unvarnished dialogue that Allen will-ingly delivers, cannot be read or seen any-where else. Follow along as ADM Thad Allen explains what he means by “Honoring the past, not operating in it.”

JUSTIFYING THE COAST GUARD AND “DOING MORE WITH LESS”There is little that irritates Thad Allen more than casual discussion over whether or not a Coast Guard is needed. The inferred motto of “Doing more with less” is clearly one of those things. Nevertheless, the concept of restructur-ing certain parts of the Coast Guard is a discus-sion he can embrace, and he starts by expand-

ADM Thad Allen Honors the Past but Concentrates on Positioning the Coast Guard for the Future

By Joseph Keefe

ing upon that idea for MarEx readers:ALLEN: The Coast Guard has evolved over the past 200 years into an organization that oper-ates in an all-threats, all-conditions environ-ment. So I don’t think the question ought to be, “What do we do with all these missions?” It should be “How do we optimize the Coast Guard to do the missions they have?” There’s a reason we have all these missions. Everywhere I go in the world, I visit other coast guards and there is no other coast guard like ours. Nobody in the world does what we do in one organization. I go back to what Secretary Ridge said after he had been Secretary for about a year. He said, “If you didn’t have a coast guard, you’d have to invent one.”I gather that you are done doing more with less? ALLEN: That’s correct. Not on my watch, any-more. And until somebody tells me to stop saying that, I’ll keep doing it. Beyond this, every time we need to go and get a new class of cutter, it becomes a referendum on wheth-er or not we need the Coast Guard. That’s a tough environment to live in. We have multi-missioned cutters and multi-missioned people – you put these in place and we can do five or six different things. We can’t do five or six different things at once. We are an orga-nization that is very adaptable. So what I’ve

tried to do is create the right organizational structure so we are effective in doing all these things. The question shouldn’t be, “What can we take away from the Coast Guard?” And by the way, I’ve heard no one say that except in the context of marine safety. The question ought to be, “How do we optimally organize it?” Back in 1998 – before Katrina and 9/11 – we decided that we should merge all of our commands in one port and have one face to deal with the public. That actually spawned four or five activities around the country that we set up as prototypes. Fortunately, New York was one of those places. I cannot imag-ine how we would’ve managed the events of 9/11 had we not had a single command there to manage all facets of marine, port functions and law enforcement.Mission Execution - Thad Allen’s way:ALLEN: Now we focus on “mission execution.” Quite frankly, we’ve tended to be organized around programs – aids to navigation, search and rescue, and so on. We haven’t looked at the fact that these are product lines that we deliver to the same entity. The notion is to merge the product lines so when you are dealing on the port level, you’ve achieved one-stop shopping. And the customers should be able to expect service levels that are adequate for them to do their jobs. What that means is that we have to run and deliver that product line correctly.Allen on full transparency, responsibility:ALLEN: I’ve got no problem with the issues that have been raised. I doubt there are very many entities in government who would’ve sent Jim Card out to collect that information and make it public. As I’ve said to Chairman Oberstar on more than one occasion, if you tell me what your issues are, I will be respon-

U.S. Coast Guard Commandant ADM Thad Allen has pledged to modernize a Coast Guard that, in his own words, “has not kept pace” with the demands placed upon it in the post-9/11 regulatory world. Selling that message to Congress will be the linchpin of how successful his effort will be. The full amount of the President’s FY ’09 Coast Guard budget request hangs in the balance.

continued on page 49


upgradesdowngrades

In an age when the art of investing has become a Ph.D.’s game, complete with com-plex algorithms and sophisticated spreadsheet models, the time-honored adage to “buy low, sell high” seems all but forgotten. Yet these simple words form the basis of all investing success. Especially in times of market turmoil and uncertainty, such as we are experiencing now, there is no better guide to follow. And yet most investors do just the opposite. They sell in times of trouble, and they buy when the market is booming. In other words, they “buy high and sell low,” thereby missing out on both ends. Why is this?

BUY LOWLet’s start with the “buy” side of the equa-

tion. Common sense tells us to buy when stocks are cheap. Well, stocks are cheap right now. Most companies in the S&P 500 are down 20-50% from last October’s highs, and shipping stocks are no exception. This is the ideal time to buy. Yet most people are selling. Why? For one thing, the analysts who follow the market and track individual stocks are all telling us to sell or, at best, hold. But the smart money is doing just the opposite. It’s buying. This is what is known as a “buying opportunity,” and there are lots of buying opportunities in a market that is approaching bear status.

Take, for example, dry bulk companies. Beginning late last year many investors began shorting these stocks as the Baltic Dry Index, which measures freight rates on 40 or so of the most heavily traveled shipping lanes, began falling. It fell all the way from a high of over 11000 in November to below 6000 in January. And companies like DryShips (Nasdaq: DRYS), Euroseas (Nasdaq: ESEA), Genco (NYSE: GNK) and others dropped accordingly, down anywhere from 25% to

more than 50%. An ideal buying opportu-nity. Now the BDI has changed direction and, as of early March, was up over 8000 and climbing. But it is not too late to buy these stocks, which have been slow to recover and continue to show lots of upside potential as prices for iron ore, coal, wheat and almost every type of commodity keep rising.

The same holds true for tanker stocks and oilfield service stocks which, despite oil prices setting new all-time highs, have been beaten down by the twin fears of recession and a consequent falloff in the demand for crude oil and its byproducts. Many carry a “Sell” or “Hold” rating and are 20% to 50% below their 52-week highs. Some of these compa-nies – General Maritime (NYSE: GMR) and Frontline (NYSE: FRO), for example – pay handsome dividends approaching or above 10%. In addition, the world’s major energy companies have all budgeted significant increases in their exploration and develop-ment budgets for 2008. What’s not to like?

Yet investors remain reluctant to buy when these stocks may never again be so cheap.

What’s going on here? Why are we so afraid to buy when stocks are going down? For one thing, we’re afraid of losing more money. We think the stock will keep going down. And maybe it will – for a time, at least. This is the so-called “fear factor,” the fear of additional losses. It is fear that moti-vates investors to sell perfectly good stocks when their prices start to fall. They are afraid of losing more money if they don’t act fast (“better get out now before this stock falls fur-ther”). If enough people do this (the “herd mentality”), then the stock will keep falling

and smart investors will have an even better buying opportunity. The fear of incurring additional losses – actually, of losing all one’s money – is at the heart of almost every bad investment decision.

Another inhibiting factor is lack of cash, and this is certainly a legitimate constraint. We never seem to have any excess cash lying around when we need it most. Usually when the market starts falling, we are fully invested. Why? Because up to that point everything had been doing well, so there was no sense in having any cash salted away in a money market fund earning a measly 3% or 4% when it could be put in a high-flying stock that could double or even triple inside a year. As a result, when the market starts falling, we are forced to sell stocks on the downside or at a loss in order to raise the cash to buy stocks that are now cheap. So we’re caught in a vicious circle. To avoid this particular trap, the smart investor keeps a minimum of 5% up to a maximum of 20% of his portfolio in

cash, in good times and bad.There are other excuses as

well. “Have we really hit bot-tom? Maybe I should wait a few more days (weeks) and get XYZ stock at a real bargain.” By then, of course, it’s often too late. XYZ has already started going back up.

SELL HIGHThe other side of the equation is to sell

high. Why is it so hard to do this? When is the right time to sell? And how high is “high”? Is it a 20% gain? 30%? 50%? Wait till you double or triple your money? These are the questions that plague investors and keep them awake at night.

Too often it is plain old greed that prevents us from selling. Just as the fear factor encour-ages us to sell when we should be buying, the greed factor encourages us to buy or stay put when we should be selling: “This stock could go much higher. Why should I sell now? I’ll miss out on future gains.” This is a particular

Upgrades & DowngradesBy Jack O’Connell

Buy Low, Sell High

Baltic Dry index (courtesy: capital Link)


upgradesdowngrades

MarEx

danger in the case of “momentum” stocks, which are driven by so-called momentum investors who keep buying and pushing the price of a stock up. This can go on for weeks and months, and when the “mo” shifts, and the momentum buyers disappear, the stock collapses, and collapses fast. Ordinary inves-tors are caught holding the bag.

We need look no further than DryShips or Aegean Marine Petroleum Network (NYSE: ANW) for examples of this. From a high of over 130 last fall, DryShips fell to below 60 in early 2008 as investors abandoned ship. Aegean was approaching 50 when the bottom fell out, and it trades today at about 30. A screaming buy? You tell me.

Another factor that prevents us from sell-ing is emotional attachment. We grow too attached to a stock that has done well. It proved how smart we were to buy it in the first place. We feel a personal commitment to it, a perverse sense of loyalty. We’re reluctant to part with it, and we wind up holding it too long and selling only after a substantial decline. One way to avoid this is to sell part of your position in a stock after a predeter-mined gain – say 30% or 50%. Hold onto the rest and see what happens. If it keeps going up, fine – you’ve already locked in a substan-tial gain and there’s more coming. If it goes down, you look even smarter: You’ve got your gain and you have the opportunity to buy back in at a lower price whenever the spirit moves you.

Here’s another excuse: “What do I do with the money after I’ve sold a winner? What other winner can I buy? I know of no better place to put my money, so I’ll just leave it where it is.” These are legitimate questions, which each investor must answer for himself. No one can

predict the “top” of a market or the “top” of a stock. Better to sell before the top and find something else that’s undervalued and has greater upside potential.

It all depends on your perspective (a week? a month? a year? five years? 25 years?), and your goals. The wise investor sets goals and sticks to them. When a stock reaches a par-ticular price, he sells. If it falls below a certain price, he starts buying again. For some, a 30% gain is sufficient. Others want to double or triple their investment. Some have a long-term perspective; others are in for the quick kill. But no matter what your goals or perspective, the important point is to be disciplined in your approach and stick to your guns.

COMMON SENSENothing, of course, is as simple or easy

as it seems. Common sense tells us to buy low and sell high. But our instincts tell us to do just the opposite – to buy when stocks are going up and sell when stocks are going down. The great irony in all this is that, if everyone starts selling at the same time, we have a real panic and everyone loses. There is a general loss of confidence, and markets collapse. Investing depends on confidence – confidence in the future, in the economy, in the currency, in earnings growth and so on. Conversely, if everyone starts buying at the same time and keeps buying, prices skyrocket and eventually create a bubble, as we have seen in the dot.com, real estate and now mortgage credit markets. Eventually the bubble bursts and prices collapse.

Study after study has shown (and I won’t bore you with the statistics) that the best course of action in times of market turmoil, such as we are experiencing today, is to do

nothing. The market has a built-in, self-correcting mechanism. When stocks get low enough, people start buying again as valua-tions become overwhelmingly compelling. When stocks get too high, people start selling to take profits and put their money elsewhere.

In the long run, patience and a long-term perspective win the day. Jeremy Siegel proved this in his classic Stocks for the Long Run. Investors who try to time the market almost always fail. Those who stay the course pros-per. The choice is yours.

FOLLOW-UPIn our previous column (February issue

of MarEx), we discussed the performance of shipping stocks and stated that “Barring a major recession in the U.S., which the Fed seems determined to prevent, shipping stocks seem poised for another good year, though perhaps not as spectacular as 2007.” So far we would seem to be right on course, although it is much too early to tell. Nonetheless, after a precipitous fall in January and into February, drybulk companies are climbing back up as freight rates rebound, while tanker stocks have generally held their own – not gaining much, not losing much. Ditto for oil service stocks, which have held up well as the price of oil remains stubbornly high. In a diffi-cult market environment, you could do a lot worse than owning these stocks.

Jack O’Connell, the senior copy editor of this magazine and a former maritime execu-tive, is a private investor who may own shares in some of the companies mentioned in his columns. The views expressed in this column are his and his alone and are not in any way to be construed as investment advice.


realtalk:oileconomides

Real Talk: Oil With Dr. michael economides

michaeL J. ecONOmiDeS is a Professor at the cul-len college of engineering, university of houston; the chairman of the Board of Paleon Oil and Gas, and the managing Partner of a petroleum engineering and strategy consulting fi rm. he is also the editor-in-chief of the energy tribune. Publica-tions include authoring or co-authoring 14 profession-al texts and books, among them the color Of Oil and the forthcoming From Soviet to Putin and Back, and more than 200 journal papers and articles. he also appears regularly as a guest and expert commentator on national and international television programs.

Peak OilThe Web site lifeaftertheoilcrash.net greets

its visitors with, “Civilization as we know it is coming to an end soon. This is not the wacky proclamation of a doomsday cult, apocalypse bible prophecy sect, or conspiracy theory society. Rather, it is the scientific conclu-sion of the best paid, most widely-respected geologists, physicists, bankers, and investors in the world. These are rational, professional, conservative individuals who are absolutely terrified by a phenomenon known as global �Peak Oil’.”

“Peak Oil is today’s myth,” says Dr. Michael J. Economides. “It might happen, but not before 2050.” Many doomsayers are not even petroleum experts, he points out. In fact, “Peak Oil is a figment of the imagination of born-again, pessimist geologists.”

Instead, Economides predicts that world oil may not run out for at least two hundred years. With that said, he also believes that even if significant reserves were found, they would not play a major part in meeting our demands because natural gas is becoming the fuel of choice throughout the world, and this will lessen the demand for crude oil.

While many conclude Peak Oil has either already taken place or is in the near future, these forecasts generally consider oil supply independently of demand and point to sup-ply shortfalls. “Currently, Saudi Arabia pro-duces about 10 million barrels of oil per day,” says Economides. “But it could easily produce 20 million barrels of oil per day.”

What is emerging is the “axis of energy militants,” national leaders who want ever-

higher prices regardless of the consequences to the world economy, Economides said. “In that group is Chavez, Putin and Iranian President Mahmoud Ahmadinejad. At $100 per barrel they are the 1,000-pound gorillas. At $50 per barrel they are monkeys. These militants hardly have functioning real econo-mies whose workings would be adversely affected by a recession.”

RussiaOn Russia, Economides says the recent

elections that installed Dmitry Medvedev, Putin’s handpicked successor, may impact Americans even more than the U.S. elections in the fall. “While Medvedev promises social benefits and improved living conditions for ordinary Russians, these statements are easy to make with oil at $100 per barrel. But in a country where health care is abysmal, male mortality rates have dropped to age 55 and the rate of corruption ranks Russia between Nigeria and Indonesia, progress is a feeble feeling,” he said.

A reduction in oil and gas revenues will put a hold on Russia’s social progress, which is financed by those commodities. “The U.S. and the rest of the world showed over the last few years that they can bear higher oil prices, but they cannot live with supply inter-ruptions. Therein lies the potential disaster,” Economides said. “Economic problems are never good for any country, especially one like Russia that is surrounded by hostile ex-satellite states, still owns tens of thousands of nuclear weapons, and feels its place in the world has been diminished.”

By MarEx Staff



Later this year Economides will release his new book, From Soviet to Putin and Back.

“He’s (Putin) not just taking Russia back to Brezhnev. He’s taking it back to Khrushchev. He’s taking Russia back 50 years--you have to go back 50 years to see what you see going on in Russia now.” Economides thinks the takeover and sale of Yukos’ assets was the “theft of the century,” and notes the emergence of Russian giant Gazprom as a world-scale force. “Gazprom is such a gargan-tuan company—six times the size of Shell, for comparison—it’s a state within a state. It’s a question whether Russia owns Gazprom or Gazprom owns Russia,” he notes.

Iran“The fact of the matter is, Iran is hurting

badly,” Economides says. “During the time of the Shah, Iran was producing six million bar-rels a day. Now they are barely meeting their OPEC quota. Even worse, Iran has become a net importer of natural gas and uses about half its oil production to generate electricity. Nuclear power generation is very rational for them. That would free oil for external sale.”

In February, Iran opened the Iranian Oil Bourse—the first-ever Islamic oil, gas and

petrochemical exchange. There was concern that the bourse would start trading in euros, but initially it will only use the Iranian rial. The dollar, of course, is the only currency accepted by OPEC. When the Iranian Oil Bourse was originally scheduled to open in 2006, it planned to use the euro for transac-tions. But that idea was plagued with prob-lems and never got off the ground.

Economides says he doesn’t believe that OPEC will change its reliance on the dollar and, if it did move to the euro, it would have little impact on the U.S. economy. But from all accounts by other experts, the move to the euro would signal a true geo-economic earth-quake. The fact is, major world economies not having to buy and hold dollars to secure payment for oil would be devastating to the U.S. The Iranian Oil Bourse may be the first step in destroying the underpinning of the American economy.

ChinaChina is the third largest oil-consuming

nation in the world, using about five million barrels per day. It has already passed Russia and is poised to pass Japan. There has never been a country in history to increase its oil

consumption by 20 percent in a single year until China.

“China has experienced explosive growth in oil consumption of 110% over the last decade, almost all of it met by imports, and much of that from the Middle East. This cre-

ates a significant geopolitical vulnerability for China,” say Economides. “Aggravating the situation is China’s lack of domestic resources of the magnitude and type they need.”

Rarely has the world witnessed the breath-taking economic developments taking place in China’s emergence as a world-class econo-my. In an almost ironic reversal of recent his-

Gazprom is such a gargan-tuan company—six times the size of Shell, for compar-ison—it’s a state within a state. it’s a question wheth-er russia owns Gazprom or Gazprom owns russia.



MarEx

tory, Russia, with its newfound status as a major exporter of oil and a counterbalance to OPEC, may actually benefit from Middle East strife and the certain increase in oil prices. China is truly worried, and future Chinese imports will feature Russia prominently as a far more stable source of supply than the Middle East.

“It is natural gas that will dominate China’s future. Currently, it represents a meager two percent of the country’s energy mix when compared with a worldwide market share of about 23 per-cent,” says Economides. “Recent announcements of massive natu-ral gas finds in Xinjiang Province will make it a domestic super-power in energy. Even so, China will need far more gas than can possibly be produced domestically. China’s energy future is likely to emerge as the most serious geopolitical and economic event of the coming decade.”

United States“The biggest problem the U.S. faces is supply disruption—the

Arctic National Wildlife Reserve (ANWR) is estimated to have 30-40 billion barrels. Added to the activity in the U.S. Gulf of Mexico, America could have an additional four million barrels per day, which would greatly reduce imports and bring down costs,” Economides says. “The U.S. is committing economic suicide by not developing domestic resources.”

The United States cannot get too comfortable with any of the world’s major oil producers. “Saudi Arabia, which maintains friendly relations with the U.S., also birthed Osama bin Laden and 15 of the 19 September 11th hijackers,” said Economides. “In order to attack foreign dependence, the U.S. must attack transportation—there are no two ways about it. Currently, the U.S. uses 99.6 percent of oil-based fuels in all forms of transportation.”

“Venezuela is another huge problem for the U.S.,” says Economides. “Hugo Chavez is a much bigger threat to America’s energy security than Saddam Hussein ever was—Chavez is really the poster boy for what’s wrong with OPEC today.”

Regarding alternative fuels and bio-fuels, Economides says there are no realistic alternatives to hydrocarbon energy in the foreseeable future. If Americans used all the soybeans in the country, it would only account for four percent of total diesel fuel consumption. Nor will other forms of alternative energy make a big impact on con-sumption. “Solar and wind are never going to account for more than half a percent, so just get that out of your mind,” he said.

As far as natural gas being used for transportation, designed to decrease the country’s dependence on gasoline, “The U.S. does not and cannot produce enough natural gas to meet future demand as it is,” he said. “I don’t care how many wells you drill. The U.S. will be forced to import natural gas from foreign sources.”

venezuela is another huge problem for the u.S. hugo chavez is a much bigger threat to america’s energy security than Saddam hussein ever was—chavez is really the poster boy for what’s wrong with OPec today.

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case study: electronic power design



By Tony MunozDesigning a World of Power

ELECTRONIC POWER DESIGN, INC.

lectronic Power Design, Inc. (EPD) first came to the attention of MarEx when our staff was developing the Rigdon Marine edition in November 2006. EPD’s cutting-edge power and

control systems’ design for next-generation platform support vessels has been acclaimed as a major breakthrough for the offshore industry. However, the company also engineers and manufactures automated electrical power systems for many different industries. EPD’s growth and worldwide expansion are what The Maritime Executive is all about—benchmarking excellence for others to measure.

EPD is a fascinating case study in engineering and marketing. The firm built its reputation on the skills, experience and innovative knowledge of John Janik, its founder and President. Today, EPD Inc. (Houston) and EPD Asia Group (China) are considered among the top design/engineering and manufacturing companies in the world for automated electrical power systems. The company is also recognized for its work in harmonic solutions for a wide range of power systems, either utility feed or generated.

After graduating from Texas A&M with a Bachelor of Science degree in Electrical Engineering, Janik was hired by General Dynamics (GD) to work on the military’s F-16 Fighter Jet Program. In 1983, GD had discovered that when the F-16’s inverter came online it produced excessive harmonics, which created AC power system disturbances. It was a “phantom” problem and a mysterious issue that could bring these technologically-advanced planes down. The young Janik had the good fortune to work alongside some of the greatest avionic minds in the world to solve disruptive-power-harmonics problems.

At the time, the science of harmonics in power-drive systems was a completely neophyte discipline, and there was simply no scien-tific experience with the switching algorithms that were burning up power supplies. General Dynamics formed a new engineering group

called Power Systems and Controls, which became responsible for all the plane’s power supplies and complete generator-power systems. Janik was responsible for learning every nuance and function of the 10-KVA generator and its constant frequency output PWN inverter box. The experience of fixing harmonics in planes put Janik at the center of the next generation of applied sciences for any type of gen-erator power system.

Founding Electronic Power Design, Inc. In 1985, defense budgets were severely cut by the U.S. government, and GD began laying off workers. Janik was asked to return to work as an engineer for an electrical company that he had worked for as a teenager. Although his education was based on AC drives, Janik was soon designing DC drive controls and printed circuit boards with Op Amps, resistors, transistors and other discrete components.

In 1986, after the oil industry crash, Janik’s main industry focus was dredging and designing diesel electric power systems for the dredging industry. Knowing that he was an excellent engineer with the drive to succeed, the 25-year-old Janik decided to take the risk of forming his own company to service these dredging customers. This was the begin-ning of Electronic Power Design. Janik’s reputation as a talented field service engineer with a few advanced designs began to spread. Soon he was busy commissioning and servicing more and more equipment for the dredging industry. This quickly led to EPD’s becoming an electri-cal power and controls system manufacturing company.

In 1986, John Norwood, currently Vice President of Business Development for EPD, was at the University of Texas. He began assem-bling circuit boards for Janik to earn extra money for school. Norwood decided to leave college in 1988 and started working for EPD in print-ed circuit board design, controls wiring and whatever else EPD needed

ELECTRONIC POWER DESIGN, INC.







at any given time. From there he moved to CAD drafting, purchasing and then eventually to sales. These skills, plus his previous work with AC/DC motors, transformers, switchgear and DC drives, made for a good “hands-on, real world” education that he uses in his capacity at EPD today.

Reputation + Opportunity = SuccessIn 1990, EPD was growing from a small electronics company to designing and commissioning diesel electric power systems and vari-able speed drives for operators in the dredging markets. At the same time, gambling laws were changing throughout the U.S., and gambling boats became all the rage. These boats were required to float and have a certain amount of propulsion power. They were also required to be built to marine classification society standards. As the dredging busi-ness slowed, EPD began working on casino boats in Indiana, along the Mississippi River, and on the Gulf Coast. The company was soon in a much larger facility and began hiring more employees.

During the early �90s, the oil field market began picking up as well because of new technology that allowed drilling at deeper and deeper depths. While EPD had little experience with offshore support vessels, drilling rigs or production platforms, Janik and Norwood began find-ing projects in the oil field. It was a natural step moving from dredges and casino boats to propulsion systems for platform support vessels (PSVs) and drilling systems for the offshore oil market.

“The common theme about all of the marine applications we worked on was the classification requirements,” said Norwood. “Whether the design and commissioning were for a casino boat, a suction dredge, a cutter type dredge, a platform support vessel, or if we were working on a generator power system for a drilling rig, every generated power system required a class society’s approval.” Norwood also stated that “the other commonality was limited space. All marine installations are limited on space, especially when it comes to electrical equipment, which in the past was always an afterthought.”

Soon another sea change began taking shape throughout the world. During this time, analog systems drove industrial power; but digital microprocessors were coming on the scene in industrial applications, and EPD clearly understood it was the future. Furthermore, as the oil and gas industry and the marine industry were being legislated to become more environmentally responsible, EPD began designing digi-tal power systems with microprocessor controls, variable speed drives and fiber-optically connected, PLC-based control systems, which allowed these industries to modernize with diesel electric systems and meet the environmental standards that society and governments demanded from them. This is also the time EPD allied itself with Siemens Energy and Automation. Siemens offered a wide range of modern “off-the–shelf” products that EPD could use and apply to a specific industry or application.

EPD began working with Global Marine Drilling and Sonat (now Transocean) on their semi-submersible and drillship drilling rigs. The first was a retrofit of an old 1970s’ German system, and the other was the installation and commissioning of a completely new system. Then companies such as Transocean, R&B Falcon, Global Marine Drilling, Diamond Offshore, Atwood Oceanic and Noble Drilling, which worked for Shell, BP, ExxonMobil and the rest of Big Oil, began calling the company. EPD became the “go-to” guys for moving from analog to digital systems for power generation and controls for the drilling industry worldwide.

Reputation + Success = Global ExpansionEPD’s reputation for innovation began opening many doors of oppor-tunity for the company and, with Houston being the center of the world’s oil and gas industry, working on equipment around the world was not uncommon.

Global Marine Drilling decided to upgrade its drilling capacity and bought a famous ship called the Glomar Explorer, which was involved in retrieving a Russian nuclear submarine off the coast of Hawaii in

at any given time. From there he moved to CAD drafting, purchasing at any given time. From there he moved to CAD drafting, purchasing at any given time. From there he moved to CAD drafting, purchasing

All photography in this article courtesy of Tim Fulton.





26 the maritime executive26 the maritime executive


“Instead of the finger-pointing that happens when too many are involved, somebody needs to take responsibility for commissioning the vessel. EPD’s electric plant integration is that com-mitment. It allows vessel owners to get the integrated electrical power system they want while maintaining an easy separation between owner-furnished and shipyard-furnished equipment.”

the mid-�70s. Global decided to turn the ship into a drilling rig, and EPD was awarded the retrofit for the propulsion and drilling systems. The company added approximately 50,000 horsepower of Siemens variable speed drives with switchgear and automation to the rig. In addition to the Glomar Explorer, EPD also worked on the Glomar Celtic Sea, a semi-submersible floating hotel converted to an anchored, semi-submersible drilling rig. The very first offshore contract EPD was awarded was the DC drilling system retrofit of an old Sonat rig named the Offshore Amirante. EPD used Siemens digital technology to modernize this 1970s’ vintage drilling rig. Known for designing, building and commissioning quality drilling systems, EPD soon began doing field work on other Siemens products in the Gulf Coast region.

In terms of drilling rigs, EPD has provided equipment on numer-ous projects for drilling companies worldwide. It has provided digital power systems and/or controls for the drilling, propulsion, anchor windlass, BOP transport, compressor and pipe racker systems on these rigs. As the company worked more and more in the drilling industry, Janik and Norwood met many new people. It was around this time that EPD was introduced to Tidewater, one of the largest offshore support companies in the world. Janik and Norwood began meet-ing with Larry Rigdon, a senior executive at the company at the time. Tidewater was interested in building some new, state-of-the-art, DP-2 class diesel-electric platform supply and large anchor handling vessels, and EPD was brought in as part of the design team. EPD designed and specified the integrated electrical power systems for both vessel types. It soon became evident to Rigdon that EPD was a sophisticated design and manufacturing company with innovative designs for power generation and, specifically, diesel-electric propulsion.

Additionally, part of the arrangement was that EPD could create the designs for the integrated power systems and would not be precluded from bidding on the manufacturing of the equipment. Consequently, the EPD staff spent many months working with Tidewater executives in New Orleans and with the builder in Norway. In all, EPD assisted with the building and delivery of 12 new vessels for Tidewater.

Forward Thinking + Knowledge = A Sea Change for an Industry “The drilling industry has used diesel-electric power generation on oil rig platforms for many years,” Norwood said. “And this technology was nothing new to EPD. When Larry Rigdon started his own offshore support company, he wanted to build a smaller support vessel, which could transport more cargo than larger vessels that demand similar day rates and be faster in the water with less fuel burn. He asked EPD to join the process.”

Rigdon hired Guido Perla and Associates (GPA), a naval architec-tural firm in Seattle, to design the GPA-640 class of PSV, which later was renamed the Rigdon 5000 class. EPD was brought in to design the integrated electrical power system for the new diesel-electric boats. GPA and EPD had collaborated on a number of high-profile casino boats during the �90s, and there was a high level of synergy.

Rigdon had over 30 years of experience in the offshore support

industry, and he understood what type of vessel was needed in the offshore markets. He also knew GPA had designed a number of vessels with advanced hull configurations, which provided speed and comfort and burned less fuel. Added to this, he knew that EPD was an innova-tive designer of integrated electrical power systems. The assembled teams began working on a vessel that would revolutionize the offshore industry. The GPA 640 would use dynamic-positioning (DP-2 sys-tems) and a diesel-electric power generation system in an advanced hull design. By removing the traditional shafts that ran the length of a conventional diesel vessel and replacing them with diesel-electric power, which ran cables down the sides of the hull, the new, smaller vessel could transport more payload cargoes in the tank farm system. The team collaboration completely changed the dynamics of the off-shore support industry and brought forth the first modern design in over 20 years.

After Rigdon built the GPA-640s he began working with EPD and Guido Perla on a new GPA-654 PSV design. Rigdon’s strength lay in the way he built the boats. First, he wanted to build boats in a series, and he contracted with a shipyard to build 10 identical vessels, one after the other. As a savvy veteran of the marine industry who was familiar with shipyards, Rigdon wanted the ships built quickly and inexpensively. While the yards are good at cutting steel, welding and construction, they often have problems commissioning the power systems. Rigdon was aware of this problem and hired EPD to design the GPA-645 with a containerized house for the integrated electrical power system components. This house became the vessel’s Engine Control Room (ECR). With this new design Rigdon could owner-fur-nish an integrated electrical power system installed and tested in the vessel’s ECR. The shipyard had only to remove various panels on the outside of the ECR and hook up the power and control cables. EPD would then verify the shipyard’s connections, unlock the ECR and begin powering up the various systems.

“Piecing together electronics and components of an electric power system is not a good idea,” John Janik said. “Instead of the finger-pointing that happens when too many are involved, somebody needs to take responsibility for commissioning the vessel. EPD’s elec-tric plant integration is that commitment. It allows vessel owners to get the integrated electrical power system they want while main-taining an easy separation between owner-furnished and shipyard-furnished equipment.”

John Norwood admits there is a little more cost on the front end to purchase a totally integrated ECR; but with the ship being assembled quickly and the commissioning process greatly reduced, it is less costly in the long run. The faster a vessel gets delivered, the faster it can go on hire to earn income. In the past, the shipyards built and wired the control rooms, which usually delayed vessel deliveries and upset vessel owners. This approach helps reduce this time/cost.

Today, Rigdon and the French offshore giant BOURBON are still building modern diesel-electric, dynamically positioned offshore sup-port vessels. EPD has been contracted to provide the integrated ECR electrical power systems for almost one hundred offshore support






vessels for these two companies. They consist of DP-2 class PSVs, Anchor Handlers and DP-3 class IMR vessels, all of which are complete ECR-designed as part of the vessel’s hull and sent to the yard for welding into the ship. If the yard can not get inside the container, it cannot be responsible for any problems within the ECR during commissioning. With this method the yard gets a few motors, an ECR and a few consoles, which they have to connect. EPD has additionally found ways to greatly reduce the need for huge tonnages of air conditioning traditionally required to cool the ECR and its equipment, without water cooling.

Another unique process being implemented for these Rigdon and BOURBON vessels is no-load testing of the integrated electrical power system with the vessel’s actual engine/generator sets, which are supplied by Cummins Mid-South for the Rigdon vessels as well as for the BOURBON vessels. Cummins sent a shipset of engine/generator sets to EPD’s plants in Houston and China to be connected and used during factory testing. Testing the generators offsite at EPD greatly reduces dockside testing and commission. This is another innovative way to get the vessel working faster and is very cost-effective on a multi-vessel order.

Rigdon and BOURBON have been on prolific building programs since 2002. Rigdon is about to finish building 20 new vessels, and BOURBON is nearly finished building approximately 125 new offshore vessels. EPD has provided or is providing the integrated ECR power systems for most of these vessels.

EPD’s first experience with diesel-electric systems came while working on casino boats and dredging vessels. In the past, Europeans built a number of diesel-electric vessels utilizing AC variable speed drives and motors, and when EPD first started powering vessels there were not many companies working with DC variable speed in diesel-electric systems. The U.S. drilling markets were used to DC variable speed, which is commonly used on over 85% of the world’s drilling systems today. Because of this, these new diesel-electric integrated ECR systems are using DC variable speed technology. EPD also offers and supplies AC variable speed systems as customers or applications require. In the past, few shipyards or own-ers were willing to pay for a total integrated electrical system. Consequently, EPD sold numerous AC and DC drives and motors for bow-thrusters as well as other power system components. It was not until Rigdon Marine and BOURBON wanted to build vessels fast and economi-cally that EPD had the opportunity to design and build an entire electrical power system house in the ECR for marine applications.

Bringing Clean Power to the WorldThe offshore industry has offered EPD the growth and opportunity it needed to become a major player in design-ing, building and commissioning electrical power systems. The company now has a vast wealth of experience and appli-cations knowledge from working in many different indus-tries. Being strategically located in the world’s energy capital,

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case study: electronic power designcase study: electronic power design

John Norwood joined the company a couple of years after John Janik founded it, and Amy Gardner joined the company in 2005... Amy brings with her 20 years of banking/finance experience. Together, these three have an eye for bringing in talented engineers to further the growth of the EPD companies. “Growth is good, but it has to be measured,” said Janik. “We have been fortunate to find the impressive talent needed to build a global company.”

EPD has developed systems in the petrochemical industry and in the product manufacturing industries. Whether it has been developing control systems for the cement industry or for the extruded plastics industry, EPD creates and manages raw electrical power so that busi-nesses can function profitably and efficiently.

Furthermore, John Janik is regarded as a bit of a genius when it comes to harmonics and harmonic mitigation. While there is seldom a right or wrong answer in dealing with harmonics, or even a published science book to guide an engineer, Janik understands the complexity of harmonic interference in power systems. No matter if it’s a manu-facturing plant, refinery, or vessel, harmonics is often an issue.

EPD is now working on developing systems for the mining indus-try in South America. From digging for gold to mining other miner-als, they all must use electric power and control systems. EPD has recently hired a marketing executive to manage business development in a wide range of industries throughout Latin America. EPD has also done work in wind generation and completed test stands for a large California company that was developing wind farms. The company sees wind generation in South America as a rapidly growing industry.

EPD has been able to penetrate a number of industries because of its applications knowledge. No matter how good the equipment is,

if the application of supplying electrical power is not appropriately managed then the equipment will not function to capacity. Whether it be pumps, cranes, winches, drilling applications, plastic extrusions, kilns, fans and every power application conceivable, Norwood says moving into any industry is easily done. A propulsion unit for a vessel is simply a pump, and the dynamics are the same: A fan moves air and a propeller moves water. From industry to industry, the need to maxi-mize the performance of equipment is the driving factor for systems applications rendered by EPD.

EPD is a “Siemens Solution Partner.” It predominantly utilizes Siemens products and services Siemens products in the marketplace. EPD does, however, offer and utilize other major manufacturers’ com-ponents to achieve a cost-effective solution for its customers.

EPD Team-BuildingOver time, EPD has built a team of engineers and designers recruit-

ed from Texas A&M and other universities around the South. By virtue of the need for qualified talent, the recruitment of young minds allows the company to send these new recruits into the field with qual-ified and licensed engineers to learn through on-the-job training.

During the ‘70s, power systems were analog, which means they

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were not computer-controlled. Today, with the proliferation of computer-control technology, the engineering and design of electrical power systems have become a young person’s endeavor. As microprocessor controllers have taken over the electric power systems industry, most systems have moved from simple relay logic to advanced automation. Young engineers tend to be in front of this type of learning curve. Being a leader in the digital age, EPD’s young talent pool tends to be computer-savvy people fresh from major universities who undergo intense field and classroom train-ing while at EPD.

Because of EPD’s global expansion and work on projects around the world, the company’s staff and senior manage-ment have grown three-fold. John Norwood joined the company a couple of years after John Janik founded it, and Amy Gardner joined the company in 2005 as part of the expansion of EPD to serve as the Vice President of Finance and Administration. Amy brings with her 20 years of bank-ing/finance experience. Together, these three have an eye for bringing in talented engineers to further the growth of the EPD companies. Meeting with their staff in China and Houston, MarEx found that the company is thriving on the energy and enthusiasm of its employees.

“Growth is good, but it has to be measured,” said Janik. “We have been fortunate to find the impressive talent needed to build a global company. Everyone has a sense of success, and it is witnessed in their work ethic and commitment to move the company to the next level.” MarEx

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executiveinterview

MarEx: When did the company begin, and what type of project were you involved with at first?Janik: I started EPD in 1986 as a one man company providing field engineering services. I was also the principle designer/engineer for the generator controls, electric propul-sion system, and the dredging power system and controls for a 14,000 horsepower hopper dredge named the “Atlantic-American’ owned by Atlantic Trailing Company.MarEx: EPD is a recognized worldwide leader in electronic power systems. Explain some of the unique systems designed over the years.Janik: At Texas A&M, part of my curriculum as an Electrical Engineering student was to study inverters and converters as well as cours-es in electric utility design and power systems. I was hired by General Dynamics (GD) right out of school and became part of its F-16 Fighter Jet Power Systems & Controls team.

I was fortunate to work on ‘harmonic simulators’ as well as the ‘Stand-by Inverter’ design for the jet’s back-up power system. The F-16 was having issues with its inverter and harmonics at the time, and these problems

were within my scope of studies and knowl-edge. At the time there had not been much published in the field of ‘Harmonic Analysis,’ and my work at GD put me years ahead of my peers. I even helped review (unofficially) IEEE-519 before it was published regard-ing Harmonic Problems, Interactions and Propagation for General Dynamics in Fort Worth, Texas. MarEx: Did you ever consider pursuing a career in harmonics? Janik: In a way I did. After leaving GD, I founded Electronic Power Design Inc. (EPD), and got involved in a number of diverse proj-ects that included issues with harmonic envi-ronments. The first product I designed was the “EPD-100 Synchronizing Filter Board.” Our printed circuit board allowed many large and world-known companies’ drive systems work in a harmonic rich environment and, in many cases, where they had not worked before. EPD manufactured and sold these printed circuit boards and serviced these power systems all over the world. As a result, we earned a reputation of solving problems for drive systems, even when the actual man-

ufacturer could not solve the problems within their own equipment.MarEx: So, EPD was a problem solver for after market applications?Janik: In the days before digital Programmable Logic Controllers (PLCs) were available, EPD designed Analog Printed Circuit Boards for specialized applica-tions, such as our “Constant Tension Winch Controls,” which are still in use by DuPont in titanium mines around the world. I believe it was our understanding of how systems appli-cations worked. It’s really been the key to our success. Lots of companies can cut and paste “canned” software application modules from PLC libraries. But, if they don’t have the expe-rience or knowledge to understand the nuanc-es of what and why things need to be done, then unforeseen problems can arise later.

We have used this background as a spring board to design: electric ship’s propulsion sys-tems; drilling systems; pipe rackers and riser rackers for large drillships; harmonic filters-large and small; crane controls; winch power systems and controls; transformers; plastic applications, including mixers and extruders;

President and CEO, EPD, Inc. and EPD Asia Group

InterviewExecutive

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executiveinterview

cement kiln drives and ball mill drive systems; dredging power systems and controls; and mining power systems and controls, and more.MarEx: Today, the company is well-known for designing, building, and commissioning inte-grated power systems. What were some of the issues you had to overcome to compete in the global markets?Janik: First, thing that comes to mind is earning the respect of the multi-national companies. When EPD was a smaller com-pany, it was always an uphill battle. Today, our global reputation serves us well, and our field engineers are working around the world. MarEx: Can you list some of the countries the company has work in?Janik: It’s a very long list. But, I can best answer that by saying, we have worked

everywhere except Antarctica. And, you never know? MarEx: When did the company begin working with the offshore energy industry?Janik: Actually, much longer than most folks realize. During the mid-90s, EPD was hired to do a retrofit on a large semi-submersible drilling platform. We were tasked to change old, outdated drilling drives for a more mod-ern system. We also built new winch controls, new driller’s console and controls, new mud pump consoles and controls, and a new SCR drive line-up, and more. It was a retrofit that included fiber optics, which was new on drill-ing rigs.MarEx: EPD designed a new way of construct-ing electronic power systems in offshore support vessels. Please explain some of the issues that were confronting the owners of these vessels and the approach taken to solve their problems?Janik: It has been our experience that naval architects design a vessel based on the own-ers’ desired tonnage size, projected cargo capacities, and projected speed requirements. The ship would be designed and the major components were shoved in wherever they would fit.

As you can imagine, this approach has seri-ous problems. From our perspective, as the electrical power company, the electrical systems were scattered throughout the vessel, because

it was just easier to put the components any-where they would fit. And, while it was easier for the ship designers to work that way, it caused lot of big issues during construction.

By spreading the equipment out all over the ship, this made the inter-connections of the electrical circuits an extensive and expensive job. Additionally, the many fragile electronic systems were exposed to the welders, grinders,

painters, pipe workers and other tradesmen while building the ship and a lot of damage was sustained by sensitive components.

Obviously, when it came time to commis-sion the power on the ship, invariably some important component was damaged. A lot of finger pointing took place and nobody wanted to pay for the damaged equipment. This type of situation does nothing more than create problems between the shipyard and the ven-dors as well as between the shipyard and the owners, and nobody wins this kind of battle. As you can imagine, the commissioning pro-cess took a very long time with expenses run-ning up over budget, including the lost time and revenues for the ship’s owner.

EPD lobbied to be a part of the initial design of the vessel. By working on the initial design, we knew we could solve problems by designing solutions for the electronic con-trols and power systems. On the Rigdon and BOURBON vessels, our company designed a containerized module that housed the elec-trical equipment. The equipment was pre-commissioned and, most importantly, pro-tected from the working environment. Once, the validity of this approach was accepted and it was evident that the construction process had been greatly expedited; we real-ized that we had been an integral part of a shipbuilding revolution that included Rigdon

Marine, BOURBON Offshore, and Guido Perla and Associates.

MarEx: EPD works in alternative energy markets such as wind power turbines. Explain the growth of those markets, especially in Texas, which is known as the wind turbine capital of the world. How can your integrated applica-tions be useful?

Janik: While, this is a very complex issue

to discuss in this venue. Primarily, because it involves power system stability and control and the prevention of undesirable power system interactions with windmills and other alternate energy systems, which are not available to produce power 100 percent of the time.

Alternative energy issues have caused utility companies fits. Historically they have stayed away from these types of power sourc-es because the power cannot be controlled in a consistent and reliable manner. With energy costs rising and global warming on everyone’s mind, these same utility companies are now forced to deal with these complex issues. The number of companies with a core compe-tence in this area is rather small, which stra-tegically puts EPD in a very good position to participate in these markets.MarEx: Recently, EPD Asia opened in China. Explain some of the reasons for the investment and what future growth China might offer EPD?Janik: The impetus for our investment in China was a large contract we obtained to build and ship equipment from Houston. Logistically, it just made sense to be closer to the customer. Being across an ocean and out-side a time-zone just wasn’t the way I wanted to do business.

There were some other benefits as well.

President and CEO, EPD, Inc. and EPD Asia Group

I was fortunate to work on ‘harmonic simulators’ as well as the ‘Stand-by Inverter’ design for the jet’s back-up power system. The F-16 was hav-ing issues with its inverter and harmonics at the time, and these problems were within my scope of studies and knowledge. At the time there had not been much published in the field of ‘Harmonic Analysis,’ and my work at GD put me years ahead of my peers. I even helped review (unofficially) IEEE-519 before it was published regarding Harmonic Problems, Interac-tions and Propagation for General Dynamics in Fort Worth, Texas.


executiveinterview

Unique Hydra Maritime Services (Pty) Ltd has been established as a separate specialist Marine Electronic, sales and service division following Hydra Marine (Pty) Ltd becoming part of The Unique Maritime Group FZC. South African based Unique Hydra Maritime Services (UHMS) are now the authorized sales and service support centre for Kongsberg Maritime products in South Africa. The operations of UHMS now extend to the entire maritime market throughout the African continent. The Unique Maritime Group has thus expanded the extensive range of specialist marine engineering, sales, service and support solutions available to the Middle East, Asian and US Oil and Natural Gas markets, to include the African continent. The following Maritime products are thus sold, with service support available by UHMS.

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Kongsberg

Since, our new plant was inside an Export Processing Zone near Shanghai, we were able to mitigate the Import/Export taxes that we would otherwise have to deal with. Additionally, this location also enables EPD in Houston to effectively support the Chinese organization in several different ways. One important factor is that between EPD Houston and EPD Asia Group, we are able to be working for our clients on a normal work schedule 24 hours a day. This allows us to support customers around the world more effectively.

Furthermore, from a purely business point of view, by operating our businesses in differ-ent economies and on different continents, we can hopefully remove the peaks and valleys from our operations and financials. Currently, we send employees back and forth from China to Houston. Since, the companies are integrated; staff and support can easily be shifted where it’s most needed. MarEx: Today, China has the world’s atten-tion as a major player in the world economy. Tell us about the experience of working with the Chinese, in terms of doing business in the country, and about the quality of the workers.Janik: I must say that this is the most sur-

prising thing of all. Just about every negative thing that Americans think about China is not true, and there are also some posi-tive things that are not true either. All in all though, life in China is not that much dif-ferent than in the U.S., after one gets used to being there for a while. Our experience in Yangzhou, which is about a 3.5 hour drive from Shanghai, is that the government is very cooperative and helpful, more so than what I have ever experienced in the states.

The people are hard working and fol-low directions exceptionally well. They want very much to succeed. They have a great work ethic and a positive attitude, which is something that easily makes up for their lack of experience. If a company has a good management team in place, the quality of work in China is every bit as good as it is in America. MarEx: Recently, you have partnered with Derek Foster a well known designer of dry-type transformers and inductors. In what way does Foster Magnetics compliment EPD’s business?Janik: I have known Derek for many years. Quite frankly, he is the only person I have been able to call and discuss some unusual

project, which is usually followed by, “Can you build that?” Not only has he always said ‘yes,’ but he’s also been able to design a superior system 100 percent of the time.

When, I discovered that he might be avail-able to join our company, he and I decided to create a new company to design products pursuant to his knowledge, skills and experi-ence. And since we use these components in our products, it was an easy decision to bring transformers in-house. Derek and I have very high expectations for ‘Foster Magnetics.’ Recently, we secured a new proj-ect for a special, very high current, 24,000 Amp, Water Cooled Inductor for the new Magnetics Research Laboratory at Florida State University. MarEx: EPD is a success story in the evolu-tion of today’s power systems for industry. What are your future goals for the company?Janik: Currently, we are researching an expansion program that might include Switzerland, Brazil, Vietnam and Singapore. I am also working to turning EPD into a more vertical market oriented company. But, while staying focused on the energy industry, a sector that I have been committed to for over 22 years. MarEx

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nautical nodesoffices afloat

The Dawn of a New AgeCrew retention and the desire to keep

morale high aboard vessels is a central problem confronting maritime companies throughout the world. Often, this category includes keeping crews connected with their families, sometimes half a world away, through email and telephone calls. But other morale boosters could be television and video feeds. Michiel Meijer, Maritime Market Manager for Stratos Global, said, “One of today’s most effective ways to improve ship-board life for seafarers is to provide advanced voice, private emails and SMS communica-tions systems that are powerful, economi-cal, easy to use, and available away from the bridge.” The next level in crew communica-tions – providing crewmembers with Internet access – is expected to become the norm in the coming years, according to Meijer and other providers interviewed by MarEx.

The business side, now fueling the grow-ing uptake of high-speed service at sea, might include the time-sensitive transmission of electronic chart updates. Globe Wireless, an industry leader, reports that remote engine monitoring is driving its clients’ uptake of higher speed, “always on” communications. Stratos’ Meijer, in describing a host of new applications, also cited the burgeoning area of remote IT support, telling MarEx, “Vessels are complex systems, with fewer people aboard than in previous years. They may need remote access to get support from specialists ashore.”

Investors have increasingly demonstrated their confidence in the business of maritime satellite communications, which has been driven by dual trends – privatization and

consolidation. Inmarsat morphed from a quasi-UN organization to a financial stock market offering (with the intermediate step of privatization followed by investment from Apax Partners and Permira). Private equity firm BC Partners recently took control of Intelsat – another satellite network with its origins in the 1970s. Globe Wireless and Broadpoint, both owned by private investors, have built their businesses serving seafar-ers, with the burgeoning offshore oil busi-ness playing an important role. Both have expanded internationally.

Providers have ramped up through merg-ers and acquisitions to better serve customers. Stratos, owned by a Canadian investor group since late 2007, has grown through horizon-tal mergers. It is a distributor of Inmarsat services, but it is also a sales channel for Intelsat (with more than 50 “birds” deployed in high orbits) and Iridium, a system in “Low Earth Orbit” (LEO). In the U.S Gulf oil patch, Broadpoint, a provider of voice and data services to the offshore industry, has also chosen the merger route as three smaller companies have combined to help it pursue its international expansion. In mid-2007, Globe Wireless’s acquisitions of Seawave (an onboard, least-cost voice and data message router) and Rydex (a maritime email pro-vider) cemented what Globe President Frank Coles had called Globe’s “ability to provide airtime over a wide variety of communica-tions pipes.”

Inmarsat’s “FleetBroadband” ServiceThe big buzz in the marketplace centers

around Inmarsat’s formal introduction of

its much-heralded “FleetBroadband” high-speed data and voice service. Inmarsat’s Piers Cunningham, who oversees its maritime business, tells MarEx that “FleetBroadband will be the new standard for high-speed mari-time Internet communications. It’s different from VSAT. It operates on a different band with much smaller antennas. It’s based on the Broadband Global Area Network (BGAN) platform that has operated successfully for land-based users since the rollout in late 2005.” Cunningham added, “FleetBroadband will supersede a family of Fleet maritime products that were rolled out beginning in 2002. For us, it’s a natural evolution of our maritime portfolio. We expect the uptake to occur over the next 18 to 24 months.”

FleetBroadband (operating in the “L” Band of the satellite spectrum, which enables small-er antennas than those required for V-SAT’s “C” and “Ku” bands) offers data speeds of up to 492 kb/sec. Once the third of Inmarsat’s Fourth Generation satellites is operational, later in 2008, the new system will offer near-worldwide coverage.

Stratos, as the world ‘s largest distributor of Inmarsat services, is offering FleetBroadband to shipping customers, and Michiel Meijer stressed that “As FleetBroadband antennas are small (35cm/60cm), the installation process is rapid. Ships won’t be delayed. They can main-tain their commercial trade schedules. It’s a standard IP service that can be seamlessly integrated with the head-office network.”

MarEx asked Meijer, in the process of still finalizing the pricing on the new offering, why a shipowner would choose FleetBroadband instead of a service such as

Nautical Nodes for Offi ces Afl oatBy Barry Parker

In the early 1970s, a group of forward-looking and influential U.S. shipping executives began think-ing about a satellite network for the global maritime industry. They hired an engineering team from Comsat to detail a vision for such a system. This work led to Marisat, a 1976 U.S. endeavor, and preceded the 1979 founding of Inmarsat, originally under the auspices of the United Nations. The advances in maritime communications, no longer futuristic, have brought Internet capabilities to ships at sea. Shortwave has been largely superseded by satellite communications. This article gives an overview for the busy maritime executive of the leading providers of satellite communications services and some of their more exciting maritime offerings.



“The industry is increasingly regulated. There is heavier demand for data exchange. The tanker segment is trailblazing now. It is trying many new applications…”

OceanVSAT, provided by Intelsat. He explained that “Both pipes are similar. They both support simi-lar throughput speeds. It really depends on the expected usage of the channels. VSAT pricing is fixed irrespective of usage, so it’s a better deal for a heavy user, while FleetBroadband customers pay according to their usage.”

In describing FleetBroadband, Inmarsat’s Cunningham told MarEx, “We know that many parts of the maritime industry want increased bandwidth. FleetBroadband comes in two flavors. Both support 4kbps voice, Group 3 fax and standard 3G SMS functionality.”

Cunningham further explained that, “Our FB500 package offers standard IP con-nectivity of up to 432kbps, with guaranteed or ‘streaming’ IP data rates up to 256kbps. It also supports 64kbps ISDN connectiv-ity for legacy applications. The above-deck dome diameter is around 57cm, and weighs about 18kg. The FB250 configuration offers 284kbps, with streaming IP available at up to 128kbps. The dome is smaller, about 25cm diameter, and lighter, at around 2.5kg ”

Both Cunningham and Meijer talked about a world of video-based applications and customers who were exploring new ways of working to enhance operational efficiency. Through Meijer’s extensive customer contact, he sees customer demand increasing for com-munications tied to applications that reduce fuel consumption, either directly through engine performance monitoring or indirectly through more efficient weather routing aided by frequent chart and weather map down-loads. Cunningham stressed that “The indus-

try is increasingly regulated. There is heavier demand for data exchange. The tanker seg-ment is trailblazing now. It is trying many new applications – for example, in remotely looking at emissions. The freight market has been good in tankers, and other sectors, including IT and communications, have sup-ported new applications.”

Another exciting application is Frontline Communicator, a wireless node allowing video transmissions to be uploaded from the vessel. Meijer described a recent onboard product demonstration where shore-side engineers could see what their colleague aboard the vessel, with a helmet-mounted camera, was seeing as he examined a mal-functioning diesel engine. Cunningham explained that Frontline Communicator, run-ning through a Fleet 77, was used to provide Internet video feeds of onboard conditions in sailing’s Volvo Ocean Race.

Sea Tel: Antenna KingOne member of the original Comsat team,

Bob Matthews, the recently retired founder of leading stabilized antenna provider Sea Tel, has never looked back since its founding in 1978. Sea Tel holds patents on the famil-iar marine satellite antenna housed inside a

radome. Today, Sea Tel offers stabilized anten-nas for voice and data communications and for satellite TV (a big attraction for merchant crews and for yachting customers). Intelsat has now announced that Sea Tel’s “9707” C Band antenna will be support-ing enhanced service on Intelsat’s new C Band service. According to Peter Broadhurst, Sea Tel’s Vice President for Sales, “We have 25,000 successful installations. We were the first to

bring VSAT, Direct-TV, L-Band and X-Band to maritime satellite communications.”

Broadpoint: Provider to the Oil Patch

Broadpoint is “new” in name only, the result of rebranding that occurred after the merger in 2007 of three stalwarts in the oil

patch: Petrocom, Coastel Communications and SOLA Communications. “The individual businesses go back more than 25 years,” says Broadpoint CEO Ken Wright, who cut his teeth engineering communications networks for far-flung mining operations. Wright explained that the business combination and financial infusion will support Broadpoint’s move “…toward industry leadership. We need a wide range of offerings to serve our cus-tomers. We now have the base, a critical mass, to move to a much higher level.” He described a strategy of “following the customers and their assets abroad – to offshore Africa, India, the Middle East, and the Pacific Rim. We’ve been in the Gulf of Campeche for ten years.”

In elaborating on Broadpoint’s strategy, Wright told MarEx: “The new company is far more than the ‘sum of the parts’ of the three business that we’ve put together.” The Broadpoint business builds on Petrocom’s pioneering cell phone network in the Gulf of Mexico, serving users exploring for and pro-ducing oil and gas, and myriad of others sup-porting them. “We have a large GSM network – the Petrocom legacy – and we have roaming partners all over North America. Our users are installing WiMax networks aboard ves-sels,” Wright said.

He described the company’s mantra as “moving the enterprise communications environment to the offshore sector.” These days, that environment includes capabilities such as remote engine or process monitor-ing, and also leveraging the capabilities of experts on shore. Wright, like Cunningham and Meijer, told MarEx that video applica-tions have been a big driver for broadband applications. In Broadpoint’s case, a number of customer executives have been motivated by forensic applications, where recordings are available for insurance or investigative pur-poses (after an accident). “Through VSAT,” he said, citing another important applica-tion, “an engineer in the office can watch the view from a ROV in real time – for example, in well intermediation or in an underwater pipeline repair.”



“Deck space is valuable on vessels in the U.S. Gulf. The smaller footprint of the new antennas greatly expands the marketplace. Mid-tier companies and outfi ts with smaller boats can now consider VSAT.”

MarEx

Stratos’ OceanVSAT BrandStratos is a distribution

partner for both Inmarsat’s FleetBroadband and Intelsat’s C Band Network Broadband Global Maritime Service, which Stratos markets under its OceanVSAT brand. Stratos’ Meijer told MarEx that “Stratos is the largest sup-plier of mobile satellite services to the maritime industry. OceanVSAT offers global, always-on broadband access for a fixed monthly fee. We also offer customer network management, application support and installation, and maintenance of termi-nals on vessels. Customers choose us because of our extensive portfolio of value-added ser-vices.” An example of those value-added ser-vices is Stratos’ AmosConnect Crew service, which combines private email, text messaging and international calling.

In talking further about OceanVSAT, Meijer mentioned two additional features that meet fleet managers’ demands, “It offers an Automatic Beam Switching system, which seamlessly transfers service between Intelsat’s satellites, eliminating any manual interference. The second feature, Intelsat’s Global Network Monitoring System, lets a fleet manager moni-tor all remote locations from a single moni-toring site, probably the head office.”

Globe Wireless – “A Network of Networks”

Globe Wireless, describing itself as “A Network of Networks,” is vertically integrated, with its satellite communications distribution

capabilities augmented by its own digital high-frequency radio network. Frank Coles said, “As an independent company, we work with customers to recommend satellite communi-cations systems to suit their requirements.” In response to demand for high-speed connectiv-ity from its customers, numbering some 500 ship operators, Globe announced two impor-tant distribution agreements. Iridium, a con-stellation of 66 low-earth-orbiting satellites, has appointed Globe Wireless as a Charter Distribution Partner for its new OpenPort service, which will offer a Broadband inter-net protocol (IP) data plus voice lines. With speeds up to 128 kbps, the cost will be lower than higher-speed services and “allow us to continue to meet our customers’ increasing requirements for bandwidth while maintain-ing cost control,” said Coles.

Globe Wireless has also been selected by Intelsat to be a distributor for its Network Global C Band service (where speeds can reach as high as 2 mbps), and is a Virtual Network Operator (VNO) for the service. “We can build and manage fleet-wide networks for our customers,” said Globe Wireless’ Shane Rossbacher. The IT manager

at a new Globe customer, Rederiet Stenersen in Bergen, Norway, com-mented, “Globe Wireless’ VSAT services will allow us to offer better services to our crew for browsing, email and voice calling, while at the same time improving communica-tions between ships and our offices.” Stenersen’s fleet includes 13 chemi-cal/product tankers on the water now, and six newbuilds.

Small and PowerfulThe evolving antenna

technology and smaller footprint have also con-

tributed to the growth in satellite communications. Broadpoint’s Ken Wright underscored this point, saying, “Deck space is valu-able on vessels in the U.S. Gulf. The smaller footprint of the new antennas greatly expands the marketplace. Mid-tier companies and outfits with smaller boats can now consider VSAT.”

Sea Tel’s Broadhurst tells MarEx, “With the increasing popularity of VSATs and the higher-power satellites, Sea Tel was able to manufac-ture smaller VSAT antennas in the 1m size. We have now moved to the 60cm size with our Model 2406. This allows smaller vessels to take advantage of the fixed pricing of VSAT servic-es. Smaller vessels are all now trialing the 2406 and the options and applications it brings.”

Though technology drives the commu-nications business, the personal touch still counts. Broadpoint’s Wright told MarEx, “We are relatively small compared to giants in the business, but we use that to our customers’ advantage. Small means nimble with quicker decisions. It’s actually a core strength.”

GLOSSARY - C Band (3400 to 4800 mHz), Ku Band

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BroadbandCommunications

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VSAT - Global C-BandOther

CommunicationsHF

IridiumInmarsat

GSM/GPRSFleet Broadband

OtherCommunications

HFIridium

InmarsatGSM/GPRS

Fleet BroadbandMessaging

& DataGlobe i4

GlobeRydexGlobe Wireless GCC

Messaging& DataGlobe i4

GlobeRydexGlobe Wireless GCC

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FormsArchive

Fleet TrackingVirus Protection

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Maritime Communications & IT Solutions

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Maritime Communications & IT Solutions

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one step aheadveson

John veson By MarEx Staff

IMOS: Integrating Data to Create Sound Maritime Business Strategyveson Nautical Offers a user-Friendly and Flexible Platform that allows customers to Stay One Step ahead in the ever-changing Global Shipping markets

If asked, any shipyard executive will tell you tell you that the last fifty years of the twentieth century brought change to seago-ing vessels primarily in terms of size. The introduction of ULCC tank vessels and 12,000-TEU container ships was most often regarded as the most visible bellwether of change at any shipyard. Most notably within the past decade, the advent of technology on board any marine vessel has eventually taken the place of size as the primary change and improvement in ocean commerce.

In the business of running these very same vessels, it could be argued that the processing – and efficient analysis – of information has run along similar lines. Although the Master of a tramp steamer no longer runs the business of his ship or decides where to go next, the input of his data into a flexible, standardized soft-ware platform will potentially have everything to do with whether or not he has a job on the following voyage. Some things never change: The noon position and bunker consumption reports still go from the ship to the office every day. What happens to that information once it arrives ashore is another story. And that’s where Veson Nautical comes in.

coMpUteRS And oceAn coM-MeRce: gRowing Up togetheR

The PC arrived on board ocean carriers of all types more than two decades ago. That grimy box sitting in the ship’s office or cargo control room performed a myriad of tasks ranging from the calculation of stability and trim characteristics for a particular vessel to planning cargo stowage, keeping track of a ship’s payroll accounts and, later, developing into a touch-screen device that controlled critical ship’s engine and cargo systems. Those customized, typically one-dimensional programs have grown up, replaced and/or augmented by shore-based technical software that helps to manage maintenance cycles and

even monitor the temperature of a critical turbine bearing via broadband connection to an office 9,000 miles away.

Slower to follow was the trend of more sophisticated technology on the operations side of the equation. Today, the utilization of software to streamline data analysis and provide more cogent decision-making in the boardroom is now becoming all but standard practice in most companies. One company that has quickly moved its focus from produc-ing customized software solutions to provid-ing a standardized platform for marine busi-ness is Veson Nautical, based in Boston. Long a player in the marine software game, Veson traces its roots back in 1979 to devising dis-tance tables and voyage-estimating software.

MARitiMe RootS + cUtting edge technology = MeASURAble iMpRoveMentS

After company founder Michael Veson pioneered the automation of port-to-port distance tables for use in early voyage-estimating software, he turned his attention to meeting the individual needs of countless worldwide maritime clients. In 2003, Veson’s son, John, took over the firm and, leveraging

its maritime legacy, he took that focus in a new direction. Veson’s Integrated Maritime Operations System (IMOS) is the most visible manifestation of that effort. At the close of 2007, over 70 companies worldwide had cho-sen IMOS as their primary tool with which to manage and organize their business. IMOS consists of three core modules: Chartering, Operations and Accounting. A fourth mod-ule, OnBoard, can be used to build complete solutions for bulk carrier, tanker, container and barge companies.

John Veson touts his IMOS platform as the most technically advanced and complete chartering and operations system on the mar-ket today. The most recent release employs a Microsoft.net framework to enhance func-tionality, user-friendliness, system stability and graphical presentation. Because of this, he says, experienced office personnel can hit the ground running, using known data sets from multiple sources and producing defini-tive analyses of complex shipping problems.

The real value of IMOS rests somewhere between the efficient integration of multiple streams of data and the accurate forecasting that can drive the decision process. Rather than replace an existing accounting system,


one step aheadveson

however, IMOS fully interfaces with and takes data from financial systems such as SAP or Oracle and then integrates that data with information streams from other sources. IMOS users therefore enjoy the functionality of being able to engage any number of vari-ables into their decision-making rather than dealing with multiple spreadsheets in a stand-alone environment.

Specific ApplicAtionS: MAnAging phySicAl RiSk And finAnciAl pitfAllS

From the standpoint of voyage accounting alone, the IMOS platform is probably worth its weight in gold. From a twenty-twenty hindsight position, the IMOS “true cost” determination uses transferred data, inte-grates it into company-generated informa-tion and provides a bottom-line analysis of a particular voyage charter. Showing budgeted assumptions versus actual data, the platform provides what John Veson characterizes as “packaged consulting.” In real time, IMOS provides built-in “views and warnings,” turn-ing the conceptual (potential) voyage into something “actual.” Veson says that his clients have come back to him with tales of the voy-age charter that they didn’t fix because IMOS showed them in advance what the business would cost.

Charterers are the fastest growing part of Veson Nautical’s client base. Focused on the commercial side of the business, IMOS naturally assists charterers in booking their fixtures. There is also a vetting component, which pulls information from SIRE, Fairplay and other sources to help manage the vet-ting process. But unlike other systems, which merely crank out data for assessment, the Veson vetting module can provide an instan-taneous approval or rejection of a charter choice, based on preset rules determined by the charterer and dependent on their par-ticular threshold of risk. Veson recognized

early on that vetting IS part of the business decision and, because of it, customers can now balance their commercial decisions against the risk presented by an unsafe ship or operator. Even the best financial deal will be a failure if it is founded on the use of an unsafe or otherwise commercially undesirable (non-performing) vessel.

The right software platform can mean the difference between accurate forecasting and mere data collection. And while John Veson dislikes the use of the term “plug-and-play,” the IMOS is billed as the superior out-of-the-box trading module to assess risk and expo-sure to market conditions. The IMOS add-on feature, says Veson, can help charterers lock in freight rates – limiting downside exposure – by using Forward Freight Agreements (FFA).

In simple terms, the operating perfor-mance of a particular tanker company’s spot tanker segment can be measured in net reve-nues per revenue day, or time-charter equiva-lent (TCE), and includes the effect of forward freight agreements (FFAs), which may be entered into as hedges against a portion of the company’s exposure to spot market rates. Predicting exposure and performing “what if” scenarios, John Veson says, “IMOS let’s you look at the overall freight position and see if you can hedge your exposure to freight mar-kets. In simpler terms, IMOS is a planning tool for determining which tonnage to use to move a particular cargo.” Because FFAs are an integral part of many ocean-shipping com-pany’s business activities, the IMOS Trading Module enables users to have a unified pic-ture of all physical and paper trades.

IMOS can be used in many other ways as well. Interfacing with AIS systems, the plat-form can verify the statement of facts, man-age “time-bars,” and create a standardized demurrage solution by generating a freight statement. Additionally, IMOS, partnering with third party information, can be used to manage bunker fuel purchasing by maintain-

ing a constantly updated database for pricing at individual ports while also tracking on board consumption.

iMoS onboARd: Up And RUnningIn November 2007, European oil refiner

and marketer Neste Oil Corporation became fully operational on Veson’s IMOS platform for the purpose of better managing its fleet of 30 tankers. Veson’s IMOS now enables Neste’s Shipping Division to operate its large tanker fleet more efficiently and profitably, from the onset of the voyage to the finan-cial tie-out. “The greatest benefit we have experienced is having an integrated system that handles chartering, operations and accounting,” explains Joakim Kärkkäinen, Vice President of Neste Oil Corporation’s Shipping, Finance and IT Department. The independent northern European oil-refining and marketing company regularly moves refined product from its two Finland-based refineries. With a total refining capacity of approximately 250,000 bpd, Neste also employs about 4,500 people.

On the other side of the equation, Broström Tankers AB, headquartered in Göteborg, Sweden, was one of the first users of what would eventually become Veson Nautical’s full-fledged Integrated Marine Operations System (IMOS). The company has been leveraging IMOS for its chartering and operations activities for more than a decade.

In 1993, Börje Forss, Chartering Manager at Broström Tankers AB, and Michael Veson, founder of the predecessor of today’s Veson Nautical, began working together to create a tailor-made solution for Broström’s charter-ing calculation needs. Börje Forss explains, “Originally we had a DOS-based calculation program, but it did not have the function-ality or power we needed. Michael Veson approached us with the beginnings of a solu-tion and we started working together. Michael is a technology expert who understands the


one step aheadveson

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John Veson dislikes the use of the term “plug-and-play,” the IMOS is billed as the superior out-of-the-box trading module to assess risk and exposure to market conditions

needs of the shipping business.” As a respected logistics company,

Broström serves the oil and chemical industry and its needs for marine transport solu-tions. The company runs approximately 35 vessels – owned, partly owned and some on commercial management – operating mainly within Europe. Today, Broström vessels make as many as 2,000 voyages per year, transport-ing cargo for major oil companies such as BP, Chevron Texaco, Exxon Mobil and Shell, among others.

The long relationship enjoyed between Veson and Broström is, perhaps, ample proof that Veson software provides a competitive edge. “With IMOS, we can always evaluate which cargo is the best for each vessel. In addition, the ability to combine voyages is both significant and unique,” remarks Forss. “I’m sure we make better decisions because when you have a good calculation tool and you can combine voyages, it’s truly a benefit.”

chASing the bottoM line: the StAndARdiZed AppRoAch to Shipping

Perhaps the number-one reason to consider an integrated maritime operating

system – IMOS, for example – is to catch the errors that might be made through the use of stand-alone or less interactive man-agement systems. In fact, says John Veson, “Many clients initially run our system in parallel with their previous systems. This

practice helps them to catch errors and see where they might have been saving money in the past, had they been on board with IMOS from the start.”

With more users coming online as the value of its software becomes more widely known, Veson is gearing up to meet the expanded challenge. Already with a strong European and U.S. presence, its Singapore office has been up and running since September 2007. Veson now has 27 employees and is looking to expand even further. As industry continues to evaluate the adoption

of technology solutions, IMOS will certainly be among the products being vetted for man-aging the business of maritime commerce. It is far too early to say that Veson’s IMOS plat-form will eventually become the benchmark for integrated management tools, but the

early vision of Michael Veson certainly set the stage for what was to come next.

The same integrated sophistication con-sidered standard on the technical side of the shipping equation is now available for mari-time players who want to run those physical assets in a more efficient and productive manner. It’s not too late to climb on board, but as they say in the shipping business, “the Captain is singling up the lines now.” Not to worry: John Veson will hold the gangway a little longer for you.

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Mat M. Gray, III 41 Years - New Orleans

Alanson T. ChenaultProfessional Mariner 16 Years - New Orleans

Timothy W. Strickland 15 Years - Houston

Luis Enrique Cuervo 20 Years - Houston

George Gaïtas 30 Years - Houston

Wayne Pickering 17 Years - Houston

Daniel Lichtl 8 Years - New Orleans

Robert R. Johnston 14 Years - New Orleans

Delos E. Flint, Jr. 26 Years - New Orleans

Edward F. LeBreton, III 32 Years - New Orleans

Justin Renshaw 8 Years - Houston

Stephanie Skinner 17 Years - New Orleans

T.C.W. Ellis Of Counsel

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fowler_drill.indd 1 3/10/08 10:19:44 AM



MarEx

BOURBON Goes Down Under: The Subsea Market Beckonsafter Divesting Non-core assets in Order to con-centrate on its maritime Business, BOurBON ceO Jacques de chateauvieux Now turns his attention to the Subsea and rOv markets

The transformation of Groupe Bourbon into a pure, maritime-oriented company has been a careful and well-planned journey. The same company that evolved from a small sugar cane refining firm based in the Indian Ocean after World War II, and later pioneered the retail and modern shopping mall indus-try in Vietnam, is now entirely focused on operating a fleet of modern marine vessels. A major player in the offshore industry also providing bulk transport, the firm has once again begun to look outwards for ways to maintain its position as one of the world’s largest marine employers.

BOURBON continues to grow by leaps and bounds, with 2007 revenues exceeding 2006 results by more than 25 percent. And while some CEOs might be content to con-tinue to drive down the same road in 2008, BOURBON has, instead, put new attention on its Inspection, Maintenance and Repair (IMR) Activity. This Activity, created in part by the December 2007 purchase of DNT Offshore, signals BOURBON’s intention to more fully enter the deepwater offshore subsea markets. DNT is an Italian company specializing in continental or deepwater off-shore inspection (up to 4,000 meters) with fully electrical Cougar and Falcon-type ROVs. Created in 2002, the company posted a 24 percent increase in revenues in 2007. The firm had a total of 44 employees before being acquired by BOURBON.

Although the DNT Offshore group is widely recognized for the qualifications of its team and the quality of its fleet of remotely operated vehicles (ROVs), BOURBON’s posi-tion in this market is still relatively modest. That looks to change, and quickly. Specifically, and in order to keep pace with the strong growth in this sector of the offshore marine

business, BOURBON will augment its exist-ing fleet of 11 vessels with orders already placed for 19 additional units, including the latest order for a series of 10 GPA 696 IMR vessels for 450 million euros, whose design is specifically adapted to this type of operation. BOURBON’s Horizon 2012 plan also calls for increasing the number of ROVs in its fleet from seven to 21 units by 2012. The total investment, which will be in the hundreds of millions of dollars, includes orders for at least 16 new ROV units.

BOURBON’s new Subsea Services Activity will include installation engineering and a definition of work procedures, design and supply of specific equipment or supervision and execution of offshore installation work, feedback management and updating of trends in subsea structures and project management. As always, the hallmark of any BOURBON business plan calls for the latest generation of IMR vessels, adapted to the specific demands and needs required by deepwater inspection, maintenance and repair interventions. The new focus comes out of the gate leveraging the expertise of DNT Offshore, BOURBON’s latest subsidiary, which has six years of expe-rience and a fleet of seven ROVs to conduct a wide variety of inspection, maintenance and repair operations on subsea structures.

BOURBON is not new to the subsea markets, but CEO Jacques de Chateauvieux naturally sees additional, promising prospects opening up in this booming market. And the demand for subsea services and ROV tech-nology won’t go away any time soon. With crude oil prices now firmly north of $100 per barrel, multinational oil companies are now looking at reinvigorating old wells that, while not deemed profitable to run when oil was worth half of what it is now, could now

produce more than satisfactory revenues. Beyond this, the move to deepwater for the purposes of exploration is also ramping up the requirements for subsea support. And, of course, all of the offshore equipment installed in the previous ten years will need inspection and maintenance support as well. Certainly, the flush cash position of many oil companies is making the decision to explore deeper and farther offshore that much easier.

As always, BOURBON enters a particular market by first ensuring that its employees are well trained for the task at hand. As such, a new Italy-based ROV simulator will come on line in mid-2008 to join the other anchor-handling simulators already run by BOURBON. Hence, the BOURBON model for success and growth is intact within its newest effort to expand into this rapidly growing sector of the maritime markets.

The focus on the subsea side of the mari-time equation will, according to Jacques de Chateauvieux, be built using the same time-honored business strategy that has already produced a global operator of more than 236 vessels. In the short term, and while day rates may have plateaued, BOURBON’s position is further solidified by the fact that about 85 percent of its fleet is engaged in long-term charters of at least six months, with a good portion of that tonnage engaged on time charter for two to three years. BOURBON’s CEO calls this strategy, “One of modera-tion, but also one that creates stability.” In other words, by agreeing to a more moder-ate – but still profitable – long-term day rate, BOURBON usually avoids and mitigates the risks associated with a more appealing spot rate. The strategy, based on their most recent financial disclosures, is serving them well.

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managingrisky business

Damen Shipyards: Uniquely Managing “Risky Business”Kommer Damen Sits on Top of the Global Small Vessel Shipyard Market

From the American side of the big pond, the discussion over shipbuilding techniques and economics will always and inevitably turn to the high price of domestic steel, unfair subsidies enjoyed by foreign-based shipyards, the vertical integration of the Korean yards and a myriad of other factors. These and other variables, say many industry observers, prevent U.S. yards from effectively competing in the global marketplace. Today, shrinking domestic capacity creates backlogs that may look good on order books but do not neces-sarily bode well for the coming downturn from the most robust U.S. shipbuilding mar-ket in half a century.

One international company may hold the key for shipyards everywhere to not only survive the next downturn but also profit immensely under those conditions. This time-tested business concept isn’t rocket sci-ence and certainly wouldn’t be difficult to initiate. On the downside, however, embark-ing on the road first traveled by Damen Shipyards almost 40 years ago would not be without risk. Properly managed risk can and does bring substantial rewards. That’s where Kommer Damen comes in.

RISKY BUSINESS: EARLY VISIONKommer Damen is not the shipbuilding

pioneer in his family. Not by a long shot. From a modest start based out of just one shipyard in 1927, the Damen Shipyards Group has grown to a global force consisting of 30 shipyards and related companies. But the great majority of that growth came after today’s Damen Shipyard Group’s CEO arrived in 1967, fresh out of college. Damen showed an aptitude and a genuine affection for the

shipbuilding business, and he quickly became an important part of the Damen family man-agement team. He also began to formulate ideas about which direction the business should take, how that could be accomplished, and why. At the time, many of those ideas were not well received.

By 1969, Kommer Damen had enough faith in his standard design concept for boatbuilding that he proposed the idea to his father. In a nutshell, the younger Damen wanted to build and stockpile standard hull forms for various types of vessels. The ratio-nale for this effort would be to offer potential clients (a) shorter lead time for delivery, (b) a more standard vessel design that could easily be serviced in an economical fashion and (c) a lower overall cost. In the end, lack-ing the confidence of his father and other management team members, Damen bought the shipyard and heavily leveraged himself in the process. The rest of the story, as they often say, is history. The footnotes and details, though, are fascinating.

DEFINING THE DAMEN STANDARDIZED APPROACH

The shipyard business model championed by Kommer Damen is a simple one: Maintain a high stock of standardized hull forms; con-sistently use the same propulsion equipment and technology over the broad reach of any number of newbuildings; educate customers as to the advantages of purchasing tonnage from a “series,” and promise them shorter lead times for delivery. The risks of such a practice, as pointed out to him by many oth-ers, exposed his business to failure if orders slowed down. In that case, he would be left

with a sizable inventory and no one to deliver it to. That metric, however, never developed. The Damen approach extended far beyond the simple stockpiling of hull forms.

GLOBAL REACH: SIZE DOES MATTER, AFTER ALL…

By 1973, Damen had already begun to grow his global sales network. His system of delivering a prompt and reliable product had begun to pay off. Eventually, the Damen Shipyard Group would expand to a global presence of over 30 shipyards and related companies. Damen-built boats could now be serviced all over the globe, using his standard-ized inventory and equipment process.

The Damen Marine Services group devel-

By Joseph Keefe



oped a model for providing technical service in places not very well developed. Partly as a result, Tidewater Marine Service, a well-known offshore supply and services company, has become a big customer. With at least 12 of its 34 operating companies located abroad, the Damen Group now averages about 130 deliveries annually, with sales last year that reached $2 billion. Those vessels are exported to 117 countries and, predictably, series production accounts for 75 percent of those deliveries. Since 1969, Damen Shipyards has delivered more than 4,000 vessels using a global workforce that has expanded to almost 10,000 employees.

With those kinds of numbers Kommer Damen has the luxury of continuing to operate and provide service in places where others might hesitate. But the practice also creates brand recognition and brand loyalty across a broad range of small to mid-size ves-sels, including tugs, workboats, high-speed craft and ferries, dredging equipment, cargo vessels, fishing vessels, short sea and inland vessels, naval and patrol boats, mega-yachts and a host of other platforms. In any given year, output for military or law enforcement use can amount to as much as thirty percent of Damen’s volume. That Damen can deliver more than two-thirds of those craft, year after year, in series production is remarkable.

NOT YOUR AVERAGE “USED CAR” LOT - AND OTHER FORMS OF REAL INNOVATION

The Damen way of doing business has many other, perhaps less visible, downstream

benefits for its many clients. As he perfected the series production of countless types of vessels from a predictable supply of stock-piled hull forms and standardized equip-ment, Kommer also embarked on developing a focused program of providing planned replacement boats for the previous-generation ships. Damen ships, that is. Through and with other subsidiary companies such as Damen Trading & Chartering and Damen Marine Services, Damen actually will buy back certain vessels from a client as well as allow that cli-ent to lease and charter Damen newbuildings.

The leasing of a Damen newbuilding allows a potential buyer to take a Damen pro-totype vessel out for a test spin, so to speak. And the secondhand vessel taken back by Damen usually turns out to be an easy one to refurbish and refit, using his standardized inventory and propulsion systems. The end result is that the value of a used Damen vessel can often fetch a premium in the aftermarket. Last year alone, Damen built and delivered more than 160 vessels and, remarkably, took in 30 to 40 trade-ins as part of that business.

Typically, Damen’s trading and chartering arm will have five or six used vessels in stock. Because a Damen ship is often sold with “a buyback guarantee,” this aspect of the total Damen business structure is likely to remain in place. Loyal customers continually come back to purchase, lease or trade-in for what they know will be a standard and reliable product down the line. For the buyer who wants all the bells and whistles, “standard” does not have to be synonymous with “plain vanilla.” Indeed, says Kommer Damen, “We are building X-bow vessels and tractor tugs using one of our stan-dard hull forms, providing high-output engine performance and low vibration.”

BETTER SERVICE IN GOOD TIMES; SURVIVAL IN THE DOWNCYCLE

When business falls off – and ultimately it will – Damen stands ready to deliver ves-sels to prospective buyers in a much shorter time frame. Unlike shipyards elsewhere that live for today and continually suffer through the cycles of “boom and bust,” the Damen Shipyard Group believes in continuing to build even in the lean times, at least to the point where it can perhaps halve the delivery time for a buyer, eliminating costly waiting time for component delivery. After all, the Damen approach allows for innovative design within set parameters of standard equipment choices. And as Caterpillar’s biggest world-wide customer, the standard equipment pack-

age on a Damen-series vessel is anything but second-best.

The Damen business model takes the practice of preparing to survive, as opposed to failing to prepare, to a higher level. Even in the good times, Kommer Damen says, “We try to keep a few shipyard slots open for our best customers.” He readily admits that it isn’t always possible, but with a global network of shipyards he is arguably better positioned to make the concept work than anyone else. Finally, when the crunch does come, it only makes sense that the firm with the best inven-tory of pre-positioned parts and hull forms will be able to produce the least expensive vessel in the shortest amount of time. Just imagine a U.S. shipyard trying to compete with the Damen machine in the early 1980s!

LESSONS LEARNED: COULD U.S. FIRMS FOLLOW SUIT?

Even with the terribly weakened dollar and a robust backlog at most U.S. yards, the American shipbuilding machine probably has only a remote chance of duplicating the unique Damen business model. In the past, series-built vessels in the United States were the exception rather than the rule. When this did occur, the practice was usually limited to a few vessels, after which the Jones Act appetite for new tonnage would weaken. Ten years later, a new design would have to be put together from the ground up.

The Japanese and the Koreans have long known that real economy of scale is created by producing dozens of vessels in the same fashion, quickly and to a high standard. For a generation of international deck officers, walking into the control room of a Japanese-built VLCC meant revisiting a cargo control system that he had seen time and time again on many other vessels.

In today’s (still) red hot domestic ship-building market, some vessel series are being produced again. Notably, Aker Shipyard in Philadelphia is producing a standardized product tanker for coastwise use, and it’s already delivered a number of these into ser-vice. And at General Butch King’s VT Halter yards, a series of back-to-back barges for ATBs are being cranked out. Kommer Damen even says that he has partnered with more than one U.S. shipyard on design packages, one of which is constructing a vessel for the United States Coast Guard. Nevertheless, it is doubtful that anyone in the domestic U.S. shipbuilding business is building hull forms for vessels that have not yet been ordered. Still



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less likely is the prospect of anyone offering to buy back what they’ve already sold. Perhaps it is time for them to start. 2012 will be here before you know it.

THE DAMEN STANDARD: ANYTHING BUT BUSINESS AS USUAL

When the next down market arrives, Kommer Damen will promote the use of Damen Shipyards as a way to get quicker delivery of a lower-cost vessel, backed by various guarantees unheard of elsewhere. That vessel, once delivered, can operate in most places and know that a Damen shop of some kind is virtually right around the corner. Hence, the term “downturn” may actually have no place in the Damen Shipyard nomenclature.

Although Kommer Damen told MarEx in March that he had no spectacular plans for acquisitions or business moves in the works, he did say, “We are slowly and incrementally increasing our capacity in the Far East.” This potentially lays the groundwork for Damen to beat the Japanese and Koreans not only at their own game but also in their own back-yard. Which led us to our last question: What about expanding the Damen standard-design

concept to larger vessels, such as VLCCs and 10,000-TEU container ships? Kommer Damen didn’t need to think very long before answering, “Absolutely not. We are already the big boys in the small boat markets. There we have a better survival strategy and business scenario.” Enough said.

The biggest hull ever produced in a Damen yard measures about 220 meters in length by 32 meters breadth, with a dead-weight capacity of about 13,000 tonnes. That’s how it is likely to stay as long as

Kommer Damen is in charge. The largest volume global supplier of small vessels in the world already enjoys an enviable market share, supported by a very simple busi-ness plan. Why more yards haven’t moved to duplicate at least part of what he has assembled is a mystery. But to be fair, even his father would be astounded at the position enjoyed by his son’s business empire less than 50 years after the inception of a single modest yard in the Netherlands.

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ASSiStAnce to SMAll ShipyARdSIn 2008, $10 million was appropriated for

a new loan program providing assistance to small shipyards, but the 2009 budget includes no funding for continuing this initiative. The funds, which only arrived in December, nev-ertheless have the potential to do some real good, especially in places that sustained signif-icant damage during the hurricanes of 2005. Connaughton told MarEx in February, “We have published a Federal Register notice about its availability. We are taking applications until the end of this month and making the awards

in April. The authorizing language defines it as a shipyard of 600 employees or less.”

MSp pRogRAM: going foR-wARd foR the Right ReASonS

The Maritime Security Act of 2003 autho-rized 60 ships for the Maritime Security Program (MSP) and a $2.9 million payment per ship for 2009. The increased num-bers are good news for MSP participants. Connaughton cautions, “Obviously, there is a difference between authorization and appro-priation. At this point, we are authorized to spend up to $2.6 million per vessel. So this was a big deal for us to get the Administration’s support – no recision – and ask for a $2.9 mil-lion per vessel appropriation.”

Today’s MSP fleet is modern with a good vessel mix. Age limitations create a regular change in tonnage with newer vessels replac-ing older models. Working closely with the U.S. Transportation Command, MARAD tries to accommodate them by bringing in more roll-on/roll-off and multi-purpose vessels. Connaughton adds, “We’ve been able to work with the operators and make that mix a reality.”

The good news for MARAD is that there is a waiting list. The program has a statu-tory limit of 60 vessels, and the incentives to participate are clearly significant. Beyond the payments to the operators, participa-tion opens the door for bidding on U.S.

Government cargoes. Connaughton remains bullish on both the concept and the benefits to the participants. “This is a great opportu-nity for us to partner with industry. And the $2.9 million allows these operators to defray some of those uniquely American costs – taxes and labor, for example.”

StUdent incentive pRogRAM (Sip)Getting more cadets on board commer-

cial vessels is only one part of the equation. MARAD’s real drive has been to increase the number of mariners being produced. One way to do that, says Connaughton, is to ensure that the cadets on these commer-cial vessels are SIP students. He adds, “The SIP Program is there for a reason. It is not

a student loan pro-gram per se. Quite simply, the program ensures that students take the license track and become reserve officers. When they graduate, they will sail on their licenses.”

This year’s pro-posed increase from $4,000 to $8,000 per student is intended primarily to stop the bleeding from the license track programs

at the state academies. Although the number of license track cadets has remained con-stant, the number of SIP students is actually decreasing. Connaughton is adamant: “The need is OUR need, not their need. If we can demonstrate that we are attracting more cadets because of it, then we will pursue more money. Right now, there is no cap on the SIP program in terms of numbers of cadets. And until recently, we’ve been turning money back into the Treasury because we haven’t spent it all. Those SIP numbers are going down – we’re trying to change that.”

Connaughton has also laid down the gauntlet for those who would casually take the money and then fail to carry through with their responsibilities. He told MarEx flat-ly, “We are taking action against King’s Point graduates, and we’re also evaluating the possi-bility of going after state school graduates. In fact, we just received our first $120,000 check from a King’s Pointer and we’ve been able to cut active duty orders for Iraq for another King’s Pointer so as to force him to fulfill his obligations. We are working with the Navy and the Department of Justice on this.”

Ship diSpoSAl: obSolete RRf fleet veSSelS

Probably no task on MARAD’s plate is more difficult than the mandate to safely dis-pose of the obsolete RRF vessels in the three MARAD fleets. New rules imposed by the Coast Guard to clean the hulls (of organic growth) before the vessels depart for their final disposal have made the job even more onerous. Although MARAD has been able to work very closely with Texas and Virginia, no such cooperation exists with California. Connaughton explains, “We’ve had a very difficult time coming to any sort of collabora-tive effort in California. They were concerned about paint and other materials coming off the hull during the cleaning process.” Nevertheless, Texas and Virginia signed off on new proce-dures developed to address these fears.

Today, there is a moratorium on ship dis-posal in California. Connaughton adds, “We’ve been sued by the National Resources Defense Council over the Suisan Bay fleet, suing us to remove the ships but getting an injunction to prevent us from removing them.” He adds, “California’s loss has been Texas and Virginia’s gain. We took out 23 ships last year, one of the highest removal rates we’ve ever had.”

Not satisfied with the status quo, Connaughton is implementing new proce-dures and guidelines to streamline the dis-

continued from page 16

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posal process in the future: “In the end, we have an overarching environmental excellence initiative, which we began when all of these problems started. Essentially, we looked at all our fleet operations to figure what we’re doing right and what we’re doing wrong. That process is now nearing completion.” The goal is to develop a cross-government pro-tocol for ship-disposal procedures, using the MARAD environmental study as a guide.

So MAny thingS to do, So little tiMe

Connaughton is not one to wax nostalgic, but with January 2009 on the near horizon he was willing to reflect for a moment: “If I look back at what we’ve done, I think we’ve been able to refocus MARAD to address the things that are most important to industry. When you do that, opportunities naturally end up pre-senting themselves. Probably one of the most important things we’ve done is to restore some credibility to the agency – throughout govern-ment and with the industry that it serves.”

In the next ten months, Connaughton’s labor of love will be a national port strategy. Looking at the land side and water side of the equation – pipelines, rail, the entire intermodal

system – he hopes to effect real improvements at not only the ports but the entire system of moving cargo in and out of the ports: “We want to identify the bottlenecks. We also anticipate MARAD taking a greater role in port development, in streamlining and short-ening the time period to get all the regulatory permits in place, and I point to our efforts in Anchorage, AK as a good example of this.”

As MarEx went to press, MARAD was also undertaking port improvement proj-ects in Honolulu and had been approached to do port improvements in Guam. Adds Connaughton, “We have other ports coming to us to talk about one-stop-shopping – get-ting the federal and private stakeholders together to try and shorten the regulatory process to four or five years instead of ten.”

The revival of the short sea shipping con-cept was a bright spot for MARAD in 2007. Connaughton and his boss, Mary Peters, are bullish on the concept. He says, “We are now thinking about the marine highway – not generically – but working closely with states and local governments. We are very close to two or three projects that are about to hap-pen.” And that, if it happens, would eventu-ally take traffic off the highways. One way to

get there is to repeal the Harbor Maintenance Tax (HMT) as it applies to the short sea com-ponent. Most observers say that the tax acts as a disincentive to short sea shipping and has a minimum impact on the U.S. budget. With industry and MARAD support, a repeal of the short sea HMT could happen this year. If it does, it would certainly be another feather in Connaughton’s cap.

With time winding down on Connaughton’s tenure, the New Year also kicked off with MARAD trying to get an MOU signed with the Transportation Command and DOD in an effort to enable the use of RRF assets for civil emergencies. The program is to a point where MARAD can offer FEMA and local governments the use of vessels for contingency plans. Given what happened with Katrina, the idea makes a lot of sense.

JAnUARy 21, 2009Connaughton was noncommittal about

his next move in a post-MARAD world. “I am one of those people who have gotten to where I am by not worrying about the next job. I do the best job I can with my current job and opportunities do present themselves.” Look for that trend to continue.


zerodischargeADM Thad Allen:positioning for the future

sive to them – because that’s my job as the Commandant. If I am not responsive, then you can hold me accountable.

SoUndingSAdmiral Allen’s four-year term expires in May 2010. With twenty-one months of service already behind him, we asked ADM Allen to outline just a couple of initiatives that would best exemplify the Coast Guard’s transforming itself to meet the heightened expectations of industry and the general public. Here’s what he had to say:ALLEN: Last July, we stood up to our new acquisition organization and started to assume the role of lead system integrator for Deepwater. We’ve stabilized the National Security Cutter technical baseline, and we’re poised to take on the responsibilities that we need to and redefine our relationship with Integrated Coast Guard Systems (ICGS). Secondly, last year we commissioned our “deployable operations group” that takes our echelon of deployable special forces under one command in order to adapt a force pack-age equal to whatever incident you are talking about – hurricanes, heightened security situ-ations, etc. We’re talking about port security units, environmental HAZMAT strike teams, maritime safety and security teams – all of them. Under one command, we can now pick and choose the force package to match the threat. Two huge successes.What could you have done better?ALLEN: Fixing and upgrading the Unified General Ledger – I probably should have put more people on that sooner. As recently as 1986, if we wanted to produce a combined financial statement, we had each of the dis-tricts mail in a disk and we’d combine them all at headquarters. So, in response to that, we centralized finance in two MLCs and, within a year, we knew we’d made a mistake. That resulted in the creation of a single Coast Guard finance center in 1988 or 1989. But even then we didn’t get it right, because cer-tain Coast Guard centers remained as stand-alone finance centers that dealt directly with the Treasury. So we had a uniform financial system but no unified general ledger. We still don’t today, and that’s why we can’t pass an audit. We won’t be there until 2010.The Coast Guard has taken considerable heat for not keeping pace with the demands put upon it by present and past administrations and current events in general. We asked Allen if

he felt these “failures” were more of an internal issue or simply the long-term consequence of inadequate funding and resources. Here’s what he had to say:ALLEN: All of the above. There are internal issues and there have been external funding issues. There have been external policy and legislative decisions. We’re always going to have surge operations. If you are a multi-missioned organization, with five defined missions per vessel, it also means that you can’t do five missions at once. Any surge we did with Katrina was a temporary surge – not a fundamental realignment of our resources. 9/11, on the other hand, changed the way we think about port security and maritime secu-rity. There may have been some migration at the sector level to accommodate the local commands. But we had holes in the marine safety department before 9/11. So 9/11, while it didn’t exacerbate those holes, it did for a while make them absolutely invisible. So I think we just kind of let it (marine safety) sit for five years. The real holes in marine safety were made in the mid-1990s when we also put a hole in the Coast Guard. As the streamlining of government took place, we took a huge hit, losing 4,000 people. Just a little while ago, we finally got back up to the strength we had in the mid-1990s. We actu-ally spent about two years of doing not much else except figuring out how you operate while you are taking $400 million and 4,000 people out of the Coast Guard.

deepwAteR/AcqUiSitionS/icgSAllen talks freely about Deepwater issues and the way forward in reorganizing the Coast Guard so that it can stand up and manage a competent acquisition program:ALLEN: I talk to (Navy) Secretary Winter a lot – and he helps me a great deal. It is important to note that there’s no Secretary of the Coast Guard that does acquisition for us. The Coast Guard also does not have a systems command like NAVSEA or NAVAIR. In the mid-1990s, we were constrained in our capacity and we were told that we could expect no more than $500 million per year for the life of the project. We had a fleet of vessels that were approaching block obsolescence. Well, the decision that we made at the time – rightly or wrongly – was to hire a systems integra-tor and tell them, “Here’s what we have to replace, with $500 million per year. Give me a portfolio of how we can acquire new assets and extend the life of the old assets.” At the time, there was no other way that we could

recapitalize the Coast Guard. We had to out-source to the lead integrator a lot of the func-tionality defined in NAVSEA.

I told my people: If you are going to sign a contract to deal with Integrated Coast Guard Systems, you’ve got have an integrated Coast Guard. We did not. We did not take our engineering staff – which is a great engi-neering staff – and integrate them with the program office. So we tried to execute this procurement with ICGS with some disen-franchised technical authority. They said, “We’ve designed cutters for you in the past. We’re the people that used to do this for you. We haven’t been involved in the procurement and, when we have an issue with it, we can’t get it raised out of the integrated product teams.” You have two issues: the growing fear within the Coast Guard that we’re leaving key decisions to the contractor, and the wedge being driven between our technical people and the program shop and contractor.Allen speaks to refute some of the press cov-erage that occurred when the Deepwater “story” broke:ALLEN: When the news broke in the press in January of 2007, somehow it was like people were hearing it for the first time. We weren’t rebutting the fact that issues were being reworked – I knew that myself and had been working on it for five or six months. There was no recognition of that whatsoever. We were basically shouted down. There were sig-nificant organizational, cultural, funding and policy issues that resulted in how we got to where we were. But as I told everybody when I got down to Katrina, “That was then, this is now.” Today, ICGS is in a position where it has to demonstrate that it adds value or we do something else. The best example of that is that we ultimately took back and completed the fast-response cutter. We’re doing that ourselves. There were vessels out there in the price range that could perform the way we wanted them to, and there was no premium to having ICGS as the middle man.

At hoMe in hoMelAnd SecURityWith a history of being housed under more than one department over the years, Thad Allen is clear about the Coast Guard’s proper place – and internal structure – within the federal government:ALLEN: We’ve found the right home. If you were to draw a diagram encompassing all of our missions and responsibilities and those of DHS, that diagram has never been more approaching concentric than now. It’s not

continued from page 17



perfect, but it’s never going to be with us. The early construct of the revenue cutter ser-vice was the first Department of Homeland Security. Alexander Hamilton once wrote something to the effect that “Vessels stationed at the entrances of our bays and rivers would at very small expense be useful symbols of the laws.” That is our organizational DNA. So we have always been homeland security – they haven’t called it that at times, but we’re maritime border security. In the late 1790s, we were the only maritime force the country had, with the dual character of providing law enforcement but also being an armed force.

I’ve said we were never structured right

to begin with – there are two parts to that. Before 1986, every Coast Guard district had an engineering staff, a finance staff, and everything was done regionally. This evolved from the early days of the Coast Guard and the revenue cutter service and the U.S. light-saving service. Back in those days, because of the way communications were, these geo-graphically-based districts were self-sufficient. One of my predecessors, ADM Paul Yost, for reasons of economy, felt that we needed to centralize support functions. And so he estab-lished a working group in 1986, on which I served, to move the support and engineering functions out of the districts so they could focus on operations – much in the same way a corporation would. But at the time, and because of Flag politics, quite frankly, we sub-optimized that by creating two regional maintenance and logistics commands on each coast under the area commanders. Every time one of these things comes around, we seem to know the right thing to do but we don’t quite get it 100-percent executed. Over the years, then, we have sub-optimized responses to external drivers.What about NMC (National Maritime Center) – did you centralize this for the same reasons?ALLEN: No. That decision was taken sepa-rately from the finance discussions. That’s a service or a product line. The idea to central-ize there was actually spawned inside the

marine safety community itself. The rest of the Coast Guard should’ve taken a cue from NMC to centralize our delivery of national service through service centers. So not only should we be looking at our business models to unify our backroom functions; we ought to be looking at how to unify the service we give to the public. We do have some lack of integration out there.

Selling the MeSSAgeAllen’s management style is to have his people manage “up” as well as they manage “down.” Allen himself knows that he must “manage up” better (to Congress/DHS Secretary/the

Administration) when trying to sell budget requests, legislative programs and the general organizational agenda: ALLEN: First of all, I’ve pushed the decision process down in the Coast Guard, to free me up to work more outside the building. In the past, we’ve never had a close relationship with CNO or any of the other secretaries. Today, however, I get a lot of great mentoring by interacting with Air Force Secretary Wynne. He’s a great person to bounce things off, and he has a great acquisition background. Today, when the Joint Chiefs are meeting with the President, I’m in the room. I’m invited to go to any session I want.That wasn’t always the case, was it?ALLEN: It kind of comes and goes, depending on the Secretary of Defense. Secretary Gates has been an extraordinary leader. I can call the SecDef any time I want if I have a problem. And Secretary Chertoff, if I need to get to him at any time, I can get to him. I’ve also started a series of meetings with people that we are strategically aligned with, where our areas of concern over-lap from time to time: NOAA, the head of the EPA, the Secretary of Transportation, etc. I call them up and I go see them.What about Congress?ALLEN: I spend a lot of time up there. My legislative affairs staff will tell you I’ve prob-ably been up there as many times as any Commandant in history. The other thing that we do is invite, on a regular basis, a member

of Congress to come over at 0745 hours. We start in my office with a light breakfast and have a “one-on-one” executive session about what’s going on, and we roll down to the eight o’clock ops briefing and sit through that. Then we have the overnight Intel brief-ing. Most of the time, recently, that brief has been about drug interdiction and some of the challenges we’ve been having. We can also customize a briefing as to what that particular member’s concerns are. They’re out of there before the Congressional day starts. We are averaging about one of those a week. They like it – they are effective – and we’re gong to keep doing it.DHS has held a number of national and regional summits to address the issue of “the small boat threat.” A myriad of special interests want “exemptions” from any AIS (Automatic Identification System) solution. Allen has couched the solution first in terms of safety. As port security goes, he says that one size does not fit all, but there’s much more to the solution than that:ALLEN: Well, as Jim Loy would say, “If you’ve seen one port, you’ve seen one port.” (Laughter) But seriously, I can understand if people in America don’t want this “invasion of privacy,” but what I don’t understand is not wanting to have the discussion. Because in five years, after I’m gone and a fastboat comes out of the Bahamas and cuts through the hull of a cruise ship coming out of Miami, I don’t want that to have occurred because ADM Allen had a lack of imagination. I feel that it is incumbent upon me to bring the debate.

Before the Motorboat Safety Act of 1971, we were up around 1,700 deaths per year. We’ve plateaued in the last five years at 600 to 700 per year, but we’ve always thought there was an issue with boating safety, even before 9/11. There is no uniform competency standard, and that’s why you see 14-year-olds dying in jet ski accidents. That’s why we’ve always pushed for a national standard, to reduce the number of boating deaths. Now the real reason for tying in safety with security is that they are interlocking. Any improve-ments you make in safety ultimately benefit security and vice-versa. The biggest issue we have with marine security right now is that we do not have an existing national infrastructure upon which we can build a maritime security regime. The aviation system that grew up in the twentieth century has an air traffic system because the prospect for an air disaster is so large. We have dramatically reduced aviation accidents in this country by having ubiquitous

…every time we need to go and get a new class of cutter, it becomes a referendum on whether or not we need the coast guard. that’s a tough environment to live in.

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coverage, persistent radar surveillance. That also produces a security premium. We’re not trying to take away anyone’s civil liberties. Someone came up to me recently and said, “Driving is a privilege; boating is a right.” So I pretty much know who I’m dealing with here. And there is a case for competency standards for recreational boats.

There’s only so much benefit you can derive from the electronic solution. But the technology is there. Still, it would be hard for us to make a case to drive down AIS require-ments significantly further unless we have the capacity and the capability to understand and process that information. Right now, our

mandate through the Maritime Security Act is to drive AIS requirements down to all vessels 65 feet and above. That’s law. It’s backlogged, so you may not see it on my watch.Reacting to outside circumstances has become business as usual for the Coast Guard. Allen points to one example of where today’s Coast Guard has looked internally and made the nec-essary changes before a “crisis” precipitated it:ALLEN: Operations in the Arctic. I’ve had no direction from the top on this one. I am seek-ing it now. We have to start looking at envi-ronmental response, search and rescue, and patrolling in an area that didn’t have water. We’re going to be sending some units up there to test their capabilities at high latitudes next summer because there’s water there and we have responsibilities. If you understand at all what is going on in the world, then you

understand that the Straits of Hormuz, Straits of Malacca, Gibraltar and the English Channel present unique challenges to shipping. If we’re talking potential passages in the Bering Straits, then we ought to be talking to Russia right now about traffic separation schemes and navigation systems. The current policy state-ment for the Arctic is imbedded in a docu-ment formulated in 1994. It doesn’t take into account the more open waters up there, the modern technologies for oil and gas explora-tion, and the fact that we operate the world’s largest zinc mine north of the Arctic Circle. That also has to come out of there by boat. It is time for that document to be refreshed.

MARine SAfety: eARning bAck the tRUStAllen finishes up by talking about the plan to enhance the Marine Safety Program by splitting it into three general areas: (a) improving capac-ity and performance, (b) enhancing delivery of service to mariners and industry, and (c) expanding outreach and advisory mechanisms for industry and communities: ALLEN: We need to bring people on board, put them in place and train them. It is going to take a while to ramp that up. “Outreach” is where we’ve moved right away because I’ve got to have credibility with the marine com-munity. I’ve told Chairman Oberstar that I’m responsible and that involves senior leaders talking to senior leaders. I’ve recently started a senior leadership forum where we’ve had ten major executives in from every phase of

the maritime indus-try – including labor. Nobody’s been more engaged with industry than me. I can’t tell you how many times I’ve been to Houston.

We have some ports where we have a fairly homogenous fleet and the work is not very complicated. In a fishing port you can get pretty good,

pretty quick. Then you have ports that have high concentrations of crude, LNG and/or container ships. And we’re working closer with the offshore industry than we ever have before. So we’re going to create “centers of excellence” around those product lines in those ports. We don’t have the luxury to train everybody to be an expert at everything, but we can bring someone into our “centers of excellence,” train him or her and then send them on to the port where they can best use those skills. When I was in Miami, we started a one-week course on cruise ships – sort of a precursor to today’s centers of excellence. But that’s how these centers will eventually evolve.The President’s FY ’09 budget includes an additional 276 new Marine Inspector positions and other program enhancements intended to improve service and restore balance in the Marine Safety Program. Allen expends on where they will come from and how many will be needed:ALLEN: We’ll be recruiting and looking across the broad spectrum of everything maritime. We’ll be looking at the federal and state maritime academy graduates – we have a particularly good relationship with California Maritime right now. We need to look at places like Webb Institute and MIT and take people with degrees and put them through OCS. We have to look at how we’re training these people.What headcount is good enough?ALLEN: We have to look at the gaps in each product line, what is the total gap and what’s the highest priority gap to fill first – based on risk. But we’re talking thousands, not hundreds here. Look at the Arctic: We have emerging threats there. We’d like to attack them before they hit us (for once). National AIS is coming too. And let’s face it, in com-parison to the other armed services – and we are nowhere as big as they are – it doesn’t take much of an increase in force to give us a huge surge in capacity. We’ve got some training issues, but most of the problems we’ve had since 9/11 have been related to capacity.

The challenge with marine inspection is that it involves almost totally human resources. So many of our other missions are platform-based; we can track those mis-sions by the hour and calculate costs. Marine inspection is quite different. Ultimately, we need to understand the cost of an inspector’s time and what he is doing with his time. We also want to send the right people to the right ports where their expertise is best placed.

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marexcrossword puzzle

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11 12 13

14 15 16

17

18 19 20 21 22 23

24 25 26 27

28 29 30 31

32 33

34 35 36 37 38 39 40

41 42 43 44

45 46 47 48 49

50 51 52 53 54

55 56 57

58 59

60 61

Across 1. Freight rate measurement (3 words)11. mined metal12. executive position, abbr.13. a very long time14. the “buy-and-build” holding company

ready to meet the deepwater challenge15. Backwards, at sea18. iranian __ Bourse20. maritime environment21. tonnage24. roth or trad?27. Solution from ash percolation28. captain’s record29. type of miles32. “monster-in-Law” star34. alternative energy source to oil (2 words)40. hull member41. inside, prefix42. Opposite of aweather44. Such in Spanish45. Small vessel shipyard giants, Kommer ____48. Former49. cycle or miran?51. maine to the uS52. reputation54. Overnight stay place55. Standardized specialty of 45 across

56. Gives a makeover to a boat58. merchant Seaman Protection and relief act59. Be in debt to60. risk61. using the latest technology

down 1. critical business focus for any maritime

company (2 words)2. airport abbreviation3. Garland4. maritime industry software from veson5. Lobbying arena6. Pull on oars7. hello!8. Northern europe oil-refining using veson’s

software as an integrated system handling chartering, operations and accounting

9. Pixel component10. Power supply16. Profit17. Fill up the tank again19. ____ intervention applications22. Not in good physical shape23. Gentleman25. area in the uS which has an estimated

30-40 billion barrels of oil supply (abbr.)26. Sea motion related

30. Full page or classified31. company constructing a vessel for the uS

coast Guard32. reduce load33. acquire knowledge35. Plus36. German city on the river Danube37. Superior (2 words)38. russia’s state within a state39. Observe43. type of tax46. See 50 down47. Befall50. coast Guard commandant

(goes with 46 down)53. Nevada city57. interest rate watchers (abbr.)

crossword solution to be published in a future online edition of the marex e-newsletter. the first five persons who submit a correct, completed puzzle will receive a one-year subscription to the maritime executive.

crossword by myles mellor

Solution to previous edition’s puzzle

A M S C O M P L I A N C EL A D O T A I N O SL A N E S L N C H A R TI F C H M E S H E S ES E R I O U S S H O R T EI A B B S A R H RO W N U D O C K S E AN C A S T M E T H O D S

F I N A N C E S E N UD S N H O R E N ER A C E R I F T T M ZY O I O N I A F A I MS S O M A R P O L R N A

K I A E A H A XC Y C L O N E R I G I D

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