Feature: CEO Roundtable: Industry Leaders Speak to Strengths, Weaknesses and Challenges

MarineNews presents an old-fashioned roundtable discussion — collected via high-tech means — presenting the thoughts and concerns on the minds of six top executives from leading marine companies. MarineNews thanks Tom Allegretti, President and CEO, American Waterways Operators; Merritt Lane, President & CEO, Canal Barge Co.; Craig Philip, President & CEO, Ingram Marine Group; Joe Pyne, President & CEO, Kirby Corporation; Mark Knoy, President, Memco Barge Line; and Barry Palmer, President & CEO, Waterways Work! for sharing their views and expertise with our readers.

Tom Allegretti

President and CEO American Waterways Operators

MN: What is the most pressing challenge you feel is facing the barge/towing industry today?

Allegretti: The most pressing challenge facing the barge and towing industry today is its relative invisibility to most Americans. As a result, the tugboat, towboat and barge industry is not well understood, and the value that it adds to our nation's economy, environment and quality of life is not fully appreciated. For example, most Americans are not aware that the tugboat, towboat and barge industry carries more than 60% of U.S. grain exports, helping American farmers compete with foreign producers; that more than 20% of America's coal - enough to meet 10% of U.S. annual electricity needs - is carried by barge; or that barges deliver most of New England's home heating oil and gasoline, keeping the economy running and homes warm during the New England winters. Because these things are not well known, there is no critical mass of support for the industry's needs, particularly when it comes to modernizing the infrastructure of locks and dams that affect its efficiency.

The fact is, barges are the most economical and environmentally-friendly way to ship cargo, especially the bulk commodities that keep America's economy running. Because barges have enormous capacity — one barge has a capacity 15 times greater than one rail car and 60 times greater than one semi trailer truck — they are very economical. Since tugboats and towboats are very fuel efficient, they pollute less and result in cleaner air. Without waterways transportation, millions more trucks would be on the nation's highways, creating more pollution, congestion, and public safety hazards.

The barge and towing industry pays a diesel fuel tax of 20 cents per gallon into the Inland Waterways Trust Fund. These funds, after being matched by general revenues from the federal government, are dedicated by law to pay for the cost of modernizing the locks and dams on the fuel-taxed inland waterways. Unfortunately, more than $394 million has been allowed to accumulate and remain unspent in the Trust Fund. We need the federal government to keep its commitment to spend the monies from this Fund for the purposes for which they were collected — to modernize the inland waterways system and ensure its future.

Most public awareness campaigns require millions of dollars for nationwide multi-media advertising. Since the AWO does not have that luxury, the trade association has leveraged its resources in a more targeted campaign — one directed "inside the Beltway" at Washington policymakers who make the important decisions that affect the industry. AWO uses a combination of print ads, radio ads and personal contact with legislators to raise the profile of the industry and its value to the nation. In this way, AWO hopes to inform policymakers and motivate them to provide the necessary funding to keep the tugboat, towboat and barge industry as a prime mover of America.

MN: If you could have the federal government change one policy, what would it be?

Allegretti: The federal government needs to better protect the Jones Act, the longstanding law that requires that commerce between U.S. ports must be carried by vessels that are U.S.-owned, U.S.-built, and U.S.-crewed. In 1996, Congress made a technical change to the Jones Act allowing foreign financial institutions to offer lease financing to U.S. vessel operators. This change was made only for the purposes of providing more sources of financing to U.S. vessel operators - it was not in any way designed to weaken the Jones Act itself. But recently, foreign vessel owners have been allowed to manipulate and exploit this technicality in order to gain a foothold in the U.S. domestic market, in direct contravention of the provisions of the Jones Act. The result is that foreign vessel owners are being allowed to control vessels operating in U.S. domestic waters. This has happened because the U.S. Coast Guard has mismanaged the approval process for these transactions, despite clear and strong statements of support for the Jones Act from the President, the Secretary of Transportation, and other senior Administration officials. In today's homeland security climate, this is inexplicable. Many Members of Congress have also begun to express their concern.

The Coast Guard needs to do a better job of enforcing the letter and spirit of the law when it comes to the Jones Act and lease financing.

MN: How has the industry changed since 9-11?

Allegretti: The biggest change in the industry since 9-11 has been the new focus on maritime security. After 9-11, the industry had to carefully consider the industry's vulnerabilities, particularly the possibility of a barge carrying hazardous material being used as a weapon of mass destruction. AWO acted proactively, working with the Coast Guard and the U.S. Army Corps of Engineers, to develop the AWO Model Vessel Security Plan.

The Plan addresses terrorism prevention considerations under the categories of Awareness, Training, Personnel Practices, Planning, and Emergency Response. In addition, the Model Vessel Security Plan Matrix lists both required and suggested actions to take, depending on the threat level, with regard to physical security, en route/in transit security, communications, and cargo. An appendix of the Plan categorizes nearly 100 commonly carried hazardous cargoes that could potentially be used as a weapon of mass destruction.

AWO undertook the effort to develop the Model Vessel Security Plan in order to be a constructive leader in the safety and security of the American tugboat, towboat and barge industry. Recently, the Coast Guard approved the plan as the industry standard for our industry. The plan provides AWO members with a template that they can use to develop and augment their own vessel security plans. In this way, the industry continues its role as "the eyes and ears" on the waterways of this nation.

Craig Philip

President & CEO Ingram Marine Group

MN: What is the most pressing challenge you feel is facing the barge/towing industry today?

Philip: The current weak domestic and international economy is creating pressure on our industry, which has been weakened by excess hopper capacity and rising costs in critical areas such as fuel, insurance and wages. This backdrop makes the difficult situation faced by ACL in its fight for survival even more difficult. The ACL bankruptcy threatens many smaller vendors and creates uncertainty about sources of future capacity. Identify the top challenges (political and competition-wise) to your company's profitability. How are you preparing now (or have prepared) to meet those challenges?

The ascendancy of the South American grain and coal exports will cause continued serious pressure on U.S. Grain exports and probably continue to make U.S. produced coal less economical. Congress needs to focus on this threat to America's agricultural and mining industries and work to create a positive environment for U.S. exports.

MN: What is the future of waterborne transportation?

Philip: Waterborne Commerce represents a real solution to America's transportation growth needs. Untapped capacity exists on our waterways today and can relieve highway and rail congestion and reduce pollution and must be favored by national policymakers. Maintenance of our inland navigation system as "world class" is a vital National infrastructure priority that deserves increased Federal support.

MN: What are the emerging trends in the industry?

Philip: Transportation by barge has always been the safest means of transporting freight in our nation, but over the last 10 years the industry has adopted even higher safety standards called the Responsible Carrier Program (RCP). It is complied with by every member of AWO, the industry's trade association and compliance is confirmed by independent 3rd party auditors. A growing number of shippers who have operated vetting programs of their own now rely upon RCP certification instead.

Barry Palmer

President & CEO Waterways Work!

MN: What are some of the biggest challenges facing the waterways industry?

Palmer: Another great challenge for the waterways industry is to elevate the awareness of the importance of the industry among decision-makers on Capitol Hill, in state government, the media, and the general public. The waterways are a valuable natural resource to our nation, as well as a critical transportation artery of commerce for our country and the world. We must continue to help spread the message of the importance of improving and maintaining our waterways system and its critical infrastructure, and the industry's role in helping to sustain it for our future. If we fail in this endeavor, we risk others defining just one role for the waterways. The industry is currently one of many stewards of the waterways system and as such, must continue to work to safeguard it for the future of our country and our economy.

MN: What are the bottlenecks on the system?

Palmer: We have a world-class inland navigation system in the United States. But at critical locations the locks and dams are old, deteriorated, or obsolete. In the Ohio Valley waterways interests have been working with the US Army Corps of Engineers to improve the nation's critical infrastructure at specific locations, such as the Olmsted Locks and Dam, McAlpine Lock, and on the Lower Monongahela River Locks and Dams 2, 3 and 4. Near Olmsted, Illinois, on the Ohio River, Locks and Dams 52 and 53 are in an advanced state of deterioration and beyond repair. Additionally the small lock chambers are inadequate to accommodate more than 90 million tons of commodities from Texas and Louisiana to Pittsburgh that transit that portion of the river. The Lower Monongahela River Locks and Dams 2 and 3 are more than 100 years old and beyond repair. Many of the locks on the Middle Upper Mississippi River are obsolete by modern standards, and the navigation facilities in that portion of the system are well beyond their design life. Located at a critical region of the nation, farm products depend on an efficient, reliable lock and dam system to be competitive in world markets. The federal government needs to complete work on the Inner Harbor Lock and Dam project in New Orleans Harbor. First authorized for construction in 1956, an again reauthorized in 1986 and again in the early 1990s, waterways interests -- shallow-draft and deep-draft - look forward to the day when this project is complete.

MN: What are waterway interests' objections to the current proposal to use money in the Inland Waterways Trust Fund to finance operation and maintenance expenditures on America's inland navigation system?

Palmer: In 1986 waterways interests agreed to accept a 20 cent-per-gallon tax on diesel fuel consumed by towboats operating on America's inland navigation system. Hence the 20 cents per gallon diesel fuel tax is collected and is paid into the Inland Waterways Trust Fund, and these revenues are used to finance 50 percent of the cost of a lock and dam modernization project. More than $100 million annually in diesel fuel taxes are levied on towboat operators to finance one-half of these critical needed infrastructure improvements.

Over the past decade waterways interests paid their share of the burden of deficit reduction, and the federal government reduced substantially its investment in critical waterways infrastructure improvements. The monies going into the Trust Fund have increased to a nearly $400 million surplus, and the construction schedule for needed projects slipped. The costs for authorized projects increases everyday, and project benefits are washed down the river as completion of projects like Olmsted, McAlpine, Inner Harbor, and Lower Monongahela River Locks and Dams 2, 3 and 4 are delayed.

The Administration proposal to use Trust Fund monies to pay for operations and maintenance expenditures breaks faith with the proposal to improve our nation's waterways infrastructure. Trust Fund monies are already spoken for, and diverting them for other purposes could halt critically needed improvements. Either that or force an increase in diesel fuel taxes by another 30 cents per gallon to pay for the $146 million proposed in the Administration's FY 2004 Corps of Engineers Budget. The consequences of this action are not good for the barge and towing industry, which is awash in red ink today, or for America's river valleys who need an improved waterway system to compete for their products in the world marketplace - for more and new customers.

MN: If the federal government would change one policy, what would it be?

Palmer: The US Army Corps of Engineers has been asked over time to expand its missions from navigation — inland and deep draft — and flood control to other purposes ranging from recreation, hydropower, water supply, emergency response, and environmental enhancement. Primarily they are a project specific agency, but they have broad and deep responsibilities in our society. Our policy ought to be to fund their workload commensurate with their value to the nation. For critical improvements to our inland waterway system the Corps of Engineers, about $150 million annually should be drawn down from the Trust Fund and matched with the same amount from the General Treasury to fund critical infrastructure improvements already authorized by the Congress and approved by the President. In the next several years the Corps' Budget should be increased to $5 to $5.5 billion. That's a more appropriate level than is budgeted presently.

Merritt Lane

President & CEO Canal Barge Line

MN: What is the most pressing challenge you feel is facing the barge/towing industry today?

Lane: There are several pressing issues such as the aging barge fleet, the aging lock and dam infrastructure and near-term adverse economic conditions. However, the most daunting challenge is attracting and retaining a qualified workforce. We must find entry-level personnel with the attitude and aptitude to become our future leaders at the same time that the portfolio of skills required of professional mariners is increasing. Marine companies are faced with becoming much more selective in their hiring practice and forward thinking in their human resource practices.

Careers on the river provide good pay and benefits and fairly rapid upward mobility. However, the combination of the stress of being away from home and the physical nature of the work for deck crews results in excessive rates of employee turnover - especially in the deck hand ranks.

At Canal Barge, we actively recruit in targeted geographic locations and carefully screen entry-level employees (hiring less than 7% of the candidates who apply). We have developed a multi-step career "ladder" that identifies specific experience, skill and training criteria by position. We provide company-paid training programs for our entry-level deck hands, tankermen, cooks, mates, engineers and wheelhouse personnel. All of this training is designed to increase the skills of our mariners and to improve their opportunities for advancement. Coupling progressive human resources practices with a family-oriented culture — we hope — allows us to attract and retain good people and to develop the onboard leadership of the future.

MN: If you could have the federal government change one policy, what would it be?

Lane: The federal government must do more to recognize the importance of the marine transportation system to our nation and to invest in its continued productivity. Many of our locks and dams are older than their originally designed lives and need to be replaced with more modern structures. Despite having significant funds in the Inland Waterways Trust Fund (funded by fuel taxes paid by inland barge lines and dedicated to major rehabilitation and/or construction of locks and dams), the federal government has been consistently under funding necessary river projects. These projects typically benefit not just navigational interests but also flood control, water supply and recreational users - frequently at no direct cost to them.

Failing to re-invest in the inland waterway infrastructure is incredibly short-sighted. First of all, this reticence to invest while other countries are commercializing their waterways and producing goods more economically hurts U.S. competitiveness in the world markets. As importantly, the traditional economic justifications for water projects such as these fail to recognize the considerable environmental and quality of life benefits of marine transportation. Marine transportation results in fewer emissions and has far better fuel efficiency than other modes of transportation. Also, reinvesting in existing waterways and utilizing their huge capacity to move freight can be a long-term solution to the problem of increasing congestion on our nation's highways. Our industry is trying mightily to get this message across. It seems to me that re-investment in our critical infrastructure is one of the most common sense moves our government can make - especially when job creation and international competition are such paramount national concerns.

MN: What are some of the emerging trends in the industry?

Lane: The commercial character of the industry is being shaped by the continued trend of both carrier and shipper consolidation. Roughly two-thirds of the tank barge fleet and 80% of the open hopper barge fleet are in the top five carriers' hands in each industry segment. Carrier consolidation has been driven principally by consolidators snapping up smaller competitors and by the exit of several liquid carriers, private fleets or barge lines owned by public utilities or grain companies that decided to focus on their core business. The larger barge lines believe that they can provide increased customer service and flexibility over a broader operating range as well as increased efficiencies tied to quicker barge turns, increased backhauls and the reduction of excess horsepower. The smaller carriers tend to concentrate in niches and provide more customized service.

Consolidation on the shipper side of the equation has similarly increased their logistical efficiencies by allowing them to match cargoes and port pairs to increase two-way hauls in some cases. They have also managed to change logistical patterns by reducing the length of some hauls - and, in the worst case scenario from a carrier's point of view, have even eliminated cargo movements altogether through product exchanges.

Shippers have become more informed buyers of transportation services. Liquid cargo shippers are demonstrating strong preferences for double skinned equipment and are typically vetting carriers' equipment, auditing management practices and studying H, S and E performance to differentiate operator quality. We see shippers' desires to understand the service capability behind the sale as a real positive development.

Owners and senior management teams of barge lines have come to recognize the importance of becoming better advocates for our industry. Most of us recognize that we can no longer quietly go about our business out of public view and expect the public to value us because of our industry's historically recognized importance to the country. Most of the public just doesn't know much about us at all. Having little or no public image allows our industry to be defined by others who may not understand us or have adversarial points of view. We have to upgrade our industry's image to be more successful in competing for federal funding, attracting good people to our industry and in addressing the public's concerns when the occasional accident occurs. Foreseeably, the typical marine company CEO will be spending more time and money on industry advocacy efforts. As the Coast Guard has joined the Department of Homeland Defense, security will become its greatest priority. It will be interesting to see how well they can balance this mission with their traditional marine safety role. Early indications are that marine safety priorities won't suffer, but routine duties such as inspections will. Fortunately, the Coast Guard and industry have a far better understanding of one another than in the past. This productive working relationship will provide a platform for addressing this new operating environment. Our industry's thoughtful and stringent proven track record of providing a measure of self-regulation such as the AWO Responsible Carrier Program should also lead to constructi

Joe Pyne

President & CEO Kirby Corporation

MN: What are the most pressing challenges facing your company and/or the industry today?

Pyne: The major challenges facing the inland barge industry today include a very weak inland dry cargo market creating excess capacity in the inland dry cargo business, meeting the additional security challenges caused by 9/11, and insuring that the inland waterway infrastructure is adequately maintained. A healthy economy would benefit the inland barge business by stimulating both the dry cargo and liquid sectors, but also it would create additional tax revenues which would put less pressure on government and encourage investment in the country's infrastructure including the inland waterway system. An unhealthy economy will continue to put stress on the inland barge business, its customers and government.

MN: You've been leaders in forming the Waterways Work! campaign, why?

Pyne: Water transportation is the safest, most efficient most environmentally friendly form of surface transportation. However, over the years, our industry has not been effective in telling that story.

Three years ago, some radical environmental groups began attacking the U. S. Army Corps and water transportation with a broadly coordinated effort. In addition to thirty, front page, anti-Corps articles published by the Washington Post, anti-Corps or anti-waterways articles would appear almost simultaneously around the nation, advocating positions such as:

• Preventing modernizing the locks on the Upper Mississippi River.

• Removing the levees on the Lower Mississippi.

• Flooding the Missouri River watershed in the spring and drying it up during the summer.

• Removal of locks and dams on the Columbia/Snake River, and

• Reforming the Corps of Engineers in a way that would reduce its ability to maintain and improve the existing navigable waterways.

We are very disappointed by this approach, because Europe and Japan, which have far more mature infrastructures and environmental organizations, have recently developed programs to shift cargo from their highways to the waterways to improve congestion and the environment.

The Waterway Work! campaign was formed to better inform reasonable environmental interests, the American public and members of the Administration and Congress about the importance of water transportation to our nation's economy and environment.

This effort has been successful both inside and outside the beltway, but changing the way people think about water transportation will take a continued and sustained effort.

MN: Discuss your workforce and training

Pyne: Kirby has 2,500 employees. Approximately 1,000 of them work shoreside and 1,500 work on our vessels. There are two primary types of vessel employees on our inland vessels; tankermen who are responsible for the critical and efficient transfer of product as well as day-to-day upkeep of the barges and towboats and wheelhouse personnel (captains and pilots) who are responsible for navigating the vessels.

Hiring and training of shoreside employees is similar to many other businesses in the industrial sector. However, hiring and training of vessel employees is highly specialized and unique to many companies based on the type of products they transport. Since Kirby transports primarily liquid commodities and the consequences of releasing them into the environment is great, Kirby operates a comprehensive in-house training school and program for its vessel employees.

There are some excellent training programs offered by outside vendors. The Center for Maritime Education, operated by the Seamen's Church Institute offers excellent training programs using state of the art simulators. Kirby uses the Center for Maritime Education extensively, but most training is done in-house.

Kirby's training center includes a full-time staff of 15. The training curriculum includes vocational and technical training programs encompassing every vessel position in the inland tank barge transportation profession, from entry-level deckhand through Master of Towing Vessel. The Coast Guard approves nine of the courses offered by the training center. When a Kirby employee completes a course required for a Coast Guard license, they appear at the Coast Guard licensing facility with complete paperwork that only requires the Coast Guard to place its stamp of approval on the documents.

Mark Knoy

President Memco Barge Line

MN: What is the most pressing challenge you feel is facing the barge/towing industry today?

Knoy: We feel that overcapacity in the dry cargo barge fleet is a major challenge. The origins of this go back to the construction of investor-owned, tax-financed barges twenty-plus years ago. As these barges are retired-and if the industry resists the temptation to begin building-this problem may work itself out. A solution is important for both carriers and shippers, because a strong industry, earning fair profits, is critical to the health of the river transportation sector.

MN: Identify the top challenges (political and competition-wise) to your company's profitability. How are you preparing now (or have prepared) to meet those challenges?

Knoy: We have a huge challenge in Washington. Our industry is poorly understood in nearly every quarter of government. The Coast Guard and the US Army Corps —who do understand us — don't have the clout to support us with programs to keep our infrastructure adequately funded. To meet this challenge we are reaching out to the legislature and to policy makers. We have spent a tremendous amount of time and energy in identifying and meeting with government leaders in order to give them a sense of the benefits we provide: lowered pollution, reduced highway traffic, increased jobs on the river, the farms and the mines, and more. We are reaching out through our own, direct efforts and through professional organizations such as the AWO, Waterways Work!, DINAMO, MARC 2000 and others.

Further, the size and vitality of the inland waterways transportation industry, in terms of jobs and of benefits to local economies, is unknown to the general public. Even in communities where we insiders think the river industry is critical, such as Paducah or New Orleans, the citizens too often see our contributions as marginal and our presence as an intrusion or an inconvenience. Our industry is not seen as an employer-of-choice or as a major contributor to the common good.

In order to meet this challenge, we reach out to the public. Our operations sponsor a huge number of local community events, groups and youth sports organizations. At all of these levels we try to tell our story to the local citizens. One notable and expensive effort has been to make our flagship available for educational programs during various riverfront celebrations around the Midwest. Port security compliance is dampening this program, unfortunately. Overall, the whole industry needs to spend more energy on telling the public about how we lower pollution, reduce highway traffic, and support jobs on the river, the farms and the mines.

MN: If you could have the federal government change one policy, what would it be?

Knoy: The two number ones are: support river infrastructure improvements and enhance the commercial environment that leads to farm exports.

MN: What are some of the emerging trends in the industry?

Knoy:

I. If agricultural policy and pricing get aligned properly, the U.S. could see a steady, sustainable increase in grain exports. The weakening US dollar will continue to make our grain look like a good value as compared to competing countries. The surface transportation sector as a whole will benefit if export levels improve.

II. If the Army Corps is dismantled we will lose one of our few voices within government. While the Corps has had their problems and could likely benefit from refocusing, the Corp still brings terrific expertise to infrastructure activity. If they are dismantled or restructured, the resulting organization will be hard-pressed to assist the barge industry in meaningful ways for many months, if not years.

III. The high fuel costs we have seen recently are straining shippers and carriers in all transportation sectors. While there has been a partial retreat from the highest levels of the winter, we still see cause for concern. If these high costs persist, the weaker players are going to suffer even more, and some will fail. To the extent that these companies are vendors to us-and to our major competitors-that hurts our industry.

IV. Labor costs and supply may lose their equilibrium as more service industries compete for people who might otherwise join our industry. Likewise, the recent spate of barge company failures can also drive good potential employees out of our industry as they seek more stable work. We have to be sure that we are doing all we can to make maritime work as attractive as possible to a wide spectrum of the labor pool.