TO THE HAWAII SENATE AND COMMITTEES ON

PUBLIC SAFETY, INTERGOVERNMENTAL AND MILITARY AFFAIRS

TRANSPORTATION AND INTERNATIONAL AFFAIRS

WAYS AND MEANS

TO THE HAWAII HOUSE OF REPRESENTATIVES AND COMMITTEES ON

TRANSPORTATION

CONSUMER PROTECTION & COMMERCE

FINANCE

THE TWENTY-SEVENTH LEGISLATURE

REGULAR SESSION OF 2014

THURSDAY, MARCH 15, 2014

TESTIMONY OF CLIFTON M. HASEGAWA, PRESIDENT AND CEO

CLIFTON M. HASEGAWA & ASSOCIATES, LLC

ON

HR 113; HCR 153; SR 45; SR 93

THE HONORABLE DONNA MERCHADO KIM, PRESIDENT OF THE SENATE;

SENATOR WILL ESPERO, CHAIR, SENATE COMMITTEE ON PUBLIC SAFETY, INTERGOVERNMENTAL AND

MILITARY AFFAIRS; SENATOR ROSALYN H. BAKER, VICE CHAIR, AND MEMBERS OF THE COMMITTEE;

SENATOR J. KALANI ENGLISH, CHAIR, SENATE COMMITTEE ON TRANSPORTATION AND INTERNATIONAL

AFFAIRS; SENATOR DONOVAN M. DELA CRUZ, VICE CHAIR, AND MEMBERS OF THE COMMITTEE;

SENATOR DAVID IGE, CHAIR, SENATE COMMITTEE ON WAYS AND MEANS;

SENATOR MICHELLE N. KIDANI, VICE CHAIR, AND MEMBERS OF THE COMMITTEE ON WAYS AND MEANS.

MR. JOE SOUKI, SPEAKER OF THE HOUSE OF REPRESENTATIVES;

REPRESENTATIVE ANGUS L.K. MCKELVEY, CHAIR, HOUSE COMMITTEE ON CONSUMER PROTECTION &

COMMERCE; REPRESENATIVE DEREK S.K. KAWAKAMI, VICE CHAIR, AND MEMBERS OF THE COMMITTEE;

REPRESENTATIVE SYLVIA LUKE, CHAIR, HOUSE COMMITTEE ON FINANCE; REPRESENTATIVE AARON LING

JOHANSON, VICE CHAIR; REPRESENATIVE SCOTT Y. NISHIMOTO, VICE CHAIR, AND MEMBERS OF THE

COMMITTEE;

REPRESENTATIVE RYAN L. YAMANE, CHAIR, HOUSE COMMITTEE ON TRANSPORTATION;

REPRESENTATIVE GREGG TAKAYAMA, VICE CHAIR, AND MEMBERS OF THE COMMITTEE.

RELATING TO: HR 113; H.C.R. 153; SR 45; SR 93

DESCRIPTION: Requesting Congress to Exempt Hawaii (Joined by Puerto Rico And Alaska) from the U.S.

Build Requirement of the Jones Act for Large Ocean Going Ships.

POSITION: I oppose HR 113, HCR 153, SR 45, and SR 93 as a measure requesting Congress to EXEMPT

Hawaii from the U.S. Build Requirements of the Jones Act for large ocean going ships.

FULL EXEMPTION FROM THE JONES ACT

The Honorable Pedro R. Pierluisi House of Representatives, Commissioner, Commonwealth of Puerto

Rico, requested the United States Government Accountability Office (GAO) examine the effect of the

Jones Act1 on coastwise domestic shipping to Puerto Rico - an exemption for Puerto Rico from the Jones

Act in its entirety, allowing foreign carriers to provide service between the United States and Puerto

Rico, and for an exemption from the U.S.-build requirement of the Jones Act to allowing U.S. carriers to

use foreign-built vessels.2,3

1 Section 27 of the Merchant Marine Act of 1920, Pub. L. No. 66-261, 41 Stat. 988, 999 (1920) (codified as amended at 46 U.S.C. § 55102). 2 Matson lists 4 Foreign-Flagged Vessels in its inventory: M/V Olomana, M/V Liloa, M/V Imua, and M/V Mana. Source: Matson Form 10-K Annual Report. Filed - February 28, 2014. http://investor.matson.com/secfiling.cfm?filingID=1104659-14-14819&CIK=3453

Excerpts from: GAO Report (GAO-13-260, Puerto Rico) - PUERTO RICO - Characteristics of the Island’s

Maritime Trade and Potential Effects of Modifying the Jones Act - Report to Congressional Requesters.

“Freight rates are set based on a host of supply and demand factors in the market, some of which are

affected directly or indirectly by Jones Act requirements. However, because so many other factors

besides the Jones Act affect rates, it is difficult to isolate the exact extent to which freight rates between

the United States and Puerto Rico are affected by the Jones Act. The Puerto Rico trade, much like the

maritime cargo trade around the world, has been affected by reduced demand overall because of the

recession.

Operating costs for carriers are another supply factor that contributes to the determination of freight

rates. Most of the carriers’ operating costs (about 69 percent based on carrier data for 2011) are non-

vessel operating costs, including such things as terminal and port costs, among others—and are not

directly affected by Jones Act requirements, and would be similarly borne by any carrier operating

between the United States and Puerto Rico. Vessel operating costs (which include crew costs,

insurance, maintenance and repair, and fuel costs, among others) comprise about 31 percent of the

carriers’ operating costs on average. Some vessel operating costs are affected by rules and regulations

related to the Jones Act and operating under the U.S. flag. Most significantly, Jones Act carriers must

hire predominantly U.S.-citizen crews, and according to data provided by the major Jones Act carriers,

crew costs in this trade represented an average of about 20 percent of vessel operating costs in 2011.

According to MARAD [U.S. Department of Transportation, Maritime Administration], the standard of

living in the United States, labor agreements negotiated with mariner unions, benefits included in

overall compensation, and government manning requirements, all affect crew costs.

In addition, U.S.-flag vessels are subject to government safety inspections and vessels have to comply

with a variety of construction, safety, and environmental regulatory requirements, which affect their

costs. According to the MARAD report, the lack of government safety inspections of foreign-flag vessels

operating under open registries helps provide such vessels with increased operating flexibility and lower

operating costs.

Another factor that could have affected freight rates in the past was conduct by certain carriers that led

to a Department of Justice antitrust investigation. The investigation found that some Jones Act carriers

conspired to fix rates at least as early as May 2002 until at least April 2008.

In addition, with respect to a class action lawsuit against various Jones Act carriers, in August 2011, the

United States District Court for the District of Puerto Rico granted final approval of settlement

agreements. The settlement terms give class action members the option of freezing the base rates—not

including other charges or fees, such as fuel surcharges—of any shipping contract that exists with three

of the Jones Act carrier defendants for a period of 2 years.

3 Other U.S. carriers, in the Hawaii trade lane, utilize Foreign-Flagged Vessels. Some vessels classified as U.S. Flag Vessels may be misclassified.

The nature of the service provided between Puerto Rico and the United States could also be affected

by a full exemption from the Jones Act. In particular, foreign carriers that currently serve Puerto Rico

as part of a multiple-stop trade route would likely continue this model to accommodate other shipping

routes to and from other Caribbean destinations or world markets rather than provide dedicated service

between the United States and Puerto Rico, as the current Jones Act carriers provide. If this were to

occur, some stakeholders expressed concerns about the effect that such an altered shipping service

would have on the reliability of service to and from the United States.

The Surface Transportation Board (STB) has regulatory oversight of certain domestic shipping-freight

rates, including noncontiguous ocean shipping freight rate matters, and Jones Act carriers are required

to file tariff rates with STB as well as terms and conditions of contracts they execute with shippers.4

Foreign maritime carriers operating in the United States come under the jurisdiction of the Federal

Maritime Commission (FMC), which exercises regulatory oversight of foreign trade, and requires

common carriers involved in foreign-U.S. trade to file tariffs and service agreements. Section 7 of the

Shipping Act of 1984, as amended, exempts agreements between foreign common carriers from U.S.

antitrust law so long as the carriers file with FMC, and allows foreign carriers to discuss and set rates and

service terms and conditions.”5

[Emphasis and Clarification Supplied]

Source: GAO-13-260, Puerto Rico. http://www.gao.gov/assets/660/653046.pdf

On January 09, 2014, The Hawaii Free Press published my letter to the Legislature - Agenda Item for

2014 Legislative Session – Noncontiguous Trades Jones Act Reform (NTJAR) proposed by the Hawaii

Shippers Council.

http://www.hawaiifreepress.com/ArticlesMain/tabid/56/ID/11567/Jones-Act-Reform-Should-be-

onLegislative-Agenda.aspx

4 Carriers providing transportation or service in noncontiguous domestic trade, such as Jones Act carriers, are required by statute and associated regulations to file tariffs showing their rates and service terms and joint rates that they establish with other carriers including motor carriers, water carriers, and freight forwarders. STB has the authority to determine the “reasonableness” of a rate for a movement by or with a water carrier in noncontiguous domestic trade, among other things. A complaint can be filed with STB that a rate, classification, rule, or practice in noncontiguous domestic trade violates the requirements related to transportation or service provided by a carrier subject to this jurisdiction. See 49 U.S.C. Chapter 137. 5See Pub. L. No. 98-237, 98 Stat. 73 (codified at 46 U.S.C. § 40307). Under this exemption, antitrust immunity is not, however, extended to such agreements relating to transportation within the United States.

The operative word in my request, published by the Hawaii Free Press, as distinguished from HR 113,

HCR 153, SR 45, and SR 93 is “REFORM” and not “EMEMPTION”.

Case in point,

Regional Domestic Contract (RDC)-6 - HTC711-13-R-W001 – Awarded on December 20, 2013 – Ceiling:

$265,000,000.00 ($265 Million) – Contracting Office: United States Transportation Command, Scott

AFB, Illinois 62225.

“This contract is to provide domestic ocean cargo transportation and distribution services using ocean

common or contract carriers, as defined in the Shipping Act of 1984, offering regularly scheduled

commercial liner service for requirements that may arise. Scope of services for this contract is

provided in accordance with the Jones Act. In accordance with the Cargo Preference Act and Jones

Act, all goods transported by water between US ports are carried by US flag ships, constructed in the

US, owned by US citizens, and crewed by US citizens, and US permanent residents.”

HTC711-14-D-W002 Alaska Marine Lines 5615 West Marginal Way SW Seattle, WA 98106 $2,757,163.00 EST HTC711-14-D-W003 Crimson Shipping Company 150 Viaduct Road Chickasaw, AL 36611 $300,000.00 EST HTC711-14-D-W004 Crowley Puerto Rico Services 2121 Eisenhower Avenue Ste 100 Alexandria, VA 22314 $1,510,666.00 EST HTC711-14-D-W005 Horizon Lines, LLC 4064 Colony Road Ste 200 Charlotte, NC 28211 $3,078,928.00 EST HTC711-14-D-W006 Matson Navigation Company, Inc. 555 12th Street Oakland, CA 94607 $27,292,829.00 EST

HTC711-14-D-W007 National Shipping of America 433 California Street #820 San Francisco, CA 94104 $300,000.00 EST HTC711-14-D-W009 Pasha Hawaii Transport 5725 Paradise Drive Ste 1000 Corte Madera, CA 94925 $5,208,707.00 EST HTC711-14-D-W011 Sea Star Lines, Inc. 10550 Deerwood Park Blvd Ste 509 Jacksonville, FL 32256 $7,342,931.00 EST HTC711-14-D-W008 Northland Services, Inc. 4025 Delridge Way SW Ste 100 Seattle, WA 98106 $1,614,364.00 EST HTC711-14-D-W010 Dome Chartering & Trading Corp. Doing Business as Schuyler Navigation Company 100 Severn Avenue Ste 103 Annapolis, MD 21403 $300,000.00 EST HTC711-14-D-W012 Totem Ocean Trailer Express 32001 32nd Avenue South Ste 100 Federal Way, WA 98001 $15,421,735.00 EST HTC711-14-D-W013 Trailer Bridge, Inc. 10405 New Berlin Road East Jacksonville, FL 32226 $2,372,276.00 EST HTC711-14-D-W014 Young Brothers Limited 1331 N. Nimitz Highway Honolulu, HI 96817 $3,606,885.00 EST

CONCLUSION

I support the Jones Act. As a proactive subscriber to innovation, I believe that an examination of the

Jones Act is essential to build on our past and to secure our future. Reform is my preference. An

Exemption to U.S. Build requirement of Jones Act requirement and exemptions to the Jones Act as

provided in the Resolutions are not in my belief in the best interest of the Nation, our Homeland

Security, our National Defense, the Shipping and Maritime Industry, the State of Hawaii, our Soldiers and

Military organizations, the Residents and Businesses of the State of Hawaii.

Thank you for the opportunity to share my thoughts with you.

Sincerely,

Electronically Signed

Clifton M. Hasegawa, President and CEO

Clifton M. Hasegawa & Associates, LLC

1044 Kilani Avenue 12

Wahiawa, Hawaii 96786-2243

Telephone: 1-808-463-1057

Email: clifhasegawa@gmail.com

Internet: http://www.linkedin.com/in/cliftonhasegawa