The 960 TEU military sealift container ship proposed for construction at Bender Shipbuilding & Repair
IN THIS REPORT:
- THE PROBLEM
- ADMIRAL WARNS OF SEALIFT SHORTFALLS
- A NEW STRATEGY FOR U.S. SHIPBUILDING
- 2001 PROPOSAL TO U.S. AIR FORCE
- U.S. NAVY INSISTS ON OUTSOURCING SEALIFT SHIPS
- MEETING WITH ADMIRAL BREWER SUSTAINS MSC REJECTION
- MAERSK LINE LIMITED REFLAGS FOREIGN BUILT SHIPS FOR U.S. MILITARY SERVICE
- TRANSPORTATION & SUPPLY CHAIN PROBLEMS IMPACT OPERATION IRAQI FREEDOM
- U.S. GOVERNMENT FINES MAERSK LINE LIMITED FOR “FALSE CLAIMS” DURING IRAQ & AFGHANISTAN WARS
- CONCLUSION: U.S. TURNS ITS BACK ON THE LIBERTY & VICTORY SHIPBUILDING STRATEGY THAT HELPED WIN WORLD WAR II
BY STAS MARGARONIS
THE PROBLEM
In 2012, had the $2.1 billion awarded to Maersk Line Limited for a U.S. Navy Military Sealift contract been applied to build sealift ships at U.S. shipyards, the United States might have built 28 coastal container ships that could have been deployed as U.S. military sealift ships in 2023.
The 28-ship number derives from the $2.1 billion for Maersk Line Limited being divided by $75 million per ship for a small 1,000 TEU (twenty foot unit) container ship that could have been built at U.S. shipyards.[1]
At the same, time, those projected 28 ships could have composed a Marine Highway fleet as promoted by the U.S. Maritime Administration to move thousands of truckloads off U.S. roads and onto sea lanes along the Atlantic Coast’s I-95 and the Pacific Coast’s I-5 freeway corridors. The result would be reduced U.S. highway congestion.
In a wartime emergency, those ships could have been mobilized to support U.S. military operations.
An order for 28 coastal container ships would have created thousands of new jobs at U.S. shipyards and by the sheer number of the order would have improved shipbuilding expertise and the economies of scale to reduce the cost of construction at U.S. shipyards.
This kind of investment by the U.S. Navy could have modernized the shipyards themselves and provided training and decent wages and working conditions for thousands of shipyards workers such as welders, pipe fitters, electricians, crane operators and engineers.
On a larger scale this is what happened when the United States supported the mass-construction of Liberty ships during World War II, putting thousands of Americans back to work after chronic unemployment during the Great Depression of the 1930s.
The mass-production of Liberty and Victory ships and T-2 tankers helped win World War II and resulted in the United States becoming the leading maritime power in the world. Unfortunately, soon afterwards, the United States allowed its shipbuilding expertise to be outsourced to foreign builders which helped Japan, Korea and later China become the world’s leading shipbuilders.
Unfortunately, the $2.1 billion went to pay for outsourcing foreign built ships to meet the U.S. Navy’s Military Sealift Command’s requirements
In 2001, there was a modest effort mounted by a California-based start-up vessel operator and an Alabama shipbuilder to encourage the U.S. Navy’s Military Sealift Command to become the engine to rebuild U.S. shipbuilding and the U.S. maritime industry.
Unfortunately, staff members at the U.S. Navy’s Military Sealift Command in Washington, D.C. rejected the idea in favor of continuing to outsource U.S. sealift shipping to foreign owned companies who were awarded U.S. taxpayer dollars to reflag foreign built vessels and allow the U.S. shipbuilding industry to further decline and make the U.S. Navy vulnerable to high costs and poorly built warships.
One such example of U.S. Military Sealift outsourcing occurred with Maersk Line Limited.
In July, 2012, Reuters reported that in spite of being fined $31.9 million for “overcharging” on U.S. Department of Defense contracts: ““Maersk Line, part of Denmark’s A.P. Moller-Maersk, has won a contract worth up to $2.1 billion for shipping U.S. military cargo, signalling defence (sic) officials have put a dispute about overcharging behind them.”[2]
The Reuters report went on to say that the U.S. Defense Department “… said it had chosen Maersk Line for the contract out of 22 proposals received.”[3]
Maersk Line Limited: “… has for decades been a supplier of shipping to the U.S. military, but the relationship was chipped when Maersk Line was accused of overbilling… Maersk Line … agreed to pay $31.9 million to settle claims it overcharged the U.S. military for carrying cargo to support American troops in Afghanistan and Iraq.”[4]
The Reuters report went on to quote an analyst who spoke favorably of the DOD’s decision: “‘It is positive that the U.S. military has put this dispute behind them and not only places the order, but awards Maersk Line the biggest of the orders …”[5]
The Reuters report added:
“American President Lines Ltd, part of Singapore-based Neptune Orient Lines Group, won the next-biggest such deal from the U.S. Transportation Command, valued at up to $1.7 billion, the Pentagon’s daily contract digest said late Monday. Farrell Lines Inc (a subsidiary of Maersk Line Limited-ed note) was awarded a similar potential $565 million.”
ADMIRAL WARNS OF SEALIFT SHORTFALLS
In October of 2022, the Commander of the Military Sealift Command (MSC) Rear Adm. Michael Wettlaufer, warned that MSC continues to face a shortage of both ships and sailors, and it will take a “collective effort” from government and industry to turn the tide.
Rear Adm. Michael Wettlaufer, commander of MSC, was speaking at an event hosted by the Navy League of the United States.
Rear Adm. Wettlaufer noted that after the number of U.S. mariners reached their peak during World War II at 262,000, their population has plummeted to a fraction of that today — about 33,000 between 2018-2021. With recruitment and retention, a problem across all of the services, MSC faces no easy solutions.
Specifically, the top challenges currently facing MSC in this area are an atrophied maritime industry, a reduced U.S. flag commercial fleet and a shortage of ocean-going mariners, he said.
To help the issue of a lack of vessels, Wettlaufer said MSC will seek to incentivize commercial participation.
“We’ve got to incentivize U.S. flagged shipping,” he said, noting that the number of U.S. flagged ships at their disposal had declined from 282 at the start of this century to 178 today. “On the production side, it’s great; we’re building ships. But we certainly need more.”
On the recruitment side, it is a multi-pronged problem. A lack of U.S. flagged ships causes a decrease in the mariner population naturally, but there are other issues that the command needs to address, Wettlaufer said.
“This ecosystem is under stress [and] this needs our nation’s focus,” Wettlaufer said. “Why does [this decline in mariner population] happen? Have people changed, or are we ignoring the problem? I think we’re ignoring the problem. I think we’re ignoring the engagement opportunity.”
To help fix this issue, MSC will seek to get mariners to sea through a vigorous recruiting campaign, incentives and training. He also said MSC will be more aggressive in preventing sexual assault. Regardless, it will take a “collective effort” between government and industry to deal with this ongoing issue, the rear admiral said.
Wettlaufer’s remarks made to the Navy League of the United States were reported by Seapower Magazine.[6]
Ironically, many of the problems the Admiral discussed have their origins in decisions made by the Military Sealift Command in which MSC uses U.S. tax dollars to outsource its vessel requirements for ships built in foreign shipyards rather than using those U.S. tax dollars to build U.S. Military Sealift ships with American workers at U.S. shipyards.
A NEW STRATEGY FOR U.S. SHIPBUILDING
Cover of Specification Agreement with Bender Shipbuilding & Repair (2001)
Shortly after the September 2001 terrorist attacks on New York’s Twin Towers and the Pentagon, a small U.S. shipbuilding delegation visited officials at the U.S. Air Force to discuss the possibility of deploying 960 TEU Dutch designed container ships.
These ships were to be built at an Alabama shipyard and could be deployed to support U.S. Air Force (USAF) operations.
A California-based start-up, Santa Maria Shipping, was in negotiations with Tom Bender, president of Bender Shipbuilding & Repair based in Mobile, Alabama to build the container ships at Bender’s shipyard.
Santa Maria (where the author was a principal) hoped to persuade Pentagon officials that new U.S. built container ships could meet U.S. Military Sealift requirements and provide a model for low-cost commercial and container shipbuilding to be applied to U.S. naval shipbuilding.
The U.S. company had contracted with the Central Industry Group (CIG)) based in the Netherlands to provide design, engineering and shipbuilding support for the Bender effort. CIG’s subsidiary Vuyk Engineering Groningen (VEG) supported building ships utilizing modular construction operations as part of a program called Shipkits. The idea was to help smaller Dutch shipyards improve productivity and cost competitiveness, but CIG/VEG were also looking at foreign markets to market their concept and the Bender shipyard was a candidate for the Shipkits concept.
CIG officials hoped the collaboration with Bender would provide a model that might be applied by Bender and other U.S. shipbuilders.
The Santa Maria project had begun as a collaboration with the Shipbuilders Council of America in the 1990s to propose a research project that would develop a generic small container ship that could be built by U.S. shipbuilders for commercial applications as well as military sealift applications.
The research resulted in a proposal sent to the Defense Advanced Research Projects Agency (DARPA). It was rejected as being not relevant to the construction of U.S. Navy ships.
DARPA personnel were apparently unaware that American shipbuilding during World War II, including the mass-production of Liberty and Victory ships, helped win the war in Europe and Asia and improved shipbuilding capabilities in the United States for all levels of shipbuilding.
The CIG team included two outstanding individuals from the company’s subsidiary Vuyk Engineering based in Groningen (VEG) in the Northern Netherlands.
The two VEG reps developed a series of steps that Bender could follow to reduce man-hours, costs and improve the productivity at its shipyard.
One representative was a naval architect, who travelled extensively throughout the United States visiting U.S. shipyards and analyzing the challenges of bringing Dutch and European methods to the United States.
The naval architect was assisted by a specialist in propulsion designs and installations.
This individual supervised engine room design and installations for VEG and worked with shipyards on implementation of the designs. He was also a shipbuilder’s shipbuilder and soon developed a rapport and trust with his Bender shipyard counterparts at Mobile, which would have been critical to the success of the venture.
The naval architect was principally responsible for developing the design of the 960 TEU vessel based on VEG’s experiences developing smaller coastal feeder container ships for the European market.
Before coming to Bender, the naval architect produced an analysis of the man-hours needed for construction of the 960 TEU ship for a Gulf Coast shipyard and then demonstrated how to cut an unnecessary 10% of the man-hours from the U.S. shipyards’ construction time. This would reduce labor costs to the shipyard and lower the cost of construction.
The presentation on how to save 10% of the construction’s man-hours did not go well with the shipyard’s management. The incident helped explain what had gone wrong with American shipbuilding.
Many U.S. shipyards were still focused on the concept whereby U.S. government contracts had been priced at the contract cost plus a profit basis, known as ‘Cost Plus.’
A Center for Strategic and International Studies (CSIS) paper defends Cost-Plus practices stating:
“Concerns about cost overruns could lead to a preference for more predictable fixed price contracts. Some argue that cost-plus contracts, particularly those with fixed fees, may provide insufficient incentives to reduce costs …
Why are they used? The government often has difficulty predicting the cost of large-scale projects. Michael Sullivan, GAO’s (Government Accountability Office) director of acquisition and sourcing management, argues that contractors would simply not bid on high-risk endeavors, such as R&D projects, if they were operated under fixedpriced (sic) contract structures. Broken down by product or service codes, the research sector is dominated by costplus (sic) contracts as expected for the less predictable task of research.”[7]
The effect of the “Cost-Plus” mentality was to encourage shipbuilders to provide themselves with a guaranteed minimum price that would rise with added man-hours especially due to change-orders.
Thus, the proposal to cut 10% from the cost of construction was not viewed with enthusiasm by the shipyard, because to this company less man-hours meant less hours charged for overhead and profits.
For some shipyards, reducing man hours was, therefore, bad for business.
Fortunately, Tom Bender, President of Bender Shipbuilding & Repair, did not subscribe to these outmoded ideas and saw that improvements in productivity, reduction of man-hours and construction costs would result in building new ships at lower and more affordable prices and thus, increase demand for new U.S. built ships.
The two Dutch shipbuilding specialists often remarked to their American colleagues that the ideas they espoused from the Netherlands were based on concepts of modular construction and mass production that were developed in the United States during World War II and used to build Liberty and Victory ships.
PROPOSAL TO U.S. AIR FORCE
A Santa Maria maritime consultant was a former Military Sealift captain during the first Gulf War and graduate of the U.S. Merchant Marine Academy at Kings Point, New York.
The maritime consultant used his Pentagon connections to arrange a meeting with U.S. Air Force officials in 2001.
It was a considerable achievement that, in the aftermath of the 9/11 attacks and the consequent mobilization for war with the Taliban in Afghanistan, that the consultant was able to pull this off and win a hearing with the U.S. Air Force for a start-up effort.
The meeting occurred at the Pentagon that was still recovering from the direct hit suffered when a hijacked airliner crashed into the Defense Department complex.
At the meeting, the consultant proposed to Air Force officials that they consider backing a proposal to deploy Bender’s American-built container ships. The ships could transport ammunition in containers to military theaters such as in support of the then current U.S. operations in Afghanistan.
At the meeting with the Air Force officers, the consultant praised the Air Force’s actions in Afghanistan in what seemed at the time, a quick and successful response to the Taliban-inspired attacks against the United States. The Air Force officers expressed interest in the idea of having U.S.-built ships customized to Air Force requirements. The consultant made a strong pitch that the shallow draft design of the ships would allow them to operate in ship channels of less than 30 feet deep, would be an asset for deployment in most ports in the world. In addition, the ships could be outfitted with shipboard cranes that had been designed for the Bender container ships. This would allow American crews manning the ships to unload cargo even if the port was damaged or lacked sufficient harbor workers to operate shore-based container cranes.
Subsequently, the maritime consultant recalled that the U.S. Air Force staff passed on the Santa Maria proposal, “… to their … general, who thought it was a fabulous idea. The Air Force wanted us to make a formal proposal to them and they would push it on to the U.S. Navy’s Military Sealift Command.”[8]
U.S. NAVY INSISTS ON OUTSOURCING SHIPS
Unfortunately, the U.S. Navy’s Military Sealift Command was not interested.
At a subsequent meeting, staff members of the Navy’s Military Sealift Command (MSC) said they opposed the idea of building ammunition ships for the U.S Air Force at a U.S. shipyard and wanted to maintain the existing system.
MSC staff partly opposed the idea because it required a change in the Request for Proposal (RFP) process for Military Sealift contracts.
The timeline for an RFP to work for a new construction would be at least 15 months. This is because while the U.S. government contract could guarantee financing the shipbuilding, there would still need to be upgrades to the yard, training of workers and other requirements such as insurance. The shipyard would also need to order steel and many other components and line up suppliers who could provide vessel parts in a timely manner.
It was hoped that the Navy would be supportive of such a U.S. shipbuilding concept for new Military Sealift ships.
Instead, the MSC staff insisted that they were committed to outsourcing Military Sealift ships, including to Danish-owned company Maersk Line Limited, where the Navy had a satisfactory relationship.
During the meeting, the Santa Maria team, including the consultant, argued that an RFP written (for example) at the end of December for delivery the following October, allowed only 10 months for a company to produce the ships necessary to meet the Navy’s requirements.
An extension would allow a U.S. shipbuilder to compete for the RFP with a longer time period. This expanded process would allow for U.S. shipbuilders to compete for Military Sealift contracts. If the order called for multiple ships, then the economies of scale would speed up construction times and reduce costs.
With the Santa Maria/Bender vessels, the Military Sealift Command would benefit from modern technology in the following ways:
- A smaller size vessel that the Air Force wanted for added flexibility and better security. It was pointed out that three ships are harder to sink or sabotage than one. Smaller ships also equate to more rapid load and discharge times, decreasing the time a ship is most vulnerable in a port under wartime conditions.
- Shipboard cranes so as to load and unload if port facilities are damaged or harbor workers at the war zone are unavailable.
- Bow thruster and flap rudder technology so the vessel can maneuver in and out of port without tug assistance: a plus in a combat zone.
- American built ships that support military sealift needs and employ American workers and ship contractors.
The MSC staff responded that they were not opposed to contracting out to U.S. companies.
As proof, they cited the outsourcing of contracts for Military Sealift ships to what they said was an American company, Maersk Lines Limited (MLL). The company is domiciled in the United States, but is a subsidiary of the Danish container carrier, Maersk. MLL reflags foreign built ships to the U.S. flag so that these vessels can qualify for Military Sealift contracts.
A particularly heated discussion ensued with MSC staff over the notion that Maersk Line Limited was a U.S. company, since the parent company, A.P. Moeller Maersk is headquartered in Copenhagen, Denmark.
Unfortunately, the outsourcing of military functions to MLL was part of a wider trend to outsource military contracts to private companies that were not necessarily U.S. companies as in the case of MLL.
The Military Sealift Command staff insisted that MLL was a U.S. company composed of U.S. citizens with the company headquarters located in Virginia.
The MSC refused to consider changing its procurement practices to accommodate new American-built container ships.
A follow-up meeting scheduled with the Santa Maria team, U.S. Air Force and the U.S. Navy Military Sealift Command was cancelled by the MSC staff.
As a result of the MSC staff actions, Tom Bender, appealed the decision to Admiral David Brewer, the new head of the Military Sealift Command.
Bender understood how developing a competitive shipbuilding business in collaboration with the CIG/VEG could improve productivity and reduce the cost of construction at his shipyard.
MEETING WITH ADMIRAL BREWER SUSTAINS MSC REJECTION
At a meeting in early 2002, Bender appealed to Admiral David Brewer to change the procurement requirements to allow U.S. shipbuilders to compete for Military Sealift contacts by expanding the timelines.
Brewer commanded the Military Sealift Command from August 2001 until his retirement in March 2006, and served as Vice Chief of Naval Education and Training from 1999 to 2001. As Commander of Military Sealift Command, “… he is known for overseeing the massive Military Sealift Command (MSC) partnership with the private sector shipping contractors operation in support of Operation Iraqi Freedom which involved moving over 20,000,000 square feet (1,900,000 m2) of equipment to the Persian Gulf in less than four months. He is also known for leading the Military Sealift Command’s disaster relief efforts after Hurricane Katrina.”[9]
Bender repeated the main points of the program Admiral Brewer: 1) The value of the Dutch-designed ships that Bender was prepared to build. 2) The value of shallow draft sealift ships. 3) The value of shipboard cranes so that the ships were self-unloading. 3) Smaller ships would present smaller targets.
Brewer was impressed by the arguments. He was particularly impressed with mounting cranes on the ships so they could be self-unloading and discharge containers in the absence of functioning port facilities. However, he was either unable or unwilling to overrule the MSC staff and the Navy opposition remained firm.
MAERSK LINE LIMITED REFLAGS FOREIGN BUILT SHIPS FOR U.S. MILITARY SERVICE
The decision by the Military Sealift Command continued the policy of outsourcing to companies such as Maersk Line Limited.
On its website Maersk Line Limited says:
“Maersk Line, Limited (MLL), an American company, was established in 1983 to support the conversion and operation of five Maritime Prepositioning Ships on behalf of the United States Navy.
Since 1983, MLL has grown and now owns 20 U.S. flag registered container vessels operating around the world to support the United States with military, government, and humanitarian missions.
Our participation in the Maritime Security Program (MSP) and Voluntary Intermodal Sealift Agreement (VISA) ensures that MLL assets, both afloat and ashore, are always available to support the US government.”[10]
In a 2013 report in American Shipper, Maersk Line Limited discussed how it was modernizing its U.S. flag fleet with ships built abroad such as the Maersk Chicago.
The Maersk Chicago was built in South Korea:
“MAERSK CHICAGO is a Container ship built in 2007 by HANJIN HEAVY INDUSTRIES CO. LTD. – BUSAN, SOUTH KOREA. Currently sailing under the flag of United States (USA). Formerly also known as MAERSK KUANTAN, MAERSK BTAN. Its gross tonnage is 74642 tons.”[11]
In the American Shipper report, Maersk Line Limited discussed the benefits of reflagging foreign built vessels for U.S. military sealift service:
“Maersk Line, Limited (MLL) said it has begun upgrading its U.S.-flag fleet by replacing eight existing ships with eight newer and larger containerships at a cost of about $500 million.
MLL, the U.S.-flag arm of A.P. Moller-Maersk, said the new ships, which are being re-registered under the U.S. flag, will allow it to improve the quality of service between the U.S. East Coast and Middle East and Mediterranean Sea that it offers to the U.S. military, government and commercial customers….
Maersk Chicago, the first of the eight vessels to be reflagged, came under the U.S. flag on May 1, and the company said the remaining ships will join Maersk Line’s weekly Middle East Container Line service (MECL1) in May and June. …
The company has added an eighth vessel to what had been a seven-ship string to accommodate the Algeciras call and increased commercial cargo moving to and from the Mediterranean. Military cargo volumes are expected to drop as the war winds down in Afghanistan.
The vessels are about 10 years younger than the outgoing ships, offering improved fuel efficiency and environmental performance. For example, the Maersk Chicago, formerly known as Maersk Kuantan, was built in 2007, and has capacity of 6,200 TEUs, according to the Maersk Line Website.
“These eight newer vessels, along with the global transportation network that connects them, demonstrate our commitment to our customers. We are proud to serve the U.S. military and to deliver U.S. food aid worldwide,” said John Reinhart, MLL’s president and chief executive officer. “MLL is focused on continual improvement, and these ships will further increase reliability and shrink our environmental footprint.”
All eight vessels will join the U.S. government’s Maritime Security Program (MSP) and Voluntary Intermodal Sealift Agreement (VISA).
“We are pleased to bring more modern and useful assets into the MSP and VISA fleets,” Reinhart said. “The vessels will augment our nation’s security and sustain jobs for the U.S. Merchant Marine, the fourth arm of our national defense.’”[12]
TRANSPORTATION & SUPPLY CHAIN PROBLEMS IMPACT OPERATION IRAQI FREEDOM
In 2003, the United States went to war with Iraq and found itself caught up in a web of transportation chaos, lost equipment, and sealift logistical problems.
A U.S. vessel operator whose company was transporting war materiel destined for Iraq recalled that cargoes destined for Iraq had to be double-handled. The bigger cargo ships took freight to deeper draft harbors in other countries, such as Dubai, transloaded the cargoes on to smaller shallow draft vessels which transported the cargoes to Iraqi ports. These delays in re-supplying American troops in Iraq with vital goods during and after the hostilities concluded slowed down the supply chain and contributed to credibility problems with U.S. reconstruction efforts.[13]
The Bender-built ships with onboard cranes would have allowed for the unloading of vital supplies because the ships were smaller, self-unloading and could have entered Iraqi waters without interference due to their under 30-foot draft capability.
Nevertheless, the Military Sealift Command preserved its relationship with Maersk Line Limited and hailed its success during Operation Iraqi Freedom (OIF).
The problems with the delivery of military cargoes during Operation Iraqi Freedom were made evident in a December, 2003 Government Accountability Office (GAO) preliminary review of transportation and logistics issues related to OIF.
The report, “Defense Logistics: Preliminary Observations on the Effectiveness of Logistics Activities During Operation Iraqi Freedom (18-DEC-03, GAO-04-305R)” found: “… a discrepancy of $1.2 billion between the amount of materiel shipped to Army activities in the theater of operations and the amount of materiel that those activities acknowledged they received.”
The GAO report was dated December 18, 2003 and addressed to:
The Honorable Jerry Lewis
Chairman, Subcommittee on Defense, Committee on Appropriations
House of Representatives
The report noted: “… of the $28.1 billion that the Department of Defense (DOD) has obligated for OIF, the services and the Defense Logistics Agency have reported that $14.2 billion is for operating support costs and $4.9 billion is for transportation costs.”
The GAO report summary noted: “Although major combat operations during the initial phases of OIF were successful, our preliminary work indicated that there were substantial logistics support problems in the OIF theater, as evidenced by:
o a backlog of hundreds of pallets and containers of materiel at various distribution points due to transportation constraints and inadequate asset visibility;
o a discrepancy of $1.2 billion between the amount of materiel shipped to Army activities in the theater of operations and the amount of materiel that those activities acknowledged they received;
o a potential cost to DOD of millions of dollars for late fees on leased containers or replacement of DOD-owned containers due to distribution backlogs or losses;
o the cannibalization of vehicles and potential reduction of equipment readiness due to the unavailability of parts that either were not in DOD’s inventory or could not be located because of inadequate asset visibility …”[14]
U.S. GOVERNMENT FINES MAERSK LINE LIMITED FOR “FALSE CLAIMS” DURING IRAQ & AFGHANISTAN WARS
Norfolk-based Maersk Line Limited agreed to pay the federal government $31.9 million to resolve “allegations” that MLL submitted false claims related to shipments of cargo containers in support of U.S. troops in Afghanistan and Iraq, according to a U.S. Department of Justice (DOJ) announcement on January 3rd, 2012.
The DOJ announcement entitled, “Maersk Line to Pay U.S. $31.9 Million to Resolve False Claims Allegations for Inflated Shipping Costs to Military in Afghanistan and Iraq” goes on to describe the offense:
“Maersk Line Limited has agreed to pay the government $31.9 million to resolve allegations that it submitted false claims to the United States in connection with contracts to transport cargo in shipping containers to support U.S. troops in Afghanistan and Iraq, the Justice Department announced today. The government alleges that Maersk, a wholly-owned American subsidiary of Denmark-based A.P. Moller Maersk, knowingly overcharged the Department of Defense to transport thousands of containers from ports to inland delivery destinations in Iraq and Afghanistan.
The government contends that Maersk inflated its invoices in various ways. For example, Maersk allegedly billed in excess of the contractual rate to maintain the operation of refrigerated containers holding perishable cargo at a port in Karachi, Pakistan, and at U.S. military bases in Afghanistan; allegedly billed excessive detention charges (or late fees) by failing to account for cargo transit times and a contractual grace period; allegedly billed for container delivery delays improperly attributed to the U.S. government; allegedly billed for container GPS-tracking and security services that were not provided or only partially provided; and allegedly failed to credit the government for rebates of container storage fees received by Maersk’s subcontractor at a Kuwaiti port.”[15]
On November 5, 2014, Maersk Line, Limited, (Maersk) “paid the United States of America eight million seven hundred thousand dollars ($8,700,000.00) as the result of a civil settlement regarding Maersk’s failure to fully comply with certain terms of its contract with the United States Transportation Command (USTRANSCOM),” the United States Attorney for the Southern District of Illinois, Stephen R. Wigginton, announced.
‘One can clearly see that in contracts of this magnitude, even a small percentage of fraud amounts to significant loss of funds. By this and other ongoing investigations, I am putting these world-wide contractors on notice that my office will not tolerate any fraudulent, false or unwarranted billings to the United States and its client agencies.’ noted United States Attorney Wigginton …
Under Maersk’s contract with USTRANSCOM, the Department of Defense used Maersk services to ship cargo from the United States to military outposts in Afghanistan. Maersk moved cargo by sea to an appropriate port, then by trucks over land, often travelling in remote areas where enemy combatants and criminal entities were active in delivering shipments.
With respect to the shipments at issue in this matter, USTRANSCOM discovered that some claims submitted by Maersk contained suspicious signatures. Further investigation revealed that signatures purporting to verify receipt of shipments in Afghanistan were forged. USTRANSCOM’s review uncovered 277 instances in which such claims were falsely made.”[16]
On March 10th, 2016, it was announced that MLL subsidiary, Farrell Lines, Incorporated (Farrell) and DAMCO USA, Inc. (Damco) “have paid to the United States of America three million six hundred fifty nine thousand five hundred dollars ($3,659,500.00) in civil penalties regarding Farrell and Damco’s failure to comply with certain terms of its contract with the United States Transportation Command (USTRANSCOM),” the Acting United States Attorney for the Southern District of Illinois, James L. Porter, announced…
Under Farrell’s contract with USTRANSCOM, it was required to perform international door-to-door and/or port-to-port transportation services to move Department of Defense (DoD) and other Government approved cargo into and out of Afghanistan via multiple modes of transportation (air, sea, and land). Farrell subcontracted its work on the contract to its affiliate, Damco. The price of the contract was based almost exclusively on the weight of the shipments, and documented cargo weights, consisting of “weight tickets” issued by a certified commercial scale for each cargo container, needed to be included with billing invoices to the Government.
With respect to the shipments at issue in this matter, USTRANSCOM discovered that 563 weight tickets submitted by Farrell to support their billing invoices were “recreated” by Damco employees and not authentic weight tickets. Farrell and Damco were cooperative in the investigation.”[17]
According to its website, “Farrell Lines became a subsidiary of P&O Nedlloyd Container Line Ltd. in 2000, which was subsequently purchased by the A.P. Møller-Maersk Group in 2005. Following the purchase, Farrell Lines became a part of Maersk Line,Limited, the U.S. flag operating arm of the A.P. Møller-Maersk Group. Under Maersk Line, Limited, Farrell Lines has reemerged as a U.S. flag roll-on, roll-off carrier. Seeing tremendous potential, Maersk Line, Limited revitalized the Farrell Lines brand in 2010 and increased the fleet to four ships.”[18]
CONCLUSION: U.S. TURNS ITS BACK ON THE LIBERTY & VICTORY SHIPBUILDING STRATEGY THAT HELPED WIN WORLD WAR II
As a result of outsourcing Military Sealift shipping and avoiding building sealift ships in the United States, the U.S. Navy has failed to sufficiently support the U.S. defense industrial base and U.S. shipbuilding.
In so doing, the Navy has placed the national security of the United States at risk
The Navy’s choice of Maersk Line Limited as a recipient of billions in U.S. taxpayer dollars coincides with several charges made by the U.S. Department of Justice against Maersk Line Limited.
The outsourcing to Maersk Line Limited reflected a loss of investment by the U.S. Navy in competitive shipbuilding practices that could have been made in Bender and other U.S. shipyards to build new U.S. sealift ships.
In 2022, the Navy’s failure to invest in new shipbuilding casts a shadow as China begins to deploy its competitive commercial shipbuilding practices so as to build commercial vessels and warships.
A conflict with China over Taiwan could be lost due to the failure by the U.S. Navy to invest in sufficient sealift dollars in U.S. military sealift ships built in U.S. shipyards by American workers.
For this reason, the Commander of the Military Sealift Command (MSC) Rear Adm. Michael Wettlaufer, warned that MSC continues to face a shortage of both ships and sailors, and it will take a “collective effort” from government and industry to turn the tide.
During World War II, the mass-production of Liberty and Victory ships at U.S. shipyards helped pioneer modular construction and the new use of welding of steel plates, resulting in lower costs and faster construction times.
New shipyards built by Henry Kaiser and others helped trailblaze the new shipbuilding practices.
This program was directed by the U.S. Maritime Commission (now the U.S. Maritime Administration) and provided the logistical supply chain to military theaters in Europe and Asia that helped win the war.[19]
However, the mass-production of Liberty/Victory ships and T-2 tankers was not continued after 1945 and the United States reverted to its reliance on less advanced naval shipyards.
Daniel Ludwig, a super T-2 Tanker builder during World War II and a pioneer in building ships using welding of steel plates, lost patience after his unsuccessful attempts to build larger commercial vessels in the United States after 1945.
In 1951, he established shipbuilding operations in Japan and became the father of modern Japanese shipbuilding.[20]
These methods were later passed on to Korean shipyards and then adapted at Chinese shipyards.
It was one of the first major U.S. technology transfers that would create new competitors to U.S. shipbuilders, ocean carriers and ultimately to the U.S. Navy.
FOOTNOTES
[1] Price estimates based on conversations with U.S. builders and owners.
[2] https://www.reuters.com/article/shipping-usa-pentagon-idUSL2E8I2FT520120703
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] https://seapowermagazine.org/rear-adm-wettlaufer-shortage-of-ships-mariners-an-ongoing-problem-for-military-sealift-command/
[7] https://csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/media/csis/pubs/081016_diig_cost_plus.pdf
[8] Interview with the Author
[9] https://en.wikipedia.org/wiki/David_L._Brewer_III
[10] https://www.maersklinelimited.com/about/
[11] https://www.balticshipping.com/vessel/imo/9332975
[12] https://www.freightwaves.com/news/maersk-adds-larger-ships-to-u-s-flag-fleet
[13] Interview with the Author.
[14] https://www.govinfo.gov/content/pkg/GAOREPORTS-GAO-04-305R/html/GAOREPORTS-GAO-04-305R.htm
[15]https://www.justice.gov/opa/pr/maersk-line-pay-us-319-million-resolve-false-claims-allegations-inflated-shipping-costs
[16] https://www.justice.gov/usao-sdil/pr/united-states-attorney-wigginton-announces-multi-million-dollar-fraud-recovery-behalf
[17] https://www.justice.gov/usao-sdil/pr/shipping-companies-fined-falsifying-records-under-defense-contract
[18] https://farrelllines.com/history.php
[19] Please see Frederic Lane, “Ships for Victory: A History of Shipbuilding under the U.S. Maritime Commission in World War II” for a comprehensive history of the U.S. World War II shipbuilding accomplishment.
[20] https://rbtus.com/review-how-u-s-shipbuilder-daniel-ludwig-modernized-japanese-shipbuilding/