Mud flap

Mud flap

The subject of harbor dredging is surely the most unexciting in the universe of trade topics. There are few sights less romantic than the arm of a dredge emerging from blackened waters with a heap of unearthed muck, the excess oozing off the sides back into the harbor depths below. Yet the system of international trade and all the economic benefits that flow from it depends on the nation's ability to deepen and maintain navigational channels. Only by doing that can the system handle the ever-larger container ships being built in response to the rising volumes of trade.

This necessary investment isn't cheap. The total cost to deepen the main channels at the Port of New York and New Jersey to 50 feet will exceed $2 billion by the time it's completed late this decade. The Port of Oakland's 50-foot project will cost about a quarter of a billion. On top of that, importers paid millions last year in harbor maintenance taxes used to fund the clearing of silt that accumulates in already-dredged channels. Dredging projects always face environmental opposition and take years to complete and to begin yielding economic benefits.

That is why the cost of dredging in the U.S. is not an insignificant issue. With the private sector likely to be asked to pick up some of the post-Sept. 11 seaport security costs, (See Radar Screen, Page 6), it's more imperative than ever that dredging costs be kept under control. Yet surprisingly, just the opposite may be happening. An amendment circulating on Capitol Hill could significantly raise the nation's dredging bill, according to port officials.

The amendment has been drafted by Sen. Dick Durbin, R-Ill., acting on behalf of a constituent and major contributor, Great Lakes Dock and Dredge, the largest U.S. dredging operator. It was devised in response to efforts by Bean Stuyvesant, a New Orleans-based competitor of Great Lakes, to expand in the U.S. market. Bean Stuyvesant is a 50-50 joint venture between Bean, an American dredging firm, and Royal Boskalis of the Netherlands, one of the world's largest dredgers.

Here's the background: In 1992, a law was passed that made the requirements for dredges similar to vessels operating in domestic U.S. trades under the Jones Act, but with a twist. Like ships in the Jones Act trades, dredges would have to be built, owned and manned by Americans. The twist is that they could not be time-chartered to non-American companies. This is a highly restrictive provision not found even in the notoriously protectionist Jones Act. The Jones Act allows time-charters to foreign entities such as British Petroleum and many others, and for an important reason ? there is an insufficient supply of foreign capital and investment know-how to fund needed maritime assets in the U.S. That is a scenario some might say applies to the dredging industry as well.

Bean Stuyvesant's largest dredge, the Stuyvesant, was not affected by the 1992 law because of a grandfather clause enacted when the law took effect. Durbin and his allies in the Dredging Contractors of America argue that Bean Stuyvesant has stretched its exemption to include other dredges it operates in the U.S. market. They say this "threatens the American dredging industry" with unneeded competition. Bean Stuyvesant says it is complying with explicit provisions in the 1992 law allowing it to expand, and that Customs and the Coast Guard have issued administrative rulings supporting its position.

Only four companies have the equipment and capital necessary to bid on major U.S. dredging projects. If Durbin's amendment is attached to a bill that passes Congress and is signed into law, one of those four companies, Bean Stuyvesant, would be barred from further participation in the U.S. market. Removing a competitor would almost certainly result in higher dredging costs and possibly delays in completing needed projects.

Understanding this, Rick Larrabee, seaport director at the Port Authority of New York and New Jersey, warned in a recent letter to Sen. John McCain, R-Ariz., that "with the elimination of this limited competition, the cost of dredging likely would rise." Larrabee noted that in the past, when the Army Corps of Engineers was confronted with inadequate competition among bidders on dredging projects, the corps "broke up dredging contracts into small pieces in order to attract smaller companies. The result was slower work at a higher cost to the federal government and the port authority."

It must therefore have been a relief last month for Larrabee and other port directors, including Larry Keller of Los Angeles, to see a strongly worded letter from Rep. Don Young, R-Alaska, chairman of the House Transportation Committee. The July 26 letter read, "I have thoroughly examined the merits on both sides of the Stuyvesant issue and feel strongly that the agreement reached in the 1992 act resolved the matter. The push by Great Lakes Dredging and Dock Co. to remove its biggest competitor is simply a way to leverage its own market share." Young added that he has no intention of reporting out any bill containing the Durbin amendment. The trade community thanks Young for those encouraging words.

Peter Tirschwell is editor of JoC Week. He can be reached at (973) 848-7158, or via e-mail at ptirschwell@joc.com.