Wednesday, January 15, 2014

Financing Will Be Key to Next Generation Fleet

From the Fleet

Last month US Senators Maria Cantwell (D-WA) and Mark Begich (D-AK) visited Seattle and heard from local fishing leaders on the challenges and solutions to building a next generation fishing fleet.

The senators toured a freezer longliner under maintenance at Fishermen’s Terminal before holding a listening session at the Port of Seattle headquarters with Pacific Northwest fishing and shipbuilding industry leaders. The group commented on the challenges they face in getting access to financing from banks to build and renovate fishing vessels and the future competitiveness of the maritime economy. Below are the remarks presented to the Senators by Kenny Down, President and CEO of Blue North Fisheries.

Senator Cantwell and Senator Begich:
Thank you for holding this hearing today and thank you for the opportunity to appear before you and to provide testimony on these important maritime issues.

Blue North is based in Seattle, Washington and operates five commercial fishing vessels in the North Pacific federal fishery. Our vessels are hook-and-line catcher-processors that harvest and process seafood, primarily Pacific cod. The Blue North catcher processors all operate in the Freezer Longline Conservation Cooperative (FLCC), a cooperative made possible by Congressional legislation supported by you both, which allowed the FLCC sector to coop. I want to thank you Senator Cantwell as the original sponsor of that legislation and thank you Senator Begich as an original co-sponsor.

Blue North currently has a vessel under construction here in Washington State. This vessel is being built at a cost of $36 million. The vessel is of state of the art design; greatly reducing fuel consumption, increasing utilization of the resource and significantly increasing the value of the products produced through improvements to quality and value adding of products.

I am here to testify today on the necessity of rebuilding the aging North Pacific catcher processor fleet. While my testimony is particular in some respect to Blue North, the points I wish to make are equally important across gear types, sectors and fisheries. The flatfish catcher processors, the pollock catcher processors and the longline catcher processors all will need federal support to rebuild their aging fleets.

For Blue North, while we have one vessel under construction we will require two additional vessels to remain competitive. Many other companies will follow, but there are serious challenges to moving forward. One of the most important steps for the industry to rebuild and replace their aging vessels will be to support NOAA in changing the Fisheries Finance Program (FFP) to allow for new vessel construction and major reconstruction loans. For 17 years the agency has prohibited loans for the new construction of vessels because of concerns with over-capitalized fisheries. In a cooperative or rationalized fishery this concern is eliminated. I believe the agency is considering changing this policy, at the request of the North Pacific Fishery Management Council, and I ask that you encourage them to do so.

Another important step will be to support the Maritime Administration in changes to the Title XI loan guarantee program. Currently the Secretary of Commerce has sole authority to issue loan guarantees for fishing vessels. So, in order for the fishing industry to be eligible to apply for a Title XI loan guarantee through MARAD, we need the Department of Commerce and MARAD to work out a procedure or process that would allow fishing companies to apply for Title XI loan guarantees. This is especially crucial for the larger vessels in the Bering Sea who are looking at large rebuilding projects at costs over $50 million and possibly building new vessels which could cost between $100 and 4150 million. Solving this roadblock would be extremely helpful in creating jobs, increasing exports, increasing the quality of our products and assuring we are doing all we can with the resources we have.

We will also need Congressional support for a legislative fix to remove a prohibition on loans or loan guarantees for new construction or reconstruction of fishing vessels over 165 feet. This will require something such as an amendment in the next Coast Guard authorization bill or as soon as possible to allow the aforementioned programs to become effective in our fleet.

Necessity of Rebuilding the Aging North Pacific Catcher Processor Fleet
Three of Blue North’s catcher processor fleet are World War II era vessels. These vessels were built in 1944 and 1945. These vessels are approaching 70 years in service, a respectable life for any seagoing vessel. Our “newest vessel” was built twenty-two years ago in 1991. While these older vessels are at the far end of the spectrum they represent a situation that eventually all North Pacific fishing vessel owners will be faced with, and many others are faced with now, the need to modernize their fleets for safety, quality and efficiency. The average age of the longline fleet is more than 40 years old.

Through the legislation I referred to earlier in my testimony the race for fish in our sector has ended. We are no longer directly competing with each other but we do compete in the global whitefish market. Other countries such as Norway and Russia have regulations in place that allow them to modernize their fleets at substantially lower costs than what is possible for our fleets. Blue North for example exports nearly 90 percent of its processed product overseas. We are competing in the global cod marketplace utilizing several 70-year-old vessels against countries like Norway where the entire fleet of like vessels is already fully modernized. We are at a definite competitive disadvantage with this older equipment in a modernized worldwide market place.

These older vessels simply do not have the room, labor force or equipment to fully realize their potential. Every day on our vessels, products that could be utilized are discarded, simply because we do not have the room on board to process and store. A modern vessel like our new vessel will have the equipment and machinery necessary to freeze and will not be limited in the number of crew we can carry to handle the additional labor.

Blue North, through our cooperative agreement will harvest 17.44% of the Bering Sea Pacific cod allocation available to our fleet in 2014. With newer vessels we will not catch more fish; we will realize more value out of the fish we do catch. From a business standpoint in a rationalized fishery this is absolutely the next move toward full utilization of the resource. Blue North projects to increase the value of every pound it catches on its new vessel by a minimum of 20 percent through utilizing all protein sources available from the allocation received.

All of the vessels Blue North operates are maintained to the highest standards to assure safety of life at sea. The Blue North vessels are all inspected yearly, dry-docked twice in any five-year period, and continuously maintained according the United States Coast Guard (USCG)’s Alternative Safety and Compliance Agreement (ACSA). Several of the Blue North vessels are load-lined vessels with the American Bureau of Shipping (ABS). The cost of maintaining these older vessels to new modern standards as required by ABS and USCG programs are simply not sustainable from a business perspective. In 2012 and 2013 the annual inspections and dry-docking costs for these vessels well exceeded a million dollars each. These are expenditures we would much rather direct toward construction and financing of newer vessels. Maintenance of the new vessels, as you can imagine, will be a fraction of the maintenance of a 70-year-old vessel.

In testimony before the North Pacific Fishery Management Council in 2012 the USCG along with the National Institute for Occupational Safety and Health (NIOSH) testified in support of removing impediments to the rebuilding of the Bering Sea fishing fleet for safety reasons. While the current vessels are safe, studies quoted in their testimony show the new vessels will be much safer. Simply put, there is a strong correlation between the age of the fishing vessel and accidents resulting in serious injury and death. In the case of the new Blue North vessel and other new vessels, safety at sea is a primary consideration and motivation for new construction.

I would also like to thank you for the support in increasing the Fisheries Finance Program loan authority in the Senate CJS appropriations bill. Increasing the loan authority from $59 million to $100 million is a great start. However I would like to point out that even if the loan authority is raised, it is crucial that it ultimately be much higher, given the age of fishing vessels in the US and the need for new vessel construction and rebuilding to support safety, efficiency, increased utilization and global competitiveness.

I believe we make a strong case for the need and role of the federal government to provide low interest, long term loans and loan guarantees to support the replacement and rebuilding of the North Pacific fishing fleet.

Building these vessels in Washington State and Alaska will not only meet the needs of the fishing industry but will provide hundreds of jobs in shipyards and support industries and help make this region the nations leader in advanced shipbuilding and reconstruction.

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