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

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

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

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