By Bob Rust, Oslo

published: 23 July 2004

Hard fighting for military contract

Top name US-flag players are gunning for one of the US government's richest contracts.

Commercial shipowners are fighting hard to win one of the two most lucrative shipping contracts the US government has to hand out, with the winner securing business worth hundreds of millions of dollars.

Commercial players including Horizon Lines, Crowley Maritime and Matson Navigation are joining the regular contenders in a bid to operate up to 11 large, medium-speed ro-ros (LMSRs) for the US Defense Department for five years.

Boxship owner Horizon is thought to be especially keen to expand in the government contracting market ( see sidebar ).

The value of the US Military Sealift Command (MSC) LMSR tender is hard to estimate but must be well into nine figures. An eight-ship, five-year LMSR contract awarded to Maersk Lines Ltd (MLL) in 2002 is worth up to $400m. However, the present ships are "surge" tonnage that will probably spend some time in reduced operating status as US troops withdraw from Iraq. The MLL ships are pre-positioned and always fully crewed.

Only New Jersey-based Horizon and the incumbent, California's Patriot Contract Services, have acknowledged to TradeWinds that they are bidding. But the tender to operate 11 LMSRs is believed to have attracted a number of commercial vessel operators besides the usual government specialists.

TradeWinds understands that final bids were to be submitted yesterday by MLL, Horizon, Patriot, Crowley Maritime, Keystone Shipping, American Overseas Marine (Amsea), Trinity Marine and Meridian. The list probably also includes Pacific Gulf Marine and Osprey Ship Management.

The last two companies manage large foreign operators' US-flag ro-ro fleets and do extensive government work.

Maryland-based Osprey manages ships for APL's American Automar. Louisiana-based Pacific Gulf's fleet includes five car carriers owned by Wallenius Wilhelmsen's US-flag unit, American Roll-On Roll-Off Carrier.

Massachusset-based AmSea, a pure government contractor, is the shipmanagement subsidiary of General Dynamics and a sister company to San Diego's Nassco Shipyard. Some of the lesser-known players are taking advantage of a provision that sets aside two of the LMSRs for small businesses. These include Seattle-based Meridian and Portsmouth, Virginia-based Trinity Marine.

But Philadelphia's Keystone Shipping, although well-established both as a commercial operator and a government contractor, is also said to qualify for the small-business set-asides.

Oakland-based Crowley may be bidding under two separate business units, Marine Transport Lines and Intrepid Ship Management. This could be in an effort to operate all 11 ships including the set-asides.

However, Crowley is more likely to be aiming to exploit its status as a "double-breasted" operator that is, one that has collective bargaining agreements with different sets of unions and can thus quote different labour costs on the two different bids. Other companies are constrained to quote the same labour costs as competitors whose fleets are organised by the same unions.

West Coast eyebrows have been raised at Matson's interest in entering what would be a virtually new sector. The Hawaii specialist has not operated ships for the government since the Vietnam War.

Patriot chief operating officer Sandy Jones and Horizon Lines marine-services director Michael Bohlman both tell TradeWinds their companies are bidding for nine ships only.

Besides the vessels now up for grabs, Patriot operates two ready-reserve ships for MarAd plus 11 US-flag containerships for Singapore-based APL under the name American Ship Management. The LMSRs are thought to constitute between 40% and 50% of the private company's business.

Jones is optimistic about keeping the work.

"We have four years of exceptional ratings from MSC," he told TradeWinds. "We know what it really costs to run the ships."

He acknowleges that a well-motivated but poorly advised competitor could underbid Patriot but points out that price is not the only criterion and that the contract is so large that bidders cannot afford to be cut-throat.

"This is not the type of contract you take as a loss leader," he said.

Not all of the companies said to be bidding could be reached by TradeWinds' press time.