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warned that the maritime industry experiencing continued decline. Dentl • who described himself as “alarm® over the slow pace being taken to rev ( the industry, said, “Our govern1*1 continues to follow a policy of permit11 ” the ongoing atrophy of industries so 1 portant to our defense.”
Final recommendations of the com11 sion were released in early 1989. .
On 29 February, Gaughan told a H0^
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By late November, after months inaction, commission chairman Dei11
appropriations subcommittee that Maritime Administration (MarAd) required to borrow $143 million from
The crisis in American commercial shipbuilding, which was so markedly highlighted by the delivery of the last U. S.-made oceangoing vessel to Sea- Land Service, Inc., in the waning days of 1987, continued unabated last year.
Again, not a single new American- made ship was ordered. Again, employment at the nation’s private shipyards fell. Again, shipbuilders looked to the Navy for work, an option that will become increasingly rare.
As a result, a frenzy of sorts developed within the maritime community over ways to craft a program to salvage the imperiled industry. While much was discussed, little was accomplished. For 1988 was the year that official Washington despaired over the discord between shipbuilders and ship owners, and between the government and the industry.
In separate, unusually blunt, assessments, John Gaughan, U. S. Maritime Administrator, and James H. Burnley IV, Secretary of Transportation in the Reagan administration, said they doubted reform, and therefore salvation, was possible, at least anytime soon.
Gaughan, reacting to a legislative initiative sponsored by the Shipbuilders’ Council of America, said in June: “You can’t link the fates of the two parts of the industry together with any hope of either surviving.” In August, while commenting about a court decision, Gaughan told the Journal of Commerce: “The industry will sue itself into oblivion.”
Later, in December, Burnley said infighting between the shipbuilders and the carriers threatened to doom the entire industry. “The shipbuilding industry is grimly determined to make sure that if they are going out of business, they’re going to take everyone else with them.”
U. S. Maritime
The year began with a major report by The President’s Commission on Merchant Marine and Defense, which urged President Reagan and Congress to take prompt action to resurrect the nation’s maritime industry. The commission, chaired by former Alabama Senator Jeremiah Denton, a Republican, recommended 25 January that:
► The President issue an executive order establishing a national maritime policy
► The half-century-old operating differential subsidy rules be rewritten and U. S. shipping lines be permitted to purchase vessels from any supplier, worldwide, and still qualify for subsidies
► An average of 12 vessels a year be built by the government at U. S. shipyards and then chartered to private U. S.- flag operators
► The shipment of all government cargo, both defense and non-defense goods, be moved in U. S.-flag ships. Currently, as much as 50% of the non-defense goods can be shipped in foreign-flag ships.
► The amount of foreign commerce carried in U. S.-flag ships be doubled by 1990. Currently, less than 4% of all foreign cargo handled at U. S. ports is shipped in vessels of U. S. registry.
► The Jones Act be extended to require the use of U. S.-flag tankers within the 200-nautical-mile limit. A study also be completed to assess whether to extend Jones Act protection to include all commercial shipping within the 200-mile limit and to the Virgin Islands. Currently, the Jones Act requires that a U. S.-flag ship be used to move passengers and goods between U. S. ports. All of the officers and 75% of the crew on U. S.-flag ships must be American citizens.
► Defense agencies improve the procurement of transportation services, and eliminate conflicting policies. Three task forces should be created to improve maritime, shipyard, and intermodal transportation efficiency.
The price tag for some of the commission’s initial proposals would have been hefty. The build-and-charter idea would cost an estimated $980 million annually. More expansive cargo preference rules also would raise costs. If all government- purchased cargo were shipped in U. S.- flag ships, an estimated 194 new vessels would be needed. The commission estimated the cost of the new ships and the more than 25,000 extra shipyard workers at $13.5 billion. In addition, shifting from cheaper foreign-flag ships would
increase total government shipP111^ charges by another $794 million.
Initially, the long-awaited recomm®11 dations were met with widespread praise- On 16 February, John Gaughan told ship ping executives in Seattle that reform the nation’s maritime policies was p°sS1 ble, if a consensus could be reached-
Just a few months later, the reaction were different. On 24 May, U. S. R®Pre sentative Robert W. Davis (R-MI) intN duced legislation at the request of ® Shipbuilders’ Council of America thJ would alter substantially a key comm'5 sion proposal. The bill would limit t ability of U. S. shipping lines to Purc*ia^ or build cheaper foreign vessels at for®1?( shipyards by requiring them to buy u build one American ship for each for®1- one a line acquires. .
By mid-June, Gaughan had said th® the hopes he had for passage of marim1 reform legislation were dimming. He a announced the Reagan administrati01’ ' opposition to the shipbuilders’ leg1* ( tion. And a few days earlier, at a ™ Coast conference, a number of marih experts and former government p011 [ makers were sharply critical of the c°nl mission’s report.
U. S. Treasury to cover losses from ■ faults on Title XI loans for tankers ® drilling rigs in the last fiscal year. H® a. . said that MarAd would spend $35 m1* to add seven more ships to the R®a ' Reserve fleet. By 1992, the admin1*1 tion projects that it will have 120 ves*^ in the fleet, up from 91 expected at
be8inning of fiscal 1989.
1 he Federal Maritime Commission got new chairman on 25 March with the jjPPointment of Elaine Chao, formerly Puty Maritime Administrator. Ms. a° replaced Edward V. Hickey, Jr.,
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fiag ships is sufficient. Between 1 and * January 1988, the 23? 6r U. S.-flag ships declined by ^ from 578 to 444. byr,,Cact'n" to improvements in the inland Juric t lndustry- MarAd agreed in mid-
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hied in January.
|, a report to U. S. Senator Ernest F. filings (D-SC), the General Accounting a. 'Ce (GAO) in April challenged the 0 ’'frustration's view that the U.S.- s,ned, foreign-flag ships could be requi- (he°neh in time of emergency to fulfill nation’s sealift demands during a con- lch The GAO concluded the MarAd °verlooking the “plain language” of lts aPplicable federal statute in asserting Co MarAd has long held that it
0 h take control of vessels, even those c ned by foreign subsidiaries of U. S. su ,i?an'es—the commonplace owners of lqC foreign-flag ships. The GAO said 0j.arAd was limited to taking possession c Vessels that were actually owned or ^ ntroUed by a U. S. citizen or by a U. S. 50c/°lat'on wh°se major officers and °f the stockholders are U. S. citi- it j*' The investigative agency also said o\v a .‘difficult task to determine if an en.ner is a foreign subsidiary or the par- company.
iri^ e findings seem to support claims ’he a ^ some >n the industry, including a k 'T--CIO Maritime Committee, that thc °ad definition of requisition inflates the nurnher of available ships and creates U ^Pression that the existing fleet of J," " '
ascr drop a key requirement for pur- tor„ . s repossessed barges. As a way etal .UCe e9uipment oversupply, the fed- a§ency had made each acquisition
conditional on the scrapping of a barge already owned by the purchaser. Deputy Maritime Administrator William A. Creelman told the Journal of Commerce the scrapping program, combined with increased demand for barges, had all but eliminated the overcapacity problem. With no oversupply, there was no need for the scrapping requirement, he said.
A federal judge in August found that the buying and selling of government rights to build ships abroad “threatened to erode the nation’s shipbuilding capacity.”
Faced with no federal subsidy loans for domestic shipbuilding, the Congress in 1981 permitted subsidized operators to apply for foreign building rights. Using the exemption, subsidized carriers could acquire a new ship from a low-priced supplier abroad, put it under the U. S. flag, and immediately begin carrying military or agricultural preference cargo. Normally, a re-flagged ship in U. S. registry would be required to wait three years before being eligible for preference cargo. In all, MarAd granted 36 such rights, but a total of 22 of those original, unused exemptions were sold again, sometimes to non-subsidized carriers.
U. S. District Court Judge Stanley Sporkin, in a case brought by Waterman Steamship Corporation against MarAd, said the “freewheeling” transfer of the foreign building rights amounted to “unabashed profiteering” and circumvented the law and thwarted the intent of Congress. Sporkin also ordered MarAd and the Department of Transportation not to permit Central Gulf Lines to use the rights, which the firm bought for $1.55 million in 1987 from the bankrupt United States Lines. In October, the Shipbuilders’ Council filed a similar suit against MarAd over the sale of rights to American President Lines, which built six con- tainerships overseas.
I’he 755-foot PFC. James Anderson, Jr., which Bethlehem Steel’s Sparrows Point, Maryland, shipyard lengthened by 157 feet, was delivered for use in the Navy’s Prepositioning Ship Program this spring.
Following the presidential election on 8 November, maritime experts began evaluating prospects for change in a Bush administration. During the campaign, candidate George Bush issued a policy statement that hinted on a possible end to the freeze on construction differential subsidies and the Title XI ship loan program. Further, Bush advisers said the then President-elect may consider encouraging construction and maintenance of an operational merchant fleet for sealift use rather than the continued buildup of the mothballed Ready Reserve fleet.
Finally, Bush promised a “comprehensive” review of the nation’s maritime programs. Despite the campaign rhetoric, most industry experts see few major shifts in policy from the Reagan years.
Shipyards
Soon after the new year began, the Shipbuilders’ Council of America took an aggressive stand on Sea-Land, Inc.’s, purchase of five ships from the bankrupt United States Lines. It was to be the beginning of an increasingly controversial year for the shipyard advocates.
In mid-February, John Stocker, president of the council, which represents the nation’s private shipbuilding companies, told MarAd that Sea-Land’s $80 million purchase appeared “highly questionable.” At issue was the use of funds from a tax-deferred capital construction account established by Sea-Land in 1970 to finance the purchase of ships from U. S. shipyards, in 1980, the Senate Armed Services Committee placed restrictions on the account following the Navy’s purchase of eight SL-7 containerships from Sea-Land. The provision seemed to make the purchase of U. S. Lines’ ships improper, the council said. MarAd had no immediate reaction.
On 11 January, National Steel and Shipbuilding Company restricted the scope of a federal investigation into safety violations at its San Diego shipyard. The Occupational Safety and Health Administration (OSHA) had sought a shipyard-wide probe after an investigation of a fatal accident disclosed that safety problems exist at the yard. On 10 July 1987, six men were killed and another six injured when a personnel carrier broke loose from a crane and fell 30 feet onto a Navy ship. In March 1988,
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“■lowing the wider probe, OSHA cited National for 110 safety violations and ^ggested a fine of $72,300. Earlier, the “deral agency had cited National for 19 ',|°lations and imposed fines of $62,800 °r the fatal accident. The shipbuilder Untested many of allegations.
In May, OSHA investigators were a“k at National trying to determine why a 22-ton propeller shaft for the USS El- °tt (DD-967) broke loose, injuring nine °rkers, one of them critically.
Maritime Administrator Gaughan told j^ritime executives in Washington in ne that foreign subsidies to foreign jj'Pyards were undermining the ability of ' shipbuilders to compete in the 0rld market. He said he planned to ask e Europeans to halt commercial ship- ard subsidies as the United States has °"e since 1981.
c 17 June, the Navy renegotiated a ^ ntract with Pennsylvania Shipbuilding j/'nipany of suburban Philadelphia for r fleet oilers. The revised contract in- the total price the Navy would
'Pyard in New Orleans. The agreement iti*S CraAec! after Pennsylvania Shipbuild- disclosed to the Navy that it had c ‘y underestimated the expenses of Nav t*le ^our ships. The firm told the ^ °ii'c'als that if it had to complete nja "°ntract as first awarded, Pennsylva- Shipbuilding would go bankrupt. Beat ,n Ittrte and September employment . e yard dropped by 225. k“ild°re t*lan blue-collar ship-
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’as l . *“*•<■ uaiue in ivew rorx auue, ^'iop111*1 Ingalls Shipbuilding Corpo- ln Pascagoula, Mississippi.
“il iSs ePtember, the Shipbuilders’ Coun- °f sh[Uec* Yet another report on the status Not sf c°nstruction in the United States. eHce n^"'singly, it found that depend- n the Navy is growing. In 1978,
Navy work, both construction and repair, accounted for 56% of all work at U. S. yards. By 1 January, such government work was 89% of total business. Actual employment in the nation’s private yards fell from 155,000 in 1978 to 109,200 currently.
The Bath Iron Works in Maine and OSHA reached agreement on 17 October in the biggest safety case brought by federal safety inspectors against a U. S. shipyard. On 4 November 1987, OSHA proposed fines totaling $4.2 million against Bath for endangering thousands of workers, including exposing some of them to asbestos and raw sewage. After a six-month investigation, the federal agency found a “complete breakdown in the shipbuilder’s safety and health program.” OSHA cited the firm for 3,200 separate violations.
In its October agreement, OSHA reduced the fine to $650,000 in return for Bath correcting all outstanding violations by April 1989 and dropping its legal challenge of the initial inspection and fine.
Also in October, the Shipbuilders’ Council released its United States Shipyard Recovery Program for the 1990s, which envisions a return to profitability though government concessions in the short-term and entrance into the world marketplace in later years. The council wants a government commitment to build six to ten commercial ships for private charter, increased productivity, and continued cargo preference for U. S.-flag ships. At the same time, the shipbuilders would lobby Washington in an attempt to end foreign government subsidies to foreign shipyards. John Stocker, Council president, told the Journal of Commerce that his organization would file a formal complaint against German shipyard subsidies, probably in early 1989.
The General Accounting Office reported in late October that the Coast Guard’s decision to close its shipyard in Baltimore by 1993 was flawed. The agency said the Coast Guard, in estimating savings from the shutdown, had failed to consider less expensive options for upgrading the yard and did not support its contention that the cost of work at commercial yards would be the same as the cost of work at its own shipbuilding facility. The GAO said Coast Guard officials were reworking the estimates and updating the shutdown plan.
On 28 November, the Shipbuilder’s Council sent a letter to the Commission on Base Realignment and Closure, urging the panel to close at least two Navy- owned shipyards. The private shipyards said the closures would produce significant savings for the government. For
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In late May at the South Carolina
be worth dropping. Ruhly said the
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Mormac Marine Group, Inc.. Stamford, Connecticut, U. S.-flag
rier, asked MarAd for permission^ begin operating foreign-flag vess° ^ Mormac’s application, made public 0 June, seeks to acquire or charter 1 tankers for the next eight years. The *• which operates three small tankers ua
in the early 1980s.
Sea-Land, spurred by the rapid g1
some time now, as the public yards have modernized, the Navy has become a more aggressive competitor and has underbid the private yards on government contracts. Reducing the number of Navy yards would reduce such competition. The commission did not recommend that a single Navy shipyard be closed.
During a December hearing in Long Beach, the Commission on Merchant Marine and Defense was told that legislation requiring that 30% of all U. S. bulk imports be moved in U. S.-flag ships would be an unfair burden on importers because of the high extra costs involved. A representative of the American Petroleum Institute said such a requirement might help the nation’s shipyards, but would have a depressing effect on other sectors of the U. S. economy.
Steamship Lines
In an effort to skirt political and industry opposition, Sea-Land, the only U. S.- flag carrier not receiving financial operating subsidies from MarAd, proposed in mid-year a complex corporate restructuring to secure those lucrative subsidies for between 12 and 24 of its vessels. While unsuccessful, the proposal was an attempt to overcome the Reagan administration’s opposition to new subsidy contracts as well as Sea-Land’s failure to convince Congress to overhaul the subsidy system, which is designed to offset the higher costs of American crews.
On 6 July, the formation of the Great Atlantic & Pacific Shipping Corporation was announced. A&P Shipping, which was described as largely the creation of Sea-Land, was to acquire all the stock of Waterman Marine Corporation and Farrell Lines, Inc. Then a subsidiary would lease and operate 24 of Sea-Land’s new-
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☆☆☆☆☆☆☆☆☆☆☆☆ est ships, chartering those ships back to Sea-Land, which would market its services. In theory, A&P Shipping, which was said not to be directly controlled by Sea-Land, would be eligible for MarAd subsidies because it had acquired transatlantic subsidy rights from Waterman and Farrell. The new firm also was discussing acquiring subsidy rights from Lykes Brothers Steamship Company for the transpacific trades. The arrangement needed approval from MarAd, the Department of Transportation, and the Justice Department.
In late September, after months of discussions, the deal collapsed. During that time, it had been attacked by other U. S.- flag carriers, principally American President Lines. Further, it had not attracted much support from Congress. Efforts to revamp the subsidy system for Sea-Land and other U. S. lines now await a different initiative, which may not come soon.
In early February, Sea-Land purchased the 12 jumbo containerships once owned by United States Lines (USL) and idled by the USL bankruptcy in November 1986. The ships, which cost $47.5 million each to build in the early 1980s, were bought from a consortium of banks for an estimated $12 million each. Sea-Land put the ships, dubbed the Econoships by USL, on its transatlantic routes servicing northern Europe and the Mediterranean. The ships are being used by Sea-Land in a space-chartering arrangement with Trans Freight Lines and Nedlloyd Lines.
Between early February and late March, the price of a share of common stock of American President Companies, whose shipping line is one of the two largest U. S.-flag carriers, rose nearly 40%. The reason: the well-known shipper was thought to be a takeover target. Analysts said the company’s cash flow and profitability made it a lucrative candidate for a buyout. In filings with the Securities and Exchange Commission in August, Itel Corporation, a Chicago equipment lessor, disclosed it had increased its stake in American President Companies to 21.5% of the company.
On 7 April, the Military Sealift Command (MSC) accepted proposals for the charter of at least seven ships for 17 months with two options to renew for two additional 17-month periods. While the request for proposal seemed straightforward enough, one provision of the solicitation touched off considerable controversy. The MSC was permitting owners of foreign-built ships to submit bids, as long as the ships were redocumented as U. S.-flag vessels. Critics noted that less expensive foreign-built ships gave carriers an unfair advantage in seeking the
government business. As many as 14 f°r' eign-built ships were offered for charter In May, Navieras de Puerto Rico, government line that once was awash >IJ red ink and foundering amid widespr®a inefficiency, reported its first quarter1) profit in 12 years. The line made $4l million during the third quarter of its *lS cal year, which ends 30 June. Compan) executives expected to make $5 mill‘°n for the year and $10 million in 1988. ThL turnaround was engineered beginning 1,1 1984. "
On 13 May, U. S. District Court Jud?® Harold H. Greene issued a preliminaP injunction against the Military Seah Command for violating provisions ot recent treaty with Iceland in the bidd1^ of a contract to move military goods ^ Iceland. According to the treaty. 1 MSC was to reserve 65% of the cargo 1° the low bidder from either Iceland or1 United States. The remaining 35% g°e* to the lowest bidder from the other coUa try. MSC decided to split the bidding ^ two parts, seeking low bids for first oj of the charter and then for the other 3- ’ Judge Greene’s injunction was just first action he took against the MSC November, he sided with Rainbow Na gation Company, a one-ship carrier I brought the suit, and ordered the MSL abide by the 1987 treaty.
national Trade Conference in Chariest0 Alfred B. Ruhly, president of MaeXi Inc., the Danish carrier, said the con tj ence system for setting ocean rates
ferences, which have antitrust imnMFL in establishing rates, have difficUl maintaining price integrity. His PrC. , ence would be to allow free enterprl rather than agreement, to set rates.
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federal subsidy, said it needed 1° j lower-cost foreign-flag vessels beca11 ^ was impossible to compete in the 'v0,r,r- wide market with U. S.-flag ships- mac’s parent company once Moore McCormack Lines, the veneran,;? shipping line sold to United States L"
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of shipping in Southeast Asia, dedo ^d June to double its port calls in Tha1^, and create a new cargo hub in SingaP According to the Journal of Cornme' Port Import-Export Reporting SefV
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h September, McLean Industries, which owned U. S. Lines and filed
bankruptcy protection from its credi- a in 1986, reported that its sharehold
firm
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H,r "• Also, the port’s executive director a Catened to resign if the idea was Li fted. Seaton said American President pjs Would not make Oakland its first all °f call unless emphasis was continu- I4 Put on the port’s future as a port. By rtp() ecember, a separate consultant’s Witf had been completed that agreed tnc fe real estate plans of the seven- °er Oakland Port Commission.
CrJ^fghliglits %
'he volume of goods imported from SingaPore to the United States jumped 26.3% during the first three months of 1988 ''hen compared to the same period of y87. Sea-Land expects its own business there to more than triple to about 250,000 '0-foot container units a year.
Del Monte Tropical Fruit Company ^ck an agreement in mid-August with a °lombian company to fill the cargo sPace on its six new, Spanish-built refrig- Crated ships. Del Monte will move bana- "as from Colombia and Costa Rica to ,ree East Coast ports—Wilmington, elaware; Charleston, South Carolina; ar|d Tampa, Florida. Del Monte also or- ured three more ships from the Spanish d'Pyard. The six vessels are to be deliv- red in 1989.
Inc.
deficit totaled $231.2 million. The also reported losses of $51.9 million (. Avenues of $7 million for 1987. Confuting to the loss was a $50.9 million r'te-down of its investment in a non, bt°r subsidiary, which owns resorts in . southern states. In its plan of reorga- fation, filed on 5 July, the firm ex- °d founder Malcolm McLean from ^ Ure ownership in the company. Fur- the bankruptcy plan said the firm n* retain the U. S. Lines name, but will .,’l he involved in maritime business in lhe future.
ft mid-October,
ding Corporation agreed to purchase y frrnan Marine Corporation of New q rk- The deal was to be approved 24 tober by the boards of the two firms. A f ase price of $34 million was set. c^.n 16 November, W. B. Seaton, njc lrman 0f American President Company ?’ ar>d nine other tenants of the Port of Sj0 and warned against political intru- at the port. Seaton and the others n1jse. reacting to a plan by the port comes, Sl0ners to give new emphasis to real rC(j e development, a prospect that could Ce land available for port develop? nt- Also reatened
3 January, the world’s largest cruise ship, the 74,000-ton Sovereign of the Seas, sailed into Miami on her first trip to a U. S. port. The vessel made her maiden voyage on 16 January after being christened by former First Lady Rosalynn Carter. She and her husband were passengers on the voyage to the Caribbean. On 19 January, the ship was trapped in San Juan Harbor after the grounding of a containership closed the harbor.
On 16 April, the Philadelphia Inquirer reported that a secret provision in the Tax Reform Act of 1986 gave an $8 million tax break to the investors of the SS Monterey, the luxury liner that was rebuilt to cruise the Hawaiian Islands.
According to the newspaper, the tax break was authorized to entice investors to complete the $47 million refurbishment. The tax break to 150 individuals and companies permitted investors to take an investment tax credit and accelerated depreciation outlawed to all others when the tax code was rewritten in 1986. Neither the ship nor the investment company was mentioned by name in the special legislation permitting the tax break, the Inquirer said.
A settlement agreed to in late August with the Puyallup Indians of Washington State clears the way for a major expansion of the Port of Tacoma. The settlement, which was called the largest ever awarded to an Indian tribe, gave the Puyallups $162 million as compensation to give up land claims at the port. Ultimately, port officials want to use the land they now control to expand the Sea-Land container terminal, deepen its shipping channel, and build several new container terminals.
On 16 December, the U. S. Coast Guard deliberately sank a ship, the Wishing Star, without the owner’s permission. The sinking was ordered after the Coast Guard feared the ship, which had caught on fire, would leak 11,000 gallons of fuel oil.
The owners of the luxury liner United States, which has been rusting in Norfolk Harbor for the last 20 years, were told in late December to move the ship. In her heyday, the United States was well known for her lavish elegance and speed. In 1952, the vessel crossed the Atlantic in just over three days, a record that still stands. The eviction order, which was to be enforced in early 1989, arose over a dispute about unpaid berthing fees and over the port’s need to make room for commercial shipping.
Mr. Asher is an editor with the Philadelphia Inquirer and was that newspaper’s maritime writer for more than two years.
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