OPEC’s Recurring Can C-TPAT Global Shipbuilding Nightmare 20 Be Fixed? 28 Report 32

May/June 2017

Class Survey 86

BRIAN

Founder & CEO, Eastern Shipbuilding Group 52 MAREX CASE STUDY: EASTERN SHIPBUILDING GROUP

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MAREX CASE STUDY: EASTERN SHIPBUILDING GROUP “We’ve Got You Covered”

FOR MORE THAN 40 YEARS EASTERN HAS BUILT A REPUTATION FOR QUALITY THE OLD-FASHIONED WAY – BY EARNING IT.

BY TONY MUNOZ

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AST SEPTEMBER THE U.S. COAST GUARD award- ed the biggest and most important contract in its 226 -year history to a company that had never done work for it before – Eastern Shipbuilding of Panama City, Florida. It was a stunning coup for a company that was well-re- garded but relatively unknown.

And it couldn’t have come at a better time. The offshore market – Eastern’s bread-and-butter business – was collapsing, and ship- yards up and down the Gulf Coast were starving for work. Eastern wasn’t starving – it had diversified many years before – but founder and CEO Brian D’Isernia nonetheless calls the contract a “godsend.” It will keep the company busy for the next twenty years if all goes according to plan. The $10.5 billion award calls for the design and construction of twenty-five 360-foot offshore patrol cutters (OPCs) at a cost of $420 million per vessel. They will replace the Coast Guard’s aging 210-foot and 270-foot Medium Endurance Cutters, which have long outlived their usefulness, and will feature all the latest bells and whistles: increased range, a more powerful VITAL STATISTICS: and sophisticated weapons system, larger flight deck and state-of- Founded 1984 the-art computers, surveillance and reconnaissance equipment, and HQ Miami command-and-control communications. Employees 5,000+ The contract was in many ways the culmination of a dream – Countries 190 and of a lifetime devoted to honesty and hard work. “Pluck and Revenue $27 billion (2016) luck,” as the old saying goes, but in D’Isernia’s case it was a lot Net Income $127 million (2016) more pluck – having the courage to bid on a contract of that size Fuel products 50+ Fuel volume 1 million+ barrels/day and the track record to back it up – than any luck that may have been involved.

FINDING HIS CALLING Born in the Bronx to an Irish mother and Italian father, D’Isernia was raised a Catholic and educated by Ursuline nuns, Irish Chris- tian brothers and the Jesuits. He earned a Bachelor’s degree from Georgetown University and a Juris Doctor from Fordham Law School and, having passed the New York State bar exam, joined his father’s firm. But he soon found the law wasn’t for him. He had already been bitten by the offshore bug, having learned to sail at an early age, and so off to sea he went. He crewed on a New England dragger out of Gloucester, Massachusetts and within a few years started his own commercial fishing company sailing out of New Bedford. In 1974 he began swordfishing off the Florida Panhandle and was introduced to a Panama City fish dealer named Jerry Cook, who two years later leased him an acre of waterfront land where D’Isernia – having

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learned the hard way about the poor quality of local shipyards – began building his own boats. One of those boats was the fishing vesselAndrea Gail, launched in 1977 originally for D’Isernia’s own fleet and captained by Ken Munroe, Eastern’s current COO. Twenty years later it was depicted in Sebastian Junger’s bestseller, The Perfect Storm. When Warner Bros. turned the book into a hit movie of the same name in 2000, it bought the Andrea Gail’s sister vessel, the Eastern-built Lady Grace, to star in the film, which depicted the vessel working in the North Atlantic off the Grand Banks when it was caught in the 100-foot waves of the “perfect storm” of October 31, 1991.

BUILDING THE BUSINESS Over the last forty years the company has constructed more than 350 steel and aluminum vessels at its two Panama City shipyards. Since 2008 it has invested more than $75 million, including $4.5 million in shipyard grants from the Maritime Administration, in infrastructure improvements to its production and fabrication facilities. The result is a state-of-the-art shipyard that utilizes both conventional assembly methods and modular construction to produce a wide variety of custom-made vessels. Today it is recognized worldwide for its innovative techniques, quality construction, and on-time and on-budget deliveries. While it built its early reputation on high-end fishing boats, owners of offshore supply vessels and tugs soon came calling, lured by the company’s reputation for quality and value. Before long it was building all kinds of mid-tonnage vessels, including articulated tug-and-barge units, inland towboats, high-speed passenger ferries, fireboats, research vessels, and dredges and barges. Competing in the trenches against foreign and domestic competition in a tough financial marketplace is not only about survival, it’s about building a reputation. Over the last fifteen years Eastern has an enviable record of delivering its vessels on-time and on-budget. Most of the vessels ranged from 80 to 433 feet in length, and many involved a level of complexity comparable to the Coast Guard’s offshore patrol cutters. D’Isernia believes this track record was instrumental in winning the OPC contract. The investment in infrastructure has modernized Eastern’s facilities into what many consider the best yards in the nation. The Allanton Road facility sits on 300 acres with multiple launchways of 1,500 linear feet and more than 6,000 feet of waterfront leading out to the Gulf of Mexico. A 60,000-square-foot building houses steel-fabrication equipment, shot-blasting and painting machines, three ten-ton overhead cranes, a plasma plate-burning machine, two 500-ton apron press brakes and fourteen crawler cranes with up to 660 tons of capacity. It also has a 58,580-square-foot warehouse that includes elec- trical, pipe and carpenter shops along with sandblasting and paint facilities. A 7,000-square-foot office building houses the engineer- ing, project management, purchasing, safety, quality assurance and control departments. The Nelson Street Shipyard is home to the corporate offices and sits on 24 acres with more than 2,000 feet of waterfront. Adjacent to the yard is a six-acre fabrication facility where most of the mod-

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ular work is done. It has a 23,400-square-foot machine shop and a 17,000-square-foot warehouse with concrete fab platens. There are six crawler cranes with up to 300-ton capacity, two marine railways, over 900 linear feet of steel-bulkheaded, side-launch capability, and ship- ping and receiving buildings.

GAME CHANGER Winning the contract for the offshore patrol cutter, which will become the backbone of the Coast Guard’s presence on the high seas, meant that Eastern had to compete against some of the nation’s largest and most experienced government contractors. It was a game changer for Eastern, and D’Isernia believes their construction will set a new standard in government contracting. “We’ve competed in the commercial market for all of our exis- tence,” he says, “and it’s made our company lean and efficient. That’s probably the main reason for our winning the OPC contract.” D’Isernia and his staff are currently working with naval architects in the U.K. to finalize the cutter’s design, which is based on a Vard prototype used in the construction of similar vessels for the Irish navy. First steel is expected to be cut next year. The design phase of the contract is valued at $110 million. East- ern’s contract is for nine cutters with an option for two additional ves- sels. There will then be a second round of bidding for the remaining 14 vessels, which Eastern is expected to win, assuming all goes well with the initial construction. The new construction will mean at least 1,000 new jobs and provide a major boost to the local Bay County economy.

MAN FOR ALL SEASONS D’Isernia calls his company a consummate family business. He has been married to his wife, Mimi, for 45 years, and all of their ten children have at one time or another worked for the yard. Today, his son Joey is President and has been at the yard for fourteen years in numerous capacities. At age 73, D’Isernia still works six days a week and sometimes seven. “I’m a shipbuilder,” he says. “That’s what I do.” When D’Isernia left the law to become a longline fisherman, he found his calling. When he became a shipbuilder, he found out how to make a living by doing something he was passionate about. Asked what his favorite vessel was, he replied that it was the first boat he ever built, an 88-foot fishing boat named theMary D in honor of his mother. While visiting the Essex Shipbuilding Museum in Massachu- setts in 1997, D’Isernia discovered the original plans of noted naval architect W. Starling Burgess for the famous 141-foot wooden fishing schooner Columbia, which challenged Canada’s champion schooner Bluenose in 1923 in the International Fishermen’s Cup Races off Hali- fax, Nova Scotia. Narrowly losing but giving promise of a great future, Columbia was tragically lost in a 1927 hurricane along with her entire crew. Four Canadian schooners were also lost during the storm and a total of 125 fishermen died. Thirty-seven years later, on August 24, 2014, D’Isernia launched an exact steel replica of Columbia, built under his watchful eye at his own yard. With family, employees, dignitaries and guests in attendance,

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Columbia was christened by Mimi. This Octo- ber, D’Isernia will be presented with the Nation- al Maritime Historical Society’s Distinguished Service Award at a banquet in New York City in recognition of his outstanding contributions to the maritime industry and for preserving America’s maritime heritage in the form of the newly resur- rected Columbia. MarEx

TONY MUNOZ is Publisher & Editor-in-Chief of The Maritime Executive.

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BRIAN D’ISERNIA FOUNDER & CEO, EASTERN SHIPBUILDING GROUP

YOURS HAS BEEN A UNIQUE JOURNEY – FROM LAW SCHOOL TO FOUNDER OF A COMMERCIAL FISHING FLEET TO FOUNDER AND CEO OF A MAJOR SHIPYARD. HOW DID ALL THAT HAPPEN? I guess life is funny, huh? I went to law school and graduated in 1968 and was admitted to the bar in the state of New York, and since then I drove a taxi, worked construction in the Caribbean for a couple of years and became a commercial longline fisherman. I bought a couple of boats and started a fishing fleet, decided to build a boat, had one built and thought I could do a better job. So I started a shipyard to build two more boats, and that’s kind of how it all started.

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D’ISERNIA LIVES BY OLD-SCHOOL VALUES LIKE HONESTY, HARD WORK AND PERSEVERANCE. HIS FAMILY, HIS COMPANY – AND A RECENT $10.5 BILLION CONTRACT FROM THE U.S. COAST GUARD – ARE TESTIMONY TO HIS SUCCESS. BY TONY MUNOZ

SO WHEN YOU CAME OUT OF LAW SCHOOL YOU DIDN’T JOIN A FIRM RIGHT AWAY? I worked with my dad for a while – he had his own firm – and then decided I would rather work on my own problems than other people’s problems. So I went my own way. AND WHERE DID THAT LEAD? Offshore. Longline fishing. My family had a sailboat. I learned to sail as a kid. I met some fishermen along the way, out of Gloucester actually, became friendly with them. They invited me out for a trip or two on a New England dragger and, boy, I fell in love with it. Even to this day, my eight years as a commercial

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So I decided, “Heck, I’ll just build them myself.” I leased an acre of waterfront land from Cook’s Fish Company for $1,000 a year and hired a total of 10 people, including a fore- man who had just quit his job in another yard. We went out and bought four welding machines, and we were in business.

fisherman were probably one of the better things I’ve done in my and we’ve built numerous vessels for Harvey Gulf. We work hard! life, excluding marrying my wife of 45 years. WHAT’S THE LARGEST VESSEL YOU’VE BUILT THUS FAR? IS THAT WHEN YOU CAME TO FLORIDA? Well, I’m looking out my window now at a 433-foot, double-trail- Yes. We came to the Florida Panhandle in 1974 and were the third ing suction hopper dredge we built, launched and are outfitting Northeastern company down here swordfishing. There were two for Great Lakes Dredge and Dock, and she’s an ATB dredge. She’s other fishermen from New England who had come down in the serviced by a 150-foot, 15,000-horsepower ATB tug that locks into 1960s, and they had some successful fishing seasons in the Gulf the stern notch of the dredge. So overall that tug will overhang and told me, “You know, there’s an honest fish dealer we met in the dredge by 100 feet and it’s really a 533-foot, 15,000 horsepower Panama City named Jerry Cook, Cook’s Fish Company.” So we ATB tug-and-barge with another 10,000 horsepower just to run the 14 took our fish – guess where? – to Cook’s Fish Company, and those pumps. That’s a sizable vessel. I’m also looking out my window at two fishermen were right. That’s how we came to Panama City and two 340-foot subsea construction vessels that we’re finishing up for I never really left. I’m still here. an oilfield customer, Harvey Gulf. OKAY, BUT YOU WERE A FISHERMAN THEN. HOW DID YOU GET HOW MANY EMPLOYEES ARE THERE? INTO SHIPBUILDING? At our peak, building oilfield vessels a couple of years ago, we were I’ll tell you how it happened. It just evolved. We came down here at about 1,800 people. We’re down now to about 1,000 because with two small fishing boats – wooden boats. There was an 80- there’s no new construction going on in the offshore market. We’ll foot, steel fishing boat under construction here in Panama City. be hiring more people soon because we’re in the two-year, detailed The buyer cancelled out and I was able to buy that vessel, but the design phase of the offshore patrol cutters’ (OPC) contract and in shipyard that worked on it was fairly slow and late and we missed another 18 months we’ll be cutting steel and hiring people for the our season. construction phase. We had to finish that boat ourselves, and she did fairly well and OKAY, TELL US ABOUT THE COAST GUARD CONTRACT. IT’S I had financing from a New England bank to build two more boats. YOUR FIRST FORAY INTO THE GOVERNMENT SECTOR AND So I decided, “Heck, I’ll just build them myself.” I leased an acre of IT’S THE BIGGEST CONTRACT IN COAST GUARD HISTORY. IT waterfront land from Cook’s Fish Company for $1,000 a year and ALSO SEEMS LIKE THE CULMINATION OF YOUR LIFE’S WORK. hired a total of 10 people, including a foreman who had just quit his HOW DID YOU DO IT? job in another yard. We went out and bought four welding ma- I think we won the OPC contract with, number one, a good pro- chines, and we were in business. That’s how it started, and the first posal and, number two, a vessel that was judged to be technically two vessels we built were for me. superior. And, of course, our price was attractive. We listened to WHY THE NAME “EASTERN SHIPBUILDING”? the Coast Guard, and their watchword was and is “affordability.” I guess because we fished out of the Northeast and just settled on And in that regard we have built a solid record over the years of the term “Eastern,” and it stuck. constructing quality vessels and delivering them on time and on HOW DID THE COMPANY EVOLVE FROM ITS ORIGINAL FOCUS budget. I think the Coast Guard liked that. ON FISHING BOATS TO A BROAD RANGE OF VESSEL TYPES? I also think the OPC contract may introduce a new concept in It all just came about by customer demand. We started building government contracting. Eastern has competed in the commercial fishing boats and graduated into tugs, barges, ferries, oilfield market for its entire existence and it’s made our company lean and vessels. Since those first two vessels I built for myself we’ve built ap- efficient, which is probably the main factor in our winning the OPC proximately 350 vessels. Lately we delivered 12 vessels to Hornbeck contract. We haven’t been exposed to the bureaucracy and high Offshore on schedule. We built five PSVs for a company in Brazil, overhead associated with the larger, Tier 1 defense yards.

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We’ll be hiring more people soon because we’re in the two-year, detailed design phase of the offshore patrol cutters’ (OPC) contract and in another 18 months we’ll be cutting steel and hiring people for the construction phase.

WAS THE COAST GUARD AWARD THE STIMULUS FOR OPENING A Well, I kind of view Eastern as the quintessential family business. WASHINGTON OFFICE EARLY THIS YEAR AND APPOINTING FOR- I have 10 children, as you know. Six sons and four daughters. All MER COAST GUARD COMMANDANT ROBERT PAPP AS ITS HEAD? 10 have worked at the yard at one time or another. In fact, my We’ll be dealing with the federal government, mainly the U.S. six sons are all employed here and doing a darn good job. We’ve Coast Guard, for years to come, and that’s the reason for setting recently made my son Joey the President of the company, and I’m up our Washington office. While we have complete confidence proud of all my children who work here. They are truly contribut- in our ability to build the offshore patrol cutters for the Coast ing to our success. Guard, taking on our first major government contract is much WHAT’S YOUR BIGGEST CHALLENGE RIGHT NOW? like the master of a ship entering a foreign port for the first Bridging the gap between building mostly oilfield vessels to time: A wise captain takes on a pilot to guide him, and that’s building the offshore patrol cutters. All the yards on the Gulf Coast 15 why we’ve opened our Washington office and are working with are suffering from the collapse of the offshore market. We recently Admiral Papp. won a contract for three new Staten Island ferries, and that will THE OFFSHORE MARKET HAS TRADITIONALLY BEEN YOUR BIG- help get us through until we begin the construction phase of the GEST. HOW DO YOU SEE IT TODAY? OPC contract. It’s a very, very, very tough market. I don’t have a crystal ball, and WHERE DO YOU SEE THE COMPANY IN FIVE YEARS? I don’t know how truthful crystal balls turn out to be, but it’s a Just remaining a thriving, honest and value-driven commercial tough market and it’s going to remain tough for a few years. Thank and government shipyard. goodness we’ve delivered all the Hornbeck boats and the Harvey WHY HAS EASTERN BEEN SO SUCCESSFUL, IN BOTH GOOD Gulf boats are almost complete. And thank goodness we diversi- TIMES AND BAD? fied into other types of vessels. We’re building diversified vessels I don’t know. I think a lot of it is attributable to hard work and now and thank God for the U.S. Coast Guard Offshore Patrol perseverance. We’ve lived through a number of dramatic cycles Cutter contract. and we’re in a big one now – the downcycle in the oil patch – and CAN YOU TELL US ABOUT ANNUAL REVENUES? we just have to do our best and persevere. We have a cadre of Well, I guess that’s between me, my accountant and the IRS, but long-term employees and management people, and I place a lot of let’s just say we’ve grown substantially. value and trust in them. It also helps that we’re diversified and have ARE YOU THE SOLE OWNER OF THE BUSINESS? experience in a wide range of vessels. Yes. DO YOU HAVE ANY PLANS TO RETIRE? “WE’VE GOT YOU COVERED” IS THE COMPANY’S PHILOSOPHY IN No. I’m a shipbuilder. It’s in my blood. A NUTSHELL. DID YOU CHOOSE IT, AND WHAT DOES IT MEAN? WHAT LESSONS CAN OTHERS LEARN FROM YOUR EXAMPLE? It was a collective idea, and it means our focus is on – guess who? – I don’t know if I’m qualified to lecture on that, but I think the age- the customer. Whatever we can do to help them, we do. old formula of hard work and perseverance counts for a heck of a WHAT’S BEEN YOUR FAVORITE PROJECT OVER THE YEARS? lot. So do honesty and putting the customer first, putting quality That’s a tough one. I guess I’d have to say my very first vessel, an first. They don’t just apply to shipbuilding. They apply to all busi- 88-foot fishing boat I named after my mother, the Mary D. That’s nesses. And I happen to have the luxury of an understanding wife probably my favorite vessel. and a good family. Put them all together. FAMILY IS VERY IMPORTANT TO YOU, AND EASTERN IS VERY ANY LAST WORDS FOR OUR READERS? MUCH A FAMILY COMPANY. TELL US ABOUT THE BLEND OF Yes, “Semper Paratus”! FAMILY AND BUSINESS. MarEx

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