Liberty Maritime: A Different Kind of Company

U.S.-based Liberty is one of the world’s largest shippers of food and humanitarian aid to those in need. It has a thriving commercial business too. 

It’s all in the name. When Philip Shapiro founded the company in 1988 with the backing of the Schnitzer family from Portland, Oregon, they decided to call it Liberty. After all, it was an American company flying the U.S. flag, and what could be more appropriate? Its primary cargo was P.L. 480 food aid, so it made sense from all sorts of angles. The company was delivering liberty – “freedom from want” – in the form of food to those most in need. Today, all of its owned ships have the word “liberty” in their name as a reminder of its original – and still, to a large extent – mission.  

Background 

Shapiro took an unlikely route to a career in the shipping industry. Ironically, he grew up not far from the U.S. Merchant Marine Academy in Kings Point, New York. He received his undergraduate degree from Columbia University in 1974 and his Juris Doctor from Hofstra University Law School in 1978. He then was hired by a New York City law firm which represented, among others, Apex Marine, then owned by Captain Leo Berger, a giant in U.S. shipping and, at the time, the largest private owner of U.S.-flag tankers. 

 Shapiro did some legal work on the Apex account and had impressed Berger with the quality of his legal work, not to mention his energy and intellect. In 1980, Berger offered him the position of Vice President and General Counsel of Apex. He was by then familiar with vessel operations and had spent a lot of time with Berger in Washington, DC on U.S.-flag policy issues. 

Shapiro became a consummate maritime executive. He handled ship construction and conversion contracts under the Merchant Marine Act and Title XI programs, became involved with chartering and operations issues, sold two tankers to the U.S. Navy which were then converted to the USNS Mercy and USNS Comfort hospital ships, and was deeply involved in industry issues including the 1985 cargo preference compromise legislation, which increased the percentage of U.S.-flag carriage of P.L. 480 commodities to 75 percent. 

The Buyout 

In another twist of fate, one of Berger’s partners in some of Apex’s ships was the Schnitzer family, and Shapiro had the opportunity to spend time with brothers Leonard and Gilbert Schnitzer. By then – 1986 – Berger had built five new U.S.-flag Panamax bulk carriers in South Korea under Section 615 of the Merchant Marine Act. Section 615 was a program that permitted subsidized U.S.-flag carriers to build new vessels overseas to make up for the defunding of the construction differential subsidy (CDS) program by the Reagan Administration. Looking to retirement and being concerned that political threats to cargo preference might jeopardize his new investment, Berger began thinking of selling the bulk carriers.   

Shapiro, who was just 33 years old, started looking for financing to buy Apex’s dry bulk fleet. In the end, he teamed up with the Schnitzers to buy the Apex bulk carriers, and Liberty Shipping Group LLC and Liberty Maritime Corporation were set up to own and operate the five U.S.-flag bulk carriers and a 90,000 DWT tanker. 

American Entrepreneur   

The ships purchased from Apex were very involved in the P.L. 480 Food for Peace program, reducing the cost of U.S.-flag transportation dramatically and eventually easing the political pressure to eliminate preference as rates dropped over 50 percent. Over the next eleven years Shapiro recognized that the food aid trade was beginning to change from the shipment of large parcels with only one load and discharge port to smaller parcels with multiple load and discharge ports as African nations were now emerging as the major recipients of U.S. food aid assistance.   

Shapiro and his executive team thought that smaller-sized bulk carriers in the 50,000 DWT-range with large-capacity cranes to discharge in undeveloped ports would be more efficient than Liberty’s current Panamax vessels. However, there did not appear to be a way in which to build those vessels in the U.S. for a commercially viable price.  

Utilizing his legal experience from Apex, Shapiro knew there were still three unused Section 615 permissions. He made a deal to acquire them and, after gaining the necessary government approvals, began rebuilding the Liberty fleet. In 1999 he contracted for two Supramax bulk carriers – the Liberty Glory and Liberty Grace – which were delivered in 2001. That same year the company declared an option for the third ship, Liberty Eagle, which was delivered in 2004 and could carry ammunition cargoes. 

In 2004 Shapiro established Liberty Global Logistics LLC (LGL) to handle the growing intermodal business for large and specialty cargoes. LGL transports commercial, military, project and other cargoes to and from the U.S. and Mediterranean and Middle East ports. Its fleet includes three modern Roll-On/Roll-Off (RO/RO) Pure Car Truck Carriers (PCTC) designed specifically for transporting automobiles and trucks. The company has a joint venture with United Parcel Service, which functions as the air component of Liberty’s multimodal business under a contract with the U.S. Transportation Command. LGL’s PCTCs, like the Liberty dry bulk carriers, are all committed to the Department of Defense through the Voluntary Intermodal Sealift Program (VISA). 

The LGL business model was fundamentally built around the Maritime Security Program (MSP) concept of commercial viability. LGL’s diverse cargo base enabled the company to operate in the commercial market and also service the U.S. government’s cargo needs. LGL is an innovator in the logistics business and has expanded beyond ocean carriage to multimodal logistics including air freight, truck and rail service. 

Shapiro is particularly proud of the role LGL has played in support of military operations in Iraq and Afghanistan where it has had many “firsts.” LGL operated the first U.S.-flag vessel carrying military cargo directly to Umm Qasr in Iraq in 2006, was the first carrier to take retrograde cargo from Iraq and Afghanistan directly to U.S. depots, and transported both the first and the 10,000th Mine Resistant Ambush Protection (MRAP) vehicles by sea to the war zone. 

Putting a Stamp on Maritime Policy 

Throughout his career Shapiro has been deeply involved with U.S. maritime policy. He has been a recognized spokesperson for the industry at numerous congressional hearings and was one of four industry representatives selected to serve on Secretary of Transportation Federico Pena’s Working Group on Maritime Reform. As a result of this group’s efforts, MSP was enacted in 1996 to maintain the American fleet and provide sealift capacity to the U.S. military. Today, MSP supports 60 militarily useful ships at an annual cost of just $186 million. 

Shapiro established LGL to participate in the MSP program as he saw the trend emerging to create U.S.-flag capacity with an increased military utility. But in 2012 Congress guaranteed 60 MSP contracts to existing participants until 2025. Today, LGL has only the M/V Prestige New York in the program. In 2013 Shapiro unsuccessfully challenged the “grandfathering” of all 60 MSP agreements to 2025 because it froze the program in place without regard to vessel mix or the citizenship of vessel owners. Shapiro believes that grandfathering all existing operators without competition was not good for the program.  

The company built the M/V Liberty Pride and M/V Liberty Promise in 2009 and 2010 in South Korea to meet MSP requirements in response to TRANSCOM’s request for more RO/RO vessels. Although ideal for the program, the ships are not enrolled – in large measure, according to Shapiro, as a result of the grandfathering and notwithstanding that they are newer and more modern than most of the RO/RO vessels that were grandfathered.  

Changing Times for the U.S.-Flag Fleet ;

Liberty operates its ships in the international markets, but they are also dependent on U.S. government business. The current drawdown of the conflicts in Iraq and Afghanistan has been reducing cargoes for many U.S. operators, including Liberty. Meanwhile, P.L. 480 has been under attack by the Obama Administration and non-governmental organizations. The Administration has reduced food-aid funding by $1 billion since taking office in 2009 and increased the cash transfer program to over $300 million. Now the Administration wants to convert the entire program to cash instead of sending U.S. commodities abroad. 

Shapiro says the Administration’s proposed changes would end the U.S.-flag carriage of food aid and all of the ships and jobs that go with it. He argues that “P.L. 480 has been the most successful humanitarian feeding program in the world for the last 57 years and supports over 44,000 domestic jobs from farmers to dock-side workers and merchant mariners. This program provides the U.S. government with both sealift capacity and a marine manpower base which is available to the military in times of national emergency, both of which are crucial to the Defense Department’s overseas projection and logistical reach.”  

He says that calling the conversion to cash “reform” is a misnomer and there is no empirical evidence to support the U.S. Agency for International Development’s (USAID) claims that it could feed significantly more people by sending cash abroad instead of food. He insists that USAID’s use of tax dollars to purchase other nations’ agricultural products is irresponsible and will be far less effective than delivering American-grown commodities. He points out that USAID has an abysmal record overseeing cash programs, as documented by the GAO. 

 He adds that the U.S. government needs a long-term national maritime strategy to define its priorities and ensure its capabilities. It should also address a number of issues, including tort law reform, as insurance costs for U.S. companies are extremely high. He says that a national labor board, similar to a workman’s compensation board, should be considered to oversee payments for seamen’s injuries. He adds that the U.S. should consider exempting U.S.-flag crews sailing abroad from federal income tax, just like other U.S. citizen expatriates working overseas.   

Ensuring the Future 

Over the last 25 years Liberty has grown dramatically and become well-established. Shapiro says his talented management team – a blend of seasoned maritime professionals and younger talent – is capable of ensuring its future. If necessary, its U.S.-flag fleet can always be reflagged and prosper in international markets. In the interim, he and his team have diversified Liberty’s business model yet again with the introduction of four new 82,000 DWT Kamsarmax foreign-flag bulk carriers delivered in 2012 and 2013. Further growth and diversification are in the works, and the company will continue to provide first-class service to all of its customers in every market it serves.  

Shapiro plans to maintain his high industry profile and to speak out on the importance of the U.S. Merchant Marine, cargo preference, food aid and MSP. And why not? He has spent a career promoting the U.S.-flag maritime industry, and his company has been – and will continue to be – a key player in the process. 

Tony Munoz is Publisher and Editor-in-Chief of The Maritime Executive.