[Interview] Anthony Chiarello, President & CEO, TOTE, Inc.

By Audra Kincaid

Tell us about your background.

AC: I’m in my thirty-fifth year in the maritime and logistics industry, and I’m actually fourth generation in the shipping business in Italy and the U.S. A little less than half that time was with A.P. Møller-Maersk, where I held various executive roles. I was also with NYK Logistics running the Central and South American logistics business. I’ve been with TOTE since August, 2010.

TOTE is an unusual name.  What does it stand for?

AC: The first acquisition by the Saltchuk organization was a company called Totem Ocean Trailer Express. That was thirty-two years ago, and that’s where the TOTE acronym came from. When I joined what is today TOTE, Inc., the parent company was named American Shipping Group. The decision was made to leverage the TOTE brand, which was well known not only in the Alaskan Trade but the Jones Act trades in general, and to use that as our parent company name.

OK, what is Saltchuk?

AC: Saltchuk is a family-owned holding company based in Seattle, WA. There are five operating divisions, soon to be six with the pending acquisitions of Tropical Shipping. TOTE is one. In addition we have Foss Maritime, a tug-and-barge business; Interstate, a nationwide trucking business; Northern Air Cargo, our air cargo division; and North Star vs Delta Western, our fuel distribution group. Tropical will become a sixth operating division, which will be international shipping and logistics, whereas TOTE is domestic shipping and logistics.

The new Marlin Class vessels have been hailed as the dawn of a new age in U.S. maritime history and no less significant than the evolution from sail to steam. Why do you believe LNG-powered vessels are the future of shipping?

AC: To answer that we need to go back a little bit to see what caused TOTE to make the decision to support LNG as our fuel of the future. It started with the Totem Ocean Trailer Express service, which is our twice-weekly service from Tacoma, WA to Alaska. This service sails its entire three-and-a-half  days within what’s referred to as an ECA zone, an emissions control area, which has very strict requirements regarding sulfur burn, NOX burn and the like. In order to meet those requirements there were a few options. One was to go with scrubber technology, which one of the international carriers uses while in the ECA zone. However, we determined that wasn’t the best option for a ship that’s going to be in the ECA zone constantly. So we looked at alternative fuel sources and quickly decided that LNG was not only the cleanest burning fuel available for today’s environmental requirements but for tomorrow’s as well. And we’re converting the Alaska service – the two Orca ships – to run on LNG.

When we decided to go forward and build new vessels for the Puerto Rico service, we had enough knowledge relative to LNG to know that it was the right solution. We already knew that LNG is used in various services in Scandinavia with very positive results. We believe the only reason LNG isn’t more widespread today around the globe is due to supply limitations. When you’re in domestic trades like we are with just two ports of call in both services, getting supply is much easier than it is for somebody running ships globally.

Do you think shipping companies will be moving toward LNG-powered vessels?

AC: I absolutely do, and the determining factor as to how quickly that will happen will be how quickly an LNG supply network is available around the globe. One thing to keep in mind is that there are two options with LNG. You can go with either LNG-burning engines exclusively or you can go to dual-fuel engines, which is what we’re doing with the conversion of the Orcas and the Marlin newbuildings. So if at any time LNG supply became an issue we could switch over and burn normal bunker fuel. That’s not what you want to do, but the availability is there in case you need it.

The two new vessels have a capital cost of $350 million. Is the Puerto Rico trade really worth that investment?

AC: When we announced the signing of the contract in December of 2012, we used a figure of approximately $350 million, but that also includes certain facility improvements and equipment acquisitions to support the ships because they are a significantly different configuration than a normal container ship. About half the cargo capacity of these vessels will be 53-foot trailers or intermodal containers, so some of that $350 million includes new equipment.

But yes, it’s a very significant investment. We have been in the Puerto Rico service since the late 1990s. It is an island nation that requires consumables to be shipped to them. We believe it is the right investment to support the people and the economy of Puerto Rico. And we want to do this with the most environmentally friendly and advanced shipping technology that’s available. We are very bullish on this investment and believe it’s the right thing to do.

What tonnage will the Marlin Class ships be replacing?

AC: We run two ships per week today, and they are 34 years old. Their approximate capacity is 1,200 TEUs based on a combination of 20-, 40- and 45-footers. The new vessels are 3,100 TEUs, so not quite three times but certainly more than two-and-a-half times existing capacity.

When will the new vessels enter service?

AC: We expect delivery of the first vessel late next year and the second shortly thereafter.

What are their ports of call?

AC: Jacksonville, Florida and San Juan, Puerto Rico. There will be two ships a week transporting back and forth between those two ports.

Tell us more about the Orca conversions.

AC: As I mentioned earlier, we spent a number of years looking at how to meet the pending ECA requirements, and that led us to LNG, and we had hoped to convert the existing engines of the Orca ships. But there weren’t conversion kits available for the existing engines, and the manufacturer determined that the engineering required to construct conversion kits would be too costly. So we decided to go with another provider, Wärtsillä, and they will be constructing and installing new dual-fuel engines into the Orcas. The first ship will be converted in the winter of 2015-2016 and the second in the winter of 2016-2017.  

Is TOTE concerned about the availability of LNG fuel?

AC: If you asked me that question six months ago I probably would have said yes. Now we’re not concerned because over the last few months we finalized agreements for LNG supply in both Jacksonville and Tacoma. Both areas have solutions which work, and now it’s just a matter of constructing the LNG supply facilities.

Last year you were honored with the Vincent T. Hirsch Award from the Navy League of the United States. Can you tell us about that?

AC: I was extremely honored and humbled. I’m a Brooklyn kid who grew up in a shipping family, so to have the opportunities that I’ve had and to be honored by such a well-respected organization made me somewhat speechless, to be honest with you. The Hirsch Award is named for a patron of the merchant marine and a former President of the Navy League. It’s given to organizations (and the individuals responsible for those organizations) to honor their commitment to the U.S.-flag fleet and the security and economic prosperity it provides to the United States. It recognizes our efforts to support the growth of the U.S.-flag industry and the Jones Act, the jobs that they provide, and the availability of our assets in times of war.

Any final thoughts for our readers?

AC: I guess the only comment I would share is that, although there continues to be those out there who question the value of the Jones Act, we’re no different than any other major power around the world. There are cabotage laws in most countries and certainly all the developed nations. The Jones Act provides basic protection for our nation. It’s homeland security. It’s knowing that trade is flowing from port to port within our own coast lines and that cargo is carried on vessels that are owned by, constructed by, and crewed by U.S. citizens. The Navy has come out many times in support of the Jones Act because healthy shipyards constructing both commercial and military vessels is good for everybody.

Having spent most of my career on the international side of the business, I had no trouble understanding the value cabotage laws create. So when I hear people going against the Jones Act it makes me scratch my head a bit. If people took the emotion out of it and just looked at what it provides us as a nation and the protections it gives and how we’re no different than any other nation around the globe, I think a lot of the naysayers would think otherwise. – MarEx

Audra Kincaid is a MarEx correspondent.