want to take bohai train ferry from Dalian to Yantai. USA folks still need police permit for Lushun?

Yes, you are required to obtain special permission from the local Police Bureau for entry to Lushun in advance of your visit.

Thanks Frank - I assume police permit required even for transit to ferry terminal.
Have you done this? If so, what sort of lead time should I allow?

You do need to apply for a China transit visa even if just for a transit to ferry terminal. A transit in China by ship is very different from that by air. Your permitted duration in China will be granted by the China Embassy in your country according to the documents you provided.