however minimal it may be, and to whatever extent that we can, in legislation, that that's the route we have to go.

But we have taken it up again and again and again, and frustratingly again, with only sporadic success as evidenced in the movement of Public Law 480 cargos when the bidding procedures have been properly followed.

Admiral HOFFMAN. I just want to sort of emphasize that most all significant cargo-preference legislation was passed before the Seaway was ever opened, and although there have been ad hoc changes and attempts to correct the situation, it never has really resulted-and there's no question about it, that some of the railroads operate, particularly the Eastern railroads, operate in noncompensatory rates, handling grain in particular, not just the Public Law 480 cargos, but any type of export movement of grain. Mr. SEIFERT. While we're on this topic of intermodal movements, you held out hope that the special subsidy provision might improve the lot of the Great Lakes as a shipper of export goods and away from the Canadian diversion. I think that was the gain which you felt would be made.

Isn't it by way of favorable intermodal rates being carried on the Canadian railway system that the Canadian diversion really becomes effective?

Admiral HOFFMAN. It certainly is one of the major factors.

By the way, I want to correct one comment. When I was talking about the Canadian diversion I mentioned the value of $560 million annually. That is correct, but I also said 500 million tons of cargo, and I should have said 500,000 tons of cargo, with a $560 million cargo. Now, that's all containerized, of course.

Mr. SEIFERT. Why is it of interest to you as port officials that your ports be served particularly by U.S.-flag vessels?

Admiral HOFFMAN. Well, I think first of all-

Mr. SEIFERT. I would assume I'm asking the right question. Now, you may say it's not important to you to be served by U.S.-flag vessels.

Do you want to answer that one first?

Admiral HOFFMAN. I would like to answer first that we're all Americans and we have a little bias, I think, to see our own flag there.

Mr. SEIFERT. No, commercially.

Admiral HOFFMAN. I've been a military man all my life, and I get a little concerned when I see Soviet ships come in there with beautiful rollon/rolloff and they're delivering tractors. That's an exaggeration a little bit, but it is a concern to me. I just feel that if we had American-flag service in there that our overall operations could be improved significantly. It is very difficult to deal with socialist governments, particularly in getting any type of a change. For the most part they don't have the authority to make the change themselves and we have to go through a prolonged period. We are continually trying to get some type of agreement on a particular rate for a particular commodity and it takes a long time to negotiate it.

I believe if we had equitable subsidy that recognizes the incumbrances of the lakes, that we could get the American-flag service in there and that it would be an overall benefit, not only to the

economy of our country but to the national defense. Don't forget, the merchant marine is equally important in seapower as the Navy itself is.

Mr. OBERSTAR. I guess we're looking for not only an overall but a net increase, not just the shifting of cargo from one flag to another, but legislation that will generate an increase in cargo.

Admiral HOFFMAN. Yes, sir.

Mr. SEIFERT. I would gather, then, based upon that little colloquy, that the rail problem is the most significant one in improving the lot of the ports?

Admiral HOFFMAN. Very significant.

Mr. HELBERG. Mr. Chairman, I would just add, speaking strictly for myself, that sure, I want to see an American flag in there as much as anyone else does. The first thing I want to do is make sure we don't lose enormous amounts of cargo, should the 4040.20 provision of the bill be enacted into law, without adequate U.S.-flag service coming in to carry that cargo.

I'm not going to say I'm not wholly and totally patriotic, but I'm also qualifying it by saying I don't want to lose that cargo for the Great Lakes, and to that extent, if the U.S.-flag ships aren't able to carry it, then let's hope that something can be done to enable that cargo to move through the Great Lakes by whatever other flag might be available.

Mr. SEIFERT. That was the exception that you called for in the testimony, at the beginning of your statement?

Mr. HELBERG. Yes, sir.

Mr. SEIFERT. Just one final question, gentlemen.

Your exhibit A seems to indicate that in the decade starting with 1970, the entire decade, you have a fall off in U.S.-flag carriers, both to Duluth and Milwaukee, as compared to the decade prior to that.

Is it possible that it coincides with the demise of the break bulk ship as the major vehicle for U.S.-flag carriers, and the fact that they couldn't efficiently carry into the ports using higher efficiency or high technology vessels?

Mr. HELBERG. I hestitate to say this, but it is the unvarnished truth, that those ships we have had since 1970, strictly in the Port of Duluth, you will see since 1970 through October of this year we had had 11, including 7 in 1978. Of those seven that we had in 1978, four were very good ships, operated by a liner service, carrying general cargo, and the ships were very good. The other three were trampers, tramp bulkers.

The two we have had so far this year in Duluth included, mind you, an extended T-2 tanker-you know, an old timer which had been mothballed I understand for some time. But because the grain demand is so great this year, it was pulled out of storage somewhere out of the shipyard and pressed into service. She was not something that I would hold out proudly as a symbol of our American merchant marine.

There was a second ship that was there for some time, and also was of the Nina-Pinta-Santa Maria vintage. Those were the two we have had so far this year. They were a disgrace, in many cases, to the American flag.

Now, that's 11 ships since 1970. You'll see a series of goose eggs in there, you see. Milwaukee faired a little bit better, but they also had 3 years of being shut out.

But even in the sixties, with the exception of the general cargo ships we call them at our port, in that time, those ships that were engaged in other trades, which are essentially tramp traders, were already running into operational problems and falling into a sad state of repair.

Mr. OBERSTAR. Does Minority Counsel have any questions?

All right. If there are no other questions, I want to thank you very much for a very useful contribution to the committee's work on this massive piece of legislation, a far-reaching bill that I think will do great things for the American merchant marine in the years to come.

The hearing is adjourned, subject to further call of the Chair. [Whereupon, at 1:25 p.m., the subcommittee was adjourned subject to further call of the Chair.]

OMNIBUS MARITIME BILL

TUESDAY, NOVEMBER 27, 1979

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON MERCHANT MARINE,

COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D.C.

The subcommittee met, pursuant to notice, at 2:26 p.m., in room 1334, Longworth House Office Building, Hon. John M. Murphy (chairman of the subcommittee) presiding.

Present: Representative John M. Murphy.

Staff present: Carl Perian, Gerry Seifert, Peter Kyros, Larry O'Brien, Jack Sands, Steven Little, and Elizabeth A. Coker.

The CHAIRMAN. The subcommittee will please come to order. This afternoon, we continue hearings on H.R. 4769, a bill to revitalize maritime policy, reorganize certain Government agencies and reform regulation of maritime affairs in the United States. We have had 17 days of hearings so far, and several hundred witnesses, and I think we are probably coming to the conclusion of a relatively long road, and it is a great pleasure that the committee hears this afternoon from Mr. Will Kluss, the chairman of the American Petroleum Institute Central Committee on Transportation by Water.

Welcome to the committee, Mr. Kluss.

STATEMENT OF WILL KLUSS, VICE PRESIDENT OF CONOCO, INC., AND CHAIRMAN OF THE AMERICAN PETROLEUM INSTITUTE'S CENTRAL COMMITTEE ON TRANSPORTATION BY WATER, ACCOMPANIED BY TOM WYMAN, MANAGER, MARITIME RELATIONS FOR CHEVRON SHIPPING AND ROBERT BASSETT, SENIOR VICE PRESIDENT OF INTEROCEAN MANAGEMENT CORP.

Mr. KLUSS. Mr. Chairman, my name is Will Kluss. I am vice president of Conoco, Inc., for marine, and chairman of the American Petroleum Institute Central Committee on Transportation by Water. With me today is Mr. Tom Wyman of Chevron and Mr. Bob Bassett of Interocean Management Corp.

First, I would like to say on a personal note that I am very grateful for the accommodation the committee has shown for conflicts in my personal travel schedule, and I am very pleased to be here.

We have a couple of minor amendments in the written testimony which we filed with you. On page 3 of the testimony we said that the President's objective was to reduce imports to 42 million barrels a day by 1985. That should be 1990. În appendix 2, page 2 of the attachment, we said that the increased U.S.-flag tonnage re

quired was approximately 35 million deadweight to take us to 40 percent U.S.-flag coverage. That should, in fact, be 24 million deadweight.

Now, we have filed written testimony. I do have a somewhat shortened version which I would like to give orally, if that is agreeable with you, Mr. Chairman. In our testimony today, we will make a number of points.

First, any move to expand the U.S.-flag tanker fleet must be viewed from a worldwide as well as a domestic perspective.

Second, this Nation must determine the size and composition of the merchant fleet required for national security and other national interests and evaluate the costs associated with this fleet against other programs competing for limited Federal moneys.

Third, the stated goals of 40 percent U.S.-flag participation in all trades within 5 years is arbitrary and ill-conceived. Its attainment would be excessively costly and create a demand for experienced mariners that would far exceed the ability of this Nation to crew the vessels.

Fourth, bilateral trade agreements in the bulk trades are inefficient and would create upward pressures on existing freight costs. Fifth, the existing subsidy system with some modification is the most appropriate method for providing support for and encouraging expansion of the U.S. merchant fleet.

Sixth, reflagging of foreign-flag vessels should only be considered after taking into account the existing surplus in the world fleet and desired domestic shipbuilding capability.

In considering our national needs for additional U.S.-flag tanker tonnage, we must take into account that at the present time there is a substantial surplus of tanker tonnage worldwide which has existed since 1973 and is generally projected to last well into the mid-1980's.

In addition, the future volume of the U.S. import of oil is surrounded with a multitude of uncertainties both political and economic, international, and domestic. Since we can anticipate that the construction and operation of U.S.-flag vessels will continue to involve costly premiums, any move to expand the U.S.-flag fleet must be predicated on clearly defined national needs. Development of a domestic fleet in excess of that which can be fully justified in terms of such needs would represent a misallocation of national resources of steel, energy, manpower, and money. With the urgent priorities which face our Nation now, we can no more afford such misdirection of effort than we can, for example, afford to expand our military forces beyond the point actually required for national defense nor by the same token can we afford to spend less than what is actually required.

There is no rationale offered in the bill for the 40 percent socalled fair share of commercial cargoes which it is deemed U.S.-flag vessels should transport. In view of the major national commitment and heavy costs which would be involved, API cannot support any merchant fleet expansion program tied to arbitrarily established fleet size objectives.

Consequently, we urge that the efforts of this committee be directed at providing a basis for determining what this Nation needs in the way of a maritime fleet, including size, types, and