Mr. KYROS. Yes.

Mr. ARWOOD. Again, I am not qualified to answer that. I have not gotten a quotation lately but my estimate would be in excess of $55 to $60 million.

Mr. KYROS. So $17 million versus $55 to $60 million.

Mr. ARWOOD. That is correct.

Mr. KYROS. Even if a U.S. ship were built with 50 percent CDS, at $60 million that would still mean a $30 million ship; is that correct?

Mr. ARWOOD. That is correct.

Mr. KYROS. So your capital costs would be almost one-half times as much as the American vessel?

Mr. ARWOOD. For the American-built vessel?

Mr. KYROS. Yes.

Mr. ARWOOD. Yes.

Mr. KYROS. How about hull insurance, will that differ?

Mr. ARWOOD. It shouldn't.

Mr. KYROS. P. & I?

Mr. ARWOOD. On P. & I. but the straight hull you are insuring value-and there is a relationship to the dollar value.

Mr. KYROS. If the American vessel must be repaired in American shipyards, doesn't that mean the hull insurance would be higher? Mr. ARWOOD. It does in that regard, yes.

Mr. KYROS. What I am trying to suggest is instead of competition or superb management it is a case when you get a discrete capital unit out there where you have low costs you can cut rates under everyone.

Mr. ARWOOD. No. That is a simplistic overview, sir. You have not dealt at all with the fact that the national carriers in this trade such as the German, the English, the Belgian, each have their own economics of shipbuilding, ship manning, and they differ and are always substantially less than the United States whether or not in the same ratio you have analyzed others, again I won't comment specifically but they are certainly lower.

The fact that our shipbuilding industry on the one hand and our ship manning industry on the other hand has an extremely high cost factor for worldwide competition is an overall factor of economics that we must deal with, but I think you found even from the testimony of Sea-Land, who have built only foreign for the last of their new buildings, have all been foreign because they have been unable even with construction subsidy to come out with a capital cost that would make them still competitive.

These are rather substantial problems. It is not just our own individual base that has put us where we are.

Mr. KYROS. One more point, in these days of exploding fuel prices, you have a diesel, whereas, most American liners utilize steam turbine. Does that mean higher fuel costs?

Mr. ARWOOD. Yes.

Mr. KYROS. My suggestion to you then is an independent carrier like yourself situated in our trades has a comparative advantage. Mr. ARWOOD. I will concede that our costs are lower than our U.S.-flag competitors and put us at a competitive advantage from that standpoint.

Mr. KYROS. One of the problems in the U.S. trade is overtonnage-excess ships chasing less cargo-is that your experience? Mr. ARWOOD. Yes.

Mr. KYROS. That results in a rate competition that is very fierce. It might also force American carriers not to operate to a capacity that they can make a profit on. Isn't that entirely possible?

Mr. ARWOOD. If pooling is agreed to by an existing group of "haves" and the trade then shrinks or does not grow to their expectations, that is inevitable. You are talking about a fixed allocation of a specifically limited total market and their market share might well be below.

Mr. KYROS. In your testimony you said at one point an interesting thing, in effect this bill would allow these carriers to operate almost in a search and kill operation by getting together as very powerful conferences and selectively cutting out the independents. Isn't that what you suggest?

Mr. ARWOOD. That is my concern; yes, sir.

Mr. KYROS. But isn't that exactly the essence? We want some tough balance between conference carriers and independents so there will be rate competition out there.

Mr. ARWOOD. I think you perhaps are overlooking the fact that you might be killing the independent, denying his right to first emerge, because the inevitable will-for potential businessman— will be written in his understanding of the way the conference will treat him and for an existing one such as ourself it spells to us an opportunity for conferences to do just as we say, to take turns putting us down.

Mr. KYROS. Have the independents been killed in all the foreignto-foreign trades of your knowledge now?

Mr. ARWOOD. In the sophisticated trades, in the containerization trades, foreign to foreign, most of the trades are under very strong conferences, in some cases closed conferences, and there are basically independents that emerged to compete against those conferences but their demise has been fairly rapid.

Mr. KYROS. Our figures indicate anywhere from 5 to 20 percent of all foreign-to-foreign trades are carried by independents. Do you have anything to dispute that?

Mr. ARWOOD. Are you talking about foreign-to-foreign as an adjunct to U.S. trade?

Mr. KYROS. No, sir. I am talking about regular operation, Europe to Africa, Europe to the Middle East-foreign-to-foreign trades. Mr. ARWOOD. I think your figures are perhaps dealing again with total cargo. You know the cargo should be separated.

Mr. KYROS. I am talking about liner cargo.

Mr. ARWOOD. I would think it is probably correct. That is a wide range, 5 to 20 percent.

Mr. KYROS. So the foreign-to-foreign closed conferences have not destroyed the independents. It is just this constant tension of maintaining balance. As the independents lower rates and keep the conference on its toes?

Mr. ARWOOD. There is nothing wrong with your logic there. Mr. KYROS. Have you heard any concerted group of shippers from Europe complain about high freight rates and the rates

having an impact on their ability to conduct international commerce?

Mr. ARWOOD. Yes, we have.

Mr. KYROS. Where is that group?

Mr. ARWOOD. We have a specific group in Scandinavia that has publicly stated that failure of conference carriers to both meet with them and to discuss their needs for cargo would drive them more into the hands of independents-and to our credit we were named specifically-such as Trans Freight Lines.

Mr. KYROS. Do you have Soviet competition in the North Atlantic?

Mr. ARWOOD. Yes.

Mr. KYROS. How do you feel the pressure of that competition, if at all?

Mr. ARWOOD. We started well after them and we quickly surpassed them in total liftings.

Mr. KYROS. Do they have rates lower than yours?

Mr. ARWOOD. Yes.

Mr. KYROS. How is that possible?

Mr. ARWOOD. How is it possible they have rates lower than me? Their rates may not be based on a commercial reality. They may not have to account for profitability. I do.

Mr. KYROS. You say that you do not favor the idea of shippers councils?

Mr. ARWOOD. I just say we don't think that they are an absolute necessity. We are not violently opposed to them. We can live with them. But what we would not like to see is another bureaucratic structure set up. Shippers councils formed for the purpose of discussing collective needs can certainly be beneficial to strong confer

ences.

Mr. KYROS. The purpose was to diminish, not augment, FMC's authority and regulation. However, I might point out to you, we have studied the Australian experience and we have seen the formation of their shippers councils and we thought it was quite a successful operation.

Mr. ARWOOD. Sir, may I ask, are you familiar with the fact that in the European to Australian trade there has emerged very recently an extremely strong independent who has tied together contractual movement of bulk cargoes with the lifting of container cargoes and as an adjunct to semi around the world service has become a substantial factor in the Europe to Australian trade-this was in the last 7 or 8 months-to the consternation of the entire Australian shipping public?

Mr. KYROS. Who is that?

Mr. ARWOOD. That carrier is called ABC Container. They are a Belgian flag carrier.

Mr. KYROS. Would you supply to the committee the name of that Scandinavian group of shippers?

Mr. ARWOOD. I would be happy. [The information follows:]

COMMITTEE ON MERCHANT Marine and FISHERIES,
U.S. House of Representatives,

Longworth Office Building, Washington, D.C.

TRANS FREIGHT LINES, INC., Secaucus, N.J., January 11, 1980.

As you might recall, during his testimony before the Subcommittee on Merchant Marine on December 3, 1979, Mr. John R. Arwood mentioned a group of Scandinavian shippers who have complained publicly about the impact of high freight rates on their ability to conduct international commerce. His statement was a response to your direct questioning in this vein, at which point you requested specific information as support.

To that end, you will find attached a translation from the Swedish Magazine, Transport & Handling, No. 5, 1979 which describes problems in this area.

I hope we have satisfied your request, but if you need additional information, we will be happy to oblige.

Very truly yours,

PATRICIA DEMETRIO,
Manager, Advertising
and Public Relations.

N. SCHIOTT & HOCHBRANDT

(Translation of an article in the Swedish magazine Transport and Handling No. 5, 1979)

It is only a blind when Conference carriers on the North Atlantic motivate their hesitation to contact shippers referring to American laws, rules and regulations. They simply do not want any discussion with the shippers' organisations.

This torrent was fired against the Continental North Atlantic Westbound Freight Conference by European Shippers' Council. By mid May ESC was still without answers to questions put to the chairman of the Conference on 30th January. Shippers may express wishes and put questions and have answers without violating American law, states and ESC.

Therefore, the Liner Committee now feels further let down since the Conference has not reacted. The missing answers are looked upon as a confirmation of the former impression that the North Atlantic Conference will not negotiate with the ESC using the U.S. laws as an excuse to evade answering.

The chairman of the Swedish Shippers' Council, Mr. Erik Olsson is a member of the Liner Committee: The criticism is even levelled against the Conference covering the Scandinavian traffic Scan Baltic/U.S. North Atlantic Westbound Freight Conference, states Mr. Olsson to TH.

Within the ESC we consider taking up discussions with the outsider lines instead-as in fact there are many cleverly managed lines today such as Trans Freight Lines. What else can we do when the Conferences hide themselves away.

Mr. MURPHY. Mr. Arwood, you made a point in your prepared statement that most of the carriers in the North Atlantic in the last 25 years are not operating under the original ownership or corporate structure that they were 25 years ago. Is that correct? Mr. ARWOOD. Yes.

Mr. MURPHY. Why?

Mr. ARWOOD. Why did I make that comment?

Mr. MURPHY. Yes.

Mr. ARWOOD. I am merely trying to point out the current law is not all bad. All of us came out of it in some form. Only the two carriers have a history that precedes containerization as we know it today. All the rest by either creation or by merger have evolved out of the existing law so if we all came to where we are out of the present law, why scrap the whole law?

Mr. MURPHY. Do you think your rate structure is a truly compensatory rate structure that would allow you to amortize your vessels and rebuild and continue to serve the trades you serve?

Mr. ARWOOD. We are absolutely certain of that. We are making a very acceptable profit in the trade.

Mr. MURPHY. We have had the opinion expressed that no company flying the American flag has been able to operate under a rate structure that would permit them to reamortize and rebuild and still return a fair rate of profit. I think Sea-Land's latest statement on the requirement for subsidy bears that fact out.

Mr. ARWOOD. Mr. Chairman, is that with U.S. building as a requirement? Was that a precept?

Mr. MURPHY. Yes. That is with U.S. building. Even with a subsidy which has the taxpayer picking up 50 cents on the dollar. Mr. ARWOOD. I am not familiar with Sea-Land's operating ratios currently. The fact that they have always built foreign in the past I think is perhaps the biggest proof-their new buildings have all been foreign. They have done some U.S. conversion, they have bought some existing U.S. tonnage and converted with mid-bodies in U.S. yards.

But I am talking about new, modern shipbuilding. It has all been foreign.

Mr. MURPHY. Mr. Anderson.

Mr. ANDERSON. Nothing.

Mr. MURPHY. Thank you, Mr. Arwood. We appreciate your comments. They have been very informative.

Our next witness is Mr. Bill Williams, vice president, American President Lines.

STATEMENT OF WILLIAM H. WILLIAMS, VICE PRESIDENT, AMERICAN PRESIDENT LINES, LTD., ACCOMPANIED BY RICHARD L. TAVROW, VICE PRESIDENT AND GENERAL COUNSEL, AMERICAN PRESIDENT LINES, LTD.; DOUGLAS A. PFAFF, MANAGING DIRECTOR, PACIFIC NORTHWEST REGION, AMERICAN PRESIDENT LINES

Mr. MURPHY. Mr. Williams, you may proceed and identify the gentlemen with you.

Mr. WILLIAMS. Thank you, Mr. Chairman.

Mr. Chairman and members of the subcommittee:

I am William H. Williams, a vice president of American President Lines, Ltd. I am accompanied by Richard L. Tavrow, American President Lines' vice president and general counsel, and Douglas A. Pfaff, American President Lines' managing director, Pacific Northwest region.