t. @ burlong commences. The U. S. Government to pay the 75 pervrt of the contract price direct to the shipbuilder in installments to agreed upon.

In cases where U. S. Government owns any part of financing of re« » for shipowners that they appoint an independent commercial artered accountant to make regular audits for the shipowning sary and submit same to the Department of Commerce, and a.so will report any excessive expenditure or high salaries that are eat of proportion to the business transacted. With reference to no. 2, it will be necessary that the design of >. steamer should not be for too large, too fast, or too elabotype, but a good, efficient, safe, and suitable vessel capable of gan efficient life of 20 years.

W

reference to no. 3, it will be necessary to compel the shipher to carry his vessel on his books at the cost to him (i. e., after 1 S. Government has paid as a subsidy the difference in cost ↑ẹ balding his vessel in the U. S. as compared with the cost abroad). is is for arriving at capital of shipowning company and on which len, is or other distribution will be calculated and upon which 'erest on capital will be paid and also upon which depreciation te figured.

With the Government assistance, viz, subsidy for differential in t of bling and subsidy for differential in operating, it should ble for the shipowning company to depreciate the vessel 5 per annum, pay all expenses, and make a profit. Out of pret a reserve fund to be built up for lean years, a payment to U. S. Government for loan and a dividend or other distripard, the division of said reserve, loan payment, and divior other distribution to be decided by the board of directors ft. shipowning company and with the approval of the U. S. •ri ment representative.

:

It must be a condition of assistance to shipowners by means of a rest budy that vessels must be depreciated and the amount of e depreciation set aside in a separate account and not used for - rome, but to allow obsolete vessels of their fleet to be scrapped replaced by new and up-to-date vessels embodying the latest rovements in hull and machinery.

le existing arrangements of mail subsidy (March 1935) are now zer cor sederation and may be changed and a direct subsidy arad along the lines described in the foregoing 9 paragraphs. Mtual Shipping Corporation: The following proposition is sugsted as an etheient and easily applied method of carrying out the sons of the foregoing paragraphs 1 to 9 inclusive.

lo organize a corporation similar to that formed by a mutual 1.- irance company. There will be no stockholders nor undue captal ration, and therefore no dividends to be distributed. There will a board of directors composed of merchants, exporters, importers, and so forth, in good standing, who will guide the general policy of * corporation in the interests of manufacturers, exporters, imte, ali so forth. The directors will be advised and assisted te executives experienced in all branches of the shipping business, in order to start this mutual shipping corporation, a loan might arranged with a banking institution after preliminary arrange.

ments are agreed to with the U. S. Government regarding subsidies and agreements with the various U. S. foreign trade associations or arrangements made with the various U. S. foreign trade associations for a loan to start the mutual shipping corporation and this would be a further incentive for U. S. shipping to use U. S. bottoms or it might not be too much to expect from the U. S. Government, a loan sufficient to start the Mutual Shipping Corporation.

The management must be composed of experienced shipping men who have had training in general shipping office routine, obtaining freight, insurance, accounting, physical upkeep of machinery and hull, and so forth. As foreign shipping competitors all have such experienced men it is imperative that equally experienced men are engaged for the proposition of making a success of the U. S. merchant marine.

The first step in obtaining tonnage would be from the U. S. Government. There are at present several shipping companies engaged in the oversea trade that have defaulted in their agreement with the U. S. Government as regards paying interest and installments on the vessels bought from the U. S. Government and have not carried out their part of the agreement as regards building new steamers and have no prospect of doing so.

Mr. CULKIN. How many boats would be subject to that procedure, if you know?

Mr. DONALD. I do not suggest that this thing could be carried out by applying it to all the ship companies existing at the present time. Mr. CULKIN. That is what you said.

Mr. DONALD. No; I did not say that. I said, "There are at present several shipping companies.'

Mr. CULKIN. Oh, "several "?

Mr. DONALD. I said "several." And I suggest that they turn them over to this mutual corporation.

Mr. CULKIN. Just as a matter of discipline on the whole group? Mr. DONALD. Well, you could go on building it up.

Mr. CULKIN. What is your present capacity in the shipping business?

Mr. DONALD. My present capacity?

Mr. CULKIN. What is your present capacity in the shipping business?

Mr. DONALD. I am a consulting naval architect at the present time. I have been 10 years operating ships, as well as a naval architect. I was 14 years naval architect for the New York Shipbuilding Co., so I think I know something about the design of ships and operating, too.

The U. S. Government should make a settlement with one such defaulting company and then take back the steamers involved and then after an appraisal and after they are found to be suitable for the trade that they were operating in they could be sold at an agreed price to the Mutual Shipping Corporation payable over a certain number of years and operated in the same trade as the defaulting company was engaged in.

The United States Government would then come to an agreement with the Mutual Shipping Corporation as to the amount of differential to be paid as a direct subsidy to the Mutual Shipping Corpora

as to overcome the increase in cost of operating under the 1 States flag compared with the cost of operation under the flag in the same trade. The amount of this subsidy to be ad at by three independent reliable ship appraisers engaged in ཚ་ ཟླ་་ གིཥ་ྟ

I

De United States Government would pay the Mutual Shipping ***ration the agreed amount of subsidy for each steamer for the As the shipping company is only receiving the differential se the foreign steamer, the Mutual Shipping Corporation would otverploy as many steamers as were required for the cargo offer. and have a regular schedule of sailings. There would be no rent to operate steamers lightly loaded at long intervals as • more freight the shipping company transports the more revenue

De Mtual Shipping Corporation would be able to make a profit g to the following advantages:

overcapitalization.

No extravagant overhead.

No to kholders' dividends.

No

ducement for speculators to buy the corporation in a decurity market, reorganize and sell to the public on an

read capitalization.

I CHAIRMAN. That is really a Government-ownership proposi

Mr. DONALD, Well, in a way, but you turn it over gradually, as nake the money, to this mutual, the same as you do with an

rate company.

corporation would receive the direct subsidy from the United States Government for the differential in operation.

In the event of building new tonnage, the corporation would reve the differential in first cost for their payment to the ship

corporation would build up increasing shipments by United States shippers in United States bottoms with the efficient service red and the inducements offered.

After you have made some profit you pay your installment to

Grovernment and you have a profit left over, and rebate that ak to the manufacturer or the exporter, and in that way you Hee more capital to come into the American business.

I CHAIRMAN. Where is your replacement coming in there! Mr. DONALD. You have a depreciation account. After you have ***!, op rating and you have built up a depreciation fund, and you are ready to build new ships, why, you could be replacing them at the end of every 15 years,

I CHAIRMAN. The Government would have to replace them,

Mr. DONALD. You would go on the same way as you are doing You would pay your 25 percent and the Government would er 1 you 75 percent, and you would go on with your building up in same way. But you would have the efficiency.

I am only making the suggestion to see how it is possible to get away from the fact that we are not building up and replacing the erhant marine steamers. We are not doing it.

Mr. CULKIN. That was part of the contract of these lines; they were to replace as time went on?

Mr. DONALD. Yes; they have to build up the services.

Mr. CULKIN. And that has not been done, of course, and cannot be done, you say?

Mr. DONALD. Are they making money? Are they putting money away for depreciation now?

Mr. CULKIN. I am asking you; do you know?

Mr. DONALD. I am not in a position to give away any of the companies' information, but I understand that they are. It is not a healthy proposition the way it is now as far as I can see. I may say that it occurs to me that the subsidy is not being applied in such a way as to rebuild the merchant marine. I don't think so. I think you would agree with me.

Mr. CULKIN. Each 20 years you would have to start all over again? Mr. DONALD. Beg your pardon?

Mr. CULKIN. Each 20 years you would have to start all over again?

Mr. DONALD. No.

Mr. CULKIN. What is the life of these ships?

Mr. DONALD. Well, a ship's life is 20 years, but why not replace them every 15 years and get a modern ship? Some of the British ships are replaced every 12 years. They sell them for scrap and replace them in 12 or 15 years. I had to do with the design and building of the Texas, and she is still running, and she was built in 1902.

Mr. CULKIN. The City of New York was built in 1884. She is going yet. That is Byrd's ship.

Mr. DONALD. After this mutualization proceeded it would be found that you could have three of this. You could have one for the Pacific coast, one for the Gulf, and one for the Atlantic coast. I am not talking about the oversea trade, because that is where you are going to pay the subsidy.

What is the trouble now with the intercoastal trade? We do not have a subsidy in the intercoastal trade, but we have a tremendous amount of competition. If you had these fellows in the intercoastal trade mutualized you don't think they would be cutting each other's throats and putting on 50 steamers where 25 would do for it. They would be running the thing at the least possible expense and most efficiently and putting on the number of steamers to take care of the business. That is the thought that I am trying to give the committee. If you can use it in any way, all right.

The only objection that we are going to have is from the present shipowners. The shipyards are not going to object to this or the ship repair people or the labor people. They are going to build up and make profits, and rebuild for the merchant marine and have more steamers and encourage the exporters to ship in your bottoms. And after you had built this all up you would have a modern merchant marine as an auxiliary to the United States Navy in time of war, and a merchant marine that would carry your goods when the other fellow was at war.

The CHAIRMAN. All right. Thank you.

Does anyone else have a statement?
All right, Mr. Saugstad.

STATEMENT OF J. E. SAUGSTAD-Resumed

GREAT BRITAIN

M- SAUGSTAD The contract subsidies to British shipping takes e form, of a mail contract, known othcially in Great Britain as the Art services.” The contracts are made between the steamship and the Postmaster General of Great Britain-and, by the way, I am now confining my remarks to the United Kingdom, not the in Empire.

1 - CHAIRMAN. You say you are confining them?

M: SALGSTAD. Contining my remarks to the United Kingdom, the ℗ government, not to colonies or dominions.

Le principle underlying the British mail-contract system is offistated to be that of compensation for the carriage of a certain e of mail. It has not always been measured in that way, but the current procedure. The contracts are quite closely drawn, upon the estimated movement of the mails, and are changed time to time apparently as that volume increases or decreases, Ise first contract in the British system, and the most important trait service possibly in the whole world, based upon seniority, the equipment used and the political principles involved due vorial and empire requirements, is that of the Peninsular & tal Steam Navigation Co., known in the trade as the " P. & O.

st company was organized as a commercial enterprise in 1837, orclu fed its first contract with the British Government on the tay of August of that year. In other words, the company has under contract continuously with the British Government in perations for 98 years.

Last year's grant to that line was £341,000. At a par value of that 1, that would be about $1,650,000. The total payments for 1934 ontract services under the British system were £730,000, equal Sovo The amount for the previous year for this line was ** greater, and the amount for 19832 was $348,000. I cite these res to show that they change slightly each year.

- 14st contract of the P. & O. Co. with the British Government sted August 15, 1907, and was to be for 7 years from February ~, and to January 31, 1915, and if not then terminated the * was to continue thereafter until 24 months' notice had been ser by either party to the contract. We have no official informawing that that contract has ever been changed. I have not ail sessional papers for the last year or 2 years for the British

er t.

In the 70 years which lapsed between the original contract. 1×37, the final contract in 1907 of the P. & O. Steam Navigation Co., or development and ocean speed development were practically ed over that particular run. The original vessels made sig on an average. The vessels at the time of signing the 1907 -tract made about 16 knots. I have not checked the individual «l to show the speed now that obtains on the routes. If the - tittee desires I will be very glad to submit it.

The CHAIRMAN. We will be very glad to have it. (See p. 265,)