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The CHAIRMAN. I do not know just how to arrange that. I promised to hear Mr. Smith in the morning.

Mr. NEWTON. I can wait.
The CHAIRMAN. You can wait?
Mr. NEWTON. Yes; I can wait until Mr. Smith gets through.

The CHAIRMAN. I would much rather go into this particular question which Mr. Saugstad is going to take up now, and which Mr. Smith will probably discuss also tomorrow morning, when there will be a possibility of having a few more men present.

If there is no one else who wants to be heard at this time, we will adjourn until 10 o'clock tomorrow morning.

(Whereupon, at 5:30 p. m., an adjournment was taken until Wednesday, Mar. 27, 1935, at 10 a. m.)

TO DEVELOP AN AMERICAN MERCHANT MARINE

PART I. MERCHANT MARINE POLICY

WEDNESDAY, MARCH 27, 1935

HOUSE OF REPRESENTATIVES,
COMMITTEE ON THE MERCHANT MARINE AND FISHERIES,

Washington, D. C. The committee met at 10 a. m., Hon. Schuyler O. Bland (chairman), presiding.

The CHAIRMAN. You may proceed, Mr. Saugstad.

STATEMENT OF J. E. SAUGSTAD-Resumed

Mr. SAUGSTAD. Mr. Chairman, we will close the consideration of subsidies in Japan by reciting the results of the Japanese ship replacement law of 1932, which is in the nature of a scrap-and-build plan. The plan has been so successful and so popular that the Marine Affairs Commission of the Communications Department recommended the continuation of the plan in principle for another 5 years, beginning April 1, 1935.

The Communications Department's first proposal was to extend the project for 5 years, to build 100,000 gross tons and to scrap 100,000 gross tons each year. The proposed subsidy was 48 yen per gross ton built, a total amount of 24,000,000 yen for 500,000 gross tons. This was the proposal made last year.

The Department of Finance proposed that the subsidy should be at the rate of 20 yen per ton, limited to 50,000 tons, the keels of the new vessels to be laid before April 1, 1936. The Finance Department's proposal led the Communications Department to put forth a revised plan to include building 240,000 gross tons in 3 years on the condition that an equal amount of tonnage was to be scrapped, the subsidy to be at the rate of 42.70 yen per ton. When the proposal reached the Minister of Finance, however, it was disapproved and a counter proposal by the Finance Minister was made as follows: (1) The Government was to grant a subsidy of 30 yen per gross ton up to 50,000 gross tons, provided keels were laid down by April 1, 1936; (2) one-half of the subsidy was to be granted immediately after laying of the keels and the balance on completion; the whole sum of 1,500,000 yen was to be expended within the fiscal years 1935–36 or 1936-37; (3) the subsidy of 30 yen was to include a 4-yen subsidy for special provisions of national defense, required by the Imperial Navy; (4) simultaneously with the construction, a similar total tonnage of old vessels registered in Japan, Formosa, Korea, or the Kwangtung province was to be scrapped.

The Department of Communications, convinced that it was impossible to obtain an increase in the rate of 30 yen, asked to have the tonnage increased to 80,000 tons. The Finance Department, however, declined to accept this suggestion.

That is the present status of the proposed continuation of the scrapand-build plan in Japan.

The scrap-and-build plan of Japan, which ends on the 31st of March this year, is a project for building 200,000 tons of fast freighters to replace the 400,000 gross tons of obsolete tonnage to be demolished. I want to state for the record the terms of that plan. The salient facts may be summarized somewhat as follows:

DATE AND TERM OF PLAN

It was first considered by the Marine Affairs Commission in July 1932. A bill was introduced in the extraordinary session of the diet in August 1932. Departmental decrees were issued on September 27, 1932, effective for a 3-year period from October 1, 1932, to March 31, 1935.

PURPOSE OF THE PLAN The purpose of the plan was to renew the fleet and replace obsolete tonnage, to reduce tonnage in the market, and to give work to shipyards.

TONNAGE TO BE BUILT Two hundred thousand gross tons of vessels of not less than 4,000 gross tons and not less than 134 knots speed, unless authorized by the Minister of Communications, were to be built.

TONNAGE TO BE SCRAPPED

Four hundred thousand gross tons, not less than 25 years old nor smaller than 1,000 gross tons, unless authorized by the Minister of Communications, were to be scrapped.

TOTAL SUBSIDY

Eleven million yen, of which 1,250,000 yen in the period 1932–33; 5,500,000 yen in the period 1933–34, and 4,250,000 yen in the period 1934–35 were to be granted as subsidies.

RATE OF SUBSIDY The subsidy paid to the owner who builds the ship depends on the speed of the vessel and ranges from 45 yen for ships of less than 14 knots, to 54 yen for ships of 18 knots or over. Mr. Chairman, I would like to submit a table of the subsidy rate, by speed.

The CHAIRMAN. Without objection, it will be incorporated.
(The table referred to follows:)

Rate of subsidies, per gross ton, according to speed of vessels :
Speed (knots):
Less than 14.

45 14.

46 1472

47 15.

48 1572 .'16.

50 : 16%.

51 17.

- 077757

52 1743

53

Yen

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APP-24-HH

MANAGEMENT

Mr. Saugstad. The plan is under the management of an organization known as the "Merchant Marine Improvement Association,” a corporate, judicial entity jointly representative of the Japan Shipowners Association and the Japan Shipbuilders Association, with a board of directors and a chairman. Actual work of the association has been conducted through a committee.

PROGRESS OF THE PROJECT

Commitments which absorbed practically the entire subsidy and accounted for the total tonnage to be scrapped or built had been made by March 1934. The tonnage to be scrapped at that time showed that there were 94 vessels of 399,122 gross tons, and the tonnage to be built or contracted for at that time was in the following status: Contracts approved covered 29 vessels of 190,000 gross tons, for a total subsidy of 9,947,400 yen; contracts applied for, covered two vessels of 9,200 gross tons, at a total subsidy of 441,600 yen-leaving a margin for the whole program of 611,000 yen unaccounted for.

ANALYSIS OF SHIP-SCRAPPING PROJECT

Before shipowners could contract for new vessels under the subsidy plan, they were obliged to scrap twice as much old Japanese tonnage as tonnage to be built. Credit was given for old tonnage scrapped regardless of former ownership. Therefore, Japanese owners went into the market and purchased tonnage to be scrapped and received credit for the operation. This brought on competition between prospective builders of new tonnage, creating a demand which resulted in some purchasers paying premiums ranging from 10 to 13.75 yen per gross ton for old tonnage to be scrapped. Owners of large fleets containing old vessels had the advantage of not paying such a premium. Market prices on tonnage for scrapping advanced and old vessels sold for prices ranging from 12 yen to 27 yen per gross ton, due partly, however, to the improvement in the iron and steel market.

TONNAGE TO BE SCRAPPED, BY TYPE GROUPS

There were 94 vessels scrapped; 74 were considered as tramp vessels. Of liner vessels, there were 4 passenger ships and 16 freighters a total of 20. Therefore, 78.7 percent of the number of vessels and 64.5 percent of the gross tonnage was tramp tonnage and 21.3 percent of the number of vessels and 35.5 percent of the gross tonnage comprised liner tonnage.

Mr. Chairman, I would like to submit that table for the record. The CHAIRMAN. Without objection, it is so ordered.

(The table referred to follows:)

Tonnage scrapped— Type groups (status as of Mar. 1934)

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Mr. SAUGSTAD. The tonnage scrapped was made up of equal groups of vessels above and below 5,000 gross tons.

While the tonnage of vessels below 5,000 gross tons made up only 50 percent of the total, their number was 70 percent of the total. In view of the fact that the smaller type of vessels was held largely responsible for the poor condition of the tonnage market, their removal is assumed to be largely responsible for better freight and charter rates, according to the reports we have.

Twenty-four percent of the tonnage scrapped comprised vessels between 5,000 and 6,000 gross tons, and, Mr. Chairman, I would like to submit an analytical table showing the tonnage scrapped by size groups.

The CHAIRMAN. Without objection, that may be incorporated. (The table referred to follows:)

Tonnage scrapped-size groups (status as of March 1934)

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Mr. SAUGSTAD. Seventy-six vessels, or 81 percent of the total number of vessels, and 304,268 gross tons, or 76 percent of the total tonnage scrapped, was made up of tonnage more than 30 years of age, their disappearance meaning a substantial improvement in the quality of Japanese tonnage. It is significant that 30.3 percent of the tonnage scrapped was between 35 and 40 years old. Mr. Chairman, I would like to submit that table for the record.

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