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Vessels granted such aid should meet the requirements of the various trades, as agreed upon at the time the subsidy is granted, as to size and speed, and any new vessels built for service under the subsidy system should be built to the highest standard of safety, suitability, and efficiency, and subject to approval by the Navy Department.
The necessity for the subsidy arises from both construction and operating differentials.
Due to the fact that the capital differential is the main consideration in the determination of an ocean shipping subsidy, and the further fact that this charge remains the same throughout the life of the ship, subsidy contracts should be for the period of the vessels's life, usually considered 20 years.
The operating differential, on the other hand, is likely to vary from time to time. To permit adjustment to any changed conditions, there should be provision for review of the contract terms not more often than once every 2 years.
LETTING OF CONTRACTS
In awarding of contracts for new services where competitive bidding is feasible, the governmental supervisory body should advertise the requirements as to vessels and service for the routes to be subsidized and contract awards should be made on the basis of the bids, and with particular regard for the responsibility and experience of the bidders' as provided for in letting Government contracts generally. Bids should be checked against data prepared to show the construction differential on a general percentage basis and the difference in operating costs between an American-flag service and its principal foreign competitors on the given route. Account should be taken of the type, tonnage, and speed of vessels, the volume of traffic and other conditions on the trade route. While the differentials should thus be used as an aid in determining the reasonableness of bids, their use as a direct measure of the subsidy is regarded as impracticable due to the impossibility of definite determination of either construction or operating differentials.
Where competitive bidding is not possible, due to there being only one company qualified to render the service, the contract should be negotiated, with use of construction and operating differential data as a guide.
Probably the most evident failing in the present system is the lack of adequate provision in the Merchant Marine Act, 1928, for vessel replacement. Such replacement should be provided for through building requirements in the subsidy contract, specifically stating the type, size, and speed of the vessel, as well as the period within which construction must be begun. Trade and military needs should be of prime consideration in fixing construction requirements. Plans for all ships to be constructed should be subject to approval by the Navy Department.
Because of the importance of vessel replacement in the merchant marine program, a substantial part of the construction subsidy payments, to be determined at the time the contract is entered into, should be reserved for such use.
CONSTRUCTION LOAN FUND All vessels constructed under the Merchant Marine Acts of 1920 and 1928 were built through the aid of the construction loan fund. Under present conditions it is apparently impossible to secure from private sources for long periods of time such amounts as are necessary for the construction of a modern vessel. Therefore, this fund should be continued, providing for a fixed and uniform interest rate to all borrowers.
GOVERNMENTAL SUPERVISORY AGENCY
The determination of trade routes to be served and the number and type of vessels required concerns several departments of the Government. The questions should therefore be determined by an interdepartmental committee representing those departments. This committee should also have the duty of passing upon the terms of individual contracts for trade-route services.
The administration of contracts, however, should be performed by a single governmental agency, preferably under the direction of an Assistant Secretary of Commerce to be designated for that purpose.
PATRONAGE OF AMERICAN SERVICES
In the committee's preliminary report attention was called to the fact that American vessels are now carrying only one-third of our foreign commerce. This was attributed, at least to a large extent, to the lack of appreciation on the part of our shippers in foreign trade of the value of American shipping services.
RATE CONFERENCES. It must be recognized that it would be to the benefit neither of the American shipping industry nor of the American producer and shipper if the cost of ocean transportation was lower from foreign ports than obtainable from here. Almost all American lines are members of rate conferences, which provide the accepted method of stabilizing ocean freight rates and which tend to equalize rates in world trade. All lines operating from United States ports in foreign trade should be required to adhere to the conference rates in their particular trades, otherwise there will be no stability in world ocean freight rates; and through conference connections between operators from United States ports and operators from foreign ports, an equitable relationship between rates to competitive markets should be established. In this manner, the vicious circle of rate cutting could be eliminated, bringing more healthy conditions of competition in foreign trade.
For these reasons adequate powers should be given to a governmental regulatory agency to require all lines, foreign as well as American, operating from United States ports to foreign ports to adhere to conference rates, otherwise our merchant marine will be at a disadvantage in competition.
JAMES A. FARRELL,
Chairman Special Merchant Marine Committee. JANUARY 17, 1935.
SOME PERTINENT FACTS CONCERNING THE AMERICAN
(Submitted by National Council of American Shipbuilders, New York City)
FOREWORD The following statements, charts, and tables present information concerning the relation of American shipping to our foreign trade, the status of the American merchant marine in comparison with those of other nations, and the relation of American shipbuilding to American shipping together with a brief analysis of Government aids granted by maritime nations to their merchant marines.
PART I. SUMMARY OF AMERICAN SHIPPING AND FOREIGN TRADE Mandate of Congress
Congress has mandated: “That it is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergeny, ultimately to be owned and operated privately by citizens of the United States."
This expression of the wish of Congress is contained in the preamble of the Merchant Marine Act of 1920, and is reaffirmed in the Merchant Marine
Act of 1928.
The operation of ships privately owned is a business that must show a
return on the investment to insure its permanence. Domestic and Foreign Shipping
A merchant marine should be broadly considered under two divisions: (a) That part engaged in domestic trade; (6) that part engaged in foreign trade.
Ships operated in our domestic trade are restricted to American-built vessels, and are subject to our own control in competition with other domestic means of transportation.
Ships operated in our foreign trade are in competition with the vessels of other nations and must be able to compete with such vessel on an equal
basis if their operation is to be successful. Handicaps to Operation in Foreign Trade.
The American operator in foreign trade suffers a handicap because of higher operating costs resulting from (a) the higher cost of building ships in the United States; (b) the higher cost of officers, crew, and shore staffs.
The American operator is also handicapped because of subsidies paid by
foreign nations to their private ship operators. Government Aid to Shipping.
The handicaps to operation in foreign trade can only be overcome by some
form of Government aid. Importance of Shipbuilding.
Shipbuilding is an important national asset, (a) for the building of ships for our merchant marine; (b) for the building of naval and other Government vessels; (c) for the employment of American labor.
While, under existing law, vessels to operate in our foreign trade may be built abroad, nevertheless, Congress has recognized the necessity for their construction in American shipyards as evidenced by section 203 of
the Merchant Marine Act of 1928. Ship Replacement Program
A ship replacement program is an essential part of any permanent merchant marine program in order that each operating service may have a percentage of modern tonnage to compete with similar services of other nations.
PART II. WORLD SHIPPING
American vessels carry approximately one-third of our foreign trade while
foreign vessels carry two-thirds. Comparison of International Trade and Shipping
The United States foreign-trade fleet is less than 7 percent of the world's
foreign-trade fleet, while our percentage of world trade is nearly 15 percent. Ownership of World Sea-going Merchant Fleet
Out of a total sea-going world fleet of 49,000,000 gross tons, Great Britain owns over 16,500,000 gross tons and the United States owns 9,000,000 gross
tons, of which less than 3,000,000 are engaged in foreign trade. Growth of World Shipping
Since 1900 Great Britain has launched nearly half of the tonnage launched throughout the world. The United States fleet increased very rapidly during
the World War period. World Tonnage in Foreign Trade Only
In foreign trade alone there are throughout the world approximately
38,000,000 gross tons of shipping, including vessels which are temporarily Share of Shipping of Principal Nations in the Carriage of Their Own Foreign Trade
The vessels of principal foreign nations carry over 50 percent of their own foreign trade, while American vessels carry only one-third of our own for
eign trade. Modern Tonnage in Principal Merchant Fleets
The United States is behind every other principal maritime nation in the percentage of its merchant fleet represented by modern tonnage. Modern Cargo Fleets of Principal Nations
The United States is far behind every other nation in the percentage of its.
cargo fleet which has been built during the past 12 years. Merchant Tonnage Built in Principal Nations Since the Beginning of 1928
Tonnage under construction in the United States increased gradually during 1929, 1930, and 1931 because of the Merchant Marine Act of 1928. Since 1931 merchant ship construction in this country has declined to practically zero at the present time. The United States now stands number 9 in rank among the principal maritime nations in tonnage under construction.
Comparison of Tonnage, Speed and Age of Principal Merchant Fleets
merchant fleet stands number 1 in tonnage, speed and age, while the United States fleet stands number 2 in tonnage, number 5 in speed,
and number 8 in age. Vessels Building or Recently Built Abroad
At the present time there is considerable activity in the construction of cargo vessels and tankers in Great Britain, Japan, and other foreign countries.
PART III. AMERICAN SHIPPING
American Vessels in Foreign Trade
At the beginning of 1934 there were 2,702,000 gross tons of American ves
sels actively engaged in our foreign trade. Types of Vessels in Our Foreign-Trade Fleet
Over 50 percent of the tonnage of our foreign-trade fleet is composed of
freighters. Rate of Obsolescence of Our Foreign Trade Fleet
By the end of 1941 nearly 90 percent of our foreign-trade fleet will be over
20 years old. Vessels Certified for Operation on Ocean Mail Routes
On June 30, 1933 there were 362 vessels, aggregating nearly 2,100,000
gross tons certified for operation on ocean mail routes. Effect of Technical Progress on Obsolescence
Technical progress in ship construction during recent years has increased
the rate of obsolescence very appreciably. Replacement Program a Necessity
If the United States is to maintain its present position in the carriage of world trade it is necessary to replace at least 150,000 gross tons of vessels
annually. Shipping Serves Every State in the Union
Every State produces many articles which are exported abroad. Approximately 80 percent of our exports are carried abroad by means of ships.
Part IV. AMERICAN SHIPBUILDING AND SHIPREPAIRING Characteristics of Shipbuilding Industry
Shipbuilding is a highly specialized industry requiring many technical and skilled employees. Methods of mass production cannot be applied to this
industry. Materials Used in Shipbuilding
The shipbuilding industry is a great consumer of raw materials and equipment which are produced by every State in the Union and which are manu
factured by almost every known industry. Number and Location of Shipyards and Ship Repair Yards
Shipyards and ship repair yards for the construction of seagoing vessels are located along the Atlantic coast, Gulf coast and the Pacific coast of the United States. There are 93 shipbuilding ways in the coastal shipyards, representing an approximate maximum output of 900,000 gross tons of vessels
a year. Employment in Shipbuilding and Ship Repairing
While employment in shipbuilding and ship repairing declined from the beginning of 1930 to a low point in the middle of 1933, since that time it has been increasing due primarily to the construction of naval vessels in private
shipyards. Hours and Wages in Shipbuilding versus General Manufacturing
While the number of working hours per week is less for shipbuilding than for general manufacturing the per capita hourly rate and the weekly earnings
are greater in shipbuilding than in general manufacturing. Shipbuilding, a National Asset
The shipyards not only furnish employment in the construction of vessels but their facilities and technical staffs are at all times available for the construction of both merchant and Government vessels in a time of national
emergency Present Status of Commercial Shipbuilding
At the present time merchant shipbuilding is at a very low ebb.
PART V. SUBSIDIES GRANTED BY FOREIGN COUNTRIES TO SHIPPING AND SHIP
Tabular comparison showing nature of subsidies granted by foreign maritime
powers Great Britain
Beginning with a system of discriminatory customs duties as early as 1349, the English Government has substantially aided her merchant marine and
continues to do so at the present time. France
Government aid to shipping and shipbuilding in France dates from 1661 with the establishment of a subsidized packet service. Since that time, government aid to shipping has been greatly extended until today France is recognized as a leading advocate of a state-aided merchant marine as a
national necessity. Germany
Government aid for shipping in Germany dates from about 1886, when an annual subsidy in the form of a mail contract of 4,400,000 marks was granted
to the North German Lloyd for a period of 15 years. Italy
Italian ship subsidies date from 1851, when a bill was introduced in the Sub-Alpine Parliament for the letting of contracts to private contractors for passenger and mail services based upon government subsidy. Today Italy undoubtedly leads all maritime nations in the various types of government
aid to shipping. Japan
Japanese ship subsidies date from 1876 when the Japanese Government transferred 13 of its own vessels to the Mitsubishi Co. (organized in 1870) and granted it an annual subsidy of 250,000 yen. The phenomenal growth of the country's merchant marine has been due, in no small part, to a consistent system of Government aid to Japanese shipping and shipbuilding.
PART I. SUMMARY OF AMERICAN SHIPPING AND FOREIGN TRADE
MANDATE OF CONGRESS
Congress passed the Shipping Act of September 7, 1916, "for the purpose of encouraging, developing, and creating a naval auxiliary and naval reserve and a merchant marine to meet the requirements of the commerce of the United States."
The United States participated in the World War shortly thereafter and under the provisions of this act and other specific authorizations of Congress, built over 2,300 merchant vessels. After the war the existence of this large fleet of merchant vessels offered an opportunity to the United States to reestablish itself in its trade to and from foreign markets.
The Merchant Marine Act of 1920 provided a means of making use of the wartime-built ships by establishing services oni mportant trade routes and of disposing by sale, or otherwise, of those ships not needed and as a preamble to the act it specifically provided that,
"It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in
time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States."
This act also attempted to encourage the construction of new vessels by the establishment of a construction loan fund, by the granting of mail contracts for short periods of time, and by other means.
As time went on shipping services were established under the provisions of the act but encouragement for the building of new vessels was inadequate and mail contracts, which it was ruled could be placed for a period of only 1 year, gave insufficient security to the American operator to encourage the development of these services by the replacement of old tonnage with new.
In anticipation of further legislation the Senate, by resolution 262 of July 3, 1926, requested the United States Shipping Board to prepare and submit to the Senate comprehensive and concrete plans for building up and maintaining an adequate merchant marine.