Mr. LEHLBACH. Now, have you any idea what it cost the Government itself in operating these trade routes which were finally boiled down to 31, as compared to what it cost the Government to sell these ships and to pay mail contracts and grant construction loan funds for replacement? Have you any idea of that in comparison to the cost to the Government to maintain the same merchant marine services? Mr. CROWLEY. No. I am sure you can get that from the Commerce Department, however. Mr. LEHLBACH. Would you be surprised to know that it cost şix times as much for the American Government to operate its own merchant marine, as it has to pay all of these benefits and have private operators do it? Mr. CROWLEY. No, sir; I would not be surprised at anything much that would happen in this shipping business. Mr. CULKIN. I understood you to say, Mr. Witness, that $200,000,000 had been appropriated for the purpose of rehabilitating the merchant marine and that it had not been successfully or properly applied. Is that your statement? Mr. CROWLEY. No; I said the Government had provided something more than that much money to aid in the establishment of the merchant marine, I believe. Mr. LEHLBACH. Since 1928? Mr. LEHLBACH. Can you break that down? Mr. CROWLEY. That would include Shipping Board loans and mail pay. Mr. CULKIN. And your claim is that it has not been used efficiently or properly; is that your claim? Mr. CROWLEY. I do not think the records show it has. Mr. LEHLBACH. Now, won't you please break that down? How much did you say-$200,000,000? Mr. CROWLEY. Well the Shipping Board has loaned for construction and reconditioning $107,593,957.32; the mail pay up to June 30, 1934, has been $119,257,756.63. Mr. LEHLBACH. Over what period does that mail pay of $119,000,000-plus run? Mr. CROWLEY. That is the mail pay that has been paid since the contracts were awarded under the 1928 act. Mr. LEHLBACH. Sometime during the year 1928? Mr. CROWLEY. Yes, sir. Mr. LEHLBACH. And down to Mr. CROWLEY. June 30, 1934. Mr. CULKIN. Now, your general proposition is that that has not resulted in a proper adequate merchant marine by reason of misapplication; is that true? Mr. CROWLEY. Yes, sir. Mr. CULKIN. Now what is your suggestion as to the procedure? Mr. CROWLEY. As I have stated to the chairman Mr. CULKIN. I was late and perhaps you have already gone over this matter. Mr. CROWLEY. The Post Office Department is not equipped to administer a subsidy. I think the President's message makes it clear as to his views on it, and it is the views of the Post Office Department that this subsidy, if it is to be paid, should be administered by 135956-35- -2 some other agency of the Government than the Post Office Department; providing of course, that on such ships as the Government desires to carry mail they should be afforded proper facilities for that without cost. But as to the details of what the subsidy should be, how it is to be administered, what agency is to be set up, or where it is to be put, I think that is a matter for experts in shipping and in com merce. Mr. CULKIN. But you do believe, as a general proposition, that an American merchant marine must be subsidized in some form in order to stay on the seas? Mr. CROWLEY. I think the evidence shows that. Mr. CULKIN. There is no question about that? Mr. CROWLEY. I do not think there is any question about it. Mr. LEHLBACH. I asked you about the cost, the break-down, and you said it showed an item of $23,000,000 as aid, that being the difference between the real market price of the ships that were sold under the act of 1928 and their true value. Is that included in this $200,000,000? Mr. CROWLEY. No, it is not; this two-hundred-odd million is actual cash that has been paid to shipowners. Mr. LEHLBACH. In the maintaining of these 31 trade routes, 3 of which I think are still operated by the Government, the Government paid out, since 1928, approximately $20,000,000 per year in mail contracts? Mr. CROWLEY. Something like that. Mr. LEHLBACH. And at the same time there were being built to replace obsolescent ships and to keep the merchant marine up to the point where it was capable of continuing to serve as a merchant marine, $107,000,000, all of which is to come back to the Government and is supposed to be backed by adequate security. Now, have you any idea what it cost to operate these trade routes under the only other alternative, by the Government itself, except Government aid? Either we give up the merchant marine, or the Government runs it itself [and it has tried that], or it pays a subvention of some sort which, under a mail-contract system, has been about $20,000,000 per year. Now, do you know what the previous system, Government operation through the Emergency Fleet Corporation, cost per year? Mr. CROWLEY. No, sir; I do not. Mr. LEHLBACH. Well, they were taking great credit to themselves when they reduced the cost to $60,000,000 a year, which is three times that amount. Now, is it the contention-I have not heard the report, but is it the contention of those who have made this investigation and have made recommendations that $20,000,000 a year is grossly excessive for the maintenance of 31 trade routes running to all parts of the world? Mr. CROWLEY. Well, the figure is more nearly $30,000,000 per year; it is about $29,000,000. I think the position of the Department is better set out in this report to the President and I am sure you gentlemen have copies of that. Mr. LEHLBACH. I am not confining it to the attitude of the Department. If you have views of your own, I would be glad to have them given expression. You guided a rather thorough investigation into this situation, did you not? Mr. CROWLEY. We tried to; yes, sir. Mr. LEHLBACH. If $30,000,000 for the operation of 31 trade routes to all parts of the world is excessive, what, as the result of the investigation you carried on, would you deem to be a reasonable figure? Mr. CROWLEY. Of course, it has been my personal view, since you ask for that, that sufficient aid should be given to insure the operation of ships over the essential trade routes, but they should not be permitted to make excessive profits. The CHAIRMAN. We will agree with you as to that. Mr. CROWLEY. And that such aid as is necessary from time to time be given to such concerns. The CHAIRMAN. We would like to get the figure, if possible. Mr. SIROVICH. Mr. Crowley, I would like to ask you a few questions. I have not had a chance to read this report, but I find in the message of the President to Congress the President says that the Government today is paying annually about $30,000,000 for the carrying of the mails which would cost, under normal ocean rates, only $3,000,000, and that this $27,000,000 is a subsidy and nothing but a subsidy. So, apparently, the Government is paying today $27,000,000. I understand the purpose of this meeting is to find out some scientific, just, and honorable method which could be used to subsidize the merchant marine, to develop the merchant marine, not only to carry the foreign commerce of our country, but to be auxiliary boats in time of war if the occasion should come along. Now, in thinking over the problem of a subsidy, because we have no fixed formula before us of how we can arrive at an adequate subsidy to protect the service and interests that are operating our merchant marine, we have to consider the following factors: First, in order to have a successful merchant marine, we have to consider the cost of construction of an American ship with American labor as compared with foreign ships that are constructed in foreign yards with foreign labor. Mr. CROWLEY. Correct. Mr. SIROVICH. So that when we compare the difference in cost of construction of a foreign ship and an American ship, the difference in the American standard of living should be taken into consideration and the first fundamental concept we should consider, therefore, is that differential in cost of construction. And since it has been stated at repeated meetings of the Merchant Marine Committee that the life of a ship is 20 years, that difference between the American cost of construction and the foregin cost should be amortized and we should pay the American merchant marine on the basis of one-twentieth of the subsidy every year, so far as construction cost is concerned, to put them on a parity, on an equality. Second, in order to develop an American merchant marine that is going to be operated by American seamen, 100-percent American seamen, the difference in cost of maintaining the merchant marine with 100-percent American crews should be taken into consideration; because the labor of seamen in foreign countries is cheap and the American standard of living is a local differential; so that the second factor that would have to be considered in a subsidy in the principle involved, is the difference between the cost of operating a ship with an American crew and a foreign crew. Third, we must take into consideration that over 75 percent of our cargoes today are traveling in foreign bottoms and 90 percent of our American public are traveling on foreign ships, so that we must take into consideration the third factor-the element of transportation, so far as cargo is concerned, and see how we can equalize the difference between the freight on foreign bottoms and our own, and including our passenger traffic. Fourth, we have to develop certain routes that were never before operated and we have to take into consideration the competitive feature that the American operator has got to contend with of companies subsidized by foreign countries, and trade facilities and tariffs and other things that are being given as subventions to those foreign groups, and our American merchant marine has to contend against that. So it is my theory if we take into cnosideration the four factors, first, the difference in cost of construction; second, the difference in cost of labor; third, the difference in cost of freight and passenger traffic; and fourth, the cost of developing new routes in competition-if we take these four factors together and amortize them over a period of 20 years, we ought to give that difference to the American merchant marine operator so that he is placed upon a parity with his foreign competitor, and that should be a subsidy which we should be glad to pay, because we are doing away in the meantime with the profits which are going to the foreign countries today. And if a scientific formula along that line could be elaborated and developed we could develop an American merchant marine that would be second to none, because the English tonnage, as I understand, is about 20,000,000 tons today and we have about 14,000,000; Japan has about 4,000,000; Germany about 4,000,000; France about three and three-quarters millions and if we went ahead in a scientific way, as the President of the United States rightfully states, and called a subsidy by its true. name and developed it by giving to our American merchant marine the differences and differentials I have enumerated, we will be in a position to develop the merchant marine through a subsidy and to make us the outstanding nation of the world as we were from 1840 up to the year 1860. Now, if you had a formula worked out along the line I have enumerated, you might arrive at a scientific basis of calculation? Mr. CROWLEY. It might be; but I think you have omitted one important factor; in fact, the most important factor. Mr. SIROVICH. What is that? Mr. CROWLEY. These companies have very little of their own money in the business. If this Government is to give a subsidy to shipping companies, they ought to be required to finance a little of it themselves. Mr. SIROVICH. Well, we are doing that. The CHAIRMAN. Where are they going to get that money? Mr. CROWLEY. I do not know where they are going to get the money. The CHAIRMAN. Is not that a very important consideration, when you are dealing with a thing that has never proven profitable in the United States? Mr. O'LEARY. I thought you just amended the R. F. C. law so that they could get some money. The CHAIRMAN. That is borrowed from the United States. The CHAIRMAN. That is right. Mr. CROWLEY. They have been paid more than $119,000,000 in so-called "mail pay"; the Shipping Board has loaned them a great deal of money-more than 100 million. They bought ships upon which they paid either 16 or 18 million dollars and their consolidated balance sheets-I am speaking about them all collectively; there are some that are in better shape than others show that they have little money or few assets above what they owe that is not invested in these old ships. The CHAIRMAN. Taking into consideration the balance that would be due by shipowners for the construction of ships, secured on the ships, do you not think the United States has a better security in those ships alone than it has for the larger sums that have been loaned on bonds throughout the country on railroads? Mr. CROWLEY. Well I, of course, am not qualified to pass on that. The CHAIRMAN. And whatever the amount that may be due the Government, is not the security ample in the ships themselves? Mr. CROWLEY. Well, the book value of these ships, according to the comptroller of the Shipping Board, is about $186,000,000. The companies owe $112,000,000, leaving their net worth with the ships appraised at these figures of about $80,000,000 above their indebtedness so far as mortgages on the ships are concerned. The CHAIRMAN. And is not there ample security for that $80,000,000? Mr. CROWLEY. I could not state whether there is, or not. The Government has 139 times as much invested in the business as the companies do and they have a lien of about 60 percent of the maximum value of all vessels, on each one of them that has been sold. The CHAIRMAN. Have not they a sufficient lien on every ship that has been sold to protect the Government for the indebtedness? Mr. CROWLEY. They have a lien for the amount. As to what the ship is worth, we have only got these figures here. Mr. SIROVICH. On that point, Mr. Crowley, it was brought out in testimony 5 years ago before our committee, when Mr. Chapman appeared before our committee and others who were operating the Chapman Lines, or the United States Lines in those days, that they had bought 29 ships from the Government including the Leviathan for $16,000,000; that they had put up $4,000,000, or 25 percent, and the Government took back a first mortgage of 75 percent, or $12,000,000; that they thereupon went into the market and sold those ships as stock to the public for $36,000,000 and, in spite of all that, in 1930 or 1931, the Government had to take them back because they were unable to go ahead. And when a deal was made between the International Mercantile Marine, the Roosevelt Line and the DollarDawson Line and they took them over, this $12,000,000 mortgage was given away for $4,000,000 and the company only had to put up $1,000,000 and the Government took back a $3,000,000 mortgage, and they were not able to operate; because, as Congressman Lehlbach brought out, it was proven that the Government cost in operating those ships carefully, intelligently and diligently would equal six times as much as to operate the ships by a private organization, and the Government lost, if I am not mistaken-and Mr. Lehlback can correct me if I am in error about $16,000,000 in operating ships in those days. Now if the Government lost $16,000,000 in operating ships, how much more adequate would it be for us to give them back to private |