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Mr. SAUGSTAD. It is a loan.

Mr. SIROVICH. To be paid back from profits if there should be any profits?

Mr. SAUGSTAD. If there should be any profits. I may say that it is practically impossible to recite accurate details of the financial operations of the German shipowners, the German banking group, and the German Government at this time.

Mr. CULKIN. How about the amount of contribution; have you the amount of that?

Mr. SAUSTAD. Yes. The original authorization was 8,700,000 marks, which was later increased; we have it reported, to 10,000,000 marks, or more. Mr. SIROVICH. What is that for? Mr. SAUGSTAD. This is a 1934 loan. Mr. SIROVICH. How much have they put away for construction funds, for renovation, and for construction of new ships? Mr. SAUGSTAD. There is none I know of. Mr. SIROVICH. No money at all in the present appropriation?

Mr. SAUGSTAD. No money at all in the present appropriation, so far as I know.

Mr. SIROVICH. How about 1932, 1933, and 1934. Is there any money in the appropriation of the German Reich for the construction of new ships?

Mr. SAUGSTAD. Not so far as I know. I may say generally, about the situation in Germany, that during the past 2 years the official policy as laid down is that of decentralizing the major groups. It seems to be the policy of the German Government, according to the official spokesman, to promote the idea of company personality instead of management personality. In other words, the German steamship industry has been built up in a centralized manner by individuals and groups of outstanding individuals over a period of about 50 years.

Mr. SIROVICH. How does that square with the future of the Hamburg-American Line and the North German Lloyd Line under the present administration; is that a policy of decentralization, too?

Mr. SAUGSTAD. The point is they are decentralizing the merger operation, and the trade papers of northern Europe indicate that the reason for the resignations of practically all of the technically qualified old-line managers in those lines during the past year has been due to that decentralization.

Mr. SIROVICH. Has not that begun to disintegrate the German merchant marine, in contradistinction to those who built it up in the past?

Mr. SAUGSTAD. I cannot answer that; I can merely say that the merger, as a whole, has agreed through its board to turn over certain parts of its business to other entities such as the Hamburg-South American Line, the two African lines, the Levant Line, and the most recent information is that the Hamburg-American Co. and the North German Lloyd, under new agreement, have established certain definite lines of operation.

Mr. SIROVICH. So as to eliminate the principle of competition and the great overhead that goes with competition; that is the purpose of the decentralization ?


Mr. SaugsTAD. The purpose of centralization was to eliminate competition.

Mr. SIROVICH. Exactly. The CHAIRMAN. The purpose of decentralization, you say? Mr. SAUGSTAD. The purpose of centralization originally was to eliminate competition.

Mr. Culkin. This is having the same effect--this decentralization-by eliminating competition and zoning the world to particular lines; is that the effect of it?

Mr. SIROVICH. Exactly, and decentralizing it. Mr. SAUGSTAD. Will you repeat the question? Mr. CULKIN. Read the question, Mr. Stenographer. (The question was read as above recorded.) Mr. SAUGSTAD. I can only repeat that spokesmen for the German Government indicate that the necessity for elimination of competition through concentration has passed and that the influence of the German Government, through reorganization and coordination of all German industry along broad economic lines, will have the desired effect.

Mr. Culkin. The fact is, of course, the present policy of the Germans is very aggressive in all trade routes of the world, is it not!

Mr. SAUGSTAD. Oh, certainly; in many trades.

Mr. Culkin. More aggressive than it has been at any time since the World War?

Mr. SAUGSTAD. Possibly. They have more tonnage and they have reestablished their lines.

Mr. CULKIN. They are coming back?

Mr. SAUGSTAD. Yes, sir. The declaration of policy on that point was expressed last year by the mayor of Bremen, Dr. Markert, who said that the future policy of Germany would be to make 3,000,000 tons of ships do what 5,000,000 tons had done before. In his speech of announcement of the policy laid down at Hamburg by the spokesmen there

Mr. SIROVICH. Outside of rebuilding and reconstruction, how can they do it, except by the elimination of competition, which they are not doing through the decentralization of their merchant marine and not centralization as they did in the past?

Mr. SAUGSTAD. Possibly through restricting companies to certain trades.

The CHAIRMAN. It would take Dr. Markert to answer that question. As a matter of fact, they found that the centralization theory did not work as well as decentralization?

Mr. SAUGSTAD. It has been the practice of more than one government during the period of depression and disturbed exchange conditions, to request in exchange for public credit the elimination of national competitive lines. That has been general practice in the European countries.

Mr. CULKIN. It might be material to inquire right there whether or not that is the practice on this side-a national attempt to eliminate competing lines?

Mr. SAUGSTAD. I am not competent to discuss that.

Mr. SIROVICH. How many trade routes has Germany at the present

Mr. SAUGSTAD. Six principal shipping companies and at least twice that many services.

Mr. STROVICH. Including the Orient? Mr. SAUGSTAD. Yes, sir. Mr. SIROVICH. Has she a line to her own German colony in Tientsin?

Mr. SAUGSTAD. I cannot say. The North German Lloyd has opened a service to Singapore and to the Straits Settlements. They opened a line from the Straits Settlements to Australia during the last few months, but sold it. The Hamburg America Co. service to the Far East probably offers the service.

Mr. SIROVICH. How does the foreign tonnage engaged in the continental trade of Germany, France, and the United States comparə so far as large ships are concerned? Are they equally balanced in tonnage ? Mr. SAUGSTAD. I do not understand your question.

Mr. SIROVICH. For example, Professor Haag in testifying yesterday stated that England had about 21,000,000 tons, the United States about 13,000,000, and Germany, France, Italy, and so on, about three to four million, but, when he eliminated the various miscellaneous factors that go into the American tonnage, it developed we have about two million or two and a half million that are engaged in foreign commerce. I am not talking about the inland and intercoastal business; I am talking about the foreign trade, and I was wondering how the foreign tonnage of the United States compared with the foreign tonnage of France and Germany engaging in the international trade? Mr. SAUGSTAD. You mean the vessel equipment, the type of ships? Mr. SIROVICH. Yes. Mr. SAUGSTAD. I cannot answer that.

Mr. SIROVICH. So at the present time there are no new ships, as far as you know, being constructed by Germany?

Mr. SAUGSTAD. I know of three fast liners for Far East service. Mr. SIROVICH. And no appropriation for it?

Mr. SAUGSTAD. No appropriation for it, so far as I know. Now you wanted a statement on the origin of the North German Lloyd ?

Mr. SIROVICH. Yes; I would like, from the historical standpoint, to see how it could help us to trace the ideological development of the great Germant marine marine that finally challenged England's sway over the seas.

Mr. SAUGSTAD. Well, generally, the German merchant marine was developed between the period of 1885 to 1913. More specifically, the real tonnage development, so far as high-powered ships were concerned, was the development between 1898 and 1913. During that 15-year period the German shipping came into not only its colonial trades but into the North Atlantic with services that broke up certain preferential positions of fleets of other nations. The immigration movement into this country was the basis on which all the fast, large German tonnage rested. Two ships are historically responsible and possibly the background for the construction of the British Lusitania and Mauretania, and they were the Kaiser Wilhelm II and the Kronprinzessin Cecilie, both of which are now tied up at Solomons Island, 65 miles below Washington.

The CHAIRMAN. What are their real names?
Mr. SAUGSTAD. The Monticello and the Mount Vernon.
Mr. SIROVICH. When were they built?

Mr. SAUGSTAD. They came into the trade in 1903 and in 1907, and the North German Lloyd's success in the North Atlantic trade up to that point had produced a competitive condition in shipping and in shipbuilding which helped to bring about the 1903 contract between the British Government and the Cunard Line, the result of which was the Mauretania and the Lusitania.

Prior to that, some German operations were on a contract basis. In 1886 an annual subsidy of 4,400,000 marks was set aside for a period of 15 years for the maintenance of certain specified mail services. Of this sum, 1,700,000 marks was for a line between Germany and China and Japan, 2,300,000 marks for a line to Australia, and 400,000 marks for a branch line connecting Trieste with the line to Australia at Alexandria.

The speed requirements for those lines at that time was 12 knots on ships operating to the Far East, and 1112 knots on ships operating to Australia. The ships to the Far East service were nine in number and were restricted to construction in German yards and must be built of German materials.

The contract was changed in 1893, when the Mediterranean line was discontinued, and, in 1898, the subsidy was increased in certain directions by small amounts. At that time the speed was increased to 13 knots for old steamers and 14 knots for new steamers; that is, under the 1899 contract.

Mr. Sirovich. Is that for passengers or for cargo?

Mr. SAUGSTAD. For passenger ships; and on the branch lines the speed required was 12.6 knots. There was another contract to the German East Africa Line. Those were the only contracts ever given by the German Government for services and they lasted, in one form or another until the war broke out and Germany lost her colonies.

Mr. SIROVICH. She never gave any subsidy to the North German Lloyd or the Hamburg-American Lines at all, did she?

Mr. SAUGSTAD. Not so far as I know.
Mr. SIROVICH. I mean so far as you have gone?
Mr. SAUGSTAD. Not so far as I know.
The CHAIRMAN. Were there not certain preferential rail rates ?

Mr. SAUGSTAD. There were certain preferential rail rates in Germany over the German railroads given to goods moving into the export trade. I believe at one time those rates specified that in order to be effective the goods concerned must be shipped on German lines. But generally the preferences were to German ports. In other words, the competition of the German hinterland business which flows in barges through the canal service and the Netherlands is the menace which creates favored rates to Hamburg. Another problem was that the natural flow of a great deal of German business went southward to the Mediterranean. So, in order to bring it north and into the two large German ports, the German railways did have preferential rates.

Mr. SIROVICH. And the reason perhaps they did not give any subsidy to the Hamburg-American and the North German Lloyd was because of the tremendous immigration at that time which was provided from Hamburg and Bremen and Havre.

Mr. Sargstad. The railway preferential arrangements, plus the immigration situation undoubtedly was the cause of the predominance of German big ships in the North Atlantic. There is no question but that the Imperator which today is the Berengaria, the Bismarck which today is the Majestic, and the Vaterland which today is the Leviathan, were all built in the Blohm & Voss yards at Hamburg, I believe, for one company and for one purpose—the immigration traffic.

Mr. WEARIN. Who profited from the preferential rail rates in Germany!

Mr. SIROVICH. The Government; the Government-owned railroads.

Mr. SAUGSTAD. Well the ships profited through the effect of the preferential rail rates by diverting cargo into German ships. It was not a matter of the rates on those ships, although there were some through quotations.

Mr. SIROVICH. But if the Government owns the railroads in Germany and gives preferential consideration to any cargoes that go over the rails to German ships, to me that is an indirect subsidy of the Government for the benefit of the merchant marine.

Mr. SAUGSTAD. I think you may consider it so. Mr. WEARIN. Well it would inspire a larger percentage of shipping perhaps to the merchant marine; on the other hand, would not the producer or the processor who was making the shipment profit from the preferential rate?

Mr. SIROVICH. That is true.

Mr. SAUGSTAD. He certainly is placed in a better competitive position in southern Germany, in exporting his goods through a German port against Hamburg or Bremen competition, than he would be if he had to pay full rates for his rail haul to these ports.

The CHAIRMAN. Do you know whether those preferential rail rates obtain now, or not?

Mr. SatGSTAD. There are some. They were considered so important that during the considerations of the Versailles Treaty they were done away with; but we find now in the filed tariffs and reports of the German railways that they are again in force on certain commodities in certain directions, although they do not specify German ships. They relate only to German ports.

Ńr. Culkin. The growth of the German shipping prewar, then, in your judgment was not due to any governmental subsidy; the aid there, according to your description of it, was more or less nominal?

Mr. SAUGSTAD. Not to any public expenditures.

Mr. Culkin. Not to any public expenditures. At the present time

The CHAIRMAN. He said not to any Government expenditures. Mr. Sargstad. Not to any public expenditures.

Mr. Culkin. What other expenditures are there that relate to any form of subsidy?

Mr. SAUGSTAD. Historians of that period feel that a most effective organization in Germany, so far as German shipping was concerned, was a so-called “navy league.

Mr. CULKIN. That was in the nature of social insurance?
Mr. SAUGSTAD. It was a propaganda organization.

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