Mr. HOFFMAN. "To render personal service?"

The CHAIRMAN. That would have to be limited as to the seamen as to such an extent that there would be an exception while he was actually on duty at sea.

Mr. DELANEY. Does not that apply to the railroad men, too?

The CHAIRMAN. I should think it would. I should think that would be correct.

Mr. DELANEY. Certainly. The railroad man cannot get off his run because there is a grievance.

Mr. HOFFMAN. No; but if he gets off at the end, under that last section, no officer of the Government can compel him to go back on his engine again.

Mr. DELANEY. No. At the end of his run they cannot make him go back.

Mr. HOFFMAN. Even though he signed a contract to serve 6 months.

Mr. DELANEY. That is a different proposition. If he signed up for 6 months, he is signed up for 6 months; he is under contract to work for 6 months.

Mr. HOFFMAN. And he must stay?

Mr. DELANEY. Why, certainly.

Mr. HOFFMAN. All right.

Mr. DELANEY. A contract is binding.

Mr. HOFFMAN. I did not know whether it was or not. I gathered it was not sometimes.

Mr. DELANEY. All I have been talking about, or have been trying to talk about at least, was to try and point out to your committee how successful the Railroad Labor Act has worked in the railroad industry; and I believe that it can be just as successful in the maritime industry.

Mr. CULKIN. The railroad brotherhoods and the railroads themselves as true lovers?

Mr. DELANEY. Well, they work pretty close together.

Mr. CULKIN. I think so-judging from the letters I have been getting.

Mr. DELANEY. They work pretty close together, and there is no reason why they should not, because both parties hold an interest in it. And that goes for the maritime industry, too; the same cooperation should exist between the employees in the maritime industry and the employers.

Mr. CULKIN. Yes. It is their bread and butter.

Mr. DELANEY. Why, certainly.

I thank you, Mr. Chairman and members of the committee, for the time you have given me.

The CHAIRMAN. Mr. Donald, we will hear you now.

STATEMENT OF JAMES DONALD, NEW YORK CITY

The CHAIRMAN. State your name and address for the record, please.

Mr. DONALD. James Donald, 17 Battery Place, New York. I am in business for myself. My qualifications for bringing any composition to this committee are that I have had shipping experience

for about 30 years, and operating experience in the shipping business for about 10 years, and so as to remove any doubt about my nationality, I have been an American citizen for 30 years.

In looking over the question of a subsidy for an American merchant marine, it is a rather complicated question, because there are steamers carrying cargo in the oversea trade and passengers in the oversea trade. Then we have the intercoastal business and we have the coastwise business.

The CHAIRMAN. I am going to ask Mr. Saugstad immediately after this witness to go on.

Mr. DONALD. So I think we have to concentrate possibly on one department of this subsidy. Say, like if you want to encourage the freight services by giving subsidies to the freight business, you should possibly place a general recommendation for the differential in carrying the freight in freight steamers. Then in the case of passenger steamers, like we heard this morning, where you are competing with, say, the French Line or the Cunard Line, there would be special separate considerations to be taken up to compete with these foreign lines. The same with the Japanese.

The question of subsidies would be along the lines as proposed by the President. That is a differential for building the costs and the cost in a foreign country entering the United States, and the question of a differential for operating between the different countries.

I will read my suggestion in a few minutes, but it is along the lines of mutualizing a steamship along the lines of an insurance company so as to make it as efficient as possible and cut out the profits that you give to your stockholders and the overcapitalization that you get in your private steamship company, in that way bringing down your operation to the minimum. And I run up against, of course, a clause in the Merchant Shipping Act of 1916, that the profits that I make from this mutual shipping company would be rebated back to the shippers or the exporters, and my idea in rebating it back to the exporters and the shippers is so as to encourage the American manufacturer to ship in American bottoms.

Of course it is revolutionary, and it is going to disturb the present shipowners, but I think that it could be started in a small way with some particular service and gradually build up.

With your permission, I will go ahead and read my paper.

The CHAIRMAN. All right.

Mr. DONALD. In order to have a U. S. Merchant Marine it will be necessary:

First. To have U. S. exporters and U. S. importers have their goods transported in U. S. bottoms.

Second. To pay a direct subsidy to the shipowner equal to the difference in cost for building his steamer in the U. S. as compared with the same steamer built abroad for a competing foreign owner. Third. To pay a direct subsidy to the shipowner equal to the difference in cost of operating his steamer under the U. S. flag as compared with the same steamer opearted by a competing foreign

owner.

Fourth. To use the loan fund for building new tonnage as now existing and regulations made that the shipowner deposit in escrow in a bank 25 percent of the contract price of the new vessel before

the building commences. The U. S. Government to pay the 75 percent of the contract price direct to the shipbuilder in installments to be agreed upon.

In cases where U. S. Government owns any part of financing of vessels for shipowners that they appoint an independent commercial chartered accountant to make regular audits for the shipowning company and submit same to the Department of Commerce, and he also will report any excessive expenditure or high salaries that are out of proportion to the business transacted.

With reference to no. 2, it will be necessary that the design of the U. S. steamer should not be for too large, too fast, or too elaborate a type, but a good, efficient, safe, and suitable vessel capable of having an efficient life of 20 years.

With reference to no. 3, it will be necessary to compel the shipowner to carry his vessel on his books at the cost to him (i. e., after the U. S. Government has paid as a subsidy the difference in cost for building his vessel in the U. S. as compared with the cost abroad). This is for arriving at capital of shipowning company and on which dividends or other distribution will be calculated and upon which interest on capital will be paid and also upon which depreciation will be figured.

With the Government assistance, viz, subsidy for differential in cost of building and subsidy for differential in operating, it should be possible for the shipowning company to depreciate the vessel 5 percent per annum, pay all expenses, and make a profit. Out of this profit a reserve fund to be built up for lean years, a payment made to U. S. Government for loan and a dividend or other distribution paid, the division of said reserve, loan payment, and dividend, or other distribution to be decided by the board of directors of the shipowning company and with the approval of the U. S. Government representative.

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

The existing arrangements of mail subsidy (March 1935) are now under consideration and may be changed and a direct subsidy arranged along the lines described in the foregoing 9 paragraphs.

Mutual Shipping Corporation: The following proposition is suggested as an efficient and easily applied method of carrying out the provisions of the foregoing paragraphs 1 to 9 inclusive.

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

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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

tion so as to overcome the increase in cost of operating under the United States flag compared with the cost of operation under the foreign flag in the same trade. The amount of this subsidy to be arrived at by three independent reliable ship appraisers engaged in

this business.

The United States Government would pay the Mutual Shipping Corporation the agreed amount of subsidy for each steamer for the year. As the shipping company is only receiving the differential over the foreign steamer, the Mutual Shipping Corporation would only employ as many steamers as were required for the cargo offering and have a regular schedule of sailings. There would be no inducement to operate steamers lightly loaded at long intervals as the more freight the shipping company transports the more revenue is received.

The Mutual Shipping Corporation would be able to make a profit owing to the following advantages:

No overcapitalization.

No extravagant overhead.

No stockholders' dividends.

No inducement for speculators to buy the corporation in a depressed security market, reorganize and sell to the public on an increased capitalization.

The CHAIRMAN. That is really a Government-ownership proposition.

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

insurance company.

The 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 receive the differential in first cost for their payment to the shipbuilder.

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

After you have made some profit you pay your installment to the Government and you have a profit left over, and rebate that back to the manufacturer or the exporter, and in that way you induce more capital to come into the American business.

The CHAIRMAN. Where is your replacement coming in there? Mr. DONALD. You have a depreciation account. After you have been operating 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.

The CHAIRMAN. The Government would have to replace them, would it?

Mr. DONALD. You would go on the same way as you are doing now. You would pay your 25 percent and the Government would lend you 75 percent, and you would go on with your building up in the 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 merchant marine steamers. We are not doing it.