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Mr. Culkin. That was part of the contract of these lines; they were to replace as time went on?

Mr. DONALD. Yes; they have to build up the services.

Mr. CULKIN. And that has not been done, of course, and cannot be done, you say?

Mr. DONALD. Are they making money? Are they putting money away for depreciation now?

Mr. Culkin. I am asking you; do you know?

Mr. DONALD. I am not in a position to give away any of the companies' information, but I understand that they are. It is not a healthy proposition the way it is now as far as I can see.

I may say that it occurs to me that the subsidy is not being applied in such a way as to rebuild the merchant marine. I don't think so. I think you would agree with me.

Mr. CULKIN. Each 20 years you would have to start all over again! Mr. DONALD. Beg your pardon?

Mr. CULKIN. Each 20 years you would have to start all over again? Mr. DONALD. No. Mr. Culkin. What is the life of these ships?

Mr. DONALD. Well, a ship's life is 20 years, but why not replace them every 15 years and get a modern ship! Some of the British ships are replaced every 12 years. They sell them for scrap and replace them in 12 or 15 years. I had to do with the design and building of the Texas, and she is still running, and she was built in 1902.

Mr. CULKIN. The City of New York was built in 1884. She is going yet. That is Byrd's ship. .

Mr. DONALD. After this mutualization proceeded it would be found that you could have three of this. You could have one for the Pacific coast, one for the Gulf, and one for the Atlantic coast. I am not talking about the oversea trade, because that is where you are going to pay the subsidy.

What is the trouble now with the intercoastal trade? We do not have a subsidy in the intercoastal trade, but we have a tremendous amount of competition. If you had these fellows in the intercoastal trade mutualized you don't think they would be cutting each other's throats and putting on 50 steamers where 25 would do for it. They would be running the thing at the least possible expense and most efficiently and putting on the number of steamers to take care of the business. That is the thought that I am trying to give the committee. If you can use it in any way, all right.

The only objection that we are going to have is from the present shipowners. The shipyards are not going to object to this or the ship repair people or the labor people. They are going to build up and make profits, and rebuild for the merchant marine and have more steamers and encourage the exporters to ship in your bottoms. And after you had built this all up you would have a modern merchant marine as an auxiliary to the United States Navy in time of war, and a merchant marine that would carry your goods when the other fellow was at war.

The CHAIRMAN. All right. Thank you.
Does anyone else have a statement ?
All right, Mr. Saugstad.

STATEMENT OF J. E. SAUGSTAD-Resumed

GREAT BRITAIN

Mr. SAUGSTAD. The contract subsidies to British shipping takes the form of a mail contract, known officially in Great Britain as the “ packet services.” The contracts are made between the steamship lines and the Postmaster General of Great Britain-and, by the way, I am now confining my remarks to the United Kingdom, not the British Empire.

The CHAIRMAN. You say you are confining them?

Mr. SAUGSTAD. Confining my remarks to the United Kingdom, the home government, not to colonies or dominions.

The principle underlying the British mail-contract system is officially stated to be that of compensation for the carriage of a certain volume of mail. It has not always been measured in that way, but that is the current procedure. The contracts are quite closely drawn, based upon the estimated movement of the mails, and are changed from time to time apparently as that volume increases or decreases.

The first contract in the British system, and the most important contract service possibly in the whole world, based upon seniority, upon the equipment used and the political principles involved due to colonial and empire requirements, is that of the Peninsular & Oriental Steam Navigation Co., known in the trade as the “ P. & O. Co."

That company was organized as a commercial enterprise in 1837, and concluded its first contract with the British Government on the 220 day of August of that year. In other words, the company has been under contract continuously with the British Government in its operations for 98 years.

Last year's grant to that line was £341,000. At a par value of that pound, that would be about $1,650,000. The total payments for 1934 for contract services under the British system were £730,000, equal to $3,550,000. The amount for the previous year for this line was £1.000 greater, and the amount for 1932 was £348,000. I cite these figures to show that they change slightly each year.

The last contract of the P. &0. Co. with the British Government is dated August 15, 1907, and was to be for 7 years from February 1, 1908, and to January 31, 1915, and if not then terminated the contract was to continue thereafter until 24 months' notice had been given by either party to the contract. We have no official information showing that that contract has ever been changed. I have not seen all sessional papers for the last year or 2 years for the British Parliament.

In the 70 years which lapsed between the original contract, 1837, and the final contract in 1907 of the P. & O. Steam Navigation Co., power development and ocean speed development were practically doubled over that particular run. The original vessels made 81%, knots on an average. The vessels at the time of signing the 1907 contract made about 16 knots. I have not checked the individual vessels to show the speed now that obtains on the routes. If the committee desires I will be very glad to submit it.

The CHAIRMAN. We will be very glad to have it. (See p. 265.)

Mr. SAUGSTAD. The contracts to the P. & 0. Co. have always been let upon prepared specifications wholly or in part covering the entire eastern system, and the principle has been, of course, to accept the lowest bids for the service from competent bidders, but in practice that principle has not always been followed. However, when the principle of public bidding has been set aside it has been justified before the House of Parliament on the basis of the competency of the operator and time-saving conditions involved.

The original contracts were made between the British Admiralty and the company. This was primarily because of the experimental situation that existed in steam navigation in the 1830's. While steam power was being developed the Admiralty carried the principal burden, and I might say that the same principle applied to the original Cunard contracts. Private capital in the thirties was not ready to go into an experiment which required as much capital as those lines required and which carried the risk that they carried at that time.

Mr. CULKIX. That was the introduction of steam?

Mr. SAUGSTAD. That is the introduction of steam; yes, sir. The basis of this study has been from the beginning of steam navigation. We have not extended beyond that so far as any Government interest was concerned.

Mr. Sirovich. Did not Cunard extend his lines with a subsidy and loan from the Government at the time?

Mr. SAUGSTAD. Yes, sir. I would not say loan. He began with a contract. The Royal Mail began with a loan, and we will take that up a little later.

Mr. 'SIROVICH. They loaned money and they gave them money, Cunard, when he first entered into the development with ships.

Mr. SaugsTAD. I don't think so.

Mr. SIROVICH. That is what I read. He came somewhere from Novia Scotia or Newfoundland, did he not!

Mr. SAUGSTAD. His original contract was to Nova Scotia.
Mr. SIROVICH. That is where he came from.
Mr. SAUGSTAD. Mr. Cunard was born in Philadelphia.

Mr. SIROVICH. From what he read, I thought he was born in Newfoundland.

Mr. SAUGSTAD. No; he was born in Philadelphia, I believe, and went to Nova Scotia, and when the trans-Atlantic competition became intense he transferred his operations down to New York. That was the beginning of the trans-Atlantic service at New York for the Cunard Co.

About 1866 the British post office felt that the competition in the principal steamer lines had become so active that they proposed to undertake to handle the contracts from that time on the basis of competitive bidding.

Since 1907 the amounts of money so far as the P. &. 0. is concerned, have not varied to any great extent. When the contract was first extended to Hong Kong in 1844, the contract amount was £115,000 for the line from Suez to Calcutta, £45,000 for the extension to Hong Kong. At the time of the final contract in 1907, the contract amount was £305,000, an equivalent of $1,484,000. That compares with the current amount previously stated as being £341,000.

In a general way the same conditions apply to the P. & 0. operations to the Far East as applied to the French operations to the Far East discussed this forenoon, in that certain space preferences are given to the British Government for the movement of British official business, and unless there are questions on that point I do not believe I will elaborate it.

Mr. SIROVICH. The only difference, however, is that the French, as you brought out, go into partnership with their Far Eastern merchant marine and assume 80 to 90 percent of the liabilities?

Mr. SAUGSTAD. Yes, sir.

Mr. SIROVICH. Whereas here it is a direct ship subsidy through the medium of the mail contract?

Mr. SAUGSTAD. Yes, sir.

Mr. Culkin. Do you know whether the Government has any representation on the board of that line?

Mr. SAUGSTAD. No, sir. Mr. CULKIN. You do not know whether they do or not? Mr. SAUGSTAD. I do not know that they have, but on information and belief, I would say that they have not. Mr. Culkin. Do they exercise any supervision over its finances? Mr. SAUGSTAD. I do not think so; no. Mr. SIROVICH. Now, this money that the British Government gives as a mail subsidy is not based on the universal postal rate, is it?

Mr. Saugstad. No, sir. It is a flat amount.

Mr. SIROVICH. In other words, it is a pure indirect subsidy given through the medium of a mail contract?

Mr. SAUGSTAD. Yes, sir. I might say in that connection that the last figures I had to show the amount of mail that moved over that system was 1,500,000 bags in one year. So that in practice for that particular year Mr. SIROVICH (interposing). That is the P. & O.? Mr. SAUGSTAD. That is the P. & O.

Mr. SIROVICH. And how much would that amount to according to the universal postal rate? Mr. SAUGSTAD. I have no idea. I am speaking of bags. Mr. SIROVICH. Yes. You know the weight of a bag? Mr. SAUGSTAD. I do not know what the weight of a bag is. Mr. SIROVICH. Of course, if we could determine that, we would be in a direct position to determine exactly how much money they were subsidizing, because if the universal postal rate is so much a pound and there are so many pounds in a bag and they carry 1.500,000 bags, it is a question of multiplication.

Mr. SAUGSTAD. I do not know whether there is a certain number of pounds

per bag. Col. KENNETH GARDNER. The bag is not always precisely the same weight. They vary.

The CHAIRMAN. And what is your name, for the reporter? He got your remark and would like to know who made it.

Colonel GARDNER. I just wanted to say that the bags do not run precisely the same. The poundage is estimated by the year.

Mr. SAUGSTAD. I want to say in addition to the P. & 0. operation we have calculated from time to time the amount of money this would represent on a mileage basis, and it is shown by fixed payments to British operators of vessels into the Far East that they vary from 30 shillings, about $7.30, per mile, at times, and on certain runs to 45 shillings, an equivalent of 97 cents to $1.22 per mile at other times on the main lines.

A fair average during the period of competition beginning with the opening of the Suez Canal would be about 5 shillings per mile sailed. Statements made by officials of the P. & 0. Co, indicate that they have received a return of about 4 shillings per mile as the return on their contract service during recent years.

The operation over that line is restricted to a certain number of days and hours between Marseilles and ports of the Far East. I cite Marseilles since this port is the point of departure of British mails to the Far East. Contracts are so closely drawn that allowances are made for prevailing winds, the monsoons, so that allowances are made to take care of the retarding effect on the vessel. But the vessels must keep up their itineraries or they must sail on time, unless the owners want to incur heavy mail penalties. That is the principle of operation on all British mail lines.

Have you any questions on that line?

Mr. SIROVICH. I would like to know about the American line that the British have. You are talking only of the Orient ?

Mr. SAUGSTAD. Yes, sir; speaking of the P. & 0. That is the larger line.

Mr. SIROVICH. About how many ships have they in that line?

Mr. SAUGSTAD. I do not know. I have not had time to calculate the number of ships. Would you like to have that inserted in the record ?

Mr. SIROVICH. Yes; I think that would be interesting. Have they passenger ships there alone or combination of passenger and cargo? (See p. 265.)

Mr. SAUGSTAD. The mail contracts cover passenger ships only. There are no contract provision which specifies that the contract shall operate extra tonnage for commercial purposes.

Mr. SIROVICH. And the same formula that prevails between France and her colonial possessions so far as 25-percent cargo and differences in the cost of transportation are concerned applies to England just as it does to France?

Mr. SAUGSTAD. No, sir; not by the contract. There are certain preferences so far as space allotment is concerned.

Mr. Sirovich. But then so far as passengers are concerned, too; I mean those that work for the Government ?

Mr. SAUGSTAD. So far as I know; no.

The next British contract in point of size is that between the United Kingdom and New York, which has been a dual arrangement under 2 separate contracts until recently, 1 the White Star Line, the other the Cunard Line. The latest appropriation, that for 1934, which includes also the South American and Central American services—but those are small amounts for parcel-post movementis £222,000. an equivalent of $1,080,000.

The last contract of which I have record is the contract of 1928, which was for a 5-year period. The contracts apparently terminated 2 years ago, and the sessional papers of the House of Commons do not show as yet any documents which replace those two

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