Mr. SAUGSTAD. Yesterday, Congressman Sirovich asked to have inserted in the record the vessels and speed of the ships belonging to the P. & O. in the Far East service. Shall I read that into the record?

The CHAIRMAN. I do not know that is necessary. You can just put it in at this point. It was, in answer to an interrogatory, to be inserted in your remarks yesterday, and you can just insert it, unless you wish to make an explanation.

Mr. SAUGSTAD. There is no explanation. I have only the notes here and would have to write it.

The CHAIRMAN. All right, then; go ahead.

Mr. SAUGSTAD. The size groups of the ships now in operation by the P. & O. Co. include 13 vessels at 15,000 to 17,000 gross tons; 3 vessels at 20,000 gross tons, and 2 vessels at 22,284 tons. branch services they have five vessels of 13,000 tons.

On the

In the speed group, their vessels are 2 at 21 knots; 4 at 18 knots; 4 at 171⁄2 knots; 6 at 17 knots; 4 at 16 knots; 2 at 15 knots, and 1 at 13 knots.

The P. & O. Co. owns about 475,000 gross tons of vessels carried on the company's books in 1933 at about £14,764,000, or an equivalent of $71,000,000. The company holds colonial and British Government securities listed in 1931 at £7,202,000; in 1932, at £5,942,000, and in 1933 at £4,562,000.

Among the principal stockholders in this company are listed 12 insurance companies, 22 banks and investment trusts, besides various shipping companies and individuals.

I have been informed that there was some confusion yesterday afternoon in regard to my discussion with Congressman Sirovich of the Cunard Co.-the historic aspects thereof. It seems an impression was created that I said the Cunard Co. received no aid from the British Government at the time of its origin. I meant no aid in addition to the contracts. I understood the Congressman to be speaking of loans or cash advances, or other financial aid. In view of the Cunard operations to this country, it might be well, if the committee so desires, to recite a brief history of that operation, in addition to what was said yesterday.

The CHAIRMAN. Proceed.

CUNARD LINE

Mr. SAUGSTAD. I want to correct an error. In yesterday's discussion I said I thought Mr. Cunard was born in Philadelphia. The record shows that the Cunard family lived in Philadelphia, but when the United States declared their independence the Cunard family emigrated to Halifax and there Mr. Cunard was born in the year

1787.

Mr. CULKIN. Of what stock was he-French?

Mr. SAUGSTAD. I do not know. I am not familiar with the family history. He died in 1867.

The first mail contract between Great Britain and the United States was concluded between the British Admiralty and Mr. Samuel Cunard on July 4, 1839, through private negotiation. Specifications for public tenders had been prepared and invited, but the tenders

were unacceptable and, consequently, rejected. The contract was made effective for 7 years at 60,000 pounds, equivalent to $292,000 annually. Certain space reservations for official passengers and freight were required and the passenger rates specified. In the contract he agreed to carry a naval officer, or an officer of the Postal Service, to supervise the fulfillment of the contract.

In 1846 the contract was increased to 85,000 pounds annually. Plans then under way in the United States to promote the Collins and the Ocean Steam Navigation Cos., which would compete with the Cunard operations, caused Mr. Cunard to double the service and make weekly sailings between Liverpool and Halifax, and thence to New York and Boston alternately. Under the terms of his contract Mr. Cunard was entitled to a double amount of subsidy for a weekly service. The Admiralty, however, took the position that since he was the interested party in the development of weekly services with which to meet competition of the New York lines, the Government would agree only to doubling the original sum of the contract, namely, 60,000 pounds. Accordingly, a sum of 145,000 pounds, equivalent to $705,600, was granted for the weekly services. The practical effect of this competition was reduction by the Cunard Co. from 7 pounds ($34) to 70 shillings ($17.03) on freight rates in competition with the ship Great Western. In 1848 rates were reduced from 70 shillings to 50 shillings, about $12.17, in competition with the American ship The United States. Fine goods were taken by the Cunard Co. at 30 shillings ($7.30) per ton in competition with the City of Manchester.

Furthermore, it might interest this committee to know that as an example of the virtual monopoly on the carriage of mail created by the British mail-steamer services, the Postmaster General of the United States on March 9, 1846, reported to the United States Senate that a letter weighing one-half ounce dispatched from Boston to Bremen by the Cunard Line was charged 42% cents, while an ordinary sized newspaper was charged 61 cents, and the Postmaster General felt that such rates would prohibit intercourse between the United States and the Continent.

The next Cunard contracts of 1850 and 1853 were for a period of 10 years for weekly services between Liverpool and New York or Boston for an annual subsidy of 173,340 pounds, equivalent to $843,600. The report of the Committee on Contract Packets of 1853 stated that the rate of the subsidy payable was 11 shillings 4121⁄2 pence ($2.77) per mile; that the average duration of the 54 voyages between Liverpool and New York for the period December 1851, to January 1853, had been 12 days 1 hour 14 minutes, and the average speed was 105% knots, and that the postal revenue of the line offset the contract so that the net cost to the Government was 61,642 pounds, or $300,000.

British postmasters general pointed to competitive conditions in the North Atlantic as inviting competitive bids and, in 1866, the then Postmaster General requested and was granted permission to serve notice of the termination of the Cunard contract upon expiration and to call for public bids for the conveyance of the trans-Atlantic mail. Subsequently the Cunard Line received about 73,000 pounds ($355,250), while other and varying amounts were paid to competitive lines, including a contract with the North German Lloyd Co.

and also one with the Inman Line which subsequently was purchased by American interests and became the nucleus of the famous American Line.

The developments from that point to the turn of the century are a repetition, upward and downward, of the various postal rates and contracts which have no particular bearing on this question. But it perhaps would be interesting to have a brief statement of the 1903 contract itself, which is the contract that has been read into the record many times.

The organization of the International Mercantile Marine of New Jersey provided the occasion and perhaps the fundamental reason for the new contract with the Cunard interests, which went into effect in the year 1903. The I. M. M. was a combination which was headed by Mr. J. P. Morgan, Mr. Bernard N. Baker, and Mr. Clement C. Griscom, of the American Line. The company absorbed the Atlantic Transport Co., and the American, Red Star, Leyland, Dominion, and White Star Lines.

The CHAIRMAN. Were all of them British lines?

Mr. SAUGSTAD. Not the American Line. Both the North German Lloyd and the Hamburg-American Lines were threatened with absorption into the combine but obtained, instead, a working agreement by which the I. M. M. agreed not to call at German ports without permission from the German companies. In return, the German companies agreed to support the combination in any rate war brought by new competitors; also the companies agreed to pay the I. M. M. 25 percent of any surplus above 6 percent required for dividends to stockholders in the German companies; the I. M. M. agreed to pay to the German companies any missing sum required to make up a 6-percent dividend to the stockholders in the German companies.

The I. M. M. contracted with the British Government to keep the White Star and certain other fleets under British nationality and control.

The C. G. T., of French registry, being largely subsidized by the French Government and considering its New York service only as a branch of its business, had little pressure brought on it to join the combine.

As a result of these developments, the British Government entered into a contract with the Cunard Co. on July 30, 1903. The contract contained three parts: Part I dealing with the Admiralty; part II dealing with the Postal Service; part III dealing with the general provisions. Under part I, Admiralty provisions, the Cunard Co. agreed to build two vessels of 24- to 25-knot speed according to plans and specifications approved by the Admiralty; (2) the Government acquired the right to purchase or hire these or any vessels owned by the company as part of an agreed schedule; (3) the company agreed not unduly to raise freight charges or rates, and not to give undue preference to foreigners; (4) any vessel of 17knot speed or above, subsequently built by the company during the life of the agreement, should have its plans approved by the Admiralty; (5) the company agreed to afford the Admiralty facilities for fitting armament on board and to give the Admiralty free storage in the company warehouses for Admiralty equipment; (6) the company agreed not to charter or to hire any vessel, except to the Indian Government, without 7 days' written notice to the Govern

ment; (7) all officers and 75 percent of the crew were to be British subjects; all deck officers and not less than half of the crews of the three principal vessels in service were to be naval reservists. Failure to fulfill this provision carried a penalty of 60 pounds per head for every person below this scale, to be deducted from the annual sum of 28,000 pounds due the company under the agreement with the Admiralty dated October 24, 1902; (8) the company engaged not to sell any vessel of 17 knots or above.

In return for these considerations, the Admiralty agreed to pay the company £150,000 annually, equivalent to $730,000; £75,000 annually upon entry of the first vessel and £75,000 annually upon entry of the second vessel into service. There was to be advanced to the company as a loan the sum of £2,600,000, equivalent to $12,653,000, with which to build the ships. This constituted up to that time the only instance of a direct public loan being granted to a British shipping company by the British Government.

Mr. MANSFIELD. When was this, please?

Mr. SAUGSTAD. This was in 1903. The loan was secured by a mortgage upon the assets of the company. Interest charges were at a rate of 234 percent per annum and interest was to begin on one-half of the total amount when the first vessel entered the service, irrespective of how and when the loan was advanced, and one-half upon entry of the second vessel into service, thus providing no interest charge on any sums advanced during the period of construction. The loan was repayable in 20 annual installments beginning 1 year after entry into service of the second ship. The company was to issue one share of stock value at £20 to the Government.

PART II. POSTAL SERVICES

Postal-service requirements were to comprise weekly sailings on Saturdays from Liverpool under a fixed annual payment of £68,000, equivalent to $330,900. As previously outlined, 100 measurement tons, which is equivalent to 4,000 cubic feet, of parcel-post matter were to be carried free; any excess over this amount was to be paid for at the rate of 26 shillings, 3 pence, or $6.39 per 40 cubic-feet measurement space for mail.

PART III. GENERAL PROVISIONS

Part III of the contract contained various general understandings. The fleet considered as included in the agreement consisted of 17 vessels of 110,782 tons at an agreed-upon value as of September 29, 1902, of £1,990,550, or $9,687,000.

In case of purchase of any vessel by the Admiralty, the purchase price was to be the value of the vessel on the date of notice of intention to purchase, plus 10 percent. Rights to hire the vessels were governed by a schedule which provided for a rate per gross ton per month according to the speed of the ships.

The articles of association of the Cunard Co. were so altered as to comply with the requirements of guarantee of British nationality and protection of the equity of the Government. I quote from the

contract:

It is to be regarded as a cardinal principle of the company that it is to be and remain under British control.

Perhaps the most interesting provision under the contract was the question of speed. The Admiralty laid down the proposition that there must be no compromise with speed. The ships were required to make 241⁄2 knots in moderate weather. If they made only 232 knots, the payment was to be reduced by a deduction from the annual Admiralty subsidy of £150,000.

The Admiralty had previously appointed a committee on merchant cruisers to investigate and report upon technical matters. This committee reported in December 1902 substantially as follows: That nearly all large vessels of high speed were structurally strong enough to carry and fight with 4.7-inch guns; that they were subdivided up to existing Admiralty standards; that they could be fitted with steering gear below the water line without difficulty and at an expense of between £500 to £1,000 per ship per annum, including excess of first cost, depreciation, and upkeep. The principle of an annual Admiralty payment was adopted, and the payment was to be made on the basis of a speed-cost scale worked out of from 20 to 25 knots, according to a rather lengthy schedule which I won't insert in the record at this time. But, according to that scale, it was estimated a 25-knot ship would cost nearly 3 times as much as a 20-knot ship; would require nearly 3 times the power and 16 times the subsidy of a 20-knot ship.

The rest of the contract is a matter of history. As we all know, the Lusitania was sunk during the war and the Mauritania carried on from the date of her entry into service until just a matter of a few months ago.

That is all I have to say on the Cunard contract.

The CHAIRMAN. The postal subvention was generally regarded as sufficient to amortize the loan to the Government, was it not?

Mr. SAUGSTAD. I would say that the Admiralty subvention of £150,000

The CHAIRMAN. Yes; I should have said the Admiralty subvention.

Mr. SAUGSTAD. Which was really intended, in the reports of the time, to cover the extra cost of the high speed the ships had to maintain. It is not necessary for the record to insert the actual working out of that schedule, but we have it if it is desired, showing how it worked out year by year.

Now, are there any questions on the Cunard or any further questions on the line services of Great Britain?

Mr. MANSFIELD. It seems that they regarded speed as the most important feature, did they not?

Mr. SAUGSTAD. No question about it. The crux of the Admiralty interest in the entire contract was that of maintenance of high speed. Previously, the British Admiralty had declared that they had no longer any particular interest in mercantile vessels for convertible cruiser purposes that were incapable of making 22 knots under ordinary conditions.

Mr. MANSFIELD. Now, as I understand from Mr. Haag, our merchant marine in point of speed stands at the bottom of the list? Mr. SAUGSTAD. He so testified; yes, sir.

Mr. WALLGREN. What was the history of those contracts; were they fulfilled?