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Now, as to the cost of insurance on a ship, charges for depreciation and interest on investment, which you can see are factors in this first cost, they are a percentage based upon the cost of the ship itself, so that those factors entering into the cost are dependent upon and affected by the higher costs of ships in the United States, which is, of course, immediately reflected in the higher cost of operation through these three factors that they must carry throughout the life of a ship, and it is those factors that the interdepartmental committee, in its report, recommended be covered by a shipbuilding subsidy.

The shipbuilding industry, at the present time, is operating under a code of fair competition and trade practice approved by the President of the United States on July 26, 1933, and is operating on the basis of 36 hours per week for shipbuilding and on an average of 36 hours per week over a 6-months' period for ship repairing.

Mr. Culkin. How many hours do they work, say, in Japan in the shipyards, if you know?

Mr. Smith. I do not know. In Great Britain it is 47. Mr. Saug. stad may be able to tell you, but I cannot for the moment. My belief is it is in excess of 50.

Mr. Culkin. Do you know what the Germans do?
The CHAIRMAN. Do you know, Mr. Saugstad?
Mr. SAUGSTAD. I did not hear the question, Mr. Chairman.
Mr. SMITH. The hours of work in the German shipyards.
Mr. SAUGSTAD. Forty-eight.
Mr. Culkin. You say you are working on a 36-hour basis?
Mr. Smith. Thirty-six hours.
Mr. CULKIN. Under the code?

Mr. Smith. Yes. I might mention this, that the Government navy yards, who are working on building ships of the same type and in competition with us, are working 40 hours—the Government navy yards of the United States are working 40 hours, and we were required under the code, as a start-off, to work 42 hours, and this was reduced after 8 or 9 months to 36 hours.

Mr. CULKIN. Of course, that makes the overhead tremendously greater as compared with countries that work 40 hours and 50 hours.

Mr. SMITH. Yes, sir.

Mr. HAMLIN. You do not know of any nation that has as low as 30 hours, do you?

Mr. SMITH. I doubt whether you will find any working less than in Great Britain—47 hours. When the code first went into effect the hours of work in those yards engaged on naval construction were 32 hours a week, whereas they had been 40 hours a week before the code, with the result that a wage increase of 25 percent was necessary in order that there should be no reduction in weekly earnings. A further increase of from 10 to 14 percent was made in the industry in 1934, so that at the present time hourly rates in the industry are from 15 to 25 percent higher than they were in 1929, with their corresponding effect upon the cost of ships in the United States and increase in the differential in cost between a ship built in the United States and one built abroad over what these differentials were in 1929.

Mr. CULKIN. That is one place the N. R. A. is not as dead as a dodo.
Mr. Smith. It has not been dead in its effect upon us, sir.
Mr. Rabaut. It has not been as dead, either, as some people report.

Mr. SMITH. In our particular industry I am sorry to say that the employment has been less than it would have been on new shipbuilding, because of the fact that most of our contracts were naval contracts entered into shortly after the code went into effect, and the only way to get employment in shipbuilding is to speed up during the first 8, 9, or 10 months with everybody you can, in order to open up work on the ship outside, where a larger number of men can be employed.

À question arose before this committee as to what saving might be involved in the building of duplicate ships, and I am glad to inform the committee that a substantial saving in cost is involved where more than one ship from the same design is built. The actual amount of savings due to duplicate construction depends a good deal upon the type of ship and other factors but will range from 6 to 8 percent reduction for each of 2 ships over the cost of 1, up to about 10 percent for each of 4 ships from the same design, and some reduction, which is more or less indefinite, beyond that point and which, unfortunately, we have not had an opportunity to show what we might do, because we have not had the ships, except during the war time, at any time of more than 4 of one type.

A factor of great importance in the cost of merchant ships is the building of naval vessels in private shipyards. The more vessels there are under construction in a shipyard, within the working capacity of the yard, the greater will be the distribution of the overhead involved against each ship under construction. A considerable part of overhead is what is known as "fixed overhead” that must continue whether 1 or 5 ships are building, such as management, caretaking, policing, lighting, heating, and many other items, so that the building of naval vessels will for this reason substantially decrease the cost of a merchant vessel building in the same shipyard, because of the fact they will absorb part of this overhead expense. The present trend toward the construction of the larger percentage of naval vessels in Government navy yards rather than in private yards will result in a higher cost of merchant vessels in those yards.

Now you asked Mr. Saugstad this morning about the possibility of tabulating the cost differentials, or the advantage of other countries. In a very brief way, there has been shown on pages 90 to 99 of this booklet (Pertinent Facts) the more recent subsidies. There is a double page there for each of the countries concerned that gives some of the high spots. They are so different in different countries, that it is almost impossible to tabulate them in such a way that they are comparable.

There was a question arose at one of these meetings as to ships building in the shipyards of other nations and I have here a copy of the Glasgow Herald on those ships that shows the actual ships built last year in each of the yards in all of the nations of the world, which I would like to file with your committee.

(The paper referred to will be filed with the committee.) Mr. CULKIN. Can you state, generally, how much tonnage Italy has built abroad?

Mr. SMITH. That Italy built abroad?
Mr. CULKIN. Yes.
Mr. SMITH. No; I cannot. You mean in other countries?

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Mr. CULKIN. I do not want to delay the hearing, but I think if you can summarize it it would give us some definite impression, just offhand. Do not bother searching for it.

Mr. SMITH. No; I cannot give it to you off-hand. But since the first of the year—you say built abroad?

Mr. CULKIN. Built out of Italy.
Mr. SMITH. I think comparatively little.

Mr. SIROVICH. Their contract only provides that in the event Ital. ian construction companies charge more by 15 percent than another outside bidder, they can have that vessel constructed on the outside.

Mr. SMITH. That is the rule in France, and I believe the same in Italy. There is some rule to that effect—that if they are within a limited percent higher, they still build in the Italian or French yards.

Mr. SIROVICH. You brought out in your testimony, before that we only built 2 cargo ships in comparison to 34, and the tremendous increase that England and Germany have had during the last 10 years?

Mr. SMITH. That is right.

Mr. SIROVICH. Why is it, considering the fact that the United States has the largest construction fund of any country in the world, that the construction companies of our country have not availed themselves of the service of building?

Mr. SMITH. Because you have been faced with the development of this merchant marine in the foreign trade and, of course, you can only expect new ships to be built as they are required to be built under contracts entered into under the act of 1928, or as these companies are enabled to conduct their business profitably.

Mr. SIROVICH. Is it not a matter of fact that the ship-construction companies of our country that are building ships today and are in a position to build, independent of where they are found, are capable of turning out the finest constructed ships comparable to those of any nation of the world?

Mr. SMITH. Yes, sir. We can produce ships that are the equal of those built anywhere in the world.

Mr. SIROVICH. Therefore, my criticism would not be leveled against the construction companies that I think are capable of doing their work, that are living up to their contracts with the Government so far as labor conditions are concerned, and since 80 to 85 percent of all construction funds go for the development of labor, I believe the sentiment of Members of Congress is in favor of giving a subsidy that will represent the differential between the cost of construction in our country and in Europe, but the whole trouble with our country, as I see it, is with the operators of our merchant marine.

Mr. SMITH. Well, sir, if we had not been through 6 years of depression, you would have seen a great many more ships built than were built.

Mr. SIROVICH. My reason for saying the operators did not is because, as a surgeon, I have always tried to go and see what the cause of the conditions was. We have a $150,000,000 fund for construction and for replacement and for the scrapping of obsolete ships and replacing them with new ones; we have the finest ship yards in the world, capable of rebuilding ships and constructing

new ones, with the exception of the injustice that has been done to the Pacific coast, where no construction has taken place; therefore, we have no fault to find with the construction yards. The fault that I believe exists is in our operating lines, with the companies operating ships that have operated them in such a way as to bring about investigations by Congress and having reports buried in the Postmaster General's office, which have not been brought out, to show why we have been a failure in operating ships.

Mr. SMITH. Of course, you must take this into account, sir, that the ship operator must have a definite policy under which he operates, over a long term of years, if you expect him to put new money into the construction of ships and the building up of ships and building up of his services. He cannot be expected to build unless he can see a return on it, and unless he knows what is going to happen to the ships he builds.

The CHAIRMAN. And that $150,000,000 fund has been used to the extent of all but $38,000,000, so that there is only a balance of $38,000,000, left in it now?

Mr. Smith. There is a $250,000,000 fund, I believe.

The CHAIRMAN. It was $250,000,000, but then it was limited afterward. The act of 1928 authorized $250,000,000.

Mr. Smith. That is right.

The CHAIRMAN. But a subsequent act of Congress limited it to $150,000,000. Mr. SMITH. Yes.

The CHAIRMAN. And in that fund there is only available now $38.000.000.

Mr. Smith. That is right; there is not very much available at the present time.

Mr. SIROVICH. What have we got to show for that $150,000,000, which is more than any construction fund of any nation in the world? On the terms that our Government has given under that construction fund, of 75 percent of the mortgage to be amortized over a period of 20 years, it has put us in a position that we have, according to your record here, about 5 percent of the ships that are not more than 5 years old and the rest are all ready to be scrapped ? Is that not true?

Mr. SMITH. You have asked me, sir, what do we have to show. As I have stated, you have 31 of the finest ships that have ever been built by any country of the world, which I think are suitable, with a definite policy-which I anticipate you gentlemen will formulateto form the backbone of our future merchant marine and will be worthy of what they were intended to do.

Mr. SIROVICH. In other words, since you have quoted the testimony of Professor Haag, you believe if we went on for the next 7 years with a construction program and a reconstruction program, under which we would put out about 300,000 tons of new ships every year, that we could equal, within a period of 7 or 10 years, any nation of the world in foreign-cargo tonnage ?

Mr. Smith. You could equal it in tonnage

Mr. SIROVICH. I mean you have the modernity, you have the speed, you have the newness.

Mr. SMITH. Yes.

Mr. SIROVICH. Those are the three elements which I understand are necessary.

Mr. Smith. That is right.
Mr. SIROVICH. To put into a new ship.
Mr. SMITH. That is right.

Mr. SIROVICH. You made the statement that if you could standardze ships—and you used the comparison of automobiles--you could bring down the cost of the architects' fees! In other words, each ship may have an average of about $500,000 in the cost of construction to start off with, for design, plans, and everything?

Mr. SMITH. The cost of your plans, as I have said, on a 18-knot ship might run as high as $500,000.

Mr. SIROVICH. Would it be possible to do just as we have been doing in the city of New York in building schools, where we standardize 5 or 10 schools so that we bring the cost of construction down because the overhead is always the same?

The CHAIRMAN. But you are building the schools in New York, and these people are building ships throughout the world.

Mr. SIROVICH. Yes; but my theory, Mr. Chairman, is, instead of building 1 or 2 ships, that we try to standardize 5 or 10.

The CHAIRMAN. I' understand the theory, but you are referring now to New York.

Mr. SIROVICH. No; I am just trying to bring out the fact that we have brought down the cost of construction of schools not by making every school alike and turning them out as they do à Ford automobile, but by having 5 or 10 schools built from the same design, which has brought the cost of production down and saved the taxpayers money.

Mr. SMITH. That is what I considered here. You probably can save 10 percent if you would build up to 4 or 5 ships of the same design; 10 percent on the cost of each one.

Mr. SIROVICH. Because the only differential that I can see between the cost of production in the United States and in foreign countries is the cost of labor, that is the differential.

Mr. Smith. That is right.

Mr. WELCH. Mr. Smith, you referred to the plants owned and operated by the Bethlehem Steel Corporation. Mr. SMITH. Yes, sir.

Mr. WELCH. How many plants are owned and operated by that corporation ?

Mr. Smith. It has the Fore River plant, in Quincy, Mass. It has a repair plant in Boston. It has a repair plant in Baltimore that has done no building in many years, except a barge or something of that sort. It has the Union Iron Works plant at the city of San Francisco; and then the drydocks at Hunter's Point. And it has a plant at San Pedro, Calif.

Mr. WELCH. Why is it that the Bethlehem Steel Corporation has done no shipbuilding in their Pacific coast yards for many years!

Mr. Smith. Well, they have built two vessels for the Hawaiian trade some years ago and that is about all, I think, that they have built of commercial vessels since the completion of the war program in 1922. I think that was the last ship that they completed on the Pacific coast, or in 1921. There have been no commercial vessels

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