Japanese yards are proposing to build other massive things such as "floating airports." A government-owned Swedish yard is scheduled to build a floating ammonia plant for Pakistan.

The CHAIRMAN. We will have a panel of subsidized operators: Mr. Barker, chairman, Moore-McCormack Resources, Inc.; Mr. Brennan, executive vice president, Lykes Brothers Steamship Co., Inc.; Captain Clark, president, Delta Steamship Lines, Inc.; Mr. May, executive vice president, Council of American Flag Ship Operators; Mr. O'Brien, president, Moore-McCormack Lines; Mr. Seaton, president, American President Lines, Ltd.; Mr. Smith, president, Farrell Lines, Inc.; and Mr. Walsh, president, Waterman Steamship Corp. Gentlemen, we appreciate your being here today.

Am I correct that Mr. May will make a presentation, or who will make the presentation?

46-188 O 79 14

STATEMENT OF PANEL OF SUBSIDIZED OPERATORS, CONSISTING OF JAMES R. BARKER, CHAIRMAN, MOORE-McCORMACK RESOURCES, INC.; ROBERT J. BRENNAN, EXECUTIVE VICE PRESIDENT, LYKES BROTHERS STEAMPSHIP CO., INC.; CAPT. J. W. CLARK, PRESIDENT, DELTA STEAMSHIP LINES, INC.; ALBERT E. MAY, EXECUTIVE VICE PRESIDENT, COUNCIL OF AMERICAN FLAG-SHIP OPERATORS; ROBERT E. O'BRIEN, PRESIDENT, MOORE-McCORMACK LINES; W. BRUCE SEATON, PRESIDENT, AMERICAN PRESIDENT LINES, LTD.; THOMAS J.. SMITH, PRESIDENT, FARRELL LINES, INC.; AND ED WALSH, PRESIDENT, WATERMAN STEAMSHIP CORP.

Mr. SMITH. I think I will. My name is Thomas J. Smith, and I am president and chief executive officer of Farrell Lines, Inc., a member of the Council of American Flag-Ship Operators. The other presidents and I appear here this morning on behalf of the testimony which was filed by Mr. May, the executive secretary of the

association.

We have nothing to add to our statement. We hope you will accept it into the record, and we are here for any questions that you may have to ask.

The CHAIRMAN. Without objection, the entire statement will be placed in the record at this point.

[The following was received for the record.]

STATEMENT OF THE COUNCIL OF AMERICAN-FLAG SHIP OPERATORS

Good morning, Mr. Chairman and members of the committee, I am Albert E. May, Executive Vice President of the Council of American-Flag Ship Operators. Accompanying me this morning are senior officials of six major U.S. flag liner companies. They are: Mr. James R. Barker, Chairman, Moore-McCormack Resources, Inc.; Capt. J. W. Clark, President, Delta Steamship Lines, Inc.; Mr. Robert R. O Brien, President, Moore-McCormack Lines, Inc.; Mr. W. Bruce Seaton, President, American President Lines, Ltd.; Mr. Thomas J. Smith, President, Farrell Lines Ine. Mr. Edward P. Walsh, President, Waterman Steamship Corp.

James W Amoss, Jr., President of Lykes Brothers Steamship Company, and Spyros 3. Skouras, Chairman of Prudential Lines, have both asked me to express the regret that long planned trips overseas made it impossible for them to join in

Opanpanies holding ODS contracts own and operate 159 U.S. flag ships. These repcobout the majority of the U.S. ocean-going liner fleet which is the most modern, divecanted and productive in the world. Many of the new barge, container and RoTo vesela have live or even six times the annual ton mile capacity of conventional Ape x4 4x ate as the 1960's. This increase in productivity has been accompanied Akce reduction in crew size-averaging around 30 percent. Even though it a ew loot bux over twice the annual ton-mile capacity of the World hve which it replaced.

X 24 CARCIty has been achieved without significant increase in subside bixon 1964 through 1979 inclusive, the cost of ODS for U.S. wwww xxx creased by only $2.1 million in constant dollars. Attached མོ་ཏར་ ནོ་་ 、 ax XX but I is a table showing ODS payments for this 26-year Advedi 40 tant dollars. me keuse way we bebeve bear particular emphasis at this hearing: sasa aye (As contractors' fleets are owned, built and manned by 4 xenxanal portion of officers, particularly younger men, Yard wwwve Second, the ODS contractors have ordered all Built in US shipyards for foreign trade since the

Velvad she had any presented before this committee on March 1 by Good chance Robert Blackwell. We will not repeat most of the mom his presentation since that is already a matter of

These appropriations are required to fund promotional programs designed to implement our national maritime policy as set forth in section 101 of the Merchant Marine Act of 1936 as reaffirmed in 1970, which says that “*** the United States shall have a Merchant Marine sufficient to carry its domestic waterborne commerce and a substantial portion of the waterborne exports and imports of foreign commerce *** and capable of serving as a naval auxiliary in time of war or national emergency

The importance of our national flag fleet was reemphasized by President Jimmy Carter, in his State of the Union Message on January 25, 1979, when he promised to propose long overdue changes in the Nation's maritime policies because "we must improve the ability of our Merchant Marine to win a fair share of our cargo." Last month, Secretary of the Navy W. Graham Claytor, Jr. in testimony before the House Armed Services Committee stressed the importance of our maritime industry: "Maritime superiority is not a matter of naval strength alone. Much too often overlooked or neglected is the merchant marine's vital role in our national security. The U.S. merchant marine is, by any measure, stagnating, and the commercial shipbuilding outlook is highly pessimistic. This is not a satisfactory state of affairs **. There is absolutely no doubt that continued erosion of our merchant fleet, and its supporting shipbuilding industry and labor force, is going to weaken our national defense. We must find the means to keep our maritime industry alive and well

事

The United States merchant industry is not alone in seeking assistance in order to keep "alive and well." In 1977 a study prepared by Temple, Barker and Sloane for the Maritime Administration documented the aids, both direct and indirect, employed by the six major foreign maritime nations to assist their shipping and shipbuilding industries. The nations studied were, in order of national flag fleet size, Japan, the United Kingdom Norway, Sweden, West Germany and France. These fleets of major western industrial nations are all faced with a deteriorating competitive posture because of increasing competition from state-owned fleets, and overt and covert cargo preference. Without exception, the governments of these western countries recognize the critical importance of merchant marines to their economies and defense and all are providing increased government aid.

CASO is currently cooperating in the preparation of a new study which will update the 1977 analysis and develop comparative measures of average annual maritime assitance. Preliminary data indicates that the level of federal assistance to the U.S. maritime industry is significantly lower than that afforded by the six nations examined-this is true when assistance is measured as a percentage of gross national product, a percentage of total foreign trade, or on a per capita basis. We make this point not to urge that federal aid be increased, though probably for other reasons it should be, but to underscore the fact that programs of maritime assistance in the United States are not unique and, indeed, are rather modest when compared to the assistance provided by our principal trading partners/competitors. We have reviewed the principal elements of the President's proposed Maritime Administration budget for fiscal year 1980. We support the proposed funding since the amounts requested appear adequate to meet minimum currently anticipated obligations and requirements.

Our comments on specific budgetary items are as follows:

Operating differential subsidy

New authorization authority for $256,208,000 has been requested for operating differential subsidies for fiscal year 1980 to which is added $50,506,000 of projected fiscal year 1979 carry over funds. The total available funds are considered adequate to support operation of 159 liner vessels and 21 bulk vessels in the forthcoming fiscal year.

We in the industry are often asked what benefits are derived from direct government support of approximately one-half billion dollars paid out annually as operating differential subsidy and construction differential subsidy. Let me try to highlight some of the significant estimated annual contributions to the U.S. economy by the U.S. Merchant Marine and the shipbuilding industries. These estimates are based on a study by the Planning and Development Department of the Port Authority of New York and New Jersey utilizing an Input-Output analytical technique to quantify economic benefits. The U.S. shipping and shipbuilding operations in 1977 accounted for: 480,000 American jobs; $16.6 billion in sales in the economy; $6.8 billion input to the Gross National Product; $4.8 billion in personal income; $1.6 billion in corporate income; and another $1.6 billion in Federal, state, and local tax

revenues.

Significantly, the study revealed that each dollar of sales by our merchant marine produces a total output of $1.80 in sales throughout the economy. Each dollar of sales by the shipyard industry produces a total output of $2.10 in the economy. It was further concluded that up to one-half of the subsidy outlays are returned to the U.S. Treasury in the form of tax accruals.

The ODS is based upon a system designed to place the U.S. operator on a cost parity with his actual foreign competitor. Parity payments were intended by Congress to equalize overall labor costs and four other categories of vessel expense. However, recent contracts have limited parity payments to wages and fringes. Overhead, administrative, fuel and other expenses are not subsidized, nor is a profit guaranteed. The parity system designed by Congress was equitable. However, we feel compelled to point out that if it is to work as intended, it must not be eroded by administrative actions. In recent years the Maritime Administration has increasingly sought to withhold parity payments with regard to P & I insurance costs and the cost of maintenance and repair. The rationale behind this administrative action is that these items are not as essential as they once were because of the increasingly high technology of new ships.

In point of fact, the P & I insurance differential reflects the fact that medical and other costs for injured U.S. seamen are much higher than those for seamen from less developed countries. This differential of course is not effected by technology. High technology vessels are productive but they are also costly to maintain and repair. The cost differential between repairing these vessels in the U.S. versus many low cost foreign yards is placing U.S. operators at substantial disadvantage vis-a-vis their foreign competitors. It is not a solution to say that when the government through administrative action refuses to pay subsidy on maintenance and repair, it permits the operator to repair abroad, because a 50 percent duty is levied on the full value of foreign repairs performed on a U.S. flag ship. We urge that your committee direct the Maritime Administration to implement the parity concept by providing for ODS payments on repairs for all ships covered by parity contracts.

Construction differential subsidy

The administration has requested authorization authority of $101,000,000 in fiscal year 1980 for construction differential subsidy purposes which will be increased by $23,000,000 of carry over funds for fiscal year 1979.

It is estimated that a total of 17 ships will be built with CDS from fiscal year 1979 and 1980 funds, six of which will enter the liner fleet (3 Waterman and 3 American President Lines). These liner vessels are part of the continuing replacement program required in the 20 years operating differential subsidy contracts between the Maritime Administration and the liner operators. Since the inception of the Merchant Marine Act of 1936, the subsidized liner operators have purchased or builit five generations of vessel types, each of which has been more productive and efficient than the vessel type it has replaced. (Pre-World War II; Victory, C-2 and C-3; C-4 Mariner; new C-3 and C-5; Container, Barge Carrying, Ro-Ro).

Since the CDS portion of the Maritime Administration Authorization Authority is basically designed to promote and support our shipbuilding industry, we will leave further discussion and comments to the representative of the Shipbuilder's Council of America who we understand is scheduled to testify later in the day.

Research and development

The administration has requested authorization for $16,360,000 for MarAd research and development projects to develop methods, equipment and systems to make the U.S. shipbuilding and ship operating industries more efficient, competitive and productive. The amount is approximately 62 percent below the amount authorized for fiscal year 1979.

Over the past ten or twelve years U.S. liner shipping has progressively moved from a labor intensive to a capital intensive industry. As we adopt innovative, high technology equipment, there is an increasing need for research, development and testing of new equipment advanced systems, and effective building procedures which are beyond the economic resources of individual companies. The research and development programs of the Maritime Administration have made significant contributions in meeting these needs.

Many MarAd projects are conducted in cooperation with the industry, particularly where the research and development costs cannot be justified by the economic return of a single company. For example, four CASO members have entered into a cost sharing agreement with MarAd for the development and operation of a prototype International Data Communications System to link participating companies' home offices with their major offices overseas. This will enable them to swiftly and economically transmit manifests, stowage plans, equipment inventory reports, finan

cial reports, traffic information and operational data. An individual company could not underwrite the feasibility study and initial development costs without the financial support of the Maritime Administration. This is just one example of the many activities within the research and development program which MarAd has helped the industry help themselves.

Reserve fleet

The authorization authority for fiscal year 1980 for National Security Support Capability has been established at $6,372,000, which is an increase of approximately 17 percent over the fiscal year 1979 budget figure. These funds will be employed for reserve fleet expenses with special emphasis on the Ready Reserve Fleet Program. We wholeheartedly support this program for the benefit of our national security. We respectfully repeat, however, our observations made in prior years that the Maritime Administration should be allocated sufficient funds to purchase vessels at actual fair market value for our reserve fleet.

Commercial operators often have vessels which are no longer economically competitive but which still have a high degree of utility for military resupply purposes. It is a waste of an important national resource to let these ships go to foreign buyers or to the cutter's torch because relatively modest sums are not available to acquire them for the Ready Reserve Fleet.

Title XI

The provision for guaranteed construction loans and mortgages under Title XI of the 1936 Act has been instrumental in providing the financing vehicle for the construction of virtually 100 percent of the liner vessels in the current U.S. merchant fleet that were built in U.S. shipyards. This support, at no cost to the government, is provided through the Federal Ship Financing Fund for vessels in the foreign commerce of the United States; it is also available for vessels employed in the domestic trades, in research, on inland waterways, in fishing and for offshore drilling.

Since the inception of this program a limitation on guarantees and commitments to guarantee has been established by use of a statutory ceiling. From time to time this ceiling has been reviewed by Congress and raised as deemed necessary.

During the past several years the Department of Treasury has on several occasions asked Congress to pass legislation authorizing the Federal Financing Bank at the Department of Treasury to regulate many aspects of government guaranteed loan programs. The Congress rejected this legislation, particularly with regard to programs such as Title XI which are already regulated and administered in great detail by other agencies of the government. The imposition of a ceiling on Title XI authorization through the budgetary process would achieve part of the goal which the Congress rejected with the Federal Financing Bank legislation. Thus, we must oppose the request in the present budget to limit during fiscal year 1980 the total aggregate amount of new commitments to guarantee construction loans and mortgages of $1 billion.

Requests for Title XI guarantees tend to come in groups and are not, and indeed cannot be, evenly spread out over a long series of years. The industry has cooperated insofar as practicable with government programs, placing orders for large numbers of standardized ships rather than ordering one or two ships at a time. With ships costing upwards of $80 million apiece for liners, a single order can total upwards of one-half billion dollar. If, due to the petroleum crisis, the administration should find it necessary to increase LNG imports, major loan guarantees would be required for groups of these vessels which individually may cost in excess of $150 million.

Quite frankly, we are also concerned about the precedent being set, even if the $1 billion ceiling is completely adequate for fiscal year 1980 we are concerned that a similar or different ceiling in future Authorization bills might be totally inadequate. Each year the OMB and the Congress are given a progress report in the budget on the Federal Ship Financing Fund in which a full accounting of obligations and commitments are made. Certainly this is ample check on the stewardship of the administrators of the program.

We urge that you delete the $1 billion limitation proposed in the fiscal year 1980 budget as being an unnecessary constraint on the operation of the Federal Ship Financing Fund and the construction of vessels in U.S. shipyards.

We appreciate the opportunity to present this testimony and will be happy to try and answer any questions which the committee might have.