number of crews. Labor has been most understanding in that, and within the last 15 years we have gradually reduced the crews of our ships, say on a standard freighter, down from 47 to 32, and recently there have been further reductions. So this is a substantial gain.

Mr. SNYDER. I am sure my time is running pretty short. I do want to ask you a couple of questions specifically, Mr. Seaton, but maybe some of my colleagues want to pursue other subjects for a little bit.

Mr. Seaton, Secretary Blackwell pointed to American President Lines' example of success of the 1936 act, citing record $42 million profits. I assume that you are putting the bulk of that back into your capital construction fund in anticipation of replacing your vessels, is that accurate?

Mr. SEATON. That is correct.

Mr. SNYDER. Will the capital construction fund the construction differential subsidy, and Title XI, allow you to replace your fleet in U. S. shipyards, and continue to show decent profits?

Mr. SEATON. Well, I think that is a function of what is going to happen in the industry in the future. I am not sure that is answered on a precise or black and white basis.

I think a very important aspect of it is what the profits will be in the future, and they will be a very strong function of the cargo market, and the world competitive factors. The fund by itself, our ability to build ships in the future, and expand the fleet, will be a function of what we earn. It will not be what we place in the capital construction fund, and certainly not a complete function of subsidy that we receive. It is a matter of a number of factors. Mr. SNYDER. You are saying that that question depends on how good the marketplace is, and how good business is?

Mr. SEATON. It depends on what the fleet will be in the marketplace, that is something that has some fair applicability to the discussion today. If we are not competitive in the marketplace, then there will be a very difficult time in generating adequate return to build ships in the United States, and develop a viable fleet.

Mr. SNYDER. Do I hear you falling on the side of the GAO recommendation that U.S. operators be allowed to purchase foreign built vessels, and bring them back under American flag?

Mr. SEATON. Not necessarily I think there are a myriad of legal-what I call a lack of legal parity in terms of U. S. operators versus foreign operators, many facets that put the U. S. operator on a competitive disadvantage position compared to the foreign operator, and I think this is a very fundamental aspect of competitiveness in the future.

Mr. SNYDER. Mr. Chairman, you have been more than generous with me, and I want to thank you on the situation. I have got some more questions here, and if they do not get asked, I would like unanimous consent to submit additional questions.

[The following was received for the record.]

The CHAIRMAN. The gentleman knows that we are always liberal on the time, as we possibly can be.

Mr. SNYDER. It is not being liberal on the time that bothers me, but rather your liberal political philosophy.

The CHAIRMAN. Mr. Donnelly?

Mr. DONNELLY. I have no questions
The CHAIRMAN. Mr. Trible.

Mr. TRIBLE. No questions.

The CHAIRMAN. Mr. Snyder.

Mr. SNYDER. I think that in the interest of time, and since we do have a lot of witnesses, that you honor my unanimous consent request, that I be permitted to submit specific questions to Mr. Smith of Farrell, and a couple of general questions to CASO. Counsel will give them to the witnesses today, and they can respond to them for your record, within what, 10 days, is that all right? I do not want to delay the thing.

The CHAIRMAN. We have a time limit on marking up, but 10 days is within that time.

Mr. SNYDER. Whatever the Chair suggests, I would just ask unanimous consent that we put their answers in the record.

The Chairman. I would like to join the gentleman in that. I have some questions on the current status of the ODS contracts, their terms, and certain other elements that I am going to ask each of the operators to respond to for the record, and without objection, that request is ordered.

Are there other questions?

Thank you very much, gentlemen.

[The following was received for the record:]

QUESTIONS OF MR. MURPHY AND ANSWERED BY ALBERT E. MAY

A. Questions for all.

1. What is the current status of the operating differential subsidy contracts that you hold? Do you all hold long-term contracts?

a. Please indicate where certain traditional elements of subsidy, such as P. & I. insurance costs and M. & R. costs, have been eliminated.

b. What are your replacement obligations under these contracts?

Answer.

American President Lines, Ltd. APL currently holds a 20-year ODS agreement which became effective January 1, 1978.

(a) The traditional ODS regarding insurance costs and M. & R. were eliminated with respect to 15 container ships, but full subsidy was applicable to the 5 breakbulk vessels.

(b) They are required to enter construction contracts for 2 ships by March 31, 1978. The 20 ships in the APL fleet are required to be replaced as they reach the end of their economic lives or an equivalent total carrying capacity basis.

Farrell Lines Inc. One MSB-352 contract has been in effect since January 1, 1976. It is due to expire December 31, 1995.

(a) In this contract, M. & R. and hull insurance were both eliminated; P. & I. retained.

(b) Replacement obligations are as follows: (1) Five break-bulk, C-4s due to be replaced in 1987-88; (2) two break-bulk C-4s due to be replaced in 1990; (3) four C-6 and C-8 container vessels to be replaced in 1997-98; (4) three C-8 LASH vessels due to be replaced in 1996-98.

In the Export services, the MSB-87 contract currently in effect expires December 31, 1979. (a) The contract retains hull insurance, M. & R. and P. & I. (b) Replacement obligations will be complete with delivery of the two C-5 container vessels, one this year and one next year.

Farrell has reapplied for renewal of the full 20-year contract, and it is presently being processed. They do not expect it to be completed before the expiration date, and have been given to believe that they will be granted a one year extension. Moore-McCormack Lines, Inc. Their ODS contract expires December 31, 1994. (a) Subsidy for M. & R. as well as hull insurance was eliminated in accepting this contract.

(b) Construction contracts are required for two new vessels in 1983, with delivery in 1985.

Lykes Bros. Steamship Co. Inc. Lykes holds a 20-year ODS contract that became effective January 1, 1971.

(a) Under the terms of this contract, these elements continue to be covered: P. & I., M. & R., crew wages and hull insurance.

(b) Replacement obligations are as follows:

Prudential Lines, Inc. Their ODS contract expires December 31, 1977.

(a) In this contract, P. & I. was retained; hull insurance and M. & R. were eliminated.

(b) Construction contracts are required three years prior to expiration of the statutory life of the vessels.

Question 2. On page 10 you say: "Commercial operators often have vessels which are no longer economically competitive but which still have a high degree of utility for military resupply purposes" and then you go on to recommend that they be purchased for lay-up in the National Defense Reserve Fleet.

If this is really needed, I am all for it, as the National Defense Reserve Fleet desperately needs more modern vessels if it is to be of use in a national emergency. As you know, in Public Law 92-402, the MARAD Authorization Act for fiscal year 1973, we specifically earmarked $30 million in construction-differential subsidy for just this purpose, but nothing came of it. Additionally, Public Law 95-177 amended Section 510(i) of the Merchant Marine Act, 1936, to permit you to trade-in the vessels you've talking about in exchange for scrap candidates that can be sold foreign.

a. Do we really need additional authority in this regard?

b. How many vessels are you prepared to say you would trade in if such authority is enacted?

Answer. There are vessels in the commercial fleet which will have a high degree of military utility when they are no longer commercially competitive. It is difficult to state exactly how many ships might be available for trade-in in any given year because the economic viability of the ship is affected by many factors, some of which are outside of the control of U.S. operators, e.q., the introduction by a foreign operator of higher technology vessels on a trade route. In addition, many carriers, for competitive reasons, do not wish to disclose their plans to phase out existing ships in favor of new tonnage until the last moment. However, at least one operator, Moore-McCormack, has indicated they have at least three ships which they would be interested in trading in.

The amendments to the Vessel Exchange Act which you mentioned have worked fairly well but it is a cumbersome procedure to have to take out old vessels and then sell them for scrap. Additionally, the number of candidates for scrap is declining. Accordingly, we do see real merit in giving the Government permanent authority to buy vessels from the commercial fleet.

Question 3. It appears to me that liner operators complain about shipyards, and vice versa, but that everyone is agreed that series construction is a good thing. If the research and development program of the Maritime Administration is such a good thing, why can't we come up with a standardized ship that will make the operators, shipyards, and the American taxpayer happy? As I recall, it took Admiral Cochrane and MIT to come up with the Mariner Class vessel, and then-at firstyou operators didn't like it. Why can't the U.S. flag merchant vessels be more standardized?

Answer. Chairman, it appears that there are three parts to your question. First, "the research and development of the Maritime Administration is such a good thing, why can't we come up with a standardized ship that will make the operator, shipyards and the American taxpayer happy?" U.S. flag liner operators must compete on trade routes which present a wide variety of geographic cargo and service problems. For instance, many countries, particularly in Southeast Asia and Africa, are not equipped to handle containers. Conversely, containers are by far the most cost efficient means of sea transport in trades to highly developed countries such as Japan and Europe. Some trades, such as the Australian, require enormous quantities of refrigerated space on a vessel, while virtually none of this expensive space is

crute a number of major ports ter because of water depths. actors on his own trade routes to ment of the vessel that will best ag operators. There is no single Is, it is not the fault of the ram has not developed a single Le have done a good job in develtary support purposes.

mal Cochrane and MIT to come -you operators didn't like it." It wer vessels were built in the 1950s were break-bulk ships which were anding equipment. The Mariners eir time. Without taking anyLarner program, we believe that a se the world's liner trades are I meak-bulk, barge carrrying Ro-Ro est answer.

hant vessels be more standardart above, but would make the Jure standardized than appears on mer, barge and Ro-Ro ships have the breakbulk ships which they Is a fleet of 5 or 6 high technolartier ships.

ding standardization. First, on a

there was a very long learning reached until perhaps 100 vessels s is not true with regard to the ses currently being built by all natens out somewhere between the 3rd ved by that time.

feet is at least as standardized as whom we compete.

Les James R. Barker

sting today on behalf of both your What is the current status and future W the maritime industry be able to u support both our merchant marine

ma Maritime Council

prospects of the National Maritime Maritime Administration was caused to as continued to operate. In December, 1978, Cave Secretary and immediately estabWashington, D.C. The Council has been se. Labor, Liner Operators and Shipanes and Tanker Operators. Additionally group. The Council is still comprised of Central, Western) and the members are programs include constant dialogue with sory Boards. These Advisory Boards are a: firms which have a proprietary interest in

Maritime Council seem bright. At this time Council by all of its members. Collectively, Maritime Council will grow in stature as a nited States merchant marine but the United

abie to work to generate the cargoes required to anc our shipbuilding industrial base?

Answer. The National Maritime Council represents all segments of America's maritime industry. One of the Council's prime objectives is to seek a national maritime policy which would include as a goal 40 percent of America's imports and exports being carried on U.S. flag vessels. In seeking a national maritime policy the Council urges new regulatory reform to clearly establish legal parity so that the operators of American flag vessels can compete fairly with their foreign counterparts. With laws which govern U.S. and foreign operators equally the National Maritime Council believes U.S. carriers can obtain substantial increases in cargo liftings which will result in greater utilization of U.S. flag capacity. If appropriate regulatory reform is forthcoming, and if an appropriate national maritime policy is established the Council believes such increased cargo liftings should have a major impact on the need to build new capacity in American shipyards.

Question for Farrell Lines-Thomas J. Smith

During the past week, you have announced a broad reorganization of the company, with the new structure based on four geographical divisions. Perhaps you could comment on this-what precipitated this reorganization?

Answer. Please see attached reply.

Reply of Thomas J. Smith, President/Chief Executive Officer of Farrell Lines Inc. to Question Submitted by Chairman Murphy

When Farrell Lines purchased American Export Lines, in addition to legal details, many practical matters remained to be straightened out.

We employed an outstanding New York consulting firm, Cresap, McCormick and Paget, to study this matter so that such problems could be overcome for the near period and to help both companies lose as little momentum as possible. They were also to recommend procedures for the long term.

They recommended that an Office of the President be formed to assist the President/Chief Executive Officer with the myriad of details involved in the absorption. This was done and consisted of James P. Horn, former President of American Export Lines, and William F. Toohey, a Senior Vice President of Farrell Lines. Former American Export Lines trade routes were assigned to the supervision of a Vice President as were former Farrell Lines trade routes. These Vice Presidents, in turn, reported to the Executive Vice President and Office of the President. This organization was successful in keeping the operation running on a temporary basis. The same management consultants recommended a further "reorganization" for the long pull. A copy of our press release covering this change is attached. To the best of our knowledge only the Journal of Commerce called it a "broad reorganization." This apparently is the article on which your inquiry is based.

It is true that we will now operate under four main divisions. This represents no great change as we have always operated under various geographical divisions. The supervision of these divisions, however, does change. The Office of the President, having performed its function, has been dissolved, and the two members of our senior staff formerly assigned thereto have each been placed in charge of one of the divisions. Hopefully, this plan will enable us not only to hold our previous momentum but to go forward on each one of our services. We felt that we were somewhat weak in the North Atlantic service and therefore hired a Vice President experienced in this area to run this who, in our opinion, will overcome this weakness. Since you apparently read the Journal of Commerce article, you may also have noticed that they left out the penultimate paragraph of our press release which stated that all division heads would report directly to me as President/Chief Executive Officer.

Should the information contained herein not suffice, we will be pleased to give you any further information you might require.

FARRELL LINES, INC. New York, N. Y., March 7, 1979.

Mr. George F. Lowman, Chairman of the Board, has announced a reorganization of Farrell Lines. The new structure follows a divisional concept along geographical lines. There will now be four main divisions: Africa; Mediterranean and Middle East; Australia, New Zealand and Far East; North Europe. The African Division will come under Thomas R. Tarbox, Vice President, who has been the Vice President in charge of Farrells' London Office. The Mediterranean and Middle_East Division will be headed by James P. Horn, Senior Vice President, formerly President of American Export Lines. Heading up the Australia, New Zealand and Far East Division will be William F. Toohey, Senior Vice President, who has been in