The Alaska trade, one can say with precision, is in danger because of a Virgin Islands gap that has opened up.

In addition to that, the traditional east coast coastwise trade which has been of such major importance, and with the original largest trade, has been undergoing a steady diminution in the expansion of the pipelines. For instance, the most recent expansion of the Colonial pipeline here has doubled its capacity.

We anticipate within the next year or two a 25-percent diminution in the movement of coastwise cargo. Now the offshore preference trades have had an enormous advantage for the coastwise fleet, because they fitted, time wise. This was a service in which you could engage without competition with foreign vessels. At the same time, it was a trade that centered in the summertime, whereas the coastwise movement has been largely a winter movement. It fit quite well; the ships moved in and out conveniently. The rate structure is based upon the unsubsidized, full American cost. The decline of the preference trades has been very marked, as well. It is down to a position where it is estimated that the grain trades would only occupy about 200,000 tons a year. What you see is a steadily diminishing market.

If we are right about the Virgin Islands, where the most recent reported movements were up to 100,000 barrels a day already by foreign flag-if we are right about that and 2 million tons are going to be displaced in practically short order, you imagine the effect on the rate structure of having 2 million tons of shipping thrown upon the commercial market.

It is a very sensitive, fully commercial market with very strong competition, where 25 cents carries the cargo. There are no longterm charters; they are all practically on a voyage basis. The Alaskan trade has been a rare exception, when you had 1- to 3-year charters available.

As Mr. Maskin expressed it, it is a very fragile market; prosperous at the moment, but with an unhappy outlook.

Mr. SNYDER. Prosperous insofar as the unsubsidized carriers are concerned.

Mr. KLAUSNER. Yes.

Mr. SNYDER. But, obviously, from the statistics which were furnished to me and which I have cited, not at all prosperous for the subsidized carriers.

Mr. KLAUSNER. For a very obvious reason; they were engaged in the foreign trade. The foreign trade has collapsed. The subsidy system is based upon the theory that you are going to equip people to face foreign competition.

Mr. SNYDER. The foreign trade has collapsed, and you are going to let them collapse too.

Mr. KLAUSNER. No; they are not going to collapse.

Mr. SNYDER. They are not doing too well.

Mr. KLAUSNER. Is there a report given for the ships that were mentioned here in this 90,000-ton class?

Mr. SNYDER. They are just MarAd statistics.

Mr. KLAUSNER. Well, one ventures to suggest that they are doing very well.

Mr. SNYDER. I beg your pardon?

Mr. KLAUSNER. One ventures to suggest that this sector, the most dangerous sector from our point of view, is doing very well. They chartered out▬▬

Mr. SNYDER. Last year, 4 of the 12 companies lost money or broke even, and 5 of the remaining 8 made a total profit of only $700,000. Do you call that doing well?

Mr. KLAUSNER. I do not know which companies those are.

Mr. SNYDER. I am sure we can get them; I am sure it is available to you, like it is to our staff.

Mr. KLAUSNER. I will venture to say that most of the subsidized

Mr. SNYDER. What difference does it make what companies they are? That is the total of the subsidized tanker companies. It does not make any difference whether it is company A, B, or C. That is how badly they did, and you say you want to know what companies they are. It is all of them.

Mr. KLAUSNER. Because I will suggest to you that the preponderance of these ships were actually chartered out on profitable rates on charters that are still in existence, and will be during the life of the ships. I therefore am doubtful of the figures.

Mr. SNYDER. In other words, you think MarAd's figures are wrong?

Mr. KLAUSNER. We know enough of the figures of the trade to believe that the preponderance of those ships are doing extremely well.

Mr. SNYDER. You know, there are only 23 in the whole fleet. What are you laughing about?

Mr. MASKIN. Well, 23-over 1 million tons of tonnage is a very, very substantial amount.

Mr. SNYDER. It is only 20 percent of what you have got. You represent 47 companies?

Mr. MASKIN. No, sir; that is total. We have 29 tankers in our fleet, and you are talking about throwing an additional 23 onto them. So you are talking about a very substantial amount.

But let me say, Mr. Snyder, that the Alaskan trades from which our companies have profitted during the past 3 years still would not be available to the subsidized tanker companies under the terms of your amendment. We have already made it clear that the Jones Act-

Mr. SNYDER. Well, if that is a lucrative business that is not available under my amendment, I do not know what you are doing here.

Mr. MASKIN. We are here, Mr. Snyder, because your amendment would still open to these people the preference trades, the carriage of government

Mr. SNYDER. You have already said that very, very little of your business was▬▬

Mr. MASKIN. I also have said that we are at a crossroads when these will become increasingly important to us in the months ahead.

Mr. SNYDER. I cannot say anything to you except you do not want competition and I do not blame you.

Mr. MASKIN. Mr. Snyder, I might say that it is my understanding that your amendment is intended to increase the competitive ability of the American fleet.

Mr. SNYDER. That is right.

Mr. MASKIN. Now, if you want to increase the competitive ability of American carriers to compete with foreign carriers in the foreign commerce of the United States, that is fine and we support you to the hilt. But we do not want this amendment to be used simply to make it possible for American carriers to compete with other American carriers who will be disadvantaged in that competition.

Mr. SNYDER. And your concern with all those numbers on page 3, tied in with your recent statement that you are concerned about the preference trades-you are not suggesting that they can charter that foreign ship to haul preference cargo, are you?

Mr. KLAUSNER. What they will be doing is they will be carrying the business which the subsidized ship is at present carrying in the foreign trade.

Mr. SNYDER. But not preference cargo?

Mr. KLAUSNER. Not preference cargo. That will release the subsidized ship to move into the preference trade. You will, in effect, be subsidizing the foreign ship.

Mr. SNYDER. Well, that is kind of carrying it to an extreme. Mr. KLAUSNER. It is a perfectly accurate statement, Congress

man.

Mr. SNYDER. Well, it may be accurate, but it is carrying it to an extreme, I think, with the figures there. On the one hand, you are worried about the preference trade, and on the other hand you are worried about them taking the U.S. ship and leasing it out, and then chartering a foreign flag vessel which cannot carry preference cargo.

Mr. MASKIN. The foreign-flag vessel will be used in the foreign trade, and the American-flag vessel will be released from its charter obligation and will participate in the preference trade; this is what we are saying.

Mr. SNYDER. And in competition to the little bit of preference trade you get?

Mr. MASKIN. Yes.

Mr. SNYDER. And not in competition to your lucrative Alaskan trade?

Mr. KLAUSNER. But, Mr. Snyder, the little bit of preference trade will be swamped by that, on terms that will absolutely drive us out. Is that not clear to you? How can a ship that is built

Mr. SNYDER. Yes; it is clear to me that they are going after a piece of your business that you admit is almost inconsequential so that they can keep their heads above water.

Mr. KLAUSNER. There is no admission whatever that this is inconsequential. On the contrary, it is crucial.

Mr. SNYDER. It says "very small."

Mr. KLAUSNER. The only reason that it has been small is because of the temporary diversion to the Alaska trade.

Mr. MASKIN. We do not agree, Mr. Snyder, that they should be allowed to keep their heads above water if it means that our heads will go under, and that is what your amendment will bring about.

Mr. SNYDER. You have indicated that your people are in pretty good shape.

Mr. MASKIN. I also indicated that our ships are coming off charter and will be looking to that market.

Mr. SNYDER. Thank you.

The CHAIRMAN. Counsel?

Mr. SEIFERT. Other than the grain preference cargoes, what other preference cargoes would you be looking for with these particular vessels, and is grain not a speculative cargo in the future, anyway? Mr. KLAUSNER. Well, the estimate of 200,000 tons seems to be accepted by most of the authorities in the field and is likely to prevail over a considerable future. That is a minimal expectation for a period of time.

Mr. SEIFERT. And you figure you can lock them up under the present conditions?

Mr. KLAUSNER. The term "lock up" is unclear to me.

Mr. SEIFERT. Well, you would have a better than even chance of getting those cargoes without the Snyder amendment.

Mr. KLAUSNER. Without the Snyder amendment, these subsidized ships would not be eligible to compete. They have been kept out as a deliberate act of policy by the Maritime Administration, because no competition between a subsidized ship and an unsubsidized ship is possible.

Mr. SEIFERT. The substance of this amendment is a change in policy which is determined by Congress, is that not so, Mr. Klausner?

Mr. KLAUSNER. Well, I daresay.

Mr. SEIFERT. Thank you very much.

Mr. KLAUSNER. But may I venture to submit to you that the policy ought not to be changed to allow a subsidized ship to preempt the business of the unsubsidized ships, when $1,600 million has been invested in the last few years on the basis of the protection of the Jones Act.

The CHAIRMAN. Thank you, gentlemen.

[The following was submitted:]

American Maritime Association

SUITE 610. 1012 K STREET, N.W.. WASHINGTON, D. C. 20008 202 331-1662

June 13, 1979

The Honorable Gene Snyder

Ranking Minority Member

Subcommittee on Merchant Marine

Committee on Merchant Marine & Fisheries 1334 Longworth House Office Building

Washington, D.C. 20515

My dear Congressman Snyder:

I furnish herewith the information requested in your letter of May 30, 1979.

Questions 1 and 2:

I consolidate the answers to the two questions concerning the financial condition of member companies operating in the coastwise and preference trades, since the same companies and the same vessels over a period of time engage in both. With the exception of the dry bulk carriers, for whom preference operation is primary, coastwise vessels treat the offshore preference trade as reciprocal, the summer grain movement articulating with the winter peak season in petroleum products. Even large new tankers carried grain during the long lead time before the opening of the Trans-Alaska pipeline for which they were built when other business could not be found; and it appears certain that in the near future the movement of grain will be vital in view of developments in the Alaska trade to which I referred in my testimony.

The following table shows results for our three largest tanker members in relation to net book value of vessels after depreciation during the period 1975-1978. I have selected this basis because other forms of comparison, such as net worth, could not in the short time available be readily distinguished from other operations in which these companies engage: