The latest annual report of the Maritime Administration for 1977 reports earnings for calendar year 1976 by all unsubsidized tankers of $740,000 against depreciated vessel value of $201 million, or less than 4/10 of 1%. This is consistent with the table above, covering the three largest companies, which are publicly held.

During the course of my testimony you referred to operating results of subsidized bulk carriers reported to you by the Maritime Administration. You indicated that these results were appreciably poorer than those of Association members.

Of eleven subsidized tanker operators, at least ten (of which seven belong to one group) placed their vessels on lifetime or long-term charters with major oil companies at the peak of the world market. The remaining company owns four small product carriers, two of which have been regularly employed in the Strategic Petroleum Reserve, and the other two in the rapidly strengthening foreign trade from the Caribbean for which they were designed. With the exception of this single company, it is impossible that, except for tax purposes, these subsidized companies have not been returning substantial real profits, built into the original charters, both for their owners (bank nominees in most cases) and their lessees. The general understanding of the industry has been that the Maritime Administration was careful to assure long-term profitable operations before committing itself to a heavy investment in subsidy and mortgage insurance. Any paper losses showing up in the early years of these arrangements are fully contemplated, and do not afford a reliable insight into the true economic condition of such a company.

Questions 3 and 4:

I consolidate these two questions, again because there is no distinction between the vessels serving the Jones Act and the preference trades (except, as mentioned, for dry bulk vessels which I list separately).

I am attaching a table that shows the age of the vessels operated by members of the Association in the preference and coastwise trades. The average of the tanker fleet is 12.3 years with half 10 years or less.

Question 5:

You ask for some examples of the differences in rates charged by American and foreign carriers in the preference trade. Recent liftings from the Gulf to Egypt were about $25 per metric ton of wheat for a Liberian dry bulk vessel and about $50 on three American dry bulkers ($47 for an American tanker). About $15 per cargo ton of the American figure is for fuel, which has once again risen sharply to $100 a ton or more. The corresponding increase for foreign vessels would generally be substantially less, since most of them have diesel machinery. The American rates have remained virtually stationary since late last year, while foreign rates to the same range have increased from just under $17 in December to $20 in February and March, and then to the $25-$26 bracket in April. This reflects the firming of the foreign market during the last several months.

Question 6:

You ask whether the availability of more vessels would cause more preference cargo to move. If your question relates to the total movement of preference cargo, the answer is negative. The total movement depends upon appropriations and upon the requirements of beneficiary nations. Both have been declining sharply. If however your question relates to American carriage of such preference cargo, the answer really depends upon anticipated vessel supply as well. As the law has been administered, about half of the cargo has been reserved for American flag vessels under Public Law 480: in fact, one may say that this has been an administrative ceiling, although the statute speaks in terms of "at least 50 per centum". Within the total, lot sizes exceeding 50,000 tons have generally moved preponderantly on American tankers (two-thirds, in the years 1975-1977). Since the shift of tonnage

to Alaska occurred in 1978, total American participation in preference trade has declined. In such a situation, the introduction of more tonnage would increase flag participation.

But that is happening from the unsubsidized sector. I stated in my testimony that the various causes of decline in coastwise movement will create a surplus in the relatively near term. That forecast is already being borne out. According to my information, approximately ten vessels will be released from Alaskan charter over the next months, in addition to the vessels I have already named. This is a total of 550,000 dwt already, nearly 15% of the entire fleet operating in the Alaska trade. The two largest units, respectively of 120,000 dwt and 115,000 dwt, have already made bids in the preference grain trade within the last several weeks, one successfully. As I testified, the best estimate of total tanker tonnage required for the preference grain trade is about 200,000 dwt annually.

It is obvious that more than ample unsubsidized tonnage is available to carry the full American participation in the preference trade. In the market conditions foreseen that trade will be vital. ་