ཅམཇPཔ} ཅཐཅ་ ments.

I will not take time now to go into ancient history, but it is a fact that the post-war marine progress and development has been such that every ship that we paid the three billion dollars for is obsolete, in fact all of those ships consume twice the amount of fuel that modern ships use, so we have got to act quickly to replace these cargo vessels with modern ones, in order to compete successfully in the foreign trade.

I wanted to clear up that point, in view of the large amount that has been spent for new ships although the numbers of ships built has been small owing to the class of ship which is costly to build in comparison to a cargo ship.

Senator CLARK. That still does not answer my question as to why, if the taxpayer pays the bill he should not have the ships.

Mr. HAAG. If it is going to be the policy of the Government to have Government ownership, there is no other answer.

Senator CLARK. There is no question that private competition enters into this question if I have understood the evidence correctly, because the testimony of the shipowners and the interests offering this bill has been uniform that if the Government does not enter into the field, private capital will not, and if the Government has to enter into it and make a charge to the Treasury of the United States, I cannot see any reason why the Government should not own the ships.

Mr. HAAG. That is all I have to say.

EXTENSION OF REMARKS OF A. H. HAAG

During the hearings on the Copeland and other shipping bills before the Senate Commerce Committee on March 9 and 10, among the subjects discussed was whether the United States Government could operate a merchant marine as cheaply as private industry. Brief comment on this subject follows:

For purposes of illustration, let us use the ship which would cost a million dollars to build in an American yard and which could be built for $600,000 abroad. The operation of this vessel under American registry would cost approximately $30,000 more per annum than under foreign registry. If the vessel was owned and operated privately the Government would have to equalize the construction and operating differentials to place the American shipowner on a capital and operating parity with his foreign competitor. Under Government ownership and operation or under the plan whereby the Government owns and charters vessels, the Government would be required to equalize the capital and operating differentials.

The plan of Government ownership and direct Government operation, undoubtedly, would prove the most costly system of all. Such an undertaking would require the establishment of regional and local offices throughout the world in which a large percentage of American citizens would be employed as operating and traffic representatives, attorneys, etc., thereby adding materially to the overhead.

Under the plan whereby the Government builds ships and charters them to private operators, the rate for charter hire would be based on the foreign cost of the vessel and the fixed charges would have to include interest, depreciation and insurance, from which would be deducted the operating differential in order to place the American charterer on a capital and operating parity with his foreign competitor. The cost to the Government under this plan is the same as in the plan provided for in the Copeland bill where the ship is purchased by the operator. If at any time the rates of charter are less than the amount to equalize the construction and operating differential then it will cost

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would not only be competing for business with foreign competitors, but, very likely, would have to meet Government competition also, or competition by Government-owned chartered ships.

The international shipping business is not confined to the transportation of goods and passengers. It is a business in which trading and banking are component parts and it has long been recognized by the principal maritime nations of the world that these functions can best be exercised by private industry. The maritime nations concede this after centuries of experience, during which time Government ownership has been tried for short periods without success, and, today, the merchant marines of all our principal competitor nations are operated privately, with their Governments assisting them financially.

The American merchant marine is not the only one in financial difficulty. The merchant marines of all the large maritime countries have suffered financial reverses since the beginning of the unprecedented world-wide depression. Many of the outstanding foreign shipping companies would have gone into bankruptcy had not their Governments helped them to complete their ships under construction and loaned them money to built new ships. In some cases they have even furnished them with working capital in order that they might continue in business-under private ownership.

Proponents of Government ownership and proponents of private ownership are in complete accord on one point, namely, the imperative need for starting a prompt replacement program. They differ on the method of providing such replacements.

The Copeland bill provides for a building plan in which a 25-percent initial payment on the foreign cost is required. The Guffey bill requires a 33-percent initial payment.

Both the Guffey and Gibson bills provide that the Government may build ships for Government account and charter them to private operators.

From all discussions which have taken place, it appears that Government financial assistance should not exceed an amount by which the higher American building and operating costs can be brought down to the foreign level. It has been shown at the hearings that the financial standing of American shipping companies is such that they lack even sufficient capital to finance the initial payment required under the Copeland and Guffey bills. This obviously would defeat the possibility of private shipowners making the necessary replacements. On the other hand, under the proposals in the Guffey and Gibson bills for the Government to build ships and charter them to private ship operators, the Government will finance the ship completely.

If the principle of equalization is to be the basis of rendering financial aid to the private shipping industry, even with the Government building the ship, both the building and operating costs would obviously have to be absorbed by the Government and reflected in the rate of charter hire of the vessel to the private operator.

Comparing this system with the proposal of financing the building of the ship for the shipowner's account in the Copeland and Guffey bills, where the shipowner makes an initial payment on the foreign cost basis and pays the balance over a 20-year period, the actual difference, insofar as the Government financing the ship is concerned, is the requirement of a substantial initial payment.

Dispensing with the initial payment and spreading the repayment of the foreign cost over 20 years would enable the shipowner to make the necessary replacements and we would then have substantially the Guffey and Gibson plans, insofar as they provide that the Government shall finance the ship 100 percent.

Under the Guffey and Gibson plans of chartering ships the differentials would have to be reflected in the charter hire, while under the Copeland and Guffey plans of selling the ship to the operator the building differential is absorbed by the Government and the balance paid back to the Government by the purchaser in 20 years, while adjustments are made annually to equalize the operating differential.

If Government financial assistance is to be limited to equalizing capital and operating costs to provide parity for American ships with those of our foreign competitors, then, in the final analysis, the amount of aid rendered by the Copeland, Guffey, and Gibson bills would not differ.

Whether the Government builds ships for its own account, or builds and sells (or charters) them to the private owner, identical results would be accomplished in bringing about the necessary replacements. If under the Copeland and Guffey bills the ships were financed for private account by the Government to the same extent as provided for under the Guffey and Gibson provisions for building and chartering, the same replacement program could be carried out without any need for the Government to own, operate, or charter ships, and at less cost and no greater risk to the Government, whose interests would be fully protected by a preferred mortgage on the vessels.

SERVICES ENTITLED TO GOVERNMENT AID

That part of the American shipping industry which is engaged in the operation of vessels in the ocean trades consists of:

1. Companies operating in the domestic trade.

2. Companies operating in the foreign trade.

Companies operating in the domestic trade require no financial assistance from the Government, since the domestic trade is protected against foreign competition.

In the foreign trade operations there are:

1. Companies operating ships as common carriers.

2. Companies operating ships which are partly industrial and partly common carriers-frequently referred to as industrial carriers.

3. Companies operating tankers.

When Government financial assistance is limited to equalizing building and operating costs between American and foreign ships, it would seem proper to extend such assistance to the so-called industrial carrier as well as the common carrier. Industrial carrier companies in the absence of such Government assistance could build their ships abroad and operate them under a foreign flag, thereby obtaining the same advantages as the common carrier companies whose costs are equalized by the Government.

The threefold purpose of the maintenance of an American merchant marine is to promote the foreign commerce of the United States; to enable American ships to secure a fair share of such commerce, and to make avaliable to the Government ships to serve as efficient naval and military units during a national emergency. It would appear that companies operating industrial carriers qualify in meeting all three requirements. They contribute to the carriage of trade, and, while it is true that some of it consists of their own products, it is trade they have developed largely through their own initiative and re

sources.

Companies owning tankers may be considered as operating in a highly specialized service, transporting chiefly petroleum and its products in bulk. The activities of these companies are divided more or less, into domestic and foreign trade operations. Some of the companies operating tankers have availed themselves of the benefit of the Government's construction loan fund. Other than that they have received no Government financial assistance. Companies owing the bulk of the tanker tonnage, as a rule, are well organized and financed, and in their combined foreign and domestic trade activities appear able to meet competition successfully. In ships suitable to serve as naval auxiliaries tankers may be considered among the most important units. Modern naval requirements call for tankers of considerably higher speeds than those generally built for commercial use. In order to make available higher speed tankers for national defense needs, it would appear to be a sound policy for the Government to agree to reimburse tanker companies for the additional cost of building such tankers.

The net book value of all the American-flag vessels owned by the oceanmail contractors and their affiliates at December 31, 1934, exceeded the construction loans and ship sales notes owing to the Government as at that date by almost $95,000,000. This does not include subsidiary companies who owned vessels not operating on ocean-mail routes.

The CHAIRMAN. Mr. Ash, will you come forward?

0

OPERATIONS, UNITED STATES NAVY

The CHAIRMAN. What is your title?

Commander ASH. Commander.

The CHAIRMAN. Commander, we have a bill here that has in it some naval features; are they good features or otherwise?

Commander ASH. Are you referring now to the tanker section?
The CHAIRMAN. Yes, sir.

Commander ASH. Yes; the features are good features, if we can get the ships.

The CHAIRMAN. Does the Navy feel the need of having these tankers which I heard Mr. Haag say last year were the legs of the Navy? Commander ASH. Yes; it is very desirable that we have these

ships.

The CHAIRMAN. Have you read this bill S. 3500 as amended?
Commander ASH. Yes, sir; I have.

The CHAIRMAN. Have you any suggestions to make as to changes in it?

Commander ASH. In section 403-A, which is the same in regard to the deadweight tonnage as the old section, it needs to be revised to this extent.

The Navy Department has been unable, up to the present time, to supply the amount of subsidy for tonnage at full-load draft at 15, 16, 17, and 18 knots.

The CHAIRMAN. How are we going to get that; are you working on it still?

Commander ASH. They are working on it, yes; but in your revised part of this section, you make a statement to this effect:

The Authority may, after plans and specifications of such vessels are approved, pay to the shipbuilder upon completion of any such vessel, an amount not in excess of the actual cost of the additional naval feature built into such vessel, and in no case in excess of the following amount—

the amount then being set out.

That is a new phraseology and establishes an upper limit whereby the Authority may decide what amount shall be paid for the additional naval features, and those features include, of course, increased speed, as well as such features of stiffening bulkheads or decks, or whatever may be necessary for naval purposes.

In case the remaining lines on page 23 beginning with line 18, and down to the end of the page, and the two lines on the next page, I would suggest that after the word "vessel" on line 17, the remainder of that line be scratched out and the following added: "As determined by the Navy Department and agreed to by the Authority and the contractor."

The CHAIRMAN. You omit the rest of it over here?

Commander ASH. No; I think from line 3 on page 24 on, I would keep that in as it stands.

The CHAIRMAN. I want to be clear as to what you mean; are you going to omit the language from line 18 of page 23?

Commander ASH. Yes, sir; and also lines 1 and 2 on page 24.

Then, I think on page 27 it would be a little more fair, or it would be actually fair, I should say, in line 11, 12, and 13, where it says the

think the lowest rate would be quite unfair.

The CHAIRMAN. Make it the average rate instead of the lowest rate?

Commander ASH. Yes. Then possibly it might be well to add, on page 25, line 16, after the words "sustained speed," the following: "As determined by the Navy Department and agree to by the Authority and contractor."

The CHAIRMAN. The same as you have suggested before?

Commander Asн. Yes.

The CHAIRMAN. Those are the changes you recommend?
Commander Asн. Yes.

The CHAIRMAN. Does the Navy Department regard it as important that there should be more encouragement of the building of tankers that might be used as a naval auxiliary in time of stress?

Commander ASH. The Navy Department believes it would be very vital that we have some tankers that are capable of making more speed than the tankers at the present time in use in the United States can make.

The CHAIRMAN. Suppose we did not pass this bill, would the Navy Department be forced today to build some tankers of its own?

Commander ASH. The Navy Department has already asked of Congress the building of some naval ships, included in which are some tankers, possibly only one, and that is all they feel they can ask for under the building program as submitted.

The CHAIRMAN. Yet is it the sentiment of the Navy Department that one tanker would not be sufficient?

Commander Аsн. Оne tanker would not be sufficient.

The CHAIRMAN. The Navy Department offers these amendments you have made because, as a whole, it would encourage private capital to build tankers that could be used by the Navy in case of trouble? Commander ASH. That is right.

The CHAIRMAN. These boats are on a little different foundation than the others, because they would be built by private capital without a subsidy.

Commander ASH. They are not eligible, as I understand it, for the subsidy under the act.

The CHAIRMAN. Not eligible for any construction subsidy or operating subsidy, except insofar as these added features which are naval features would be paid by the Government?

Commander ASH. Yes; you are quite right.

STATEMENT OF IRA A. CAMPBELL, COUNSEL FOR THE AMERICAN
STEAMSHIP OWNERS ASSOCIATION

Mr. CAMPBELL. Mr. Chairman, I desire to say a few words in regard to this question of tankers that has just been discussed.

The provision for building new tankers, very evidently contemplates the construction of high-speed tankers as auxiliaries to the Navy, having speed far in excess of what would be proper and economical speeds for commercial purposes.

Except as a matter of patriotism, the oil-tanker interests would