· FINNERTY. Curiously, while many countries, again most notably United Kingdom, allow more liberal depreciation allowances, n has greatly aided expansion of their own fleets, the United es has a much greater stake in encouraging fleet expansion. This e to the worldwide and multifaceted scope of U.S. foreign trade the need to strengthen our fleet's ability to support the military ugh ongoing production of highly efficient and technically aded vessels.

ore liberal and competitive depreciation methods in respect of ping can substantially enhance investments and financial opporties in respect of the cost of fleet expansion and, concurrently, our try's national defense and international trade. Tables follow:]

TABLE III.-QUALITY OF INVESTMENT COMPARISONS 1

ased on typical expansion/improvement type investment in a containerized shipping company. The same investment een made in each case. The only variable is the type of accelerated depreciation used. For expository and confidenpurposes the results have been normalized so that the United States is equal to 100 percent.

Equal to the original cost of the vessel less the discounted value of subsequent depretion cash flows.

If the full benefit of the U.K.'s depreciation regulations is taken in the first year of eration the cost falls to $68.2.

Mr. FINNERTY. It is also important to note that to a growing degree, the competition faced by U.S.-flag carriers is not between other private enterprise entities. Instead, we face maritime nationalism and statecontrolled entities which are not profit oriented. For example, the Soviet centralized economy disguises the nature of aids to their maritime industries. It has been recognized that allocation of direct overhead and indirect costs, the levels of return, and costs of capital are very different in the Soviet merchant marine from the norms of the free world.

Soviet shipping lines are heaving subsidized to the extent that the capital cost of vessels in the fleet, their depreciation expense, and replacement provisions are not imposed on Soviet carriers. Thus, large financial pressures of western vessel operations are absent from Soviet shipping operations. Credits flow to the industry at almost no interest. U.S. carriers have thus far maintained a somewhat competitive position with many Western countries enjoying greater depreciation because of either previously strong, established U.S. carrier positions in specific trades or because of U.S. innovations and technological superiority. In addition, a select few carriers to date have worldwide capabilities and economies of scale.

U.S. shipping is more than up to the foreign shipping challenge, but a practical additional tool is needed in U.S. shipping's arsenal. Improved depreciation is that tool. It would provide U.S. shipping with a strong measure of internal control over intense financial pressures with direct and obvious opportunities in respect of U.S. fleet modernization and expansion. This is a necessary and logical step in U.S. efforts to match policies already enjoyed by foreign competitors. It would also help to neutralize basic economic advantages enjoyed by nonwestern state-controlled fleets.

This proposal is both good for U.S. shipping and good for the United States. Our Nation's ability to deliver her goods and services to trading partners with whom the United States is dependent for resources and commercial goods is important in peacetime and vital during a national emergency.

Attached as appendix A are statistics setting forth for the full year 1978 and first three-quarters of 1979, the exact U.S.-flag liner carrier share of trade in the Atlantic and Pacific Oceans. The statistics confirm the deterioration of the U.S.-flag share and the growth of the crosstrader share.

It is a pattern that has persisted for many months and one which demands attention from our Government to eliminate the maritime policy disadvantages imposed upon U.S.-flag carriers, including the noncompetitive provisions for depreciation of vessels.

This proposal to modernize a U.S. policy that has been rendered noncompetitive by the governments of our country's trading partners is urgent. We respectfully urge the committee to give it prompt consideration.

Title IV also proposes two other changes. The first would improve the capital construction fund provisions and the second would legislatively confirm recent court decisions on the full investment tax credit under certain new vessel construction situations. We support

both these provisions. Fleet expansion and reconstruction to remain
competitive with growing foreign-flag fleets, including that of the
Soviet Union, is essential.

Thank you for this opportunity to testify in favor of this legislation.
[Attachments to the prepared statement follow:]

UNITED STATES ASIA LINER TRADE-FLAG SHARES, 1978 VERSUS JANUARY-SEPTEMBER 1979

Mr. GIBBONS. Thank you for coming here and for helping us with this very vexatious problem. We hope we can respond affirmatively. This concludes the hearing for today.

[Thereupon, at 1 p.m., the hearing was adjourned.]

[The following was submitted for the record:]

STATEMENT OF ASHLAND OIL, INC.

Ashland Oil, Inc. strongly supports extension of the benefits the Capital Construction Fund provided for in Section 607 of the Merchant Marine Act of 1936 as amended to vessels engaged in inland waterways transportation.

Our Ashland Petroleum division, based in Ashland, Ky., is a large independent refiner operating seven (7) refineries in the midwestern and Northern Tier areas of the United States. These refineries have an aggregate crude oil processing capacity of around 475,000 B/D as shown below:

Ashland's principal marketing areas for the petroleum products manufactured at these refineries and purchased from outside sources include the Ohio and Mississippi River Valleys, the upper Midwest, the Great Lakes, the Middle Atlantic and East Coast states and a portion of the southeastern United States. Annual volume sales of petroleum products by Ashland run over 530,000 B/D, distributed in large part through 36 terminals supplied by water transportation. In addition, Ashland operates 3 crude oil terminals accessible by its river transportation fleet.

Ashland's controlled marine transportation facilities include 22 tow-boats, 218 barges, 4 Great Lakes vessels, and 7 ocean tankers. In fiscal 1979 Ashland moved over 7.0 billion ton-miles of crude oil and petroleum products on the inland waterways system alone.

Although the description above represents only a partial view of our operations, it serves to emphasize Ashland's continued concern and dependence upon

a healthy, modern and ongoing inland waterways system including an environment conducive to fleet expansion.

Ashland is confronted with heavy requirements for capital construction funds to meet demand for petroleum products, to reduce operating costs in an increasingly competitive environment, and to comply with environmental and safety standards. River equipment must compete for these monies. The availability of funds created by the Capital Construction Fund would double cash flow for river equipment-a source of funds not now available.

We are now operating 44 single-skin barges of approximately 500,000 barrels capacity that have been in service over 20 years. New equipment would be more efficient and environmentally safe. We are also operating two 4800 h.p. twentynine year old towboats equipped with WWII Navy surplus main engines that should be replaced with more energy-efficient, modern equipment. One of the primary reasons for replacement would be to reduce fuel and lube-oil consumption. Rapidly escalating construction costs together with the rate of return which marine operations require to compete for the capital available wihin our Company have dictated that we continue on our present program of replating singleskin barges and continued utilization of older towboats. If the tax deferral benefis of the Merchant Marine Act "Capital Construction Fund" are extended to domestic commerce, Ashland would aggressively pursue the following projects in the next three fiscal years:

(1) In 1980 replace 65,000 barrels barge capacity at an approximate cost of $3.25 Million.

(2) For 1981 replace 75,000 barrels barge capacity for $4.3 Million and replace one 4800 h.p. towboat for $4.3 Million for a total of $8.6 Million.

(3) For 1982 replace 58,000 barrels barge capacity at an estimated cost of $3.8 Million and replace one 4800 h.p. towboat for $4.7 Million for a total of $8.5 Million.

In Ashland's judgment, extension of Capital Construction Fund benefits to all U.S. inland waterways commerce is required by the same basic considerations of equity as those reflected in the 1970 decision of Congress to extend such benefits to the Great Lakes and non-contiguous coastal trades, when Congress recognized that the U.S. Great Lakes fleet was, to an important degree, competitive with foreign flag vessels. This situation is illustrated by the case of Great Lakes vessels carrying grain from U.S. ports to be consigned for export in competition with foreign flag vessels likewise carrying eastbound grain on the Great Lakes to the same overseas destination.

Operatives of inland waterway vessels confront the same type of competition with foreign flag vessels. The enormous movements of export grain from the Upper Mississippi region has alternative outlets via waterway to overseas markets. One is eastbound via the Great Lakes and St. Lawrence seaway. The other is down the Mississippi in shallow-draft barges for export from Gulf Coast ports. In this case, the Mississippi River movement is in direct competition with foreign ships on the Great Lakes-St. Lawrence seaway.

Similar competitive relationships between domestic inland waterway vessels and foreign flag vessels are involved in such important instances as:

(1) Shallow draft barge movements of petroleum products from the Gulf Coast and other refining centers in the Mississippi and Ohio River Basins to the upper Ohio River region, in competition with a combination of foreign flag vessel movements of foreign crude oil to Atlantic Coast refineries and transportation of the finished products by pipeline to the same market areas.

(2) Shallow-draft barge movements of steel from Chicago, Pittsburgh and other midwestern origins via the Ohio-Mississippi River system to the Gulf Coast and lower Mississippi markets in competition with foreign flag vessels bringing in steel from Japan or the Common Market and utilizing the same sheltered coastal waterways in the Gulf area.

(3) Major movements of domestic coal in shallow-draft barges down the Ohio and Mississippi to Gulf Coast markets in intensifying competition with foreign flag vessels carrying coal from Poland, West Germany and Australia to U.S. Gulf Coast ports.

As imports of foreign goods have increased, there has been a corresponding increase in the competitive thrust of foreign flag vessels against U.S. flag vessels on the inland waterways. A continuation of these trends is clearly indicated. From the point of view, therefore, of the impact of foreign flag competition upon U.S. flag shipping, the inland waterway vessels are fully as deserving of the de