/
"ri
What Are We To Do With Our
Government Owned Ships
Do We Need A Merchant Marine
For Peace and War
p
Statement by
ALBERT D. LASKER
Chairman United States Shipping Board
At the joint hearing before the Senate Committee on Commerce
andjhe House Committee on Merchant Marine and
Fisheries on the proposed bill providing
aids for American shipping
WASHINGTON
GOVERNMENT PRINTING OFFICE
1922
WHAT ARE WE TO DO WITH OUR GOVERNMENT-
OWNED SHIPS?
DO WE NEED A MERCHANT MARINE FOR PEACE AND WAR?
"Whether or no America is to be potent on the seas for the next
several generations will be decided in the disposition by Congress of
the legislation now proposed by the President for the aid and up¬
building of our merchant marine.
THE QUESTION AT ISSUE.
The matter under consideration is not merely one of subsidy or
no subsidy; it involves what shall become of the Government's vast
war-built merchant fleet; what shall be done to end the large losses
of governmental operation of ships through the Emergency Fleet
Corporation; what shall be done to insure the overseas carriage of
America's surplus products in times of peace ; and it involves, in im¬
portance possibly beyond all these questions, whether America,
through the possession of an adequate merchant marine, shall be self-
sustaining and self-suflicient on the seas in times of war.
The question of subsidy to American ships has hardly ever been
treated as a partisan one, in spite of the fact that we hear favorable
consideration has been a Republican policy, and opposition a Demo¬
cratic one. The fact is that for practically half a century neither
party has given life to a policy of direct aid to American ships. The
Republican Central West has ever joined with the Democratic South
in distaste and revulsion to subsidizing our shipping.
ISSUE NOT A PARTISAN ONE.
Times change; conditions change with changing times; and just as
in a nonpartisan way subsidies have hitherto been denied, it is the
feeling of the seven members of the Shipping Board that the question
of Government aid to American ships, including subsidies, is an ail-
American one and should consciously be treated no more politically
than should the needs of the Army, the Navy, or the Post OíRce
Department.
Prior to the great World War, America was content to have its
cargoes carried in foreign bottoms. We were then a debtor nation
1
, 2 -• .ÇOVERÏTMENT-OWNED SHIPS.
^ arid we could feel sure that those whom we owed, being the great
'maritim^'jfetipng of the world, would furnish us the bottoms with
which to" carry t'he goods to liquidate our debts.
CHANGES WROUGHT BY THE WORLD WAR.
The World War has changed practically every phase of human life.
America emerges from that war holding first economic place in the
world. She finds herself a creditor nation instead of a debtor na¬
tion; and whether we will it or no, we are now cast for continuing
first place on the stage of world commerce. No nation ever held that
proud position unless she was strong in her own rights on the seas.
It is for us here and now to determine whether America shall at¬
tempt to refuse the place which destiny has carved out for her.
When Europe awoke that summer morning in 1914 to find herself
enmeshed in a World War, it was the beginning of a demand for
American exports such as the wildest dreams of our greatest empire
builders never visioned. That part of the world to whom the seas
were still free centered its efforts to send its ships to our shores that
they might be laden with the products of our factories, farms, and
mines. We ourselves could make but a pitiful showing in the ex¬
portation of our own goods under our own flag. And were it not
that the maximum production we could give did not even approxi¬
mate the minimum of Europe's needs, we should have been in a sorry
plight; for, had the war been lesser in area, and therefore the de¬
mands of combatants not required all the output we could supply, our
great production would not have been used. We would not have
had the ships to send our surplus wares to neutrals ; and if one of the
great maritime nations, say Britain, had been solely engaged in a
smaller war confined to a narrower but distant area, her ships would
have been diverted to her own uses.
COSTLY LESSON OF BOER WAR.
This is exemplified through the Boer War, where the conduct of
operations was at a great distance from their base. Britain's ships
were needed for the long carriage of men and supplies, though not
in quantities remotely comparable to the World War. Thus, while
Britain did not have pressing need of our production, she had such
need of her own ships for the long haul that we were sorely pressed
for carriage in our trade with her and other nations, as was evidenced
by depression in many of our important commodities. Had we at
that time had the expanded factory capacity we now have, the diver¬
sion of England's tonnage from our peace needs to her war needs
would have been a calamity indeed. As it was, we all remember the
serious effect this diversion of British tonnage had on the marketing
GOVERNMENT-OWNED SHIPS.
3
of our farm products; it demonstrated that the farmer, even more
than the manufacturer, was interested in America's controlling her
own tonnage. Unfortunately, these lessons, because only transient,
are soon forgotten.
THE MERCHANT MARINE ACT, 1920.
Early in 1917 America entered the World War. Our allies stressed
immediately that the winning of that war was impossible unless we
could build ships, and more ships, and again more ships. The history
of our shipbuilding program and its cost is too well known to Con¬
gress to need stressing. With the ending of the war, realizing our
world trade needs. Congress passed the very beneficent merchant
marine act of 1920, known as the Jones Act. The purpose of this
legislation among other things was to provide for the temporary
operation by the Government of such ships as were necessary to main¬
tain and develop trade routes not covered by private enterprise, and
to enable the Government to dispose of its war-built tonnage to
private owners. This act, wisely constructed with statesmanlike
vision, has not achieved what was expected of it, because immedi¬
ately after its passage world trading collapsed and has remained in
a depressed state ever since.
The act was based on a series of sound indirect aids, the keystone
of the structure being preferential tariffs to inure to goods imported
in American bottoms. The aid of preferential tariffs has not been
realized, for reasons well known to all, because of the declination of
Presidents Wilson and Harding to abrogate those portions of numer¬
ous commercial treaties with foreign nations which forbade prefer¬
ential treatment of our ships as against the ships of others, as con¬
templated by section 34 of the Jones Act.
GOVERNMENT OPERATION FATAL TO PRIVATE INITIATIVE.
Thus, we find ourselves to-day with the Government owning 1,442
steel ships aggregating 7,000,000 gross tons, operating 421 of these
ships at an estimated cost to the Treasury the coming year of
$50,000,000, with 1,021 ships tied up; we find private operations as
well being conducted at startling losses, due not only to depressed
world conditions, but to the impossibility of the private owner main¬
taining himself in the face of continued Government competition.
The purpose of Government operation, as defined by law, was to
build up trade routes in order that the Government ships might thus
be sold with established good will to private owners. The I'ery
method chosen has worked to defeat its own purpose, for in the up¬
building of these routes, the Government has operated ships, and in
the operation of ships has driven its potential customers largely off
4
GOVEENMEÍíT-OWKED SHIPS.
the seas. Thus, we come to conclusions from which there can be no
escape—that since continued Government operation means finally the
possible and likely elimination of private operation of American
ships, a method must be devised whereby the Government shall end
its operation and at the same time insure carriage of American goods
under the American flag through private ownership as contemplated
by the Jones Act.
MUST BE INDEPENDENT ON THE SEAS.
We no longer can be disinterested in whether or no we shall have
an established American merchant marine. The transition from
debtor nation to creditor nation has settled that ; the changing needs
of our people in imports and changing demands of others in exports
all emphasize that we have no assured future of prosperit}- if we rely
on other than ourselves to carry our overseas trade.
Europe owes us, govemmentally and privatelj', some $15,000,000,000.
To pay in gold is impossible; there is not that much gold in the
world. The only way Europe can pay (to such extent as she may
pay) will be in goods, either raw materials or manufactured or partly
manufactured wares. In turn, we must find new markets, not only to
absorb the surplus products which Europe formerly took from us, but
to provide for the sale of many of the products which Europe shall
send to us in settlement of her debt. These products, if in raw or
partly_ manufactured state, will be brought to comi^leted processes by
American labor ; but if permitted to flood our own market, and if we
do not find a foreign sale for them, will so depress the price of wares
at home as to threaten the prosperity of all of our workers.
These newer markets lie across the ocean; to the south in the
Western Hemisphere; to the east in China and Siberia. It is the
very need of trade in these markets that is the inspiration of the pol¬
icy of the open door in the Far East, which means nothing more or
less than free opportunity, based on merit, for exchange of wares.
SHIPS ESSENTIAL TO FOREIGN TRADE EXPANSION.
It is for these very markets that the nations of Europe which owe
us vast sums of money will contend with us. And who can be so
blind as not to see that Europe will very properly in her own interest
find the way and means to refuse us ships when we need them most, if
that refusal spells her control of markets in which we would compete
with her for mastery? It is well enough to say that she will not re¬
fuse us the ships if we can pay higher freights; but who supposes
that foreign Governments will not be sufficiently ingenious to work
out plans to control their own ships to benefit their national trade
and to our disad^'antages, even if by so doing they bring into their
GOVERNMENT-OWNED SHIPS.
5
national treasuries possibly lesser freights than we would pay? If
a ship in freight receipts could get only $25,000 in Europe and
$35,000 here to carry a cargo to the same trade worth $1,000,000, the
wise Governments of Europe will find ways to equalize the loss in
freight receipts to their own carriers, that their national treasuries
may be enriched by the sale of the $1,000,000 cargoes, rather than
permit us to get those benefits, even though we would pay $10,000
more for the carriage.
AMERICA ONCE SUPREME ON SEAS.
In our early days we were a seafaring nation. Our clipper ships
excelled the world. With an undeveloped empire to exploit, the
spirit of our youth, both from the standpoint of adventure and profit,
responded to the inland call. Self-sufficient, self-contained, with
abundant natural wealth to the point of waste, we became indifferent
to the sea, until shortly after the Civil War those nations who had the
greatest need of the sea had so manipulated it that America became,
other than coastwise, practically a nonmaritime nation. The great
World War brought ahout an increase in our production capacity
that defied all preconceived ideas of expansion.
There can be no return to a prewar basis. Increased overheads
through increased capacities demand increased consumption in many
lines beyond that which can he found in our home country. The
debts Europe owes us, their enforced economy for decades to come,
and consequently finally diminishing purchases from us, all combine
to require our search for new markets. These markets will inure to
us only when sureness of delivery, regularity of sailings, and prompt¬
ness of service from our ports to theirs is guaranteed. Promptness
and regularity are the very essence of foreign commerce. The great¬
est agents of our foreign commerce are ships of our own flag that
must fight for cargoes from and to our shores to insure their profit¬
able operation. The semideveloped countries of Europe, the newer
countries which are not self-sufficient in their own rights, will be a
fighting ground for trade. And here, too, only through control of
our own ships can we be insured of steady markets.
FOREIGN TRADE NOW ESSENTIAL TO ENTIRE COUNTRY.
Aside from all this is our own change in domestic needs. Through
our great prosperity, we have become, compared to the other nations
of the world, a luxury-loving nation. Coffee, almost unknown as a
regular beverage in most other countries, is a several times a day
necessity at our national table. Three-quarters or more of all the
automobiles in the world are run in America. Their tires alone re¬
quire untold quantities of rubber. All these luxuries which we import
6
GOVERNMENT-OWNED SHIPS.
must be paid for by exports, and we must insure that these exports
shall reach their destination when and as needed.
The freights alone involved in our expanding commerce mount
into the hundreds of millions; and it means much to our national
wealth whether we retain these freights collectively to ourselves, or
whether we pay them abroad. If John Smith, the individual, spends
$50 abroad and receives therefor wares, he is none the poorer; but
if the national John Smith spends $50,000,000 abroad that he could
retain at home, the nation is a great portion of that $50,000,000
poorer.
FARMER VITALLY INTERESTED IN EXPORT TRADE.
The farmer has but recently seen what it means to him, in depres¬
sion in price of his entire production, when exports fail and the sur¬
plus of his production backs up at home. We have but lately seen
how our Government's expenditure of $20,000,000, plus $12,000,000
from the Soviet Government, for grains to starving Russia marked
the beginning of an uprise in price of all our cereal products. From
the very time that these purchases began, the price of wheat and
corn and oats rose. It is not contended that these purchases alone
were responsible for the uprise, but they were one of several factors
that resulted in the farmers' depression being alleviated.
Had it not been for the Government's possession of its present
steel fleet, these export foods could not have been promptly trans¬
ported, for there was not immediately available in commission ade¬
quate private tonnage. No one has a greater interest in an estab¬
lished American merchant marine than the farmer of our country,
because it is in the sale of his surpluses abroad that his entire prosper¬
ity is involved. Europe, owing us vast sums, will undertake to make
its purchases of surplus grains, when it can, in countries other than
our own ; and it is only through the control of our own deliveries, in¬
suring that they be expeditious and constant, that we can hope to
maintain prosperity for our agriculture.
GREAT LAKES-ST. LAWRENCE PROJECT.
The farmers of our 18 chief agricultural States, with a total popu¬
lation of 40,000,000, are making a demand to which an affirmative
response seems certain — that the ocean be brought nearer to them
by the building of the St. Lawrence waterway — a conception that
our Middle States will refuse to surrender until it becomes a reality.
There can be no certainty of even a fair trial of that project, after
it is built, unless we can have profitable operation of American ships ;
because the carriage in that waterway, which it is my ardent hope
will soon be constructed, is but seasonable, and other nations might
not afl'ord to work out a system of flexibility of tonnage for use in
that waterway to our advantage. Assured flexibility for use of that
GOVERNMENT-OWNED SHIPS.
7
project must come from us and us alone. Therefore, when the
farmers' dream of the St. Lawrence waterway comes true, as come
true it will, it can have no assured life without an American mer¬
chant marine, and that merchant marine should be well established
before the canal becomes a reality, that companies of suiRcient
strength may be alive to take advantage of its opening.
For all these reasons, therefore, in the changed condition of man
and time, the economic need of our country demands an American
merchant marine if we are to insure the prosperity of future genera¬
tions on the farm, in the mine, and in the factory, which prosperity
can only be insured through world markets for our surpluses — mar¬
kets protected by American ships carrying American wares.
MERCHANT SHIPS ESSENTIAL AS NAVAL AUXILIARY.
We have lately seen the close of a great conference here in Wash¬
ington whereby it is proposed to limit the burden of expenditure for
naval armament on the sorely taxed peoples of the world. Our own
America, the most prosperous of all the nations, is herself groaning
under naval expense. It is because of a revulsion from increased
naval armaments, as well as a cry for release from taxation, that the
nations of the world agreed on a basis of limitation. Coupled with
that are the treaties of the Far East involving the open door in China,
which means free opportunity for trade in China. Nations build
navies to insure that their merchant ships may carry their wares to
all portions of the world unmolested. And so the limitations on our
Navy — and the open door in China — both integrally, are a part of
our national economic policies. Trade and trade alone are the factors
that center world interest in the Far East. The naval needs are to
protect that trade.
UNITED STATES NAVY ONCE IMPOTENT WITHOUT FOREIGN SHIP AID.
Having agreed to a naval program of 5-5-3, we can have no
thought or hope of actual naval equality unless we can supply and
bunker our Navy through our own merchant ships, in time of war,
sho'uld that unhappily come again. When President Koosevelt sent
our Navy around the world, it had to be supplied and bunkered by
foreign-flag ships. Our naval giant showed the nations of the world
its feet of clay. In 1914, when the World War began, be it said to
the shame of America, she possessed but 15 passenger ships of such
type as to be of use for naval auxiliary, while Great Britain pos¬
sessed over 200 such ships. To-day we possess 50 to Great' Britain's
250. But when age and speed, which are the determining factors
in the use of such ships for naval purposes are considered. Great
Britain's margin over us is further increased.
19530—22 2
8
GOVEKNMENT-OWNED SHIPS.
OUR DEFICIENCY IN CASE OF WAR.
Should we unhappily go to war with another country, Great Brit¬
ain not being a party to the controversy because strict neutrality
would be to her interest, we would find it difficult indeed to furnish
our Navy with the supply and the fuel ships that it needs, in addition
to the convertible type of merchant ship recognized as necessary for
the second line of defense. For, while we possess a vast tonnage,
that tonnage was built during the war in the best ways immediately
possible, in order to get maximum production, but without regard
to type or balance ; so that while in millions of tons we have a for¬
midable array, in the balancing of our tonnage for either war or
peace-time purposes we are sorely deficient. There can be no thought
of naval equality with Great Britain until we possess a merchant
marine in balance and tonnage equal to hers as a second line of de¬
fense to Qur Navy and as a source of supply and fuel. It is idle to
say that the 5-5-3 agreement brings us in proportionate naval
equality with the other two nations involved, unless we do that
which is necessary to build up a merchant marine of proportionate
size and balance to theirs; for all naval authority in the world
affirms that the supplemental merchant marine required by a navy
is as essential to its operation as capital ships themselves.
FALLING SHORT OF ALLOTTED NAVAL RATIO.
There can be no thought of our maintaining even the naval tonnage
allotted to us by the limitations agreement if we are to have no ade¬
quate auxiliary merchant marine. Great Britain has to-day that ade¬
quate merchant marine necessary for any operation of the naval ton¬
nage that accrues to her in the Washington agreement. To the extent
that we fail to supply ourselves with an adequate merchant marine
of the type and number to balance the naval strength allotted to us
in the Washington conference, we should do away with the mainte¬
nance of capital naval ships. We can not fool ourselves; we only are
on a 5-5-3 naval basis with Great Britain and Japan to the extent
that we possess on a 5-5-3 basis merchant marine of the type and
kind necessary for naval aid.
As it stands to-day Great Britain will immediately take her place
both with naval and auxiliary merchant ships in the 5-5-3 program.
We can not take ours to-day, nor for years to come. We still must
create many essential types of merchant ships.
When we use Great Britain as an example we do so in the spirit
of the greatest friendship, for, happily, no one can ever have a
thought of war between the two greatest English-speaking nations;
but rather, we use her as an example, because Britain, in her attitude
in the late conference, showed that she was as desirous as we that
GOVEKNMENT-OWNED SHIPS.
9
America should have naval equality with her, and she knows better
than we that there can be no naval equality without the proper mer¬
chant marine.
PRESENT FLEET COSTLY WAR INHERITANCE.
We came into the possession of the vast fleet we own, built under
the hysteria of war, for the carriage of supplies of our Army and
the Navy stores. For the carriage of our men we had to rely chiefly
on our allies and on seized enemy tonnage. We all realize now that
this war-built tonnage, inadequate for peace or war, could have been
built to serve a wider and surer purpose at inflnitely less expense if
created during times of peace. Shall we again be involved in such
haste and loss by failing to learn the lesson which has just been
taught us? Wherefore, whether we view it from the standpoint of
peace or the needs of war, America must develop its merchant ma¬
rine.
The Jones Act wisely provides, in its preamble, that its purpose is
to develop a merchant marine as an aid to the Army and Navy in
war and for the development of American trade in times of peace.
We are not able to accomplish these purposes at the present time.
Startling as it may seem, in spite of the vast tonnage we possess, we
are not now positioned to protect our peace-time trade or to properly
care for our Army and Navy in times of war.
Let us explore why this is so.
OUR PRESENT SITUATION.
We have touched on the lack of balance in our fleet. We will not
speak of the vast number of tons of wooden ships; the sad story of
this is known to all—they never should have been built; they were
the war's greatest shipping blunder, an error against which we had
been warned but which warning we refused to heed. They must be
charged off practically as an entire loss, a monument to folly. They
can not be used in profitable normal operation, and merely hang
over the market as possible pirates in times of better days, depressing
thereby the potential value of the steel fleet without offering the
slightest hope of continuous operation even for short periods. The
high cost of insurance, the uneconomic machinery, the great amount
of fuel required in proportion to carrying capacity, make these ships
in every way impossible. They should be considered as not existing.
DEFICIENCY IN HIGHER TYPES OF SHIPS.
The Government-owned steel fleet is divided as follows:
Tons gross.
Passenger ships 500, 000
Freighters . , 6,000, OOO
Tankers 550. 000
10
GOVERNMENÏ-OWNED SHIPS.
Of the passenger ships, 300,000 tons are ex-Germans, of which
140,000 tons are so old as to be of no potential continuing value ; their
life is but short, and they can be, by and large, only academically
considered as asset. Of fast cargo ships, we have but 15 ships of a
total of 116,000 gross tons.
In fact, in passenger tonnage, both governmental owned and pri¬
vately owned and including ships designed for the short runs to the
West Indies, we have but 80 good ships, aggregating 600,000 tons;
while of fast cargo ships of both classes we have but 53 ships of
390,000 tons.
To have a merchant marine that can effectively meet 50 per cent
of all our peace-time carrying needs, we require a million and a quar¬
ter gross tons of passenger ships, and about the same amount of the
faster cargo ships.
SURPLUS OF SLOW FREIGHTERS.
Of our 6,000,000 tons of freighters, about half the steel tonnage
is good tonnage, comparable to the best in the world. The other half
ranges from fair to not usable for purposes and should be either sold
abroad in such trades where we have every assurance it will not find
itself in competition with our ships, or dismantled. We must not
fool ourselves. This tonnage was built during the war days from
such means and in such ways as we had quickly at hand. The cry
was for maximum tonnage regardless of its cost of consti'uction or
subsequent operation—for war knows nothing of economies—and
thought was given only to quantity production for war purposes
and not to the practicability and economy of operation of the ships
in times of peace. Fairness compels the statement that, by and
large, it would have been impossible to produce this quantity of
tonnage had the measure of production been convertibility for
peace-time needs.
HOPE TO GET TONNAGE INTO PRIVATE HANDS.
Of the 6,000,000 tons of freighters the Government possesses, it
is the hope of the Shipping Board that ultimately a great measure
of the 3,000,000 good tons will find itself in the hands of American
owners, should the legislation here proposed be adopted. It is
doubtful if, under the happiest conditions, the American flag, will
need the 3,000,000 good tons in its entirety, and ways and means
must be found to dispose of such of the good tonnage as remains,
so that American interests will not be hurt. Under no circum¬
stances must the surplus of good tonnage that America can not
absorb be disposed of so as to bankrupt those who bu.y from the
government at current prices.
GOVERNMENT-OWNED SHIPS.
11
THE MENACE OF THE SURPLUS.
Automatically the 3,000,000 poor tons must be done away witli.
Part of it can be used by selling to Americans the hulls at low
figures for conversion to types of freighters of which we are not
possessed. The balance may either be sold in small quantities in
local trades abroad, where, because of shorter runs and cheaper
labor, local operation may be possible, or it must largely be dis¬
mantled. For, if we permit a potential surplus to remain, with the
possibility of its use in only abnormally prosperous times when any
tonnage can be profitably operated, the burden of loss will fall on
the good tonnage in times of adversity without full enjoyment of
profit in time of prosperity, and thus we depress the price of all of
our tonnage, and so it will come to pass that we shall liquidate the
whole for less than we could liquidate the good part.
It is the unneeded surplus, in ships as in all else, that determines
the market, and the same circumstances that forced some farmers to
burn their corn last winter demands that, at least in so far as the
uneconomical 8,000,000 tons of freighters go, we recognize that
one of our problems is to force its disappearance from the market.
If we are to induce private investment in American ships, it must
be under an assurance as to what will be done with the surplus ton¬
nage, plus an assurance that the Government will retire from opera¬
tion, for private owners can not live and can not finance themselves
with those two swords of Damocles hanging over their heads.
GOVERNMENT OPERATION EXPENSIVE AND UNSUCCESSFUL.
The Shipping Board, under mandate of the Jones Act to main¬
tain necessary trade routes, is operating 421 ships at an annual
loss of approximately $60,000,000. This includes the cost of lay-up,
but not the cost of all necessary repairs, though the Board is doing
such repairs as it can within the figure named. There should be
no quarrel at this expenditure of $50,000,000, because thereby we
are keeping the American flag flying into all ports of the world, and
tlie American manufacturer and producer is assured of carriage for
his wares to his markets when his needs demand. For the year
1921, America carried under her own flag 51 per cent of her total
foreign trade. This figure seems to indicate a result much more
favorable than the real facts warrant.
If we deduct from our foreign water-borne trade that which is
carried on the Great Lakes, in vessels which for the present are
immured there, and if we subtract the cargoes carried between this
country and the countries bordering on the Caribbean which have
no merchant marines of their own and whose trade, therefore, is
not competitive, there will remain the traffic in general cargo to
12
GOVERNMENT-OWÍTED SHIPS.
overseas continents and nations having merchant fleets, and compet¬
ing with us for these particular cargoes.
OUR STANDING IN COMPETITIVE SEA CARRIAGE.
In this figure, which represents our real competitive trade, the
American ship makes a poor showing. Our exports in this trade are
now three and one-half times our imports. Of these exports, foreign
ships carried over the entire year an average of 71 per cent, while
the American ship carried but 29 per cent, and only reached this
figure by virtue of the large amount of coal exported in American
ships during the British coal strike.
For December, which represents a recent normal month, foreign
ships carried 76 per cent of our overseas general cargoes and 24 per
cent was left to be carried in American ships. This 24 per cent
measured our success in competing against foreign nations for the
carriage of our products to the markets of the world. Of the 24 per
cent, 19 per cent was carried in Shipping Board vessels and 5 per
cent by private American owners.
MUST CARRY HALF OUR OWN OCEAN TRADE.
It must be the purpose and the aim of America—and the Shipping
Board emphasizes its belief that this aim can be accomplished—to
carry at least 50 per cent of our foreign trade, other than with con¬
tiguous and nearby countries, under the American flag privately
operated. The suggestions made to the Congress by the President
contemplate within a decade, at the cost estimated by him, that 50
per cent of such trade will be carried under the American flag
privately operated. We are to-day carrying 87 per cent of our oil
trade with Mexico, and 57 per cent of the Caribbean trade in our
own ships. But neither the needs of trade with Mexico nor the
Carribbeans calls for that type of ship which is the very backbone of
the second line of defense of our Navy; nor does the trade with
Mexico or the Caribbean call for that type of ship which is the
forerunner of world trade and world intercourse—the fast passenger
and combination passenger and cargo ships.
Of the 24 per cent of world carriage in American bottoms here
referred to, it is appalling to think that 19 per cent is carried in
Government-owned ships and only 5 per cent in privately owned
ships, when it is considered that the Government, through the
Shii)ping Board, admits its inability to operate on an equally
efficient basis in competition witli the private ships of the world.
Fifty million dollars annually it is costing to keep the Shipping
Board boats going—$50,000,000, not including, however, interest,
full insurance, or depreciation on invested capital. For any private
GOVBRÎÎMENT-OWîrED SHIPS.
13
business to say that it was losing $50,000,000, without considering
interest on capital investment, full insurance or depreciation, would
mean that the managers of that private business were attempting to
deceive their stockholders by understatement. In the same way it is
a deception to the American people to represent that the Shipping
Board is losing but $50,000,000 per annum, when that $50,000,000
is lost in operations only and does not consider capital invested.
WHERE EMERGENCY FLEET HAS ALREADY PAID FOR ITSELF.
There was, however, good reason why the Government, at the
end of the war, should, through the Shipping Board, have estab¬
lished governmental operation. Not only should there be no apology
for this, the facts warranted it, and the time will come when it will
prove to have been an act of courage and vision on the part of our
people. But the continuance of this Government operation is now as
unforgivable as its establishment was sound.
What do we mean by this seeming contradiction? When the
World War was over, there was a great scramble on the part of all
the maritime nations to use their own tonnage for their own peace¬
time needs. Had America not possessed the tonnage she built during
the war, in the two years of prosperity that followed the war we
would have lost largely of markets that were ours, much as their
need would have! been for our wares, because there would not have
been tonnage availa;ble to carry our goods. Those who needed them
would have sent us their ships to the extent that they needed goods,
but even then many would not have had enough ships to carry that
which they alone needed, and others would not have furnished us
their surplus ships for our trade aggrandizement at their own ex¬
pense.
GOVERNMENT POST-WAR OPERATION NECESSARY.
The vast sums we saved to ourselves in freights alone, which
through faulty governmental bookkeeping, was converted to con¬
struction charges, would have shown during that period that
handsome freight returns inurech to the public treasury. Private
operation at that time would have been impossible; there had been
but little overseas carriage under the American flag by private
owners before the war and private capital therefore would not have
been available at the war's conclusion quickly enough to operate
successfully the Government-owned ships, even had the Government
sold those ships at fair prices to private owners. So that", in order
that the war-built fleet might immediately come into America's
peace-time needs, the Government was forced into operation—an
operation that from that time to this, through the lack of private
14
GOVERNMENT-OWNED SHIPS.
facilities, has been the greatest insurance we have to our future
overseas prosperity, which involves our national prosperity.
GOVERNMENT OPERATION INHERENTLY VICIOUS.
We believe that the present operation by the Shipping Board is
fast approaching as efficient an operation as Government can give.
But any free competition with the privately owned shipping of the
world, through successful Government operation, the Shipping
Board avers is an impossibility. The restrictions of congressional
legislation, the demands of varying sections of the country, the
limitations on free play from which private business does not suffer,
make it impossible for Government-owned shipping to compete with
the private ships of the world.
GOVERNMENT TAKES ALL CHANCES OF LOSS.
When the present board took office, June 12, 1921, it found the
ships of the fleet being operated by managing agents, to-wit, private
operators who were paid fees ranging from 2^ per cent to 5 per cent
of the gross receipts for supervising the operation of the ships. It
must not be supposed that this commission by any means represented
gross profit—in fact, practically all managing operators, since the
present board has been functioning, have lost money. The managing
operator had to pay out of his commission rent, clerk hire, expense
of freight solicitation, superintendence of deck, engine and victual¬
ing departments, and many other sundry expenses.
When the commissions • were originally declared, freights were
three or four times as high as they are now, so that in effect to-day
the operator's commission has been reduced by 66| to 75 per cent,
even though his ships carry the same number of tons of cargo. To
increase the commission would affect the situation very little, because
the system in its very inception is uneconomic and vicious for the
reason that the managing operator, having no direct interest in the
operation of the ship, having no direct responsibilityj having no
sense of building for himself for the future, is in such state of mind
that he operates Government-owned ships with vastly different vision
and inspiration than he would his own.
DEFECTS OF THE SYSTEM.
The system which we found in vogue when we came into office left
itself open to all sorts of vagaries in management, to all kinds of
chicane and unreliability. The managing operators had organized
private stevedoring companies, private ship-chandlering companies,
and similar devices by which to make hidden profits, to increase the
meager compensation which the Government allowed them. The
GOVERXMEXT-CnVNED SHIPS.
15
very spirit of making hidden profit on the part of an agent to a prin¬
cipal means a strained relationship all along the line. Such attitude
and actions on the part of the managers were known to the captains
and crews of the ships, who in turn felt neither pride nor proper
responsibility in the trusteeship that was theirs. The facts were so«
notorious that to mention them is but to call attention to that which
is obvious to every one who has given the slightest study to the sub¬
ject.
Let it not be felt by this seemingly black statement that we wish
to reflect on the integrity of the operators as a whole. But few of
them we believe have consciously done wrong. The very small com¬
mission allowed them made it necessary for them to find other sources
of profit out of the responsibility that is theirs. These sources of
profit came into life so gradually that they failed to be noticed and
the new board claims no great credit tliat when it came into office it
was able to visualize the whole picture because it saw the picture
complete.
AN IMPOSSIBLE PROCEDURE.
Nor can the individual agent be chargeable with the fact that
initiative and sense of responsibility are lacking in the transaction.
It would be impossible. It is not within human realm to create in
such a transaction a sense of initiative and responsibilitjR The only
reason that the managing operator continues in his connection with
the board (and I think I speak the view of the managing operator
that he believes as little in the system as anyone) is that he hopes
by cooperating with the board in the management of the ships to
keep alive America's merchant marine until Congress can adopt a
national policy that will insure its life. The managing operator,
strange as it may seem with the charges that are made against the
system, is by and lai'ge ¡performing a really helpful service.
PAST ABUSES CORRECTED BY PRESENT BOARD.
The present board, when it took office, cognizant in a lay wa3' of
the situation, which indeed was promptly brought to its attention
by the prior chairman, took steps to right the condition in so far as
possible. We believe we have built up an organization in the Emer¬
gency Fleet Corporation that is measurable to any private organiza¬
tion in the Avorld, but for reasons which will develop, that organiza¬
tion is discouraged by the impossibility of creating any proper oiper-
ation through Government ownership. The new board and the trus¬
tees of the Emergency Fleet Corporation set to work early last sum¬
mer to correct the evils which have here been enumerated, and we
stand firm in the statement that these evils have been eliminated, in
195.30—22 3
16
GOVERXMEXT-OWXED SHIPS.
SO far as time and knowledge and effort and limited organization,
due to needs of keeping within appropriations, have permitted. I
feel I can state without fear of contradiction that the improvements
made since last Jnne in the operations of the board's ffeet command
the admiration of shipowners of the world throughout.
LIMITATIONS OF GOVERNMENT OWNERSHIP.
But let us not be deceived. Conditions still are bad and will ever
remain so under Government ownership because of the impossibility
of competing with private operation. Both the sense of initiative and
the responsibility found in private operations are lacking. Initiative
is lacking because neither those employed by the Fleet Corporation,
nor the managing agents, nor their emplo3'ees in turn, have the
slightest notion that they are building up anything permanent for
theijiselves. At any time Congress may see fit to so reduce salaries
that men of ability can no longer afford to stay with the Fleet Cor¬
poration. In other departments of the Government it is considered
somewhat of an honor to hold office ; to be connected with the Ship¬
ping Board, in the words of Congress, as often expressed on the floor
of both Houses, is a sort of semidisgrace. Small wonder then that
it is exceedingly difficult to keep up that inspiration which is neces-
sarv for sure and permanent accomplishment !
HANDICAPPED BY GOVERNMENTAL RESTRICTIONS.
There is no privately-owned corporation doing an infinite fraction
of the volume of work of the Fleet Corporation that does not have
more high-salaried men than is permitted to the Fleet Corporation.
Men will not serve the Fleet Corporation for honor alone, for there
is little or no honor to be found there in public recognition. The few
high-salaried men we have are, however, making actual sacrifices in
order to aid the situation, as evidenced in testimony given before the
House Appropriation Committee but lately. Inspiration is further
laclving because necessarily, in a Government-owned fleet, the influ¬
ences of selfish interests and localities which desire special privileges
can not at all times be resisted, and should surrender be made to such
.sitii 'tions, inspiration would be compromised with.
GOVERNMENT CAN NOT COMPETE ON SEAS ON EQUAL BASIS.
'I'liere is no pi'i\ atel,y owned corporation doing an infinite fraction
wliicii tlie Government can not engage. For instance, often it be¬
comes necessaiy to buy and sell merchandise in order to insure car¬
goes. Tlie most successful fleets under the American flag are those
of tlie United Fruit Co., the United States Steel Corporation, the
ü()verx:-.iext-ov,'>:ed ships.
17
Bethlehem Steel Corporation, and the Standard and other oil com¬
panies. The owners of these fleets are engaged in trading and thus
insure full tonnage. No Government operation can do this. The
Shipping "Board at the present time is negotiating for the sale of
several ships to a concern which in turn is negotiating with the
Chilean Government, whereby the American concern sells the Chil¬
ean Government 300,000 to 600,000 tons of coal a year for a term of
years, during which time it takes 300,000 to 600,000 tons of nitrates
in exchange. Thus those ships are assured of cargo through trading
connections.
I do not enter into a discussion of the merit of private ownership
against that of public ownership in anything save ships. In the
Post Office, in the Army, in the Navy, Government ownership can
prevail because a monopoly is created. Should the Government de¬
sire to take over the railroads, it could create a monopoh' which,
would give exclusive privilege to Government operation until such
time as efficiency might be brought into life; but shipping is a dif¬
ferent thing. The Government must ever be in free competition
Avith privately owned shipping of the world. No monopoly can be
created during the existence of which efficiency can be brought to
life, and in the competition between Government ownership on the
part of our Nation, and the initiative and sense of responsibility con¬
comitant with private ownership in others, failure is foredoomed.
RISK OF GOVERNMENT C0MPET1TÍ0N TOO GREAT FOR CHARTER METHOD.
The new board, recognizing the viciousness of the managing
agency system adopted, as one of its earliest policies, that of placing
the ships on a bare-boat charter basis, if sale Avas impossible. Bare¬
boat charter means to rent the ship for use to private operators, the
private operators bearing all expenses of manning, fueling, victual¬
ing, stevedoring, and repairs. Thç owner merely rents the use of the
bare ship and supplies hull insurance. The charterer bears all the
losses of the operation and to him all the profits accrue; and hence
there is, by and large, a measure of incentive such as is found in
private ownership.
In spite of all efforts on the part of the board to charter ships
under such a plan, the net result has been the chartering of but 38
ships at the small compensation of 50 cents per ton per month, an
amount just about sufficient to offset insurance, interest, and depre¬
ciation, if the ship were privately owned, without leaAung any profit
to the owners in the transaction. The interest, insurance, and de¬
preciation here estimated is based on Avorld prices of merely S30 per
ton.
18
GOVEENMESX-OWIíED SHIPS.
FORCED INTO INCONSISTENT POSITION.
The fact that the board was not able to carr}- out its policy of
going on a bare-boat charter basis is due to the fact that it has been
impossible to bare-boat charter the ships. Under the merchant ma¬
rine act of 1920, it being obligatory on the Shipping Board to main¬
tain certain routes, the board has been forced to continue in a sys¬
tem of which economically it does not approve ; the board has reduced
its operations to 421 ships in order to keep within the meaning of its
interpretation of the Jones Act. It has, in so far as time has per¬
mitted. corrected the abuses in the managing agency system com¬
plained of, but the inherent lack of inspiration and lack of responsi¬
bility can never be cured under this system.
With world shipping depressed beyond an^-thing ever known, with
the fear of comjietitive Government operation financed out of the
depths of the. Public Treasui-y, with the bugaboo of a vast unliqui¬
dated Government-owned tonnage hanging over the market, charterer
and buyer alike find no incentive for risk. It is a drab picture which
I draw, but I aver that we can only look forward to benefiting from
the advantages of improved world trade conditions when they may
come by now putting our house in order to transfer our operations
and our fleet into private hands.
' DIRECT GOVERNMENT OPERATION EVEN WORSE.
The only other alternative is worse than the present dire situ¬
ation—that is, direct operation by the Government, instead of
through managing agents. If there is one thing worse than Gov¬
ernment ownership, as we now have it, it is ownership and operation
by the Government. The reason for this is obvious. If we find it
difficult to create an organization for the Government merely to
supervise the operation of private agents, how difficult and impossi¬
ble would it be to set up a proper operation for so complex a busi¬
ness as shipping, to be operated throughout every corner of the world.
GOVERNMENT OPERATION MEANS EVENTUAL DISAPPEARANCE OF FLEET.
One of the most formidable objections to continued Government
opei-ation to-day—an objection that is insurmountable—is that the
shi])s owned by the Government would in due course wear out, even
with pi-oper I'ejiairs. No one in Congress suggests, nor have I ever
heard it suggested from any source, that the Government should
build shijis to replace those that are worn out. or that the Govern¬
ment slionld build new type ships. If there is one unanimotis opinion
in the country regarding our merchant marine it isthat Government
construction of mei'chant ships should cease. Thus the continued
GOVERNMENT-OWNED SHIPS.
19
operation by the Government of its present fleet would be making no
progress toward a permanent policy on the seas or a renewed and
enduring merchant marine. This one phase alone calls for legisla¬
tion along the lines proposed to insure the Government's retirement
from ownership and operation.
Permit me to stress that unless the Government rebuilds, even if
the Government could stay in operation and give a good operation,
which I deny, within less than 20 years the fleet would be worn out
and gone. We would be building up no American merchant marine,
for, with the Government continuing to operate, private operators
would be driven out of business under the American flag. They could
not stand the competition. The Government would not be building
new ships, and all that would have been accomplished would be de¬
clining governmental operations under the American flag, with the
assurance that the ultimate would be America driven from the seas.
Thus the Americans who took to the sea as a profession would ulti¬
mately find America without ships of its own flag and would be
driven to ship on foreign ships at foreign wages, whereas by insur-
ing private operations, which will be continuing, we insure American
seamen on the sea at American wages. Further, if the Government
continues in operation without the legislation asked for, and drives
the private owner off the sea or prevents his growth and assuredly
prevents new capital from coming into existence, there will be no
building by the Government or any one else under the American flag
of those types of ships so sorely needed to balance our fleet and to
aid our Navy in time of war.
Continued Government operation is a solution only from one stand¬
point. It solves the problem in one way, to wit, that the fleet shall
be operated by the Government until it is worn out and thus assure
the elimination of the American flag from world commerce.
GOVERNMENT AID ESSENTIAL TO END LOSSES.
I do not desire by compromise for one moment to escape the re¬
sponsibility of making the assertion that there is no future for the
American merchant marine, private and Government, save bank¬
ruptcy, unless private ownership is fostered and expanded and the
Government retire. No philosophy of sophistry, no economic theo¬
ries can change the proved facts of experience of the Shipping
Board. Those of us who spend our hours in the Shipping Board
claim to be as patriotically moved as any men on this subject. Our
contact with this thing is closer than that of others, and I am sure
the members of the Shipping Board will join with the trustees of
tlie Emergency Fleet Corporation in attesting that I truly record here
our experience.
19530—22 4
20
GOVERNMENT-OWNED SHIPS.
While the seeming loss of Government operation at this time is
$4,000,000 a month, let us remember that the fleet is growing no
younger. Each day adds age to it and if these operations be not
quickly ended, the ships, through the lack of responsibility felt re¬
garding them on the part of the operators and crew alike, will de¬
preciate largely in worth. ^
LOSS BY DETERIORATION.
With the way the ships are handled under the present lack of
responsibility, as will be proved to you in testimony later to be given
by Shipping Board experts, regardless of how world conditions im¬
prove and freights increase, the loss of the Shipping Board will be
constant and possibly accelerated through the vast repairs to the
ships that will be necessary as time goes on.
We are living in a fool's paradise if we think the loss is merely
that which we can measure in the monthly balance sheet; and even
this loss of $50,000,000 per annum fails to take proper account of
interest, depreciation, or full insurance.
How can private enterprise live in such competition? To con¬
tinue it spells the death of private enterprise and in turn Govern¬
ment operation will wither. We can no longer procrastinate in
choosing our course. Congress must now decide whether there shall
be opportunity given to turn this thing into a great asset of peace
and an essential of war—as we believe it can be turned—or whether
the festering sore, through inaction and self-deception, shall be con¬
tinued and grow worse.
SALE OF SHIPS IMPOSSIBLE WITHOUT AID.
The Shipping Board's loss of $50,000,000 a year, we aver, can be
ended by a much lesser expense from the Treasury through the direct
and indirect aids proposed, and only in this way can the Govern¬
ment's good ships find a market by making private operation profit¬
able. As quickly as possible we feel that the good ships should be
liquidated, the poor ships disposed of, the Government put out of
operation. The proposals made by the President contemplate that
at an ultimate maximum expenditure of $32,000,000 per annum in
direct aid, and through various fonns of indirect aid, we will finally
dispose of our ships for private operation at a total annual cost of
something over $40,000,000; and thus shall we end an operating loss
of $50,000,000, give our people a better and a more assured service
on the seas than America has ever enjoyed heretofore, successfully
tinning a war-time and war-built enterprise into a great instrument
of peace-time profit and peace insurance.
GOVERNMENT-OWiTED SHIPS.
21
At the present time there is, by and large, no market for our vast
tonnage. Much of this tonnage cost over $200 per ton to build.
About 1,300,000 dead-weight tons were sold at prices averaging $177
per ton since the end of the war; 170,000 tons have been paid for;
on 390,000 tons the purchase has not been completed and the ships
are again in the possession of the board. In the case of 740,000
tons, we either must give vast relief on the amounts owing or take
the ships back. So that, compared to the total tonnage built by the
Government, practically no tonnage has been disposed of. After
months of deliberation, in January last the board decided to under¬
take to sell its tonnage at world market prices; and on its steel
freighters, after careful investigation, it found this to be a minimum
of $30 per ton for the best tonnage. So depressed is world's ship¬
ping at present, and especially so timid are operators under the
American flag, that we havê even at these prices been able to dispose
of but 100,000 dead weight, or 65,000 gross tons. Nor can we see
any great hope of disposal of an appreciable part of the total ton¬
nage we have unless, through Government aid, the difference between
our operation and that of the foreigner is provided for, and thereby
automatically the competition of wasteful Government operation
removed.
AID NEEDED TO OVERCOME HIGHER OPERATING COSTS.
Private ships under the American flag must be governmentally
aided, because of the higher standards of living of American labor
in the shipyard and on the ship. The man who builds ships on land
works in America with a higher wage ; the man who mans our ship is
paid more and sustained better than the foreigner. Who in America
would have it different? Who in America would question that the
prosperity of one should be the common prosperity of all, and that
these higher standards should prevail with all the people of our
country? It is of prime importance, if we are to have an American
merchant marine, that that merchant marine consist of ships built by
American workmen in American yards, because, if we are once again
engaged in war, unless we control our own yards and our own ship¬
building, we will be lacking in the means of instant and sure repair
and renewal.
FAST LOSING ART OF SHIPBUILDING.
With the limitations of armament and the holiday in naval shi])-
hnilding, the development of the private shipyard becomes more es¬
sential than ever, or the art of shipbuilding will be lost to America,
and in time of war those nations of the world who kept their ship¬
building alive through overseas carrying will have an unmatchable
22
GOVEEÎiMEXT-OWïrED SHIPS.
advantage against us. So, with changed conditions, from the stand¬
point of our country's security alone, it is essential that we foster a
private merchant marine built by American workmen.
Therefore, with higher costs of living and with higher capital
charges, if we grant that for war and peace-time purposes we need a
merchant marine, the Government must, through aid to shipping,
direct or indirect, or both, make good the diiference between these
added charges under the American and other flags. And further,
only through aid to private shipping can we hope to end the great
loss through governmental operation now existing and liquidate the
Government's fleet.
AID PROPOSED IN THE MERCHANT MARINE ACT, 1920.
When the present Shipping Board came into oíñce, one of its major
duties was to study and bring into life thé provisions of the merchant
marine act of 1920. This act provided for a sound system of indi¬
rect aids to American ships, chief of which was section 34 heretofore
I'eferred to, which called for preferential tariffs on imports when car¬
ried in American ships. For reasons before given. President Wilson
refused to abrogate the treaties, which made impossible the func¬
tioning of section 34. The present Shipping Board unanimously
memorialized President Harding to do that which President Wilson
had refused to do. After long deliberation -and careful investiga¬
tion, President Harding concurred with President Wilson, and thus
we have the will of both Democratic and a Republican President—
the greatest nonpartisan concurrence there could be—that, for the
time being at least, the provisions of section 34 can not be carried out.
MUST OVERCOME LOSS OF SECTION 34.
Removing section 34 from the Jones act. President Harding, whose
interest in the establishment of an American merchant marine is
second to that of no living man, realized that the very heart and
essence of the act was gone, and that without the benefits of section
34, the other benefits Avould not be sufficient to accomplish the needed
purposes. The President coupled his declination to make possible
the invoking of section 34, with a request to the Shipping Board that
it make a study of such aids as should be substituted to replace
the beneficent provisions of the relegated section.
THE PRESIDENT'S PROPOSAL.
With these problems before it, and with this premise unanimously
adopted, the Shipping Board approached the study of the legislation, •
which, when completed, the President proposed to the Congress.
GOVERNMENT-OWNED SHIPS.
23
The President's own first tlionglit in substitution of section 34 was
that the Government step into the breach created by the nonexistence
of the benefits of section 34, by olfering direct aids in the form of
subsidies to American ships. For that purpose the President devised
the plan that 10 per cent of all tariffs collected be placed in a fund
for the upbuilding of America's privately owned merchant marine.
How this very sound idea is to work out, is best expressed by the
President himself in his special message of February 28 to the Con¬
gress, as follows :
The proposed aid of the Government to it.s merchant marine Is to have its
cliief source in tlie duties collected on imports. Instead of applying the discrim¬
inating duty to the speciflc cargo, and thus encouraging only the inbound ship¬
ment, I propose that we shall collect all import duties, without discrimination
as between American and foreign bottoms, and apply the heretofore proposed
reduction to create a fund for the Government's aid to our merchant marine.
By such a program we shall encourage not alone the carrying of inbound car¬
goes subject to our tariffs but we shall strengthen American ships in the carry¬
ing of tliat greater inbound tonnage on which no duties are levied, and, more
important than these, we shall equip our merchant marine to serve our outbound
commei-ce, which is the measure of our eminence in foreign trade.
DIRECT AID ALONE NOT ALWAYS A SUCCESS.
The Shipping Board immediately caused a study to be made of the
history of direct aids to shipping. This study has been circulated
among the Members of the Congress. There can be no doubt that the
study shows that direct aids have failed quite as often as they have
succeeded. Illuminating and parallel examples can be found in the
cases of Japan and France. Similar cash subsidies resulted in Japan
building up a most potent merchant marine for its purposes, while
F ranee fell far short of that desideratum. Obviously, therefore, there
must have been other factors inherent in each of the individual coun¬
tries that made for the differing results. Thus the Shipping Board
soon came to the conclusion that it was problematic whether direct
aids alone would accomplish the aims in mind.
DIVISION OF THOUGHT AS TO METHODS OF AID.
There have always been two great schools of thought in connection
with Government aid to shipping—that which stands for direct aid
in the form of cash subsidies, and that which stands for indirect aids,
where, through favorable legislation, preference is given to the home
flag.
The opposition to Government aid to an American merchant
marine has not always sprung from honest or disinterested purposes.
The foreigner who has had the benefit of the profits that inured from
carrying America's trade, tlie American shipowner, banker, and im-
24
GOVERÍTMEXT-OWXED SHIPS.
porter who had profited through his connections with foreign carry¬
ing companies, have all, consciously or unconsciously, properly or im¬
properly, been opposed at times to the establishment of an American
merchant marine. When direct aids have been proposed, the honest
proponents of indirect aids have cried that only their methods should
be adopted, and those with selfish purpose and dishonest interests
have joined them in their cry. AYhen indirect aids have been pro-
«posed, the proponents of direct aids have insisted that only their
methods should be tried, and those with selfish and dishonest interests
have joined on such occasions to the contra-vieiv.
SINISTER FORCES AT WORK COVERTLY.
We hold no quarrel with the foreigner, who would do all he can to
prevent the establishment of an American merchant marine, that the
profit of our carriage might inure to him. But we ask that there at
least be a public understanding of the sinister forces that are at
work—forces that can not be measured, that can not be detected, that
can not be cornered—who use their instruments subtly among honest
men. The day has come when we must, in common understanding,
approach this subject. Happily the Shipping Board, after long and
careful study, came to the conclusion that a proper measure of Gov¬
ernment aid to accomplish the purposes in mind could only come
through the use of both direct and indirect aids, throwing the burden
onto the indirect aid.
COMBINATION OF BOTH METHODS IN PROPOSED LEGISLATION.
Under the chairmanship of Commissioner Lissner, in conjunction
with the chairman of the Shijiping Board, and aided by an ample
staff of experts, the Shipping Board made a study of all forms of
indirect and direct aids ascertainable. A plan has been worked out
whereby a very sound system of indirect aids is proposed. It is pur¬
posed in addition to give direct aid to a sufficient extent to make
possible in good years earnings of 10 per cent or more for ships—
surely not a I'ery large earning, where capital has to be attracted in
competition with other enterprices. Beyond 10 per cent the earn¬
ings will be divided equally between the owner and the Government,
until all of the direct aid shall have been paid back into the merchant
marine fund to be created for the aid of shipping, after which the
ships retain all of the surplus earnings, if any. If the indirect aids
proposed should be sufficient in any annual period to bring proper
returns, there would be no direct aid retained. Thus the burden of
the aid is thrown on the indirect.
GOVERXilEXT-OWXED SHIPS.
25
ALL POSSIBLE INDIRECT AIDS RECOMMENDED.
\
Thus the proponent of indirect aids can have no occasion to quarrel
with the proposals; for, as the Shipping Board recommends ever}''
practical indirect aid possible to give, if those indirect aids should
not be sufficient, no one can question that the Government should,
from its Treasury, if ships are a national necessity, if the Govern¬
ment's loss ill operation is to be ended and its fleet sold, help to the
extent of making possible earnings of 10 per cent in good years.
The proponents of direct aids certainly can raise no objection to
indirect aids being first called into being, reliance being placed on
direct aids only if the indirect aids are not sufficient. Therefore, in
the legislation proposed by the President to the Congress through
the Shipping Board's study, there can be no quarrel between the two
schools of Government aid.
NO OPPORTUNITY FOR PROFITEERING.
This legislation proposes a very proper profit limitation—10 per
cent on the earnings of ships, and after that, equal division of earn¬
ings between the owner and the merchant marine fund until the
subsidy is returned. Surelj^ such an allowance of earnings can not
be called profiteering, because, while the ships are allowed a net
profit of 10 per cent before beginning to return the subsidy, and
thereafter are allowed half the net profits until the entire amount
of the subsidy is returned, nowhere in the Shipping Board study is
it proposed that ships be protected against loss. Under the proposal
made, including the right of the Shipping Board to make 10-year
contracts, there will be many years during which, with all the aids
given ships will lose money, and it is universally conceded that in the
shipping business, through the years of plenty and years of famine,
the average that any ship can earn through the proposed Govern¬
ment aid during the term of its 10-year contract is a very modest
sum.
NEED FOR ADEQUATE AND SUFFICIENT ASSISTANCE.
There is no hope of the e.stablishment of a merchant marine
through insufficient aid. Rather than insufficient aid, let us have no
aid at all and leave the question open until such time as we will give
sufficient aid to insure our purpose. The achievement of our pur¬
pose should be our aim, not to fool ourselves and others and achieve
failure by doing too little when we seem to be doing enough. We
should take advantage at this time to write on our statute books
evei-y possible indirect aid tiiat can be uncovered and which can
properly be used. The Ship])ing Board believes that in its ]n-oposed
26
GOVEKIíMEXT-OWÍsED SHIPS.
study it has done so. This legislation can be constantly amended,
if new forms of indirect aid be found, until finalh' the need of di¬
rect aids disappears. But until the indirect aids have proved what
they can do, until American ships have a larger volume of business,
we must have some measure of direct aid, however, with proper
limitation on profit.
We must do enough or nothing. We seek substance, not shad¬
ows. To do less than enough is merely to have sold out to the de¬
featists who would have no American merchant marine. We must
stand firm for no compromise less than that which is sufficient, but
we should yield nothing to possible profiteering. The Shipping
Board stands boldly in its affirmation that its study and its pro-
^losal, unique though it is, would accomplish these purposes.
INDIRECT AIDS.
shall not undertake now to discuss, save briefiy, the various
measures of indirect aids proposed. These will be covered in fullest
detail, subject to your cross-examination, by those who are expert.
I shall, howei'er, briefly sketch what is asked.
SALE OF GOVERNMENT FLEET AT WORLD PRICES.
It is asked that the Shipping Board fleet be sold at world prices,
regardless of cost of construction. The cost of construction is a war
cost and should be Avritten down to zero. Whatever we get out of the
salvage is a profit ; and if this fleet, built for war, can be turned to
peace-time purposes, we shall verily have performed the miracle of
turning the sword into the ploughshare. No other of our war-time
expenditures will have had such noble salvage.
The sale of the Shipping Board fleet at world prices means that
those who buy will not have higher capital charges than others to
the extent of the tonnage they thus acquire. Therefore, in our study
of direct aid, we allow a minimum for such type of ships.
MUST SELL AT WORLD PRICES.
Experience has taught that we could not sell the Government-
owned fleet at higher than world prices for similar tonnage if we
would, and we should not if we could. There is no greater aid to
ecjualize capital charges that can be rendered than to sell the Gov¬
ernment-owned fleet at world prices. More we can not get anyhow.
Ships sold at such prices, should they earn, with Government aid,
above 10 per cent, will perforce pay back to the Government half
of the added earnings until the full direct aid is returned to the
meirchant marine fund. So that the Government will get the
benefit of the low price at which it sells the ship. And if a ship,
GOVERNMENT-OWNED SHIPS.
27
SO sold at such a price, does not, have earnings in any year above
10 per cent, the best proof will have been given that the ship should
not have been sold at a higher price.
Did the Government not possess this vast freight fleet which
should meet our needs for that type for years to come, the amount
of direct aid which we would have to ask from the Congress and
the Treasury would most likely be doubled. Thus we make sound
use, on the one hand, for indirect aid purposes of our freight ton¬
nage, and at the same time accelerate the possibility of its disposal,
on the other hand.
In order to insure that the sale of the Government's tonnage
should carry out the spirit of the act of 1920, and should foster the
ownership by communities of lines serving their districts, it is
provided that local interests in the seaboard communities, and in
the inland districts naturally tributary thereto, shall have not less
than two years in which to organize steamship companies and to
secure the capital necessary to purchase the lines which the board
is operating from such communities.
CONSTRUCTION LOAN FUND.
Section 11 of the present Jones Act provides that for a term of
five years the Shipping Board may recover into a construction loan
fund $25,000,000 annually, or a total of $125,000,000. Thus far
the Shipping Board, like the horse that eats its head off, has used
all the moneys for operation and construction that have come to it
from liquidation, and there is nothing in the loan fund. The board,
however, hopes with proposed appropriations soon to be made avail¬
able, to have its debts liquidated at no late date, and asks that it
be permitted out of further liquidation, to accrue to the construction
loan fund as expeditiously as possible the $125,000,000, and begs per¬
mission to loan this at rates as low as 2 per cent.
GREAT CUNARDERS VIRTUALLY GIFT.
Great Britain, feeling a commercial and naval need for the Maure-
tania and Lusitania, built these ships for the Cunard Line at an
interest charge of 2^ per cent. However, Britain furnished all the
money, gave them 20 years to pay it off, and gave the company an
annual subsidy that equaled the amount of interest and amortization
to be paid. So that in effect the British Government made the
Cunard Co. a present of the ships. Nothing so drastic is proposed by
the Shipping Board.
28
GOVERNMENT-OWNED SHIPS.
OWNER MUST DO HIS PART.
We propose at most to loan two-thirds of the value of the ship ; the
balance must be furnished by the owner. The low interest rate will
he given only for special types of ships that will be considered essen¬
tial for the building, of a balanced merchant marine for peace and
war time purposes, and will be measured with a view to equalizing
capital costs. Again, the limitation of profit comes into play, because
if the lower interest rate results in increased earnings at above 10 per
cent, half of those increased earnings come back into the merchant
marine fund until the subsidy received is paid back in any one year.
If the earnings should not be 10 per cent it will be proved that the
Government wisely loaned the money at 2 per cent to insure that these
types of ships, which are as needed-as warships themselves, be built.
It is this construction loan fund that is our greatest insurance for
continued operation of private shipyards in America.
INCOME TAX RELIEF.
Another form of indirect aids proposed is in income tax relief. In
order to create an incentive for shippers to use American-flag ships
and as a stimulus to our foreign trade, a deduction from net Federal
income tax payable should be allowed on the basis of 5 per cent of
the freight paid on goods imported or exported in American-flag
vessels. This deduction in time might amount to eight or ten million
dollars per year.
Through cooperation with the Treasury Department and by legis¬
lation a greater allowance for depreciation for income-tax purposes
should be made on ships, in order to make the depreciation allowance
more accurately represent the actual depreciation of vessels and to
give effect to the marked slump in the value of tonnage during the
past several years.
Section 23 of the merchant marine act should be amended so that
the payment of all income taxes (which would otherwise be payable
on net earnings of vessels in foreign trade) shall be waived by the
Government when the amount of such taxes is applied to half the cost
of new ship construction—increasing same from one-third as at
present.
IMPORTANCE OF THIS DEDUCTION.
It is the belief of the Shipping Board that the proposed deduction
from net Federal income tax of 5 per cent of the freight paid on
goods imported or exported in American-flag vessels may do more to
aid in the upbuilding of the American merchant marine than any
proposal which is herein submitted to the Congress.
GOVERNMENT-OWNED SHIPS.
29
Section 34 provided preferential tariffs for American-flag ships,
but this could only be applicable to dutiable imports. The operation
of section 34 gave no preference to American ships on exports and no
preference to American ships on nondutiable imports. The pro¬
posed 5 per cent deduction from taxes of the freights paid on goods
imported or exported in American-flag vessels now made should in¬
sure a preference to American shippers on every ton of goods sold
abroad or bought for consumption at home. This 5 per cent deduc¬
tion is made in substitution of section 34, but we of the Shipping
Board believe it is possible that this section will accomplish at less
cost to the Treasury much more than might have been accomplished
by section 34.
NEW MERCHANT MARINE PRACTICALLY PIONEER.
The greatest disadvantage, outside of added capital charge and
added wage and subsistence cost, which American ships have endured
is the fact that in overseas carriage other nations, which have for a
century or more successfully operated, control the volume of trade,
and American ships must undergo the great expense of building up
that volume.
When a man engages in a new business he must suffer the expense
of establishing himself in the trade while his established competitor
is enjoying the proflt of the volume that comes from long operations.
Nothing that can be devised, the Shipping Board feels, will so greatly
insure volume to American ships as the 5 per cent tax deduction
hei'e proposed.
Again the limitations of profit comes into play. If the 5 per
cent is no inducement, then there will be no tax deduction ; if it is an
inducement, American ships will secure largely increased volume,
many will thereby earn over 10 per cent, and half the excess beyond
that modest profit will go into the merchant marine fund, until the
subsiby is repaid.
DIVISION OF IMMIGRATION.
It is proposed through cooperation with the Bureau of Immigra¬
tion of the Department of Labor, that regulations should be pre¬
scribed and legislation enacted that would insure to American-flag
passenger ships at least 50 per cent of the immigration coming to
this country.
Such regulations shall not go into effect until existing treaties are
modified sufficiently to permit. The President is directed to under¬
take such negotiations as maybe necessary and upon completing such
negotiations to proclaim the taking effect of this provision.
Had such a provision been enacted during that pre-war period
when immigration was at its height—1,200,000 per annum—and had
30
GOVEBNMENT-OWNED SHIPS.
half of that number of immigrants come in American-flag ships, the
Shipping Board believes that instead of having only 15 passenger
ships under the American flag in 1914, in the North Atlantic at least,
we would have had as many passenger ships of the third-class type
as any nation in the world. Great Britain not excepted.
OVERLOOKED INVALUABLE IMMIGRATION AID.
Had we husbanded and used our rights—had we shown the slight¬
est interest in, or desire for, a merchant marine, without one cent of
aid from the Treasury, through the enactment of an immigration
proposal such as here put forth, we had in the flood tide of immigra¬
tion within our own grasp the means of establishing a valuable
branch of the merchant marine. Should this proposal work out as
the Shipping Board believes it will the limitation of profits will
again come into play, and many of the third-class passenger ships,
and better classes of passenger ships, for that, will earn over 10 per
cent as a result of this immigration legislation. The plus beyond
the 10 per cent will be equally divided between the owner and the
merchant marine fund, until the subsidy is repaid.
REQUIRES GOVERNMENT EMPLOYEES TO USE AMERICAN SHIPS.
It is proposed that all Government agents from whatever depart¬
ment who travel abroad make use of American-flag ships. It would
appear unseemingly that Congress should have to be petitioned to
make such action mandatory by law, but sad to relate, many if not
most of the servants of the Government traveling abroad use the
ships of foreign flag, giving ofttimes as their excuse that they do so
as a compliment to the country to which they are going. One has
never heard of a foreigner using an American-flag ship as a compli¬
ment to us !
To increase the revenues of American vessels and to furnish an
example for all American citizens to follow in giving preference to
American ships, therefore, legislation should be enacted that will pro¬
hibit hereafter the overseas transportation of passengers or freight at
the expense of the Government, other than in a vessel flying the
American flag, unless suitable and convenient transportation by an
American vessel is not obtainable.
ARMY TRANSPORT SERVICE.
Based on current commercial rates, and on the volume of passenger
and cargo movement for 1921 on trans-Pacific traffic alone, the total
charge for transporting Government passengers and cargo by com¬
mercial vessels would be, approximately, $7,500,000 per annum.
There can be no economic justification for the withholding of this
GOVERNMENT-OWNED SHIPS.
81
business from Shipping Board ships which are available or from pri¬
vately owned ships. The withdrawal of the Army and the Navy
Transport Services, which the President should he authorized to
effect by Executive order in whole or in part, will materially reduce
the operating losses of the Shipping Board, and should largely aid in
the disposal of many of its vessels. It is estimated that during the
first year the diversion of this traffic to the trans-Pacific Shipping
Board services or to privately owned lines would result in increased net
earnings to the Shipping Board or such privately owned lines of
approximately $5,000,000. This business would be an impelling in¬
ducement to private owners to purchase at a fair valuation the Ship¬
ping Board passenger-cargo vessels adapted for this service.
The volume of business afforded to trans-Pacific lines through the
Army and Navy Transport Service should do much to aid in bringing
earnings to 10 per cent, after which, half of the earnings will be
returned to the merchant marine fund until the full subsidy is repaid.
EXTENSION OF COASTWISE RESTRICTIONS.
Inasmuch as the trade between the Philippine Islands and the
United States has been free since the passenger of the tariff act of
1913, it is felt that there can be no valid objection to the extension of
our coastwise laws to include our trade with those Islands, as pro¬
vided in section 21 of the merchant marine act. The trade with the
Philippines would not suffer in any respect, since there is available
an adequate supply of American ships to carry the entire commerce.
INCREASED PROSPERITY OF PORTO RICO AND HAWAII.
There are those who make crying arguments against section 21
being declared operative. These are either poorly informed, or are
the tools of foreign shipowners who have profited by past conditions.
It is with mixed amusement and indignation that one reads through
the cries of warning issued when Hawaii and Porto Rico were about
to be declared coastwise. The objectors drew dire pictures of calam¬
ity to those two islands if they should be included in the coastwise
laws of America, though they enjoy the benefits of free trade with
us. The arguments brought to bear against the coastwise inclusion
of Porto Rico and Hawaii are almost, sentence for sentence, word
for word, syllable for syllable, the arguments made against bringing
the Philippines into our coastwise law. But the history of the
accelerated prosperity of Porto Rico and Hawaii since their coast¬
wise inclusion gives emphatic contradiction to the objections now
being raised by the ignorant and the selfish and the foreign.
32
GOVERNMENT-OWNED SHIPS.
PREFERENTIAL THROUGH RATES ON AMERICAN RAILROADS.
It is believed by many that considerable indirect aid will result
from the making effective of section 28 of the merchant marine act.
The legislation is mandatory and its real worth can only be deter¬
mined by actual trial. The Shipping Board is making an exhaustive
investigation of the practical application of this section as a prelimi¬
nary to certification to the Interstate Commerce Commission that
adequate shipping facilities are afforded by American ships.
There has been a certain amount of fear on the part of various
communities as to the local effect of this section. To remove any
apprehension, the section is amended so that when both the Inter¬
state Commerce Commission and the Shipping Board are of the
opinion that its operation will materially change the channels of
transportation within the United States or unduly congest ports of
the United States, the commission may suspend the operation of the
section.
COORDINATION OF RAIL AND WATER FACILITIES.
The railroad systems of the United States feel the need of definite
import and export working agreements with steamships engaged in
foreign trade. A number of such agreements have been made in the
past, and some are still in force. They have usually been with for¬
eign steamship lines; such agreements to-day are prejudicial to
American shipping. It would seem expedient and wise to permit
reasonable working arrangements to exist between railroads and
steamships, with special reference to the interchange of traffic be¬
tween the roads and vessels of the United States.
The problem of fully and completely coordinating our rail and
water transportation is acute and important. The solution of this
problem will involve extensive research and study of the facts and
principles involved. The work, of course, calls for the supervision
of the Interstate Commerce Commission, as well as of the United
States Shipping Board. The suggestion has been made that a group
of experts should be created, to be appointed jointly by these two
bodies, whose chief duty would be to make full inquiry and to
formulate appropriate rules and regulations providing for such co¬
ordination, subject to the approval of the Interstate Commerce
Commission and the United States Shipping Board.
ADDED IMPETUS FOR INVESTMENT OF NEW CAPITAL.
At the same time an added impetus can be given the investment of
new capital in American shipping and in the possible purchase of
vessels from the United States Shipping Board, if railroad interests
are permitted to own and develop steamship lines operated exclu-
GOVEENMENT-OWNED SHIPS.
33
sively in foreign trade. To do this effectively it would be neces¬
sary to modify section 5 of the interstate commerce act to the extent
that vessels may be thus owned when exclusively engaged in foreign
commerce. The provisions of that act would remain in full force,
so far as they prohibit the use of the canal by vessels owned by
railroad interests, if the vessels are engaged in traffic between the
Atlantic and Pacific coasts of the United States. This would leave
intact the main purpose of the original provision, which was to
insure the competitive advantages of water-borne intercoastal traffic
against the control of transcontinental railroads.
These are the indirect aids which the President asks the Congress
to enact into legislation.
DIRECT AID.
In its study the Shipping Board has undertaken to make a proposal
that shall put American ships on a basis of equality with Great Bri¬
tain, which has the next highest cost of operation to ours. At no time
did we consider aids, direct or indirect, that should do anything for
the American owner but place him on a parity with Great Britain.
Others will explain to you how we arrive at the basis of direct aid,
which may be necessary to take up the slack between the benefits
inuring from the indirect aid proposed, and the amount needed to
place costs on a parity with those of Great Britain.
The difference in costs will be not alone that existing at present.
Kecognizing the imperative need of an American merchant marine
in the true sense of the word, the bill provides that no vessel shall
receive compensation unless two-thirds or more of her entire crew,
exclusive of officers, are American citizens. The officers are re¬
quired to be citizens by law. The remainder of the crew must be
eligible for citizenship, which bars from employment on compen¬
sated vessels crews drawn from the so-called Asiatic barred zone.
Because of the difficulty of training American citizens to be servants
and waiters, the steward's department on passenger ships is ex¬
empted from this requirement.
The effect of demanding a fixed proportion of American citizens
on board ship and the setting of that proportion at a figure much
higher than that which obtains to-day will result in an increased
wage differential even beyond that which exists to-day.
AMOUNT OF DIRECT AID.
The direct aid is computed on a differential based on a combina¬
tion of speed, tonnage, and distance covered, starting with a half
cent per gross ton per hundred miles steamed in the foreign trade
for ships under 13 knots, and increasing to a total of 2.6 cents
34
GOVEENMENT-OWKED SHIPS.
per gross ton per hundred miles steamed, for ships of 23 knots and
over. It is estimated that in order to develop a balanced fleet of
7,500,000 gross tons, which should carry 50 per cent at least of
all branches of our overseas trade, the cost to the Treasury will ul¬
timately approximate $30,000,000, though for the first year it is esti¬
mated at only $15,000,000.
The details of how this will work out require technical and lengthy
illumination, which will later be given you by those who are expert.
DIRECT AID PROPOSED MODEST.
I wish only to state that from the investigations made by the
Shipping Board, we think this sum a very modest one. If it should
enable us to soon get the Emergency Fleet Corporation out of opera¬
tion and save the greater part of the $50,000,000 loss which now
burdens the Treasury, the direct aid here proposed should and will
more than pay for itself. It is for that reason that we stand firm
in the guaranty to Congress that before long the amount paid out
in cash subsidy to American ships will be more than equalized by
decreased appropriations for the Emergency Fleet Corporation.
It was obviously impossible to compute a basis of Government aid
that will be exact. It is no more possible to figure out a system of
direct aid for shipping on exact lines than it is possible to enact a
tariff bill or a tax bill that will work out with exact justice. When
one legislates in the abstract for such vast undertakings, covering
differing operations under differing conditions, one can figure at
best on the average. But happily in the present proposed legislation,
by the limitation on profit the inequalities are equalized in the
ultimate.
PROPOSE LESS AID THAN NOW GIVEN IN ONE CASE.
Because of the great value it places on the indirect aids, the Ship¬
ping Board figured a very modest sum for direct aids. For instance,
there are to-day two subsidized ships of the Oceanic Steamship Com¬
pany under the American flag going to Australasia. They now re¬
ceive in postal subsidies $85,000 per ship per year. It is our under¬
standing that the owners of these ships, at the expiration of their
present contract with the Post Office Department, will refuse to
renew their contract, because they can not ojierate the ships with
profit. Even though these ships can not be profitably operated, it
may be essential to our potential trade that they continue on those
routes. Under the jiroposed direct aid, these ships would each re¬
ceive but $60,000 per year, or $25,000 less than they are receiving at
present, and the owners now refuse to renew the present arrangement
because it does not sufficiently recompense them.
GOVERNMENT-OWNED SHIPS.
35
FLEXIBILITY PERMITS AID WHERE AID IS NEEDED.
This instance is cited to illustrate, first, the safe basis on which
the direct aids have been proposed by the Shipping Board; and
second, the need of giving elasticity to the Shipping Board in the
application of direct aid. Therefore, it is proposed in the law that
the Shipping Board have the power in the contracts which it makes
with subsidized lines to lessen the amount of direct aid, or to increase
it up to double the scheduled amount.
PROFIT LIMITATION ALWAYS A SAFEGUARD.
In the case of the Australasian lines, it is obvious that even with
the indirect aids, the direct aid proposed may not be sufficient.
Under the law as requested, the Shipping Board would have the
right to give these ships more direct aid than the law provides ; but
again the limitation of profit feature comes in as an automatic check
on mistaken judgment or preference; for, if the Shipping Board
allowed too much, when the profit reaches 10 per cent in any one
year, half of the plus profit returns to the merchant marine fund until
the subsidy is repaid. And if the ships do not earn 10 per cent,
surely there can be no question of a profiteering subsidy.
In the need for a balanced merchant marine it is conceivable that
the Shipping Board would want to induce private capital to build
various types of very expensive ships that could not be profitably
operated without a large measure of Government aid—passenger
ships, refrigerator ships, ships convertible to hospital and airplane
purposes.
ELASTICITY CLAUSE EXPLAINED.
It is possible in the development of our peace-time trade with
proper vision, that the Shipping Board would want to send ships on
routes where no cargo movement nearly sufficient to insure profitable
operation exists, but where, if for a given length of time we had ships
plying regularly, such movement could be created to the great profit
of our agriculturalists, our manufacturers, our exporters, and our
importers. To such ships, in the interest of all our people, the Ship¬
ping Board asks the privilege to have elastic right to give up to
double of the aid provided for in the proposed legislation. But again
the limitations on profit comes into play; should the amount given
by the Shipping Board result in accrued earnings of over 10 per cent
in any one year, half of the plus earnings would be returned to the
merchant-marine fund. And if these needed ships or needed routes
we aid, in statesman-like vision, to insure our future, should not earn
10 per cent, surely there can be no question of a profiteering subsidy.
36
GOVERNMENT-OWNED SHIPS.
AID DECREASES AS EARNINGS INCREASE.
On the other hand, there can be no doubt that if the Shipping
-Board possesses proper wisdom and interest, in some cases it will per¬
ceive in adi'ance that the subsidy called for in the proposed legisla¬
tion might insure earnings greater than 10 per cent, but not enough
greater so that the half of the excess would result in all the subsidy
being returned to the merchant-marine fund. In such cases the
Shipping Board asks the right to make contracts for a lesser amount
than provided for in the law, because the Shipping Board does not
want to knowingly give direct aid which, in addition to the indirect
aids, will insure too great a constant profit at the public expense.
It is impossible to apply any direct aid by blanket legislation
which, when added to unascertainable benefits from indirect aids for
varying types of ships in varying trades under carrying conditions,
shall put our ships on a parity with Great Britain and attractive to
private capital. Therefore, elasticity should be given to the Ship¬
ping Board in the application of the direct aid, that insured fleets of
right types should be encouraged in needed trades. But by limita¬
tions on profit, the Treasury is guaranteed against mistakes in judg¬
ment, and profiteering can not result.
ELASTICITY BUILDING UP DIVERSIFIED PORTS.
It might be well to point out that the elasticity provision of the
proposed law will give potential power to the Shipping Board to
build up ports as well as shipping lines—that the whole people of
the United States, particularly the farmer and manufacturer of the
interior, may be insured facilities geographically diversified, to make
certain prompt port handling of his shipments.
A further benefit by giving the Shipping Board elasticity in the
application of direct aid comes from the fact that thereby the possi¬
bility of retaliation is largely averted. If foreign nations know that
tlie Shipping Board can meet retaliatory increases of subsidy immedi¬
ately, they will be slow to go into such competition, because they
know that they can neither force nor frighten us out.
MUST RETURN PART OF EARNINGS TO GOVERNMENT.
In the proposed legislation the possible earnings are not limited to
10 per cent, but may permissibly go to any extent beyond 10 per
cent, save tliat 50 per cent of the excess earnings is returned to the
fund until the subsidy is repaid, in order to attract capital into
investment in ships, and that too big a premium be not put on the
inefficient. If the efficient operator is limited in earnings to 10 per
cent, and must pay all piofits above that earning back to the mer-
GOVERNMENT-OWNED SHIPS.
37
chant-marine fund, we thereby subsidize the inefficient operator in a
continuance of his inefficiency and destroy his initiative, to the hurt of
the upbuilding of the American merchant marine. Or, if the earn¬
ings of the efficient operator must remain static until the inefficient
catch up with him, the encouragement flows to the inefficient at the
expense of efficiency.
MUST STIMULATE SHIPPING INVESTMENT.
In America there is neither consciousness nor desire for invest¬
ment in shipping. Competition with investment opportunity on land
in America has made investment in ship securities very unattractive
to our people, and those who have invested have had sorry experi¬
ence. "VVe must, if we are to attract those who put their money in
common stocks, allow profits continuous and increasing, according to
merit and condition of the times and permit reserves to be created
for losing years. For these reasons it would be a sad mistake to
cut the profit off at 10 per cent in its entirety until the subsidy is
repaid into the merchant-marine fund. The investor must know that
there is no point when, through efficient operation, he can not get an
expectancy of some increased return.
The study of the limitation of profit has been made with a view to
insuring that every dollar paid out of the Public Treasury brings
creative results to the American merchant marine on the one hand,
and still minimizes that measure of governmental supervision and
interference which might make the private owner timid.
DETAILS OF LIMITATION OF PROFIT FEATURE.
The limitation of profit follows only those ships which qualify as
being entitled to the aid. If a company operates several ships, some
of them making money and some losing money, the company can take
the earnings of the ships jointly to get an average.
It is in the national interest that all ships be aided which helpfully
build up trade for the national wealth. There are companies where
ship operations are only a minor part of the total operations of the
company and incidental thereto. In such companies, therefore, the
Shijiping Board eliminates an}' profits or losses made on operations
that accrue from any sources save ships.
NO OPPORTUNITY FOR FRAUD.
If a shipping company desires to invest a large sum of money in a
building as an advertisement, if it goes into the financing business,
that is an operation and a risk entirely aside from any interest the
(Government as a whole holds in shipping, and the profit or the loss
accrues entirely to the company. One company may operate ships
38
GOVERNMENT-OWNED SHIPS.
only and have no outside investments. Another company may op¬
erate ships and go into vast building and banking enterprises. To
put all on a parity, we consider only ships and ship operations in the
profit limitations.
TREASURY CHECKS EARNINGS.
That there may not be undue Government interference, the check
on profits is made by the Treasury Department, and not by the
Shipping Board. It is proposed that the return be made by the
operator on the same return where he attests to the Treasury for his
corporation's income tax, and the Treasury checks up on the ships'
operations at the same time that it checks up on the corporation or
individual tax, thus doing away with any added Government super¬
vision of operations than that which exists to-day through the work
of the Internal Revenue Department. We believe we have worked
out a plan in the limitations of profit which, when explained to you
in detail, will serve on the one hand to protect the Treasury, and on
the other hand to automatically inspire efficient operation and the
proper covering of needed routes.
MISUSE OF AID GUARDED AGAINST.
At one time the French Government in its possibly mistaken effort
to develop a merchant marine largely of sailing ships—because the
country did not lend itself naturally to the construction nor opera¬
tion of steamers—subsidized heavily on a mileage basis ocean-going
sailing craft. The cost of operation of a sailing ship is compara¬
tively low. In normal operation this is balanced by the fact that its
revenue is equally low. With the subsidy granted by the French,
however, it became possible, owing to the low cost of sailing ship
operation, to move sailing ships about the world largely or wholly
in ballast, and to derive returns entirely from the subsidy.
This circumstance has been brought up many times since as an
argument against direct aid to shipping. It is a faulty argument
because it does not apply to steamers. A moment's refiection will
show the impossibility of operating a steam vessel for subsidy alone.
Taking the smallest class allowed, 1,500 gross tons, and giving her
the benefit of the aid accruing to a 6,000-ton ship, and further assum¬
ing that she covered a distance of 240 miles per day, she would derive
for that 240 miles but $60. To steam that 240 miles she must have
expended $120 in burning 20 tons of coal, at least, at a probable
minimum cost of $6 per ton. Thus it can be seen that her fueling
alone will be twice the amount of direct aid collected under the most
favorable circumstances. With wages, subsistence, stores, repairs,
interest, insurance, and depreciation to meet, there is no fear that the
GOVERNMENT-OWNED SHIPS.
39
small amount of direct aid recommended will permit inefficient op¬
eration when it only meets half of the fuel costs alone.
NO INSURANCE OF PROFITS.
Even with the most efficient operation there is nowhere contained
in this proposed legislation a guaranty of profit. In very bad years,
when British shipping as a whole loses money, it is conceivable that,
with all the aids proposed, direct and indirect, our ships may lose.
There is nothing in the proposed legislation that insures profits, on
the one hand, or encourages profiteering on the other. The reason
for allowing 10 per cent in good years and half of the plus over 10
per cent until the subsidy is repaid to the merchant marine fund, is
that companies may build up a reserve to tide them over the losing
years, which are not infrequent in the shipping business.
All shipowners getting the benefit of subsidies must pay back into
the merchant marine fund the moneys they receive for the carriage
of the mails, which is now fast amounting to $5,000,000. The subsidy
proposed by this legislation is the only subsidy the carrier would
receive. In effect the mails, other than parcel post, would be carried
free. Thus we would be insured much better mail service for the
development of our trade ; for, instead of mails waiting at the dock
to be carried by specially subsidized ships, we would send them in
unlimited quantities on the first ship available.
STABILITY ESSENTIAL TO CONFIDENCE OF INVESTORS.
The legislation asks the right to make 10-year contracts. Shipping
men generally question that this period is long enough. They argue,
for reasons which later they will lay before your committee, that 15
years should be the period of the contract. The Shipping Board
hopes and feels that within 10 years, through then established trade
routes, the freights inuring to American ships under the beneficial
provisions of the indirect aids of the proposed law will have suffi¬
ciently increased to make direct aid largely unnecessary. It is for
that reason that the Shipping Board takes a differing position from
the private owner. However, that contracts be made for a period of
10 years is essential, for it is a notorious fact, known to all, that
American ships, without the proposed aid, can not, by and large,
profitably operate, and investors will refuse to put their moneys into
securities of American ships unless they know they are protected by
at least 10-year contracts.
NATIONAL POLICY WOULD BRING NEW LIFE.
The Shipping Board wishes to emphasize to your committee and
to the Congress that world shipping is now more depressed than it has
40
GOVERNMENT-OWNED SHIPS.
ever been in proportion to world tonnage. Capital is hard to get;
operators are timid, not only because of the lack of cargoes but be¬
cause of the uncertainty that hangs over shipping all over the world,
through the possible continuous competition in operation of the
American Government and through the unliquidated tonnage owned
by our Government. The greatest stabilizer for world shipping con¬
ditions, and particularly for American shipowners and operators,
that could come, would be the enactment of the legislation proposed
by the President, that will give a national policy to American ship¬
ping, and in behalf of which the Shipping Board is now appearing
before you. Courage would immediately come to the American
owner, and new life, we believe, would be given to the American
investor.
CONCLUSIONS.
However, so vast an undertaking can not be quickly liquidated.
We believe that of the TOO good freight ships we have, the Shipping
Board would feel very happy if, within 30 months from the time of
the passage of this bill, it could dispose of sufficient ships to take
care of the routes it is now operating and put the Emergency Fleet
Corporation out of business as an operating company. This, how¬
ever, the Shipping Board believes is within the realm of promisable
accomplishment, and this the Shipping Board believes it can in good
faith encourage the Congress to believe will be brought about.
In the human body many organs are vital. Without the heart,
the lungs, the liver, the brain, life is not possible. No man can say
which is the more vital organ. And so in our national life are many
organs vital. Which is the most vital, no man can say ; but without
the possession of any one of the vital organs the Nation can no more
live than can the individual. In the development of our national
being the merchant marine for peace and war purposes has become
a vital organ. Government operation makes that organ a diseased
one.
NATION FACES ISSUE IT CAN NOT DODGE.
We are now face to face with the solution of this great national
problem. The Shipping Board believes the proposal of the Presi¬
dent, if adopted by the Congress without major change, will bring to
America a healthy organ in a merchant marine—one consonant with
our national strength, with our national potentialities, and with our
national desires. The salient proposals made are as a mosaic, where
each part fits into the other. The Shipping Board stands fast for the
general principles covered. But in the application of details, both by
law and regulation, the board feels free to say that there may be
points that should be further explored and various views that should
GOVEKNMENT-OWNBD SHIPS.
41
be considered. Any radical change in the proposals might, however,
result in the destruction of the whole.
URGENCY OF THE SITUATION.
For reasons which we have sketched to you, the inefhciencies of
the Government operation, the great loss thereby accruing through
the continuance of the Emergency Fleet Corporation, the uncertainty
in the minds of private owners because of that continued operation,
and the need of a policy to insure the disposition of the Government-
owned fleet, all testify to the fact that expedition is the essence in the
enactment of the legislation for which the President has asked.
Delay may he fatal. The Shipping Board would view with alarm
inaction by this Congress on the legislation which the President
asked in behalf of our merchant marine.
PROPOSAL NONPARTISAN—ALL-AMERICAN.
If you accept not our proposal, we join the President in asking
that you make a contra one, for, if the status quo remains, we know
that as a merchant marine power we shall he bankrupt.
We come before you pleading an all-American question, non¬
partisan, with the unanimous recommendation of all the members of
our hoard. Democratic and Republican alike. We come before you
to plead that, through the enactment of the legislation proposed by
the President, America may take its place on the seas as it has won
its place on the land. We come before you to plead that an instru¬
ment of war be turned into a glorious and profitable instrument of
peace, and that we thereby insure to coming generations the heritage
which should rightly be theirs.