Accounts payable of managing agents.

1,553, 119. 35
470, 391. 09
4,991, 428.78

Mr. KENNEDY. Will you explain the manner of taking inventories,

Mr. Slacks?

Mr. SLACKS. We have quite a detailed procedure in keeping inventories. We sent men up to the Hoboken terminal the other day just to check in with some of the regular people. From one standpoint they have everything in "apple-pie" order, just like a bank teller may have his cash. The cash may be fully accounted for. But what you should look into is the "over and short account" which might run into a lot of money over a period although it may represent items adjusted as you go along. The inventory that you catch at the time is all right. Apparently the adjustments are put through without a great deal of check.

We feel that we ought to make something of an inventory now, as of June 30, 1937. We can do that ourselves. The matter of the appraisal is an outside problem.

CLAIMS AGAINST THE MARITIME COMMISSION

Mr. WOODRUM. Without going into too great detail, what claims do you have pending that you took over from the old Shipping Board? What do they amount to, and how active and how current are they? Mr. GIBBONS. The claims both in favor of and against the Commission are listed in the "S" schedules in the back of the detailed report as of October 26, 1936, which we are leaving with the committee. These schedules reflect the gross amounts of claims both against and in favor of the Commission, the former totaling approximately $143,000,000, and the latter about $7,000,000. In addition, there are listed claims against the Government arising out of activities of the Shipping Board and Merchant Fleet Corporation totaling $43,600,000, in connection with which there is litigation pending in the Court of Claims of the United States.

DIFFICULTIES IN SECURING SPECIAL TYPES OF EMPLOYEES

Mr. LUDLOW. You spoke awhile ago about the slowness in recruiting your force under the Civil Service. Is it your judgment that you will get suitable material for the various special services through the Civil Service?

Mr. KENNEDY. We find that the Civil Service Commission is willing to cooperate with us in trying to furnish the special types of employees we require. If they cannot furnish them from their lists, or from examinations, they are willing to permit us to appoint them temporarily.

NUMBER AND MAXIMUM COST OF SHIPS UNDER PROPOSED CONSTRUCTION PROGRAM

Mr. LUDLOW. At what age do you regard vessels as becoming obsolete?

Admiral LAND. The act says that we cannot grant a subsidy to a ship over 20 years of age.

Mr. LUDLOW. You propose, all together, a construction program involving $256,000,000.

Admiral LAND. Over the next 2 or 3 years.

Mr. LUDLOW. Including the residue of funds on hand.

Admiral LAND. Yes, sir.

Mr. LUDLOW. What is your judgment as to the ultimate situation of the merchant marine? In other words, what will be the maximum cost, and what will be the maximum number of ships?

Mr. KENNEDY. I think that the whole cost may run to $500,000,000. Mr. LUDLOW. For how many ships?

Mr. KENNEDY. As to the number, about 225 or 250.

Mr. LUDLOW. Do you think that a merchant marine of a size that will be available for all our purposes can be provided at that expenditure?

Mr. KENNEDY. I feel definitely that we can do that.

Mr. LUDLOW. At this time, what do you visualize this shipping situation to be? In other words, how large a volume of business is in sight for these ships to carry?

Mr. KENNEDY. I think if we had the proper ships and the proper personnel now, we would be getting the American business. The American shippers and the American trade will use American ships, and we are trying to encourage them to do that.

Mr. LUDLOW. Visualizing the volume, as you see it, how many ships do you think would be required to handle the traffic that you see at this time?

Mr. KENNEDY. I think we would require from 300 to 350 ships. This American merchant marine program would not be unduly ambitious nor could it be charged that we were attempting to drive from our routes all competition. However, such a program would put us in a real position to handle our commerce, and, at the same time it would furnish us with an up-to-date naval auxiliary in case of war.

GOVERNMENT OPERATION OF SHIPS NOT INTENDED

Mr. LUDLOW. I want to ask Mr. Kennedy, as a business man and an eminent one, this question, whether, or not, this Government enterprise would be harmful in that it would discourage private ownership and operation of ships?

Mr. KENNEDY. We do not intend to have any Government operations whatsoever. It will be our effort to encourage private companies in their private shipping enterprises. We do not intend to come in here, you might say, and operate ships.

On the contrary, the act and the Commission seeks to advance private ownership. In effect we say, "We will give you a subsidy for 6 months; at the end of 6 months we will be in a position to judge whether you, the operator, can qualify under the statute for a permanent subsidy." In some instances this raises the question whether the operator can raise new capital required for qualification. There is a natural reluctance to invest in the shipping business for many reasons, one of which is the labor situation. When numerous complaints by people that they are not being treated well on board American ships cuts down the shipping revenue, small wonder that the business man says, "I will not put my money into that kind of investment." That is the condition we find today.

I am assuming that Congress wants to have a merchant marine for two main purposes, one that can carry the mails and American cargo, and one that can serve as a naval auxiliary in time of need. As Í

understand this law Congress does not want to start an experiment in Government ownership of shipping. Frankly, I cannot see any particular sense to Government ownership. If that kind of system were intended to be developed I would not be serving you in my present position. Therefore, I am trying to get a program started now that will encourage private capital to come in within the next 5 or 20 months. I am hoping that when the shipping industry begins to appear profitable, there will be many investors desirous of putting their money in this business.

We are insisting, for the period of the next 6 months, that the lines demonstrate their capacity to go out and raise money where new capital is needed. That is what we want to encourage. We are encouraging the private individual to invest in shipping and I am definitely opposed to Government operations.

Mr. WIGGLESWORTH. Evidently, experience indicates that the private individual has no chance, in view of the subsidy policy of other nations, to operate successfully unless we give him some help. Mr. KENNEDY. That is true.

OPERATION DIFFERENTIAL PAYMENTS

Mr. BACON. It costs 40 percent more to build ships in our shipyards than in the shipyards of our foreign competitors.

Mr. KENNEDY. Yes, sir, approximately.

Mr. BACON. Now, what is the differential in the operation of ships? Mr. KENNEDY. That differential varies as to the items covered by the statute and is from 35 to 50 percent.

Mr. BACON. In wages and salaries.

Mr. KENNEDY. Yes, sir. In other words, if you will take the United Fruit Co., they could go to England, Japan, or Germany and build their ships, and they could then come back home and operate them under the flag of the country in which they were built. They could have their ships built abroad for the same amount charged to the operator under the ship construction differential. In addition to the problem of construction there is the problem of operation costs. which under a foreign flag are substantially less than American costs. If the ship company wants to go abroad today and build its ships, and operate the ships under the flag of that country we will not have these vessels under the American flag at a time when we may need them.

Mr. TABER. I wonder if you could give us a break-down of the $20,400,000 that you propose in this little memorandum you give us on page 2, to spend for operating differential payments? To what lines will that go, what boats do they have, and in what condition are the boats now?

Mr. KENNEDY. I will furnish a statement of that for the information of the committee. We are paying today approximately $26,000,000 as mail-subsidy pay.

Mr. TABER. Does that include the regular foreign-mail rates?

Mr. KENNEDY. That includes the regular poundage of approximately $4,000,000.

Mr. TABER. This $20,400,000 that you have set up here would be the differential payment which would come in addition to the regular poundage rates.

Mr. KENNEDY. Yes, sir.

Mr. TABER. What would the regular poundage amount to?

Mr. KENNEDY. I do not have that, but a great deal will depend on how it is sent. The Post Office Department at present sends a large poundage of mails on slow ships, but may in the future follow a different policy.

Mr. TABER. Do you have a break-down of that as to ships?
Mr. KENNEDY. We have it as to lines.

Mr. SLACKS. In each case, we have a rather comprehensive document which lists the vessels, with tonnage, routes, the service that they are to perform during the 6 months' period, the maximum of hours, and minimum wage scale, and the working conditions. All the items which go into the subsidy are listed in the statute. In each case, or for each line, a chart is furnished Mr. Kennedy in which those items are covered.

Mr. TABER. As to those ships, are they reasonably efficient and fit for the service that they are supposed to perform?

Mr. KENNEDY. Some of the ships are quite good ships, but that applies to very few of them.

Mr. BACON. Some of them are 10-knot ships operating in competition with 17-knot Japanese ships.

Mr. KENNEDY. Yes, sir. Admiral Land says that 33 of the ships are good ships.

Mr. BACON. They are not included in the list of 36 ships.
Mr. KENNEDY. No, sir; they are privately owned ships.

NUMBER OF SHIPS TO BE CONSTRUCTED

Mr. TABER. In reference to these 95 ships that you propose to build, I think this committee ought to have for the record a breakdown of what they are and what they will cost.

Mr. WOODRUM. That was put in the record before you came in. Mr. KENNEDY. It was furnished in as much detail as we could give

it to you.

Mr. TABER. How many of these 95 ships that you propose to build will be be built by private shipowners?

Mr. KENNEDY. You mean will be operated privately?

Mr. TABER. No; will be built by private shipowners.

Mr. KENNEDY. They will all be built by private shipowners.

Mr. WOODRUM. Shipbuilders, you mean?

Mr. KENNEDY. Yes.

Mr. TABER. As I understand it, 43 of those ships would be built by private shipowners with the Government paying the differential in the cost of construction as you have outlined?

Mr. KENNEDY. Yes.

Mr. TABER. But the others would be built by the Government and chartered?

Mr. KENNEDY. Yes. As far as we can answer that question. That would be the answer today and it would be the answer, because, as I said to you this morning, there is nothing yet that has happened that warrants private capital to come in with funds to build more than these 43 ships. We are hoping that before these ships are finally laid down, or before they get to the point where they would be delivered by that time we will have made developments in the