SEPARATIONS OF MAIL SUBSIDIES

Mr. LUDLOW. Mr. Kennedy, have mails been entirely unscrambled from merchant-marine subsidies?

Mr. KENNEDY. Yes, sir. By the 30th of June the unscrambling will be practically complete.

Mr. LUDLOW. Was that done without any legal complication? Mr. KENNEDY. That is what we are on now. We think that there are 46 contracts, and up to date we have got practically all of them agreed but five, and we think that by the 30th of June we will have all

but two.

Mr. LUDLOW. Under this act the Commission has very broad powers for construction and operation, has it not?

Mr. KENNEDY. Yes, sir.

Mr. LUDLOW. Do you think they are sufficiently broad?

Mr. KENNEDY. I think the powers are broad enough. I think that until we have had some experience behind us it will not be wise for us to make any recommendations.

Mr. LUDLOW. You may propose amendments from time to time as experience shows their necessity?

Mr. KENNEDY. That is right, sir.

Mr. WOODRUM. Are there any ships that will share in these operating differentials besides the ships that had these contracts?

Mr. KENNEDY. There are not at the minute.

Mr. TRUITT. There may be some vessels in the lines which are not covered by the ocean-mail subsidies, which may be covered by the subsidies.

Mr. WOODRUM. Have you any applications of that sort?

Mr. TRUITT. We have four or five vessels, but I cannot name the lines offhand.

Mr. KENNEDY. Roughly, what does it mean? Might it mean $50,000?

Mr. TRUITT. It is possible that it might run as high as $100,000.

LAID-UP FLEET EXPENSE

Mr. WOODRUM. What is this item for laid-up fleet expense? That is the cost of maintaining

Mr. KENNEDY. The fleet which we are trying to liquidate as fast as we can, in order to get cash.

Mr. TABER. Do those items for laid-up fleet expense and inactive vessel expense go together?

Mr. GIBBONS. No, sir; they do not. Many of the laid-up vessels, which are probably of little use, will be scrapped; $750,000 is an estimate for inactive vessels that has been put in to cover the possible reconditioning of the better vessels, for operation until the new vessels are completed.

Mr. WOODRUM. Does that estimate stand in the program as it reads. now?

Mr. KENNEDY. Yes, sir.

TERMINAL EXPENSE

Mr. WOODRUM. What is the item of $600,000 for terminal expense? Mr. GIBBONS. That is the estimated cost of repairing and maintaining the four large terminals that the Commission has under its

control. The reason that that figure is in here as an expense is that unless there is a change in the 1936 Merchant Marine Act we will probably not be permitted to use the income from those terminals after June 30 of this year. There is an amendment to the 1936 act pending that will put these revenues into the construction fund.

Mr. TRUITT. We feel that Congress intended us to have the use of that revenue. The General Accounting Office has said otherwise, however, and an amendment is being offered by Senator Copeland, which will remove any doubts about our right to do so. A report by the Commerce Committee of the Senate is pending.

Mr. TABER. Can you give us any break-down of this laid-up fleet expense?

Mr. GIBBONS. We can prepare it for you.

Mr. TABER. You can tell us how much you expect to spend for wages, and how many men, and their classifications? Mr. TRUITT. Yes, sir.

for materials? What we

Mr. TABER. And you can tell us what you have to pay Mr. KENNEDY. That is right; we can get that for you. hope to do is to get rid of them as fast as we can.

Mr. TABER. And give us a similar break-down also on this inactivevessel expense. There may be something besides that; you may have to pay storage and anchorage charges; I do not know.

Admiral LAND. They are very small.

(The matter requested is as follows:)

LAID-UP FLEET AND INACTIVE VESSEL EXPENSE

The laid-up fleet personnel presently includes 184 regular employees subject to classification under the Civil Service Act, and approximately 352 temporary laborers who are employed during the spring, summer, and fall months.

1

Estimate of laid-up fleet 1 expense for fiscal year 1938:

Wages-

Subsistence..

Stores..

Fuel...

Port charges.

Drydocking 2

Repairs..

Insurance.

Miscellaneous_

$320, 000

90,000

50,000

15, 000

2, 000 180, 000

20, 000

2, 000

6, 000

Total..

Less credits for vessels held for U. S. Navy and others.

1 The term "laid-up status" applies in the case of a vessel withdrawn from service and laid up for an indefinite period. The term "inactive status" is used when a vessel in operation is temporarily withdrawn from serviec for extensive repairs or for traffic reasons. The term "spot status" is used in reference to a vessel repaired and ready to be allocated for operation on short notice.

Laid-up fleet vessels are now being drydocked for the first time in many years for the purpose of determining the under water condition of their hulls. These examinations may result in the disposition of a large number of vessels now held for possible use in a national emergency, in which case future maintenance costs will be substantially reduced.

It is possible that it will be necessary to withdraw from lay-up and recondition 10 or more vessels to meet the increasing demand for tonnage before the new vessels are completed. The total of $750,000 represents the estimated cost of repairing approximately 10 additional vessels.

CONTINGENCIES

Mr. WOODRUM. What is this item of $850,000 for contingencies? Mr. GIBBONS. That is put in there because there are so many ifs, ands, and buts in these estimates that we had to include this figure. One thing is that if we charter these four Government-owned lines, we will probably have to provide for an operating differential, which is not included in the figure that was given you this morning. How much that will be depends a great deal on the bids that were opened today.

Depending upon the final result of these mail contracts, it may be that we will not collect as much on our notes next year as we have figured on. If it is necessary in the adjustments with some of these contractors to change the note maturities, it may be we will not collect as much as we have anticipated. So this contingent item is put in there to take care of some of these possibilities.

Mr. WOODRUM. Will there be any collections from this $69,000,000 in the current year?

Mr. KENNEDY. Oh, no.

Mr. GIBBONS. Our collections will not start until after the vessel is completed.

INSURANCE FUND

Mr. WOODRUM. Under the heading of "Reserves for liabilities, June 30, 1938", you have the item of "Insurance fund." Tell us about that item.

Mr. KENNEDY. We have been running a balance on that of approximately $15,000,000. The insurance fund was established, I imagine, a great many years ago, and they wrote insurance on American ships up to $69,000,000. Since we got in we called in the insurance people, substantially the most reputable men in the country, to take a look at our picture and see what we were doing that was wrong. Well, we changed a great many of our policies, and we reduced that amount of reserve from $15,000,000 to $11,000,000; on the basis of the insurance we are writing today-and as a great deal of it is on ships that are pretty old-we do not feel that we want to reduce it much below $11,000,000. Insurance men tell us that we cannot, or should not, do it as a matter of safety.

COMPARISON OF AMERICAN MERCHANT MARINE WITH OTHER NATIONS

Mr. WOODRUM. What is the status of the American merchant marine in point of tonnage as compared with world tonnage and as compared with other nations, and in point of our own commerce in American-flag ships?

Mr. HAAG. In the international carrying trade the United States ranks third in tonnage. Out of a total of 26 million that operates in the International carrying trade, owned by the six principal nations, our tonnage is 2,790,000 tons. The British have about 134 million. The Japanese have about 3,025,000.

From the standpoint of speed, we rank fifth of those six principal nations.

From the standpoint of modern ships, we rank last, with 417,000 tons less than 10 years old.

Our place is very, very conservative with respect to the rest of the world in the international carrying trade. We are the second largest in the world trade, but we are a poor third in tonnage, and so far as the competitive power of the American merchant marine is concerned, we are near the foot of the list, because we own the fewest modern competitive ships, and we only rank fifth in speed and third in tonnage.

As to the carriage by the American merchant marine, the total trade, we carry about one-third of the total in American ships, as compared with 10 percent for 10 years prior to the World War. We have made some improvement.

That is about our position.

Now, as to the question that came up this morning regarding the modernizing of our ships, I just want to talk about half a minute on that.

What we are doing is not building new ships and increasing the numbers in the merchant marine, or the tonnage, but we are endeavoring to replace the obsolete tonnage and are making for a better merchant marine and not a bigger merchant marine. That is the position we are trying to take.

PERCENTAGE OF AMERICAN TRADE CARRIED IN AMERICAN VESSELS

Mr. LUDLOW. What percentage of the American trade, would you say, is carried in American vessels?

Mr. KENNEDY. Let me read you the figures:

The following figures show the necessity from a trade and national defense point of view for the creation of an up-to-date American Merchant Marine:

1. American bottoms carry only 7 percent of world tonnage in international trade, although our share of that trade is 14 percent.

2. Less than 35 percent of our own foreign commerce is confided to our own ships. Japanese vessels haul 76 percent of Nippon's water-borne freight, while 61 percent of British business goes to British bottoms.

3. The United States is third in world tonnage (mostly obsolete), fifth in speed of ships and eighth in ranking of modern ships in operation.

4. On June 30, 1936, this country had only 442 vessels, of approximately 2,790,000 tons (exclusive of tankers and Great Lakes vessels) in the international trade, compared with 2,129, aggregating 13,209,000 tons for Great Britain, 602 of 3,025,000 tons for Japan and 463 of 2,747,000 for Germany.

PASSENGER SERVICE-EUROPE

Mr. BACON. I saw in the paper the statement that of passengers going to Europe 25 percent went by American ships and 75 percent went in foreign ships. Is that about correct?

Mr. KENNEDY. I think that is quite complimentary to us, even then.

Mr. LUDLOW. Is it your opinion that eventually they will all travel on American ships?

Mr. KENNEDY. Not necessarily. The act says "the majority" or "a greater part of the commerce", and we could reasonably expect that without upsetting all the ideals of trade. You cannot very well urge the American people to travel by American vessels unless we can give them service, and that we cannot give them at the minute.

148745-37-17

VALUE OF SHIPBUILDING AND SHIP-OPERATING BUSINESS

Mr. WOODRUM. I would like to ask you this general question: What kind of industry does the Merchant Marine Act aid? In other words, what is the dollar value of the ship-operating business and the shipbuilding business, the capital investment in operating and building, and the employment in shipbuilding and allied lines in ship operations? Have you some general statistical information on that? Mr. KENNEDY. Yes, sir; we have most of those answers.

Mr. HAAG. I have a few general answers. At the present time the shipbuilding and ship-repairs industry employs about 50,000 persons. In the ships aided by the Government, operating in foreign trade, I think there are about 25,000.

Mr. WOODRUM. And how about the dollar value of it?

Mr. HAAG. I am not acquainted with the dollar value of it.

Mr. WOODRUM. Will you put in the record a general statement on that subject?

Mr. HAAG. Yes, sir.

Mr. SLACKS. Mr. Chairman, does your question refer to the dollar value of the foreign trade only?

Mr. WOODRUM. Yes.

Mr. SLACKS. American vessels in foreign trade?

Mr. WOODRUM. Yes, sir. In other words, something about the industry that we are talking about subsidizing.

(The statement requested is as follows:)

SHIP-OPERATING COMPANIES, EXCLUDING TANKERS, AS REPORTED BY THE COMPANIES INVOLVED

The total assets of American shipping companies operating ocean-going ships of more than 1,000 gross tons are approximately $650,000,000, of which nearly $400,000,000 represents the investment in companies operating in the foreign trade.

SHIPBUILDING COMPANIES

The National Council of American Shipbuilders has reported that the original cost of American shipyard facilities capable of building ocean-going vessels in the foreign trade is approximately $100,000,000.

INVESTMENT IN FACILITIES OF WATER-BORNE COMMERCE, AS REPORTED BY THE NATIONAL RESOURCES BOARD TO THE PRESIDENT OF THE UNITED STATES, NOVEMBER 1934

The total amount of money expended by the Federal Government has been approximately $600,000,000 for ports and harbors, $500,000,000 for inland waterways and general water facilities in aid of commerce and navigation-a total of $1,100,000,000 of capital investment. If there is added to this initial investment a further sum of $400,000,000 for accumulated maintenance costs, the total expenditure of Government funds within our continental limits is $1,500,000,000. Supplementing these Federal expenditures, municipal corporations and public port districts have expended approximately $1,000,000,000, and in purely private harbor and wharf facilities it is estimated that a present capital investment of $2,500,000,000 is represented. If one adds to these the cost of auxiliary harbor facilities closely allied with, and necessary for the operation of ships-including railroad-owned marine terminals, harbor belt railways, warehouses, shipyards, marine railways and repair plants, lighthouses, lightships and buoys, and finally, commercial vessels in the marine industry, the total capital represented is estimated to be fully $7,500,000,000.

EMPLOYMENT IN AMERICAN MERCHANT-MARINE INDUSTRIES

It is estimated that approximately 50,000 persons are employed in the larger shipyards, repair plants, and in industries allied to shipbuilding; that 54,000 officers and men are required to man American ocean-going vessels of 1,000 gross tons and