Mr. EDWARDS. As I understood your statement, you say besides the 751 priority ships.

Mr. TROWBRIDGE. I am sorry. That is in addition. You are correct. I beg your pardon.

Mr. EDWARDS. You are proposing in your budget about $5 million for the annual maintenance of these reserve ships. I think we need to know what real value is there, what are we spending our $5 million on. Obviously it is not on 751 usable ships but some lesser number. I think this committee ought to know just what we are talking about.

I am concerned. I realize that the administration has to have priorities and the Defense Department seems to get its lion's share of these priorities because of its involvement in Vietnam, and yet we sat here the other day and heard the Coast Guard, for example, say that they had had to cut back on a number of ships because of the Vietnam war and that astounded me because I thought the Coast Guard had a very definite place in this war.

I feel the same way about the merchant marine, that perhaps we make a mistake calling it the fourth arm of defense, but if it is in fact the fourth arm of defense, I can't see for the life of me why it would not be high up on the priority list to see that we had the ships necessary to do an adequate job.

I know that there is a dispute there because the Secretary of Defense says that we do have enough ships to do an adequate job, and I don't think anybody on this committee agrees with this, and I don't think you fellows agree with it.

It distresses me that we don't find the merchant marine in a higher priority position at least at this time in our history. Thank you, Mr. Chairman.

Mr. TROWBRIDGE. Mr. Chairman, I mentioned to you that I have a meeting that I have to be at downtown and, if I may skip out, sir, and leave Mr. Gulick and Mr. Davis here, I am sure they would be perfectly capable to handle the questions.

The CHAIRMAN. Is it possible for you to be back tomorrow?

Mr. TROWBRIDGE. I can arrange to be back if you wish, sir. Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you.

Mr. Murphy.

Mr. MURPHY. Mr. Chairman, I will wait until tomorrow.

The CHAIRMAN. Mr. Pelly.

Mr. PELLY. Thank you, Mr. Chairman. I am sorry I had to be at another meeting. I am interested in the question as to whether or not Mr. Gulick had been consulted as to the FDL. Some of us find it hard to understand when the Secretary of Defense has indicated that we had an adequate merchant marine, why he would want to set one up on his own. I would like to ask Mr. Gulick another thing. Has he been consulted as to whether it would be advisable to take some of these old Libertys and Victorys and jumbolize them and, say take 100 of them and put them in the Reserve Fleet so they can start rusting again.

I have seen that there might be such a proposal made. I wonder if you have been consulted on that.

Mr. GULICK. Yes, sir, Mr. Pelly, we have.

Mr. PELLY. That is all I wanted to know. You need not say anything further.

Thank you.

Mr. GULICK. Thank you, sir.

The CHAIRMAN. Mr. St. Onge.

Mr. ST. ONGE. Thank you, Mr. Chairman.

Mr. Gulck, have you received any proposals from ship operators for the construction of nuclear merchant ships?

Mr. GULICK. There is one proposal which has been under informal consideration and this is a proposal from American Export-Isbrandtsen, but at the moment this proposal is not under active consideration. Mr. ST. ONGE. Why?

Mr. GULICK. For the reason that before we could undertake all of the work, all of the expense both on the part of the Government and the operator himself, there should be a decision with regard to the future nuclear program of the United States.

Mr. ST. ONGE. If I understand your answer correctly then, there is much more involved here than just problems of the merchant marine, is that correct? You referred to the nuclear program of the United States.

Mr. GULICK. Let me refine that. The nuclear merchant ship program of the United States.

Mr. ST. ONGE. And the sole obstacle is that of the cost of proceeding with an evaluation of this American export application?

Mr. GULICK. That is quite a large consideration; yes, sir.

Mr. ST. ONGE. Would you care to estimate the cost at this time of that or is that an unfair question?

Mr. GULICK. I would be unable to furnish a solid figure on this that would be worthwhile.

Mr. ST. ONGE. Referring back to Mr. Mailliard's questions on the plans, would it be possible for you either tomorrow or on Tuesday to submit to the committee the plans under which you are operating at the present time and the plans under which you are preparing the budget which you are submitting to the Congress? I don't have any of that information, it is certainly not before me, as to how many ships you have which you are subsidizing, what the present policy declares should be an adequate merchant marine for this country, and why, when we are 81 ships behind, we are only proposing 13 for this coming fiscal year so that we would have something when the new maritime policy which has been referred to this morning several times is published and presented to us.

We would have some comparison to go on to see whether in effect we are going to end up with an adequate merchant marine. I think the questions of the committee members this morning indicated a good deal of concern about the future of the American merchant marine and I would like to have something concrete on which to base decisions, plans under which we are operating at the present time, so that we can compare them when you come up with plans for the future assuming that the merchant marine stays within the Department of Commerce.

Mr. GULICK. We would be glad to speak to this at any future session you desire, sir.

Mr. ST. ONGE. Thank you. That is all for now, Mr. Chairman.

The CHAIRMAN. Getting back to the LASH ships and Lykes, I note that you have 11 ships for 1967 and 1968 of the LASH types. Is there any plan here to let multiple ship contracts to a shipyard?

Mr. GULICK. We propose, Mr. Chairman, in requesting bids for these ships to request bids on as broad a base and for as many different arrangements as possible. This would envision a request for bids of anywhere from one to 11 ships, one to 15, whatever the figure may be, in one or more yards. On the basis of the costs which we receive, we will obviously then be in a position to determine whether the contracts will be let in a block or whether they will be split between yards; but we have not yet reached the decision at this time and are in no position to reach a decision until we get the shipyard costs.

The CHAIRMAN. Mr. Drewry, counsel, has a question.

Mr. DREWRY. Mr. Gulick, back to the item of the cost of the the Sea Barge and the LASH ships, does that include the lighters or the barges?

Mr. GULICK. No, sir. It does not.

Mr. DREWRY. What do they amount to?

Mr. GULICK. At the moment, the question of the barges is under consideration and the basic question is, is the barge a part of the ship so as to be considered in the total construction cost of the ship? At the moment, we have been proceeding on the planning basis that these are not a part of the ship for purposes of financing.

We consider them to be in the nature of containers or, if you choose, floating containers. Normally containers are purchased by the subsidized operator out of his own funds, or at least out of the reserve funds.

Mr. DREWRY. Of course, they are a part of the system?

Mr. GULICK. Yes. Yes, sir; they would be probably classed as ship's equipment. There are two or three ways of viewing the barges. It depends upon what background you are using, what purpose, under what circumstances the question arises. If the barge is proceeding upriver, there is a question of liability, is the barge a part of the ship so as to subject the ship to certain liabilities if the barge is in collision with something else, land-based equipment, a bridge, another ship, or what-have-you.

This has not been resolved, Mr. Drewry. It is still under consideration at the moment.

Mr. DREWRY. It is contemplated that the barges will be barges belonging to the ship operator. I mean he won't be holding out for anybody that comes along with a barge that is the right size?

Mr. GULICK. There could be substitution of barges just as there can be substitution of containers, but at the moment this is a problem which the operator is dealing with. We have laid down no conditions.

Mr. DREWRY. The containers are not considered to be a part of the ship normally, is this correct?

Mr. GULICK. That is right, sir.

Mr. DREWRY. You mentioned that the American Mail Line ship was essentially a "conventional" ship. I don't know whether there was emphasis on conventional or whether it was just to show that is was not a regular container operation or a sea barge or a lighter aboard ship type. That ship is what is required for the service in which it will engage, is it not?

Mr. GULICK. That is correct, sir; and it is a very productive ship having a rather high cargo capacity. We did not intend to indicate

that this was not an improvement upon the Victory, the Mariner type, et cetera.

Mr. DREWRY. On the subject of cleaning up the backlog of subsidy payments, this is a matter which has given us concern in the past. I believe it was during the early tenure of Mr. Hodges that we enacted some legislation which was intended to speed up the making of subsidy payments. Offhand it seems to me that having a $110 million backlog at the present time, we weren't too successful in our efforts to get the payments more current. After all, this is part of the problem of the cost of the American merchant marine, the extra cost to the operator of having to do business with the Government.

What is the reason for this backlog ranging up to 6 years now?

Mr. GULICK. Largely, I think, Mr. Drewry, the amounts being held in reserve are the subject of either litigation or disputed claims with the agency. In other words, they are under consideration, but, pending the resolution of the claim or the litigation, no payment may be made. As a typical example, American Export has a claim dating back to 1957 of $321,754 which was in litigation over a charter of the SS La Guardia. This has just been settled and subsidy accounting is now being prepared by the operator, but it is largely this type of thing that accounts for such a large amount of the backlog.

Mr. DREWRY. I have just one more question if time will permit.

On page 3 you refer to a statement of general policy regarding the allocation of construction subsidy funds, but I don't quite clearly understand what the meaning of these various criteria is, say, in relation to the provisions of title V of the act.

I don't see anything wrong, but I just don't quite understand what the purpose of them is.

Mr. GULICK. That is a very fair question and admittedly the portion of the Secretary's statement dealing with this was in rather abbreviated form. In 1965 the subsidy board was faced with these requests for ship replacements and in a number of instances the requests related to one for one, a conventional ship for a conventional ship.

At the same time, as you know, there had been much discussion and much publicity on new types of ships, containerization was just coming into the picture, integrated transportation. In an effort to get some new thinking focused on the most productive type of ship money could buy, we went out to the operators with this policy which in effect said, "We would like to have your plans for future ship construction. We would like you to consider the most per dollar you can request and to assist you in this we laid down this policy that dealt with, of course, the number of ships, but getting now into the productivity side, how large, how much weight can the ship carry, what about your cargo handling equipment, what about the domestic cost of construction, what kind of revenues are you planning in your operations overall? Are you engaging in the best type of operations which would get you the most revenue?" We think that this also should be considered as a part of awarding ships. The final one was a nice bit of fishing. We never like to admit that there is ever no possibility of operating ships with less subsidy than they are getting now. So just to throw in the hooker at the end we said, "We would like to know how much subsidy you are proposing to seek both on CDS and ODS, and what is your intention here?"

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I don't think that up to date in the present construction program we have too much to report on this side of the ledger, but I can assure you that the matter is under consideration both by Maritime Administration and by the operators, and I say this to their credit.

Mr. DREWRY. You mean that you are in effect asking them to bid low on what they want in subsidy if they want to get a ship?

Mr. GULICK. That is one approach and we got no results from that, but the opening of the subject has permitted further discussions with the operators and these are still going on. In other words, we are seeking, to be perfectly frank, the possibility of arriving at an updated subsidy arrangement which looks to the type of operation a company is engaged in, the amounts of revenue he can obtain and, if there is good basis for reducing the amount of subsidy which may be paid under existing law, we are sure that the operators will come in themselves and indicate what their needs are.

Mr. DREWRY. If you can get this discount, will you then drop the recapture?

Mr. GULICK. Recapture is also a matter very currently under consideration. We have, however, come to no conclusions on that particular subject.

Mr. DREWRY. Finally, could you submit to us for the record that Federal Register thing?

Mr. GULICK. We would be glad to.

Mr. DREWRY. We will put that in at this point.

(The information follows:)

UTILIZATION OF APPROPRIATIONS MADE AVAILABLE FOR CONSTRUCTION DIFFERENTIAL

SUBSIDY

STATEMENT OF GENERAL POLICY

In the Federal Register of June 24, 1965, there was published a proposed "Statement of Genenral Policy" governing future allocations of federal financial assistance for the construction or reconstruction of ships. The notice invited interested parties to submit by close of business on August 2, 1965, any written data or views on the proposed policy for consideration by the Board.

The Board has considered the views submitted in response to the notice of June 24, 1965, and has adopted the following general policy, to be added as Appendix No. 2 to Section 251.1 of this part:

§ 251.1 Applications for construction-differential subsidy under Title V, Merchant Marine Act, 1936, as amended

1. The appropriations available for the payment of construction-differential subsidy by the Maritime Subsidy Board necessarily are limited. Present replacement program schedules for individual operators repeatedly have been revised and extended in recent years in accordance with the operating-differential subsidy contracts. It is possible that further delay will occur in the replacement of some of the vessels required to be replaced pursuant to the existing contractual obligations of those operators under operating-differential subsidy contracts with the Government. These standards are designed to provide better guidance for the operators and the Government in making the judgments necessary in selecting from among competing applications for limited funds. This policy will apply to requests for and allocations of appropriations for fiscal year 1967 and thereafter. It furthermore applies only to awards of financial assistance in the construction of ships for liner service.

2. (a) To provide for the optimum development of the American Merchant Marine in number of vessels and in shipping capability, the Board will allocate federal financial assistance for construction or reconstruction of vessels so as to give priority to those proposals which, having met all requirements of Title V, Mer