tons and over; a large number of these serve the inter-American trades. However, the United States does not have a merchant marine sufficient to carry all its foreign commerce and its foreign trades have therefore been served by vessels of many other nationalities; for example, nearly 1,000 Scandinavian vessels alone were engaged in the foreign trades of the United States during 1939. Many of these foreign flag vessels also engage in the trades between the United States and the other American Republics. It will be seen, therefore, that the regulation of rates of carriers in the foreign trade of the United States represents an international problem of large proportion. This must also be true with respect to other of the American Republics.

In view of the international character of shipping in foreign trade, the United States over a period of many years has developed a policy of self-regulation for the industry through the medium of steamship conferences. As the conference system plays such an important part in the regulation of ocean transportation in the foreign trade of the United States, it is deemed advisable at this point to give a brief history of the origin and development of steamship conferences.

Ever since the steamship supplanted the sailing vessel as the principal means of water transportation, the shipping industry has been threatened with self-destruction by rate wars and uncontrolled competition. The improvements in transportation facilities which the steamship brought about completely changed merchandising methods where overseas transactions were involved. A sailing vessel would usually receive its cargo at one port and would not sail until practically full. The date of sailing was therefore a matter of uncertainty; the date of arrival was even more uncertain. A merchant had to ship his goods in speculative anticipation of the requirements of his market and as vessel sailings of which he could avail himself were limited, he was in the habit of shipping large quantities at a time. Steamships, not being dependent upon the vagaries of the wind, were able to adhere to schedules in a manner which was impossible for sailing ships. As the length of time which the steamer would take between two points could be estimated with precision and as service became more regular and frequent, merchants came into the habit of making many small shipments instead of a few large shipments. This also led to the development of a trade in general merchandise which was not possible in the days of sail since shipments could be dispatched by steamer to meet specific postal and cable orders. The effect of the improved transportation facilities was to expand world trade.

The fact that a steamship could make practically as good time against the wind as with it materially shortened the turn-around of ships and this of course made a great increase in the world's ship space in that one steamship could make two or three voyages as against a single voyage for a sailing ship over the same route. Moreover, the

great development of trade which the steamship brought about encouraged shipowners to build to the extent that in a period of 20 years from 1860 the steam tonnage of the United Kingdom alone rose from 450,000 tons to 2,723,000 tons.

The tremendous increase in world tonnage nearly disrupted the shipping industry. Rate cutting became the order of the day until the very existence of steamship companies was jeopardized, since instead of making money they were confronted with ever-mounting losses. The problem which the shipping companies had before them was twofold: On the one hand, they had to place themselves in a position to obtain rates which would be remunerative; on the other hand, they had to conform to the new requirements of trade by giving regular sailings of high class vessels dispatched at dates advertised beforehand, whether ill or not full. To meet these conditions the first steamship conference was developed.

In 1875 the steamship lines engaged in the trade between India and the United Kingdom united for the purpose of self-protection; equal rates to be charged by all lines were fixed and it was agreed that no preferential rates or concessions would be given to any particular shipper or shippers. The larger shippers who heretofore had been able to obtain preferential treatment immediately resented the loss of their special privileges and placed steamers on the berth to run in opposition at cut rates. The conference lines endeavored to meet this competition by making contracts with shippers for their exclusive patronage but many of the large shippers refused to so bind themselves if the conference lines adhered to the condition that all shippers would be accorded the same rates. When their efforts to protect themselves through the contract system proved unavailing, the conference lines in 1877 introduced the deferred rebate. Shippers were notified that those who gave the conference lines all their business during a stipulated period would be given a refund of a portion of the freight to be paid at the end of a further period of time provided that both during the stipulated period of shipment and the further period before the rebate became payable the shipper had given all his business to the conference lines. This system proved effective and gradually the conference system became established in all principal world trades.

The deferred rebate and the exclusive patronage conference contract system were the two principal means which the conferences used to protect themselves against the competition of outside carriers. Another was the fighting ship but this never came into such extended use as the first two. The fighting ship was an aggressive weapon as contrasted to the deferred rebate and exclusive patronage conference contracts, which were defensive. The fighting ship handled chiefly

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bulk goods which might have formed the nucleus for the cargo for an outside steamer, leaving merchandise which required prompt shipment to be transported by the parent company, which maintained its normal rates, while the fighting ship reduced its rates to the point where they were wholly unremunerative. The losses from the lower rates charged by the fighting ship were apportioned among the members of the conference so that each member line suffered, proportionately much less than the one line which was fighting the entire group.

The United States Shipping Act, 1916, specifically forbade the use of the deferred rebate and the fighting ship but took no such action with respect to the conference contract system. The fact that this system was a firmly established practice in steamship trade was well known to the congressional committee which drafted the 1916 Shipping Act; the contract rate system therefore may be said to have received the approbative attention of this congressional committeee.

As may be expected the conference system has been under frequent attack. The British Government appointed a commission to investigate shipping rings in 1906. After 3 years of investigation and study, this commission held:

(1) Developments in ocean transportation have made it necessary that shipowners be afforded such protection as that granted by the system of shipping conferences and deferred rebates.

(2) The system of shipping conferences and deferred rebates has developed until it is now a controlling factor on all sea routes where trade and general merchandise are the chief interests.

(3) Not only shipowners but a large proportion of the shippers regard shipping conferences making use of the system of deferred rebates as a necessary means by which the advantages supplied under an organized service can be attained.

(4) Steamship lines require a guarantee of a continuity of custom and a means of protection against competitors offering spasmodic service in order to provide service covering a large range of ports with sailings at regular and fixed dates and with ships especially adapted for particular trades.

In 1912 the Congress of the United States authorized an investigation of steamship conferences in the foreign and domestic trades of the United States. The purpose of this investigation was to prepare legislation which would eliminate these conferences from United States trades. The ensuing investigation extended over a period of nearly 4 years and resulted in the passage of the United States Shipping Act of 1916. It should be noted that instead of barring conferences this act affirmatively established their legality and gave to the Shipping Board (now the United States Maritime Commission) the power to exempt such conferences from the antitrust laws of the

United States. The following is quoted from the recommendation of this congressional committee following their investigation:

Neither result

It is the view of the committee that open competition cannot be assured for any length of time by ordering existing agreements terminated. The entire history of steamship agreements shows that in ocean commerce there is no happy medium between war and peace when several lines engage in the same trade. Most of the numerous agreements and conference arrangements discussed in the foregoing report were the outcome of rate wars, and represent a truce between the contending lines. To terminate existing agreements would necessarily bring about one of two results: The lines would either engage in rate wars which would mean the elimination of the weak and the survival of the strong, or, to avoid a costly struggle, they would consolidate through common ownership. can be prevented by legislation, and either would mean a monopoly fully as effective, and it is believed more so, than can exist by virtue of an agreement. Moreover, steamship agreements and conferences are not confined to the lines engaging in the foreign trade of the United States. They are as universally used in the foreign trade of other countries as in our own. The merchants of these countries now enjoy the foregoing advantages of cooperative arrangements, and to restore open and cut-throat competition among the lines serving the United States would place American exporters at a disadvantage in many markets as compared with their foreign competitors.

Conferences were conceived not for the purpose of enabling a group of lines to dominate a trade but in order that steamship lines might not destroy each other. It must not be considered, however, that the conferences are solely for the benefit of the shipowner. Government investigations of this system have elicited from the vast majority of shippers in the United States testimony in support of the conference system. To the merchant the conference means stability of rates and assurance of regular, frequent, and dependable service; it also means equality of treatment for all shippers, large and small, to a degree which could not be accomplished by legislation.

Conferences undeniably act as a brake upon rates but it must be borne in mind that this brake acts not only to prevent the decline of rates to ruinous levels during times of shipping depressions but also checks the rise of freight rates during emergency periods such as the present. A review of freight rates on file with the Maritime Commission shows that since the beginning of the war in Europe nonconference carriers who previous to the war were cutting the rates of the conference lines are now in many instances charging rates much higher than any of the conference shipowners. Moreover, charter rates which are subject to no conference control have advanced proportionately many times greater than the conference rates. As an example, coal, which was moving in small volume from Hampton Roads to East Coast South American ports before the war on foreign chartered tramp tonnage at a rate as low as $2.50 a ton, came into great demand when European sources of supply were curtailed. The ocean rate had increased to $9 and more per ton by May 1940. This represents an increase of 260 percent as against an approximate 20-percent

increase in conference freight rates between the same ports and during the same period. In this trade, rates on coal are not subject to conference or other control but must be negotiated in a free market.

The principle of the conference system as its exists in the United States foreign trades briefly is that through conferences shipowners of many nationalities are permitted to take common or joint action in order to prevent destructive competition which would destroy services and that stability of rates so essential to the orderly conduct of trade. While self-regulation of the individual carriers is thus established through the means of these conferences, over and above this the United States Maritime Commission supervises the activities of these conferences to see that the powers which they are permitted to use are not abused.

Under section 15 of the Shipping Act, 1916, the Commission may disapprove, cancel, or modify any agreement that it finds to be unjustly discriminatory or unfair as between carriers, shippers, exporters, importers or ports, or between exporters from the United States and their foreign competitors, or to operate to the detriment of the commerce of the United States. Conferences may function under the laws of the United States only when and as long as their agreements are approved by the Maritime Commission. Withdrawal of approval automatically disbands the conference and would prevent the lines from taking further joint action. This gives to the Maritime Commission a strong although indirect control over the rates and practices of the lines under their conference agreements but it should be noted that should the Maritime Commission condemn the rates maintained by a group of lines under their conference agreement and disapprove the agreement, the lines could continue to charge rates as high or higher than those condemned, but their action would be individual rather than collective. In other words, the Commission may exercise some control over the reasonableness of rates as established by the freight conference but does not have this control over the reasonableness of the rates of individual carriers in foreign trades.

There are practical aspects with respect to certain of the proposals made by the Cuban and Venezuelan delegates on which the Maritime Commission desires to comment. One of the proposals is that a study be made of the possibility of establishing an inter-American prohibition on deferred rebates. As has been previously stated herein, the deferred rebate has long been contrary to the laws of the United States. However, it appears that the proposal would place the conference contract system in the same category as the deferred rebate. This is something which the United States law does not do. Paragraph 1, section 14 of the United States Shipping Act, 1916, prohibits the use of the deferred rebate in United States trade but, in doing so, very carefully defines the term "deferred rebate" in such a manner as to