MARITIME LEGISLATION-1961 THURSDAY, MARCH 9, 1961 U.S. SENATE, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D.C. The committee met, pursuant to notice, at 10:15 a.m. in room 5110, New Senate Office Building, the Honorable E. L. Bartlett presiding. Senator BARTLETT. The committee will be in order. This morning's session will usher in 2 days of public hearings on maritime bills aimed at resolving problems of importance both to the industry and to the Government agencies working in the maritime and related fields. One bill, S. 677, introduced by the chairman, by request, would permit passenger vessels on essential routes, to depart from their regular routes during limited dull periods, for the purpose of conducting special cruises in more financially fruitful areas, without sacrificing their operating subsidies. Such cruises, it is argued, would enable the operators concerned to cut losses and possibly increase earnings during the off-season periods. Of importance from the Federal administrative aspect is S. 576, which would clarify the status of the faculty and administrative staff at the U.S. Merchant Marine Academy by establishing suitable personnel policies. It is our purpose to consider these two measures today, along with Senate Joint Resolution 21, which would authorize the Secretary of Commerce to sell 10 Liberty-type vessels to citizens of the United States for conversion into barges. S. 677 and, possibly, Senate Joint Resolution 21 will be considered this morning, and we shall resume at 1:15 this afternoon to take up the Kings Point Academy bill. Tomorrow we will take up the two Coast Guard bills-S. 966, to build three Coast Guard cutters, and S. 682, to permit vessels navigating under bridges to depart, where necessary, from the rules governing such operations. S. 885, to provide a flexible rate of interest for Government financing of vessels, will not be considered at this time. (The bill follows:) [S. 677, 87th Cong., 1st sess.] A BILL To amend title VI of the Merchant Marine Act, 1936, to authorize the payment of operating-differential subsidy for cruises Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That title VI of the Merchant Marine Act. 1936, as amended (46 U.S.C. 1171–1182), is amended by inserting at the end thereof a new section 613 to read as follows: "SEC. 613. (a) In this section, 'passenger vessel' means a vessel which (1) is of not less than ten thousand gross tons, (2) has a designed seed which before the vessel was built was approved by the Board but not less than eighteen knots, (3) has accommodations for not less than two hundred passengers, and (4) before the vessel was built was approved by the Secretary of Defense as desirable for national defense purposes. "(b) If the Federal Maritime Board finds that the operation of any passenger vessel with respect to which an application for operating-differential subsidy has been filed under section 601 of this title is required for at least two-thirds of each year, but not for all of each year, in order to furnish adequate service on the service, route, or line with respect to which the application was filed, the Board may approve the application for payment of operating-differential subsidy for operation of the vessel (1) on such service, route, or line for such part of each year, and (2) on cruises for all or part of the remainder of each year. "(c) Cruises authorized by this section must begin and end at a domestic port on the operator's essential service to which the vessel is assigned. When a vessel is being operated on cruises "(1) it shall carry no mail or cargo except passengers' luggage; "(2) it shall carry passengers only on a round-trip basis: "(3) it shall embark passengers only at domestic ports on the operator's essential service to which the vessel is assigned; and "(4) it shall stop at other domestic ports only for the same time and the same purposes as is permitted with respect to a foreign-flag vessel which is carrying passengers who embarked at a domestic port. Section 605 (c) of this Act shall not apply to cruises authorized under this section. (d) The Board may from time to time review operating-differential subsidy contracts entered into under this title for the operation of passenger vessels, and upon a finding that operation of such vessels upon a service, route, or line is required in order to furnish adequate service on such service, route, or line, but is not required for the entire year, may amend such contracts to agree to pay operating-differential subsidy for operation of such vessels on cruises, as authorized by this section, for part or all of the remainder, but not exceeding onethird, of each year. "(e) Any operating-differential subsidy contract under which the Board contracts to pay operating-differential subsidy for the operation of passenger vessels on cruises, as authorized by this section, shall provide that (1) if at the end of the period specified in section 606 (5) of this Act, the net profit on the operation of such vessels on cruises (after deduction of depreciation charges based upon a life expectancy of the vessels determined as provided in section 607(b) of this Act, for the period of such cruises) has averaged more than 10 per centum per annum upon the contractor's capital necessarily employed in the operation of such vessels on such cruises, the contractor shall pay to the United States an amount equal to 75 per centum of such excess, but not exceeding the amount of operating-differential subsidy paid for the operation of such vessels on such cruises during such period, and all of such net profit and the contractor's capital necessarily employed in the operation of such vessels on such cruises and the operating-differential subsidy paid for the operation of such vessels on such cruises shall be excluded in determining the amount that is otherwise payable to the United States under section 606 (5) of this Act; and (2) if at the end of such period provided in section 606 (5) of this Act, such net profit on the operation of such vessels on cruises has averaged less than 10 per centum per annum upon the contractor's capital necessarily employed in the operation of such vessels on cruises, all of such net profit or loss and the contractor's capital necessarily employed in the operation of such vessels on cruises and the operating-differential subsidy paid with respect to such cruises shall be included in determining the amount that is payable to the United States under section 606 (5) of this Act." SEC. 2. Section 601 (a) of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1171, is amended as follows: (a) The first sentence thereof is amended by inserting immediately before the period at the end thereof the words "or in such service and in cruises authorized under section 613 of this title". (b) By inserting in the second sentence thereof after the words "to promote the foreign commerce of the United States" the words "except to the extent such vessels are to be operated on cruises authorized under section 613 of this title". (c) By inserting at the end thereof a new sentence to read as follows: "To the extent the application covers cruises, as authorized under section 613 of this title, the Board may make the portion of this last determination relating to parity on the basis that any foreign flag cruise from the United States competes with any American flag cruise from the United States". SEC. 3. Section 602 of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1172), is amended by striking out the word "No" and inserting in lieu thereof the following: "Except with respect to cruises authorized under section 613 of this title, no". SEC. 4. Section 603 of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1173), is amended as follows: (a) Subsection (a) is amended by inserting after the words "in such service, route, or line" the words "and in cruises authorized under section 613 of this title". (b) Subsection (b) is amended by inserting after the words "operating-differential subsidy" a comma and the words "including such subsidy for any period during which the vessel is authorized to cruise as provided in section 613 of this title" and a comma; by inserting after the words "substantial competitors" the words "on the service, route or line", and by inserting at the end thereof the following new sentence: "For any period during which a vessel cruises as authorized by section 613 of this Act, operating-differential subsidy shall be computed as though the vessel were operating on the essential service to which the vessel is assigned." SEC. 5. Section 606 of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1176), is amended by inserting in subdivision (6) after the words "services, routes, and lines" a comma and the words "and any cruises authorized under section 613 of this title" and a comma. SEC. 6. Section 607(b) of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1177), is amended by inserting in the second sentence of the second paragraph thereof after the words "on an essential foreign-trade line, route or service approved by the Commission" the words "and on cruises, if any, authorized under section 613 of this title." Senator BARTLETT. The first witness on S. 677 will be the Honorable Thomas E. Stakem, Jr., Chairman, Federal Maritime Board. Mr. Stakem. STATEMENT OF HON. THOMAS E. STAKEM, JR., CHAIRMAN OF THE FEDERAL MARITIME BOARD Mr. STAKEM. Good morning, Senator. Senator BARTLETT. Good morning, Mr. Stakem. The floor is yours. Mr. STAKEM. The purpose of the bill, S. 677, is to authorize the removal of subsidized passenger ships from the essential trade routes during their slack season, with a continuation of the payment of operating-differential subsidy with respect to such ships while they cruise off the essential trade routes. The bill would not increase the amount of operating-differential that would be paid with respect to these ships, because the ships are now subsidized for the entire year. By improving the earnings of passenger-ship operators, the bill would enhance the possibility of subsidy recapture by the United States. With the amendment hereinafter proposed, with respect to the computation of subsidy, we recommend enactment of the bill. Under the Merchant Marine Act, 1936, as amended, the Federal Maritime Board is authorized to contract to pay operating-differential subsidy for the operation of vessels on trade routes determined to be essential by the Secretary of Commerce under section 211 of that act. The Federal Maritime Board has contracted under that act with six operators for the operation of both cargo and passenger vessels (as defined in the bill) on the essential trade routes. Under the provisions of the act, such contracts provide that if the average net profit, over a 10-year period, of the combined fleet of cargo and passenger vessels operated by any contractor exceeds 10 percent of capital necessarily employed in the operation of such vessels, the contractor shall repay to the United States one-half of such excess profits but not exceeding the amount of operating-differential subsidy paid during the 10-year period. Passenger ships are defined in the bill (sec. 1) as vessels of not less than 10,000 gross tons, with a designed speed which, before the vessel was built, was approved by the Board, but not less than 18 knots, with passenger accommodations for not less than 200 passengers, and which, before the vessel was built, was approved by the Secretary of Defense as desirable for national defense purposes. This definition is patterned on the definition of passenger vessel in section 503 of the act for the purpose of granting sole recourse mortgages. There are 14 such ships in the subsidized segment of the U.S.-flag merchant marine, operated by 6 different operators which come under the definition. These ships, the owner, total passenger accommodations, and area served are as follows: First, the American Export Lines, Inc., serving U.S. Atlantic/ Mediterranean: Constitution, 1,088 passengers; Independence, 1,088 passengers; Atlantic, 854 passengers. Second is the American President Lines, Ltd., serving U.S. Pacific/ Far East: President Cleveland, 780 passengers; President Wilson, 780 passengers; President Hoover, 202 passengers. Third is the Grace Line, Inc., serving U.S. Atlantic/Caribbean: Santa Paula, 300 passengers; Santa Rosa, 300 passengers. Fourth is the Moore-McCormack Lines, Inc., U.S. Atlantic/east coast of South America is the regular service; ships usually make one to two voyages a year between U.S. Atlantic/Scandinavia and U.S. Atlantic/south and east Africa: Brasil, 553 passengers; Argentina, 553 passengers. Next is the Oceanic Steamship Co. serving U.S. Pacific/Australasia: Mariposa, 365 passengers; Monterey, 365 passengers. And last is the United States Lines Co., United States Atlantic/ United Kingdom and Continent: United States, 1,982 passengers; America, 1,046 passengers. In addition to the foregoing there are 15 combination passengercargo ships, ranging in passenger-carrying capacity from 52 to 124, operated by U.S.-flag subsidized carriers in regular, service in the foreign commerce of the United States. These ships have not been included as passenger ships in the bill since too large a portion of the revenue accruing from the use of these ships is realized from the carriage of cargo, which would not be permitted under the bill, to make their use under the bill economically feasible. Passenger vessels operated under operating-differential subsidy contracts have a slow season during which they earn little profit or even operate at a loss. This reduces the annual profits made by the contractor on his fleet of vessels and thus tends to reduce the fleet profits which are subject to recapture by the United States. Analysis of passenger travel on passenger ships shows definite seasonal peaks. The high season for United States North Atlantic/ Mediterranean outbound travel ranges from March to October reaching a peak in June or July; on the homebound leg the peak is August or September. This same pattern exists in the entire United States/ European passenger trade. As a rule the slack period of passenger travel both outbound and inbound occurs in January and February. Similar seasonal fluctuations in the volume of passenger traffic are evident in the South American and transpacific trades. On outbound voyages in the slow season, utilization may range from 50 to 60 percent of available space with a corresponding reduction in revenue. Examination of voyage results of one operator of large passenger vessels shows a profit from the passenger ship operation before subsidy in the peak season, that is, second and third quarters; and a considerable loss in the slow seasons, the first and last quarters of the year. To help offset the diminution of traffic in the offseason many foreign-flag operators schedule repairs, inspection, and drydocking of their passenger ships in the winter months and at the same time schedule attractive short cruises to warmer climates to accommodate this ever-growing type of business. The importance and extent of cruise business is evident by the number of cruises scheduled by foreignflag vessels to the Caribbean and other South and Central American areas from New York. More than 80 cruise voyages were advertised in a leading trade publication for each of the months of January and February 1960 ranging from a few days to a month or more, with an average of about 2 weeks, by passenger ships normally assigned to other services, including such large ships as the Nieuw Amsterdam (passenger capacity, 1,214) of Holland-America Line; Bremen (passenger capacity, 1,122) of North German Lloyd Line; and the Mauretania (passenger capacity, 1,147) of the Cunard Line. Some foreign-flag vessels also make cruises to other areas during the winter; the Italian Line usually transfers one or two passenger ships from its normal U.S. Atlantic/Mediterranean service to the Mediterranean/east coast South American service. Paid advertisements and press dispatches indicate a growing number of cruises by foreign-flag passenger vessels commencing their cruises at U.S. ports, principally New York, and such cruises exceed by far the number of the cruises advertised by U.S.-flag vessels as a part of the regularly scheduled services. Most U.S. subsidized operators of passenger ships employ at least two passenger vessels on a service and the withdrawal of one vessel with a consequent reduction in the frequency of sailings on its regular service during the slack season should not adversely affect its overall service. The scheduling of cruises offers the added advantage of permitting an operator to schedule a short cruise or cruises during a period when a vessel might normally be idle awaiting its next scheduled sailing date after annual repairs or drydocking. Review of space utilization on cruises indicates that on well known vessels, passenger demand ranges from good to excellent. Since the U.S.-flag passenger vessel fleet is well known they should meet with favorable acceptance by the growing number of tourists who take offseason cruises. There is no doubt that with favorable acceptance, the cruises would provide revenue in excess of that which would be realized if the vessels were retained in the regular service at a low utilization level. Cruises made under the proposed legislation would not have a seriously adverse effect on other U.S.-flag operators since under the |