PRO FORMA EARNINGS STATEMENT Operating revenue: Trp of range of toll revenue shown in exhibit above ($36,451,250 to $48,967,250) – Cost of revenue: Maintenance and administrative expense. Revenue from operating Financial management cost: Interest on bonds-300,000,000 at 3 percent_- $11, 250,000 $49, 000, 000 6,925,000 42, 075, 000 percent__ 7, 125, 000 18,375,000 Revenue from management- Less: Depreciation (50 years)----. Net taxable revenue_. Less: State and Federal income taxes_ Distribution of revenue: To retire bonds payable (50 years)--- For common stock dividends, reserves, and surplus__ 23,700,000 9, 700, 000 14, 000, 000 6,880,000 6,000,000 1, 120, 000 $415, 000, 000 10, 000, 000 425, 000, 000 275, 000, 000 100, 000, 000 375,000,000 50, 000, 000 425, 000, 000 Estimates based on the May 1947 Construction Cost Index published by Engineering-News-Record of New York. STATEMENT OF CHARLES C. FICHTNER, EXECUTIVE VICE PRESIDENT, BUFFALO CHAMBER OF COMMERCE The St. Lawrence project has been presented to the American Nation in various forms for over a half century. From time to time its advocates have changed the form of implementing legislation so as to clothe it with new appeal and to enhance its chances of approval. Historically they have set it forth as a remedy for alleged inadequate transportation facilities and low farm prices, then as a make-work project, later as a war adjunct, now as the savior of the Great Lakes steel industry, and always as a specific for any social or economic ill of the moment. The vacillating and confused arguments advanced by the proponents have stultified the project in the national mind. Except for a minor detail dealing specifically with maximum tolls on products of agriculture and mineral raw materials, Senate Joint Resolution 27 is identical with House Joint Resolution 4 which met defeat in the House Public Works Committee on July 26, 1951, by a vote of 15 to 12. Therefore, in Senate Joint Resolution 27 you are considering a measure which has already been lost in a House committee. This poses an unusual and anomalous situation to say the least. Committees and boards of directors of the Buffalo Chamber of Commerce have studied and restudied the proposed project each time it has been proposed Invariably, as reasonable men they have been compelled to reject it as uneconomic and, therefore, contrary to the national interest. The proposed seaway would tend to disrupt the present highly organized and highly efficient transportation systems of North America. Except for isolated or spotty deficiencies in our transportation services, none of which would be remedied by construction of the seaway, there are ample transportation services to supply all of our needs. In fact, the areas on and adjacent to the Great Lakes are favored with better and more diversified transportation facilities than are other communities. The natural waterway formed by the Great Lakes has three water outlets to salt water. The huge investment in two of these, the New York State Barge Canal and the Mississippi River system which compete for traffic with the present St. Lawrence canals, would shrink in value to whatever degree commerce might be diverted from them to the proposed deepwater route. Thanks partly to governmental policies, our concern for the farmer, and particularly the western grain growers, has been alleviated. Earlier claims by some of the proponents that the seaway would save 10 cents a bushel in the transportation of grain have now been reduced to 5 cents. Even the latter figure is theoretical and arbitrary and ignores common rate-making practices. Freight rates, by water, on bulk commodities, such as grain, are not subject to any economic regulation by governmental commissions or agencies. In such circumstances, value of service is the predominant rate-making influence. In other words such rates are based on what the traffic will bear. No one can forecast what transportation savings, if any, on grain or any other commodity, would be accomplished by completion of the seaway. No one is now supporting the proposed project as a make-work venture. That argument no longer exists. It has been temporarily abandoned as worthless in the light of present-day conditions. On the contrary, it has become, in the light of existing labor shortages, a major reason why the project should not be undertaken in these, of all times. Those who extol the advantage of the proposed seaway as a defense asset or war adjunct fail to face the facts of record in both World Wars. They overlook the hazards of war to lock installations on the canals. They speak of ship repair and construction yards in the Lakes, as if they were less susceptible to air attack than the coastal shipyards. They fail to recognize from the experience of the last wars, the need for utilizing every available ship most efficiently. That calls for quick turn-arounds and not the dissipation and waste of vessel capacity which would accompany miles of unnecessary transit into the Lakes. Only an inexhaustible fleet, which we do not have, would justify such a departure from sound and sensible military logistics. The most efficient utilization of available transportation facilities helped to shorten and win the last war. The transportation record of the canals connecting the Lakes with the North Atlantic seaboard conclusively shows how small a part they played in the movement of war matériel and commerce generally. Through and way traffic on the St. Lawrence canals in cargo tons is recorded as follows: Source: Dominion Bureau of Statistics, Ottawa, Ontario. Instead of an increase, there was a decline during the war years. The tonnage reports of the New York State Department of Public Works on barge canal commerce show a similar record, as follows: As a contrast to the foregoing figures, the railroads carried over 97 percent of all military travel and 90 percent of all freight for the armed services during World War II. Annual reports of the Interstate Commerce Commission, showing the division of freight movements between the various transportation agencies, are a good index of the relative value of the railroads and waterways in wartime. They are as follows: + Contrast, also, the increased tempo from peace to war of inland waterway commerce expressed in the ton-mile figures, largely because of the bulk freight movement on the Great Lakes, with the wartime decline of waterway commerce on the St. Lawrence and New York State canal system. The defense claims of the proponents may sound plausible to the uninitiated, but they fail dismally when they are examined in the light of reason, logic, fact, and experience. Diminishing resources of prime iron ore in the upper lake ranges and the activities of the steel companies to seek new sources of supply have provided the seaway proponents with new material for arguing their cause. Buffalo has reason to examine this situation, as its steel mills are a very important part of its economy, and are included with those which the seaway advocates would save from oblivion. However, the facts, as they are now known, are not sufficiently clear to justify any conclusions favorable to the seaway. Buffalo's largest steel plant which recently completed a large addition has announced a further important expansion. It has also authorized construction of three new large ore carriers for service on the lakes. Proposed expansions of steel plants at Cleveland, Detroit, and Chicago have been prominent in press reports recently. Construction of a 690-foot ore carrier which is larger than the "Wilfred Sykes" which started in the upper lakes' ore trade last year, has been announced. There are other reports of vessels to be constructed for the lakes' ore trade. None of these new ventures are conditioned upon the completion of the St. Lawrence seaway. Investments such as these are not compatible with the alleged future demise of iron ore reserves or of the steel industry in the Great Lakes area. The movement of ore from the new sources in South America and Liberia to such consuming points as Johnstown, Pittsburgh, Youngstown, and Wheeling will be most economical by transshipment from ore carriers to rail at Baltimore. There has been no conclusive showing that such ore could move at lower transportation costs through the seaway to lake front mills at Buffalo, Cleveland, Detroit, or Chicago than via canal, rail, rail and lake, or canal and lake from North Atlantic or Hudson River ports. There are three handicaps to be overcome in the St. Lawrence route. First, the element of added distance via that route, second, the light loading of vessels to permit their passage not only through the proposed 27-foot canals of the St. Lawrence but through the lesser depths in the harbor channels to the steel mills at these lake ports, and third, the suggested toll of 50 cents a ton, which would have to be substantially increased if the seaway is to be made truly selfliquidating. Labrador ore could move to these ports in some of the present lake ore fleet if the seaway is constructed. The expected 10 million tons from that source could also move in St. Lawrence canalers, such as are presently used in moving several millions of tons of coal and grain annually down the St. Lawrence. The latter movement is toll-free. The suggested toll of 50 cents a ton would offset much, if not all, of the economy involved in the use of the larger lake ore carriers. Pertinent to this discussion is the highly strategic importance of this raw material in wartime. Either a tremendous quantity to outlast any future war would have to be stockpiled, or development of domestic resources should be encouraged by unrestrained research and lately devised technological processes, The 80 to 90 million gross tons of ore which moved annually down the Great Lakes had no small part in winning the last war. One of the most promising and relatively new sources of iron ore is the so-called Steep Rock development located in the Province of Ontario, approximately 140 rail miles from Port Arthur on Lake Superior. Current reports indicate that Steep Rock ore will largely replace any deficiency which may occur because of diminishing supplies of prime ore in the Mesabi Range. The Department of Commerce has estimated that 30 to 37% million tons of ore would potentially use the seaway. The Commerce report recognizes the limitations to the salt water ore carriers of a 27-foot channel and the probability that ore would be transferred from ocean to lake carriers at Montreal. That lessens the value of the seaway route on Liberian and South American ore. It is extremely doubtful that the seaway would be used for any appreciable quantity of ore, other than that which will originate in the Labrador area. The Department's figures should be discounted by 20 to 271⁄2 million tons. The total of all grains using the St. Lawrence canals in 1949 was 3.111.139 tons. It was less in 1950 and 1951. The Commerce Department estimates the potential of grain traffic for the seaway at from 6% to 111⁄2 million tons. The movement of grain through the St. Lawrence canals in 1949 was unusually heavy. In 1948 the tonnage was 1,335,525 and in 1947, 1,176,406. In view of he fact that the St. Lawrence canals now provide the cheapest transportation route for export grain, it is difficult to compose the wide difference between the Department's estimate and the actual 1949 movement. In any event, construction of the seaway will not change our competitive relationship with Canadian grain growers in the slightest. If grain would move through the seaway in the quantity estimated by the Commerce Department, it would be at the deterioration of other routes, ports, and transportation agencies. The Department estimates the movement of coal through the seaway at 4 million tons. Here, again, the present St. Lawrence canals provide the cheapest route to the area that would be served by the seaway. The discrepancy between the Department's estimate and the actual recent coal movement shown below is difficult to understand. The Commerce Department's estimate of 6 to 20 million tons of petroleum traffic is not to be taken seriously. It is cast into the unknown future on the premise that domestic resources will decline and importations will be necessary. Surely, the merits of such an expensive undertaking as the seaway cannot be judged by an imagined condition of the unpredictable future. Present-day facts prove that there is no need for the deepened waterway as a factor in the movemen of petroleum. The movement of this commodity inland from the North Atlantic seaboard diminishes rapidly as it meets the supplies coming from the midcontinent fields. Of the 3,321,235 tons which used the New York State canal system in 1948 only 84.424 tons were received at Buffalo, the second largest city in the State. In 1950, 2.069,234 tons moved up the St. Lawrence canals as against 786,152 tors that moved up the Welland Canal. On the other hand, 1,250,784 tons moved down the Welland and 14.145 down the St. Lawrence. Over half of the petroleur: which moved up the St. Lawrence was destined to Canadian ports on Lake Ontari as was most of the petroleum which moved down the Welland Canal. The new oil fields in Alberta which have been connected by pipeline with the head of the lakes at Superior, Wis., provide new petroleum supplies to eastern Canada, and instead of an increase in the movement up the St. Lawrence, there will inevitably be a reduction. We have discussed the Commerce Department's estimates of potential traffic on these four major commodities in brief detail. We could go on down through the list of the lesser commodities which their report dealt with and show the fallacy of their estimates. Suffice it to say that these commodities can move or are moving through the present St. Lawrence canals although in much lesser quantities than the potential estimates of the Department. A number of foreign steamship lines have regular service through these canals between the Lakes and foreign countries. They offer space at extremely low rates and their capacity is not being overtaxed. Their ships are capable of navigating any part of all lake ports which would not be true of vessels requiring 27 feet of water. In fact, some of these ships have picked up or delivered cargo in parts of Buffalo Harbor which could not be navigated by vessels requiring 27-feet. Their rates are not subject to regulation by any governmental body and are based largely on what the traffic will bear. Under such circumstances it is extremely doubtful that larger ships would offer lower rates, particularly under the handicap of the suggested toll of $1.25 a ton. In passing, it should be pointed out that some of these steamship lines were in this service before the last war. Therefore, it is sheer nonsense to say that the Great Lakes are landlocked, or that they are not a part of the United States coast. Most interesting in the Commerce Department's several surveys is the contrast between the 1941 and 1948 reports. In 1941 they estimated seaway tonnage at 10 million tons of American traffic, much of which was of a highly potential character. Emphasis at that time was concentrated on alleged transportation savings which were dealt with in detail on a selected group of commodities. In the interim between the 1941 and 1948 reports the implementing legislative measures added self-liquidating features which were not present in the earlier proposals. Can that be the reason why the Commerce Department has now raised its estimates to from 57 to 84 million tons of potential seaway traffic? Can it be that these self-liquidating features have prompted the unrealistic tolls suggested by the Department whereby iron ore would be charged 50 cents, petroleum 25 cents, grain and coal 25 cents to 35 cents, automobiles, machinery, furniture, and pig and scrap iron at $1.25 a ton? We submit that these Commerce Department surveys are such as to destroy all confidence in them. There seems to be a philosophy in some quarters that, because the cost of the seaway is dwarfed by the billions of Federal spending in many other fields, criticism on that score is futile. Possibly that type of philosophy accounts for the Current Federal deficits. In no event, however, can the ultimate over-all cost of the project be taken lightly. The Chief of Engineers, in his letter of December 7, 1948, to the Hon. Alexander Wiley, admits that the cost estimates are only the result of detailed technical studies in the International Rapids section. Elsewhere, they are of a preliminary nature. Significant in that connection are the comparative estimates presented to the Rivers and Harbors Committee in 1941 with the 1948 estimates. The 1948 estimate for the International Rapids section is 104 percent higher than the 1941 estimate. Elsewhere, where detailed technical studies have not been made, the increases in 1948 over 1941 range from 5 percent for deepening the Welland Canal to 68 percent for the St. Francis Lake Channel. The total increase, 1948 over 1941, is 82% percent. It is to be regretted that the decision upon a project of such great magnitude is to be made upon incomplete cost estimates. The very language in the Chief of Engineers' report of December 7, 1948, to the Honorable Alexander Wiley suggests that the subject be returned to the Corps of Engineers for detailed technical studies in areas of the project where such studies have not been made. The language referred to reads as follows: "Costs estimates for the Great Lakes connecting channels, United States harbors, and for the Thousand Islands section, St. Lawrence River, are based upon available hydrographic data and office studies. Soundings, borings, and detailed technical studies for the structural works involved, such as would be made under a survey authorized by Congress with provision for necessary funds, in conformance with normal practice, have not been made. Consequently, these cost estimates are of a preliminary nature.” Recently the House Committee on Appropriations took the Corps of Engineers to task on the substantial difference between original estimated project costs and the ultimate actual expenditures. Much of the cost differences were due to extra work which had not been anticipated in the original recommendations. Whether this condition is justifiably chargeable to the Corps of Engineers or is the result of the pressure and influence of waterway advocates in Congress or elsewhere is beside the point. The St. Lawrence project, if authorized, will definitely follow that pattern. For example, the estimated 1948 cost of $802,566,000 does 96175-52-30 |