with crew grievances, the seaworthiness and safety of a vessel call for highly technical inspections which can be made only by trained surveyors. Most maritime countries have their own surveyors working under the competent ministry, and in addition they may delegate certain inspections to the surveyors of classification societies of recognized integrity and arrange to accept their certificates. In the case of Panama, surveyors within the country have no opportunity of seeing most Panama ships, and it is therefore essential for Panama to adopt some other means of insuring that her ships come up to the standards of safety required by the international conventions she has ratified. Spokesmen for the Government of Panama ships must hold valid certificates from one of the three classification societies recognized by the Government-Lloyd's Register, the American Bureau of Shipping, and the Bureau Veritas. In the statement concerning registration under the Panama flag, from which extracts are given in appendix III, it is stated that one of the documents required before transfer and registration are accepted is a certificate of survey from one of these societies. There is not, so far as the committee is aware, any regulation requiring surveys at regular intervals thereafter. Article 8 of Act No. 54 refers to periodical surveys, but it applies only to home-trade ships. It may even be doubted whether, in the past, the production of valid certificates of survey has been regularly insisted upon, since it was pointed out above that a number of ships in the Panama register are no longer classified by Lloyd's because of failure to apply for survey or because the ship falls below the society's standards. It would appear essential for the Government of Panama, in view of the special circumstances of its fleet, to enter into arrangements with certain of the classification societies, whereby these societies would undertake responsibility for all the inspections normally carried out in other maritime countries either by the national authorities or by the societies-seaworthiness, loadline, all aspects of safety, maintenance of machinery and gear, crew accommodations, etc. As a necessary preliminary, regulations would have to be issued in Panama to determine the standards to be applied in the case of subjects (such as crew accommodation) not normally covered by the rules and standards of the classification Societies. It would further be necessary for the Government to take speedy action in any case in which the society reported refusal or failure to comply with its recommendations." The attention of the committee is called to other pages of the same International Labor Office report, a copy of which is submitted for your convenience, with particular reference to pages 28, 29, 34, 35, 39, and 40. While conditions on Panamanian ships may have improved slightly since the issuance of this report, our experience convinces us that they are still far below American standards. The decline of the American merchant marine is already far advanced in one. important segment of the industry. Remember that only one cargo ship is presently being built for private account. According to the National Planning Association report, cited above: "The tramp ship industry relies primarily on the movement of bulk commodities. As the shipment of bulk commodities has increased or decreased, the prosperity of the tramp industry has responded accordingly. The composition of the foreignaid program therefore has had a direct influence on the activity of the United States tramp fleet. Although the tramp ship industry has been very prosperous at times since the war, there has been a severe reduction in the size of the tramp fleet. From 1948 to 1956, the American-owned tramp fleet has been reduced from around 200 to 70 vessels-around 130 vessels having been transferred to foreign registry where they could operate at lower costs. Of the remaining 70 vessels, there are over 40 for which applications for transfer abroad have been made with the Maritime Administration. The long-range difficulties of the tramp fleet are caused by the obsolescence of the Liberty ships which compose the fleet and their inability to compete with foreign-flag ships. The industry contends that it needs Government assistance, at both the operating and construction stages, if it is to survive. It appears clear that the foreign aid program-regardless of its sizecannot guarantee this survival, while a reduction of the program would only accelerate the decline. It does not appear likely that the problems facing the American-owned tramp ship industry will be solved by the size of the foreign aid program over the next 10 years unless the other basic problems are solved. Indeed, at the present pace, it would appear that the United States tramp fleet will disappear much before 1965. If foreign aid is severely reduced or eliminated, the decline of the tramp ship industry in all probability would be accelerated." This tramp ship fleet that shortly will no longer exist may be a ghost of great significance due to an event that seems to have attracted practically no attention. The President's Materials Policy Commission published a long-range study of the United States resources position in 1952. They took note of a significant, historic, economic fact: "*** the decade of the 1940's marked a turning point in the long-range material position of the United States; historical trends long in the making came to a climax when the national economy moved just prior to the war from a long period of depression into a period, still continuing, of high employment and production. By the midpoint of the 20th century we had fully entered an era of new relationships between our needs and resources; our national economy had at last not merely grown up to our resource base but in many respects had outgrown it. We had completed our slow transition from a raw materials surplus nation to a raw materials deficit nation. "The symptoms of this changed materials position are today numerous; we have become the world's largest importer of copper, lead, and zinc, whereas once we were huge exporters. We have begun to meet from foreign sources a sizable and growing portion of our needs for petroleum and iron ore, long the hallmarks of United States self-sufficiency. We have shifted from net exporter to net importer of lumber. There are today only two metals (magnesium and molybdenum) used by United States industry for which we are not partially or wholly dependent on foreign supplies. At the start of the century we produced some 15 percent more raw materials than we consumed (excluding food); by midcentury we were consuming 10 percent more materials than we produced." The attention of this committee is further directed to pages 13 and 18 of the report of the President's Materials Policy Commission. Their predictions for the next quarter of a century are most significant: "Over the next quarter century, materials demand in the free world as a whole will probably increase two-thirds or three-quarters over what it is today. By 1975 the United States will probably be producing from 75 to 85 percent of its increased needs and relying on imports for the balance. Since all the industrial nations, and not merely the United States, have either caught up with or outgrown their domestic resources, the same pattern of reliance on imports-but even more accentuated-can be expected for these nations as a whole." What we are talking about here is the bulk trade that tramp ships cargo. The implication is clear: We will be dependent upon foreign sources for about 25 percent of our raw materials in 1975. Our bulk fleet is about to disappear, leaving us with the national defense reserve fleet already old. Is there to be a program to deal with this situation? An adequate situation in 1975 would be one that possessed enough bulk carrier capacity under the American flag to assure the delivery of that essential 25 percent of raw materials. The rising imports of iron ores and nonferrous metals bear out the predictions made by the President's Materials Policy Commission. It is in the national interest to protect our supply lines to these essential imports by serving them with ships owned and operated by American citizens. But there is a lot more to the transfer picture than the jobs of United States seamen, as important as that may be. There is the question of tremendous tax losses to the United States Government, both direct and indirect, from the transferred ships and the enormous capital gains being made by shipowners once permitted to transfer. We, of course, are seafarers, and not tax experts. But we are taxpayers, and we are as much concerned as any other group about the loss of taxes by the Federal Government. From our study of these problems. the following conditions seem significant and deserving of the most careful consideration by the Congress. As has been reported on many occasions, the corporation operating the transferred ships-an American company, American-owned, operating in and out of American ports and usually carrying United States cargoes-pays no taxes on its profits to the United States, and pays no taxes to Liberia either. According to our information, as long as that profit is not switched to the books of the United States parent company there is no tax. I don't need to tell you that these people have figured a variety of gimmicks to get around the problem of sending the money back to the States, one of them being an interest-free loan to the parent company in the United States, which is then free to invest that Joan and reap the proceeds. There are many others, which a good accountant could detail far better than we. That this tax loss can be considerable is shown by figures recently published in Business Week magazine, indicating that a 20,000-ton tanker hauling oil from the Persian Gulf to Europe around Africa was turning in a net profit, before depreciation, of almost $750,000 a trip. Such a tanker could make a minimum of five trips a year, possibly as many as eight. Of course, these are peak rates, and normal profit would be somewhat less. But when you figure that today, one of these ships is netting over $4 million a year before depreciation, when you think of the hundreds of runaway-flag ships in this area, then you begin to conceive of the immensity of this tax loss. The tax-free income involved undoubtedly runs to hundreds of millions annually. The same ship under the American flag, paying American wages, would still net about $3,375,000 each year. An article which appeared in the Seafarers Log of March 15, 1957, and gives a more detailed accounting of the above, is hereby submitted with the request that it be printed in the record. The capital-gains aspects are very impressive. The spread between what a T-2 sells for in the United States and what it sells for foreign has ranged upward of $2 million per ship. This shows that the transfers have not gained a single new ship or job for American seamen and shipyard workers, notwithstanding statements to the contrary. If these ships had not been permitted to transfer, their owners would still have built new tonnage in American yards for two reasons: (a) There is a terrific shortage of new tanker tonnage, and (b) there is an equally terrific shortage of ways in foreign shipyards. They would have had to build in United States yards because there would have been no place else to go. Why permit these latest transfers then? The only obvious reason is to permit the shipowner to make twice as much in capital gains by selling his ship foreign. Today, an American-flag operator who owns a T-2 tanker can get $2 million in the United States market for a ship which he probably paid half as much for a dozen years ago. On the foreign market he can get around $4 million. We have been overly kind to these people when we permit them to go out and double their money at the expense of the United States merchant marine and merchant seamen. There is another aspect of the transfer program which it is important to mention. Who is behind all this? We have heard much about the operations of the Greek shipowners in this area, but that is only half the story-by far the lesser half. The larger half is that American oil companies are promoting and fostering this wholesale tax evasion by American-owned shipping corporations. It is they who hand out the long-term charters to dummy foreign corporations. It is they who are building the bulk of the new supertankers for registry under the runaway flags. Any investigation of the transfer picture should consider the role of American oil companies in seeking ways and means to put their assets into tax shelters. SUMMARY In summary, then, the seagoing worker has already paid a tremendous price for the decline of the American merchant marine. This bill, we would hope, should stop the transfer foreign of more ships of our fleet. However, the transfer program is only indicative of a more basic malady. That malady is that the American merchant marine is not now adequate, nor does it appear that it will be adequate to the responsibilities that a privately owned fleet is expected to bear. Present and contemplated building programs would only modernize a little better than half the present fleet. Moreover, the decline of the bulk carrier fleet is ominous inasmuch as the United States is becoming an importer of so much of its basic raw materials. The concept of an adequate merchant marine today, and for the future, is different from the concept acceptable before 1950. The national interest now not only requires a fleet to serve the historical interests of the United States, it requires a fleet to serve the new import position. While tearing down the American merchant marine, the foreign transfer program is also depriving the Federal Government of vast sums in taxes. We submit that, except for the almost negligible few who reap fabulous profits, all segments of American economy suffer from the transfer program. We, therefore, respectfully urge this committee to report the Magnuson bill favorably, and to continue its study of the transfer problem. [Seafarers Log, March 15, 1957] TANKSHIP TRADE NETS FABULOUS CASH REWARDS Many large-scale investors are turning from stocks and bonds to ships-tankers in particular-for the "quick, safe profit" that every investor dreams of. The reason is obvious. Net profits of from $3,750,000 to better than $4 million a year are being realized at current rates on the employment of a single 20,000-ton tanker in the Persian Gulf to Europe trade. The higher figure, of course, is realized under runaway flags such as the popular Liberian flag. What's more, the operator of the runaway ship need pay no taxes to the United States Government as long as he keeps the money out of the States. GROSS $1 MILLION PER TRIP Last week, a Senate investigating committee announced that some tankers were grossing almost $1 million per trip for hauling oil around Africa to oil-starved Europe. Subsequently, Business Week magazine, a publication which circulates widely among businessmen and investors, published figures which indicate a minimum annual net profit of $3,750,000, after all expenses, for a single tanker on voyage charter. The figures quoted are on a 20,000-ton supertanker which can run from Bahrein to the Atlantic coast of France and back in some 64 days. Taking into consideration the time spent in loading, unloading, repairs and overhaul, plus unforeseen delays, such a tanker could make a minimum of 5 trips annually. Faster ships could go higher, between 6 to 8 trips. With present oil haulage rates quoted at $50 a ton on this run, the operator would gross $1 million a trip for her cargo. Bunkers and other expenses would run about $125,000 while labor costs for an American-flag operator are quoted at about $75,000. That would leave a net profit of almost $750,000 a trip. At five trips a year an operator could roll in gravy to the tune of $3,750,000 a year. Transfer the ship to the runaway flag and the figures become even more impressive. Runaway wage bills would be anywhere from one-third to one-fifth the American cost. Split it down the middle at one-quarter and you get a wage bill of around $19,000 a trip. On the five trips a year basis, that ups the operator's take to $4,030,000-plus the fact that he escapes the tax bite. Of course, these figures assume he owns the ship free and clear. But even if he is paying off the mortgage, there's plenty left in the pocketbook. "The prospect of so bright a future has brought a boom in tanker building.” the publication notes. It's no wonder. (Whereupon, at 11:30 a. m., the subcommittee recessed.) HEARINGS BEFORE THE OF MICHIGAN JUN 19 1957 MAIN READING ROOM SUBCOMMITTEE ON SURFACE TRANSPORTATION OF THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE UNITED STATES SENATE EIGHTY-FIFTH CONGRESS FIRST SESSION ON S. 377 A BILL TO ESTABLISH THE FINALITY OF CONTRACTS BETWEEN S. 378 A BILL TO AMEND THE INTERSTATE COMMERCE ACT IN ORDER FORWARDERS S. 937 A BILL TO AMEND SECTION 4 OF THE INTERSTATE COMMERCE S. 939 A BILL TO AMEND SECTION 22 OF THE INTERSTATE COMMERCE S. 943 A BILL TO AMEND SECTION 218 (a) OF THE INTERSTATE COM- AND RAILROAD PASSENGER DEFICIT -91714 APRIL 16, 17, 18, 22, AND 25, 1957 Printed for the use of the Senate Committee on Interstate and UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON: 1957 |