VALUE OF STOCKS ON HAND Commander MAYO. Our stock of general stores, which covers 74 classes, from cordage on through wool clothing-and by clothing I mean in this case textiles that are not covered by the naval clothing and small stores fund-and winter and submarine clothing, also nut-, bolts, and every item that is used for the maintenance of a ship or for the work to be done in the navy yards, is about $58.000.000 worth. Mr. UMSTEAD. You mean that is the total amount of stocks which you have to keep on hand throughout the naval service? Commander MAYO. Yes, sir. Mr. UMSTEAD. Then, other than the $58,000,000 to which you just referred, what is the fund used for? Commander MAYO. We also have some work in progress, manufacturing work, that is included in this $58,000,000. Mr. UMSTEAD. Over and above the $58,000,000 which you say covers stocks you have to keep on hand, and the work in progress for which you are obligated, what are the other requirements on your fund? Commander MAYO. We could deduct from that figure about $4,000,000 worth of stock which is in transit between stations. Mr. UMSTEAD. Is that included in your $58,000,000? Commander MAYO. Yes, sir; that is included in the $58.000.000. Mr. UMSTEAD. I am trying to get you to tell me what there is over and above the $58.000.000. Commander MAYO. The only thing there is over and above the $58,000,000 is the provisions and the fuel which I have referred to. Mr. UMSTEAD. Both of which together amount to $6,500,000. roughly speaking. Captain WATROUS. Making a total of $66,601,503. Commander MAYO. We also have in that total about $7.500.000 worth of what we call emergency material. These are stores necessary to meet casualties to vessels that would take them out of the fleet. For instance, a vessel may lose a propeller in its first 6 monthof commission or it may not lose one for 10 or 20 years. We have to have that propeller in stock or when the casualty happens the vessei is disabled and out of the fleet during the considerable time necessary to have one manufactured. AMOUNT OF FUND NECESSARY Mr. UMSTEAD. You are asking for a total of $77,000,000 to handie a total load of approximately $65,000,000. Commander MAYO. Our issues during the year from the naval supply account amounted to $121,000,000. Mr. UMSTEAD. Your capital during that year was approximately $70,000,000. Admiral CONARD. Approximately $69,000,000. Commander MAYO. Yes; approximately. Mr. UMSTEAD. And you contend that a capital of $70,000,000 is no sufficient to carry on a business of $121,000,000? Commander MAYO. That is correct. Admiral CONARD. The capital represents, for the most part, ar actual investment in stock. This is not a working capital in the sense of free money to turn over stock. It is physically in stock. The point hat we have in mind is that that physical stock is too small for the needs of the Navy and should be increased. Mr. UMSTEAD. Admiral, I believe we went into this matter in considerable detail in the hearings last year. Admiral CONARD. Yes, sir; we did. SAVINGS FROM CASH DISCOUNTS Mr. UMSTEAD. Have you anything further you would like to say about this request? Admiral CONARD. Only to make clear that there is an existing necessity for the naval service for a balance of stock on hand which is adequate to meet the demands of the service during any given fiscal year. Commander MAYO. Along the lines of your question last year, I notice you brought up the point, which I think is in your mind this minute, of the cost of this additional capital. You used the figure of 3 percent. The cost of the $7,000,000 which we are requesting at a presumable 3-percent carrying charge would be $210,000 per annum. Last year we took cash discounts which amounted to $442,000, which is twice the cost of this money. If we have not enough money to meet our bills, we will lose twice as much as the cost of the carrying charge for the $7,000,000 that we are requesting. Mr. PLUMLEY. You mean Commander MAYO. We will lose $442,000 if we cannot discount our bills. There is one other point which is very important about this. Mr. UMSTEAD. How much did you make in discounts during the past year? Commander MAYO. $442,000, cash discounts. Mr. UMSTEAD. That was the entire amount of cash discounts that you received during the past year? Commander MAYO. That is correct. Mr. THOм. What was the total amount of purchases? Mr. UMSTEAD. With a $70,000,000 capital, you had a $442,000 saving from cash discounts? Commander MAYO. Yes; that is correct. Mr. UMSTEAD. Now you are asking for $7,000,000 additional capital! Commander MAYO. That is correst, sir. Mr. UMSTEAD. You stated a few moments ago, as I understood it, that the cost at 3 percent on $7,000,000 capital would be $210,000. Commander MAYO. Exactly. Mr. UMSTEAD. And with that $7.000.000, you would save $442,000? Commander MAYO. I said we would be able to continue to realize those discounts. If we cannot continue taking the discounts, we will lose that money. Mr. UMSTEAD. Let us stop right where we are a second. The $7.000.000 that you are asking is about a one-tenth increase? Commander MAYO. That is correct. Mr. UMSTEAD. In the capital fund? Mr. UMSTEAD. One-tenth of what you saved last year by discounts would be $44,200, would it not? Commander MAYO. Yes, sir. Mr. UMSTEAD. Then the truth is that bearing the same ratio that has been explained by you in the present operation of the fund, the increased capital of $7,000,000 could not hope to save more than $44,200? Commander MAYO. I do not agree with you, sir, for the reason that we are getting to the point where we have no cash balance. We had reached a point at one time during the past year when we had to scurry around to get credits because we were in the "red" on the books of the Treasury. We hurried some delayed credits through and got by. Our obligations for outstanding contracts and requisitions on June 30 were $44,528.742.49. Mr. UMSTEAD. On June 30 you showed a cash balance of $3,187,737. Commander MAYO. That is correct. I have the later figure here. The October 31 cash balance was $2,363,769, equivalent to our average issues for a 7-day period. Mr. UMSTEAD. If the mathematics of the figures quoted by yo Admiral, are correct, then it is unfair to say that you can take $7.000.000 additional and save $442,000 with it by discounts. Admiral CONARD. What I meant to infer was that we will lose $442,000 if we cannot take discounts, which we cannot do unless we have money to meet bills at the time they become due. Mr. UMSTEAD. Now, you did save $442.000 with $70,000,000? Mr. UMSTEAD. Yes. INCREASED PRICES OF COMMODITIES Commander MAYO. It is very pertinent to point out at this time that the Department of Labor price index between 1936 and 1937. as of June 30, has gone up 10.1 percent. Their index on June 30, 1936, was 79.2, and the index on June 30, 1937, was 87.2, an increase in price of 10.1 percent. If we do not carry any more stock than we carried last year it is going to cost us almost all of that $7,000,000 to keep that same stock. If we do keep the very same stock load we will not be able to meet our bills without the additional capital. We have gotten down to practically the vanishing point on cash. I want to point out, sir, that we purchase our dry provisions once a year at the time when the crop of the particular item is being harvested. By so doing we save the inclusion in the price of storage and transportation charges to a commercial storage point. This saving is reflected in the ration cost and the Congress has to appropriate less funds than would otherwise be the case if the naval supply account fund were not available to carry the stock. The naval supply account permits the carrying of stocks so that when purchases of general stores of all kinds are made they can be consolidated to obtain the better prices incident to large quantity purchases. In addition we can accept deliveries of 90 or 120 days which makes the business attractive to the manufacturer since he can fit it into his stock periods, thereby cutting his overhead losses and hobiing his organization together. We frequently obtain prices which are below cost with full overhead figured in. These economies affect the appropriations of all the bureaus. They get more material for the same money than would otherwise be the case. I would request that the following statements marked "A." "B," and "C," be included in the record. A. Statement showing the present stock and cash balance June 30, 1937, and the requirement for 1939 Value of fund (including cash balance of $3,187.737.18) Increase in provision stocks to care for 108,500 men in 1939, Increase in fuel stocks aboard ships to provide for additional To offset higher prices at which present stocks must be replaced: Department of Labor index 1937, percent.. Increase $69, 934, 366. 66 2, 618, 152. 00 694, 363.00 241, 309. 77 79.2 87.2 4,312, 262.82 84, 527, 206. 08 69, 934, 366. 66 Difference between necessary cash balance of $7,500,000 and cash balance on June 30, 1937--- Total value of fund necessary. Present value----. Difference-- 14, 592, 839. 42 This would indicate that an increase to the fund of $14,592,839.42 is required. However, an increase of only $7,000,000 is requested at this time. Admiral CONARD. The next item is strategic and critical materials. Tis item, included in the 1939 Budget, is essential toward insuring adequate supply of basic materials which must be obtained during ece from sources outside the continental limits of the United States from limited stocks now in this country in order to make certain continued and effective industrial support of the Navy's efforts in y national emergency. This insurance is particularly necessary turing the early months of such emergency, when adjustments in world trade and shipping may seriously curtail the supply or even cut it off entirely. This item is for the procurement of strategic and critical materials not produced in the United States. The following items have been designated: MANILA FIBER, PIG TIN, CHROMIUM ORE. MANGANESE ORE, TUNGSTEN ORE, OPTICAL GLASS, POWDER BAG AND PARACHUTE SILK This list may be increased from time to time as funds are available. The items and quantities of materials procured will be controlled to a large extent by the amount of funds made available. Mr. UMSTEAD. Admiral, have the procurements so far made under the appropriation for this purpose been of domestic or foreign production? Admiral CONARD. They are all foreign except in the case of silk. which although foreign in the raw material is fabricated in the United States. Mr. UMSTEAD. How much have you spent of the fund which was appropriated for this year? Admiral CoNARD. $1,099,787. Mr. UMSTEAD. I believe you had an appropriation of $3,500,00! Mr. UMSTEAD. What did you purchase for that amount of money! Admiral CONARD. Manila fiber, tin, silk for cartridge bags, and silk for parachutes. That is what actually has been purchased. Mr. SCRUGHAM. Admiral, on pag S-5 of the justification, heade 1 "Strategic and Critical Materials, Navy," it reads; This item is for the procurement of strategic and critical materials not produced in the United States. I am certain that is entirely in error. The object of Congress was that there might be materials not largely produced in the United States but as far as practicable it was distinctly intended we shoul: buy American, it was distinctly intended that the "Buy American" Act should apply, and the objective was to encourage the production of such materials in this country. Is that understood by the Navy officials? Admiral CONARD. Yes. That statement as it appears here ha appeared in other parts of the report, and I have personally corrected it. I simply overlooked its appearance here in that form. I should be "materials procurable in the United States if availabl I would like to point out the obvious fact that if a material :available in the United States in sufficient quantity it then is r longer a strategic or critical material. |