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even at the very most, that nobody can pay $100,000 a year charter hire for them. Not because that is unreasonable as to what they cost, but because it is unreasonable as to what they can earn. That is, of course, without knowing what they are going to be able to do, but allowing for a great deal of improvement that they will bring out in the present situation, they won't be able to improve it to the extent of that charter hire.
Senator GUFFEY. If you got them at that price and with the lower operating cost, that would be a help, would it not?
Mr. TAYLOR. Of course, it would. If we could get them at 5 percent of the subsidized cost, it would make all the difference in the world, but we cannot get them on that basis because the law won't allow the Commission to charter them at less than 5 percent of the construction cost.
Senator OVERTON. What will they do with the old ships?
Mr. TAYLOR. They would probably retire them from active competition, and use them in reserve for the national defense purposes. We could not, of course, take the gamble on bidding on these operating results, and figure then on having to pay liquidated damages of 1272 percent, because we won't be able to take the new ships and be able to pay 5 percent on the full American cost.
Senator BARBOUR. You operated these very lines, and probably know as much about the problem as anybody could know. You say you could not take a chance, the chances that you speak of. Do you think anybody else or any other line could afford to take the chance?
Mr. TAYLOR. That is a very, very sound question, Senator. In this particular case, the sole bidder, the United States Lines, can afford to take the chance for the reason that he would be able to dispense with the employment salaries, overhead, of our separate organization, because he already has one large enough and supported in part by the Government subsidies of $2,500,000 a year that he already receives, and by an overhead allowance that he already receives in operating the American Pioneer Line for the Government. On the same conditions that we would bid, he could simply dispense with our organization, absorb the operation in his present overhead with the slightest bit of marginal expense, and carry on through, and with the figures of the showing, he would have a fair chance to break even. The amount of his bid, I think, proves that fact as well as the fact of our inability on the same set of figures to bid at all, because the total amount that he has bid for the basic charter hire is almost identical with our overhead cost of organization. He would get that $168,000 to pay the Commission as the basic charter hire by the indirect dismissal of our employees, throwing them either out of employment or, as a remote contingency, into other employment, and it seems to me that that would be more or less trying to hoist one's self by their own bootstraps for the Government to throw people out of employment on the one hand in order to get the equivalent in charter hire on the other. They could afford to bid on figures that we could not afford to bid on.
Senator BARBOUR. May I ask you one more question, with the chairman's permission, because I am not a member of the subcommittee.
Senator OVERTON. Certainly, Senator.
Senator BARBOUR. In your own opinion, and without bias, without the passage of this legislation, which has the approval of the House committee, do you feel that the United States Lines in the end would acquire the whole works?
Mr. TAYLOR. Without surmising at all, the bare facts of the case are that with the lines that the United States Lines is already operating and on which they are receiving $2,500,000 of operating subsidy now, with the addition of the three lines to those, they would in. fact have all of the services on the North Atlantic that the Government subsidized, which makes simply a natural monopoly. You would not have to project on that, because that would be the inevitable effect of it.
Senator OVERTON. You mean everything north of Cape Hatteras?
Mr. TAYLOR. Yes. They would have everything in the shape of a Government subsidized service.
Senator GUFFEY. In the transatlantic trade?
Mr. TAYLOR. In the most important zone in which the foreign commerce of the United States and of that section moves.
Senator GUFFEY. When these advertisements were put out, did the United States Lines bid?
Mr. TAYLOR. They bid on all three lines.
Mr. TAYLOR. For the charter. There would be no inducement to bid on the purchase, because the ships are near the end of their economic life, and the bid itself indicates that the Commission proposes to substitute them with these newly constructed ships as soon as they come out, and presumably relegate the present ships to the laid-up fleet for reserve for use in national-defense purposes.
The question has also been raised, and very properly so, that if we have this business as close as we claim to, we ought to be in a better position to bid than the outsider. That would be absolutely true if the outsider were in the same position as we are; in other words, if he were a small Norfolk, Va., concern bidding, in which case we would have a natural advantage over him. We have no natural advantage, however, or any advantage, and in fact quite a disadvantage, in bidding against the United States Lines because of their entrenchment in the operations they already have, and the aid that they get from the Government which enables them to simply disregard, which we must regard, and that is the cost of paying our salaries as an independent enterprise, and in the end, it seems to me, it really boils itself down to whether the advantages of this basic charter hire that they bid of $160,000 a year, out of which, as I say, the Commission itself will pay one-half, because it is going to be deducted from their share of the profits, if any, or if on top of that, the efficiency of a large operation, which I do not for a moment admit, is a sufficient inducement to destroy private enterprise which has been brought into the business under the encouragement of the Government, to throw away what asset is represented by their goodwill, and which would be the only basis on which they would have any advantage in competing as the present operator, and I guess there would be very little argument left. I do think though,
there is a very strong argument in the public interest as to whether that is justified.
Senator OVERTON. We are very much obliged to you, Mr. Taylor, for your appearance. That is, if you have finished your statement.
Mr. TAYLOR. I think I have spoken long enough; perhaps too long.
STATEMENT OF ADMIRAL E. S. LAND, CHAIRMAN, UNITED STATES
Admiral LAND. My name is E. S. Land, and I am Chairman of the United States Maritime Commission.
As you know, Mr. Chairman, the Commission made a report on this matter to the House committee which is available in my testimony there, which I shall not repeat. There are certain pertinent things in connection with the bill now before you therein.
Senator OVERTON. Your report is on the original bill ?
Senator OVERTON. As introduced by Senator Barbour, and as modified by the House committee.
Senator BARBOUR. I will correct the chairman if I may. My bill as at present, conforms exactly with the House bill.
Senator OVERTON. All of the objections that you lodged against the original bill, are they applicable in every respect to the bill as amended and as substituted by Senator Barbour?
Admiral LAND. They are not. They are applicable in a modified degree.
Senator OVERTON. Suppose then, Admiral, that you address yourself to the bill under consideration, disregarding the original bill, because I think that is the only business now before the committee.
Admiral LAND. I should like to first state that the Maritime Commission finds itself in a paradoxical position in opposing its own agents, because in both cases, these gentlemen are agents of the Maritime Commission. However, our first duty to the country and to Congress is to carry out the legal requirements of the act, and in so doing, we advertised for these ships in 1937, and the unanimous vote of the Commission was to reject all of the bids because they were not satisfactory as a general proposition. There may have been one exception to that, but the unanimous vote of the Commission was to reject them all.
We have a mandate from Congress, as we understand the act, to sell or charter these ships, and failing to do so, then we still have that mandate to do so at a time which seemed to be more opportune. That time arrived last fall, and the Commission announced that it was going to advertise for these ships, which it did, carrying out, as I say, what we understand to be the legal requirements of the Merchant Marine Act of 1936.
The opposition of the Commission is primarily one of principle. It seems to us that the American principles of government are to sell or charter property after advertisement and after obtaining competitive bids.
Another objection is that the proposed legislation seems to be in favor of what might be termed special interests in contradistinction to the interests of all American citizens.
The Merchant Marine Act of 1936 was passed in June of that year. There has been, therefore, ample time to make modifications in the law, because it was then evident that the mandate of Congress was to dispose of these Government-owned lines. It seems a little bit too bad that this should come up here as an emergency matter in view of the elapsed time since the passage of the act.
The question was raised this morning with regard to the bids in 1937, as to why we did not accept the bid of the America France Line. One brief answer is that there were somewhere between 10 and 14 conditions in that bid as submitted, which is one of the reasons why the Commission unanimously voted to reject it.
The question of monopoly has been brought up, and we all agree that that is an objectionable term. The generic idea is opposed to American principles. No one has brought out the point that the whiphand is retained by the Maritime Commission in the schedules of these lines and the operation of the line and the number of ships that were on the line, and everything pertaining thereto; that if monopoly exists, it exists jointly with the Maritime Commission, and any successful bidder, whoever he may be.
In my judgment, we are not likely to run into monopoly as long as we have the tremendous amount of foreign competition with foreign flags that now travels the seven seas of the world to take away businss from the American merchant marine. I have not very much fear of monopoly on that score, and I realize what a tremendous job we have to keep anything like a fair portion of our shipping under the American flag.
The other point with regard to this is that it seems to be bad business to subsidize competing lines, no matter what the competition may be. It is difficult to know exactly what the Congress intended with regard to subsidizing two competing lines. We had the problem very definitely in front of us in one case, and reluctantly reached the conclusion that it was legally possible for the Commission to so subsidize, but it has not been done, and as a matter of policy we would regret if we ever had to subsidize two American lines, again for the reason that we have all of the competition and more than we can handle, with our foreign-flag competitors.
Senator GUFFEY. May I interject and ask you there, Admiral—it was not the intention of those who drew this act for the Maritime Commission to subsidize competing lines.
Admiral LAND. That is my belief.
Senator GUFFEY. I know something about it. If we made a mistake, I am corry about it.
Admiral LAND. We investigated all of that, and we reluctantly came to the conclusion that it was legally permissible to so do, although we felt that it was not so intended, and we felt that it was not good practice.
That has nothing to do with the proposal in front of us. In the annual report to Congress which the Maritime Commission submitted a short time ago, there is a break-down in appendix C of the results of operation of the Government-owned lines, July 1, 1937, to
June 30, 1938. That answers a great many of the questions that have been asked here this morning, and it answers it in my judgment, very definitely and very concretely, and I should like with your permission to have that submitted for the record, because it covers the three lines under discussion as well as the American Republic and the American Pioneer, and gives the number of vessels, the number of voyages, the revenue, the operating expense, the allowance to manage. The total shows in a summary the operating profit or loss to the Maritime Commission for the fiscal year of 1937 and the fiscal of year 1938. That is page 39, appendix C.
Senator OVERTON. You wish that incorporated in the record ?