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heavy shipping season. The Commission is no doubt already aware of the fact that a large shipper of sugar was recently forced to charter a vessel in order to move his product from San Francisco to the east coast.
Receivers of in-bound cargo which normally moves in large volume to San Francisco Bay ports, particularly iron and steel articles, pipe and oil-well supplies, lubricating oil, and canned goods have experienced difficulty in obtaining space for these commodities at the loading ports of the intracoastal lines on the Atlantic and Gulf coasts. Since the discontinuance of the service of the Gulf Pacific Line by reason of the sale of its entire fleet, receivers of canned grapefruit and grapefruit juice have been unable to move these commodities from Tampa, Fla., to the San Francisco Bay area.
3. That the shortage of space due to causes hereinbefore stated is aggravated by the recent extension of the route of the Baltimore Mail Steamship Co. (Panama Pacific Line) to the Orient. Formerly, this line operated only in the intercoastal trade on a weekly schedule with the voyage terminating at San Francisco. The present schedule is not only irregular but provides for only two east-bound sailings from San Francisco in March, April, and May and only one sailing during the month of June. Further, since these vessels are carrying a considerable amount of cargo from the Orient, the space available for intercoastal traffic is limited. Shippers in this area are not advised concerning the space available until the vessel has cleared last port of departure in the Orient.
4. That further sales of intracoastal vessels without adequate replacements will aggravate the present serious space situation.
5. That no new vessels are under construction for operation in this trade.
6. That the Commission now has in its laid-up fleet some 20 vessels which are not yet affected by section 510 (g) of the 1939 amendments (Public, 259, 76th Cong.) to the act and which therefore can be operated in domestic trades.
Wherefore your petitioner respectfully urges that your Honorable Commission deem this a matter of extreme urgency and permit the operation of the said 20 vessels of the laid-up fleet as replacements in the intercoastal trade by making them available to operators presently engaged in this trade, either by purchase or charter on terms which are fair to the operators and to the Government alike. Respectfully submitted.
SAN FRANCISCO CHAMBER OF COMMERCE,
Manager, Transportation Department. Dated at San Francisco, Calif., this 8th day of March 1940.
STATEMENT READ BY GEORGE W. OSGOOD
Mr. Edgar F. Luckenbach does not believe Government-owned steamers should be allocated to either intercoastal or any trade protected by coastwise laws. Much of disruption and general disturbance in the intercoastal steamship, as well as transcontinental railroad, business has been due to previous availability of steamers built by taxpayers' money during the previous war and subsequently disposed of at prices infinitely under replacement costs. Such procedure resulted in the entire intercoastal rate structure being built upon absolutely false foundations, and no business so built can long survive and properly serve customers. Had the intercoastal business been built on sound economic foundations, I don't believe there would be the present rush of intercoastal operators to seek more remunerative trade. If any cheaply built Government-built tonnage is allocated to this trade, then those operators still remaining will have desires to go elsewhere accentuated. In the event the Government should finally determine to allocate certain laid-up vessels to the intercoastal trade, then same should be allocated to actually active operators who are not in receipt of Government subsidy, loans, or other largesse; and vessels shall be prorated to such active lines in direct relation to the number of vessels which such lines are actually now operating in the intercoastal trade.
It should be jointed out that the Luckenbach Steamship Co., Inc., and Luckenbach Gulf Steamship Co., Inc., are still running the same frequency of service
as has obtained in the past, that is, weekly to and from the North Atlantic and fortnightly to and from the Gulf. These are probably the only lines in the intercoastal trade which have not reduced service.
PRESENT DAY STEAMSHIP PROBLEMS
Address of Roger D. Lapham, Chairman of Board, American-Hawaiian Steam
ship Co.-Western Transportation Conference, University of Southern California, Los Angeles, Thursday, April 11, 1940
Your chairman kindly consented to give me leeway in the choice of a topicnot confining myself necessarily to the rate regulation problems of the shipping industry. My subject, Present Day Steamship Problems, is a broad one; but, with your leave, I shall enlarge principally on the problems of the intercoastal operator, which, in itself, is a large enough field.
This morning, in San Francisco, I attended a meeting called by the port authorities of the Pacific coast, who are exercised about recent curtailments in the services of various intercoastal lines. Shippers complained that the number of vessels now employed in the intercoastal trade, between United States Pacific and United States Atlantic and Gulf ports, is not sufficient to take care of cargo now offering. These shippers, particularly shippers of lumber, were also worried about further withdrawals of vessels from this trade.
It is true that some vessels employed in the intercoastal trade at the outbreak of the war last September, have been sold to foreign interests; while others have been chartered to run in offshore or foreign trades. It may well be that, if this war continues, more vessels will be sold or withdrawn for other trades presently more profitable than the intercoastal.
Let me give you a brief history of this intercoastal trade. Prior to the great war, which began almost simultaneously with the opening of the Panama Canal, only about 30 vessels were regularly employed in the trade. Almost all of such vessels had been built by American owners in American shipyards at prices in the neighborhood of $70 per ton. As that war progressed, and overseas freight rates rose, these vessels were eventually placed in more lucrative employment in the foreign trades. Finally, when the United States entered the war, all of them were requisitioned by the Government.
At about the same time, we started on our great shipbuilding program, “A Bridge of Ships Across the Seas.” In a short time, the Shipping Board built 1,821 cargo and passenger-cargo vessels, totaling 11,427,581 deadweight tons.
This construction did not cease with the end of the war. We kept right on building; and the last ship turned out by the old Shipping Board was completed in May 1922.
During the war and for a year or almost 2 years afterward, offshore freighter rates rose to incredible heights, $40 and $50 a ton on grain, flour, and what have you across the Atlantic. The profits were tremendous. The idea persisted that they would never cease; and that the United States had supplanted British and other maritime powers as the dominant factor in the carriage of world commerce.
Came, of course, the inevitable aftermath. Freight rates tumbled down. With no cargo in sight because the rest of the world had no credits left to finance our exports, what happened? The Government policy of selling ships for whatever they would bring at a dollar down and all the time you wanted to pay for them.
As a result, American shipowners returned to the protected trades—the only trades where American vessels may operate without foreign competition. Ships which had cost the Government $200 a deadweight ton or more were sold by it at ten to twenty cents on the dollar.
In the intercoastal trade, there was money in the business until too many horses tried to eat at the same trough. There is a saying that, when that happens, horses bite each other; and that is what did happen in 1922–23. A rate war resulted in rapidly driving rates downward, followed by a steady decline in competitive transcontinental rail rates. Conferences were formed and broken; reformed and broken again.
Because of this, every shipper in the trade, over a period of 18 years, has benefitted immeasurably :
1. For water rates were based on capital values 10 percent to 20 percent of actual cost values.
2. For rail rates were lowered to meet this water competition.
To put it bluntly—the more the intercoastal carriers would fight with each other, often at an out-of-pocket cost to them; and the more that they, as a group, would fight with the transcontinental railroads, the greater the financial benefits to individual shippers.
Before the start of the present war, last September, the American shipowner would have considered himself lucky if he could have sold a 20-year-old freighter for $20 a dead-weight ton. Today, he can get for this same ship, upwards of $50 a ton.
Before last September, if the same American shipowner could have timechartered a cargo vessel at $1.50 a dead-weight ton, per month, he would have been glad to do it. Today, he can get for the same vessel, almost and perhaps more than $5 a ton.
With intercoastal freight rates at their present levels, and with operating cost at their present levels and that means plenty of labor costs—an operator can earn, if he charters to the foreign trade at prevailing rates, twice as much as he can by employing the same vessel in the intercoastal trade.
All this is brought about solely by the war. If the war should end next week, the situation would probably change overnight. But if the war lasts another year or more—and present indications point that way—the intercoastal trade will become less and less attractive from the plain dollars-andcents standpoint.
Bear in mind, you cannot get $50 or more a ton unless you have a foreign buyer, and that means a vessel must change its registry or flag. That cannot be done without the consent of the United States Maritime Commission. Unlike the owner of a building or a factory or a farm, the American shipowner is restricted in the sale of his property, and in the leasing of his property, unless it be to another American. The reason for this is easy to understand. Merchant vessels are classed as aids to the Navy—perhaps needed for national-defense purposes and therefore subject to foreign transfer only if the Government so consents.
Since September 1939, the Maritime Commission has permitted transfer of 77 cargo vessels of approximately 540,000 dead-weight tons to foreign buyers. All of these vessels were about 20 years old or more. Other applications for transfer to foreign flag or for charter to a foreign concern are now pending.
While presumably the only objection to transfer should be because the vessel might be needed for national defense, the Maritime Commission is beginning to ask the owner, when application for sale to a foreigner is filed: "How come? What are you going to do with the proceeds of the sale? Will you reinvest them in American shipping? What employment will you find for the officers and men who will lose their jobs if your ship is sold foreign? What are you going to do to take care of the needs of the shippers who patronize your ships? And what is the foreign buyer going to do with your ship? Is he going to run it in competition with other American owners in foreign trade?”
And so the American shipowner in the intercoastal trade is somewhat stumped. He is not subsidized by the Government, and even if he owns his ships, free and clear, he cannot be certain whether or not the Government will permit him to dispose of his property. Because of the Neutrality Act, he may not send his American-flag vessel to certain ports. The danger zone as defined by Presidential proclamation last November forbids all American vessels clearing not only to such combatant countries as England, France, and Germany—and now very likely Norway—but also to such neutral countries as Belgium, Holland, and Sweden. If the war spreads it is likely this prohibition will be extended to other countries.
The business life of an American shipowner has not been an easy one for the past decade or more. Affected like everyone else by the so-called depression and recession years, he has had to face innumerable disputes with labor, both ashore and afloat. At times he has suffered because of jurisdictional labor disputes to which he was not a party. As a general rule, the financial results of his operations have been nothing to boast about. Secretary of Commerce Roper at the time he had charge of the Shipping Board Bureau, in a report submitted to Congress in 1936, listed the net losses of all intercoastal lines for the years 1930 to 1934, inclusive, as $14,003,939.
There is a saying that the shipping industry is either a feast or a famine. This grows out of the great fluctuation of international trade, resulting both from economic and political conditions. The record shows that shipowners, the world over, have had to face long periods of profitless operation and take their chances of recouping in occasional periods when operations were more profitable.
It is understandable then that some companies—and particularly those where ownership lies with an individual or a small group of individuals—have the urge to liquidate when opportunity comes to do so at a profit. Those who want to remain in business are naturally tempted, at least in part, to seek temporarily the most profitable trades. The seller's market does not often come to the shipowner. It is not only human, but perhaps far-sighted for him to adopt a flexible policy-taking advantage of temporary windfalls (after what may be left over when the Government has taken its share in taxes). By so doing, he can strengthen his position and prepare to give better service when peace comes.
I have been dealing with shippers all my business life and can well appreciate what difficulties they face when facilities on which they have counted are curtailed or eliminated. But-I think it is true that the prices of certain commodities, usually shipped by water in the intercoastal trade, are higher than they were a year ago—such commodities as flour, wool, and lumber products. In all probability, if the present war continues, prices of most commodities will rise. So perhaps the shipper will not be hit as much as he thinks. Although in my experience, it does seem as if the shipper always wanted the lowest rate possible, irrespective of the price he obtains for his products.
And so what? Facing us is the fact that new vessels cost now, at least $200 a ton. With the present level of intercoastal freight rates, as well as operating costs, no one can presently see new ships in this trade with any possibility of a black-ink showing. In my opinion it is plain common sense to at least take some temporary advantage of additional profits—particularly if you want to return 100 percent to your accustomed trade-prepared and strengthened to face conditions now unknown, when and if the world is restored to reason.
Pressure is now upon the Maritime Commission to pull out laid-up ships which it owns, recondition them, and put them in trades where they are needed. You should know that in 1939 by act of Congress the Commission was instructed to withdraw from commercial operation all ships 20 years old or more owned by it, these ships not to be withdrawn from lay-up for commercial operation unless a national emergency should be declared by the President. As a result of this act, there are now in permanent lay-up about 87 caigo vessels, with 20 more which will go into permanent lay-up within 9 months or so. Recently the Commission has advertised for sale bids to be opened April 17–12 of the 20 vessels not yet 20 years old. Four of these vessels may be sold only to American owners, but with the restriction that they must not be operated in anything but the domestic trades for a period of 2 years, and cannot be transferred foreign for 2 years, or, if the war should last longer, until the end of the war. These four ships will be sold as is, where is, for cash.
The buyer will have to pay such reconditioning costs as are necessary to make the ships seaworthy. Such reconditioning costs may run upward of $150,000 per vessel. If any American citizen, shipowner, or shipper wants to bid on these ships under these conditions, he is free to do so.
It has been suggested that the Maritime Commission recondition these ships at the expense of the Government and then charter them. Will the charterer be willing to include the cost of reconditioning, or will he want the Government to pay this cost at taxpayers' expense?
Businessmen generally have complained of Government interference on business. Chambers of commerce, viewing the encroachment of Government in all directions, talk about the system of private enterprise. Do we want to practice what we preach? Or do we want to encourage feeding at the public trough?
Recently the intercoastal lines proposed an increase of rates on wool. Wool shippers and numerous others protested, and as a result, the Maritime Commission has suspended such rate increases and is now conducting hearings as to whether these increase will or will not be permitted.
Do these wool shippers, or, for that matter, any other shippers, want water rates frozen at present levels and at the same time ask the Maritime Commission, who can suspend such rates, for Government vessels to carry their products at less than real cost ? Do they want to encourage further curtailment of intercoastal service? And remember, all shippers on this coast have railroad facilities for intercoastal cargo movement.
Now, in conclusion, let me speak briefly of regulation of water rates. At the present time all common and contract water carriers operating in the intercoastal trade must file their actual rates with the Maritime Commission. Rates
so filed must not be deviated from. The Commission has authority to suspend changes in rates. Presently there are no restrictions as to who may or may not operate in the trade. No certificate of public necessity is required. Keep in mind, though, that besides exercising its regulatory functions, the Maritime Commission builds, owns, and even, through agents, operates part of its fleet. As owner and operator and regulator it has dual and perhaps conflicting functions.
The Wheeler-Lea bills are now in Congress. The Wheel bill (S. 2009) has passed the Senate and the Lea bill has passed the House. Both bills are now in the hands of conferees and shortly may become law in some form.
This is the so-called omnibus transportation legislation, or so-called coordinated regulation. The declaration of policy of the bill passed by the Senate (S. 2009) declared it to be “the national transportation policy of the Congress to provide for fair and impartial regulation of all modes of transportation, so administered as to recognize and preserve the inherent advantages of each
to encourage the establishment and maintenance of reasonable charges for transportation services without unjust discriminations, undue preferences and advantages, or unfair and destructive competitive practices
all to the end of insuring the development and preservation of a national transportation system adequate at all times to meet economically and efficiently the full needs of the commerce of the United States, of the Postal Service, and of national defense.”
This is a large order. It puts in the hands of the Interstate Commerce Commission the administration of the act and charges that Commission with the difficult duty of giving a square deal to railroads, water carriers, trucks, and air lines, and almost superhuman task in some respects.
A decided difference of opinion exists as to whether this is a wise and feasible thing to do. It remains to be seen whether the day-by-day administration of the act, if passed, will accomplish its objectives; but its passage would unquestionably remove the discrepancies caused by having one governmental body charged with regulating one form of transportation and another governmental body charged with regulating other forms of transportation.
We on this coast should all know how hard the coastwise shipping industry has been hit. I mean the water business between California ports as well as the water business between Pacific Northwest and California ports. Presently it has dwindled to almost nothing—due partly to increased labor costs as well as to lost traffic due to fourth section relief granted to the railroads by the Interstate Commerce Commission. Perhaps a proper administration of the proposed Coordinated Regulation Act, when and if passed by Congress, would restore to them at least a part of the business lost by the coastwise water carriers.
The problems of all shipowners these days are varied and many. While this war lasts, and afterward, conditions will change almost daily, and no shipowner can set too fixed a course. But there is one thing we can all hope and pray forno matter what temporary advantages the war may bring to any industry--an early and permanent peace. This should be the objective sought by all.
EXHIBIT Q 2
MARCH 29, 1940. Hon. LEWIS B. SCHWELLENBACH,
Washington, D. C.:
1. Has Maritime Commission any power compel retention present bottoms on intercoastal range?
2. Has the Commission requested any legislation giving power regulation available tonnage? 3. Has Commission now power and authority place inactive ships this service?
MARCH 30, 1940. Col. W. C. BICKFORD,
Port of Seattle: Urtel commission advises as follows: Number one: No; any ship can be taken out of port at any time and sailed anywhere (to any foreign port within the law) so long as it continues to fly the American flag. Does not have to ask