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Mr. TOLLEFSON. Now, then, there isn't any ceiling imposed on the foreign-flag ship that might carry this grain, is there? I mean your ceiling applies only to the American-flag ship?
Mr. GILES. Any rate ceiling?
Mr. GILES. No, sir; there isn't. The matter of rates is between the charterer and the operator.
Mr. TOLLEFSON. There is no protection against the foreign-flag operator at all by your ceiling on the American-flag freight rate?
Mr. GILES. No, sir; we wouldn't have any authority to tell the foreign-flag operator what he would have to charge.
Mr. TOLLEFSON. I agree with you there, but I am constrained to say that your Department or any department or agency of Government has a different point of view with respect to ordering foreign-flag ships. as to what and what not to do.
Mr. GILES. I mean in this particular case. If the foreign-flag operators come in and their prices edge up there to the level of what the American-flag operator could offer, then I would certainly assume that the American-flag operator is going to get his portion of the business at that point by competition, but where there is this difference that we started out with-there is still a very substantial difference in the level of the two rates—the American operator with his higher operating costs simply can't haul this grain at the price that the foreign operator can.
Mr. TOLLEFSON. The exporter here is the subject of concern on the part of the Government, whether your Department or the Department of Agriculture. You put him in a different position than any other commercial exporter has ever been put before, and it just seems to me, while you expressed concern for the welfare of the American merchant marine, I am inclined to think that taking the Government's position as a whole it is more concerned with something else.
The Government is offering this export subsidy of-what is it7212 cents a bushel on the average, which is something like 14 or 1412 cents a bushel more than ever has been given before.
I am not certain in my own mind who is getting the guarantees or the assurances here. Is the object to try to protect our Government or do something for our Government, or is the object to give assurances and assistance to the exporter, or is it to assist the purchaser, Russia ?
Who are we most concerned with here?
Mr. Giles. As to the export subsidy which the Agriculture Department gave here on the Continental sale, I believe I should defer to the Agriculture Department witnesses on that. I frankly don't have the details or know enough about it.
I do have a comment and a view. So far as any subsidy or assistance to the purchaser, that is, to the Soviet buyers, I do not think that that is involved at all. The Soviets say, "Well, we will purchase wheat at the world market," and they know what the world market is.
Then they say, "When we say world market, we also know what the world shipping market is," and they do. They have experts on that. “Then we want to buy wheat on the same basis that you would sell to Yugoslavia, or to Poland, or to West Germany, or to any other country," and I am in formed and understand, and I
think it is correct, that the net total price that these exporters have been able to make actual sales on has been on that basis.
So far as the shipping is concerned, any subsidy involved in this, for example, if we have higher costs in Public Law 480 because we use smaller vessels rather
than the larger, that is an indirect subsidy to our merchant marine, and that is understood. I am prepared to defend that because our merchant marine has higher operating costs than their foreign competitors and I think we have to recognize that as a matter of Government policy.
So far as the export subsidy, which Agriculture has on its wheat, I think there couldn't be any real doubt as to who is really the beneficiary, and I think the proper beneficiary, of that export subsidy is the American farmer. If we want to sell wheat on the world market, if we want to sell it to France, or to West Germany, or to these other countries at the world prices, which are lower than our domestic prices, lower than what we pay our farmers for the wheat, then we have the subsidy. That is what we have, in effect.
Mr. TOLLEFSON. I know. I am aware of all the arguments in behalf of this Russian wheat sale, but the fact remains that the export subsidy in this particular case is roughly 1442 cents per bushel higher than in any other.
I don't know where this 1442 cents is going. My impression is that it was designed to help Continental with its ocean freight rate.
Now, if that is the case and if American-flag vessels aren't available at fair and reasonable rates as established by your guidelines, then Continental could conceivably ship the wheat on foreign-flag at a rate whereby that 141/2 cents per bushel could net a tremendous profit to Continental.
Is there anything in the arrangement that you know of to stop that?
Mr. GILES. I don't know of any arrangement between the Agriculture Department and Continental which says that, if you don't get so much American-flag shipping, then our export subsidy rate will be recomputed.
I have not heard that there is any such arrangement. My general information is from Continental officials, general talking, and I do not know the details of their transaction or the exact price at which they sold, or the exact price they had to pay, but they have indicated to me very definitely—and he said they have told this, that it is no secret—that they did not have a price which would allow them any margin on the American shipping above about 25 percent, and that they were taking this risk in terms of cutting down their usual profit margin, and we have made it plain to them that if the 50-percent American shipping is there they are going to have to use it, and they have a price apparently where they could come out about even or at least not lose too much if they get that.
Mr. TOLLEFSON. Are you going to watch all those transactions ?
Mr. GILES. Under the export regulations put out by the Secretary of Commerce we get reports from all
of the exporters who are involved in these transactions of their actual shipments, the ships that they use, foreign and domestic, and we get the name of the ship, the tonnage, and so forth as promptly as the exporter can give it to us for the purpose of policing, you might say, this 50-percent requirement to assure
that they do utilize 50 percent American shipping, unless they have applied for and received a waiver on that.
That is the extent of Maritime Administration's policing effort. We do not get into the prices of the wheat sold.
Mr. PELLY. Would you yield?
Mr. PELLY. It occurs to me that if Continental does come in for a waiver, then we certainly should have the principals of Continental down here to find out where that windfall is going because if they don't use the American large type of ships to carry the grain, which they must have anticipated, if they use foreign-flag vessels under a waiver from you under that 721/2-cent price, there would be a substantial windfall or bonanza which I think would be coming out of the taxpayers, and we ought to have Mr. Friborg down here to find out what happens in that event.
Mr. TOLLEFSON. Mr. Chairman, I have taken quite a good deal of time. I know the other members have questions. I yield.
The CHAIRMAN. Mr. Downing?
Mr. DOWNING. Yes, sir. I am concerned about this, Mr. Giles, as is everybody else on this committee. Going back a little bit, when President Kennedy made his announcement the American flags figured, rightly or wrongly, that there would probably be a hundred-percent participation. At least some of them did. Then in October and November you and Under Secretary Roosevelt and some of the industry met and decided this was impractical that the American-flag could carry 100 percent and tentatively agreed to 50 percent.
Mr. Giles. No tentative agreement, sir. That policy decision was made and announced. To clarify that point may I make a reference to a newspaper item, and we can furnish this for the record if desirable, and there was no transcript of this conference by Under Secretary Roosevelt, but it was reported fully in the papers the next day, the conference held on November 8, and I am speaking here from an item contained in the Baltimore Sun.
The date is November 9. It says here:
That ship will be listed as "unavailable" at fair and reasonable prices. The
Of a guideline set by the Department of Commerce on the larger bulk carrier15,500 deadweight and over.
Owners of many of these ships had said last week and repeated this week that they wanted $21 to transport the wheat to Odessa from the United States. And so on. Then Under Secretary Roosevelt is reported as saying:
Roosevelt announced that they had met with him this afternoon and authorized him to say, "In their opinion it is reasonable and in the best interests of all concerned.
"The American shipping industry will make every effort within its competence to facilitate"
This program and Under Secretary Roosevelt -
I only refer to that to say, Mr. Downing, that we did have this full conference and discussion with them. Under Secretary Roosevelt did give the full explanation to the press representatives and I don't think there was any misundertanding at that time on the part of the shipping representative as to what was done and the reasons for it.
Now, I can readily understand that individual shipowners who were not there may not have later been fully informed and I am not holding them to account for some misunderstanding or misinformation on their part.
Mr. DoWNING. Mr. Chairman. I think that article ought to go in the record if there is no objection.
The CHAIRMAN. It may be put in the record.
[From the Baltimore Sun, Nov. 9, 1963]
WHEAT FREIGHT RATE CUT BY $3
COMMERCE DEPARTMENT SETS FORMULA FOR SALE
By Helen Delich Bentley, maritime editor of the Sun WASHINGTON, NOVEMBER 8.-Freight rates for the movement of Russian wheat on American-flag ships were reduced $3 a ton today as the Department of Commerce announced the formula by which the Russians could transport any wheat they purchase from the United States.
Franklin D. Roosevelt, Jr., Under Secretary of Commerce, also revealed that the long-awaited formula called for the movement of at least 50 percent of the 2,500,000 tons of wheat on American bottoms. He pointed out that the gap in freight rates between American and fo gn bottoms was narrowing.
He attributed this to a governmental decrease in the American rates as well as an increase by foreign shipowners as the demand for vessels has increased sharply.
The guideline estimated by the Government is $18 from the gulf ports to Odessa and $16 to Leningrad for ships of 15,500 deadweight tons and larger.
If an American ship quotes a price higher than the guidelines, that ship will be listed as "unavailable" at fair and reasonable prices. The freight rate can be as much below the top as the shipowner wants to make it.
The $3 drop is the result of a guideline set by the Department of Commerce on the larger bulk carriers—15,500 deadweight and over. These include primarily T-2 tankers, all other tankers ranging up to 106,000 deadweight tons and large dry bulk carriers.
Owners of many of these ships had said last week and repeated this week that they wanted $21 to transport the wheat to Odessa from the United States.
It is expected they will make their ships available under the lowered rate because Roosevelt announced they had met with him this afternoon and authorized him to say, "in their opinion it is reasonable and in the best interests of all concerned."
"The American shipping industry will make every effort within its competence to facilitate the deal,” he added, and expressed his appreciation for industry cooperation in the matter.
Roosevelt explained that, under the terms reached with the Soviet Union, it will negotiate directly with the grain dealers on the 2,500,000 tons of wheat on a cargo and freight basis for delivery before May 31, 1964. This means the purchase price to be paid by Russia will cover both the wheat and the freight involved.
Any grain dealer who applies for an export license must specify that 50 percent of the wheat sold to Russia under that license will be transported in American-flag ships.
Roosevelt indicated today that before the transactions are through the freight rates for both foreign and American shipping will be very close together.
He noted that the world market prices yesterday ranged from $13 to $19, which is at least $3 more than before October 9 when President Kennedy said that this Nation would sell wheat to Russia.
USUALLY 20 PERCENT LOWER
One of the explanations given for the $3 reduction on American rates was that over the last 2 years rates aboard these larger American ships consistently have been 20 to 40 percent under the Public Law 480 guidelines.
Public Law 480 is the law under which the foreign aid programs operate. The Department of Commerce determined the top freight rates as guidelines which would be considered fair and reasonable for the movement of any grain aboard American-flag ships.
Because no aid cargo has been going to Russia in the past, there have been no guidelines for ships to that area.
Mr. DOWNING. Subsequently you and industry and other officials agreed on guideline rates. Did you agree on one guideline rate, or did you agree on two guideline rates?
Mr. GILES. For purposes of setting guideline rates for the Soviet bloc transactions, the sales if they occurred, we concluded after all of our discussions that the top rate for the shipment of wheat would be the previously established Public Law 480 rates minus 20 percent.
Mr. DoWNING. That is for both liners and tramps ?
Mr. GILES. This is for any ship. We did not announce a policy that ships would be excluded on the basis of size from the Soviet shipments, but we said the rate which would be regarded as the top rate and it would apply to those shipments, and if that rate is not offered, then we would determine that the American-flag shipping is not available.
That means that the small vessel owner can come in if he wants to and quote that rate.
Mr. DoWNING. Then you did have two guideline_rates, one for supership and one for your berth liners and tramps. Is that correct !
Mr. GILES. That is right, but the two guidelines effectively really applied only to the Public Law 480.
Mr. DoWNING. Right, the 480. Then wasn't it tentatively agreed that the rates were set so that the superships would take this wheat and the berth liners and the tramps would take the Public Law 480?
Mr. GILES. The smaller vessels. Actually with respect to supertankers, superships, I would not use that term. The determination was made that vessels in excess of 15,600 tons, many of which are tramps, or the supertankers, so called, or the superships, are those of more than 30,000 or 40,000 tons. We don't have many of those.
There was no discussion specifically, as I recall, about berth liners. If we had been dealing with the berth' liners, Mr. Downing, in terms of this Soviet shipment, I think very well we would have said American-flag shipping will be available and will meet the foreign competition, whatever it is.