Ocean Transportation of Grain to Russia

TRANSPORT GUARANTEE

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.

Mr. DOWNING. But wasn't it generally known then that the American tramps and berth liners couldn't take this wheat to Russia for the guideline rates set out in their category because that was Public Law 480 minus 20 percent? Isn't that right?

Mr. GILES. No. We had only one guideline on the Public Law 480 and that was the top guideline, if I may use that adjective, the top one, and small vessels and large ones were under that guideline. As a matter of actual business practice on the Public Law 480 program many of the vessel owners made actual shipments during the past 2 or 3 years very substantially under our published guideline, and most of those, of course, were our larger vessels which are more efficient and could quote a lower price, but it was the competitive situation among American shipowners that produced these lower prices.

Mr. DOWNING. Well, for practical purposes did you finally wind up with one guideline rate, or do you still have two?

Mr. GILES. We have two guideline rates for Public Law 480. If a larger vessel carries Public Law 480 cargo, he carries it at the minus 20 percent rate because we don't want to say that the Soviet shipments are going to get a lower rate than Public Law 480, particularly when the U.S. Government is going to be paying the cost, and particularly when we have good justification for saying that that is a reasonable rate based on our own business practice.

On Public Law 480 there are two rates, one for the smaller vessels and one for the larger. With respect to the larger vessels over 15,600, sir, their top rate is 20 percent under the smaller vessel rate. On the Soviet bloc shipments there is only one rate, the minus 20 percent. Mr. DOWNING. Which is the supership rate.

Mr. GILES. Which is the larger ship rate; yes, sir.

Mr. DOWNING. Which the superships can take and come out, isn't that right?

Mr. GILES. I prefer to use the term the "larger ships." A berth liner could do it. Let me quote you some figures here on berth liners. Mr. DOWNING. Maybe you can supply them for the record, but I am trying to get over a point-I don't seem to be doing too well-that your supership rate was the one which you set and which you expected to use and you expected to use superships, and the other smaller ship operators said, "All right, that's a pretty good compromise. We will take the 480 stuff and let the superships take the wheat to Russia."

But then we find out that many of the superships have too much draft to go into the Russian ports, so that eliminates them, or some of them, from this wheat sale to Russia.

It also eliminates the smaller ships because they can't do it for the price set on the lower guideline. Isn't that a fair understanding of it? Mr. GILES. If that result came about it would be unfair, Mr. Downing, but as of this moment no ship has been eliminated by action of the Government from the Soviet shipments, this Continental shipment, on the basis of draft.

Mr. DOWNING. No ship has been eliminated on the basis of draft?

Mr. GILES. That is right. We have not ruled out any ship. If we get to the point where the larger ships are offered in and Continental makes a convincing case that they should not take a ship because of the draft problem and we have to grant a waiver on that basis, then ob

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viously we are not going to say that that ship cannot have the other kind of business.

Mr. DOWNING. Is it your contention that our superships can go in the Russian harbors and unload.

Mr. GILES. The vast majority of the ships that we have, and how many, Captain Goodman, are the real large ships? The Manhattan of course is the largest, which presents a real special problem of its own, and there are what? Three or four others?

Captain GOODMAN. Possibly seven or eight, but I think, Mr. Downing, to answer your question specifically, one of the large superships, the Sister Katingo, is firmly booked at 32,000 tons at a 32-foot draft right at the present time. This is a fact.

Mr. TOLLEFSON. Will you yield there?

Mr. DOWNING. Yes, sir.

Mr. TOLLEFSON. Could you supply for the record what the situation is as of now with respect to American-flag ship participation? don't mean to put it in right now, but put it at this place in the record.

Mr. GILES. We are informed that as of this morning Continental has actually chartered as of right now something in excess of 150,000 tons and they have others under negotiation and consideration, but we will be glad to supply for the record the latest information we have. (The following information was subsequently received for the record :)

As of January 30, 1964, 213,000 long tons have been fixed.

Mr. TOLLEFSON. You don't know the percentage of American-flag ship participation?

Mr. GILES. Sir?

Mr. TOLLEFSON. You don't know the percentage of American-flag ship participation in that?

Mr. GILES. Well, I am saying 150,000 tons American, and what we are aiming at is 500,000 tons. That is the 50 percent.

Mr. TOLLEFSON. Thank you very much. Thank you.

Mr. DOWNING. How many superships do we have that can go into the Russian ports?

Mr. GILES. Could we define superships as being those above 15,600 deadweight tons? That is our dividing line, Mr. Downing.

Mr. DOWNING. That is your dividing line, but weren't you figuring on the 30,000- and 40,000-ton ships?

Mr. GILES. We were figuring on 20,000, 22,000-tonnage in that

area.

Captain Goodman, would you comment on that?

Captain GOODMAN. Yes. Mr. Downing, perhaps this will answer it. The ships that over the past few years, all ships in excess of 15,600 tons, that had been engaged in grain movement at one time or another and you do, I know, understand that many of the supertankers are not available for grain-they have moved back and forth from oil to grain-at one time or another over the past few years ships that had been engaged in grain movement, came to, if memory serves me correctly, about 1,700,000 tons. This was the potential available for all of these movements.

If you set a dividing line of a 31-foot draft you would effectively eliminate 1,200,000 tons of this tonnage. If you go up to a 32-foot draft you automatically restore about 700,000 tons.

I am just giving you indications of the various categories of the ships. As far as the real large supertankers that draw in excess, we will say of 40 feet, there are actually very few of those.

The Manhattan is a good illustration. That draws 50 feet, and there are some of the others. They are very few, but you have a great number of ships, let's say, in the 28- to 33-foot draft. This is where the large majority of your available tonnage comes, in that category. Let's say 28 to 33 feet.

(The following letter and attachments were received in connection with the preceding testimony :)

Mr. JOHN M. DREWRY,

U.S. DEPARTMENT OF COMMERCE,

MARITIME ADMINISTRATION, Washington, D.C., February 5, 1964.

Chief, Counsel, Committee on Merchant Marine and Fisheries,
House of Representatives, Washington, D.C.

DEAR MR. DREWRY: In accordance with your telephone request of February 4, 1964, there are attached hereto

(1) List of the names, owners/operators, type of vessel, and TDWT of vessels which have been engaged in the carriage of bulk commodities (grain) over the past 2 years; and

(2) List of the same vessels indicating the managing agent/operator. It is understood that this is to be incorporated in the record of the present hearings before the House Merchant Marine and Fisheries Committee on the movement of bulk wheat to the Soviet bloc countries.

Sincerely yours,

M. I. GOODMAN,

Chief, Office of Ship Operations.

ATTACHMENT 1

Owners-operators of vessels engaged in the carriage of bulk commodities