and the charter as tendered will contain the same provision as to payment for such loss. If the operator refuses to accept the charters as tendered, the War Shipping Administration will requisition the four remaining vessels for title and deny any claim by Waterman to obtain compensation for the lost vessel in excess of the price for which title could have been acquired under the sales agreement. In the final portion of his report, the Comptroller General refers to the connection of the Commission's former General Counsel, Bon Geaslin, with the transactions mentioned in the report. He infers that such connection was improper, constituting a possible violation of the spirit, if not of the letter, of secion 807 of the Merchant Marine Act, 1936, as amended. The Commission has adopted comprehensive regulations regarding admission to practice of agents and attorneys representing shipping interests, including provisions similar to those adopted by the Bureau of Internal Revenue prohibiting former employees from appearing before the Commission with respect to matters on which they formerly acted in an official capacity. Mr. Geaslin resigned as general counsel on April 29, 1939, effective July 10, 1939, with the expiration of his accrued annual leave. At that time, Waterman had no business before the Commission. On December 29, 1939, he was admitted to practice before the Commission generally, and not in relation to then pending business of any operator. It was not until April 1940 that our records show he took any part in any of the matters relating to Waterman. In conclusion, I wish to state that there is nothing in the whole transaction which, in my opinion, is contrary to the letter or the spirit of the statutes under which the Commission operates; that the decision to buy the five vessels from Waterman, rather than to requisition the five vessels sold under the sales agreement, was proper under conditions existing at the time the decision was made; that the price paid for these vessels was fair and reasonable, and that the Government, in entering into this transaction, did not waive or limit its rights with respect to requisitioning thereafter the other five vessels at the prices specified in the sales agreement. This letter has been considered by and is transmitted with the approval of the Commission. Sincerely yours, E. S. LAND, Chairman. STATEMENT OF REAR ADMIRAL EMORY S. LAND, CHAIRMAN, UNITED STATES MARITIME COMMISSION, WASHINGTON, D. C. Admiral LAND. Mr. Chairman and gentlemen of the committee, there is a prepared statement here, which is rather lengthy, which has been distributed to the chairman and the members of the committee. That, of course, supplements the letter to the Honorable James A. O'Leary, House of Representatives, under date of October 15, 1942, with regard to the Comptroller General's report of August 8, 1942. I do not know whether you wish me to read that paper or not. The CHAIRMAN. I think probably it would be better to read it so that the full facts may be before the committee for interrogation if they desire, and also the counsel for the committee for interrogation if he so desires. I wish to emphasize the fact that we are not here in a prosecuting or a defending capacity. The committee is endeavoring to discharge its duty to the public and to get the facts. Admiral LAND. Before I read the written statement, I would like to make a brief statement: For any action taken there should be a motive; our motive is to treat all persons alike. Whether we have done right or wrong, there is no intent on the part of the Commission to give any advantage to one person over another, or vice versa, and I am at a loss to see wherein there would be any motive in this or in other cases to take action prejudicial to one person over another. In the second place, after the Comptroller's report was submitted and before the Commission's reply was prepared, the Commission made many attempts to reconsider this matter, and the whole question revolves around the so-called option. It is the Commission's opinion, backed up by the staff, that this so-called option was the agreed valuation or price under Section 902 when and only when section 902 became effective. It was not effective at the time of the transaction. By agreement dated June 8, 1940, the Maritime Commission sold to the Waterman Steamship Corporation five vessels aggregating 43,316 dead-weight tons for the over-all price of $596,000. The sales agreement provided that if the United States should acquire ownership of any of the vessels through purchase or requisition under the provisions of Section 902 of the Merchant Marine Act, 1936, the price to be paid there for should not exceed the depreciated cost of the vessel to the buyer, being the purchase price paid by the Waterman Steamship Corporation, plus the cost of repairs, minus depreciation. Eighteen months after this transaction, in December 1941, the Maritime Commission bought from Waterman Steamship Corporation. five vessels aggregating 43,955 dead-weight tons for a total price of $3,374,700. The 5 vessels sold to Waterman by the Commission were all built in 1920. Of the 5 vessels bought by the Commission from Waterman, 4 were built in 1919 and 1 in 1920. All 10 of the vessels were constructed in American yards as part of the shipbuilding program of World War I. The Comptroller General of the United States has transmitted to the Speaker of the House of Representatives a report (dated Aug. 21, 1942, H. Doc. No. 640, 77th Cong., 2d sess.) of investigation by representatives of the General Accounting Office of the contracts and other records of the Maritime Commission relating to the Commission's transactions with Waterman Steamship Corporation. In addition to the vessels sold and the vessels bought, as described above, the Comptroller General's report refers to certain other transactions and negotiations between the Commission and Waterman Steamship Corporation concerning the application of sections 509, 510, and 511 of the Merchant Marine Act, 1936, as amended. The position of the Maritime Commission with respect to these matters is set forth in the report of the Commission to this committee, dated October 15, 1942. The present statement will be confined to the single issue of the difference in price between the vessels sold to and those bought from Waterman Steamship Corporation. At the conclusion of his report, the Comptroller General says that charges will be raised against Waterman Steamship Corporation in the sum of $1,995,602.68, indicating that payment of this sum to Waterman Steamship Corporation by the Commission was either improper or unnecessary, and that the amount named should be recovered from Waterman by the United States. The figure of $1,995,602.68 represents the difference between the price of the vessels bought and the cost to Waterman of the vessels sold to the corporation. Waterman paid $596,000 for the vessels sold, taking them on an "as is, where is" basis. Repairs on the vessels cost Waterman $783,097.32. Adding the repairs to the purchase price, it appears that the vessels sold to Waterman cost the corporation $1,379,097.32. Deducting this amount from the sum of $3,374,700 which the Commission paid for the vessels it bought leaves $1,995,602.68. The five vessels sold to Waterman cost the Corporation an average of $31.76 per dead-weight ton. (Divide $1,379,097.32 by 43,316, the total dead-weight tonnage.) The Commission paid $75 per dead-weight ton for the vessels bought. It appears from these figures that the Commission paid almost $45 per dead-weight ton more for the ships bought than the cost to Waterman of the ships sold. Since Waterman was obligated, under certain conditions, to relinquish the ships sold at their depreciated cost, the question arises as to why the Commission bought five other ships and paid $75 per ton for them, if it could have acquired five similar ships from the same owner at $30 per ton, or thereabout, under the terms of a sales agreement made some 18 months earlier. It is the purpose of this statement to answer that question. Three points should be made clear at the outset. In the first place, the increase in the values of these old ships during those 18 months contains far greater potential meaning to the war effort than the $2,000,000 difference between the ships bought and the ships sold. Secondly, the Commission did not, as a matter of fact, consider the acquisition of ships from Waterman in terms of a choice between one group of vessels as against the other. Thirdly, the over-all picture is confused by several facts which were wholly coincidental-the facts that one company, the Waterman Steamship Corporation, was the buyer in one transaction and the seller in the other; that 5 vessels were involved in each transaction; and that all 10 vessels were of similar type, size, speed, and age. As far as the Maritime Commission is concerned, both the problem and the solution would have been the same if nine vessels had been sold to X company, and seven ships bought from Y company; and if the nine ships had been 20-year-old cargo ships, and the others 10-vear-old tankers. The essence of the matter, from the Commission's standpoint lies. in the rising market for ships since September 1939, and the unfolding of the Commission's policy toward the acquisition of ships for the war effort in the face of that rising market. Charts have been prepared by members of the Commission's staff showing peak prices of (1) sales, both domestic and foreign, of large vessels approximately 20 years old, from the middle of 1939 to the middle of 1942, and (2) world-time charter rates on similar vessels for the same period. It should be emphasized that these charts are based upon peak prices; also that they reflect only a sampling of transactions. Selections were made from transactions involving ships believed to have been in good condition at the time of sale or charter. Therefore, while the charts do not purport to be complete or all-inclusive, it is believed that they do reflect top-of-the-market trends with sufficient accuracy to serve the purposes of this discussion. Taking figures from these charts, top foreign prices for 20-year-old cargo ships in August 1939, were about $20 per dead-weight_ton. By the end of September, they were above $70 per ton, and closed at $75 at the end of the year. Early in 1940 they began another rise, shot up to $110 before the invasion of Norway, in April, and then fell precipitately to a figure below $60 per ton a few weeks after the fall of France. After the battle of Britain they started up again, and stood just below $90 per ton at the end of the year, 1940. The curve for best world prices on these old ships continued sharply upward throughout 1941, closing at $175 per ton, at which high level they have remained. Best domestic prices for large 20-year-old cargo ships were about $15 per ton in the middle of 1939. They shot upward right after the war started, reaching $55 per ton by the end of September, where they leveled off somewhat, closing the year at about $60 per ton. Domestic prices, it should be noted, were subject to the requirement of law that sales alien could not be consummated without the approval of the Maritime Commission. In 1940 top domestic prices declined from the $60 peak on which the year opened to $55 or less at the time of the fall of France, and $50 during and after the battle of Britain, remaining at that level until the announcement of the lend-lease plan in the fall of 1940, which started another upswing carrying to $75 at the end of the year. A sharp rise in domestic prices continued throughout the period that saw the beginning of the emergency construction program in February, the enactment of lend-lease in March, and the declaration of unlimited emergency in May 1941. By the middle of the year they had reached a point above $105 per ton. In July 1941 Congress passed the Ship Warrants Act, under the authority of which the Maritime Commission carried forward the task of assembling a shipping pool of 2,000,000 tons. Domestic prices started downward again, immediately, and continued downward throughout the last half of 1941 and the early weeks of 1942, leveling off at approximately $65 per ton. Peak world-time charter rates stood at $2 per ton before the outbreak of war. By the end of 1939 they had almost reached $4 per ton. Reaching $5 before the invasion of Norway, they fell below $3 after the fall of France, recovered to $3.50 after the battle of Britain, and began another precipitate rise upon the announcement of the lendlease policy in the autumn of 1940. This upswing carried top worldtime charter rates to nearly $10.50 per ton before the Maritime Commission's shipping-pool plan got started under the Ship Warrants Act in the summer of 1941. Since that time the curve has steadily declined, leveling off early in 1942 at $4 per ton. It is apparent from the figures cited above that ship values are highly inflated during wartime, and that the price curves, for both sales and charter rates, may fluctuate over extreme limits, depending upon the fortunes of war and the measures of governmental control applied by the leading maritime powers. The following tables of value and rate comparisons on large freight ers and tankers may be interesting: Time-charter rates (per dead-weight tons per month): Present rate (by War Shipping Administration). Insurance values (per dead-weight ton): World War I. Sept. 8, 1939_ 1941 peak (domestic). 1942 world market-. Present rate (by War Shipping Administration) $6.00 2.00 10. 00 4.00 4. 15 .50 3.00 1.00 165.00 40.00 100.00 160.00 65.00 Since the early party of 1942, domestic sales prices have been stabilized at $65 per dead-weight ton, and the average time charter rate of $4 per dead-weight ton has also been maintained. The Commission has been able to lower and flatten out these price curves through the use of its authority with respect to ship warrants and war-risk insurance. This stabilization of prices and charter rates reflects the attainment of a goal toward which the Maritime Commission had been striving ever since the responsibility devolved upon it for the acquisition and operation of ships in the national defense effort. Section 902 of the Merchant Marine Act, 1936, as amended, authorizes the Maritime Commission, during any national emergency declared by proclamation of the President, to requisition or purchase the title of any vessel, or to requisition or charter the use of any vessel, owned by citizens of the United States. During the First World War, the United States requisitioned the title of practically everything afloat or building in this country by a sweeping order dated August 3, 1917, later modified to apply only to vessels of 2,500 tons and over. A great deal of confusion resulted in determining the values of vessels. In the final outcome, the just compensation awarded to the owners by the administrative agencies and by the courts reflected the inflated values of a war economy. Immediately after the war, ownership by the United States of almost the whole of the merchant fleet, including the additions thereto resulting from the huge shipbuilding program, brought about a collapse of the market. As a result, the United States bought at the top and sold at the bottom of the market. The Maritime Commission has been very careful to avoid steps that would lead to a repetition of that experience. It has refrained from the requisition of vessels for title almost entirely. As far as As far as possible, it has avoided the acquisition of title by purchase, preferring to leave the ownership in private hands. Vessels needed by the Army and Navy for conversion have had to be purchased, of course. There have been other instances wherein ownership by the United States appeared to be necessary. The ships bought from Waterman afford an illustration. The Commission needed ships for the aid-to-Russia program. Private owners were |