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COMMITTEE ON COMMERCE

ROYAL S. COPELAND, New York, Chairman MORRIS SHEPPARD, Texas

CHARLES L. McNARY, Oregon JOSIAH WILLIAM BAILEY, North Carolina HIRAM W.JOHNSON, California HATTIE W. CARAWAY, Arkansas

GERALD P. NYE, North Dakota BENNETT CHAMP CLARK, Missouri

ARTHUR H. VANDENBERG, Michigan JOAN H. OVERTON, Louisiana

WALLACE H. WHITE, JR., Maine
THEODORE G, BILBO, Mississippi

ERNEST W. GIBSON, Vermont
VIO DONAHEY, Ohio
JOSEPH F. GUFFEY, Pennsylvania
FRANCIS T. MALONEY, Connecticut
GEORGE L. RADCLIFFE, Maryland
CLAUDE PEPPER, Florida
JOSH LEE, Oklahoma
GEORGE L. BERRY, Tennessee

GRACE MCELDOWNEY, Clerk
ROGER WILLIAMSON, Assistant Clerk

COMMITTEE ON EDUCATION AND LABOR

ELBERT D. THOMAS, Utah, Chairman ROYAL S. COPELAND, New York

WILLIAM E. BORAH, Idaho DAVID I. WALSH, Massachusetts

ROBERT M. LA FOLLETTE, JR., Wisconsin JAMES E. MURRAY, Montana

JAMES J. DAVIS, Pennsylvania
VIC DONAHEY, Ohio
RUSH D. HOLT, West Virginia
CLAUDE PEPPER, Florida
ALLEN J. ELLENDER, Louisiana
JOSH LEE, Oklahoma
DIXIE BIBB GRAVES, Alabama

EARL Wixcey, Clerk
KENNETH O. ROBERTSON, Assistant Clerk

EXECUTIVE SESSION

AMENDING THE MERCHANT MARINE ACT OF 1936

WEDNESDAY, JANUARY 26, 1938

UNITED STATES SENATE,
COMMITTEE ON COMMERCE, AND COMMITTEE

ON EDUCATION AND LABOR,

Washington, D. C. The committees met in executive session at 10 a. m., pursuant to adjournment, in the committee room of the Senate Committee on Commerce, in the Capitol, Senator Royal S. Copeland, chairman of the Senate Committee on Commerce, presiding.

Present: Senators Copeland, Thomas of Utah, Caraway, Clark, Overton, Donahey, Guffey, Maloney, McNary, Johnson of California, Vandenberg, and Gibson.

Present also: Senator McAdoo; Joseph Kennedy, Chairman, United States Maritime Commission; Rear Admiral Emory S. Land, United States Maritime Commission; Max O'Rell Truitt, General Counsel, Bon Geaslin, Counsel, United States Maritime Commission; Rear Admiral H. G. Hamlet,' United States Coast Guard, retired John W. Mann.

The CHAIRMAN. The committee is pleased to have Mr. Kennedy with us this morning.

STATEMENT OF JOSEPH P. KENNEDY, CHAIRMAN, UNITED STATES

MARITIME COMMISSION, WASHINGTON, D. C. The CHAIRMAN. Mr. Kennedy, we are glad you are here, and shall be glad to have you state anything you care to present.

Mr. KENNEDY. Do you want me to make a statement regarding the west coast situation?

The CHAIRMAN. If you please.

Mr. KENNEDY. On my recent trip to the west coast, I touched the principal port cities from Los Angeles to the far Northwest. It was apparent that a majority of the ships now employed in foreign commerce, with the exception of the two ships of the Matson Line, furnish an inadequate service for that part of the country. And when you consider that the subsidy granted the Dollar Line was granted primarily to keep that company from going into bankruptcy, and thereby completely finishing off our American-flag services to Japan and China, you can judge the gravity of the general situation. It was not solely a question of putting the company through a 77B reorganization. Their cash position and financial position did not justify a subsidy until the officials had made some arrangements to reorganize the company itself. The situation facing the company was so very bad that we decided something had to be done. We made several suggestions. They went ahead and with the aid of their creditors fixed up a reasonable plan.

One immediate problem in the Dollar Line situation was that unless you made some provisions—stretched our conscience a wee bit—the entire trade there might be lost to America; this company's going into the hands of a 77B trustee and probably into bankruptcy unquestionably would have tied up the ships. Under the existing circumstances I seriously doubt if any Federal judge out there would have permitted the service to continue. In the first place, almost all the ships were below the legal requirements of the Bureau of Marine Inspection. So they were all in bad shape, and a good deal of money had to be spent on them; it seems to me that the judge, in fairness and equity to creditors, could not have permitted their continued operation.

That is the condition we found first. We have now, with the assistance of creditors, realigned the financial structure of the company and granted a temporary subsidy for 6 months. Some people outside of the Commission are making efforts to reorganize the company to get it going again on a long-term basis. When it is reorganized—I doubt very much if we will be able to get new capital into it-and I doubt very much if we can get new ships running to China and Japan. We are hoping that during that period we shall be able to work out some satisfactory plan so that the service may be maintained; and then you gentlemen will have had a chance to pass judgment on the larger problems of the merchant marine, to see whether the elements that I am going to discuss with you, can come into being.

We found that the Matson Line was all right. As we went north we went to the American Mail Line, a subsidiary of the Dollar Line, running out of Seattle. We found it in about the same condition : The company is in fair shape, financially, but the ships are old and the service must be improved. We investigated all ships along the coast, to find out just how much cooperation may be expected of the Federal Government and the kind of service that the communities want. That information will be furnished.

The ships in foreign trade are not good enough. There is no question of that. And apparently there is no way in which you can secure enough money to get good ships.

Senator McAdoo. Are you talking about the Panama-Pacific Line ?

Mr. KENNEDY. No; I am talking about the lines on the west coast engaged in foreign trade.

Senator McAdoo. I see.

Mr. KENNEDY. So the prospect there is not particularly pleasing, when you consider the maintenance of a private-ownership system.

The next thing we struck out there was the unrest in connection with the prospective removal of the intercoastal vessels. People could not understand how the service to the west coast could be eliminated and why these ships should be placed in the South American trade. I told them, on the west coast, that I doubted very much the possibility of a subsidy, because I felt that would be another dislocation of what I hope some day will be a real national economy, so we shall know at least where we are headed. And the attempt to bring up the question of subsidy to intercoastal vessels, it appeared to me, would arouse very definite opposition from the railroads and bus lines, and I thought it would probably create such a disturbance that you, very likely, could not get very far far with it.

So far as the Panama Canal tolls are concerned, I felt that was a matter entirely beyond the commission's jurisdiction; I thought thai was a matter for the State Department.

The coastwise shipping out there is not improving. We have seen the figures for the first 6 months of last year; and their net earnings are slipping.

Senator MCADOO. Are you speaking of coastal trade, now?
Mr. KENNEDY. Yes, sir.
Senator McAdoo. What does that embrace?

Mr. KENNEDY. That embraces all the ships running up and dowli your coast.

Senator McAdoo. Just the coastwise, on the Pacific?
Mr. KENNEDY. Yes.

So, on the whole, the outlook for shipping and the prospects for new ships on the west coast is not bright. We have tried to think of the possibilities which would be helpful to your west-coast situation and that would have at the same time a reasonable chance, in our opinion, of passing the Congress and at the same time play a major part in the development of the merchant marine.

We have now commitments, based on the fact that you might make a change in the act, for construction of approximately 75 new ships over a period of 5 years. We feel that those 75 ships will, with the vessels now in foreign trade which are under 15 years old, provide a service comparable to that maintained at the present time. We are now subsidizing about 150 vessels; that is the subsidized merchant marine. When you consider the conditions are such as they are on lines such as the Dollar Line, then you are faced with the realization that the Government may have to take them over.

At that point, everybody is confused about the so-called subsidized American merchant marine. Because there is too much of a tendency to tie up in the subsidized American merchant marine all the ships in American lines and services, although almost everybody knows not all American ships are subsidized.

We have approximately 1,422 seagoing ships under the American flag. In 4 years approximately all of them will be 20 years of age or

More than 400 vessels, aggregating nearly 2,500,000 gross tons, are already 20 or more years old.

We will go ahead with this replacement program as soon as Congress gives the necessary legislation as far as the subsidized merchant marine goes, and take care of those ships. Those ships will be available for naval auxiliaries. But in the meantime all the other ships, intercoastal, coastwise, and foreign commerce, are getting older. The coastwise operators cannot replace their tonnage. First of all, the cost would be prohibitive. With the Navy contemplating an enlarged defense program and with the Maritime Commission's contemplated replacement of merchant tonnage ahead, and with the oil tanker construction going into the field, the shipbuilding business in this country should within a short time be well on its way to capacity. This will mean that construction costs will increase to such an extent that these people will not be at all interested in replac-,

more.

ing their aging ships; because the only way they are able to make any money out of shipping now is on the small cost of the present tonnage to them, because most of it was bought from the United States Government as ridiculously low figures, when the Government went out of the shipping business approximately 16 or 17 years ago.

So, to me, it is impossible to expect coast wise shipping companies to replace their ageing tonnage in this country. In addition to that, their earnings are so low, based on their capital cost, that I fail to see any incentive for them to engage in new construction. After all, the Maritime Commission sets labor standards for coastwise shipping, whether they like it or not. When we set standards affecting the subsidized ships, we affect the whole industry.

With the increased costs of doing business, more than half the cost of all subsidies is charged to crew and officer wages and their subsistence-direct labor items. Now, whether we like it or not, this is a charge that will go against all American-flag shipping, subsidized and unsubsidized, such as the Isthmian Line, a subsidiary of United States Steel Corporation, United Fruit, and the other companies whose fleets today go to make up part of the American merchant marine.

All of our operators are in such a position today whether they receive subsidies or not. Their costs are increasing.

And it seems to me that there is very little incentive for them to build ships in the United States or to maintain them under the American flag.

It seems to me that the next natural step for them, if costs are too high and they cannot maintain these fleets, is that either they will come to the Government and ask for subsidies, or they will go foreign. So, except as I have pointed out above, I do not look for much of a building program from the independent unsubsidized companies operating today that will go to make up a new American merchant marine.

So we are faced with the problem of whether or not the United States Government wants to build ships. I do not see anybody else who wants to build them, and I do not see how else you are going to get them.

If we subscribe to the theory which we have been following, that it is ridiculous to have a big Navy and not have the essential merchant ships to serve as auxiliaries, we will have a situation where, in a few years' time, our Navy will not be capable of an extensive action.

Senator McAdoo. You mean as auxiliary vessels?

Mr. KENNEDY. That is right. And the needs, as pointed out to us by the Navy, cutting it down as far as we can by replacement of merchant tonnage, is approximately 500 ships over a period of 10 years.

Senator McAdoo. You mean as naval auxiliaries?
Mr. KENNEDY. That is right.

I have urged, from the beginning, that the American merchantmarine problem should be approached from two angles: One, what is necessary to carry on trade; second, that necessary for the Navy's requirements. We all understand that it is necessary for the Navy to have ships, but to my mind those ships to be used as naval auxiliaries should be earmarked, because such ships definitely cannot be put on an economic route and maintain themselves out of their

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