can set up the machinery to very efficiently produce things like this. But it can't do one or two at a time, and we don't handicraft very well.

(At this point Mr. Gibson resumed his statement.)

Mr. GIBSON. The others were delivered on an average of 100 days late. These delays were caused by many factors, such as changes in design, incorporating mechanization, containerization, overloaded shipyards, strikes, and so forth.

Although much of this delay is excusable under current contract provisions, it is nevertheless a severe problem that must be solved. We believe that series production of standard ships will go a long way toward solving this problem.

Present outlook is that 24 of the 26 ships we now have under construction will be delivered late; ranging from 60 to 300 days.

2. Claims against the Government and shipowners. In addition to the disruption caused by late ship delivery to the shipowner, the shipyards have been making large claims to recover losses they have experienced. In almost every case, these claims involve delayed ship deliveries.

Here again, without getting into the complicated ramifications that surround each claim, they do constitute a real problem that must be solved. We hope we can solve this problem, for our programs, by simplifying contract procedures, by disengaging the Government from actual ship construction contracts and limiting our responsibility to that required to pay CDS to the shipyard.

3. Management.-Over the past 8 years most of the independent shipyards have become part of large multidivision corporations or conglomerates. Gradually the top management of these corporations have, with varying degrees of success, introduced new management concepts and managers into the complex business of building ships. In almost every case this process has proven to be difficult, expensive, and time consuming. We can only hope that the period of managerial shakedown is about over and the efficiency these changes were designed to produce will come about.

4. Production labor, shortage of skilled crafts.—Shortage of skilled manpower has been apparent for at least the past 4 years in the major shipyards. Most of the yards have continuously advertised for skilled personnel. Practically all of the larger shipyards have apprentice schools in operation. While this is one answer to the problem, it has met with only marginal success. In many instances after employees are trained, they have been enticed to the higher paying jobs in the construction industry.

The Maritime Administration has initiated a project to pinpoint potential skill shortages that could arise in the foreseeable future.

Preliminary results indicate a need for the training of replacement personnel during the next 10 years of many of the older men in critical shipbuilding crafts even if the workforce stays constant. This problem will be even more critical if the workforce grows as expected.

5. Facilities. One of the major problems faced by the shipbuilding industry is antiquated facilities. The industry has recognized this fact and has made substantial improvements. These improvements, with the exception of the new Litton yard, are piecemeal in nature, partly the replacement of wornout equipment from World War I or

World War II and some new facilities relating to advanced shipbuilding technology.

It is my opinion that much more must be done to make the shipbuilding industry compatible with this country's merchant marine shipbuilding goals. I feel the President's program provides sufficient incentive to make the construction or a major reconstruction of several large shipyards financially attractive.

Conclusion.-In view of the facts and analysis contained in the complete statement and the views expressed by the Navy, it appears that the shipbuilding industry has the capability to meet the requirements of the Navy and merchant ship programs during the next few years. On the other hand, to meet merchant ship construction cost goals, I believe that new and more efficient facilities will be required.

I can only conclude that only those shipyards which do carry out extensive modernization programs will be in business several years from now. With the concentration of Navy work in the few shipyards with nuclear capability and merchant ships being built in a limited number of modern facilities, I would expect to see some of the less efficient shipbuilders withdraw from the business, concentrate on smaller orders of special type ships or be absorbed by more successful shipbuilders.

Mr. BENNETT. We will put in the record your longer statement. Thank you, sir.

Now, I don't know that there is anything you can do about it, and there may not be anything politically to what I am now going to observe, but it seems to me when shipbuilding concerns and repair concerns are taken over by conglomerates, this is not necessarily a good omen for the continuation of that particular shipyard.

The shipyards apparently don't make tremendous sums of money, and a conglomerate is usually composed of people that are putting together a financial empire, in which their major operation is to make substantial sums as fast as possible, which is partly true, I guess, of any business. But nevertheless, to me it seems like this may be a dangerous thing, as far as keeping shipbuilding and ship conversion and repair concerns going.

I don't know that it would be proper to pass a law to prohibit it, but I have noticed this tendency myself, and I wonder whether it is a real healthy omen for the future. Have you any feelings about that?

Mr. GIBSON. Yes, sir; I have. My observation would be somewhat different.

Mr. BENNETT. You know more about it than I do, and I am just inquiring.

Mr. GIBSON. Well, the yards, for instance, that have modernized, that have made tremendous investments in new facilities, without exception-with only one exception are owned by conglomerates.

Mr. BENNETT. So they allow the financing to come in which made possible the breakthrough.

Mr. GIBSON. Plus new management, which was absolutely essential. In other words, I would say the most modern yard probably in the world is the new West Bank yard at Pascagoula, Miss., which is a division of Litton. This could not have been done with the old management. What they have done is transform shipbuilding into a capital incentive industry.

They have brought in aircraft systems. I think we are all waiting to see how it is going to work out. But there is no question that if modern technology and modern management can build ships better, Litton Industries provided the means to do this.

The major upgrading at Newport News Shipbuilding has been largely done under the guidance of Tenneco. They have brought in, again, management from some of their other subsidiaries. From my meeting of them, I would say it is outstanding.

Mr. BENNETT. That is the reason we have hearings like this, to get corrected when you have a predisposition in the wrong direction, so I appreciate your correction of my observation.

Mr. STAFFORD. Mr. Chairman, I have just one question.

I noticed on page 7 that you referred to 13 building positions for ships in the 700-foot range. Are these ships in that range to be tankers or bulk carriers or container ships, or all three?

Mr. GIBSON. All three.

Mr. STAFFORD. This is the most popular length of ship at the present time, I gather?

Mr. GIBSON. Well, we are talking about the future. And certainly there is every indication that to be competitive, American ships-in fact, ships over the entire world-are getting larger, faster, and very often have incorporated in them quite a bit of complex cargo-handling gear, to reduce costs.

Mr. STAFFORD. What sort of tonnage would a tanker in the 700 foot range run to?

Mr. GIBSON. Well there are two that are contemplated right now, that will run 235,000 dead weight. Now, of course in these capacities, and some of the new facilities going as high as 800 feet, without contemplation of immediate orders, but to make that investment, certainly there is every indication this would be required in the future. Mr. STAFFORD. Would a tanker of 200,000 tons dead weight be only 700 feet long?

Mr. GIBSON. Those two will run approximately 1,000 feet, and there is only one building position in this country that is available for commercial shipping today to build ships of that size.

Mr. STAFFORD. Could you comment very briefly on the powerplants and speeds of ships in the 700 foot range?

Mr. GIBSON.In the container ships, and there are none contemplated of quite this size, one company is building ships as high as 33 knots. The program that we are proposing goes considerably below

that.

We are talking about ships that will run about a maximum of 26 knots, and that is maximum speed on single screw. It is not our feeling that and the studies that both of the contractors made confirm this that the very high speed ships which have complex, expensive plants and extremely high fuel consumption, are warranted at this time.

Mr. STAFFORD. Thank you.

Mr. BENNETT. Mr. Whitehurst?
Mr. WHITEHURST. No.

Mr. BENNETT. I have a few questions here.

How can you guarantee a program for 300 ships over 10 years? How is that guarantee going to work?

Mr. GIBSON. It is not guaranteed.

Mr. BENNETT. What precisely was the reason why the construction subsidy dropped from 50 to 35 under the present program?

Mr. GIBSON. When we developed the program, we went into considerable depth on what had been done in the past, and worked with the shipbuilders, and the shipbuilders told us, and a number of studies that they had had done in the past indicated quite clearly that with series production of standard ships, where the shipbuilder had a definite hand in the design, that the differential in this country, say, than Japan, was not 55 percent, because what they were building were highly-they weren't really comparable to the ships the Japanese were building.

But their contention was that if they could make larger series runs of ships that were properly designed, it would be feasible for themin fact, one of their studies shows a reduction of construction differential subsidy to 25 percent.

Now, that's in our judgment overly optimistic, but we feel that the 35 percent is quite attainable, and we will scale this over a period of 6 years, because it takes time to build up to these levels. It takes time to modernize their plants, to train workers for new equipment, and we have scaled this down on the basis of a 2-percent reduction per

year.

Mr. BENNETT. What kind of assistance, if any, will the Federal Government give toward the modernization of plants?

Mr. GIBSON. There is no direct assistance contemplated in this program.

Mr. BENNETT. You just feel that if you can give as much subsidy as is planned under that legislation, you could probably plan for the fleet of new ships that you had, and that they would modernize because it would be in their best interest to do it, is that it?

Mr. GIBSON. Yes, sir; plus the fact that there has been a lot of modernization taking place in the last 15 years, that they have in fact made very substantial investments with no program.

Mr. BENNETT. What are the shipyard skills that require special attention, and how do you suggest that we keep up with this and keep continuous employment in these special skills so we will have them available in time of need?

Mr. GIBSON. The shipyards, as we note in the testimony, have had major recruiting programs, but so much of the work they do, the labor, has transferable skills, and normally the construction industry is paid at higher levels.

In the last year, with the slowdown in building construction, the shipyards have been much better able to retain their labor, and their recruiting problems have virtually ceased. So at the present time the problem we are describing, I would believe that most shipyards would say is not a problem.

(The prepared statement of Mr. Gibson and the charts referred to are as follows:)

WRITTEN STATEMENT OF HON. ANDREW E. GIBSON, MARITIME ADMINISTRATOR

I. OPENING STATEMENT

Mr. Chairman and Members of the Subcommittee-I am pleased to have this opportunity to assist the committee by giving the Maritime Administration views on problems relating to the private shipbuilding industry.

I have limited my remarks to the impact of the President's Program for rebuilding the Merchant Marine on the Private shipbuilding sector. We have no expertise in the Naval area even though, through close liaison with the Navy, we are well aware of their construction and overhaul programs and their impact on the shipbuilding industry.

I am confident that you are aware of the major features of the President's commercial shipbuilding program as passed by the House of Representatives in H.R. 15424. Those features of the program that will have the greatest impact on the shipyards can be summarized as follows:

Award construction contracts for 300 merchant ships over the next 10 years.

Reduce the construction-differential subsidy rate gradually from the present level of about 50 percent to 35 percent by 1976.

Extend tax deferred ship construction fund privileges to ship operators who are not now subsidized.

Expand Title XI loan insurance liability on unpaid principal from $1 billion to $3 billion.

Each of these features we believe will have a substantial impact on the shipbuilding industry.

The legislation for the President's program was passed by the House of Representatives on May 21, 1970. Action by the Senate is expected some time this month. Hopefully, the program will become law in July. The authorization for Fiscal Year 1971 program funds has already been signed by the President. We expect to have approval of the actual appropriation in the early Fall.

In the meantime, the Maritime Administration has undertaken studies to determine the pattern and growth of U.S. trade for the 1970's including trade areas where there is little or no U.S.-flag participation, namely, the bulk trade. These studies were carried out in two parallel contracts; one with the Newport News Shipbuilding and Dry Dock Company and the other with the Bath Iron Works Corporation. These contracts included the development of a family of preliminary ship designs of standard ships designed for series production (referred to as CMX designs) that are believed to be best suited to service the United States foreign trade.