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merely reimburse the foreign governments their anticipated costs of operating the vessels and contain no provision whatsoever for profit to such governments. All freight revenues are collected for United States Government account. The use of a nominal rate of hire ($1 per annum) covering the bareboat charter of the vessels to these governments has created the false impression, that the foreign governments are receiving the use of these vessels virtually free of charge. This is, of course, not true, since they are immediately time chartered back to War Shipping Administration for our exclusive use at a rate which contemplates no profit to the foreign government involved. In essence these “bareboat out, time charter back” arrangements, as they are conveniently termed, merely constitute a means for o vessels under foreign flag for operation by the respective governments under War Shipping Administration's direction. #. arrangement has the virtue of utilizing available foreign seamen and the service of foreign o organization. of April 1, the Norwegians were operating for War Shipping Administration account on this basis, 15 dry-cargo vessels and 6 tankers; the Dutch, 5 dry-cargo vessels and 1 tanker; the Greeks, 12 dry-cargo vessels; the Poles, 5 dry-cargo vessels; the Chinese 2 dry-cargo vessels; the Belgians 3 dry-cargo vessels; and the French 3 dry-cargo vessels. Our fleet today exceeds the fleets of all the rest of the United Nations combined and the vessels operate in every kind of trade throughout the world. Consequently, they require services, supplies, and repairs in the ports of almost all of the United Nations. These disbursements in the United Kingdom and her colonies, as well as in Australia, New Zealand, India, France, and Belgium, are being met under reverse lend-lease. These reverse lend-lease arrangements are worked out by the War Shipping Administration and the Foreign Economic Administration with the respective governments in line with the over-all agreements between the United States and the several governments. It is estimated that the value of this reverse lend-lease assistance in services related to merchant shipping alone is presently accruing at the rate of more than $125,000,000 per annum. This does not include transportation of Army and Navy cargo on British vessels which is carried under reverse lend-lease. Nor does it include the transportation on British vessels of the raw materials supplied to the United States as reciprocal aid, which is likewise moved freight free. While in general it is the policy of the War Shipping Administration to have contracts performed whenever possible within the continental United States, it is frequently necessary to make procurement contracts outside of the continental United States. These contracts are for emergency repairs, supplies for vessels, and for various services to War Shipping Administration vessels, such as stevedoring and terminal facilities. To the extent that this can be done, the War Shipping Administration attempts to obtain such procurement through reciprocal lendlease arrangements without cost to the United States. This cannot, of course, be done in every instance and it is, therefore, frequently necessary for War Shipping Administration, through its agents, to make direct contracts in foreign countries. The question has arisen as to the necessity for the War Shipping Administration to make contracts to be performed in foreign countries to comply with certain statutes and Executive orders, namely, those which (1) prohibit contracts on a cost-plus-a-percentage-of-cost basis and limit the fixed fee of cost-plus-a-fixed-fee contracts to 7 percent of estimated cost (the act of May 2, 1941, 55 Stat. 148; Executive Order 9001, 6 Fed. Reg. 6787); (2) require certain contracts to contain provision for renegotation of the contract price (the act of April 28, 1942, Public Law 528, 77th Cong.); (3) require the inclusion in all contracts of the so-called Member or Delegate clause (R.S., sec. 3741, U. S. C., title 41, sec. 22, as amended) and (4) require the inclusion in certain contracts of a warranty against commissions, contingent fees, etc. (Executive Order No. 9001). In view of the practical difficulty of complying with these statutes in foreign countries, the opinion of the §§§ of the United States was sought on this question. His opinion (dated March 23, 1943) is set forth on page 164 of Document 55-A. The War Shipping Administration has relied on this opinion in its foreign contract policy. herefore, in those areas such as South America and certain European countries where lend-lease has not been available, direct contracts have been made on the basis of local commercial practice. Recently the question has arisen as to the applicability of these same sections to contracts let m the Philippine Islands and relying on the powers referred to by the Attorney General, the War Shipping Administration is not at the present time incorporating all of these statutes in such contracts.

Admiral LAND. One question you asked, Mr. Chairman, which is not covered there, was about the post-war fleet. Otherwise, that is all. I am very glad to answer any questions. Mr. TABER. Mr. Chairman Mr. CANNoN. I should like to say that this is a very complete and comprehensive statement; I think, in that respect, one of the most satisfactory that the committee has received for a long time. Mr. TABER. But, Mr. Chairman, it refers to other documents that have not heretofore been presented to us, and it would take a couple of days of study for anybody to take this statement and throw the - meat of the documents in with it. There is little opportunity for us at this stage of the operation to fully understand o picture that is presented. Mr. CANNoN. He digests and interprets the material carried by these addenda, and it would only be necessary to check their accuracy and interpretation, if that were necessary. He supplies the documents to us; they are available. Mr. WIGGLEsworth. If we could have had the addenda beforehand, it would have been much more helpful. Mr. CANNoN. Otherwise, the statement is thoroughly documented and to that extent is more satisfactory. The statement itself, I think, will answer almost any question that would arise here.

INCREASED SIZE OF FLEET

Mr. CANNoN. Pursuing the matter to which Admiral Land refers, it is evident from the charts here that the original fleet which was taken over in 1942 has been multiplied about 500 percent. That is, the cargo fleet has been multiplied about 500 percent, and the tanker fleet about 300 percent. I suppose there has been every year a growing efficiency in the operation of your ships. That is shown by the values of the cargoes carried, I take for granted, and by the bulk handled by your tanker fleet. While your fleet has increased in size about 500 percent, what would you say about the increase in efficiency?

Admiral LAND. Compared with efficiency in peacetime, wartime operating efficiency is not good, due to the lack ofnavigational facilities, nonpermissive use of radio, and inexperience due to the expansion. So far as the size of our. war operations are concerned, you are correct. With the large increments of personnel coming in, I could not be honest and tell you that efficiency has greatly improved, because we have taken in so many green men who i. been trained under wartime emergency and, therefore, are not fully trained. But they have done extremely well under existing conditions. Considering these handicaps, they have operated efficiently, and those operations are continuing to be more efficient, especially as some navigational aids, previously not in use due to war operations, are now permitted.

Convoy operations are always difficult, even to experts like those in . the Navy; and with the dilution of 6 to 1, convoy operations become very complicated, and our collision record is not good. Neither is any other country's. In other words, marine casualties are much greater than they are in peacetime.

Mr. CANNoN. Well, the shipping lanes are more congested, and the necessity for protection against submarines would increase your problems there?

Admiral LAND. Yes, sir.

PROFIT AND LOSS STATEMENT AND BALANCE SHEET

Mr. CANNoN. In that connection, I should be glad if you would .." in the record a statement as to the condition of your revolving fund.

Admiral LAND. Yes, sir.

Mr. CANNoN. Do you have it here complete?

Admiral LAND. Yes, sir; I think so.

Mr. CANNoN. Receipts, expenditures, and revenue?

Admiral LAND. Yes.

Mr. CANNoN. And net losses?

Admiral LAND. Yes.

Mr. CANNoN. That includes the year 1945?

Mr. Johnson. The year 1945 is included in the budget at page 3.

Mr. CANNoN. You have statistics and data up to date and projected for the remainder of the year?

Mr. Johnson. Yes, sir.

(The statement of profit and loss for the fiscal year 1944 and the comparative balance sheet are as follows:)

Statement of profit and loss for the period July 1, 1943, to June 30, 1944

Schedule
No.
App.4. Terminated voyage results:
Vessel operating revenue:
O tions under service agreements. $1,176,526,836.79
Charter of vessels to others---------- 990,682.57
Carriage of cargoes on Army and
Navy vessels---------------------- 2,414,353. 44

Total vessel operating revenue.---- *--------------- $1,179,931,872.80
Vessel operating .

O tions under service agreements. $1,129,261,319.
Charter hire.------------------------ -
Vessel repairs------------------------
Handling of cargoes on Army and
Navy vessels------------ ----------
Inactive vessels expense-------------

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Net loss from terminal and warehouse operations-------------------------- 1,891, 185. 13 Other shipping operations: B-3 Income---------------------------------------------------- $1,286, 134.95 B-4 Expense--------------------------------------------------- 8, 665,359.05 Net loss from other shipping operations.----------------------------------- 7,379,224.10 Gross loss from shipping operations before overhead, agents compensation, and depreciation-------------------------------------------------------- 744,815,766.89 B–5 Overhead: Administration and general expense----------------------- $10,059, 581. 32 Agents compensation-------------------------------------- 61,460,782.25 Advertising expense--------------------------------------- 144. 90 Taxes, other than Federal income tax---------------------- 617,881. 14 total overhead.------------... 72, 138,389.61 Gross loss from shipping operations before depreciation-------------------- 816,954, 156.50 B–6 Depreciation: Floating equipment, vessels------------------------------- $210,266,899.33 Other property and equipment-- ------------------ 329,530. 07

Total depreciation---------------- ---- - - 210, 596,429.40
Gross loss from shipping operations.--------------------------------------- 1,027,550,585.90

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Statement of profit and loss for the period July 1, 1943, to June 30, 1944–Continued

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**s-------------------------------------------------------------------- 1,096,996, 168.01 B-10 Extraordinary and nonrecurring gains and losses: Losses resulting from sale and loss of vessels and other assets-------------------------------------------------------------------- 163,200,685.26 Net loss------------------------------------ ------------------------------- 1,260, 196,853.27

Comparative balance sheet as at June 30, 1944, and June 30, 1943

ASSETS Refer to As reported edule June 30, 1944 June 30, 1943 Increase Decrease A-1 General funds on deposit with U. S. Treasury and others--------------------- $1,721,585,802.56 $773, 594,930.35, $947, 990, 872. 21-------------A-2 || Accounts receivable: U. S. Government agencies------------------- 1, 129,224,988. 10,-----------------|----------------|-------------Other receivable—Less reserve for doubtful accounts-------------- 220,034,979.54|----------------- ------------------------------1,349, 259,967.64 225,953,445. 261, 123,306,522.38|-------------A-3 || Inventories------------------ 31,388,202.79 14,637, 130, 27, 16,751,072. 52-------------Voyages in progress: Unterminated voyage expense---------- ----- 199,298,034.26 76,653,412. 01----------------|-------------Less unterminated voyage revenue----------- 146,936, 562. 00 45,694,620. 22----------------|-------------52,361,472.26 30,958,791. 79| 21,402,680.47-------------A-4 || Special and guaranty deposits---------- -- 1, 146,253.13 (1) 1,146,253.131-------------A-5 | Property and equipment: Floating equipment----- 5,597,387,677.39|-----------------|----------------|-------------Less reserve for depreciation----------------! 271,735,747.45! ----------------|----- ------------------------Net book value----- 5,325,651, 929.94 2,400,093,250. 582, 925, 558,679.36]-------------Other property and equipment------------ 38,010, 393.411---------------------------------|-------------reserve for depreciation---------------- 329,530.071-----------------|----------------|------------Net book value----- 37,680,863. 34 37,637,470.31 43,393.03|-------------A-6 || Other assets. ---------------- 27, 247,715.07 349,285.17 26,898,429.90-------------A-7 || Securities deposited with the United States by agents--------------------- 1,955,000.00 1,640,000.00 315,000.00|-------------A-8 Deferred charges and pre- paid expenses------------- 87,080,685.20, 129,712,855.56---------------- $42,632, 170.36 Total.----------------- 8, 635,357,891. 93. 3,614, 577, 159. 295,020, 780. 732. 64 -------------

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Items of this nature were included in “Accounts receivable of vessels operating agents", on “Accounts

receivable (schedule A-3)” at June 30 * See sheet 3 for reconciliation with

, 1943.
total reported at June 30, 1943.

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Comparative balance sheet as at June 30, 1944, and June 30, 1943–Continued LIABILITIES AND CAPITAL

Refer to As reported schedule June 30, 1944 June 30, 1943 Increase Decrease L–1 || Accounts payable: U. S. Government agencies--------------- $43,649,992.35| 311,823,907. 55|----------------|-------------Other payables---------- 326,640,364.85| 365, 384, 137.07|----------------|-------------Total.----------------- 370,290,357. 20, 377,208,044.62|---------------- $6,917,687.42 L–1 || Advance ticket sales and deposit-------------------- 1,625, 231. 971----------------- $1,625, 231.97 -------------L–2 | Other liabilities------------- 6, 136, 325.03 6,647,055.11!---------------- 510,730.08 A–7 | Securities deposited with the United States by agents--- 1,955,000.00 1,640,000.00 315,000.00|-------------L-3 Deferred credits.------------ 216,929,058. 71 2,049,804.90] 214,879,253.81|-------------L–4 || Sundry reserves------------- 276,537,496.38 390, 186, 231. 94---------------- 113,648,735.56 L-5 Net worth: Appropriations, allotments, and contributions--- - 9,660,423,441.08 4,040,489,245.83|--Deficit. -- - 1,898, 539,018. 44; 1,203,643,223. 11|--7,761,884,422. 64 2,836,846,022. 724,925, 038,399.92]-------------8,635,357,891.93||13,614, 577,159.295,020,780,732.64-------------Contingent liabilities: App. 1 Admiralty claims------- 80, 150,781.27 21, 163,218, 99App. 2 Common-law claims 1,379,372. 16 855,980. 20 Purchase orders--- 5,682, 108, 83-----------------|Total ----------------- 87,212, 262. 26 22,019, 199. 19 65, 193,063.07|-------------

* See sheet 3 for reconciliation with total reported at June 30, 1943. contFMPLATED REVENUEs, 1945 AND 1946

Mr. CANNoN. Admiral Land, in your original estimate for 1945, you contemplated revenues, that are given on page 12, I believe, of the justifications, of $1,213,000,000. It now appears, however, that the total for the year will approximate $1,077,000,000. The estimate for 1946 was based on expected revenue of $1,429,000,000. In the first place, how do you account for the lesser amount, less than you had anticipated for 1945? Admiral LAND. We get nothing from military cargo. The lessening is due to the lessening in lend-lease, for which we are reimbursed by F. E. A. The commercial cargo, or civilian cargo, has not increased very much. We, of course, get revenue from that. We do not anticipate much increase. Six to eight percent of the total fleet will be commercial. But the real answer is a reduction in the amount of lend-lease and an increase in the amount of military, from which we get no revenue. Mr. CANNoN. You have carried the amount of tonnage which you anticipated, but it is merely a matter of bookkeeping with the War Department? Admiral LAND. That is right; it is nonpaying. Mr. CANNoN. On what did you base your estimation that 1946 will produce this rather substantial increase? Will you not still have the same situation as to lend-lease and military cargoes? Admiral LAND. Well, it is anticipated that we may have a little more income from commercial after VE-day. Of course, we do not know how lend-lease is going to function, because the law has just

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