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tonnage available for cargo per sailing, multiplied by the number of sailings during, let us say for purposes of illustration, 1 year.
For example, if the vessels of the American company provide one-third of the cargo space available on any one route, the American company is entitled to one-third of the cargo moving in that trade. The number of ships operated by the company is not pertinent; it is the number of sailings and the cargo space available per sailing that determine a line's total capacity over any given period of time. Two ships of the same cargo deadweight tonnage are not to be considered as equal if one, by reason of greater speed, makes 15 round voyages per year while the other makes only 12.
In the hypothetical case just cited, if the American line is not actually securing one-third of the total cargo available, the reason for this condition must be discovered and every legitimate means taken to overcome or correct that condition. If the line is obtaining a greater portion of the total crago than indicated by its percentage of cargo space, so much the better. It is probably doing so by reason of more intensive solicitation, greater care in handling commodities, better service to the customer.
With this percentage of cargo space established, taking all factors into consideration, there exists a basis for determining the amount of subsidy necessary. Careful investigation should disclose whether or not the American line is operating economically as possible, whether its personnel is efficient, whether its overhead is in keeping with sound business practice.
HOW THE METHOD MIGHT OPERATE
Having settled these matters, let us give an example of the manner in which the amount of subsidy might be fixed, by recording an imaginary one-sided conversation. The speaker is Uncle Sam, talking to an American shipowner:
"Mr. Shipowner, the records show that the following conditions apply in your case. You maintain weekly sailings; the average deadweight of your ships is 11,000 tons, and deducting 1,500 tons for fuel, stores, water, etc., the average cargo deadweight tonnage per ship is 9,500. That figure, multiplied by 52 sailings a year, gives you a potential annual carrying capacity of 494,000 tons, eastbound. In our calculations we must consider both east- and west-bound business, however, for we want you to exert just as much effort to obtain home bound cargo, so your total annual east- and west-bound capacity is double that figure, or 988,000 tons.
“Your competitor, Line X, operates fortnightly sailings, with ships of 7,500 cargo deadweight tons; its annual carrying capacity is therefore 360,000 tons.
"And your competitor, Line Z, operates a weekly service, but its ships are larger than yours, averaging 11,000 cargo deadweight tons, and its annual carrying capacity is therefore 1,144,000 tons.
“The total capacity in your trade is therefore 2,492,000 tons annually. Your percentage of this total is, let us say, about 40 percent.
“In this trade, the records of the division of statistics of the United States Shipping Board Bureau show the annual volume of exports and imports, eliminating tanker and other bulk cargoes, to be 1,200,000 tons. In better times it amounted to almost double that figure, which accounts in a measure for the fact that today the trade is overtonnaged. However, our analysis shows that for the proper development of our foreign commerce and the national defense it is necessary for us to have available in this trade a fleet of American ships able to render the service of which your ships are capable, both as to size and speed.
“SETTING THE QUOTA
“Our investigation shows the average freight rate in this trade to be $6 a ton. Total annual revenue, based on 1,200,000 tons is therefore $7,200,000 annually. Your ships' cargo deadweight capacity represents 40 percent of the total available in this trade; we therefore expect you to transport 40 percent of this 1,200,000 tons, and your revenue, therefore, should be $2,880,000 annually.
“We also find that your costs for investment, insurance, depreciation, fuel, maintenance and repair, supplies, solicitation, overhead, salaries, and so forth, amount to $3,600,000 annually, so without substantial assistance, you are bound to incur a loss of some $720,000 a year, even though you carry your proportion of the trade. Of course, when times were better and a greater amount of cargo was offering, you were able to operate your ships more nearly at their capacity, and your loss was proportionately lower. But, conditions being what they are, we will place your subsidy at $16,000 a voyage, or $832,000 annually, which should permit you to cover your present losses and lay aside something toward replacements.
"If you fail to secure your allotted 40 percent, that is your hard luck. We expect you to exert every effort to attain and hold that figure. If you exceed that percentage, the subsidy will still stand, and the additional freight revenue will be your gain. Perhaps this will enable you to build new ships more quickly. Possibly, in doing so, you will find it advantageous to increase your annual carrying capacity, and therefore your percentage of the total space available in the trade, either by building larger ships or faster ones. When that time comes, we will raise the ante accordingly, if it is found that by so doing your operating expenses are increased.
"If a new line enters the trade, or if any one of your competitors adds to his annual cargo carrying capacity by increasing the number of sailings or the size of his ships, thereby reducing your percentage of the total cargo deadweight tonnage in the trade, we cannot reasonably expect you to carry more than that percentage and will therefore increase your subsidy. We believe, however, that this policy will act as a deterrent to any line which might seek to freeze you out
your proper share of the business.
“But in order to make good, you must at least maintain your quota. Admittedly, this is no simple undertaking, for it must be borne in mind that before the war there were practically no American lines operating in our foreign trade.
Ninety percent of our overseas trade was then carried by foreign flag lines, which today are operating just as many ships with just as frequent sailings as they did in 1913, notwithstanding our inalienable right to carry a fair portion of our foreign trade in ships flying the American flag. So it is obvious that whatever progress has been made, or will be made in that direction, has been accomplished, in a sense, at the expense of these foreign lines, although it is also true that trade follows the flag and American ships have been responsible over the past 15 years in the creation of certain of our present-day export and import business. Ship operation is, like almost any other activity, a survival of the fittest, and your success lies mostly in your own efforts. It's up to you!”
ENCOURAGING PRIVATE INITIATIVE
Naturally, any plan such as this would not be affected by any present conference agreements or foreign treaties. It would, however, have some effect on pooling arrangements which exist in certain trades. The latter may offer some advantages, but when freight money is apportioned according to prearranged schedule, it is only to be expected that incentive to secure more cargo than that represented by any particular line's share of the revenue will be dulled and therefore the aim of Congress will not be met.
While we have spoken only of cargo in outlining this plan, the same principles may readily be applied to passenger business. The plan does not contemplate any change in present provisions for Government loans for ship construction, and, incidentally, there are some “kinks” in the present construction loan set-up which should be ironed out. Other aids already provided by law, such as the Naval Reserve, should be made fully effective, and while the plan discussed here is offered merely as a suggestion, it is believed to be a workable one, and one which would, in the long run, entail no greater expense than the present mail contract system.
American shipping should, and must, stand on its own feet, depending for its ultimate success on its ability to secure business and operate efficiently. It must not believe that governmental subsidy will continue forever, and any subsidy plan should, first of all, provide for proper encouragement of private initiative.
While it is recognized that the foregoing discussion deals with only one phase of the shipping problem, it appears that the suggested plan fits the requirements for a subsidy as outlined in President Roosevelt's shipping message. Marine Progress will welcome comment or criticism of this plan by its readers, either confidential or for publication.
THE MERCHANT MARINE
Radio ADDRESS OF Hon. David I. WALSH, OF MASSACHUSETTS, IN SUPPORT
OF PRESIDENT ROOSEVELT'S MESSAGE ON THE AMERICAN MERCHANT MARINE
Representing in part in the United States Senate a State whose early history was conspicuously associated with maritime activities, I have long been of the opinion that an adequate merchant marine is one of the major requirements of the United States.
In times of peace we need a merchant fleet in order that our trade may be extended and protected with adequate service at fair and reasonable rates.
In times of war, whether this country or others alone be involved, the need for adequate shipping facilities is even more imperative.
If the United States is engaged in combat, our merchant fleet serves as an auxiliary to our Army and Navy operations.
If other countries are involved in strife, their merchant vessels will be chiefly in war activities and will be withdrawn from American commerce. In the absence of an American merchant marine, the result will be American products piling up at our terminals for lack of shipping facilities, or transportation only in foreign bottoms at exorbitant rates and uncertain service.
Today our merchant marine facilities are inadequate to effectively meet the requirements of either peace or war. Our tonnage has declined in both size and effectiveness since the close of the World War. In numbers they may appear adequate, but in effectiveness they are not. Our fleet is weak because most of its vessels are old and slow, Worst of all, arrangements are not being made rapidly enough for replacement of ships when they pass the age of usefulness.
Our merchant fleet operating in international trade, carrying goods and passengers, is only approximately one-fourth the size of Great Britain's and about the same size as that of Japan. From the total number of our merchant ships it would appear that we have almost three times as many ships as are listed above. The catch in that fact is that many of them are engaged in coastwise trade.
Were war to break out tomorrow, it would be necessary for the United States Navy to take over a large part of American merchant shipping for auxiliary work. Even then, this arm of our national defense would be far short of our requirements. Our national defense would be seriously endangered by a lack of certain types of merchant vessels which naval authorities declare are absolutely essential to the waging of successful warfare.
President Roosevelt, in a recent message to Congress, has called attention to our inadequate merchant-marine facilities and urged remedial action during the present session of Congress. Senators and Representatives already are studying the problem attentively, and I am urging all citizens who believe in a strong line of national defense to vigorously support the administration program for an adequate merchant marine.
The President in addressing Congress presented outstanding and imperative reasons for an adequate merchant fleet, as follows:
“To me there are three reasons for answering the question in the affirmative. The first is that in time of peace, subsidies granted by other nations, shipping combines, and other restrictive or rebating methods, may well be used to the detriment of American shippers. The maintenance of fair competition alone, calls for American flag ships of sufficient tonnage to carry a reasonable portion of our foreign commerce.
“Second, in the event of a major war in which the United States is not involved, our commerce in the absence of an adequate American merchant marine, might find itself seriously crippled because of its inability to secure bottoms for neutral peaceful foreign trade.
“Third, in the event of a war in which the United States itself might be engaged, American flag ships are obviously needed, not only for naval auxiliaries, but also for the, maintenance of reasonable and necessary commercial intercourse with other nations. We should remember lessons learned in the last war.”
The American merchant marine problem is not a political question. It is a patriotic question. It is one of economics as well as military defense. Presidents of the United States, beginning with George Washington, have recognized it as such. All of them have stressed the urgent need of a strong merchant fleet.
Up to the period prior to 1860 the Nation recognized the need for possessing and maintaining a merchant fleet strong enough at all times to cope with fleets of other nations.
In the days of sailing vessels the United States held a strong position in world shipping. My own State of Massachusetts was rich in maritime history during the clipper-ship period. Prior to 1860 we carried over three-quarters of our foreign commerce in American bottoms. Since that time other nations have been
permitted to wrest commercial sea supremacy from us. In 1910 we reached the low point in our shipping activities, carrying less than 9 percent of our foreign commerce under the American flag. And today, despite the fact that exigencies caused by the World War compelled us to spend more than $3,000,000,000 in rehabilitating our merchant fleet, we are actually carrying only a third of our foreign trade.
Our short-sightedness compelled us to spend in 20 months for an emergency fleet an amount twice the sum of the value of the ocean-going fleets of the world before the war. And even this stupendous expenditure only served during the emergency and did not provide an adequate, competitive merchant marine for the United States. Practically 90 percent of this expenditure was lost so far as providing for a permanent merchant marine. This experience is a painful illustration of the cost of our lack of preparedness.
In 1933, the last year for which official figures are available ships flying the American flag represented only about 8 percent of the total tonnage of all countries participating in international trade.
This failure on our part to occupy a prominent position in world shipping is due to a gravely erroneous impression. The argument is repeatedly and regularly advanced here and abroad that there always will be enough foreign vessels to take care of our requirements. This assertion is fallacious and dangerous to our national welfare. The price of such a policy is too big to pay, as has been conclusively demonstrated prior to and after our entry into the World War.
It is true that in peace times foreign vessels generally may be obtained to carry American goods, but at what a price! An official report made by the Secretary of the Treasury in 1915 estimated that agriculture and industry paid foreign shipowners in increased freight rates during that 1 year alone a total of $311,684,400. It was estimated that our people were taxed over a billion dollars during the 3 years before our entry into the World War for transporting their products through increased rates. This vast sum went mostly into the pockets of foreign shipowners.
Let us now consider this plea for the use of foreign bottoms from the defense standpoint. We were in a tragic situation at the outbreak of the World War because we had practically no merchant fleet to use as a naval auxiliary: Having been-lulled into the belief that we probably never would be involved in another war, and that if we did become involved in one, we could easily obtain merchant vessels under charter from other countries, we were woefully unprepared when the demand for ships to carry troops and supplies to them arose. The result was that we suffered a costly delay and that we had to pay exorbitant sums of money to foreign nations for the use of their vessels, most of these vessels being used to carry the American soldiers that helped the Allies win the war.
The United States paid to Great Britain and France alone during the war period a total of $120,576,150.07 for the transport of our troops and war supplies. The War Department estimates that Great Britain's share of this sum for the carrying of United States troops alone was $91,992,900. This tremendous amount of money would have built many American ships. Undoubtedly it did go a long way toward paying for the ships of Great Britain, a nation that always has been foresighted enough to recognize the urgent necessity of always maintaining a strong merchant fleet. There never was an hour during the World War that the United States was not handicapped by a lack of auxiliary merchant vessels.
Any nation with an intelligent national-defense policy must support a navalreserve personnel through its merchant marine. Yet the United States had no such reserve at the outbreak of the World War, and it has no such reserve now. During the war it actually had to take men from naval vesseis to man merchant ships. By way of contrast, at the outset of hostilities Great Britain drew upon its merchant ships for 16,000 men to supplement its naval personnel. It is ridiculous to compare the relative strength of the navies of the nations without including their merchant-marine strength.
Our unfortunate experiences in the war should convince us of the necessity of no longer delaying plans for a merchant marine in the United States second to that of no other nation. Many efforts have been made, during the last 15 years (beginning with the Merchant Marine Act of 1920), to start such a movement, but we have been unsuccessful.
We have tried to build up our American merchant marine in several ways. First, by Government operation of shipping lines, and then through the sale of Government vessels at low prices to private operators, and again through subsidies paid to operators under the guise of mail-pay contracts. All these efforts have resulted in failure. The mail-contract subsidies increased from $9,304,217 in 1928 to $27,012,519 in 1934.
Today out of 37,400,000 tons of vessels engaging in international trade, Great Britain leads with 14,119,000, and the others rank in the following order: United States, 3,084,000; Japan, 3,049,000; Germany, 2,832,000; France, 2,571,000; Italy, 2,264,000; and all others, 9,481,000.
Speed today is one of the outstanding requirements of merchant vessels, and in this regard the United States is in a relatively weak position. It ranks 'fifth in tonnage of ships with speeds of 12 knots and upward., Great Britain, Germany, France, and Japan all exceed this country in the speed of vessels. Seven countries-Great Britain, Germany, Italy, Norway, Netherlands, Japan, and France all have more model vessels (vessels of less than 10 years of age) than the United States.
Admiral George H. Rock, former chief constructor of the United States Navy, recently testified before a Government committee that the United States ranks lower in cargo vessels of 2,000 gross tons or over (which means ocean-going types), built within the last 10 years, than any other country having shipping except Spain. Figures compiled a few years ago show Great Britain has 735 such vessels as compared with a total of 9 for the United States. Even Norway has approximately 15 times as many vessels of this type as the United States.
President Roosevelt, whose experience as Assistant Secretary of the Navy led him to study and understand our shipping problem, recognizes the need for a strong merchant marine, and is meeting the issue in his usual straightforward manner.
He frankly urges that the country do away with all subterfuges, admit that subsidies are necessary to successful operation of United States merchant vessels in competition with the ships of other nations, and then for the Congress to grant these subsidies openly and squarely and call them by their right name.
This recommendation is, in my opinion, one of the greatest and most courageous contributions that has been made toward an American merchant marine. We have avoided too long the fact that this Nation's shipping needs cannot exist without subsidies.
American shipping must be supported by subsidies for the obvious reason that it costs more to build and operate vessels under the United States flag than under other flags. We have a higher standard of living in this country and this fact is reflected in building and operating costs.
A cargo vessel may be built in a British yard for about five-eighths of what the same vessel would cost if built in a United States yard. This increased cost is reflected in many items, including materials, labor, and supplies. The erroneous impression exists in some quarters that wages are chiefly responsible for these added charges. Wages are a contributing factor, but it is unfair to say that they are the only one.
Increased operating costs under the American flag are easily explained; for example, the wages, food, and repairs are higher than on foreign ships. The average wage paid American seamen is about $56.50 per month, and some operators pay even more than this amount. Contrasted with seamen's wages on foreign ships, in some instances less than half, the difference in operating expenses is easily recognizable.
President Roosevelt proposes that a Government subsidy be paid to provide for the difference in building and operating costs. That is the issue, directly and clearly stated.
The payment of these necessary subsidies must meet with the approval of our citizens if we are to have a merchant marine.
In behalf of the American taxpayer, it is only fair to say that some operators
the past have not been square in dealing with the Government. They have taken unfair advantage of the taxpayers in obtaining public funds appropriated primarily to build new ships, and dissipated some of these funds for other purposes, such as exorbitant salaries, dividends, real estate, and other ventures. The interdepartmental committee appointed to study this question, in its report to the President, which he transmitted with his message to Congress, strongly urged that maximum safeguards, including the installation of uniform accounting systems for all companies participating in public funds, be set up. This and other safeguards are an imperative condition to granting subsidies.