Mr. GILES. Yes, sir. The CHAIRMAN. So that doesn't apply at the present time? If USDA must adjust its deal with Continental Grain Co. to accomplish this, so be it. I suppose that means the Department of Agriculture should give a larger subsidy to Continental Grain. Well, the Department of Agriculture I assume has already made a sale. They have made a contract. The CHAIRMAN. That is something for the Department of Agricul ture to answer. Mr. GILES. Yes. As matters stand, they are purposely flouting the export control regulations and Presidential directives. I do not know of any instance where the Department of Agriculture is flounting the export control regulations or Presidential directives. They have been very cooperative, and I would like to emphasize this about the Department of Agriculture. They have been very cooperative with the Maritime Administration in working out this shipping matter so that we could utilize American tonnage to the extent available. The CHAIRMAN. If you would submit additional comments on Mr. Dewey's letter, I will place it in the record at this point. I will also have the Department of Agriculture comment on these identical notes. Could you come back tomorrow morning at 10 o'clock? Mr. GILES. Yes, sir. DEAR MR. CHAIRMAN: You have requested that I furnish you written comment on the various points contained in a letter to you dated January 24, from Mr. Ralph B. Dewey, president of the Pacific American Steamship Association. My comments are as follows: Item No. 1 Mr. Dewey states in the second paragraph of his letter that participation of the American merchant marine in the shipment of grain to Soviet bloc countries, "has gone from 100 percent participation (President Kennedy's initial announcement) to a 50 percent participation (Secretary Hodges compromise, with industry concurrence) down to the present where we are almost shut out of this program by means of rate discrimination thrust upon us by the architects of the program." Comment. The President's initial announcement on participation of American shipping in this program did not make any reference to “100 percent participation" or any other percentage. In the second paragraph of the President's letter addressed to the Speaker of the House and to the President of the Senate, dated October 10, 1963, there is this reference to shipping: “An added feature is the provision that the wheat we sell to the Soviet Union will be carried in available American ships, supplemented by the vessels of other countries as required." This sentence just quoted clearly contemplates the possibility or the likelihood that less than 100 percent of these shipments could be carried on American vessels. The President stated the wheat would be carried in American ships if available, supplemented by the vessels of other countries as required. No shipping representative ever intimated to Commerce Department officials last October and November that there would in fact be sufficient American-flag tonnage available to carry 100 percent of the contemplated 42 million tons of grain to be sold and delivered to the Soviet bloc countries during an approximate 6-month period, along with Government cargo shipments (such as Public Law 480) scheduled for that same period. Our discussions with representatives of the shipping industry during October and early November showed there was a broad concensus of opinion among the shipowners that available American-flag tonnage for the grain shipments to the Soviet bloc countries could not be expected to handle more than about 50 percent of the anticipated sale of 42 million tons to the Soviet bloc countries, if in fact there should be sufficient American-flag tonnage to handle this much. In this connection, I am attaching a copy of an article which appeared in the New York Herald Tribune early this year, citing a survey of shipowner sources who reported they did not think American-flag tonnage would be available to handle more than 40 percent of the discussed amount of sales to the Soviet bloc countries (attachment No. 1). The overall implication in the second and third paragraphs of Mr. Dewey's letter, suggesting that some malevolent design on the part of the Government has finally been brought to light is grossly inaccurate. There is no factual basis to support Mr. Dewey's express or implied assertions of bad faith and wrongful action on the part of the Administration in handling this shipping matter. The reference to "Secretary Hodges' compromise, with industry concurrence," is an example of a statement which is not supported in fact. As a matter of fact, the details of rate discussions with industry representatives during October and November were handled by Under Secretary Roosevelt and myself. Furthermore, I would not regard the 50-percent participation percentage as reflecting a "compromise" between the Administration and someone else. The decision of the Administration on this point was based on our best estimates as to how much American-flag tonnage could reasonably be expected to be available for handling shipments of grain to the Soviet bloc countries during the approximate 6-month period from December 1963 through May 1964. If the Government had the exporters would have had to quote a price which would be sufficient to cover the substantial differential between American shipping rates and foreign-flag rates. Obviously, the grain exporters would have a more stable cost situation and would be able to quote a lower price per ton for wheat delivered to Soviet ports if they could work against a certain percentage which would be carried on American-flag vessels. As is well known from the difficulties on price negotiations with the Soviet representatives reported widely in the press during October, it was certainly to the advantage of the American shipping industry to have Government policies adopted which would eliminate any unnecessary price margin quoted to the foreign buyers by the exporters and based on higher American shipping costs. All of this was discussed with shipowner representatives and fully recognized by them in October and November. Item No. 2 Paragraphs 1 and 2 on page 2 of Mr. Dewey's letter imply that the rate guidelines published for the Soviet bloc shipments (20 percent below previously published guideline rates for Public Law 480 cargo) were unfair and unreasonable because the rates did not take into account cost increases since 1957. Comment. The Maritime Administration did not blindly, without intelligent review, publish the minus 20-percent rates for these commercial shipments to the Soviet bloc countries. We took into account the fact that while some costs for the tramp operators have increased since 1957, such as wages, other costs, such as fuel oil, have materially decreased. Further, our information clearly showed that during the past 2-3 years American flag actual rates on Public Law 480-type cargoes have been as much as 40 percent below the guideline rate level published by the Maritime Administration in 1957. This of course was due to the competitive situation within the American market. We do not suggest our rate structure during this period was in all respects and for all segments of our shipping industry engaged in this trade the best that could be devised. However, it is important to keep in mind that as a matter of fact the shipowners themselves had not, prior to discussion about the sales of grain to Soviet bloc countries, requested the Commerce Department to undertake a thorough review and revision of the rate guidelines published for Public Law 480-type cargoes. For obvious reasons, it did not make good sense to undertake such a review and revision of these rates simply because we had the possibility of making sub 39-375-64 stantial sales of grain to Soviet bloc countries when one of the critical factors involved in these sales has been and sttill is the higher American-flag rates which the grain exporter must pay. Item No. 3 In the second paragraph on page 2 of Mr. Dewey's letter there is the statement that the higher guideline rate applicable to smaller vessels is regarded as a proper rate for berth line operators. Comment.-Mr. Dewey is very seriously in error in implying that the rate guidelines heretofore published by the Maritime Administration have been designed for or actually followed by the berth line operators. As a matter of fact, none of the rate guidelines published by the Maritime Administration in 1957 and none of our rate guidelines for Soviet ports published since last October 10 have been designed for berth line operators. All our published rate guidelines, by their express terms, contemplate voyage charter terms for full shiploads. For example, see attached rate guidelines issued May 15, 1957, for shipments from North Atlantic, gulf, and North Pacific ports to Istanbul, Turkey (attachment No. 2). Note that the title of this publication is "Voyage Charter Rate Advice No. 1." This title indicates these rates are based on full shipload lots of grain and as is well known, berth liners do not ordinarily (if ever) carry a full shipload of grain in their berth service. In addition, the following express statement appears on page 2 of this sample guideline of May 15, 1957: "The above represent fair and reasonable voyage charter rates for the transportation of U.S. Government-sponsored commodities on U.S.-flag vessels moving in full cargo lots and do not apply to shipments for private account." Aside from the plain and express designation of these guideline rates, as not at all being applicable or intended to be rates for berth line parcels, the actual facts on berth line rates for handling parcel lots of grain completely refute Mr. Dewey's various implications contained on page 2 of his letter. Berth line operators traditionally carry parcel lots of grain on what is referred to as open conference rates, and U.S. berth line operators, whether subsidized or unsubsidized, handle commercial parcel grain lots at world competitive rates. Actual rate data on past shipments of Public Law 480 cargo by berth line operators show that berth line rates have in fact been substantially below the Maritime Administration's published rate advices applicable to full cargo shipments. Any sampling of actual rates received by berth line operators for parcel grain shipments during recent years will support the above stated conclusion. See attachment No. 3 to this letter, showing a sampling of actual rates charged by berth line operators on parcel lot grain shipments during April to October 1963. actual rates at which the berth line operators carried this grain are as much as $6 under our published Public Law 480 guideline rate for smaller vessels and as much as $2.34 under the minus 20-percent guideline rate we have published for larger vessels. Also, see attachment No. 4, giving actual berth line rates on parcel lot shipments on a portion of the recent Cargill grain sale to Hungary. As you will note, these berth line rates for these shipments were at or below the minus 20-percent rate published by the Maritime Administration for the larger tramp vessels. Item No. 4 The Mr. Dewey's letter, bottom of page 2, says that "all of the understandings on rates came to a crashing halt on January 9 ***" Comment. We do not know where Mr. Dewey obtained the date of January 9. We have reviewed our files and cannot find that we published anything on this subject on that date. Perhaps Mr. Dewey refers to a release from the Maritime Administration dated January 7 which contains a statement of the waiver procedure the Maritime Administration will following in processing any applications from exporters for waiver of the 50-percent American-flag requirement on the Soviet bloc shipments. It is correct that the last paragraph of this waiver procedure states expressly that the larger vessel rates (the so-called minus 20percent rates) will be applicable for these commercial shipments of wheat to Soviet bloc countries and any ships offered to grain exporters for such shipments could not be considered "available" if their quoted rates were in excess of the rates provided for the larger vessels. (See attachment No. 5.) Mr. Dewey does not mention in his letter, however, that this very same point (that is, the rates on the Soviet bloc shipments would be the minus 20-percent rates) was announced by the Commerce Department on November 8, following a meeting of shipping industry representatives in Under Secretary Roosevelt's office. A representative of PASSA was present at that meeting. See attachment No. 6, which contains representative press stories on the press conference which Under Secretary Roosevelt had that aftrenoon of the meeting with the shipping representatives, and note the references in these items to the understanding and the cooperation of the shipping industry representatives, and note the express statement (Baltimore Sun) that the minus 20-percent guideline rate will be the maximum rate for all the American-flag wheat shipments involved in the Soviet bloc sales. Therefore, instead of this specific point being made known on January 9, as stated by Mr. Dewey in the last paragraph of page 2 of his letter, it was made known 2 months earlier, on November 8. Furthermore, the January 7 publication of waiver procedure was widely distributed to the shipping industry, including PASSA, in draft form on December 11, 1963, (attachment No. 7). The Maritime Administration specifically asked for comments on this proposed waiver procedure which we could consider before publishing the proposal in official form. See attachment No. 8 which is a copy of a laudatory reply we received from Mr. Dewey. Against this factual background, I can only express utter astonishment with the statements contained in Mr. Dewey's letter of January 24. Item No. 5 In the first paragraph on page 3 of Mr. Dewey's letter, it is stated that the "Maritime Administration, apparently pursuant to directives of the Department of Agriculture, shut out the tramp and the berth carrier from participation in the wheat-to-Russia program. These two segments simply cannot operate at the low supership rates." Comment.-I simply do not understand the above statement. So far as carriage of this wheat by berth line operators is concerned, I believe this point is fully covered in discussion under previous item No. 3. With regard to the reference to "tramp participation" in the wheat shipments to the Soviet bloc, as previously explained, the Maritime Administration published the minus 20-percent rates which in our judgment were entirely reasonable for the larger vessels (over 15,500 TDWT) and it was made clear back in November that the smaller vessels (those 15,500 TDWT and under) would have the preference on Public Law 480 cargoes as against the larger vessels-if we had actual shipments of grain to the Soviet bloc countries available for the larger vessels. The explanation for giving some preference to the smaller vessels on Public Law 480 shipments is clearly evident. By Government action in setting the minus 20 percent rates as the maximum rates on the commercial shipments to the Soviet bloc, we had as a practical matter granted the larger vessels a distinct preferential position over the smaller vessels on this business. To maintain a proper balance between these two segments of our American merchant marine, it followed that we should grant some reasonable preference to the smaller vessels on the Public Law 480 shipments. If we had not done this, the larger vessels would in effect have been in a preferential position on both Public Law 480 business and on any of the Soviet bloc business that might develop. Mr. Dewey's letter makes a reference to "directives of the Department of Agriculture" given to the Maritime Administration. The Maritime Administration did not receive any "directives" from the Department of Agriculture with regard to the shipping policy under discussion. On the contrary, the Maritime Administration recommended to the Department of Agriculture that this particular policy on utilization of the smaller vessels for Publie Law 480 shipments should be followed, and this was done. The Department of Agriculture followed our advice on this point even though it was against that Department's own "budget interest." Obviously, the net budget cost of using American ships on the Public Law 480 program-which is a budget cost to the Department of Agriculture is increased somewhat if the Department of Agriculture gives preference to the smaller American-flag vessels at the higher rates over larger American-flag vessels which can compete for the business at lower rates. Nevertheless, the Department of Agriculture cooperated with the Maritime Administration in an effort to assure that all segments of the American merchant marine (smaller as well as larger vessels) would overall have a good opportunity for employment. Item No. 6 In the third paragraph on page 3 of Mr. Dewey's letter, there is a reference to excluding larger vessels from the Continental business on the basis of vessel draft. Comment. Initially, the Continental Grain Co. published a tender stating it was limited to ships of 31 feet draft or less. Three weeks ago, Maritime Administration officials discussed the draft matter with Continental officials and thereafter the Continental tender for American-flag tonnage was amended to remove the draft limitation. We informed Continental officials there could not be a general rule of exclusion based on draft but they should consider any vessel offered and would have to have strong supporting facts on any individual case where an American vessel was turned down on the basis of draft. As a matter of fact, Continental Grain Co. has actually chartered American-flag vessels which will carry up to 30,000 tons of wheat (the size of vessel Mr. Dewey refers to as "superships"). As of this date, we have not granted any waiver to Continental Grain Co. for any portion of the American-flag shipping requirement and we do not know at this point whether the draft question will actually be involved in passing on their waiver application. Item No. 7 In the fourth paragraph on page 3 of his letter, Mr. Dewey claims there is a "scheme" to shut out use of American-flag shipping. Comment. This statement is not correct. Item No. 8 In the last paragraph on page 3 of his letter, Mr. Dewey refers to the offer of parcel lot shipments by Waterman Steamship Corp., American President Lines, and Weyerhaeuser Line, at $17 per ton. These were presumably berth line offerings. Comment. First, our previous discussion under item No. 3 regarding berth line rates for the carrying of parcel lots of grain is a full and complete answer to this particular complaint. The rate of $17 cited in Mr. Dewey's letter apparently refers to an actual offer by Waterman of $17.08. Our published guide line rate for the Russian shipments from the North Pacific ports to Nakhodka is $13.73 (our so-called minus 20 percent rate). The Waterman offer was $3.35 in excess of our published guideline rate for the Soviet bloc shipments, and Continental Grain Co. was entirely correct and justified in turning down the Waterman offer. Also, we should keep in mind, as discussed under previous item No. 3, that actual berth liner rates during the past 2 years and as recently as the Cargill shipment to Hungary have been below the minus 20 percent rate. As to Mr. Dewey's reference to a layup of two or three vessels of Waterman, it is our information that these vessels are not laid up but are presently fixed with other cargo. As for the American President Lines' offer referred to by Mr. Dewey, our information is that the American President Lines did offer to carry a parcel lot at a rate greatly in excess of our maximum guideline for this shipment, and the interesting point is this offer by American President Lines was that it stipulated loading in California ports. The Continental request for American shipping clearly specified the grain would have to be loaded in Puget Sound or Columbia River ports, all of which are somewhat north of California. Therefore, on two separate and distinct counts, Continental was justified in declining the offer from American President Lines. As for Mr. Dewey's reference to the Weyerhaeuser offer at the rate of $17, we have checked this point and find that as a matter of fact Continental Grain Co. did not receive an offer from Weyerhaeuser. However, if Continental Grain had received an offer from Weyerhaeuser at $17 a ton, Continental would have been fully justified in turning it down. Item No. 8 At the top of page 4 in his letter, Mr. Dewey refers to the regrettable circumstance that "we can't even get a share of the movement of bagged flour." Comment.-Unfortunately, no vessel owner has been able to get a share of the "movement of bagged flour" because Continental Grain Co. did not sell any bagged flour to Russia and we are not aware at this time that any grain exporter has sold any bagged flour to the Soviet Union. Item No. 9 In the fourth paragraph on the fourth page of his letter, Mr. Dewey comments that only 37,000 tons of grain in the Soviet wheat program to date have gone on U.S.-flag vessels. |