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Comment.-As a matter of fact, Cargill Co. chartered 60,000 tons of Americanflag shipping on their sale of grain to Hungary and, as stated in the Maritime Administration release of last Friday concerning notice of application for a waiver filed by the Continental Grain Co. (copy of which is attached-attachment No. 9), Continental has already chartered American-flag vessels to date to cover 213,000 long tons.

Item No. 10

In the fifth paragraph on page 4 of his letter, Mr. Dewey states there is a "flouting" of export control regulations and Presidential directives.

Comment.-This statement is false.

In summary, I have attempted in the foregoing to touch on identifiable points contained in Mr. Dewey's letter. We have endeavored to be factual and to deal in specifics rather than generalities.

I believe there has, unfortunately, been some misunderstanding on the part of Mr. Dewey concerning our shipping policies and procedures relative to the commercial wheat sales to the Soviet-bloc countries.

Please let me know if we can furnish additional information on this subject. Sincerely yours,

ROBERT E. GILES, Acting Maritime Administrator.

PACIFIC AMERICAN STEAMSHIP ASSOCIATION,
San Francisco, Calif., January 24, 1964.

Re wheat to Russia; shipping problems.

Hon. HERBERT C. BONNER,

Chairman, House Merchant Marine and Fisheries Committee,
House of Representatives,

Washington, D.C.

DEAR MR. CHAIRMAN: You and your fellow committee members are to be commended for calling a hearing to inquire into the shipping aspects of the wheat-toRussia program. It is a most timely inquiry and comes in the midst of some shocking developments concerning American-flag participation, or rather the lack of it, in this program.

To put it into brief terms, the American merchant marine has gone from 100percent 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.

We recognize that the Cargo Preference Act does not completely cover cash sales in the wheat-to-Russia program, although it does apply if loan financing is used. However, we have taken in good faith the statement of the President of the United States when he said that the program would move in U.S. ships when available at reasonable rates; and we have taken in good faith the proposal by the Department of Commerce to reduce our share to 50-percent U.S.-flag participation as a practical matter. We resent with fullest vigor the devices that have been used by the USDA and by orders of the Maritime Administration which have effectively destroyed the plan whereby the 50-percent participation was to have been accomplished. A precedent has been set which needs to be corrected and which your committee can be most influential.

To take the events in their proper sequence, when the industry sat down in late October and early November with Under Secretary of Commerce Roosevelt, together with the Acting Administrator of the Maritime Administration, Mr. Giles, to determine a proper course of action in this matter, we quickly recognized that physically the American merchant marine was probably not available to carry 100 percent of these cargoes and that a 50-percent participation would be more in keeping with the cargo preference statutes. Certainly, 100 percent could not be carried in the face of other commitments in other oversea programs. Following these meetings, the export control authorities in the Department of Commerce published rules and regulations which provided for a mandatory 50-percent U.S.-flag usage in the granting of any export license for the wheat-to-Russia program. This had the conurrene of our group and most other groups representing the American merchant marine. Following this, the Maritime Administration undertook a series of discussions with the industry to get their views on fair and reasonable rates to be established in this program. It was proposed that rates

in this program be based upon existing levels of fair and reasonable rates used by the Maritime Administration and applicable in Public Law 480 programs to other nearby ports. In these discussions, we learned that Maritime intended to publish two different fair and reasonable rates; one would be for conventional tramp vessels (i.e., vessels under 15,500 deadweight tons) and a lower rate would be for superships (i.e., vessels over 15,500 deadweight tons). It was generally agreed that within recent years the superships had quoted rates roughly 20 percent below rates quoted by the conventional tramp vessels under the U.S. flag. We did not object to this plan, but did urge that the rates be adjusted to reflect cost increases arising since 1957 when the rates were set.

In late November the Maritime Administration published what they considered guideline rates (i.e., fair and reasonable rates) for the wheat-to-Russia program and included rates for vessels in the two different size categories. No adjustments for cost increases since 1957 were included therein. The berth line operators felt however, that they could live with the fair and reasonable rates for conventional tramp vessels (under 15,500 tons) since these rates closely approximated what is historically a fair and reasonable rate for American-flag berth vessels in parcel lots.

All of the informal agreements with the Secretary of Commerce's Office and with the Maritime Administration and all of the understandings on rates, came to a crashing halt on January 9 when the Maritime Administration published its shipping regulation governing the wheat-to-Russia program. In these regulations, the Maritime Administration insisted that the grain brokers canvass all U.S.-flag segments (i.e., supership, tramp, and berth lines) before seeking a waiver for nonavailability. But in the next breath, the same order said that the guideline rate for the wheat-to-Russia program would be the supership rate; namely, that which would be 20 percent under a conventional tramp and berth parcel rate. In effect therefore, 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.

For a few days after this order was published. berth carriers and tramp-vessel owners consoled themselves with the advise from Department of Agriculture, amply reported in the press, that foreign purchasing missions had been told by USDA that they would no longer approve vessels of the supership size in the Public Law 480 grain programs. By this means, USDA implied that superships would be fully occupied in the wheat-to-Russia program and would have for the other U.S.-flag vessels the usual Public Law 480 cargoes.

This consolation prize vanished in thin air within a few days when it was learned that certain superships which had offered their vessels in the wheat-toRussia program were turned down not because of rate considerations but because the vessel draft fully loaded exceeded that which was available at either the Black Sea or Siberian Pacific coast ports of Russia (i.e., 31 feet) (most superships are 32-35 feet loaded).

We thus see that the entire scheme for ocean transportation, under the direction of the U.S. Department of Agriculture, with the apparent concurrence of the Maritime Administration has resulted in shutting out not only U.S.-flag berth and tramp vessels by reason of rate discrimination, but also has frustrated the American superships by reason of inadequate draft in the Russian ports. These port drafts in Russia were common knowledge in steamship offices but apparently not known by the Maritime Administration.

One quickly comes to the conclusion that the Department of Agriculture marketing experts, when they farmed out the wheat-to-Russia program, made provision for a grain subsidy in excess of the usual subsidy in an amount only sufficent to cover the barest minimum of ocean freight costs. In other words, in providing approximately 142 cents per bushel more export subsidy to the grain brokers than was normal, they allowed only sufficient freight costs in the program to cover carriage of grain on American superships or on foreign-flag tramps and as noted above, even the superships are left out now. As things now stand, the foreign tramp ships will profit most from freight revenues, but not the Americans. How this helps our balance of payments really escapes us.

A number of American-flag carriers on the Pacific coast have offered their vessels for parcels of grain at fair and reasonable rates to the agents for the Continental Grain Co. and have been turned down. In one instance; namely, the Waterman Steamship Corp., of California, the turndown of their offers of fair and reasonable rates of 7,000-ton parcels at $17 per long ton to Nakhodka has

resulted in the layup of two vessels in the port of San Francisco with a possibility of a third layup within the next 10 days. American President Lines and Weyerhaeuser Line both offered full or parcel lots at $17 and were likewise turned down.

We can't even get a share of the movement of bagged flour which has been sold to Russia. Here again, Continental Grain Co. is the seller. The Maritime Administration announced in November that they would publish guideline rates for bagged flour in the Russian program, and published a rate of $24.25 per long ton from the Pacific Northwest to Nakhodka. The most recent American rate to the nearby ports in Korea is approximately $31 per short ton, equivalent to $34 per long ton. This rate is quoted by both foreign and American carriers engaging in the berth trade to the Far East and is deemed a fair and reasonable rate.

When we wired the Maritime Administration asking how they arrived at the $24.25 rate, they advised us: "Rate is keyed to ships under 15,500 deadweight for full bulk cargo." We have checked the market situation in recent months and find that there have been no American-flag bulk cargo of flour to that area at such rates. We can only surmise that Marad used a foreign-flag charter rate in determining a rate for U.S.-flag berth ships. We don't mind losing business to foreign-flag lines if we cannot help ourselves, but in this instance, our own Government has used the rate to freeze out berth carriers. We doubt that rail rates, or truck rates, have been whipsawed in similar manner in this program.

The Maritime Administration has cautioned the industry against referring to the published rates as "fair and reasonable rates." Rather, they say these are "guideline" rates. We are not impressed with the semantics used by the Maritime Administration in this matter or by the Department of Agriculture. Insofar as we are concerned, the entire program was designed to follow closely the intent of the Cargo Preference Act which requires that each segment shall participate at rates fair and reasonable for the carriage in that segment of trade.

In recent press reports, it is reported that if the Russian wheat program which has moved to date from all ports within the United States, only 37,000 tons out of near 300,000 tons have gone U.S. flag, the balance going foreign flag. On the Pacific coast there has been no American-flag participation and the way matters stand, none in prospect.

Our plea is that nonavailability waivers be granted by Marad to the Continental Grain Co. and other brokers only when they have been unable to find American-flag vessels at the guideline rate applicable to each segment. If USDA must adjust its deal with Continental Grain Co. to accomplish this, so be it. As matters stand, they are purposely flouting the export control regulations and Presidential directives.

We trust that the above information can serve as a guide to the kind of information that your committee members will seek when witnesses from the U.S. Department of Agriculture and from the Maritime Administration appear on January 29.

By separate communication, I have asked for time to appear on January 30 at your committee's hearings.

Yours very truly,

RALPH B. DEWEY, President.

ATTACHMENT No. 1

[From the New York Times, Jan. 1, 1964]

CAPACITY OF U.S. SHIPS LIMITED FOR CARRYING WHEAT TO SOVIET

INDUSTRY ESTIMATES IT COULD TRANSPORT NO MORE THAN 40 PERCENT OF PROPOSED PURCHASE OF 4.5 MILLION TONS

(By Werner Bamberger)

There simply is not enough American shipping to carry half of the proposed wheat sale to the Soviet Union, trade sources said yesterday.

The original talks on the deal contemplated a total of 41⁄2 million tons. The Department of Commerce imposed a requirement that half of any such cargoes be carried in ships flying the American flag-if they were available at the specified rates.

But the consensus of shipping industry sources yesterday was that, even if all available oil tankers were pressed into service, no more than 1.8 million tons, or 40 percent of the total, could be handled by the U.S. merchant fleet.

There is considerable doubt that the Soviet Union will buy all it originally negotiated for. Even so, the trade sources said, there will not be enough American shipping to handle half of a large grain deal on a short-term basis.

At present the rates for American-flag ships are about $7 higher than foreignflag rates for 10,000-ton vessels and about $4 higher for vessels in the 15,600to 30,000-ton range.

The larger ships are permitted to carry wheat at a 20-percent discount from the rates applicable to the 10,000-ton vessels. For all practical purposes, the smaller ships are said to be disqualified because of the higher rates.

Dry-cargo tramp-ship operators noted that the American tramp fleet consisted of about 115 active vessels. About 20 units were said to be larger vessels in the 20,000-ton class and the remainder Liberty and C-2 type ships in the 10,000-ton range.

Unless additional American-flag tonnage is made available-presumably tankers that would be diverted from carrying oil-the dry-cargo tramp fleet could carry only 15 to 20 percent of a large-scale wheat export program to the Soviet Union.

Whether tankers will be diverted in large numbers to grain carriage appears doubtful, many U.S.-flag vessels are profitably employed carrying refined products over coastal routes at favorable freight rates.

However, some tanker tonnage, particularly in the supertanker class, was said to be available. This could be supplemented, to some extent, by carrying grain shipments in vessels owned by subsidized steamship lines. These ships are normally employed on fixed routes.

Earlier this month one grain cargo to Hungary was moved by a subsidized vessel.

However, even if large tankers and some subsidized tonnage were brought into play, only 30 to 40 percent of the wheat exports could travel in American ships. The shipping industry views were expressed in response to inquiries concerning the granting of two export licenses by the Department of Commerce to Continental Grain Co.

The two licenses authorized the sale of about 700,000 tons, or $40.6 million worth of wheat, to the Soviet Union. It would be a cash transaction.

A spokesman for Continental said here yesterday that no negotiations were being conducted now. He said that the company was not looking for tonnage to cover that shipment, but added that a few unsolicited offers of American-flag ships had been received.

He said the sale of the 700,000 tons was "just a big question mark" now. Shipping industry sources referred to the Continental licenses as "hunting licenses" and explained that the issuance of a license was no guarantee that any "game would be bagged."

It was recalled that when shipment of 100,000 tons of wheat to Hungary was made earlier this month only 9,000 tons of it could be booked on American-flag vessels. A waiver was granted by the Maritime Administration to permit 41,000 tons of that shipment to travel in foreign-flag ships.

Other potential obstacles to large-scale sales of wheat to the Soviet Union were said to be:

Soviet unwillingness to pay the higher freight rates for American ships. The ability of American tramp ships to keep busy with cargoes through Government-sponsored exports of agricultural surplus commodity exports under Public Law 480.

Doubt as to the ability of Russian ports to handle large tanker-borne grain shipments, which may require special pneumatic unloading equipment.

The possibility that American maritime labor might boycott foreign-flag ships carrying wheat to the Soviet Union. The Seafarers International Union earlier this month made an unsuccessful attempt to delay through picketing a West German vessel carrying Hungarian wheat.

Industry sources said they did not anticipate any relief in the situation from the authority granted the Administration on Monday to allow Export-Import Bank credit guarantees for commercial wheat export transactions.

ATTACHMENT No. 2

U.S. DEPARTMENT OF COMMERCE, MARITIME ADMINISTRATION
VOYAGE CHARTER RATE ADVICE NO. 1-TO TURKEY

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From one port of loading to one port of discharge.

Loading and trimming expenses for account of vessel-discharging expenses for account of charterer.

Posted spot bunker fuel prices in effect May 15, 1957.

No provision for war risk insurance or war zone bonus.

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. Effective: May 15, 1957.

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