AMENDING SECTION 704 OF THE MERCHANT MARINE

ACT, 1936

WEDNESDAY, FEBRUARY 17, 1937

HOUSE OF REPRESENTATIVES,

COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D. C.

The committee met at 10 a. m., Hon. Schuylar O. Bland (chairman) presiding.

The CHAIRMAN. We have met this morning, gentlemen, for the consideration of H. R. 4207, introduced by Mr. O'Leary, which reads as follows:

That section 704 of the Merchant Marine Act of 1936 (49 U. S. Stat. L. 20082009) be amended by striking out the words "within 1 year after the passage of this act", and by inserting in lieu thereof the words "within 2 years after the passage of this act."

The bill refers to certain Government-owned lines which have been operated by the Government under a lump-sum agreement. I think there are involved probably four lines-the American-France, the American Hampton Roads-Yankee; the Oriole, Pioneer, and American Republics Lines. The evidence will disclose the routes on which they operate and the terms on which they have been operated by the Government.

I have asked that there be distributed for the benefit of the members of the committee copies of the Merchant Marine Act which will give section 704. However, you will find the language of the existing law in the report of the Maritime Commission on the first page, and you will notice the concluding clause, "and all operations of the Commission's vessels by private operators under such operating agreements shall be discontinued within 1 year after the passage of this act." The proposed amendment is that there shall be substituted for the word "one" the word "two."

Mr. O'Leary has furnished me with a very comprehensive statement which, without objection, will be inserted in the record, and I will not undertake to read it now unless Mr. O'Leary particularly desires.

Mr. O'LEARY. No; I do not desire it to be read now.

The CHAIRMAN. I presume it will be brought out in the evidence, but it is a very comprehensive statement and will be printed at an early date so that the members may have the benefit of it. As I say, it involves these lines, and possibly, Mr. Schell, it would be well for you to tell us, just before we go on with this other testimony, where these lines operate, what ships, and then we will put you on later. But you might just do that now, so that the members may have before them a general picture of the operations.

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STATEMENT OF S. D. SCHELL, ACTING DIRECTOR, DIVISION OF TRANSPORTATION, UNITED STATES MARITIME COMMISSION

Mr. SCHELL. The Maritime Commission is now operating, through managing agents, 36 vessels.

The America-France Line serves the North Atlantic ports north of Hatteras.

The CHAIRMAN. Just name them, because some of the members do not know them, and I do not recall all of them myself.

Mr. SCHELL. The America-France Line, operating five vessels, serves North Atlantic ports north of Hatteras, to French channel and Atlantic coast. The French ports are Havre, Cherbourg, Dunkirk on the channel, and St. Nazaire and Bordeaux on the Atlantic

coast.

The CHAIRMAN. The America-France Line serves what ports on the North Atlantic, north of Hatteras?

Mr. SCHELL. Boston, New York, Philadelphia, Baltimore, and Norfolk.

The American Hampton Roads-Yankee Line serves those same North Atlantic ports and also the east coast of the United Kingdom and Hamburg.

The CHAIRMAN. What ports of the United Kingdom?

Mr. SCHELL. London, Hull, Dundee, and Leith.

Mr. O'LEARY. Is that line commonly referred to as the Southgate Nelson Line?

Mr. SCHELL. The Southgate Nelson Corporation is the managing agent of the American Hampton Roads-Yankee Line, and the Oriole Line, which serve the North Atlantic ports which I have mentioned and the Irish Sea ports, that is, the west coast of the United Kingdom and Irish ports. Those two services are operated by the Southgate Nelson Corporation. The America-France is managed and operated for the account of the Commission by the Cosmopolitan Shipping Co., of New York. The Southgate Nelson Corporation has its headquarters in Norfolk, Va.

The American-Republics Line serves all Atlantic ports from Portland, Maine, down to Jacksonville, Fla., but they do not serve all on the same voyage; they alternate their voyages, giving one South Atlantic coverage out of each three sailings, and they serve the east coast of South America. That line operates 10 vessels and is managed by the C. H. Sprague & Son, Inc., Boston, Mass.

The CHAIRMAN. What ports on the Atlantic do they serve?

Mr. SCHELL. All Atlantic ports.

The CHAIRMAN. Would you mind naming them?

Mr. SCHELL. Boston, New York, Philadelphia, Baltimore, Norfolk, Wilmington, S. C., Charleston, S. C., Savannah, Ga., Jacksonville, Fla.

The CHAIRMAN. And they serve what ports in South America? Mr. SCHELL. The east coast of South America, south of Para, Brazil.

The CHAIRMAN. What are the ports?

Mr. SCHELL. Rio de Janeiro, Buenos Aires, Santos, Rio Grande do Sul, Montevideo, and Uruguay.

The America-Pioneer Line is operated by the Roosevelt Steamship Co. It operates 12 vessels serving North Atlantic ports and South Atlantic ports which I have mentioned. One branch of the service goes to Australia and New Zealand; the other branch of the service. goes to the Far East ports, and those two services operate through the Panama Canal.

There is a third service which operates through the Mediterranean and Suez Canal and serves India ports. They operate 12 vessels which are the Diesel ships which the Government reconditioned. The CHAIRMAN. They were reconditioned under the Dieselization program which was undertaken many years ago?

Mr. SCHELL. That is right.

The CHAIRMAN. Ten or twelve years ago?

Mr. SCHELL. That is right. I think that gives a pretty general picture, Mr. Chairman.

The CHAIRMAN. Are all of those operated on the same terms?

Mr. SCHELL. They are operated now and have been for the past year under an agreement which we call "Operating Agreement, 1935." Under that agreement the Maritime Commission or the Government pays all the expenses, gets all the revenue; the managing agent is paid a percentage of the gross revenue, plus a percentage of the net profit, and is allowed a certain amount for his overhead administrative expenses.

Mr. NICHOLS. Are you doing that at this time, or is that what is contemplated?

Mr. SCHELL. That is the present operating agreement. Prior to this present agreement, we had what is known as a lump-sum agreement, or known technically as the "Operating Agreement of 1930." That was in effect for 4 or 5 years, and that method provided that we would pay to the managing agent a lump sum in dollars per voyage, estimated to be an amount sufficient to cover the losses in operation, and that method was changed because it was very difficult to determine accurately and currently the operating results of the lines, and it was severely criticized by certain Members of Congress, by the Comptroller General of the United States, and it was thought that the new form of agreement would act, first, as an inducement to the managing agent to get more revenue, because the percentage of his earnings was based on the gross revenue; and, second, giving him a percentage of the net profit was an inducement for him to economize in the operations.

I think, gentlemen, that gives a fairly general picture. If not, I will be glad to answer any questions.

Mr. JARRETT. Is this private shipping interests?

Mr. SCHELL. No, sir. These vessels are all owned by the Government, as the result of this wartime fleet which the Government built. Most of them have been sold; 199 of them are now laid up; 36 of them are in operation. The operation is directly for the account of the Government.

The CHAIRMAN. All right, Mr. Payne, we will hear you now.

STATEMENT OF INMAN H. PAYNE, VICE PRESIDENT COSMOPOLITAN SHIPPING CO., INC., NEW YORK

Mr. PAYNE. Gentlemen, I am here in defense of H. R. 4207. The CHAIRMAN. Possibly it would be well for you to state first, Mr. Payne, just who you are and what your connection is. I happen to know, but the other members of the committee do not.

Mr. PAYNE. Inman H. Payne; vice president, Cosmopolitan Shipping Co., New York; managing operators of the America-France Line.

Mr. Chairman and gentlemen of the committee, these facts are offered in support of bill H. R. 4207 by the Cosmopolitan Shipping Co., Inc., managing operators of the America-France Line, one of the lines still owned by the Government. It has operated this service for account of the Government continuously since 1918, but the line was not named America-France Line until 1923.

The Cosmopolitan Shipping Co., Inc., was organized in 1915 under the laws of the State of Delaware and, with its main office in New York City, commenced immediate activities as a steamship operator between United States North Atlantic and French Atlantic ports.

Between 1915 and 1918 it operated its privately owned Americanflag ships, together with chartered tonnage, and also acted as agents for and operated a large number of ships for account of the French and Swiss Governments.

The company also handled many ships for account of the United States Food Administration Grain Corporation, the Naval Overseas Transport Service, and various private interests, in addition. During and subsequent to the same period, the company operated ships not only to Europe but to South America, Africa, and the Far East, and at times had from 40 to 50 ships under simultaneous operation. In 1918, the company was approached by the Shipping Board and then offered to the Board its organization, docks, and full facilities to operate Government-owned merchant vessels. It has been engaged in this operation since 1920, to the exclusion of all other business.

Through its familiarity with the French trade, our management realized in 1923 the necessity of having its own organization in France for the promotion and development of American commerce and organized at that time a French subsidiary known as the Consortium Maritime Franco-American. This French subsidiary has established a chain of agencies throughout France and serves not only the America-France Line but all other American services from the United States, except the United States Lines and the Baltimore Mail Line.

Since the beginning of operations to the present time the company has carried over 6,500,000 tons of cargo between the United States and France alone, resulting in over $68,500,000 gross revenue. For many years it carried the major portion of the cargo moving between United States North Atlantic and French Atlantic and Channel ports.

Accordingly, we submit, the Cosmopolitan Shipping Co., Inc., stands in a unique position among the operators of Government