As a further benefit that may be expected to flow from such action, the way would be cleared for the Commission to devote as large a portion of its time as it may require between now and the 29th of June 1937 for the adjustment of the ocean-mail contracts, another duty that has also been imposed upon the Commission by Congress.

A further indication that the Commission is short of time is the fact that no hearings have been held of which we have had any notice upon the form of the proposed charter and the planning of the proposed sailing schedule.

In the shipping world in general, charter parties result from prior negotiations between owner and charterer and record the meeting of their minds upon a contract that may be assumed to be reasonable in operation. The Commission has not had time to resort to this usual method of obtaining at least the opinions of the potential charterers as to the terms of a contract into which they might be inclined to enter.

It seems obvious that the Maritime Commission, in taking the action that it is now about to take, is motivated solely by its desire to comply with the exact terms of the act in its present form, according to its interpretation thereof, without taking into consideration the practical obstacles now encountered by the members because of the delay in appointing the Commission, the unforeseen "outlaw" seamen's strike, and the recent ruling of the Comptroller General. Accordingly the proposed amendment will secure exactly the benefits that the 1-year charters are calculated to secure-that is, sufficient delay to permit the Maritime Commission to make the necessary investigations and determine upon its final policy-and at the same time will avoid the serious dangers which accompany the present plan. Another important subject of investigation and determination by the Commission is the fixing of the amounts of operating-differential subsidies to be granted to the charterers of the various lines.

Incidentally, let me say there that the Commission or the former Shipping Board have, in the past, chartered certain of their ships on bare-boat charter, similar in some respects to the present proposal; yet in that case the charterer knew what his operating differential would be before his charter was contemplated or executed.

This applies particularly to the proposed consolidated line to be known as the American Hampton Roads Yankee-France U. K. Line. There can be no question that (1) an operating-differential subsidy must be granted, and (2) it must be available to the proposed line as soon as it commences operations. This inescapable conclusion is based upon the past performances of both the American Hampton Roads Line and the America-France Line, both of which show an operating loss in common with all others.

It is unbelievable that any responsible operator can be expected to bid for two lines that are showing a loss under separate operation, and which are to be consolidated under a sailing schedule which any experienced steamship man can see at a glance will result in additional loss to the consolidated service. At least that is our opinion, sir.

This situation is again practically identical with that considered by the President's committee above mentioned. It considered the

question of mail contracts to be awarded lines to be purchased from the Government. In this connection the report stated:

The services can be permanently maintained only with Government aid. Such aid cannot be justified by a profit it may produce to a shipowner, but by the benefit it brings to the country at large through the development of foreign commerce, and, of course, in incidentally strengthening national defenses.

I am quoting from the President's committee, in connection with the report they submitted at that time.

Mr. CULKIN. What was the date of that report?

Mr. PAYNE. 1930. The report goes on further to say:

To assure the services being placed on a secure basis, the sales and the awarding of the mail contracts should, so far as possible, be consolidated transactions.

This states the present situation in a nutshell because the operating-differential subsidy must also be the subject of the same transaction by which the lines are chartered. This carries with it the requirement that the amount of the operating subsidy must be known before an intelligent and acceptable bid for the line may be made. Now at the present time, this is the 17th of February and the bids are supposed to be in by the 1st of March, and we are not yet informed as to what that amount would be. Upon this subject the report states:

Until the replacements necessary during the terms of the mail contracts are determined, and the excess costs of operation and construction are ascertained, the required mail compensation cannot be computed, and the fair purchase prices at which the services and ships should be sold cannot be fixed.

Similarly, the operating-differential subsidy cannot be computed until the excess costs of operation shall have been ascertained and, therefore, a standard of what might be considered to be a fair bid for the lines cannot be fixed.

The calculation of the operating-differential subsidies involves the solution of many complex, interrelated, and technical questions, which, to be properly dealt with, will require the undivided attention of the Maritime Commission and its corps of experts, with full data and information at hand, after full hearings to which all interests involved in the matters may be discussed, and all available viewpoints presented to the Commission by experienced steamship operators from the Atlantic, Gulf, and Pacific coasts.

The fundamental subjects comprising the elements of an operatingdifferential subsidy which are directed to be investigated and conclusions thereon determined, have been pointed out by Congress in section 211 of the act.

These objects are: (A) The establishment of essential trade routes. (B) The relative costs of (1) marine insurance, (2) maintenance, (3) wages, (4) subsistence of officers and crew, (5) cost of operation. (C) Subsidies granted by foreign governments to foreign-flag ships.

In this respect I think it is proper to mention right here, for example, the French Line, who is our principal competitor, is substantially owned by the Government itself today, and, in addition to its many benefits, the lower costs of operation, it receives, I am told, something in the neighborhood of $13,000,000 in addition, for the operation of that single line alone.

The mere statement of these elements of investigation gives us but a meager idea of the innumerable details and facts which must be collected and correlated to arrive at concrete findings of fact and ultimate conclusions of policy.

As part of the question of essential trade routes there must be determined finally the question of competition between Governmentaided lines. This controversy has already been the subject of extended investigation by the old Shipping Board, which expressed its policy to be distinctly opposed to such competition but which took no effective steps to correct then existing conditions.

Under the spirit of the act, Government subsidies are intended to build up the American merchant marine and not finance and promote competition between two lines receiving Government aid. The establishment of a trade route must involve a program to meet competition offered by foreign-flag lines operating between the American and foreign ports served by Government-owned lines. Competition may be met either by equal or faster service or by a differential in freight rates.

The purpose of establishing trade routes is to accommodate and develop the business of American exporters and importers and must be designed to meet and overcome competition of foreign-flag lines. Under the sailing schedule proposed for the new America Hampton Roads Yankee-France U. K. Line, the element of speed between American and foreign ports of destination allowed in the schedule must be dismissed from consideration, we submit, because the American ships on that schedule will not be able to begin to compete in speed of delivery with the regular conference lines, nor even with the tramp line competition operating out of American North Atlantic ports. These tramp lines are not members of any conference, and their freight rates are considerably lower than the conference rates.

To meet this competition, freight rates charged by the proposed consolidated lines would have to be reduced even below those of the tramp lines, because of the relative slowness of the new line's vessels. No provision is made for an operating-differential subsidy under the act to compensate for any freight differential and though an operating-differential subsidy based upon the formula contained in the act be granted, even then the new proposed line can expect to operate in the red because its reduced freight revenues would not be sufficient to cover costs of operation even with the assistance of the subsidy.

But the proposed charter requires that the new line join the conference and charge conference rates. This requirement deprives the line of its only possible means of meeting all foreign-flag competition, with the result that the new line would start off badly handicapped by very adverse conditions and could not serve the purpose of the Merchant Marine Act in developing American commerce in American bottoms.

In conclusion, Mr. Chairman, we respectfully urge on this committee that the proposed bill, H. R. 4207, be reported out favorably without delay, since the Commission has already required that all bids for the Government-owned lines be filed with it on or before March 1, 1937.

As previously set forth, the bill should be reported favorably because:

1. When enacted, it will provide the relief which the Maritime Commission is apparently attempting to afford itself under its interpretation of the act and avoid the dangers attendant upon the present expedient.

2. The proposed consolidation of the two lines is too serious a matter to be disposed of so summarily without full time for deliberate consideration by a full Commission as required by the act.

3. A general policy for the establishment and maintenance of an American merchant marine under the spirit and intent of all merchant marine acts enacted since 1916 cannot be obtained by disconnected and piecemeal disposition of Government-owned lines, in view of the interrelated operation of many of them with so-called private interests, caused by inadvertences of the old Shipping Board in the past.

4. If charters for a single year are put into execution at the present time there is grave danger that experienced operators may be forced to resort to operate foreign-flag vessels or disband the personnel of efficient and long-established organizations to the detriment of the American merchant marine.

Right there I would like to say, Mr. Chairman, that going back to 1920, when we were founded, there were more ships than there were experienced operators to operate the ships, and we might find ourselves confronted with that same thing. And I submit it is of equal importance, if not of greater importance, to have the personnel who can secure the business for the ships that you have as it is to have the ships to operate without personnel.

5. The Commission can devote full time to the proper determination of the essential trade routes and the best means of developing the American merchant marine to its highest level to compete with the already highly efficient foreign-flag services.

6. A yardstick, or some other measure for determining, with reasonable accuracy, the amounts of operating-differential subsidies to be granted to the various lines as soon as they come under the operation of successful bidders, must be adopted prior to the submission of bids.

7. The eyes of the world have been focused on the American merchant marine for years. The hope of its future permanency depends upon the intelligent application of the act of 1936. Any false move today can greatly impair and impede that future and can cause irreparable harm to an industry upon which the commerce and national defense of the nation as a whole depend. After 18 years of experimenting we should now know beyond any question what definite Government policy has been decided upon to maintain American ships on the high seas in competition with world shipping.

Mr. SIROVICH. How many ships does your company operate-the America-France Line?

Mr. PAYNE. Today we only operate five, sir.

Mr. SIROVICH. And what is the tonnage of those five ships?
Mr. PAYNE. Deadweight tonnage about 40,000 tons, sir.

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Mr. SIROVICH. And where do you operate, between what ports? Mr. PAYNE. Between North Atlantic ports and French Atlantic and Channel ports.

Mr. SIROVICH. What are those ports?

Mr. PAYNE. The ports of the United States are Baltimore, Hampton Roads, Philadelphia, Boston, and New York; the foreign ports are Havre, Dunkirk, Bordeaux, and St. Nazaire.

Mr. SIROVICH. How many years has your company been operating these lines for the Government?

Mr. PAYNE. Since 1918.

Mr. SIROVICH. Since 1918?

Mr. PAYNE. Yes, sir.

Mr. SIROVICH. And how old are those five ships you are now operating?

Mr. PAYNE. I would say about 18 years old.

Mr. SIROVICH. Is it not a matter of fact that when ships are at least 20 years old, they are absolutely obsolescent?

Mr. PAYNE. That is the general belief. I do not know that these ships would be absolutely obsolete.

Mr. SIROVICH. Is not one of the difficulties this company is now confronting due to the fact that a ship which is 18 years old cannot compete with a ship that has been built within the last 5 years? Mr. PAYNE. That is partly the truth; yes, sir.

Mr. SIROVICH. And the cost of operation is greater, of course?
Mr. PAYNE. That is correct.

Mr. SIROVICH. And the fuel consumption?

Mr. PAYNE. Very much greater.

Mr. SIROVICH. And is it not a matter of fact if this bill were passed by our committee, giving the Maritime Commission an extra year to study the problem involved in the construction-differential, in the operating-differential, in the trade routes and everything it is necessary for all these various lines to go through, and give you people the opportunity we should have given you years ago, to own and control that route and run it as businessmen and merchants would run it, that you perhaps could run this thing not in the red but in the black?

Mr. PAYNE. I think that is quite true, sir. We have two reasons that cause our so-called large losses today. France was the last country to feel the depression. It did not feel it until about the middle of 1932 and they are just now coming out from under that sloth. The Secretary of State worked out a reciprocal-trade agreement with France in June, of last year, and I am glad to say it has been a very highly satisfactory trade agreement.

Mr. SIROVICH. It will increase business?

Mr. PAYNE. And will improve business and, according to the State Department's own figures, which I obtained last night, within the last 6 months it has increased business approximately 45 percent. Therefore I think the future prospects of the line are very much better than they have been since 1932.

Mr. SIROVICH. And since all of this legislation we enacted in the last session of Congress goes into operation about the 30th of June, 1937, and there are 42 contracts that have to be studied from the standpoint of the construction differential and the operating differential, the trade penetration, and going over the books to determine the cost of construction abroad and what your competitors have, it