APPENDIX MEMORANDUM OF REPRESENTATIVE O'LEARY IN SUPPORT OF H. R. 4207 The Merchant Marine Act of 1936 provides under section 201 that the Commis sion shall be composed of five persons to be appointed by the President, but that vacancies shall not impair the power of the Commission to execute its functions so long as there shall be three members in office. This normally contemplates vacancies in a permanent Commission through death or resignation. The present Commission is not yet confirmed and rumors persist of pending resignations. In my opinion, it was clearly the intent and purpose of Congress when it limited the time under section 704 of the act within which the general policies of the Commission are to be definitely fixed and all the Commission's vessels turned over to private owners or operators that the permanent Commission of five members would be appointed immediately after the approval of the act, so that the members of the Commission would have practically a full year within which to determine the varied and important problems which Congress placed upon them. The intricacy of the problems require at least a full year for investigations, hearings, and deliberations. On the contrary, no confirmed Commission has yet been appointed, although only 5 months yet remain under the terms of the act in which so many momentous decisions must be made. The year contemplated by Congress has been further curtailed by reason of the recent decision of the Comptroller General holding that the operators of the Government-owned ships shall be entitled to receive no compensation for any voyage which terminates after the conclusion of the year (June 30, 1937). As round voyages of the Government-owned merchant vessels now operated by managing agents range from 6 weeks to 5 months in length, the apparent 5 months has thus been actually reduced to a few weeks by this unanticipated decision of the Comptroller General. Hence if H. R. 4207 or some other bill giving the same relief is not enacted these problems must be decided hastilyif they are decided at all—by a temporary or unconfirmed Commission, contrary to the plain spirit of the act and the intent of Congress. INTENT OF CONGRESS The intent of Congress is stated generally in the last sentence of section 101: "It is hereby declared to be the policy of the United States to foster the development and encourage the maintenance of such a merchant marine." Under section 210 it is stated: * * * * "It shall be the duty of the Commission to make a survey of the American merchant marine, * * so that soon as practical the following objectives may be accomplished: First, to provide shipping service on all routes essential for maintaining the flow of foreign commerce Second, the ownership and the operation of such a merchant fleet by citizens of United States * * * * * * * This obviously contemplates a deliberate consideration and final determination of the trade routes. This requires an intimate knowledge of the general merchant shipping industry, to be gained from a carefully planned and wellorganized investigation that may be expected to assure the permanency of a merchant marine as far as human foresight may do so. * * * In furtherance of this preliminary survey, it is provided in section 211 that"The Commission is * * * directed to investigate * * * (a) The ocean services, routes, and lines from ports in the United States which are, or may be, determined by the Commission to be essential for the promotion, development, expansion, and maintenance of the foreign commerce 145 * * * * * of the United States, and in reaching its determination the Commission shall consider and give due weight to * * * any other facts and conditions that a prudent business man would consider when dealing with his own business * (b) the type, size, speed, and otlier requirements of vessels, with a view of furnishing adequate, regular, certain, and permanent service * * * (d) The relative cost of marine insurance, maintenance, repairs, wages, and subsistence of officers and crews and all other items of expense * * * (e) The extent and character of the governmental aid and subsidies granted by foreign governments to their merchant marine; * * the possibilities of promoting the carrying of American foreign trade in American vessels; * * * "" * The foregoing extracts indicate only superficially the extent and the depth of investigation which must be made under the direction of Congress before any permanent decision may be reached as to the general policies of the Commission on the future of the American merchant marine. A billion-dollar industry would run a minimum risk of disruption if that intent of Congress is carried out to the letter. BIDS ARE PREMATURE NOW Before a ship operator would be justified in bidding for Government merchant vessels or complete operating lines, either under bareboat charter or by outright purchase, he should be assured of a permanent and definite policy on the part of the Government. A bidder who bids before these essential elements are crystalized is clearly inexperienced, or is a speculator at ultimate Government expense. When his calculations are upset by a later declaration of policy by the Commission he is forced to turn the ships back to the Government again and the distressful experience that the old Shipping Board went through in the early 1920's will be repeated, with consequent unfavorable reaction by the shipping public. One of these elements is the labor situation. This is expressly treated by section 301 of the act, under which * * "The Commission is authorized and directed to investigate the employment and wage conditions in ocean-going shipping and, after making such investigation and after appropriate hearings to incorporate in the contracts minimum manning scales and minimum wage scales and reasonable working conditions for all officers and crews employed on all types of vessels receiving an operating-differential subsidy." The contracts referred to above are the contracts for which requests for bids are now being issued by the Commission. But the Commission has not had sufficient time and has not reached any permanent determination of these important questions. The act continues under the same section (301)— "No change shall be made therein by the Commission except upon formal complaint." Obviously Congress intended that these fundamental questions should have the full and deliberate consideration of a complete permanent Commission that must assume the responsibility for results and that, after these questions had been so determined, the operators and charterers of ships might look upon the determination as being of a permanent character upon which they would be justified in placing reliance in bidding for the lines. BIDDERS REQUIRE COMPLETE FACTS Bids for the lines may be requested under sections 704, 705, and 706 of the Merchant Marine Act of 1936. Before a bidder is in a position to prepare an intelligent bid and before a responsible bidder can be expected to bid he must know with reasonable accuracy the exact conditions he must meet in the operation of the ships for which he is asked to bid. In addition to the questions above referred to, perhaps the most-important element is that of the operating-differential subsidy for which the act provides. This feature of the act is by far the most important factor in attracting bidders for private operation of the lines. In the Merchant Marine Act of 1920 is provided, in section 7 thereof, a statement of the general purposes and policy of the Government, viz: "The Board (United States Shipping Board) is authorized to sell, and if a satisfactory sale cannot be made, to charter such of the vessels referred to under section 4 of this act or otherwise acquired by the Board, as will meet these requirements, to responsible persons who are citizens of the United States, who agree to establish and maintain such lines upon such terms of payment and other conditions as the Board may deem just and necessary to secure and maintain the service desired." That act was passed nearly 17 years ago, but in spite of all efforts made by the then United States Shipping Board and its successors, the Government has never been able to make a satisfactory permanent arrangement by which its vessels have been chartered for private operation. The operating-differential subsidy now provided in the present act seems to provide the essential lacking in the prior merchant marine acts to induce independent operators to acquire Government vessels under charter. It is therefore apparent that unless the terms, conditions, and amounts of the aid to be provided by these operating-differential subsidies are definitely established before bids are submitted the advantage of the present act will be totally lost and the Government will find itself in the position it has found itself for the past 17 years in its unsuccessful attempt to negotiate satisfactory charters for private operation of its lines. Sections 601, 602, 603, 604, and 605 deal specifically with the matter of an operating-differential subsidy for independent owners of vessels, but section 708 provides: "The Commission may, if in its discretion financial aid is deemed necessary, enter into a contract with any charterer of its vessels for payment to such charterer of an operating-differential subsidy upon the same terms and conditions and subject to the same limitations and restrictions as are elsewhere provided in this act with respect to payments of such subsidies to operators of privately owned vessels." The Commission is now fully informed that there is an operating loss suffered by the Government on all the services. This deficit reflects the absence of a mail subsidy in each case. To interest any responsible bidders for these services the operating-differential subsidy provided for by the act must be greater than the actual operating loss sustained by the Government on these lines, respectively. Therefore the bases and the amounts of these operating-differential subsidies are essential to an intelligent bid or to the obtaining of any responsible bids at all commensurate with the importance of the service and the Government's investment in its establishment. Before these subsidies may be ascertained the directions of Congress in determining them must be obeyed. Congress demands a full and complete investigation and hearings at which all parties interested may be heard. Section 602 of the act provides: "No contract for an operating-differential subsidy shall be made by the Commission for the operation of a vessel or vessels to meet foreign competition except direct foreign-flag competition, until and unless the Commission, after a full and complete investigation and hearing, shall determine that an operating subsidy is necessary to meet competition of foreign-flag ships." This complete investigation is based upon the determination by the Commission of a large number of facts of which the following are a few: The excess of the fair and reasonable-(1) cost of insurance; (2) maintenance; (3) repairs not compensated by insurance; (4) wages; (5) subsistence of officers and crews, and (6) any other items of expense which the Commission shall find and determine that the applicant is at a substantial disadvantage in competition with vessels of the foreign country hereinafter referred to (Sec. 603 b). Under section 603 the amount of such subsidy shall be determined and payable on the basis of a final accounting made after the end of each year or other period fixed in the contract. But the Commission may provide in the contract for anticipatory payments which it may deem proper prior to the end of the year, but such payment shall not exceed 75 percent of the estimated amount accrued on account of the subsidy (Sec. €03 c). This provision raises a serious obstacle to the obtaining of bids which cannot be removed under the terms of the act without some determination by the Commission, either by a fixed measure or some minimum limit or other tentative but definite basis for the fixing of an operating-differential subsidy based upon the past performances of the lines during the years they had been operated by the Government. From a practical viewpoint the lines under consideration have been operated under the direct supervision and control of the Government and it is to be assumed that the managing agents have under such supervision obtained the best results under the conditions of world trade they had to meet. Accordingly, the Commission cannot be in the dark as to the practical difficulties of making these lines pay without a Government subsidy. The present request for bids is apparently an attempt to carry out the letter of the act in respect to the present Government-owned ships and in the light of the ruling of the Comptroller General, but the Commission is handicapped in carrying out the obvious intent and spirit of the act for the best public interest simply because of lack of time, resulting from the wording of section 704 of the act. That the Commission is convinced of the gravity of this unanticipated situation thrust upon it, is apparent from the fact that in its request for bids it proposes charters for 1 year only (which option is given to them under section 711 of the act). This section, however, permits the granting of charters up to 3 years in length, hence it is logical to assume that if the Commission felt it had now reached a definite determination upon a general policy for a permanent American merchant marine, it would not charter its ships on a basis of 1 year charters--so obviously temporary-but would charter them for full 3-year terms, especially in view of the fact that the ships in question are approximately 18 years old and would be considered obsolete at the end of the 3-year period. It is therefore apparent that the Commission itself recognizes that the time allowed since its appointment is inadequate to reach the deliberate determination that the act contemplates and is therefore giving itself an extra year (through short-term charters) to make the necessary investigations. The same remedy will be made available to the Commission without any danger to the goodwill and smooth operation of the line now in effect by the passage of H. R. 4207. Among the many disadvantages of a charter for only 1 year is the fact that under the charter the Commission requires the charterer to maintain the ship in class throughout the year, and to drydock her at least once in 8 months. This provision would not be onerous if the charterer were assured that he will continue to operate the vessels for a longer period of time, during which unusually heavy voyage expenses experienced in one year might be averaged or distributed over a longer period, but, if allocated to 1 year's operation, would make the operation hazardous and prohibitively expensive. This is an eventuality which must be taken into consideration by any prudent bidder. Heavy voyage repairs should be considered somewhat as a capital investment and provision for treatment accordingly would be made by every responsible bidder. The plan for short 1-year charters carries with it grave dangers to the very existence of these lines, of which the following are some of the most important reasons: 1. There is no assurance that the present operators of the lines will be the successful bidders for the lines they have been operating, respectively, for many years. 2. It is impossible for a new operator in the short space of 1 year, to continue the smooth and successful operation of a line with which he is not entirely familiar. 3. The goodwill built up by the present operators of these lines may easily he destroyed during the 1-year charter through the inept management, and lack of experience, in the particular trade, of a new operator. 4. The organization and experience of the present operators will not be available to a successful bidder unless the new bidder can also take over the operating agent's organization in toto, of which there can be no assurance. 5. A new charterer cannot properly establish himself within a year in any particular trade, with resultant loss of business and decrease in the value of the line. 6. If the successful bidder is already operating a line, there would arise the question of whether or not monopolies should be created. Certainly the spirit of the act condemns this result. 7. Unless the new bidder performs a miracle in retaining the goodwill, establishing a smooth-working organization with facilities at least equal to those now offered; becomes intimately acquainted with the particular trade (all of which depends upon his guess as to whether he will be the operator of the line beyond the period of his charter) the value of the line must be decreased by an indeterminate amount both as to the commerce it carries and the value of the line and its selling price, if the Commission attempts to sell at the end of the charter period. The intent of the Government for the past 20 years and the object of its enormous investment in developing these trade routes and the operating personnel, both on the vessels and in the operating management, has been to establish an American Merchant Marine commensurate with the volume of American foreign trade, and the necessities of possible impairment of the results of the great effort expended to obtain the present results. Another difficulty that cannot be overemphasized, and which requires careful consideration before the lines should even be offered for charter, is the question of competition between Government-subsidized lines in those trade routes which are definitely established and the mail contracts which are placed under the act. CONCLUSION No good can be expected from any hasty step, while serious harm and disadvantages will surely result from the disturbance of the present operation of the lines and the uncertainty that will result and continue throughout the period of the year during which these proposed charters would be in effect. Great damage has occurred in the past because of the uncertainty and vacillation of the various successive boards which have repeated their predecessors' mistakes, but have not determined the definite policy which is now contemplated in the new act, although the previous merchant marine acts and the Shipping Act of 1916 had placed this duty upon the old Shipping Board. The passage of H. R. 4207 would eliminate this uncertainty until a permanent Commission is appointed and will have had a reasonable time within which to fix a definite policy, after having given all parties interested full opportunity to present all the facts, and during which period the Commission itself may make a complete investigation and study of the whole broad subject, and collect data for its own information in reaching the conclusions for which the country and Congress have been waiting for so many years. The proposed action requires an election of one of three courses. are received and accepted, there are only three possible results: 1. A new, inexperienced operator will attempt to operate the year; or If any bids lines for a 2. The lines may be captured by another operator, and thus eliminate one or more established American shipping companies, all leading to the creation of a private American shipping monopoly; or 3. The present operators will continue to operate the lines. The first eventuality would result in a break-down of the lines through the inexperienced, although well-intentioned, efforts of a new operator, because the time of the charter is too short. The second eventuality is directly contrary to public policy and the spirit and purpose of all the merchant marine acts since 1916. The third eventuality can be made certain by the extension of time provided in H. R. 4207. The expedient of a 1-year charter, leading to any disruption of the present service and their management, before the full future program for the American merchant marine has been definitely developed and promulgated, can only result in a loss of goodwill and confidence upon the part of the American shipping public, and a serious loss of revenue to these lines by the possibility, in my opinion, that the management of existing companies, if unsuccessful in their bids, will continue to operate under a foreign flag until such times as the Maritime Commission fully promulgates the policies of the operating differentials in connection therewith. RÊSUMÉ Appointment of Commission: Full year intended for determining policy; at least full year necessary. Only 5 months' time left; actual time reduced by Comptroller General decision; no payments when voyage ends after June 30; voyages, 6 weeks to 5 months. Only three now appointed; appointments in September 1936; only temporary; responsibility for results absent. Act requires five permanent members. Information for bidders: Definite policy announced by Government (Commission). Wages; working conditions required; whether competition between |