Second. That the cause for the high cost of ships in the United States rests largely with Congress through the legislative policy which it has adopted and is almost wholly beyond the control of the shipbuilder.

Third. That building abroad would in effect penalize American labor because of the higher wage rates prevailing in the United States.

Fourth. That the avowed purpose of the legislation would not be accomplished even if enacted.

Fifth. That the building abroad would have a serious effect on the shipbuilding industry as a factor of national defense.

1. Admission of foreign-built vessels to our coastwise trade.-Under this proposed legislation the Maritime Commission would be empowered to authorize the building of subsidized vessels abroad if the differential in cost exceeds 33% percent of the American cost. Taking into consideration the wage scales in the United States and abroad, it is doubtful whether any vessel for foreign trade could, at the present time, be built in the United States with a differential of less than 33% percent of the American cost. As a result, all vessels for our foreign trade might be built abroad under this legislation notwithstanding the specific language contained in the declaration of policy in the Merchant Marine Act of 1936 that

"It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine * *

"(d) Composed of the best equipped, safest, and most suitable types of vessels, constructed in the United States ** **

Congress is dealing, therefore, in this proposed legislation, not with the question of just building one or two vessels abroad, but with the larger possibility of building the entire program abroad.

Now, as to the use of these vessels if built abroad under the proposed amendment, let us note a further provision of the same section of the proposed bill (S. 3078), which reads as follows (lines 23-25, p. 8, and lines 1-3, p. 9):

"Notwithstanding any other provision of law, such vessels shall be eligible for an operating-differential subsidy upon being documented under the laws of the United States, under the same terms and conditions as if such vessels had been constructed in a domestic shipyard under the provisions of this act."

Under section 605 (a) of the Shipping Act of 1936 it appears, by inference at least, that there are conditions under which such a foreign-built vessel could possibly engage in the coast wise or intercoastal trade.

Whether this section to which I refer might or might not permit such foreignbuilt vessels to engage in the coastwise or intercoastal trade, it appears from a reading of the survey of the Maritime Commission (Economic Survey of the American Merchant Marine, November 10, 1937) that the Commission is at least sympathetic to the thought of building vessels for our coastwise, intercoastal, and industrial carrier trade in foreign shipyards. On page 42 of the Survey the Commission states:

"Construction in this field [that is, for coastwise and intercoastal traffic] would, of course, be stimulated if American building costs could be reduced: or if, as the operators suggest, they could build abroad

A further reference on page 42 of the survey to industrial carriers states: **** notwithstanding foreign-flag and other affiliations, it may be possible to induce the construction of some vessels by these operators. The same result could be achieved without any cost to the Government, it has been pointed out, if the companies were permitted to build ships abroad, register them under the American flag, and operate in both foreign and domestic trade."

Congress has assiduously protected the building of vessels for our constwise trade to American shipyards for over 120 years by the American Navigation Act of March 1, 1817. With one notable exception-that of the Merchant Marine Act of 1920, which allowed into the coastwise trade foreign-built vessels that had been admitted to American registry and were owned on February 1, 1920, by persons who were citizens of the United States, and a few other minor exceptions-this act has been held inviolate throughout from the early part of our history as a Nation. Any legislation that might possibly open the door for the admission of foreign-built vessels to our domestic trade is most objectionable, and I feel that this legislation, if passed, may do this very thing.

2. High cost of ships in the United States.--My second objection to this legislation is due to the fact that the cost of shipbuilding is largely beyond the control of the shipbuilder regardless of the country in which built. Only from 40 to 50 percent of the total cost of a vessel is spent within the shipyard. The remainder is spent for the materials and equipment the shipbuilder buys with which to build the ship; for taxes, insurance, and other items over which he

has little or no control. Adding to the shipyard labor the man-hours expended in the production of materials and equipment, no less than 80 percent of the total cost of a ship is for labor, and any factors that increase labor costs increase the cost of the finished ship.

Although the shipbuilder may plan his work with the utmost care, have the most efficient management and the best of equipment, his final cost will, nevertheless, as just stated, be largely dependent on and controlled by the cost of labor.

Due to the National Industrial Recovery Act and subsequent legislation, the avowed objects of which have been to increase the purchasing power of labor, the hourly earning rates in the shipyards from June 1933 to October 1937, as reported by the Bureau of Labor Statistics, Department of Labor, show that the rates have increased 49.5 percent. The steady upward trend of labor costs as reported from June 1933 to the present time is interesting and is as follows:

In comparison with the prevailing shipyard labor rates in the United States in 1937, it is significant to note the following statement by Sir Samuel Hoare, First Lord of the Admiralty, made early this year, as to rates of pay for a 47-hour week for hired workmen in the occupations stated below in the Royal Dockyards. These figures include a bonus of 17 shillings a week:

Recent information indicates that the corresponding rates in Holland (the country in which the Maritime Commission made its most recent study) are very close to the above rates. (Monthly Labor Review, November 1937, p. 1234). It will be noted that the prevailing rate in the United States is approximately 24 times higher than that prevailing in the shipbuilding trades in Great Britain.

Factors resulting in higher shipyard costs have had the same effect on material costs, as such a large part of the cost of manufactured materials is again made up of labor. Some wholesale price indexes for various shipbuilding materials as reported by the Bureau of Labor Statistics over the last 5 years are interesting and are as follows:

Another factor resulting in increased costs in domestic shipyards is the burden of social-security taxes. The following figures show the total contributions required of the employer expressed as a percentage of the pay roll for both Federal and State unemployment insurance and Federal old-age benefits for a 5-year period (1936-40):

Social-security taxes in principal shipbuilding States, showing total contribution required of employer, based on pay roll

Alabama, California, Connecticut, Maine, Maryland, Massachusetts, New
Jersey, and Virginia:

For 1936.

Percent

For 1937

For 1938.

For 1939

For 1940.

New York:

For 1936

For 1937.

For 1938.

1

3

4

4

4.5

1.1

3.2

4.3

4.3

4.8

For 1939.

For 1940.

3. Effect on labor.-The approximate effect on the employment of labor in building a $1,000,000 vessel abroad would be as follows: The cost of labor in the shipyard and in allied industries for such a vessel built in the United States would be not less than $800,000. The average labor rate for the shipbuilding industry, as stated by the Bureau of Labor Statistics, Department of Labor, for August 1937 is above 80 cents an hour. Assuming that this same rate applies in allied industries, a $1,000,000 ship, therefore, would give approximately 1,000,000 man-hours of work to labor, or, computed on the basis of a 40-hour week and 50 weeks a year, work for 500 men for 1 year.

Under the Merchant Marine Act of 1920, 96 foreign-built vessels, aggregating approximately 475,000 gross tons were admitted to the coastwise trade. These foreign-built vessels had been first admitted to American registry under the Panama Canal Act of 1912 and an amendatory act of 1914. By merely adding a few words to the Merchant Marine Act of 1920 they were given free entry to the coast wise trade. If these vessels had been built in American shipyards they would have provided work for not less than 10,000 men for 5 years. If subsidized American vessels are allowed to be built abroad it is quite conceivable that they might be similarly admitted to the coastwise trade at a later date even if contemplated to be ineligible under S. 3078.

4. The proposed act would not accomplish its avowed purpose.-Once foreign shipyards are assured that the United States is determined to build up its merchant marine by constructing its vessels at home, if prices are favorable, or by building abroad, in the event that foreign quotations are less than one-half those in the United States, it is to be expected that foreign builders would quote very low prices to obtain the work, probably without profit, possibly with only a part, if any, overhead included. This situation existed abroad for several years during the depression and can be expected again in the bidding on American vessels should work in the foreign yards be slack. In order to obtain the American business, suppliers of material and equipment abroad would very likely quote lower prices on ships for export and there would be no possible way by which the Maritime Commission could ascertain whether the bid on a foreign ship might be a normal price or a fictitious one quoted to get the business. The result would be added confusion rather than assistance in determining the differential between foreign and domestic shipbuilding costs.

One of the avowed purposes of this provision of the proposed amendment is to obtain a yardstick on foreign costs for the reasons given. The result in my opinion would not furnish an accurate measure of the difference in cost between a vessel built in the United States and a like one built abroad.

5. Shipyards and national defense. A further consideration in connection with this proposed legislation to be taken into account is the fact that American shipyards are a factor in national defense, and they are only effective in a time of national emergency if they are preserved in efficient operating condition at all times so as to be in readiness to meet a national emergency when it

arises. A permanent shipyard staff of technical and mechanical employees is essential for its efficient operation. The building of any substantial part of our shipping abroad would have a serious effect on the preservation and development of such a staff of employees.

It may be interesting to note also that a shipyard in building one or more vessels develops the plans of the vessels and they become a part of the records of the builder in the utmost detail. Vessels built under the act must meet the national defense requirements of the Navy Department and the builder is provided with detailed specifications on this matter. Consequently, any building abroad would place in the hands of the foreign yard the complete details of merchant vessels that may be used as naval auxiliaries, an important arm of our national defense.

In addition, it seems inevitable that, in the event of a national emergency in which a nation building vessels for American account is involved, that the vessels under construction would be requisitioned for the account of such nation, exactly as was done by the United States when it entered the World War in 1917, and this might occur notwithstanding the fact that such vessels may be urgently needed by this country for the services for which they were being constructed.

For all of the reasons given, I am opposed to section 9 of S. 3078 (lines 8-25, p. 8, and lines 1-3, p. 9) as harmful to the best development of our American merchant marine..

The CHAIRMAN. We also have a statement from the Los Angeles Chamber of Commerce relating to the matter of shipping. I ask that it be incorporated in the record at this point.

(The statement referred to is as follows:)

Hon. ROYAL S. COPELAND,

LOS ANGELES CHAMBER OF COMMERCE,
Los Angeles, Calif., January 22, 1938.

United States Senator, Washington, D. C.

DEAR SENATOR COPELAND: I was in attendance upon the hearings of the Senate Committee on Commerce a part of last Wednesday with the hope that I might have the opportunity to present a statement in connection with the labor problems receiving the attention of the committee. Another imperative engagement required me to leave before that opportunity was afforded. I am taking the liberty of enclosing herewith a statement which embraces what I would like to have submitted to the committee in person. If you deem this worthy of consideration by the committee, I shall be pleased to have it included as a part of the record of your hearings.

May I take this opportunity to thank you for the courtesy you have extended to the delegation of Pacific coast citizens recently appearing before your committee, and also for the courtesy extended to myself. With assurances of esteem, I beg leave to remain,

Very respectfully,

BYRON C. HANNA.

STATEMENT OF BYRON C. HANNA

My name is Byron C. Hanna. I was president of the Los Angeles Chamber of Commerce for the year 1937. I desire to present a statement in support of the adoption of legislation giving effect to the recommendations of the United States Maritime Commission in favor of establishing a Mediation Board to settle labor disputes of maritime workers and also in favor of establishing schools to train seamen for the merchant marine as set forth in the Economic Survey dated November 10, 1937.

Our Chamber of Commerce has 10,000 members, most of whom are the proprietors of small business enterprises. The proportion of shipowners among our members is minute. We have watched with increasing concern the course of development in labor relations be

tween shipowners and their employees on the Pacific Coast during the past 4 years.

Our interest arises from the effect of these developments on general business conditions in our community during that period of time and is detached from the employers' position. We have constantly viewed these occurrences objectively with the purpose of serving the welfare of our entire community. I believe that this course of observation and this attitude qualifies me to discuss this subject from the standpoint of the public interest.

The labor strife which has occurred in the shipping industry during this period of 4 years has included, in our community, two major strikes, i. e., the Longshoremen's strike of 1934 and the Seamen's strike of 1936. In addition to these, there has been a series of small strikes at frequent intervals continuing to the present time, each lasting from a few hours to several days. According to my information. there have been almost 200 of these small strikes at various ports of the Pacific Coast during the past year.

The consequences of this continuous state of turmoil may be tabulated as follows:

1. The cost to the community has been enormous. It has been stated that this cost has entailed a loss to the people of the Pacific coast in excess of $1,000,000,000. I cannot vouch for that figure, but certainly the loss to citizens of California has amounted to several hundred million dollars. Much of this is represented by loss of wages sustained by workers directly involved and indirectly affected. These disturbances have materially contributed to unemployment in this area during this period and have done much to counteract the efforts of the Federal Government and of private industry to expand employment.

2. Shippers have been injured so seriously by repeated delays in maritime shipments as the result of this strife that many have lost. confidence in water transportation and have adopted other services. At the time of the seamen's strike in 1936, ships arriving in the port of Los Angeles carried large consignments of merchandise for the Christmas trade of our merchants. It was impossible, by reason of the strike, to obtain this merchandise until after the Christmas season. This is illustrative of the detriment suffered by the community as a result of these disturbances.

3. The repeated turmoil has been a potent factor in destroying efficiency and discipline among workers engaged in various phases of the water transportation industry.

Since the necessity for a maritime subsidy arises principally from conditions of labor cost and efficiency, the occurrences here referred to become a subject of vital public interest. Under any circumstance labor disputes are not a subject of exclusive private interest between capital and labor. The important interest of the public and of the consumer is too often overlooked. To leave the settlement of such disputes entirely to the private action of employers and employees, all too frequently inflicts most grievous losses upon the public. Suspensions and interruptions of Service which occur under such conditions often cause severe curtailment of activities in dependent industries attended by disastrous loss or impairment of employment of workers.