By and between

AMENDMENT TO CONTRACT

SOCIEDAD ESPAÑOLA DE CONSTRUCCIÓN NAVAL, S.A.

and

PROGRESSIVE STEAMSHIP CORP., NEW YORK, N.Y.

This amendment to the contract, dated August 2nd 1961 by and between Sociedad Española de Construcción Naval, S.A., and Progressive Steamship Corporation is to confirm and to agree to the following changes and amendments to the articles of the Original Contract dated August 2nd, 1961.

1. Owner.-General Cargo Corporation of New York, N.Y. U.S.A.

2. Work to be performed.-A new forecastle is to be added to the converted vessel.

3. Vessel.-Forward part of ex "Esso Syracuse", between frames 29-30 and stem.

Stern part of ex "Esso Buffalo", between stem and frames 22-23.
Particulars of the converted vessel are as follows:

Length overall: 625 feet, 91⁄2 inches (excluding new forecastle).

Length b.p.: 603 feet.
Beam molded: 70 feet.

Depth molded: 48 feet.

4. Contract price.-The final contract price to be determined on the basis of NAVAL's offer of August 2, 1961.

6. Delivery. To be determined upon arrival of vessel at Bilbao.

8. Liquidating damages for delay in delivery.-To be determined upon arrival of vessel at Bilbao.

STATEMENT OF EARL J. SMITH, CHAIRMAN, AMERICAN TRAMP SHIPOWNERS ASSOCIATION, INC.

Mr. SMITH. Mr. Chairman and members of this committee, I have a prepared statement which I have just issued copies of. I am sorry it was a little late in arriving. I would like the privilege of reading the statement.

My name is Earl J. Smith and I am appearing before you today as chairman of the American Tramp Shipowners Association. Our association is composed of companies owning and operating approximately 60 American-flag vessels engaged in tramping operations, and it is the purpose of our association to preserve, promote and maintain the tramp segment of our American merchant marine in accordance with our basic shipping statutes.

The American Tramp Shipowners Association is strenuously opposed to the enactment of H.R. 2457 for the reason that by allowing the SS Spitfire to obtain the right of carrying cargo, preference cargoes

would be detrimental to the best interests of the American merchant marine and further that it would reward a speculative effort of individuals who would seek to capitalize on the benefits accorded by the cargo preference laws. Certainly the circumstances surrounding this conversion are an incredible travesty of a venture in the steamship business. The difficulty arises because this was not a reasonable and normal steamship investment, but rather a speculation.

At the outset, I should like to point out that neither Mr. Wang nor his company, General Cargo Corp., now owns the so-called equity or speculative interest in the Spitfire. It is our understanding that the registered owner of the vessel is a New York financing or factoring company, Empire Commercial Corp., of 666 Fifth Avenue, New York City, or one of its associated or affiliated companies. If this legislation should pass, one of the primary beneficiaries would be the finance company.

Unfortunately, at the present time, the American-flag tramp fleet is overtonnaged. There are privately owned American-flag vessels laid up because of lack of business. If the Spitfire should be allowed to obtain U.S. registry under a special exemption from the provisions of section 901 (b) of the Merchant Marine Act, 1936, as amended by Public Law 87-266, necessarily an existing American-flag tramp owner, who has not engaged in any such wild speculation, will suffer.

The extent of the speculation on the Spitfire is vividly illustrated by the fact that now almost 2 years after Public Law 87-266 was enacted, on September 21, 1961, the vessel is still not ready to operate under the U.S. flag. Originally, General Cargo Corp. had contracted with the Maritime Administration, and had posted a bond, guaranteeing that a 25,000-deadweight bulk carrier would be constructed from portions of two foreign flat tankers, the Esso Buffalo and Esso Syracuse, and that the vessel would be completed and documented before August 25, 1962. We fail to see why either the Maritime Administration or Congress should relieve the speculators in this venture from either the terms of their contract or from the existing provisions of the law.

Certainly the sad tale of the strike in the Spanish shipyard is not the only reason why this vessel is now almost a year late in meeting the original completion deadline. Spanish shipyards have not been on strike for a year. We believe that Mr. Wang shopped around in order to obtain the cheapest price possible on a special-purpose vessel designed to carry the maximum quantity of grain. He took what anyone would describe as a speculation-a calculated gamble. His effort was to obtain a cheap ship at bargain basement prices and there is no reason in logic or equity for him or any of the other speculators to be bailed out.

At this point, I would like to point out that any prudent steamship operator, knowing that he had a contractual commitment with the Maritime Administration to have the vessel completed and documented in the United States before August 25, 1962, would have insisted that the shipyard pay penalties in the case of late delivery.

The committee may recall that at the hearings on this same vessel last year, it was disclosed that the Spitfire had been fixed to the United Arab Republic for carriage of cargo preference grain to be loaded in August 1962. Making such a fixture with no chance of meeting the

loading dates would hardly seem to me to reflect responsible steamship management.

There has been a great deal of hullabaloo raised about this allegedly fine bulk carrier being lost to the American flag unless this legislation is passed. I should like to explode that fantasy. There is nothing about this ship that recommends it to American operation or which would make it a substantial and worthwhile addition to the American merchant marine. The ship is merely a gimmick, constructed as cheaply as possible, to take advantage of the cargo preference grain movement. According to our information, the vessel is of inferior construction and it has virtually no military value.

The American merchant marine is not lacking for vessels of this type. In the American tramp fleet there are presently approximately 30 bulk carriers, most of which we believe are superior to the Spitfire. There are approximately 70 fast type vessels, comprised of C-2's, C-3's, C-4's, and Victorys, and there are approximately 30 Libertys. The members of our association are presently working on plans with the Maritime Administration for the upgrading of our vessels, which we believe, incidentally, are among the best maintained vessels in the American merchant marine. Recently, the Maritime Evaluation Committee, appointed by the Secretary of Commerce, has come out in favor of the plan of the Maritime Administration for convering AP-5 Victory transports, now in the reserve fleet, into bulk carriers, in American shipyards. This proposed legislation would be contrary to the purposes of that plan and would injure owners of American-flag tramp vessels who have attempted to operate in a stable and responsible

manner.

The purpose of our cargo preference legislation, being a part of the Merchant Marine Act, is to assure that this country has an "adequate and well-balanced American merchant marine." Certainly, this purpose is not achieved by persons devising ways to have large floating hulks constructed to carry cargo preference grain as cheaply as possible. If economy were the sole goal, the grain could be carried in foreign-flag vessels. Our vessels, we believe, have military value; they can be and are used by MSTS-the Spitfire could not be. We stand ready to transport vehicles, machinery, tanks, trucks, arms and other military equipment in the event of an emergency. The Spitfire could not perform those functions.

I urge, therefore, that you uphold the law as it is written. There is no reason why the speculators in the Spitfire venture should be rewarded or protected. If the consequence is that the vessel must operate under foreign-flag registry, we do not believe that that result should be alarming. The vessel would not add anything of a positive nature to the American merchant marine. It should be under foreign registry, if anywhere. The passage of the legislation would merely benefit the gamblers in this venture, causing irreparable injury to responsible American owners with no other attendant benefit to any other American interest or to the American merchant marine. The CHAIRMAN. Your statement about the value and quality of the Spitfire is that you say it could not be used by MSTS?

Mr. SMITH. A vessel of this type, being a single-deck vessel, would not be the kind of a ship they would want. Its only purpose would be to carry coal or grain.

We could carry more trucks, tanks, and ammunition in one of our AP Victorys or C-2's than this vessel could carry by far.

The CHAIRMAN. You mean the quality of the vessel is inadequate? Mr. SMITH. Well, it has been my experience and we have dug into a lot of it, sir, that if you jumboize a vessel you might better take a completely new hull. When you start to take two old hulls, as you gentlemen probably well know, there is deterioration in tankers that far exceeds that in an ordinary dry cargo vessel and for the most part the successful jumboizing jobs have been a complete new hull.

The CHAIRMAN. This statement which you made on page 3 has always been interesting to me, this fix that was made for the Spitfire.

You say, "The committee may recall that at the hearings on this same vessel last year, it was disclosed that the Spitfire had been fixed to the United Arab Republic for carriage of cargo preference grain to be loaded in August 1962."

Mr. SMITH. That is right, sir.

The CHAIRMAN. Who made this contract?

Mr. SMITH. It would have to be made by one of the brokers, I presume.

The CHAIRMAN. How could they make it when the ship was not completed at that time?

Mr. SMITH. They expected. If you will recall, they came in and it was only going to be a matter of a short time before this vessel would be ready and they made the charter on the vessel. As I say, it didn't sound like sound judgment to me when it is obvious that the vessel was nowhere near going to be ready in that time.

The CHAIRMAN. What flag was it to be registered under?

Mr. SMITH. They offered the vessel and fixed her as an American ship.

The CHAIRMAN. The ship is not ready yet, is it?

Mr. SMITH. That is right.

The CHAIRMAN. Do you personally know anything about the condition of the ship at the present time?

Mr. SMITH. It has been reported to me that she is not a very good vessel and, as I say, it is understandable when you take two tankers that are going to be sold for scrap and you take the best of them out of it and put them together you haven't got anything that compares to a new vessel.

The question has come up and it is very pleasing to me to see the interest that has been taken by this committee about the competitive situation. We all want to upgrade our vessels.

The CHAIRMAN. There are other things that interest me more than that.

As to this statement that you put in here, when you contract a vessel like this, do you not give bond for its performance?

Mr. SMITH. No, sir. No; the policy and the practice is this: that you offer your vessel. Brokers, or the Department of Agriculture, or the foreign agencies, put an inquiry into the market requesting offers of vessels and we offer those vessels. Some owners offer them directly and others through brokers.

The charter is accepted, if it is done for a foreign mission, subject to the approval of the Department of Agriculture, who have a control therefore on the rates.

The charter party is signed and then we are supposed to get 90 percent of our pay for the carriage of this cargo when the vessel arrives at the discharging port and the balance after completion of discharge. Of all the cargo that I have carried in the many vessels that we operate in our organization, we have yet to be paid on time.

The vessel arrives. Our agent, the master, sends a cable of arrival. So that the thinking apparently has been that no bond is necessary for the reason that the owner of the vessel is extending a credit to the agency and not getting the credit.

The only reference to a bond is, if you want to get the 90 percent promptly upon loading, then you put up a performance bond for that. The CHAIRMAN. The Sulphur Queen, what type of vessel was she? Mr. SMITH. She was a T-2 tanker.

The CHAIRMAN. Had she been jumboized?

Mr. SMITH. No, sir. She had just been altered. She had not been jumboized. She had just been altered to carry liquid sulfur. The CHAIRMAN. The hull had not been extended?

Mr. SMITH. No; she was not a jumboized vessel and she was one of the original hulls. Of course, they spent some money repairing her and making alterations in her to carry the molten sulfur which would require keeping that molten sulfur hot so that it would be molten to pump it out.

The CHAIRMAN. Mrs. Sullivan?

Mrs. SULLIVAN. I have no questions.

Mr. SMITH. In that one connection, sir, I might add that it is my understanding that there is a replacement being made now but that will be a completely new hull because the Coast Guard would no longer approve them using an old hull for that purpose.

The CHAIRMAN. Do you have any questions?

Mr. DREWRY. Mr. Smith, is it not true that before this vessel can be redocumented that it has to meet the requirements of the American Bureau of Shipping?

Mr. SMITH. Yes; it would have to pass the Coast Guard, sir.

Mr. DREWRY. And pass the Coast Guard, too?

Mr. SMITH. That is right, sir.

Mr. DREWRY. And then periodically would have to go through surveys?

Mr. SMITH. And for insurance purposes, you don't have to have an ABS classification but as a practical matter you must have. You are not obligated to. I could run a ship without class if insurance companies would give me insurance. It has been done many, many times when class expires.

Mr. DREWRY. Are the ABS and Coast Guard requirements inadequate?

Mr. SMITH. No, sir; they are not inadequate. There are errors made. We unfortunately know of situations where ships have been passed by ABS and, when the new buyer got them, he found himself spending a considerable amount of money.

I think the Maritime could acquaint you with an experience they had in that connection.

Mr. DREWRY. Could you submit for the record something that would support this statement of yours that jumboized ships are no good? Mr. SMITH. I didn't say that jumboized ships were no good, sir.