could not do it without-that is a part of your same operations, you just could not do that without adding some additional ships?

Colonel BRINSON. We could not do that without neglecting foreign ports beyond Guam-Indonesia, Manila, and so on. Our problem is further complicated there. Presently our refunds, construction subsidy and operating subsidy are based on war built ships, the same type as PFE owns.

Now, we are awarding a contract for four mariner-type ships by October of this year. Our capital cost will go up tremendously and thereby increase substantially the construction subsidy refunds, and that will complicate our problem there.

Mr. TOLLEFSON. Now, as I understand the chairman's question, he was interested in knowing about Guam being the receiving port for the bulk of the cargo that PFE carries to that area. Is that correct?

Colonel BRINSON. I am not too familiar with PFE's operation, but I was thinking in terms of collecting cargo from the various outlying islands and bringing it into Guam where it is picked up.

Mr. TOLLEFSON. That is the way you responded to the question, but did Mr. Wester cite a percentage figure there? How much of your cargo goes to Guam?

Mr. WESTER. About 85 percent.

Mr. TOLLEFSON. That is what I recall, about 85 percent, so if PFE dropped out of that Guam service, then it will drop service to the other ports in the area, too, and you would not pick up those, would you?

Colonel BRINSON. No, sir. We only serve Kwajalein occasionally in carrying construction material.

Mr. TOLLEFSON. That is all, Mr. Chairman. Thank you.
The CHAIRMAN. Mr. Downing?

Mr. DOWNING. Colonel Brinson, if we exempted Guam from the coastwise laws could we reasonably expect foreign competition to engage in this trade?

Colonel BRINSON. Speaking from the point of American President Lines, we are not worried about foreign competition, because we feel that PFE and ourselves are solid in the carrying of what commercial cargo we do carry that it would be difficult for the foreigners to come into the trade.

Mr. DOWNING. Would they be required to operate at the same rates you would operate to Guam?

Colonel BRINSON. No, sir; they would not be.

Mr. DOWNING. Well, if they could operate a lower rate, would not the Guamanian businessmen prefer that lower rate?

Colonel BRINSON. I would think the answer would be yes, that they would benefit from it.

Mr. DOWNING. Have we had any experience in the Virgin Islands and Samoa with the foreign lines?

Colonel BRINSON. Not to my knowledge, sir.

Mr. DOWNING. Thank you.

The CHAIRMAN. Mr. Mailliard?

Mr. MAILLIARD. Just one question carrying on what Mr. Downing was saying.

Unless there were a very substantial expansion of commercial trade, even though a foreign vessel might be able to quote a lower rate, do

you think there would be enough volume for them to make it worthwhile to go to a port that is as out of the way as this one?

Colonel BRINSON. I think the question there, Mr. Mailliard, is whether or not cargo to and from Guam can be generated in sufficient volume to justify foreign operators calling that port.

Mr. MAILLIARD. In other words, if you pick up cargo at Guam, the chances are almost certain that you also are going to have some Government cargo, or you probably would not go in there because you would not get enough commercial cargo.

Colonel BRINSON. That is right, sir.

Mr. MAILLIARD. The Government cargo presumably would still be reserved to U.S.-flag ships? It would be questionable in my mind at least whether at this stage of the game there would be enough commercial cargo to justify a special call by a foreign vessel.

Colonel BRINSON. I think there is a serious question there. However, we would like to see them excluded. I mean, for treasury, taxes, and so forth.

The CHAIRMAN. Did you finish, Mr. Mailliard?

Mr. MAILLIARD. Yes, sir. Thank you.

The CHAIRMAN. Mr. Hagen?

Mr. HAGEN. Colonel Brinson, I think you stated in your statement that you lost money on this Guam business, is that right?

Colonel BRINSON. I would like to check that out, Mr. Hagen. While that statement was contained in my presentation, I am unclear as to whether we have actually lost money in the Guam service. I would like to clear the matter up for the record.

Mr. HAGEN. I think that is in here somewhere. I cannot find it now, I did not mark it, but at least it is implied that you lost money on Guam business.

Assuming that is true, why would you stop there at all?
Colonel BRINSON. Primarily to serve the military.

Mr. HAGEN. In other words, you lost money on the commercial cargo, perhaps?

Colonel BRINSON. I think that was what was intended by that statement. We may have lost money on commercial cargo but not on the military. At any rate I will check that out and supply it for the record.

Mr. HAGEN. Will you do that?

Colonel BRINSON. Clear that up? Yes, sir.

Mr. HAGEN. Is that all right, Mr. Chairman?
The CHAIRMAN. Yes, sir.

(The information follows:)

Hon. HERBERT C. BONNER,

AMERICAN PRESIDENT LINES,
Washington, D.C., April 16, 1964.

Chairman, House Merchant Marine and Fisheries Committee,
Washington, D.C.

DEAR MR. CHAIRMAN: During the course of my appearance before your committee on March 11 in connection with H.R. 7028, Congressman Hagen asked about a statement to the effect that we lose money from the handling of Guam cargo. I offered to supply supplemental information with regard to that portion of my prepared statement after checking the details with my principals in San Francisco.

I can now advise that the revenues from Guam commercial cargo do not meet the allocated costs. That is, when vessel and voyage expense are allocated between Guam commercial cargo and other cargo carried on the voyage according to the revenue from each, and when the company's general and administrative expenses are allocated to voyages according to vessel and voyage expense, the costs of the Guam commercial service are more than its revenue. This allocated cost approach is standard accounting procedure and is the basis of rate regulation by the Federal Maritime Commission. If, however, one were to apply the so-called added traffic theory, charging to the Guam commercial cargo only the out-of-pocket costs of handling it and the expense of the voyage deviation, then the Guam commercial cargoes produce revenues which are in excess of those costs and are, accordingly, preferable to a steamship operator as compared to free space.

I trust the foregoing is adequate to explain the question advanced by Mr. Hagen and to clarify any misinterpretation of that portion of my statement.

Sincerely,

NOAH M. BRINSON, Vice President.

Mr. HAGEN. One other question. Is there more export of goods from Guam to countries other than the United States than there is to the United States?

Colonel BRINSON. I doubt it seriously, Mr. Hagen. I do not think they have it, they export very little.

Mr. HAGEN. What do they export, copra?

Colonel BRINSON. Copra primarily, I would say.

Mr. HAGEN. No vegetables or anything like that?
Colonel BRINSON. I doubt it.

Mr. HAGEN. So, really there is very little export out of Guam to anywhere?

Colonel BRINSON. That is right, sir.

Mr. HAGEN. Thank you.

The CHAIRMAN. I want to ask Mr. Adams a question.

You operate 30 sailings a year?

Mr. ADAMS. Yes, sir, 30 to 33.

The CHAIRMAN. If you were subsidized then the Maritime Administration Board would determine how many subsidized sailings would be essential to that trade?

Mr. ADAMS. Right, they would establish the number of sailings and the route of the sailings.

The CHAIRMAN. Would you anticipate there would be 30 sailings? Mr. ADAMS. Well, with the new vessels we would anticipate a sailing every 13 days. It would be approximately 28 or 29 sailings, I would

Mr. Drewry?

Mr. DREWRY. Colonel Brinson, you mentioned you had the same class of ships serving this trade as PFEL does, war-built ships. On your 16 sailings, are they all, or mostly, vessels that were bought under the Ship Sails Act rather than built under construction subsidy.

Colonel BRINSON. We have no new construction in that service, sir. Mr. DREWRY. So, at the present time, you do not have to make any pro rata pay back on account of construction subsidy with those vessels?

Colonel BRINSON. Well, it is limited, of course, operating subsidy we have to refund, only I think practically all of them we have had conversion projects on them for construction subsidy, so it is limited.

Mr. DREWRY. So, it would be a construction subsidy to the extent there is conversion involved.

Colonel BRINSON. That is right, sir.

Mr. DREWRY. So, when your new ships come along then this rate question will be compounded?

Colonel BRINSON. Very greatly compounded.

Mr. DREWRY. One other question. If there is a withdrawal of service or a substantial withdrawal of service by commercial vessels, is not the need of the military in the area such that they would have to provide their own shipping to keep up the flow of military cargo?

Colonel BRINSON. I think that is a reasonable answer, yes, sir.

Mr. DREWRY. And there are substantial volumes of military cargo, according to the testimony?

Colonel BRINSON. Yes, there are.

Mr. DREWRY. And under existing laws the military would not be allowed to use foreign-flag ships to serve their requirements. Colonel BRINSON. They could not.

Mr. DREWRY. Under the 1904 act, they would be restricted. So, in order to provide the service, then they may well have to build ships themselves with 100-percent subsidy?

Colonel BRINSON. I think that would be reasonable, yes. They have to replace their ships sometime, and they will eventually, if we withdrew and PFEL, they would eventually have to build ships.

Mr. DREWRY. This is a factor that enters into the overall question of what it is going to cost the Government. By saving maybe a couple of million dollars in subsidy to commercial operations per year, we might find that serving the military alone it will cost even more than that?

Colonel BRINSON. It depends on, of course, the requirements for logistical support, how many troops they keep there, how much of a military base they keep there, whether they cut down or not, I think that would be determinative.

Mr. DREWRY. At the present time it is considered to be a major military installation?

Colonel BRINSON. Yes, sir.

Mr. DREWRY. Thank you.

The CHAIRMAN. Are there any other American-flag vessels-tramp nature and so forth, that serve Guam and other ports in that area, the trust area?

Colonel BRINSON. There is one; I will have to ask Mr. Adams to confirm it.

The CHAIRMAN. Mr. Adams, what is the answer to it?

Mr. ADAMS. As I understand the question, are there any other vessels

The CHAIRMAN. American-flag vessels?

Mr. ADAMS. Serving Guam at the present time?

The CHAIRMAN. Yes.

Mr. ADAMS. There are a few vessels of the Pacific Navigation System serving there, Mr. Chairman. One I think is a Victory and one I think has been a Liberty vessel.

The CHAIRMAN. Is that of a tramp nature?

Mr. ADAMS. They are trying to operate a liner service there, Mr. Chairman, and they are taking tramp-type cargo as well as linertype cargo.

The CHAIRMAN. Yes, sir.

Mr. TOLLEFSON. How many sailings do they make to Guam?

Mr. ADAMS. I think at the present time one a month, or a little less. Mr. TOLLEFSON. Thank you.

The CHAIRMAN. Any other questions?

(No response.)

The CHAIRMAN. Thank you very much, Colonel.

Colonel BRINSON. Thank you, Mr. Chairman.

The CHAIRMAN. We will conclude the hearings for this morningMr. BLUM. Mr. Chairman, when will Pacific Navigation be heard on this? I feel like a little man that was not there. They keep ignoring an American-flag operator with three vessels.

The CHAIRMAN. I am trying to arrange some time for you.

Mr. BLUM. Thank you, sir.

The CHAIRMAN. The committee will meet again Tuesday of next week on this subject and we will hear you at that time, sir.

Mr. BLUM. Thank you.

The CHAIRMAN. The committee will stand adjourned.

(Whereupon, at 12:04 p.m., the hearing adjourned, to reconvene at 10 a.m., Tuesday, March 17, 1964.)