MISCELLANEOUS MERCHANT MARINE LEGISLATION GUAM SHIPPING LEGISLATION TUESDAY, MARCH 17, 1964 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MERCHANT MARINE OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES, Washington, D.C. The subcommittee met at 10:10 a.m., pursuant to notice, in room 219, Cannon House Office Building, Hon. Herbert C. Bonner (chairman of the subcommittee) presiding. The CHAIRMAN. The subcommittee will come to order. The first witness this morning is Mr. Wiseman, Pacific Navigation Co. All right, sir, you may proceed. STATEMENT OF SHERWOOD WISEMAN; ACCOMPANIED BY WILLIAM BLUM, ASSISTANT SECRETARY AND ASSISTANT TREASURER, MARVIN COLES, COUNSEL, AND STANLEY SHER, PACIFIC NAVIGATION CO. Mr. WISEMAN. I am treasurer of Pacific Navigation System, Inc., a company presently operating three American-flag unsubsidized vessels in the regular liner service from the west coast to Guam and Far East ports. I am also vice president of Jones & Guerrero Co., Inc., a Guam corporation, which together with its subsidiaries, operates the largest construction company on the island, operates the largest department store and supermarket, operates automobile dealerships, and is in the general mercantile and export-import business. I would like to mention, Mr. Chairman, that the man that put this group of corporations together is a Seabee from North Carolina, from Willow Springs, who went to Guam to help liberate the island of Guam and incidentally he had nothing in his pocket but a big dream in his head. As is apparent, we have, as a ship operator as well as a shipper, a vital interest in shipping rates and service to Guam. We entered the steamship business between the United States and the island after the United States-Guam freight rates had been raised several times by Pacific Far East Line and American President Lines, the only companies then giving shipping service from the United States to Guam. Pacific Navigation System, Inc., initiated its common carrier service between Guam and the United States in November of 1963. We are presently operating three U.S.-flag vessels in the trade and offer a monthly service. We are now negotiating for the purchase of suitable vessels to maintain and, hopefully, expand the service we are offering in the Guam-United States trade. Eariler this month, the Military Sea Transportation Service awarded Pacific Navigation System, Inc., a contract for the carriage of military goods between U.S. ports and Guam and the Far East; one of our vessels is presently loading our first MSTS cargo. From our experience in the trade thus far, we believe that the future of our service in the Guam trade is promising and we intend to continue in this trade without operating- or construction-differential subsidies. As is apparent, we have an interest in promoting the American merchant marine, of which we are a part. I appear here today in opposition to H.R. 7028 because we are firmly convinced that the bill will not only afford us no rate relief as a shipper to Guam, but, if enacted, will drive our common carrier service from the seas. We will not be able to compete with carriers receiving an operating-differential subsidy of $600,000 a year per vessel, nor will we be able to compete with vessels in which the Government has absorbed 55 percent of the construction costs. As I mentioned above, we are part of our American merchant marine and are proud of it; nevertheless, we feel compelled to oppose this legislation as it is not in the interests of the Guamanian economy or the American merchant marine. Under existing law our domestic trades, including Guam, are, with minor exceptions, reserved exclusively for U.S.-flag vessels. H.R. 7028 would be a departure from present laws. By removing Guam from the protection of the coast wise laws, it would theoretically entitle foreign-flag vessels to engage in the trade between Guam and the United States. H.R. 7028 is a further departure from existing law as it would amend section 905 (a) of the Merchant Marine Act, 1936, by permitting operating subsidy to be paid to U.S.-flag vessels in the Guam trade and would further permit construction subsidy for vessels in the Guam trade without obligation of the carriers receiving such subsidy to repay that portion attributable to the Guam service. It would even authorize modification of the existing construction subsidy contracts so as to eliminate the operators' present obligations to make a return of subsidy when the vessels operate in the Guam-United States trade. The bill further removes from the Guam trade the rate regulations contained in sections 2 to 4 of the Intercoastal Shipping Act of 1933 and in lieu thereof substitutes the regulatory provisions contained in sections 17 to 19 of the Shipping Act. Under a further amendment suggested by Pacific Far East Line, section 4 of the bill would be amended to provide that the Secretary of Commerce-without hearing-may award operating-differential subsidy to and eliminate repayment of construction-differential subsidy by carriers who have operated in the trade for not less than 3 years prior to the passage of the act. Another amendment offered by Pacific Far East Line would continue to bar foreign carriers from the trade, but would retain subsidies for the trade. At the outset, we invite the committee's attention to the fact that this bill is a radical departure from the existing coastwise laws. The concept under which operating- and construction-differential subsidies are paid in our foreign trades is clear to this committee; it is to enable higher cost U.S.-flag vessels to compete on a parity with their foreign counterparts. In the Guam trade this subsidy is completely inappropriate. There are no foreign carriers permitted in the trade and, therefore, no need to place American carriers on a parity. As a prac tical matter, if foreign carriers were permitted in the trade, they would not enter it, as so much of the cargo moving is for the military and must move on U.S.-flag ships. Even if foreign-flag ships were to be permitted to enter the trade, it would seem circular and ridiculous to open the trade to foreign-flag vessels and then require the Government to pay substantial sums for subsidies to counteract the foreign competition which this same bill permits. Insofar as construction subsidy for the domestic trades is concerned, we submit this should not be done on a piecemeal basis. If construction subsidy is needed in the Guam trade, it is needed equally in our other domestic services such as Hawaii, Alaska, and others. The Senate Commerce Committee has held hearings this session on several bills (S. 1773 and S. 1774) to provide construction subsidy for the domestic trades. Should those bills be enacted, there would be no need for the instant legislation regarding construction subsidy as Guam would be covered in that legislation. Insofar as operating subsidy is concerned, we believe that Pacific Far East Line in its appearance before this committee stated that it had made profits in the Guam trade in 1962 and 1963. Moreover, with the expected increase in the population of Guam, it is anticipated that the tonnage to Guam will increase; this in turn should increase the profits of carriers serving that trade. Why operating subsidy should be paid to carriers that are already making profits, and which have no foreign competition, is difficult to comprehend. In addition, it should be noted that the cost to the Federal Government under this proposed bill would be substantial. We believe that Pacific Far East Line stated before this committee that the cost of the three vessels it proposes to construct would be $13 million each, with a construction-subsidy cost to the Federal Government of $21 million for construction of the three vessels. The operating subsidy for the three vessels would be $600,000 per vessel per annum or a cost to the Federal Government of $1,800,000 per annum. We would assume that this would be on a 25-year contract, and would total about $45 million. For American President Lines, this would mean that they would not be required to repay construction subsidy for the time the ships are engaged in the Guam trade, as they are not required to do under the terms of their existing contracts with the Maritime Administration, and would also receive operating subsidy for the Guam portion of their service. American President Lines asks that it be relieved of its existing contractual obligations in this regard without consideration. Why should the Government give up the repayment provided for in existing contracts? Parenthetically, it may be noted that we have seen no profit-and-loss figures for American President Lines. However, it serves Guam by choice, apparently, because it is desirable to do so. It is striking to note that although one of the main purposes of the bill is to provide reasonable rates to Guam, section 3 of the bill removes the Guam trade from the effective rate regulations of sections 2 to 4 of the Intercoastal Shipping Act. Section 4 of the Intercoastal Act permits the Commission to prescribe and enforce "just and reasonable" maximum or minimum rates. Such provisions give the Commission sufficient authority to oversee the rate structure in the Guam trade. Significantly, the Virgin Islands are governed by these two rate regulations. In contrast, H.R. 7028 would substitute for these provisions section 18 of the Shipping Act of 1916, which drastically limits the Commission's ratemaking authority. Section 18 permits no suspension of rates. Furthermore, that provision of the Shipping Act only permits the Commission to disapprove a rate which is so high or low as to be detrimental to the commerce of the United States. Under this proposed regulatory scheme, no specific rate can be set by the Commission. While the minimum rate regulation that is contemplated by section 18-and which the bill imposes-may be dictated by the jurisdictional needs in the foreign trades, it is totally inappropriate for Guam. It would withdraw from the Commission any effective rate regulation to Guam. The effectiveness of the present rate regulation is attested to by a recent decision of the Court of Appeals for the District of Columbia, which in January 1964 refused to affirm a rate increase in the Guam trade indicating that it may not be justified. The present bill, while giving Pacific Far East Line and American President Lines operating- and construction-differential subsidy, takes from the shippers to Guam its only existing protection against high rates. As the committee is well aware, the Federal Maritime Commission, in its letter to the committee dated November 7, 1963, opposes eliminating Guam from this type of regulation. In effect, Pacific Far East Line acknowledged before the committee on March 11, 1964, that rates cannot be expected to be reduced under the bill. Under the amendment to section 4 offered by Pacific Far East Line, the dangers of the bill are aggravated and become more alarming. If section 4 as submitted by Pacific Far East Line is enacted, it would not only provide subsidy for Pacific Far East Line and American President Lines, but it would effectively eliminate the opportunity for any other carrier to avail itself of the benefits of the bill. In short, Pacific Far East Line's amendment creates a monopoly for two carriers, substantially under the same control, with no effective rate regulation. No explanation is given as to why the subsidy should be restricted to carriers operating to Guam for a period of not less than 3 years prior to passage of the bill. The answer is obvious: Pacific Far East Line and American President Lines are the only two carriers who could so qualify. Apart from the fact that Pacific Far East Line and American President Lines ask the committee to scrap the longstanding coastwise laws, they ask for more than is given to carriers who have direct competition in the foreign trades. All American carriers operating in the foreign trades are given an opportunity under section 605 (c) of the Merchant Marine Act, 1936, to present their case in an administrative hearing prior to subsidy being awarded to an applicant. Un der section 4 of the bill as amended by Pacific Far East Line, however, no hearing is to be required. This serious departure from past precedent is not supported by any rationale. Section 605 (c) of the act affords any American carrier service the trade in which another carrier desires subsidy to be heard on the question of whether such carrier will be unduly prejudiced. It is untenable that this basic right is denied to Pacific Naviation and the Maritime Administration to scrutinize the subsidy in a public hearing. We know of no precedent for this denial. Beyond this, a hearing would be required of Pacific Navigation and all other U.S.-flag applicants, but not of Pacific Far East Line and American President Lines. If the proponents of the bill rely on the fact that the 1962 Executive order which opened Guam to foreign vessels from foreign ports, is the reason for the bill, let me make two points clear. First, from my extensive experience in Guam I believe that imports from foreign destinations are not a source of concern as the residents of Guam desire U.S. products and will continue to purchase them. On the other hand, certain goods manufactured in the Far East will always be available at cheaper prices irrespective of freight rates. Second, if the Executive order is a concern, then the simple and obvious answer is that the recent Executive order should be reversed, closing Guam to foreign vessels. It is unwise and unfair that the huge expenditures contemplated under this bill should be incurred with the result that would drive us from the trade in order to protect Guam against foreign imports when it can be done by Executive order with no cost to the taxpayer. In closing may I reiterate that we oppose H.R. 7028 as it: (a) Would drive Pacific Navigation, a U.S.-flag carrier, from the trade; (b) would be an unjustifiable departure from existing law; (c) would not afford rate reductions to U.S. importers to Guam; (d) would create a monopoly, without hearing, of two carriers under common control; (e) would remove the Guam rate structure from effective Federal Maritime Commission rate regulation; and (f) would cost the Federal Government millions of dollars for which there is no need or justification. We urge that the committee reject H.R. 7028. Thank you, sir. The CHAIRMAN. When did Pacific Navigation Co. enter west coast to Guam trade? Mr. WISEMAN. We entered, Mr. Chairman, in November of 1963. What frequency of sailings have you maintained and what is your proposed future schedule? Mr. WISEMAN. Well, we have maintained, Mr. Chairman—— The CHAIRMAN. I just asked you the question: What frequency of sailings have you maintained? Mr. WISEMAN. One a month. The CHAIRMAN. For how long? Mr. WISEMAN. Well, for 4 months-we have had four sailings so far. The CHAIRMAN. And what do you propose for future schedules? Mr. WISEMAN. Once a month. 27-498-64- -5 |