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Thus far, the construction of six ships has been allocated under section 502 (f).

Two of the allocated ships were for American Export Lines. These ships were allocated to National Steel and Shipbuilding Co. at San Diego, Calif. The invitation for bids involved four ships for American Export Lines, but only two ships were allocated. The lowest responsible bidder was New York Shipbuilding Corp., Camden, N.J. This allocation required American Export Lines to maintain two inspection staffs. We estimate that the additional inspection costs to American Export Lines caused by the allocation of the two ships is

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The first of the two allocated ships to be delivered was the Export Agent. This ship left San Diego on January 9, 1961, and proceeded to Portland, Oreg., where it loaded 9,400 tons of grain for Alexandria, Egypt. The ship arrived at Norfolk, Va., which was its first berth on the subsidized service, on February 4, 1961, a total of 25 days from its departure from the shipyard. The ship stopped off at Norfolk and proceeded on its trip to Alexandria, Egypt.

The second of the two allocated ships to be delivered was the Export Aide. This ship left San Diego on April 3, 1961. It proceeded to Portland, Oreg., made a partial load there, and then proceeded to Vancouver where it completed a total of 9,641 tons of grain for Alexandria, Egypt. The ship arrived at Norfolk, Va., its first berth on the subsidized service, on May 8, 1961, a total of 35 days from its departure from the shipyard.

We estimate that it cost American Export Lines $120,000 more to deliver the two ships from San Diego, Calif. (where they were built), to Norfolk, Va. (their first berth on the subsidized service), than it would have cost to deliver the vessels from Camden, N.J. (the location of the yard of the lowest responsible bidder), to Norfolk, Va. Under the bill, the gross income that was earned on the carriage of cargo from the west coast to Norfolk, Va. (minus the extra expenses incurred to produce this income), would be a deduction from the foregoing estimate of $120,000 additional delivery costs.

Two of the six ships that were allocated were for Moore-McCormack Lines. These ships were allocated to Todd Shipyards Corp., San Pedro, Calif. The invitation for bids again involved four ships of which only two were allocated. The lowest responsible bidder was Sun Shipbuilding and Drydock Co., Chester, Pa. The allocation required Moore-McCormack Lines to maintain two separate inspection staffs. We estimate that the additional inspection costs incurred by Moore-McCormack Lines as a result of the allocation is approximately $140,000. Both allocated ships have been delivered. One left San Pedro, California, on January 27, 1961, and arrived at New York (the first berth on its subsidized service) on February 9, 1961, a 13-day voyage. The other left San Pedro on July 8, 1961, and arrived at Baltimore (the first berth on its subsidized service) on July 20, 1961, a 12-day voyage. Both voyages were in ballast.

We estimate that it cost Moore-McCormack Lines $120,000 more to deliver these vessels from San Pedro, Calif., to New York and Baltimore, respectively, than it would have cost to deliver them from Chester, Pa. (the location of the yard of the lowest responsible bidder), to New York and Baltimore, respectively.

• The other two ships that were allocated were for American President Lines. These ships were allocated to Bethlehem Steel Co. at San Francisco. Since San Francisco is the home port of American President Lines and the port at which these two vessels went on operatingdifferential subsidy, no additional costs to American President Lines for inspection and delivery were involved in this allocation. Indeed, the allocation was beneficial to American President Lines. If the allocation had not been made, the vessels would have been built at Los Angeles. As a result of the allocation, American President Lines saved inspectors' travel costs and saved the expenses of delivering the vessels from Los Angeles to San Francisco. These ships began their first subsidized voyages at San Francisco. We have been advised by American President Lines that their administrative and inspection costs would have been $33,000 per ship higher, before subsidy, had these ships been constructed in Los Angeles instead of San Francisco. Since there were two vessels involved, the total cost saving to American President Lines with respect to these costs (assuming all items of cost are eligible for subsidy at 50 percent) would be about $33,000. We estimate that the cost would be $4,000 each. The total estimated cost savings to American President Lines as a result of allocation of the two ships, therefore, would be about $41,000.

The estimate is based on the assumption that the vessel would have had no cargo on the voyage from Los Angeles to San Francisco. Since the voyage was not made, we have no way of knowing whether the vessel would have had cargo or, if it had cargo, what its earnings would have been. The same situation exists in the computation of excess delivery costs under the bill. This requires a comparison of the cost of a voyage that was made with the cost of a voyage that was not made.

With regard to the Export Agent, for example, under the bill American Export Lines would be entitled to be paid the excess of the cost of the voyage from San Diego, Calif. (where the ship was built), to Norfolk, Va. (the ship's first berth on its subsidized service), less the gross income earned on the voyage (minus the extra expenses incurred to produce such gross income) over the cost that would have been incurred on a voyage from Camden, N.J. (the location of the yard of the lowest responsible bidder), to Norfolk, Va. The voyage from Camden, N.J., to Norfolk, Va., was not made, and we have no way of knowing whether the ship would have obtained cargo, or, if it did, what its earnings would have been. Our interpretation of the bill is that the computation is to be made on the assumption that the ship would have had no cargo on the voyage that was not made.

With the amendments proposed, we recommend favorable consideration of the bill.

Attached is a substitute text which would carry out our recommendations.

We are also attaching and have attached a comparative text.
The comparative text may be helpful to the committee.

(The comparative text follows while the substitute text appears on p. 86.)

COMPARATIVE TEXT SHOWING THE CHANGES THE PROPOSED SUBSTITUTE TEXT

WOULD MAKE IN H.R. 82

[Insertions are shown by italics ; deletions are shown by black brackets) That section 502(f) of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1152 (f)), is amended by inserting at the end thereof the following:

"If, as a result of allocation under this subsection, the applicant incurs expenses for inspection and supervision of the vessel during construction and for the delivery voyage of the vessel [(which delivery voyage shall be deemed terminated when the vessel reaches its home port or a point on its subsidy route equally distant)] in excess of the estimated expenses for the same services that he would have incurred if the vessel had been constructed by the lowest responsible bidder the [Federal Maritime Board] Secretary of Commerce (with respect to construction under title V, except section 509) shall reimburse the applicant for such excess, less any gross income the applicant receives that is allocable to the delivery voyage minus the extra expenses incurred to produce such gross income, and such reimbursement shall not be considered part of the constructiondifferential subsidy. If the vessel is constructed under section 509 the Secretary of Commerce shall reduce the price of the vessel by such excess, less any gross income (minus the extra expenses incurred to produce such gross income) the applicant receives that is allocable to the delivery voyage. In the case of a vessel that is not to receive operating-differential subsidy, the delivery voyage shall be deemed terminated at the port where the vessel begins loading. In the case of a vessel that is to receive operating-differential subsidy, the delivery voyage shall be deemed terminated when the vessel begins loading at a United States port on any essential service of the operator. In either case, however, the vessel owner shall not be compensated for excess vessel delivery costs in an amount greater than the expenses that would have been incurred in delivering the vessel from the shipyard at which it was built to the shipyard of the lowest responsible bidder. If as a result of such allocation, the expenses the applicant incurs with respect to such services are less than the expenses he would have incurred for such services if the vessel had been constructed by the lowest responsible bidder, the applicant shall pay to [the Federal Maritime Board (with respect to construction under title V, except section 509) an amount to the Secretary of Commerce (with respect to construction under section 509)] the Secretary of Commerce an amount equal to such reduction and, if the vessel was built with the aid of constructiondifferential subsidy, such payment shall not be considered a reduction of the construction-differential subsidy."

SEC. 2. The amendment made by this Act shall be effective with respect to any contract entered into under the provisions of section 502 of the Merchant Marine Act, 1963, as amended, and the Secretary of Commerce shall, with the consent of the other parties thereto, modify any such contract entered into prior to the date of the enactment of this Act to the extent authorized by the amendment made by this Act, except that the Secretary shall not agree to any such modification which 1could result in a payment by the United States unless, within one year after enactment of this Act, provision has been made for payment to the Secretary of an amount equal to the total of any amounts which 100uld be due the United States under such contracts entered into prior to the date of enactment of this Act if all such contracts were modified in accordance with the amendment made by this Act.

Mr. ALEXANDER. The Bureau of the Budget advises that there is no objection to the submission of this statement from the standpoint of the administration's program.

Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Tollefson?

Mr. TOLLEFSON. On page 3, in that second paragraph, you say you think the delivery voyage should be deemed terminated at the port at which the vessel begins loading. Is that without regard to whether it is on the trade route or not?

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Mr. ALEXANDER. This is for a vessel that will not be paid operatingdifferential subsidy, sir. This is for a nonsubsidized vessel. Mr. TOLLEFSON. I see.

On the next page, you say that you think “the bill should be amended to provide that there shall be no retroactivity unless provision is made, within 1 year after enactment of the bill, for payment to the United States of an amount equal to the savings that were made by the operator who made savings."

Mr. ALEXANDER. Yes, sir.

Mr. TOLLEFSON. In other words, if you are going to have a retroactive feature which calls for the Federal Government to make some compensatory payments to somebody that incurred some additional expense, you say that he should not get any unless operator B, who had made some savings, remits the savings to the Government? Mr. ALEXANDER. That is correct, sir.

This gets down to the point that we believe specifically the American President Lines should make a payment to the U.S. Government of approximately $41,000, representing the savings that were made due to allocation and that that payment should be made within 1 year after the date of enactment of the bill.

Mr. TOLLEFSON. What you are saying is that you approve the bill which provides for payment to operators by the Government as well as payments by the operators to the Government, that if it is to be made retroactive it should be made retroactive in both categories?

Mr. ALEXANDER. We think that is fair.

Mr. TOLLEFSON. Mr. Chairman, I do not think I have any further questions.

The CHAIRMAN. Mr. Downing? Mr. DoWNING. How can you legally require the American President Lines to pay this $41,000 back to the Government?

Mr. ALEXANDER. We think that this can be done by agreement. We believe that this is possible. As I understand it, we cannot require under the law, constitutionally, that this be done, but by agreement it can be done.

Mr. DOWNING. In other words, APL would voluntarily agree and then the law would become retroactive?

Mr. ALEXANDER. Yes, sir.

Mr. DoWNING. Would there be any great inequity if we did not make this bill retroactive?

Mr. ALEXANDER. I believe that the intent of the bill is to reimburse the operators who had this additional expense. I believe that is the primary consideration here.

Mr. ÞOWNING. Is it that, or is it to clear up an inequity which will continue in the future?

Mr. ALEXANDER. Certainly there is no question about the fairness of the prospective provisions of the bill but it is a fact that two of the operators did have substantial extra inspection and delivery costs and we think that it is equitable that they should be reimbursed provided that the operator, who made savings, provides for reimbursement to the Government.

Mr. DoWNING. What operators would be paid under this retroactive provision?

Mr. ALEXANDER. American Export Lines and Moore-McCormack

Mr. DoWNING. And in what amounts ? Mr. ALEXANDER. The estimated total, that would be paid to American Export Lines, would be $270,000 and the total estimate which would be paid to Moore-McCormack would be $260,000, so that there is a total amount here for the two lines of $530,000 that we are talking about.

Mr. Downing. Have there been any other allocations other than this in the past that would have to be reimbursed ?

Mr. ALEXANDER. No, sir.

Mr. DoWNING. I have one other question: You recommend that the point of cutoff be where it stops for its first loading as opposed to its first port on its subsidy run.

Mr. ALEXANDER. We differentiate between vessels that are going to operate under operating differential subsidy and those that will operate without subsidy. We say that, for a vessel that is going to operate without subsidy, the voyage should be terminated at the first port where it starts loading.

Now, a vessel that is going to be paid operating subsidy is required to sail on an essential trade route and for those vessels we think the voyage should be terminated at the first port on the essential trade route which is in the operator's responsibility. Mr. DowNING. Thank you very much, sir. The CHAIRMAN. Mr. Mailliard. Mr. MAILLIARD. Thank you, Mr. Chairman.

Mr. Alexander, as to this provision that, for a nonoperating-subsidy vessel it would be the port where they would start loading, the provisions that you propose would avoid any excessive length of time to reach that port by providing that in no case should it be more than it would cost to go from the shipyard, from which it was allocated, to the shipyard of the lowest responsible bidder; is that correct?

Mr. ALEXANDER. Yes.

Mr. MAILLIARD. In other words, that is not a wide-open provision. They could not sail the ship to Bombay and start from there.

Mr. ALEXANDER. This is one of the things we had in mind in putting this ceiling on that payment.

Mr. MAILLIARD. One thing that occurs to me is: With this provision, is there not going to be a tendency for the owner not to bother to try to get any cargoes on a delivery voyage? Since Uncle Sam is going to pick up the check anyhow, why should he bother? He cannot make any money off of it, unless he actually gets more net income, than the entire cost.

Mr. ALEXANDER. I would think this would depend upon cargoes which were available to the operator at the time.

Mr. MAILLIARD. What would be the incentive of doing; for example—as according to your testimony American Export did—where they sailed one ship to Portland and the other to Portland and Vancouver to pick up cargo for Egypt? There would have been no incentive for them to do that if this bill had been in effect; would there?

Mr. ALEXANDER. There probably would have been less incentive than there was at the time.

Mr. MAILLIARD. Would there have been any? They would not have made a nickel out of it; would they?

Mr. ALEXANDER. It probably would depend on the cargo and the rate at which they were able to carry it.

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