Mr. MAILLIARD. In this case, though, you say that they would be entitled to delivery voyage costs of an estimated $120,000 less their profit on the carriage of the cargo. I would assume from your statement--although you do not specifically say so that you do not think the profit would have been greater than the $120,000?

Mr. ALEXANDER. I think the operator is in a better position to answer that one than I am, sir.

Mr. MAILLIARD. But, in any case, unless the unusual circumstance were that they could get enough cargo on a delivery voyage to exceed the cost of the voyage, there would be no incentive. They would be better off to put it in ballast and go and let Uncle Sam pick up the check.

Mr. ALEXANDER. I think that is correct, yes.

Mr. MAILLIARD. Is that not a kind of weakness? Would it not be better if both Uncle Sam and the operator could somehow profit, if they made a profit on the voyage?

Mr. ALEXANDER. I think that would be better but I don't know how we incorporate such a provision in the act.

Mr. ABLES. It is possible also, sir; that the cargo might go beyond the point at which there would be a cutoff in terms of the amount that the company would have to return to the Government. This is only a possibility.

Mr. MAILLIARD. In this case; for example, presumably the company might have made some profit on the voyage from Norfolk to Alexandria.

Mr. ABLES. Yes, sir.

Mr. ALEXANDER. Yes, sir.

Mr. MAILLIARD. I do not know exactly how to do it but I would like to see an incentive here to try to save Uncle Sam some money as well as make a little for themselves.

Do you think we could find some means of sharing any savings? It is just that much savings to the Government.

Mr. ALEXANDER. I don't believe we have done anything in making a study of that possibility or making a provision for it, but we would be happy to see what we could do.

Mr. MAILLIARD. Mr. Chairman, with your consent, I would like to suggest that Mr. Alexander have his staff see if they could work out some language that would provide an incentive for the operator to try to make a little money for himself and make a little for Uncle Sam, too, on a delivery voyage. I think that here there is no incentive. As a matter of fact, it is almost minus because, in most cases, it would be so much quicker and get the ship on berth quicker if he just brought it in ballast whereas, I think, nobody would lose, everybody would gain if he could pick up some cargo and they got part of the benefit and Uncle Sam got part of the benefit.

Mr. ALEXANDER. We would be glad to try to work out some language along those lines.

Mr. MAILLIARD. Mr. Downing asked if there had been any other allocations under section 502(f), and you replied that there had not. Do you think there ever will be?

Mr. ALEXANDER. At the present time, the Department of Defense advises us, and our own studies show, that there is no basis for allocation. Now, what may happen in the future, of course, it is difficult for me to see but there is no basis for an allocation right now.

Mr. MAILLIARD. It would seem to me that in the conference report in the last Congress, which some of us signed reluctantly, which eliminated the 6-percent differential, we had some language in there requiring a report on what the conditions were in the various shipbuilding

areas.

Mr. ALEXANDER. Yes, sir.

Mr. MAILLIARD. Have you ever made such a report?

Mr. ALEXANDER. We have made a report quite recently.

Mr. ABLES. The report does not go to the Congress, sir. We make regular reports of all the shipyards. That is, we make regular surveys, and reports come from the field representatives to the Administration to be certain that we have an up-to-date account of the shipbuilding capacity of the shipyards throughout the country. The new statute required that it be done at least once each year. We do it much more often than that.

Mr. MAILLIARD. It is my understanding that this is a somewhat continuous flow of information procedure.

Mr. ABLES. That is correct.

Mr. MAILLIARD. Is there not also some kind of a formal or informal MarAd-Defense Board that analyzes this, or group that analyzes it? Mr. ALEXANDER. Yes, sir. There is a joint Navy-MarAd Committee that meets from time to time to appraise this situation.

Mr. MAILLIARD. Would the appraisal of that group and the information on which they base it be available to this committee?

Mr. ALEXANDER. Yes, sir.

Mr. MAILLIARD. I would think it would be of interest to us because the wording of Public Law 805 required this but at the suggestion of the executive branch originally we did not specify how often it should be done. But it is my understanding that the method of operation that was developed was to try to provide this information on a sort of a continuous flow basis.

Last year we did nail it down in that conference report. Since we had abandoned the differential which had provided a certain amount of work for the west coast yards, we tried to lay a little bit more emphasis on this particular provision of the law.

I gather that your appraisal indicates that there is no area at the present time, which could be called a shipbuilding area, that is in such relatively bad condition compared to other areas as to be a potential weakening of the mobilization base.

Mr. ALEXANDER. That is correct.

Mr. MAILLIARD. Mr. Chairman, if it would be agreeable, I would like to have the committee have available at least in the committee's offices the evaluations that are made from time to time just as a matter of seeing how well this worked out. Maybe we do have it and I just have not happened to have seen it.

The CHAIRMAN. This just came in, and it has been distributed.

Mr. TOLLEFSON. I think this has to do with shipbuilding cost.
Mr. MAILLIARD. I was not talking about shipbuilding costs.

I did see that, but I was taking about this evaluation of the joint Navy-Maritime group that tries to determine whether any one of our main shipbuilding areas is getting into a relatively depressed condition, and I think this is of interest to us.

The CHAIRMAN. Do you make that study each year or more often? Mr. ALEXANDER. Actually, as Mr. Mailliard says, this is a continuing study that we make. We usually, in the Maritime Administration, review and we have been reviewing quite frequently the exact status of this matter because, in almost every case where we are about to award a construction contract, we have a request for allocation. I think without exception recently, we have had a number of requests for allocation prior to the time we have awarded every construction contract and so every time one of these requests for allocation comes up, we review our studies, our statistics, and we also, in every case, get the opinion of the Secretary of Defense as to the mobilization base.

Mr. MAILLIARD. Mr. Chairman, if I may ask one more question regarding the retroactive feature of this bill. Have you any informal understanding with the one company that stands to lose a small amount of money that they would be agreeable to this?

Mr. ALEXANDER. It is our understanding that APL is agreeable to this, yes, sir.

Mr. MAILLIARD. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Stubblefield?

Mr. STUBBLEFIELD. Thank you, Mr. Chairman.

I would just like to know what does this term "allocation" mean? Being new, I would like to ask does that have to do with the equitable distribution of contracts over the east and west coasts?

Mr. ALEXANDER. Allocation signifies that construction of ships will not be made in the yard of the lowest responsible bidder but will be made in some other shipyard for national defense reasons and an arbitrary determination is made at that point to give work to another yard because of a national defense situation.

Mr. STUBBLEFIELD. But it would not necessarily refer to east and west coast yards as to either the east or west coast? I mean it could be a determination between two yards on the Pacific coast?

Mr. ALEXANDER. Most of the determinations as to allocation have been on that basis but the most recent we have had has been in regard to allocation to shipbuilding on the Great Lakes.

Mr. STUBBLEFIELD. Thank you.

The CHAIRMAN. Mr. Glenn?

Mr. GLENN. I have no questions, Mr. Chairman.

The CHAIRMAN. Did I understand you to say that this amendment. you offered was satisfactory to the operator who would have to pay? Mr. ALEXANDER. That is our understanding; yes, sir.

The CHAIRMAN. So then, do you know of anyone that is opposed to your proposed amendment?

Mr. ALEXANDER. We do not know of any opposition, sir.

The CHAIRMAN. Thank you very much.

Mr. ALEXANDER. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Ewers.

STATEMENTS OF IRA L. EWERS, COUNSEL FOR VESSEL REPLACEMENT COMMITTEE OF COMMITTEE OF AMERICAN STEAMSHIP LINES; NOAH M. BRINSON, VICE PRESIDENT, AMERICAN PRESIDENT LINES, LTD.; AND W. LYLE BULL, AMERICAN EXPORT LINES

Mr. EWERS. May it please the committee, my name is Ira L. Ewers. I am counsel for the Vessel Replacement Committee of the Committee of American Steamship Lines (CASL).

CASL unanimously and strongly supports this legislation with the changes which have been suggested.

I am accompanied by Mr. Lyle Bull, of American Export Lines, one of the companies which have been mentioned, and by Col. Noah Brinson, vice president of the American President Lines, another of the companies which has been mentioned in these discussions, and I, of course, am familiar with the problem as it relates to Moore-McCormack Lines, another company which has been involved with this problem.

I have a prepared statement summarizing the arguments in favor of this legislation which Mr. Alexander has outlined in considerable detail.

The amendments suggested by Mr. Alexander are acceptable to CASL.

I will either present my paper or file it for the record in accordance with the convenience of the committee.

(The statement referred to follows:)

STATEMENT OF IRA L. EWERS, COMMITTEE OF AMERICAN STEAMSHIP LINES

My name is Ira L. Ewers. I am counsel for the Vessel Replacement Committee of the Committee of American Steamship Lines (CASL). CASL unanimously and strongly supports this legislation with the changes hereinafter mentioned. I am accompanied by Mr. Peter Teige, of the American President Lines, and Mr. W. Lyle Bull, of the American Export Lines, who may wish to supplement my remarks and who are, of course, available to answer any questions.

Similar legislation (H.R. 11587 and H.R. 9001) was considered in the 87th Congress and hearings were held by this committee on September 11, 1961, (pp. 157 et seq.), was favorably reported (H. Rept. 2272), and passed the House on October 1, 1962. A similar bill (S. 1183) was considered in the Senate, and favorably reported (S. Rept. 204) but time would not permit its enactment. Since that time, further study has been given to this legislation with the result that the attached substitute measure we understand cures the ambiguities and meets all of the objections that had been raised by the Comptroller General, the Maritime Administration, the Department of Commerce, the Bureau of the Budget, and various shipowners. In this form it is expected to be reported from the Senate Commerce Committee at an early date.

CASL, therefore, requests that the substitute bill be favorably reported by this committee.

Since we hope that the subject is no longer controversial, I will make brief my remarks in justification of it.

Section 502(f) if the Merchant Marine Act, as amended, provides: "The Secretary of Commerce, in connection with ship construction, reconstruction, reconditioning, or remodeling under title VII and section 509, and the Federal Maritime Board, in connection with ship construction, reconstruction, or reconditioning under title V (except sec. 509), upon a basis of a finding that the award of the proposed *** work will remedy an existing or impending inadequacy in such mobilization base as to the capabilities and capacities of a shipyard or shipyards at a strategic point * * * may, allocate such *** (work) * ** to such yard or yards in such manner as it may be determined to be fair, just, and reasonable * * * subject to all of the terms

and conditions of this Act, except those pertaining to the award of contracts to the lowest bidder. *** In the event that a contract is made providing for a price in excess of the lowest responsible bid which otherwise would be accepted, such excess shall be paid by the Commission as a part of the cost of na tional defense, and shall not be considered as a part of the construction-differential subsidy".

However, no use was made of the section until 1958, when the attached Department of Commerce press release (E-895, of Feb. 7, 1958) describes what happen then.

These transactions are also described in the Annual Report of FMB and MA for 1961, pages 3 and 4, and in the previous hearings.

The purpose of, and need for this legislation is set forth in Senate Report 204, 87th Congress, 1st session, which accompanied S. 1183, the earlier Senate bill. That report stated that the bill:

** would amend section 502 (f) of the Merchant Marine Act, 1936, as amended by Public Law 805, 84th Congress to provide that in instances where the Federal Maritime Board (under title V of that Act), or the Secretary of Commerce (under title VII), allocates or has allocated a contract for ship construction, reconstruction, or reconditioning to a shipyard other than the one which submitted the lowest responsible bid, not only shall the excess under the allocated contract of the contract price over the lowest responsible bid be paid as a national defense cost, but the shipowner shall also be reimbursed by the Government for the excess of expenses he incurs for inspection and supervision of the vessel and for delivery of the vessel to its home port or a point on its subsidized route equally distant, over the expenses he would have incurred for these items if the lowest responsible bid had been accepted" (p. 2).

Senate Report 204 further states:

"The statutory directive that the 'excess (cost) shall be paid by the Commission' has been interpreted, at least informally, by the Maritime Board to bar payments for the additional inspection, supervision, and vessel delivery costs incurred by the shipowner as the result of allocation of the construction, etc., under section 502(f) to a shipyard on another coast of the United States than that on which the home offices of the shipowners and the lowest bid shipyard are located. Included in such excess costs, presently excluded from payment under the Maritime Board's interpretation, are the payments to naval architects and personnel of the operator for supervision and inspection in the more distant yard, increased travel and communications expenses, and the added costs of bringing the vessel from the more distant shipyard to the home port or subsidized route of the operator. In the case of the two American Export Lines' vessels, and the two Moore-McCormack Lines' vessels allocated under the provisions of section 502 (f) to shipyards on the Pacific coast, the excess costs for inspection and supervision, plus costs of delivery to the east coast, including transportation of the crew across country and tolls paid for transit of the Panama Canal, are estimated at $160,000 to $175,000 per vessel" (p. 3).

Both the former bill (S. 1183. 87th Cong.) and the present legislation are retroactive, to cover the two cases mentioned in the report quoted above. On this point Senate Report 204 states:

"Opposition was expressed by both the Board Chairman and the Secretary of Commerce, however, to the retroactive feature of the bill. On this point, your committee could not agree. If such expenditures in the future are in the interest of national defense, as your committee is fully convinced, such expenditures entailed by allocations since the allocation provision was enacted in 1956 were just as surely in the interest of national defense. They were saddled upon the vessel owners willy-nilly, and objections from the standpoint of cost accounting or otherwise to repayment by the Government of these national defense costs are not valid, we are convinced. Further it is our view that when the 1956 act was passed the Congress intended that all extra costs of such contract allocations would be paid by the Government, rather than by the shipowners" (p. 4).

The House Committee Report (Rept. No. 2272, 87th Cong., 2d sess.) also supported retroactivity, in the following language:

"(1) It is hoped that the revised measure will meet their objections.

"As noted above, this bill retained the retroactive feature. Your committee cannot help but conclude that the equities of the situation are just as applicable to the cases in the recent past as to those which might arise in the future" (p. 3).