CASL

(IN THOUSANDS OF DOLLARS)

CHART 4

STATEMENT OF PETER TEIGE, VICE PRESIDENT, AMERICAN PRESIDENT LINES, LTD.

Mr. TEIGE. Good morning, Mr. Chairman. My name is Peter Teige, vice president of American President Lines, San Francisco, Calif., and I am a vice chairman of the Vessel Replacement Committee of the Committee of American Steamship Lines.

I had originally planned this morning to put in a detailed statement on the position of the CASL on the question of the use of the low-cost foreign shipbuilding center in the computation of the CDS

rate.

You heard yesterday the Maritime Administrator indicate that the Maritime Administration wants to dump the procedure in this respect which they have followed consistently for nearly 30 years. On hearing that statement you indicated your intention to hold hearings on this very serious subject and you have expressed the desire that further discussion of this matter be deferred until those hearings are held. In view of this I will not present to you the statement that had originally been planned to be given at this time and will give you our assurance that when those hearings are held the Committee of American Steamship Lines will fully participate and present what I feel will be a most convincing case for the continuation of the present procedure. Though we are not putting in a detailed statement on this matter this morning, I would not want our silence, even for a short time, to be considered in any sense acquiescence in this proposal.

The proposal was first made by the Maritime Administration in January of this year and in February the CASL submitted substantial written presentations to the Maritime Administration arguing this issue.

These presentations consisted of a legal brief pointing out the illegality of the proposal, a detailed statement of the legislative and administrative history of the ratemaking procedures of the Maritime Administration, and a third satement pointing out the economic impact of this proposal on the CASL.

We will develop that case further at the time of your hearings. I would like at this time, however, just to very briefly outline to you some of the principal points on which we base our opposition. These will be more fully developed in the hearings and additional points added.

First. That the proposal violates the law. Our counsel has told us that by the consistent administrative interpretation of section 502(c) of the act as calling for use of the low-cost shipbuilding center, the communication of that practice to Congress and the subsequent reenactment of the pertinent statutory provision by Congress on several occasions, has given the existing practice the effect of law.

They tell us in that regard that the history of the section 502(b) in the Congress would indicate that the Congress itself intended that this procedure be followed.

Second. Aside from the legality issue, the past procedure of using the low-cost foreign shipbuilding center is a sound one that is equitable to both the operators and the Government.

Third. A change in the formula will greatly increase the capital costs of the shipowners at a time when many of them are already hard

pressed to go forward with their ambitious ship replacement programs. It is estimated that the cost of new ships to the operator may increase by over a half million dollars.

Fourth. The Marad proposal is complex and cumbersome and will be exceedingly difficult to administer and raises problems of countervailing subsidy that have never before been dealt with by the administration and that will be, in our opinion, a most difficult area in which to find their way through.

Fifth. The operators have entered into binding vessel-replacement obligations and otherwise have changed their position in reliance on continuation of the present practice.

A change now from that practice would result in serious inequity to the owners.

These and other points will be developed fully in your hearings. Between now and then I would like to pose a question about this matter. For nearly 30 years this procedure has been followed: It has been examined by Congress, by the Maritime Administration, by the General Accounting Office. I would like to ask what it is now that has changed the situation so as to warrant the substitution of a new procedure that is less favorable to the merchant marine?

Thank you, Mr. Chairman.

The CHAIRMAN. You do not have a prepared statement?
Mr. TEIGE. No, sir.

The CHAIRMAN. Thank you, sir.

Now, Mr. Nuse.

STATEMENT OF GILBERT NUSE, NAVAL ARCHITECT, J. J. HENRY CO.

Mr. NUSE. My name is Gilbert F. Nuse. I am a naval architect employed by the J. J. Henry Co., Inc., a firm of naval architects and marine engineers with main offices in New York City.

The company has extensive experience in projects involving construction of approximately 50 vessels in foreign shipbuilding countries. Since 1955 the company has been consultant to the Committee of American Steamship Lines on foreign shipbuilding construction costs. I have been coordinator of that CASL program which involved extensive shipbuilding cost investigations carried out by consultants in foreign countries who are retained by CASL to cover the major shipbuilding centers in Japan, Western Europe, the Scandanavian countries, and the United Kingdom.

My prepared statement summarizes a study of world shipbuilding conditions during the period in 1962 to early 1964; forecasts shipbuilding differential trends in excess of 55 percent, and urges enactment of the subject bills if reasonable parity of ship prices is to be maintained.

I will summarize the subjects covered in the statement in order to conserve time.

I have large-scale charts which serve to illustrate the statement, but these are reproduced in smaller form and attached to the end of the statement, so, in order to save time, I will dispense with the use of the large charts.

The construction-differential subsidy rates as calculated by the Maritime Administration, that is without regard for statutory limitations, are plotted on the chart, figure 1.

This is a folding chart at the end of the statement.

The trend line which is based on yearly averages illustrates graphically the tendency toward a wider spread between United States and foreign shipbuilding prices.

More than two-thirds of the differentials during the past 2 years have exceeded the 50-percent level and in one case the 55-percent level has been penetrated.

In my opinion a new differential plateau has been established and an increasing number of differentials can be expected to exceed 55 percent in future years.

I feel compelled to observe that the construction-differential-subsidy rates determined by the Maritime Administration are consistently lower than those shown by the foreign cost estimates prepared for the

owners.

Items in disagreement are usually solved in favor of higher foreign prices by the Maritime Administration. This serves to depress the construction-differential-subsidy rates.

I believe that the owners estimated foreign prices would be proven to be realistic and higher construction-differential-subsidy rates would be confirmed if worldwide bids could be obtained and serious foreign shipbuilding contract negotiations could be pursued so as to duplicate the process which the foreign shipowner is at liberty to follow.

This would assure a true measure of parity since the lowest price in the low-cost center could be obtained in this manner.

It is interesting to observe what has happened to shipbiulding prices in the world market during 1962 and 1963.

Shipbuilding market prices, both domestic and foreign, held reasonably steady during 1962; changes in price levels started to develop during 1963.

Domestic bidding in the United States showed some indication of higher prices during 1962 and the tendency toward higher U.S. prices was confirmed by the bids which were opened in 1963 and 1964.

It now seems certain that U.S. prices are trending upward. Due to the relatively small volume of orders placed in the world market, together with the excess of shipbuilding capacity and the generally depressed ocean freight markets, strong pressures continue to exist abroad to hold foreign shipbuilding prices for all types of vessels at a very low level through the middle of 1963. Japanese prices were the lowest of the major shipbuilding nations during the first half of 1963.

During 1963 a very substantial volume of orders for large tankers and bulk vessels was placed in the world market. Japan and Sweden were the most successful competitors for these orders. As the backlog of orders built up in these countries, prices for these types of larger vessels tended to firm up. Price increases for ships of liner size, cargoliner size, have been relatively minor.

This differing price trend is due to the fact that while the Japanese shipbuilding industry was remarkably successful during 1963 in booking new orders, the huge backlog of orders is held by a limited number of major shipyards having facilities capable of building vessels of very large size.

There are many ways even in the major yard and many small shipyards which do not have facilities to build these very large vessels.

The extent of the problem can be appreciated by analysis of statistics. During the first 9 months of the fiscal year April 1 to December 31, 1963, the Japanese secured orders for the amazing total of 5,400,000 deadweight tons of export orders. Of the total of 137 vessels, 64 were tankers, aggregating 4 million deadweight tons; only 1 vessel of this group was smaller than 45,000 deadweight tons and had a breadth less than 100 feet. Obviously, even in the major Japanese yards there are many shipbuilding ways on which these vessels could not be built. The same general situation applied to the bulk-cargo vessel contracts placed during that period of time.

Of the total orders for 137 vessels placed in Japan during that period, only 22 ships, totaling about 5 percent of the total deadweight and shared by the entire Japanese shipbuilding industry, were of a size which should be constructed on normal-sized shipbuilding ways. It is quite obvious that the Japanese order backlog is very poorly balanced. There are many yards that have only smaller shipbuilding ways which need orders desperately in order to fill their small-sized

ways.

The fierce competition existing throughout the world, together with the superior experience of European shipyards and construction of cargo-liner vessels, creates a very formidable opposition to the Japanese in competing for such contracts. This is a powerful deterrent to any appreciable increase in foreign cargo-liner prices.

In further sections I cover factors which have influenced shipbuilding labor costs and also the costs of materials used in shipbuilding. Now, going to the conclusions, I state that from consideration of factors which influence the shipbuilding market price situation here and abroad, and from an analyses of the trends of the major elements of shipbuilding costs, I believe that the price differential pattern of the past 2 years will continue into the future and that the differentials will increase.

Further penetrations of the 55-percent construction subsidy limitation will occur and legislative relief will be necessary if parity is to be attained.

I believe that present indications justify the elimination of any subsidy ceiling from the 1936 act in order to assure flexibility necessary to cope with possible shipbuilding price level variations at home and abroad.

Ordinarily, it is possible that extension of the 55-percent limitation may prove equitable by a very slim margin in the event that price relationships do not change significantly.

For these reasons I fully support and urge favorable action on H.R. 10053.

That completes my statement.

The CHAIRMAN. The entire statement will be put in the record at this time.

(The statement referred to follows:)

STATEMENT OF G. F. NUSE ON BEHALF OF THE COMMITTEE OF AMERICAN STEAMSHIP

LINES

My name is Gilbert F. Nuse. I am employed by the J. J. Henry Co., Inc., a firm of naval architects and marine engineers, with main offices in New York City.

The J. J. Henry Co., Inc., employs approximately 230 persons engaged in design, construction, and conversion projects on all types of seagoing vessels, both here