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The CHAIRMAN. This new system that they are proposing which will take five shipbuilding areas and strike the average price among those five?

Mr. NEMEC. I think what they have proposed, Mr. Chairman, is not to take an average differential, but to select five shipbuilding centers, of the five pick the one which is closest to the average and use that area, that world shipbuilding center as their basis of pricing.

The CHAIRMAN. That is just the same, it is not? Mr. NEMEC. It is not the same as averaging prices. You are taking by contradistinction the price of the middle country and using it. It is tantamount to it but mechanically it is not the same.

The CHAIRMAN. How would you pick that? Mr. NEMEC. You might take it by the volume of shipbuilding orders for ships placed in those countries in the past year.

There are a number of standards that could be used. By almost any one you would place today, if you went by volume, you would have Japan, Sweden, West Germany, probably Yugoslavia, unless that was eliminated on the ground that is an Iron Curtain country, and questionably the United Kingdom, Spain, or France.

The CHAIRMAN. Spain has not built many ships? Mr. NEMEC. 18 months ago, the bulk of the available worldwide orders were going to Spain since Spain had then decided as a matter of national policy, that it wanted to build and export ships in order to obtain foreign exchange.

At that particular moment in time it was by far the lowest market in the world and the Norwegians and other free market countries just jumped at those prices and filled Spanish order books in a space of 4 or 5 months.

The same has happened with respect to Yugoslavia. At any particular moment, a country that wants foreign exchange can become the lowest priced shipbuilder in the world.

The CHAIRMAN. Mr. Drewry, any questions? Mr. DREWRY. Mr. Chairman, I would just like to ask Mr. Nuse if he could supply for the record a supplement to his figure 2 to give us a better impression of what the world picture is? You have average hourly earnings for shipyard workers in United States, Germany and Japan, and I think in light of the general picture we have here it would be most helpful to have Sweden, France you know, the same group of countries as was mentioned by Mr. Johnson yesterday.

Mr. NUSE. Yes, Mr. Drewry, these were selected because these are the foreign countries that have been used for CDS determinations in recent years. Mr. PURDON. We will be happy to supply that. Mr. NusE. Italy is higher than Japan, Netherlands is almost up to Germany, the Netherlands is next, we can furnish those figures if you wish.

Mr. DREWRY. Part of the motivation behind my question is there is still more we need to know as to why there is more differential between the United States and foreign building costs.

Mr. PURDON. We will be happy to supplement the record in that regard, Mr. Drewry.

Mr. DREWRY. Maybe the American shipbuilding industry is involved in this picture, too, and if we can have some material on which to base comparisons, I think it might be useful.

(The following material was subsequently received for the record:)

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1 Sept. 21, 1949, to Mar. 6, 1961: 13.80 equals $1; Mar. 7, 1961, to date: 13.62 equals $1.
? Sept. 20, 1949, to Mar. 5, 1961: DM4.20 equals $1; Mar. 6, 1961, to date: DM4 equals $1.
* Incomplete returns.

SOURCES
United States: Bureau of Labor Statistics: Average hourly earnings, shipbuilding and repair.
Japan: Japanese Economic Statistics: Average hourly cash earnings in transportation equipment in
dustry.

Italy: Statistiche Del Lavoro: Gross hourly earnings, shipbuilding. Genoa. · Netherlands: Social Maandstatistiek and Statistiek der Lonen: Average hourly earnings, shipbuilding and repair.

Germany: Preise Loehne Wirtschaftsrechnungen, Reihe 15, I: Average gross hourly earnings in shipbuilding, enrite country except Berlin.

United Kingdom: Ministry of Labor Gazette: Average hourly earnings, shipbuilding and repair.
Sweden: Kommersiella Meddelanden: Iron, steel, and copper works.

The CHAIRMAN. Due to the situation that exists in the House, the committee will have to adjourn until tomorrow morning at 10.

(Whereupon, at 11:10 a.m., the hearing was adjourned, to reconvene at 10 a.m., Thursday, April 9, 1964.)

CONSTRUCTION DIFFERENTIAL SUBSIDIES

THURSDAY, APRIL 9, 1964

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON MERCHANT MARINE OF THE
COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D.C. The subcommittee met at 10:15 a.m., pursuant to adjournment, 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 subcommittee will continue the hearing this morning on the bill H.R. 10053. The witness is Mr. Edwin Hood, president of the Shipbuilders Council of America.

Mr. Hood.

STATEMENT OF EDWIN M. HOOD, PRESIDENT, SHIPBUILDERS

COUNCIL OF AMERICA
Mr. Hoop. Good morning, Mr. Chairman, Mr Tollefson.

The CHAIRMAN. Mr. Hood, your full statement will be put in the record.

Mr. Hood. Thank you.

My name is Edwin M. Hood. I am president of the Shipbuilders Council of America, the national trade association representing principal companies in the shipbuilding and ship repairing industry. Some of our members participate in the Maritime Administration ship replacement program, and I appear here today to support H.R. 10053, ' Inevitably, in any discussion of the American merchant marine, the statement is sooner or later made that foreign shipyards can build ships at half-or less than half-U.S. shipyard prices. Why U.S. shipyard prices should be singled out as a prime target while most other U.S. industries are similarly at an economic disadvantage with respect to their foreign counterparts is never made quite clear.

At the outset, however, let me say most emphatically that shipyard prices in the United States followed a general downward trend in the years 1957 to 1962 while shipyard costs, in the same period, steadily increased. This pattern is perhaps unique against the backdrop of the general inflationary pressures which have prevailed in our economy since 1953. Because of the same pressures, it could not be expected that this downward trend would prevail indefinitely, and, as you will see from our later testimony, the curve has bottomed out and is heading upward.

But, the dramatic trend of prices and costs in our industry has been completely obscured by the prominence given shipyard economics in

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foreign countries. Not only are price and cost comparisons cited, but the modernization of certain shipyard facilities in Europe is frequently used to create the illusion that U.S. yards are antiquated.

In the limited time allotted to me, I would therefore like to place the U.S. shipyard price-cost balance in clear focus.

First, a few moments should be devoted to what has taken place with respect to foreign shipbuilding. It is little realized that the tax dollars of U.S. citizens were used, in generous sums, either directly or indirectly, to reconstruct and rehabilitate foreign shipyards which were damaged or destroyed during World War II. Under mutual security and foreign aid programs, better than $1 billion was spent in this endeavor. It is hardly necessary to add that the expenditure of an equivalent sum of money with U.S. shipyards would have greatly improved the economics of shipbuilding and ship repairing in this country.

Coincidentally, Time magazine on March 6, 1964, contains an interesting article under the heading of “The Marshall Plan Marches On.” In this article, it is stated that “remnants of the aid are still at work," and that some nations, have, to quote them, manged to keep Marsball plan funds working by selling in their own countries their share of the $12 billion in equipment and commodities that the United States supplied in aid, then reinvesting the proceeds in worthwhile ventures. By this method, West Germany will use $210 million, in Time's words, "to help Germany's ailing shipbuilders” during the present year. As a point of reference, it is important to note that appropriations for Marad ship construction requested for fiscal 1965 total $108.6 million.

Secondly, as to modernized facilities, this can frequently be a mirage. Willy Schleiker's yard in Hamburg, Germany, which for a while was widely advertised as the most up-to-date and most automated shipyard in the world has been bankrupt and its doors are now padlocked. William Denny & Co., the longtime Clydeside shipbuilder and manufacturer of a Hovercraft air cushion vessel which has been pictured as a forerunner of the merchant ships of the future, has reportedly gone into voluntary liquidation as have one or two prominent British yards. Last year, the trade journals announced that the modern Swedish yard Uddevallavarvet AB, had gone into receivership and was taken over by the Swedish Government.

The experiences of these yards suggest that any modernization scheme—whether grandiose or modest-must be predicated on the expectation of a sufficient work volume to enable adequate use of the facilities and to justify the investment of hard cash. To be sure, with prospects for more work, greater strides could be made.

Even so, U.S. shipyards have not been "penny wise and pound foolish.” In the past 10 years, it is conservatively estimated that between $250 and $400 million have been spent for yard improvements. Supporting the higher estimate is the latest census of manufactures, pubIished by the Department of Commerce, which shows that nearly $40 million were spent for capital improvements in the shipyards in 1958 alone.

Most of the latter-day techniques such as optical lofting, automatic flame cutting, new welding processes, prefabrication, and so forth, are already being employed in our shipyards. Attention is also being given to the adoption of computerized operations, tape controls, and

more. And, the U.S. shipyard industry leads the world in developing and building nuclear-powered vessels. This accomplishment would not be possible without the capabilities and facilities to deal with the full spectrum of engineering and technical problems associated with the nuclear age.

But, in the great American tradition, if U.S. yards could see the potential for more work on the horizon, I am confident the necessary funds for even greater improvements would be forthcoming. And, with it, shipyards would be in a position to pass on greater savings to the ship operator, the Public Treasury, and the taxpayer.

American ingenuity is numbered among our greatest national assets. That statement is not new to this distinguished committee. But, ingenuity and progress in our industry have come to be an absolutely necessary way of life. And, those who suggest that U.S. shipyards with built-in higher costs, as represented largely by our higher standard of living, can by some magical formula overcome the cost advantages of our foreign competitors are out of touch with the economic facts of life.

Shipyards produce mostly custom-built ships requiring an infinite number of skills and many months to complete. The opportunities for assembly-line cost saving techniques are therefore limited. For one thing, a shipyard production run is small. And, serious production in our industry usually involves an order for only two to five ships of similar design

In spite of considerable investments in capital improvements and tremendous progress in utilizing new techniques, labor costs still remain a significant item in determining the total cost of constructing a ship. To put this point in better focus, a comparison of average hourly shipyard labor costs, including all fringe benefits, prevailing in the principal shipbuilding nations of the world during the period 1959–62 is most enlightening.

They are here on this chart, Mr. Chairman.

These are based on the years 1959 to 1962. The rates have gone up in 1963, we do not have it for all nations, but we are told that the U.S. average hourly wage at the moment is in the vicinity of $3.12.

Comparative average hourly labor costs in U.8. cents, 195962

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It will be seen that U.S. labor costs range from nearly double to four times higher than those of our foreign counterparts. But, labor rates alone do not necessarily dictate the final price of ships. Other factors have an important bearing. For example, Sweden, which has the second highest labor costs, is able to offset this disadvantage because of favorable, less rigid labor agreements. Swedish yards are unham

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