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pered by rigid work rules and are able to interchange workmen and skills to achieve great economies and cost savings. I am told that Japanese and West German shipyards similarly have the advantage of a flexible union structure.
My point in focusing attention on comparative labor costs here and abroad is not to disparáge the American worker. It is to emphasize that the American standard of living, of which we are justifiably proud, is a not inconsiderable factor in the economic equation that determines the price of materials and services which shipyards must procure. There are also those who say that the productivity of the workingman, individually and collectively, must be included in the equation.
Thus far, I have endeavored to explain, in the language of the layman, the reasons why U.S. shipbuilding costs exceed those of foreign nations. I have also endeavored to show that our yards are anything but complacent, that they are technologically alert and that they are aggressively striving to reduce prices as well as costs. The index of estimated shipbuilding costs ranging from January 1, 1939, to December 31, 1962, provides more substantiating evidence of this point.
I would call your attention to the next chart.
This experience curve, constructed by the Maritime Administration's Office of Ship Construction, reflects both labor and material costs of the shipbuilders. The curve is praetically uninterrupted in its upward ascent, and the Maritime Administration has advised that the ascent continued in 1963. During the past 10 years, shipbuilding costs to the shipbuilder have increased about 33 percent. The rate of climb has been less severe lately, and it is hoped this short-term trend portends a leveling off of cost increases and greater productivity on the part of the labor force.
The trend of new ship selling prices in this country is even more striking. I would call your attention to the next chart. This experience curve, also drawn by the Maritime Administration's Office of Ship Construction, covering a timespan from October 1957—when the subsidized ship replacement program got underway-through April of last year deserves wide notice.
Despite the fact that the shipbuilder's costs rose steadily during this period, shipbuilding prices fell steadily. The Maritime Administration's assessment of price trends shows that shipbuilding prices in December 1961, were about 22 percent below those which prevailed in October 1957. As of April 1963, these prices were 18 percent below the October 1957 level, and according to late information from the Maritime Administration, based on recent bids, the curve has followed the trend upward since 1962. Based on the bids received last Friday. the Maritime Administration tells us that the curve has flattened out again.
You might ask-how does the trend of ship prices in this country compare with other economic barometers during the same period ? To provide this perspective, the Bureau of Labor Statistics Consumer Price Index for All Items would seem to be the most appropriate benchmark.
On the next chart, plotting the consumer price index against the same base as the new ship selling price index is also revealing. Consumer prices are 8 percent higher than they were in the fall of 1957.
Shipbuilding prices today, however, are approximately 18 percent below the level which prevailed nearly 6 years ago.
The pattern of decreasing prices and increasing costs in U.S. shipyards since 1958 is really the pattern of survival in a highly competitive industry. It reflects efforts to reduce man-hours and to conserve material purchases. In addition, it reflects efforts to decrease overhead, and in many cases, to eliminate considerations of profits. The Maritime Administration has reported that with very few exceptions U.S. shipyards have suffered losses on contracts awarded since 1955.
It seems to us that all of these points bear on your considerations of H.R. 10053. In addition to what has already been said, it must be logically anticipated that as a result of recently concluded labor agreements, that wages will increase in the shipyards. I am told the increment of increase will be approximately 2 to 21/2 percent per year. Similarly, it must be anticipated that the cost of steel and ship components will rise. These increases, plus the trend toward costly mechanization and automation features in the newer vessels, most assuredly will have a bearing on the construction-differential determination to the extent that foreign prices have not increased in the same proportion. Measured against recent determinations which have been at 53.4 percent (Prudential), 54.5 percent (APL), and 55 percent (Lykes), it can be readily appreciated that a continuation of the 55-percent ceiling for new construction and the 60-percent ceiling for conversion is not unrealistic.
We, therefore, strongly support H.R. 10053. Passage of this legislation will preserve the doctrine of parity on which the Merchant Marine Act of 1936 is based. Passage will enable U.S.-flag shipping operators, engaged in the liner services, to obtain U.S.-built vessels at prices equivalent to those which their foreign-flag competitors can acquire foreign-built ships. And, finally, passage will provide gainful employment for U.S. skilled shipyard craftsmen and for many workers in supporting industries throughout the United States.
If I may, Mr. Chairman, I would like to supplement my statement and comment on two remarks made during Tuesday's testimony.
Reference was made to the national defense requirements of the shipyard industry. The committee may recall that the Secretary of Defense, in appearing before this same group 2 years ago, made the statement, “From a purely military point of view, a shipbuilding capability is absolutely essential.” I am not aware of any change in that viewpoint.
In addition, in June of last year, we had a communication from the Office of the Chief of Naval Operations, signed by the Deputy Chief of Naval Operations for Logistics, and if I may, I would like to read three paragraphs from the letter dated June 5, 1963.
Our industrial economy currently depends on sea transportation for import of vast amounts of petroleum, metal ores, and other raw materials, and for export of finished products. No other types of transportation can meet these tremendous requirements. Any variation in the current appraisal from previous years' analyses does not eliminate the necessity for the United States, as the world's foremost trader, to control sufficient shipping to transport what it needs to where it needs it, when it is needed. The ability to meet the United States anticipated military and civilian economy wartime needs must be insured to the maximum practicable degree in peacetime by the ready availability of active, prirately owned merchant ships employed in gainful ocean commerce. Therefore, there is an urgent need for increased emphasis on orderly ship construction to offset the rapidly approaching block obsolescence of the vast proportion of U.S.-controlled, merchant-type tonnage.
In regard to the second point * * * I know that you are well aware of the need for maintaining a sufficient number of private shipyards in operation to form the base for expansion in time of war. Shipyards will be required to activate ships currently in the national defense reserve fleet and to meet ship construction and ship repair programs.
One other comment referring to a statement that was made during the questioning on Tuesday, with respect to what the Soviet Union is doing in terms of merchant ship construction.
Actually, they are engaged on a very sustained program which is now reaching mammoth proportions. According to the U.S. Maritime Administration figures, Russia had 226 ships totaling about 2 million deadweight tons building or on order on January 1, 1962. At that time we had 65 ships under construction or on order totaling about 1 million deadweight tons.
As of October 1, 1963, a comparison is most revealing. A British publication called Motorship reveals that at that time, October 1, 1963, Russia had 379 large merchant ships totaling 2,825,000 deadweight tons on order or under construction. At the same time we had 47 ships of 734,000 deadweight tons under construction or on order. · That concludes my statement, Mr. Chairman.
The CHAIRMAN. Mr. Tollefson?
Well, Mr. Hood, I am glad you made this statement today. It has been a long time since we have had testimony from shipyards with respect to their being a part of our defense complex, and your statement certainly points up the need for extending the 55- and 60-percent differential. According to your statement the spread could be even greater within the next year or two than it is now.
Mr. Hood. That is correct, Mr. Tollefson.
Mr. TOLLEFSON. So if we are to keep this parity concept it is absolutely essential we do extend this legislation for a period of time.
I think really the only dispute is as to the time. The Maritime Administration goes along with the 1-year extension. Just what is back of their position in that regard I am not sure. But it is clear that we need to extend the legislation.
I wonder if you would care to comment, although it really does not deal directly with the bill, but you did mention the fact that the Russians are in a shipbuilding program of considerable magnitude and there is a possibility, according to some people, that it might not be too far in the future when they will be the No. 1 seapower in the world so far as merchant shipping is concerned.
Why, in your opinion, if you have one, are the Russians so anxious to build up their seapower?
Mr. Hoop. In my opinion, Mr. Tollefson, they recognize the advantages of the seas, not only from the standpoint of trade and commerce but from the political and propaganda standpoint.
They have apparently devised a very careful program, and are obviously spending massive sums of money. I believe the previous Maritime Administrator has said that by 1970 they will overtake us in terms of numbers of ships on the oceans.
Mr. TOLLEFSON. Do you think, perhaps, that they look upon their seapower as a national defense or military thing also ?
Mr. Hoop. I am confident that is a part of of their overall concept.
Mr. TOLLEFSON. Well, it has been my thinking that the Russians have just taken a leaf out of our book of experience, our experiences in World War I and World War II particularly, and they have seen the advantage of seapower. Of course, they are approaching it from both ends, they are building submarines, too, far in excess of the number we have.
Mr. Hood. Under the seas, at the moment, they have the numerical superiority, they outnumber us 3 to 1 on submarines. You will recall that when Hitler entered World War II, he had only 57 submarines, and the Russians today have upward of 400.
Mr. TOLLEFSON. Well, I think we would be making a serious mistake if we decreased the importance of our merchant marine. If I had any word of criticism for Mr. McNamara, it was with respect to his attitude toward the American merchant marine in his statement before this committee 2 or 3 years ago. I have been a little fearful that some of his thinking might permeate the Defense Department to the point where they did not think that we would need our merchant marine as much in the years ahead as perhaps we did during World War I and World War II.
Mr. Hoop. Seapower, according to the experts, is more than just naval vessels, armaments, and missiles; it also includes merchant ships, shipyard capacity, geography, and the ability to use the geography of the oceans to pursue national objectives.
We have felt for a long while that the total seapower concept has not received enough public and official recognition in this country. We have made a suggestion to the President that he consider the appointment of a Presidential Advisory Commission on Sea power Superiority to define our national objectives in this total area taking into count the broad range of everything I mentioned, and to advise him on what steps are necessary to make sure that we continue to maintain a supremacy on the seas, in terms of both naval and merchant vessels.
Mr. TOLLEFSON. Well, you are one of the most knowledgeable people on this subject, Mr. Hood Mr. Hood. Thank you, Mr. Tollefson.
Mr. TOLLEFSON (continuing). I so consider you. I have often been tempted to ask the military people, well, what good would the Navy be to us if we did not have a merchant fleet? Why have a Navy? Would there be much reason for having a Navy if we did not have a merchant marine ?
Mr. Hood. Navy officials repeatedy refer to the need for a strong merchant marine as a supplement to the naval fleet.
Mr. TOLLEFSON. Yet we spend a couple billion dollars a year on our Navy and think nothing of it.
Mr. Hood. Apparently so. Mr. TOLLEFSON. That is all, Mr. Chairman. The CHAIRMAN. Mr. Hood, you made an interesting statement. As I followed your statement you go up more on the cost of labor and the lack of the ability to interchange labor on jobs in shipyards.
Now, this committee sent a group to Europe and to certain other places to look at shipyards and from their report and discussion that I had with naval architects, other people, on January 17, 1963, I made a little different statement than yours, and among the things I said, shipyards are rightfully considered an important element in our defense. Their services will again be required.
Now, I must evidently have been wrong after hearing your statement. I said:
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But failure to modernize and install new equipment of the type almost universally found in European and Japanese shipyards, will prove an almost inseparable handicap in a period when time is of the essence.
Now, do I gather from you that our American shipyards have modernized in the last year or two with equipment and machinery to meet the competitive situation that our committee reported existing in the Japanese and European shipyards?
Mr. Hood. In the last decade, Mr. Chairman, the private yards in this country have spent considerable sums of money
The CHAIRMAN. I notice the amount you say. Mr. Hood. Unfortunately, I have never visited a foreign shipyard
The CHAIRMAN "ell, you should if you are going to speak on this subject.
Mr. Hood. I hi ve been in practically every private yard in this country, and man of these yards have gone to great extents to modernize their facilit is in an effort to reduce costs. Optical lofting and other new techniq zs, as I say in my statement, are being employed, It is quite true, Mr. Chairman, that not all of the yards have these, but yet not all engage in every type of ship construction activity
Their work is varied, and the types of facilities therefore vary from place to place.
If your question is directed to whether or not we could take an order away from a Japanese shipyard, I would have to say that the possibility is very unlikely at the present time.
The CHAIRMAN. Well, I understand that. We all understand that. But the question is whether or not our shipyard industry has modernized itself to keep abreast of the competitive machines that we found and were reported to this committee from yards abroad?
Mr. HOOD. In my opinion, the U.S. private shipyard industry has started on the beginning of a long-range program; fulfillment, of course, will depend upon the future and the availability of an increased volume of work.
The CHAIRMAN. I said that a method will have to be devised to help modernization of our private shipyards and the committee will have to explore the various means of achieving this. I went so far as to say that we are considering the possibility of using the device of a small staff of consultants on an ad hoc basis to appraise these problems and offer recommendations to the committee which may be translated into legislation.
Well, of course, we do not desire to go into legislation with respect to the operation of private industry, whatever it may be; but I pointed out this due to the fact that from the information I had gathered from reliable sources here in America, and the report made back to our staff and the committee by the group we sent abroad to look at the yards, we felt that the industry was not keeping abreast of the steamlined progress of the world.
Mr. Hood. That is the thrust of my statement, Mr. Chairman, to try to correct some of these impressions that people have.
The CHAIRMAN. And therefore, it costs more to build a ship here in America than it does abroad.
Mr. HOOD. Higher labor cost are part of it; overhead costs may vary from country to country; yes, that is true.
Incidentially, Mr. Chairman, we stand ready to help you at any time in the project that you mentioned concerning an ad hoc committee to look into problems affecting the shipbuilding industry.