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. DOWNING. 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.

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.