Mr. CHURCH. All I want to do is to remove from any representative of the industry any embarrassment. So they will come here and tell us what their problems are without feeling that they are stepping on the toes of the Maritime Commission. I believe, when we get through here, we may get that sort of attitude.

Admiral LAND. Our toes are all right to be stepped on. We have no personal feelings on this.

The CHAIRMAN. Any further questions? If not, stand aside.

The State Department has sent up a report of several pages. I have not read it. It is dated March 1. It will be printed today and delivered, and will be available tomorrow morning.

Mr. WEICHEL. Will he be back for questions by members of the committee?

The CHAIRMAN. He will be available, God helping him and keeping him alive, just so long as this committee has the bill under consideration, any time the gentlem en want to hear him.

Mr. Saugstad, I understood the State Department will not be heard?

Mr. JESSE EDWIN SAUGSTAD (Chief of the Shipping Division, Department of State). I see no reason for us to be heard. The CHAIRMAN. The report will be printed.

Mr Roth.

STATEMENT OF ALMON E. ROTH, PRESIDENT, NATIONAL FEDERATION OF AMERICAN SHIPPING, INC.

Mr. ROTH. I am speaking on behalf of the National Federation of American Shipping, and since there are some members of the committee who were not here at previous presentations, I should like to sketch very briefly the organizational set-up of the federation.

The CHAIRMAN. I will say for the benefit of the members of the committee that I am trying to have the transcript, as soon as it is delivered, without revision, delivered to the Printing Office.

All right, Mr. Roth.

Mr. ROTH. The National Federation of American Shipping is composed of five shipowners' associations, two of which have their principal offices in New York, the American Merchant Marine Institute, Inc., and the Association of American Ship Owners, and three of which have their headquarters on the Pacific coast, the Shipowners Association of the Pacific Coast, the Pacific American Steamship Association, and the Pacific American Tankship Association.

The membership of these associations includes shipowners who are engaged in foreign, intercoastal, and coastwise trades. All types of shipping services, including dry cargo, tanker, collier, and passenger lines, are represented in the federation.

Seventy-five shipping companies affiliated with the federation constitute approximately 95 percent of the shipowners of this country who were engaged in ocean-going traffic at the beginning of the war.

Admiral Land has said something about the difficulty of finding a solution to these perplexing problems. I think anyone who realizes how the conditions, both operating and competitive, vary among different types of shipping services, and even among operators in a particular line, will understand that it is most difficult to legislate

for ship disposals on a basis which will meet the requirements of all operators in these various types of services. I think it is therefore understandable that different viewpoints should develop on certain particular features of any ship disposal bill, and its application to individual situations.

I can understand that Admiral Land is perplexed and troubled. We are, too.

The CHAIRMAN. The committee is, too.

Mr. ROTH. We find it difficult to find the answers, and if the Government agency charged with the responsibility of devoting its time to finding the answers cannot find them, I think it is understandable why we cannot. We have exactly the same difficulties.

My presentation this morning will be supplemented by statements from various companies or groups of companies explaining their special problems and giving your committee the benefit of their views. This statement will be confined to certain general principles and considerations which, on the assumption that this or some other price-fixing bill which fixes a floor on prices is to be passed by Congress, are generally acceptable to our membership.

The federation accordingly makes the following specific recommendations and suggestions for the consideration of your committee in connection with any legislation which provides for sales at minimum prices.

Now, all legislation so far proposed has spoken of prices in terms of percentages and estimates which are subject to considerable uncertainty and flexibility, and at this very time it is impossible for us to obtain any very definite figure as to what the cost will be for particular types of vessels.

H. R. 1425 provides that the Commission shall from time to time. estimate and publish pre-war and domestic costs. The time when prices are to be published is left wide open.

We suggest that any ship sales legislation, based on minimum sales prices, as this is, should fix a definite date on or before which the Maritime Commission shall publish, in the Federal Register, the specific prices for all types of vessels on which cost data are then available, and require that the Maritime Commission thereafter shall publish prices on vessels for which cost data are not then available, as and when the same become known.

We realize that there are certain types of construction on which the data are not yet available, but we think it would be most helpful if this committee and the industry were furnished at an early date with such data as are available as to costs on which these various formula are figured.

Now, the second point with regard to this bill to which we desire to direct your attention is this: This is the necessity of a fall clause. The federation recommends that there be included in any bill, which seeks to establish a floor on prices of vessels, a provision that any contract with a citizen of the United States for the sale of vessels covered thereby shall contain a fall clause providing for a downward adjustment of the sales price in the event that the Government subsequently sells similar vessels on terms more favorable to the buyer.

We realize that it will be difficult to draw that clause, but we think we should make the effort, and we think if we sat down with the Commission and the members of the committee we might work something out.

One of the greatest obstacles to the sale of Government-owned vessels at established prices will be the fear of the purchaser that similar vessels will be sold later to his competitors at lower prices. That is exactly what happened at the end of the last war. It is only fair to purchasers, who pay the prices established by current legislation, that they be protected against such a contingency. This same principle is recognized in section 5 of H. R. 1425, which authorizes downward revisions of the prices paid for ships sold between December 31, 1940, and the enactment of the bill, to conform to lower prices authorized thereunder. The bill now permits that, to protect the man who came in and bought.

The inclusion of a fall clause will operate as a sanction in favor of maintaining the floor which the Government seeks to establish as a means of stabilizing ship values. If the Government were under the necessity of making adjustments to reimburse current purchasers against future declines in sales prices, it naturally would hesitate to invalidate its own floor on prices.

If Congress decides that it is advisable and feasible to maintain a floor on ship prices and values, it should not object to the inclusion of a fall clause in the purchaser's contract. Purchasers who cooperate in the Government's effort to stabilize ship values are entitled to the protection which a fall clause would provide.

This bill provides for interest rates at the rate of 31⁄2 percent. The federation recommends that the interest rate on deferred payments be fixed at 21⁄2 percent. This recommendation is based upon the following considerations:

The current rate on United States Treasury bonds ranges from 2 to 2% percent. That is not on War bonds, that is on regular Treasury bonds. The current rate on Treasury notes is 14 percent. The War Shipping Administration is allowing only seven-eighths of 1 percent to shipowners on just compensation for requisitioned vessels. Private banking interests within the past few weeks have made a loan of $100,000,000 to the Netherlands Government at a rate of 11⁄21⁄2 percent per annum. It is true that that loan is secured by gold, but the newspaper report announcing it intimated that the gold might be withdrawn as security and other collateral substituted later when it became available.

This bill provides, in section 4 (b), for a special allowance on account of accelerated wear and tear, in the form of a depreciation allowance of 2% percent. The federation recommends that for the purpose of determining depreciated cost the amount to be allowed as representing accelerated wear and tear, by reason of war service, be fixed at not less than 3% percent per annum on all vessels, other than tankers, which have been engaged in the carriage of white oils; that the special allowance for war service for tankers, which have been engaged in the carriage of white oil, shall be 6 percent per annum for such period as these tankers have been used exclusively in white-oil operations.

Experience shows that tankers used exclusively in the white-oil trade have a useful life of approximately only two-thirds of that of tankers used exclusively in the black-oil trade, the kerosenes and the gasoline trades, particularly.

War-used tonnage is subjected to many hard uses and operating conditions which, in most instances, make it impracticable to restore a vessel to its former good order and conditions.

We have had groups of experts studying the unusual wear and tear to which vessels are subjected by reason of war use on both the Pacific coast and on the east coast, and the following items which I cite are the result of their studies and reports. The following operating conditions and other factors involved in war service and construction result in abnormal wear and tear of vessels:

1. Unskilled and inexperienced personnel:

(a) Inexperienced personnel in shipyards, equipment manufacturing plants and in shore maintenance and repair plants results in less than peacetime standards of workmanship.

(b) Tremendous expansion of seagoing personnel, with resultant inexperience of crews, has resulted in less thorough maintenance and upkeep at sea and less efficient operation of machinery and deck gear. 2. Firing of heavy-caliber guns, causing unobservable structural defects.

Repairs is another item: The limited time to accomplish repairs which are made; the work that is deferred for lack of time; the work deferred for lack of repair facilities, and in this regard I would like to call your attention to the fact that the inability to drydock on account of lack of facilities results in incalculable damage due to the deterioration of the vessel's underwater hull. Experience has proved that proper drydocking and care of a vessel's hull in its early life greatly minimizes requirements for future underwater hull repairs.

Substitution of material of reduced specifications to meet war emergency priorities, such as iron pipe for brass pipe, and so forth. Other items which enter into this picture:

Unusual wartime cargoes, both on deck and below deck. Tanks, war material, and other items are illustrative of this point. These heavy lifts secured to ships' frames, deck beams, and so forth, have on occasion bent and warped structural parts of ships through excessive strain on lashings, and by working loose in heavy weather have damaged ships' structures.

Loading of sections of landing craft, heavy launches, and so forth, on deck without even distribution of weight.

Hidden defects due to hurried wartime construction inspection, and the difficulties of inspection in the hurried job that we have had to do.

Discovered defects are corrected, but, even so, in some instances they tend to reduce the life of the unit or increase cost of maintenance over what would normally be expected.

There are a great many matters connected with convoy operations which adversely affect the quality of a ship and its condition. Operation of certain types of engines at reduced speeds for long periods causes unusual vibration. That is the Diesel propulsion machinery On the other hand, we have operation of engines and other machinery at speeds in excess of the designated rated horsepower. There is the necessity of steering certain courses regardless of weather conditions, thereby causing undue strain on vessels. You cannot play the weather. You have got to go right straight through in your convoy formation. Then, excessive use and strain on steering engine, rudder, and stern frame.

Weather is quite a problem. Practically all home-bound passages on vessels employed in war service are in light condition, causing ex

71770-45-pt. 1- -2

cessive pounding in bad weather which, although not causing apparent damage, will have an injurious effect on a vessel's future upkeep.

Then we have the necessity of mooring ships ship to ship in outlying districts for fueling, cargo discharging, and so on, with resulting damage. We have the discharging of cargo while under way in seaways with landing craft along the vessel's side, continually pounding each other.

Degaussing sets up electrolysis. Degaussing is a device for protecting against magnetic mines. It causes excessive pitting and deterioration of a vessel's shell plating and rivert heads.

The carrying of salt-water ballast through lack of homebound cargo or other ballast deteriorates tanks or holds wherever carried.

Unusual stresses and strains are placed on all cargo gear, masts, kingposts, rigging, winches, and so on, through lifting heavy weights far in excess of commercial, peacetime practice.

Vessels are subjected to shocks from near misses by bombs with no visible damage at the time of action, but with resultant possible distortion in hull and machinery.

Finally, one factor in addition is the use of flat gray paint on hulls, decks and superstructure for purposes of camouflage. Paint of this type is not suitable for the proper care of metal surfaces nor are the proper materials available to make a paint which will fully protect the coated surface.

We submit that these various factors amply justify an allowance for accelerated depreciation, by reason of war service, at rates of not less than those above indicated.

The CHAIRMAN. Is it your contention that the accelerated depreciation allowed in the bill is not sufficient?

Mr. ROTH. I have been endeavoring to make that point, Judge. That is my opinion.

The CHAIRMAN. What should it be?

Mr. ROTH. It should be 31⁄2 percent instead of 2%.

The suggestion that we have a special allowance for accelerated depreciation on account of war service is made in the bill itself, which indicates the impossibility of taking care of these various items by restoring to ordinary condition, wear and tear excepted, and we are merely arguing that it is not sufficient.

The CHAIRMAN. It should be 2%1⁄2 instead of 31⁄2?

Mr. ROTн. That is right.

The CHAIRMAN. He is recommending 3% instead of 2%1⁄2.

Mr. ROTH. That is right.

Mr. JACKSON. And reduction of the interest rate from 31⁄2 to 2%1⁄2. Mr. ROTH. That is right.

Mr. JACKSON. You are suggesting that the interest rate be reduced from 31⁄2 to 2%, and that the depreciation be increased from 2% to 3%, Mr. ROTH. That is right.

Now, as to sales to noncitizens, this bill provides that transfers to noncitizens shall be by sale only, and we agree most heartily with that provision in the bill. It has been suggested by some-not in the industry-that this country should charter its surplus tonnage to foreign competitors on favorable terms, until such time as they can build themselves new tonnage. Since such new foreign ships undoubtedly would be more modern and efficient than our war-built tonnage, this course would be greatly to the disadvantage of American operators who invest in war-built ships.