intent becomes quite plain when one reads the Maritime Commission's memorandum on H. R. 5213, page 18. This section should be completely rewritten and the bill should plaintly state what is intended. Please, gentlemen, permit me to observe that never in the history of shipping has anyone with the possible exception of the Shipping Board-ever sold ships with a "fall clause" condition in the contract of sale. Certainly there is a valid reason for consumable goods being sold to wholesalers, jobbers, retailers, and other middlemen for resale with the understanding that any reduction in price or liberalizing of sale conditions in the future would be equalized retroactively on goods remaining unsold; but I have never heard of ships being sold on this basis. I am sure that you gentlemen appreciate that the price of ships fluctuates up and down with the earning capacity of the ships and, I am sure you will agree that nothing would be quite so ridiculous as permitting one to buy a ship at a high price, on a high level of rates, and reap the benefit of high freight rates; then, when the market level of rates recedes and freight rates generally are low, and consequently the price of tonnage is low, to have the sale price retroactively adjusted to a lower basis. If suckers enough can be found to sell ships on this basis, it would automatically eliminate all the risk in the business and permit buyers to always pay for ships at the bottom of the market. This is unjustified and ridiculous. The sales made by the Maritime Commission, under which they took old vessels as trade-ins, should be canceled and the vessels sold by the Maritime Commission only for cash. In conclusion, I suggest that you repeal that portion of the Merchant Marine Act of 1916 which compels an owner of an American ship to get permission from the Maritime Commission before he can surrender his American registry and sell his boat to an alien. This is indefensible from any standpoint in peacetimes. At the time of its enactment, Congress probably thought that this would keep vessels under American registry. Over the years it has had exactly the opposite effect, as no prudent business man is going to build or buy an American ship unless he has to, knowing that he cannot dispose of the vessel to foreign buyers until he gets approval of the Maritime Commission. This should be repealed immediately, to take effect at the end of hostilities. With one exception, the United States is the only country that has such a regulation. The exception is Cuba and no one, including Cubans, ever places a vessel under the Cuban flag if he can possibly arrange otherwise. The CHAIRMAN. Any questions? None. Stand aside. A representative of Pacific Tankers, Inc., has asked that his statement be filed. A representative of the Newtex Steamship Corporation asks that their statement be filed. Accordingly, both statements are made a part of the record at this point. STATEMENT OF K. D. DAWSON, PRESIDENT, PACIFIC TANKERS, INC., SAN FRANCISCO, CALIF. I should like to discuss the way in which the bill, H. R. 1425, proposes to deal with the disposition of our tanker fleet. For some reason, which is not entirely clear to me, it is proposed to treat tankers differently than dry cargo ships under this bill. Admiral Land has reported that there will be 4,640 Government-owned merchant ships available for sale for private operation when the war is over. Among these will be the following: 504 high-speed tankers; 62 Liberty-type tankers; and 62 coastal-type tankers; or a total of 628 tankers of all types. This is a very substantial tanker fleet. In 1939, before the emergency, there were only about 350 tankers under the American flag, totaling 4,000,000 dead-weight tons. About 275 of these privately owned tankers remain. It is estimated that the new Government-built tanker fleet and the remaining privately owned tanker fleet will approximate 12,000,000 dead-weight tons. The size of this fleet is best appreciated when it is realized that the entire American merchant marine in 1939 was estimated at 11,000,000 dead-weight tons. There has been a tremendous expansion of the tanker fleet under the American flag to meet the demands of total war. Nothing is more important to modern warfare than an adequate supply of oil. We are caught short at the beginning of the emergency, and many tankers were sunk in the early days of the war, which made our situation still more desperate. Even with our pre-war tanker fleet added to those of England, Norway, and our other Allies, and with the larger number of tankers we have been able to construct, we have scarcely been able to meet the requirements of our fleet and our armies on their far-flung battle lines. At last, after 3 years of war and building at fever heat, we have a vast tanker fleet under the American flag, totaling, as I have said, some 12,000,000 dead-weight tons. They are being operated in all parts of the world, supplying the demands of our armed forces. Most of them were built in American yards, and their construction, like that of the rest of our merchant fleet, constitutes a marvel of production, which is the wonder of our allies and the consternation of our enemies. They are manned by American seamen-fine, brave boys who have feared nothing, have met every danger, and have seen to it that our armed forces have received its supply of oil when and where it was most needed. Can it be questioned that this great fleet of American tankers, which constitutes so vast and so vital a part of our merchant marine, should be kept, insofar as possible, under the American flag? If nothing more, it is insurance against the next emergency, and its very existence may prevent another war. We don't want to be caught short again. Certainly they should not be sold to foreigners until every possibility of disposing of them to Americans has been exhausted. How does this bill propose to treat this important problem? As I have said, tankers are not treated like other ships. They are excepted from the general ship sales provisions of section 3 (b). True, they can be sold under section 3 (a), but that section contemplates the selling of ships, without restriction as to routes or services, at the depreciated pre-war domestic cost. No American company could afford to buy a tanker, to be operated in competition with foreign ships, at such a price. This is particularly true, when it is considered that under section 4 these same tankers may be sold foreign at the depreciated pre-war foreign cost, without restriction as to service or route. Dry cargo ships, under section 3 (b), may be sold to Americans, with certain restrictions as to routes, for use in the foreign or domestic commerce of the United States, at the depreciated pre-war foreign cost, but tankers are expressly excepted from this section. Under section 3 (c) tankers can only be sold at depreciated pre-war foreign cost, if operated in the foreign trade. If the Commission permits their use in the domestic trade, an adjustment to the depreciated pre-war domestic cost must be made. Why this discrimination? The discrimination between the proposed treatment of tankers and dry cargo ships is even more apparent under the chartering provisions of the bill, appearing in section 3 (e). That section provides that vessels, other than tankers, may be chartered to American citizens, both with and without restrictions as to routes and services, the charter hire varying with these restrictions. There is no provision whatsoever for the chartering of tankers. The reason that the Maritime Commission gives for this discrimination against tankers is that for the most part tanker operators are carriers of their own products, or serve other oil companies under long-term freight contracts. Apparently the Commission feels that no one will be attracted to chartering tankers in either the foreign or domestic trade who could not afford to purchase them outright. I respectfully urge that this is not the case. I submit that if the chartering of tankers to American citizens is permitted under sufficiently liberal terms to meet foreign competition, a large number of American shipowners and operators will be attracted into taking a substantial number of these ships. It will be a new business for American operators, but it is not a new business for foreign operators. England and Norway had large merchant fleets, including tankers, before the war. Most of these have been lost. Admiral Land recently said before the Appropriations Committee that in the spirit of post-war friendliness toward our allies, these ships should be restored. Perhaps that is sound international policy. However, Germany and Japan also had large tanker fleets, and carried an appreciable portion of the world's oil. Why not make it possible for American operators to absorb this enemy trade? There are no American companies-not even the big oil companies who can afford to purchase outright a substantial number of the tankers which will be available. True, the big oil companies can and will buy a few of them, but they cannot buy them in sufficient numbers to make any appreciable dent upon sixhundred-odd which will be available. In addition, merely to provide for the sale of tankers to foreign and American operators on substantially equal terms does not solve the problem. Without help, the American operator, even though he gets the ships at the same price, cannot compete with foreign operational costs. Many American companies, however, can afford to enter into chartering arrangements, even with all the uncertainties of future trade, if the terms can be made sufficiently liberal to meet foreign competition. Several oil companies have substantial foreign holdings, and it would be to our national interest to stimulate the transportation of this oil from these foreign fields, as it would serve to conserve our own diminishing reserves. The best way to accomplish this highly-to-be-desired result would be to make it possible for American operators to transport this oil, and the only way to get any appreciable number of them into the field would be by vesting in the Maritime Commission the discretionary authority not only to sell these vessels but also to charter them to American citizens on sufficiently liberal terms to meet foreign competition. This bill permits the sale of our merchant vessels, including tankers, to foreign operators (after they have not succeeded in disposing of them to American citizens), at the depreciated pre-war foreign cost, without restrictions as to routes or services. In regard to tankers, this means that foreigners will be able to buy these vessels, under favorable terms, and subject to far less cost of operation, without an opportunity having been given to American citizens to take over and operate some of these vessels under bare-boat charter. Why should any of these tankers go out from under the American flag before every possibility of disposing of them to Americans has been exhausted? It We, of the shipping industry, do not advocate that unsubstantial and fly-bynight operators should be attracted to chartering these vessels for very limited periods. To prevent this, we propose that the chartering of tankers only be permitted for no less than a 2-year period. This will keep out the undesirables, but will permit the bona fide operators to take over a substantial number of these vessels, which could not otherwise be absorbed by American interests. is also proposed, with a view to stimulating a permenent disposition of these vessels to American citizens, that any chartering arrangement should include an option to purchase at the depreciated value of the tanker at the time of purchase. I scarcely need to point out that any success that we shall have in disposing of these ships to American sources will mean the continued operation of these ships under the American flag, and the continued employment of American seamen on these vessels. It will also mean the continued use of American repair yards and facilities in maintaining this fleet in an efficient and seaworthy condition. To sum up, we urge the same treatment for tankers as for other merchant vessels. I can see no reason for making any distinction. To meet the possible contingency that these vessels will be disposed of at a later date at less price, it is proposed that a fall clause be included in the bill. (The following letter was subsequently filed for the record:) Hon. S. O. BLAND, KIRLIN, CAMPBELL, HICKOX & KEATING, Chairman, Committee on Merchant Marine and Fisheries, House of Representatives, Washington, D. C. DEAR MR. BLAND: Further in regard to the letter you received from Mr. Kenneth D. Dawson, president of Pacific Tankers, Inc., dated February 28, 1945, in which he urged that tankers be disposed of on exactly the same basis as it is proposed to dispose of dry cargo vessels under H. R. 1425, we would like respectfully to propose the following amendments, which we feel will accomplish the purpose we have in mind: Page 5, lines 22 and 23, strike ", other than a tanker,”; Page 6, lines 7 through 24, strike the entire subsection (c) (no longer necessary if the preceding amendment is adopted); Page 7, lines 14 and 15, strike ", other than a tanker,". Your careful consideration of these proposed amendments, in regard to which we have discovered no real opposition, and which were among those urged by Mr. Roth, president of the National Federation of American Shipping, will be greatly appreciated. Yours very truly, ROBERT E. KLINE, Jr. STATEMENT OF NEWTEX STEAMSHIP CORPORATION OPENING STATEMENT The present management of the Newtex Steamship Corporation has continuously operated vessels in coastwise service between the Texas Gulf ports of Houston and Brownsville, on the one hand, and New York Harbor on the other. It intends to resume such operations immediately upon the lifting of the current coastwise embargo and the availability of vessels. Accordingly its interest in the pending bill is real rather than academic. As indicative of the interest of the Newtex Steamship Corporation in the instant matter as well as its firm desire to resume coastwise operations as soon as practicable, an application was filed with the Interstate Commerce Commission for a certificate of public convenience and necessity authorizing the resumption of water-carrier service. Such application before the Interstate Commerce Commission, and subsequent proceeding, is captioned "Interstate Commerce Commission No. W-896, Newtex Steamship Corporation, common carrier application." As the result of hearings before the Interstate Commerce Commission at which numerous port authorities, chambers of commerce, and commercial interests appeared to support and otherwise indicate their need for the resumption of the services herein, division 4 of the Interstate Commerce Commission by its report decided January 11, 1945, found that public convenience and necess ty will require operation by the Newtex Steamship Corporation as a common carrier between the port of New York and the ports of Brownsville and Houston, Tex. The finding, as above, directly resulted from the testimony and evidence, particularly from commercial interests, which depicted the prime and dire necessity for the industries represented, including the Rio Grande citrus industry, for the resumption of the steamship service formerly provided by the Newtex Steamship Corporation. The order of the Interstate Commerce Commission, as above, has coupled therewith the following proviso: "Applicant (Newtex Steamship Corporation) has no vessels available to perform the service. It intends to secure vessels as soon as conditions permit. We will therefore withhold inssuance of a certificate at this time. The issuance thereof will be withheld pending applicant's readiness to begin operations on or before December 31, 1945." It is essential, therefore, that the Newtex Steamship Corporation secure vessels with which to resume coastwise freight transportation as soon as possible. Its interest in the bill is therefore immediate and real. AVAILABLE VESSELS At the beginning of the present world conflict the United States Navy requisitioned the American coastwise fleet, practically in its entirety. It is common knowledge that at the present moment most of that requisitioned fleet is no longer upon the waters. The important and difficult task that was performed by that requisitioned coastwise fleet was a distinct and direct contribution to the war effort of immeasurable magnitude. That the coastwise American merchant fleet must be rebuilt and restored at the earliest possible date is a foregone conclusion. Unfortunately, however, the shipbuilding program of the last few years and as of the present, because of war exigicenes, does not contemplate the construction of vessels directly suitable for coastwise transportation. The coastwise trade requires vessels of five thousand to fifty-five hundred dead-weight tons capable of a minimum speed of not less than 13 knots. The coastwise trade, particularly to the Texas ports, vitally requires ample refrigeration service. The only vessel presently being built that has possibilities for coast-wise transportation useage is the C. I.-M. I.-A. V. I. type. This is a new type of vessel which is Diesel-propelled and equipped with a small amount of refrigeration facilities. This type of vessel has a stowage capacity of approximately 240,000 cubic feet and accordingly complies with the tonnage requirements of that trade. The A. V. I. vessels are capable of only 11 to 12 knots per hour. Their refrigeration facilities are limited and insufficient for the trade requirements. The Newtex Steamship Corporation believes the A. V. I. type of vessel has decided possibilities for the coastwise trade. However, these vessels have not been tried under actual coastwise trade conditions. At the earliest possible moment the Newtex Steamship Corporation looks forward to being permitted to operate the A. V. I. type of vessel either under bare-boat charter or otherwise. It definitely intends to purchase this type of vessel if its operation and usage reveal that it is suitable for the coast wise trade. The pre-war coastwise vessels were steam propelled. The A. V. I. vessels are Diesel-propelled. Diesel-propelled vessels have never been used in the type of service here under contemplation. They require new and experienced personnel. Their operations will bring to light many problems and difficulties that undoubtedly can be overcome. However, in view of the unknown factors that are existent in connection therewith, the Newtex Steamship Corporation does not desire to purchase the A. V. I. vessels outright. In its considered opinion the practical way of instituting coastwise service with A. V. I. vessels would be through actual operation thereof under an option plan purchase. At the present time the pending bills provide for the chartering of vessels. Such charter provision is separate and distinct from the provision of the bills relating to the sale of vessels. In connection herewith, the Newtex Steamship Corporation proposes the following modification or amendment of the pending bills. PROPOSED MODIFICATION OF THE BILLS RE PURCHASE OPTIONS IN CONNECTION WITH CHARTERS To make possible trial operation of vessels intended to be purchased, it is proposed that section 3 (e) be amended by providing for a subdivision thereof which shall provide that: "Any vessel, subject to this section, may in the discretion of the Commission be demised on bare-boat charter to citizens of the United States with an option to purchase the said vessel within a prescribed period of time declared to be reasonable by the Commission and that upon the seasonable exercise of said option such portion of the charter hire as the Commission shall deem proper may be credited against the purchase price." PROPOSED MODIFICATION OF THE BILLS RELATIVE TO CHARTER HIRE The Merchant Marine Act, 1936, section 714 thereof, permits negotiated charters on a minimum basis of 5 percent of foreign cost, plus 31⁄2 percent of the foreign cost depreciated annually on a 20-year life basis. Such 5-percent minimum basis is available only upon a finding by the Commission that governmental aid is required for the development and maintenance of essential trade routes. The clause was inserted in the act because it was felt that certain foreign trade routes would need extra and additional assistance from the Government for the initial institution service and the subsequent growth and development. Section 3 (e) of H. R. 5213 makes provision for the demise of vessels on bare-boat charter for use in specified operations at a rate of not less than 9 percent of the pre-war foreign cost plus 32 percent of the depreciated foreign cost computed annually upon the basis of a 20-year life of the vessel. If consideration has ever been given to assisting and encouraging steamship services that are direly in need of subsidization, such as was contemplated by section 714 of the Merchant Marine Act, 1936, such need exists in connection with the resumption of coastwise service. The coastwise lines lost all of their pre-war tonnage to competitive transportation facilities. It is an admitted axiom in transportation that it is substantially easier to develop new trade than it is to recapture traffic lost to competitive agencies. This fact is doubly true where the traffic lost has been diverted to transportation agencies such as the railroads and motor carriers with their faster and more expeditious time in transit, with more frequent dispatch of transportation units and over-all flexibility of service. Advertising propaganda of the railroads and motor carriers, now joined with that of the air lines, in great measure have succeeded in educating industry to desire and |