POST-WAR DISPOSITION OF MERCHANT VESSELS

WEDNESDAY, MARCH 7, 1945

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE MERCHANT MARINE AND FISHERIES,

Washington, D. C.

The committee met at 10 a. m., the Honorable Schuyler Otis Bland (chairman) presiding.

The CHAIRMAN. The committee will come to order, please.

Since the committee met yesterday I have received a voluntary report from the War Department, which I have asked to have made a part of the record. It has been printed, and copies of that report are available through the clerk, and to members of the committee at their desks. It is Document No. 15. If anybody desires it, it can be obtained from the clerk of the committee.

(The document will be found on p. 478.) (Discussion was had off the record.)

The CHAIRMAN. Colonel Gardner, will you resume the stand?

FURTHER STATEMENT OF COL. KENNETH GARDNER, MARITIME ATTORNEY, NEW YORK, N. Y.

Colonel GARDNER. Mr. Chairman and members of the committee, I would like, if I may, to put into the record some information with respect to some of the questions that were raised yesterday, particularly with regard to the question of the tax.

Reference was made to the fact that fifteen million had been paid to the American President Lines, and I understood the intimation to be that it had been paid for charter hire. I call attention to an article which appeared in the New York Journal of Commerce on March 1 which said that the American President Line gets final payment on ships, $14,814,830, placed in capital reserve fund.

I call attention to two of your committee prints, as I understand them; first, Committee Print No. 20 (e) of October 3, 1944, which gives the details from the Maritime Commission standpoint and the standpoint of the company for the payment of money in connection with the loss of the President Coolidge, a fine boat, built at Newport News, and as we all know, lost in the South Pacific. It was a sister ship of the President Hoover, which was lost over on the Asiatic coast some years ago.

Colonel GARDNER. I next call attention to your Committee Document No. 20 (h), which refers to the settlement in connection with eight other vessels in connection with American President Lines, which were lost.

Mr. BRADLEY. What Congress is that?

Colonel GARDNER. The date of this is December 26, 1944. That was the Seventy-eighth Congress, in December of 1944.

That $14,814,830 was repayment for the loss of ships, and that money, of course, had it been received by any company, any corporation, whether in the shipping business or otherwise, would not have been taxable. That is merely the replacement of a capital loss, and it is not a taxable item. It went into the reserve fund properly, as provided by your Merchant Marine Act of 1936, for the express purpose as you arranged to build new boats to take the place of the ones lost.

The CHAIRMAN. Whenever you are dealing with the proposition of taxes, Colonel Gardner, please assume that certainly one member of the committee knows mighty little about taxes.

Colonel GARDNER. Mr. Chairman, if I may, I am going to give some additional data on that point. I assume we all like to have our memory refreshed.

The CHAIRMAN. All I know about taxes is that I have to pay whatever they assess against the average person.

Colonel GARDNER. If you build a small brick building and use it for business you charge off depreciation. Business people, as I said yesterday, charge off depreciation before taxes. The subsidized lines must put that aside by law, by contract.

The CHAIRMAN. In other words, they do not get that money. It is charged off nevertheless.

Mr. HERTER. Before we leave the President Lines I have been puzzled right along about the governmental relationship to the President Lines. As I understand it, the Maritime Commission owns 100 percent of the common stock.

Colonel GARDNER. The American President Lines is, as I understand it, controlled by the Maritime Commission, but there is a large private stock ownership in the company in addition to the interest owned by the Government. The Maritime Commission can give details on that particular point. I would rather they do it. I do not represent them, aside from appearing here generally. Mr. Lutz is present, and he can speak for them. He is executive vice president.

The CHAIRMAN. And was assistant general counsel for the Maritime Commission.

Colonel GARDNER. He was assistant general counsel for many years, and had charge particularly of legislative matters, and he is a very fine man in addition.

The CHAIRMAN. I will join in that.

Colonel GARDNER. In the questioning yesterday the statement was made that there are "$157,000,000 in the reserve funds," and it was intimated that this is all tax-exempt money, that it is a fund given to subsidized operators which makes them able to have a strong purchasing power to buy vessels under H. R. 1425, a purchasing power which nonsubsidized operators would not have.

The CHAIRMAN. I wonder, Mr. Gardner, if it would be convenient

to go ahead with the cross-examination now, reserving your further statement until later. Much of this material was brought out by Mr. Weichel. I see that he is not in the room at the present time, and I wonder if it would be more convenient to proceed with the crossexamination first.

Colonel GARDNER. I will be glad to do that. I am a little impetuous, and I was going ahead in order to get my part of it done.

The CHAIRMAN. The burden of protecting the committee members is part of the duty of the chairman.

Mr. BRADLEY. Colonel Gardner, you represent the American Export Lines, is that not true?

Colonel GARDNER. I have been their personal counsel for over 10 years.

Mr. BRADLEY. Just where do they operate?

Colonel GARDNER. They operate to the Mediterranean and the Black Sea, and we have purchased the India route of the Pioneer Line to the Red Sea, the Persian Gulf, to India, going as far as Calcutta and Burma.

Mr. BRADLEY. Those are all subsidized routes, under contract?

Colonel GARDNER. Those are all essential routes, all subsidized, under

contract.

Mr. BRADLEY. Are they one trade route, or are they all individual routes?

Colonel GARDNER. No; they would be more than one trade route. We have the India route of the Pioneer Line. The Pioneer Line had three services, one to India, one to the Far East, as they call it, which meant China and Singapore and that section, and a third service to Australia. Export took over the India service only of the Pioneer Line. The other two lines are still operated.

Mr. BRADLEY. Will you explain to the committee just how that change of principals on one route was accomplished? Do you make a deal with Pioneer and then get the permission of the Maritime Commission to take over the route, or how?

Colonel GARDNER. Well, at one time the Government operated a great many of these services. They were established under the old shipping board. This American export service was also established by the Shipping Board.

The CHAIRMAN. That is the old line Henry Herberman used to be with.

Colonel GARDNER. Yes, sir.

The service to the Mediterranean Sea and the Black Sea was established and it was formerly under three operators. One of them was known as the American Export Lines. The others had two other names. They were finally consolidated in one group, and Mr. Herberman, in 1925, purchased the fleet of vessels operating in that territory and took over the operation of those three services to the Mediterranean and Black Sea originally established by the Shipping Board. Mr. BRADLEY. You say he purchased those from the Shipping Board, or from each of the other two shipping companies?

The

Colonel GARDNER. He took them over from the Government. individual operators were operating as agents for the Shipping Board.

The Pioneer Line was a Government-owned service. It was being operated under agency arrangement by an operator and the Government, as you know, was anxious to get out of the shipping business, to have private operators on these so-called Government services, some of which continued even after the Merchant Marine Act of 1936 was passed and certain lines became subsidized, and by arrangement the Maritime Commission advertised and put up for competitive bidding this India service. Export bid, as anybody else could have bid for that service, and were awarded the service in 1939, together with the four vessels, motor vessels, that were on that service. That is all a matter of public record.

Mr. BRADLEY. Do you have mail contracts on those various routes? Colonel GARDNER. Not today. With the passage of the 1936 act, so-called mail contracts were canceled.. Today you are paid for carrying mail just as you would be if you were a private operator. You are paid the same as an unsubsidized operator with regard to carrying mail.

Mr. BRADLEY. How is that, on a poundage basis?

Colonel GARDNER. It is on a poundage basis, regulated by the Post Office Department under authority of Congress.

Mr. BRADLEY. In 1938, which was the last year before the European war which eliminated some of your foreign-flag competition by reason of diverting some of their vessels to war service, can you tell we how many foreign-flag companies were operating in those same routes, and how many American-flag companies?

Colonel GARDNER. The American-flag company, of course, was the American President Lines west-bound. They only operated in that territory west-bound. They stopped at India in their so-called aroundthe-world service, came on up through the Red Sea, stopped at Alexandria and stopped in Italy, and came on home. East-bound and westbound was the Isthmian Line. They operate in that territory-operate there today; I mean they would, of course, if they could operate. The war interfered.

Mr. BRADLEY. They are a nonsubsidized line?

Colonel GARDNER. They are not a subsidized line.

Mr. BRADLEY. And then your American Export?

Colonel GARDNER. American Export Line operates there.

Mr. BRADLEY. This was the only subsidized line operating in that

route?

Colonel GARDNER. That was the only subsidized line operating in the Mediterranean, the Black Sea, and through the Red Sea to India from North Atlantic ports.

Mr. BRADLEY. How many foreign-flag companies were operating between the United States and the Mediterranean?

Colonel GARDNER, Several. I could not give you the exact number, but we would be glad to furnish the committee with a more accurate statement of just what services. It varies from time to time. They may operate for a while and then they may decide not to operate, depending upon the season of the year, amount of tonnage in freight, and matters of that kind.

Mr. BRADLEY. Will you furnish that to the committee for the years 1938 and 1937?

(The following was subsequently filed for the record:)

In the 2 years 1937 and 1938 the following lines operated to the Mediterranean in addition to Export:

Colonel GARDNER. You understand, of course, that we had the strong Italian lines that were operating in that territory, and after the last war the Italian lines were consolidated. Before the war we had quite a number of Italian lines.

Mr. BRADLEY. Will you also give us for the record, if you can dig it out, the number of foreign-flag vessels that were being operated in those foreign-flag services?

Colonel GARDNER. You are asking me now just on Export's route? Mr. BRADLEY. No; I mean on that Mediterranean service. I understand the Maritime Commission show that in that particular route in 1938 about 20 percent of the cargo was carried in Americanflag liner vessels, and about 26 percent in foreign-flag liner vessels, and about 54 percent in tramp services. Can you tell me whether, to your knowledge, those figures are approximately correct?

Colonel GARDNER. Well you can rest assured that that information would be obtained to a great extent by sending questionnaires right to Export and other companies operating there, and of course that information is probably as accurate as could be obtained.

I am not sure I can give you complete information with respect to the number of foreign-flag vessels, but speaking now just for the competition that Export had to meet in the Mediterranean and Black Sea trade, the following information was obtained in cooperation with the Maritime Commission at the time Export made its application for a subsidy. Unless otherwise stated, the information is for the year December 1, 1935, to November 30, 1936.

The Dollar Line-now American President Lines-was operating four combination passenger and freight vessels west-bound, stopping at Alexandria, Naples, Genoa, and Marseilles. This was a subsidized

service.

Phelps Bros., an American operator, operated foreign ships, under charter, to Casablanca and to various ports in the eastern Mediterranean, including Alexandria, Port Said, and Piraeus, the port of Athens. They operated some half-dozen vessels.

The Isthmian Line, an American company, operating American vessels, maintained regular service to Alexandria and Port Said and stopped occasionally at other ports of call in the eastern Mediterranean. In the period mentioned, they operated some 12 or 15 American vessels of approximately 9,000 dead-weight-ton capacity.

71770-45-pt. 1—13