ciation upon the basis of a 20-year life of the vessel, plus an amount not in excess of 22 percent per annum as accelerated depreciation on account of excess wear and tear resulting from wartime use. We agree with Mr. Roth that the accelerated depreciation resulting from war service should be definitely fixed at 32 percent per annum, because of the many hidden damages and defects caused by extraordinarily hard usage of the vessels in such service. We, therefore, endorse the testimony as submitted by Mr. Roth in this regard.

In connection with the question of depreciation, we will propose an amendment in line with statements of the President, and recommendations of the Director, Office of War Mobilization and Reconversion. The Director, in his report to the Congress, contained in House Document 9, Seventy-ninth Congress, page 57, said:

The acceleration of depreciation allowances will enable taxpayers to secure more quickly new equipment, and provide more readily for business expansion and employment. The depreciation policy of the present law, which provids for a depreciation allowance computed according to the physical life of the property acquired, has a tendency to discourage the acquisition of new equipment and the formation of new enterprises.

*

I suggest, therefore, that the Congress give serious consideration to the enactment of a provision to permit a larger deduction for depreciation in the earlier years of the life of the asset.

We strongly recommend that there be included in this bill a provision to the effect that any vessel constructed within the continental limits of the United States and of 2,000 gross tons, or more, acquired by a nonsubsidized operator, subsequent to December 31, 1940, whether purchased under the provisions of this act, or otherwise, may be depreciated at a normal rate over a period not exceeding 20 years. In addition, the owner of any such vessel should have the option of taking depreciation in any one year up to 10 percent of its cost on condition that the owner be required to reduce his mortgage indebtedness to the Commission, if any, on account of the purchase price of the vessel, by an amount equal to the depreciation he elects to deduct for that year. There are sound reasons supporting this suggestion. In the first place, it is my understanding that any vessel constructed under the 1936 act with the aid of a construction differential subsidy is permitted to be depreciated on the basis of a 20-year life.

At that point I may be somewhat mistaken as to the vessel being built under title V. This 20-year depreciation, as I understand it, is found in title VI, with reference to operating subsidy agreements, where the amount of depreciation set aside in the reserve fund is on a 20-year basis.

If the vessel has been constructed without the aid of a construction differential subsidy, a longer period of depreciation may be required by existing regulations. This is another of the disadvantages at which the nonsubsidized operator is placed.

Due to the cyclical nature of earnings in the shipping business, which fact for many has been recognized by this committee, as well as the Maritime Commission, I feel that the owner of a nonsubsidized vessel should be permitted at his option to depreciate it in any one year up to 10 percent of its cost upon the condition which I have stated. This would afford an opportunity for the owner of the vessel to take greater depreciation than is now permitted, during years of pros

71770-45-pt. 1-17

perous operations and to likewise reduce his mortgage indebtedness, if any, to the Commission during such years. When the vessel is fully depreciated, as it may be within 10 years under the plan I have suggested, the entire earnings of the vessel thereafter are subject to taxation without further depreciation deductions. Therefore, I submit that there would be no tax loss to the Government over the entire life of the vessel.

I am informed that some of the foreign governments permit their citizens to depreciate their vessels on the basis of what is described as "free" depreciation. This has been explained to me as meaning that some of the foreign owners are permitted by their governments to depreciate their vessels entirely over a period of only 1 year, if and when the earnings of such foreign owners permit them to do so. In other words, as I understand the situation, the citizens of some of the foreign governments are permitted to depreciate the cost of their vessels over such period of years as their earnings will permit, whether it be 5 years, 10 years, 20 years, or even longer.

We fully endorse what Mr. Roth has said with respect to the desirability of a "fall" clause in the act. I shall not repeat his argument in support of this suggestion. However, we will submit the text of an amendment for the aid of the committee in connection with this matter.

There has been some effort to justify a proposed price penalty against citizens for vessels sold under the bill for operation without restriction. It was suggested that this privilege of "operating on the loose," so to speak, be granted only in consideration of such penalty.

I am very much surprised at the suggestion that so-called operation without restriction permits "running in and out" of established services at the will of the operator. These witnesses know full well that except for tramp services, this cannot be done. In the first place, it is an impracticable operation from the standpoint of obtaining business. Generally speaking, shippers will patronize only the vessels which are operated with regularity and upon dependable schedules. That is just common sense.

Another and perhaps more important reason is the fact that, after all, the Maritime Commission itself in most instances has the ultimate decision as to whether an operator can go into any route in our foreign commerce. In every established trade route serving the foreign commerce of this country there exists what are known as steamship conferences, composed of the companies serving those trades. In nearly every one of these conferences you will find that by far the greater majority of the members are foreign-flag operators. Many of the conferences operate under what is known as the exclusive patronage contract system. This means if the shippers patronize the conference lines exclusively, they are given the benefit of what is called the contract rate, which is somewhat lower than the noncontract rate. Naturally, this rate inducement inspires shippers to patronize the conference lines exclusively, and therefore the operator who is not in the conference has a very slim chance of securing any of the traffic.

In order for another operator to become a member of the conference, it is necessary for him to submit an application for such membership, and the members eventually vote upon the application. They

may approve the application, or they may reject it, for whatever reason may suit their fancy.

If the application is rejected and the applicant feels sufficiently desirous of entering the trade, he then must file a formal complaint with the Maritime Commission and a hearing is held, after which the Commission determines whether or not the application should be approved or disapproved.

So, this argument of the so-called skimming of cream is fiction, rather than fact, because as I have stated, the establishment of a new service is controlled by the conference members themselves, in the first instance, and by the Maritime Commission as a last resort.

At that point, Mr. Chairman, it is the tramps that have ever been guilty of skimming the cream, of jumping in and out of these trades, from the standpoint of my long experience.

I merely want to add in this connection that the authors of that argument cannot point to a single instance in the past where companies like the American-Hawaiian Steamship Co., Alcoa Steamship Co., Luckenbach Steamship Co., McCormick Steamship Co., Calmar Steamship Co., A. H. Bull Steamship Co., Isthmian Steamship Co., United Fruit Co., and last but not least, the Waterman Steamship Corporation, have ever engaged in any such spasmodic operation. There is nothing in their history which would lead any fair-minded person to believe that they may attempt to engage in such type of operations in the future. So far as I know, none of them expect to do so, and if they had such intention, they would meet with the conference problems and barriers which I have related. I, therefore, submit that the suggestion or fear that those who are asked to pay a price penalty for the acquisition of vessels under this bill for unrestricted operation intend to "skim the cream" from time to time on the subsidized routes exists only in the imagination of those who seek to perpetuate what they consider to be "franchises," and it has no foundation in fact. They appear to be willing to let foreign-flag vessels run "on the loose," as suggested by one witness, and to compete freely in the trade, but would deny that right to American citizens, except under the penalty of 20 percent in the purchase price of these vessels.

In Admiral Land's testimony at this hearing, if I understood him correctly, he suggested that 20 percent over and above the depreciated pre-war foreign cost would be a reasonable penalty to be imposed against a citizen in the price of vessels for the freedom of operating without restriction and without subsidy, as related to the price to be charged on such vessels when sold for restricted operations.

While I feel very positively that there is no justification for any price penalty whatsoever, I do recognize the problems of the Maritime Commission in connection with this matter.

I think that Admiral Land will tell you that no company in America has cooperated with the Commission and with the War Shipping Administration to a greater extent than the Waterman Steamship Corporation. We have many times made concessions of what we consider to be our rights merely for the sake of eliminating wasteful and prolonged disputes. No doubt the Commission and the War Shipping Administration have felt that they made similar concessions to us.

Therefore, in this same spirit of continued cooperation, and in the hope that in the long run the welfare of the American merchant marine will be best served, the Waterman Steamship Corporation, for whom alone I speak, is willing to go just as far toward the acceptance of Admiral Land's suggestion as he and the Commission are willing to go in recommending it to your committee.

I am sure that this committee is well aware of the fact that there is no feasible way for any of us to replace our fleets except through the facilities of the Maritime Commission, which authorizes payments for the vessels over a period not exceeding 20 years.

If the Maritime Commission and this committee and the Congress consider it is fair and reasonable that the suggested price penalty, not exceeding 20 percent over the depreciated pre-war foreign cost should be imposed against American citizens who purchase vessels under the bill for unrestricted operations, I assure your committee and the Commission that the Waterman Steamship Corporation will purchase as many ships on that basis as, in our judgment, we can successfully operate.

I wish to thank the chairman and the members of this committee for the opportunity of presenting the views of the Waterman Steamship Corporation in connection with this bill.

Thank you.

Mr. BOYKIN. Mr. Garner, if I understood your testimony correctly, your company owned and operated 37 American flag dry-cargo vessels prior to Pearl Harbor?

Mr. GARNER. Yes, sir.

Mr. BOYKIN. And that the total dead-weight of these vessels amounted to 305,000 gross tons. Is that correct?

Mr. GARNER. Dead-weight tons, not gross tons; 305,000 dead-weight tons.

The CHAIRMAN. Right there, I wonder if you or someone else would give us the distinction between dead-weight and gross, so as to get it in the record.

Mr. GARNER. Do you want me to explain it now, sir?

The CHAIRMAN. I would like to get it in the record, for the benefit of the committee.

Mr. GARNER. The dead-weight tonnage of a vessel is the amount of cargo which it can carry, consisting of fuel oil and cargo. In other words, whatever the over-all burden is. That is the dead-weight tonnage, tons of 2.240 pounds.

Mr. PETERSON. That includes its own supplies, fuel oil, food, and that sort of thing, plus the cargo?

Mr. GARNER. Yes, sir.

Mr. HALE. That is the long ton.

Mr. MANSFIELD. Does it include personnel?

Mr. GARNER. Yes; it would, Mr. Mansfield. That is the total amount of tons of 2,240 pounds that that vessel can lift without going below the marks.

Mr. BOYKIN. I also understood you to say that all of those vessels were free of any operating restrictions. In other words, you were at liberty to operate them without restrictions in either the domestic or foreign trade, or both; is that correct?

Mr. GARNER. That is correct.

The CHAIRMAN. On the point I asked Mr. Garner, about gross and dead weight, I would be very glad if the Maritime Commission or somebody would furnish for filing in the record a definition of the various tonnages, so that the committee may refer to it.

Mr. ACKERSON. We have one or more statements on that subject, Mr. Chairman. We will be glad to furnish it to you.

(For explanatory statement, see p. 372.)

Mr. BOYKIN. For the benefit of this committee, Mr. Garner, I wish you would please give a brief outline of the various services which your company operated prior to the time the United States entered the present war.

Mr. GARNER. We operated regular sailings from east Gulf ports of the United States to Puerto Rico; from the same Gulf range to the United Kingdom and continental Europe; we operated a coastwise service under the name of Pan Atlantic Steamship Corporation between Gulf ports and ports on the Atlantic coast; we operated vessels in the intercoastal trade under the name of Arrow Line between north Atlantic ports and ports on the Pacific coast; we operated vessels from Atlantic, Gulf and Pacific ports of the United States to the Philippines, China, Japan-although I do not like to mention Japan-and the Straits Settlements.

Mr. BOYKIN. It is true, is it not, that your company has not requested, and has not received, any subsidy whatsoever under the 1936 act?

Mr. GARNER. Did you say any subsidy whatsoever, Mr. Boykin? Mr. BOYKIN. Yes. You have not received any?

Mr. GARNER. That is correct. We have not received any subsidies under the 1936 act. We have not asked for any subsidies under the 1936 act. We do not intend to ask for any.

Mr. BOYKIN. Did your company hold one of the so-called mail contracts under the 1928 act?

Mr. GARNER. Yes, sir.

Mr. BOYKIN. Was your company eligible to receive a construction and operating subsidy authorized under the 1936 act? Mr. GARNER. Yes, sir.

Mr. BOYKIN. And you did not receive them?

Mr. GARNER. We did not ask for them.

Mr. BOYKIN. According to the remarks which have come to my attention during the last few years, it appears that some of the oflicials of the Maritime Commission, and many of your competitors, wonder why your company has chosen to operate without the aid of subsidies authorized by the 1936 Act. Therefore, if you are at liberty to disclose this information, I think it would be of interest to the committee.

Mr. GARNER. Well, Mr. Boykin, when the old mail contract was canceled in 1937, based on our experience we felt that we would be able to operate successfully without further aid from the Government in the form of a subsidy. We also felt that if the successful operation of our business depended on Government aid, that it was an unsound

venture.

Mr. BOYKIN. I think so, too.

How many vessels did your company own and operate at the time the mail contract was canceled?

Mr. GARNER. Eighteen. That was in 1937.