It is impossible to state at this time how many of these vessels (296) now assigned to the military will be returned to the Maritime Commission; neither is it possible to say when, if ever, they will be returned. Many will require reconversion which may or may not be justified. The general conclusion is that the present program provides for over 18,000,000 deadweight tons of modern, new, fast ships, of which about 12,000,000 deadweight tons (1,197 ships) are modern, new, fast cargo and combination ships and 641 are tankers. With respect to your question No. 3, out of funds available to the Maritime Commission as of July 1, 1945, there will be available $550,000,000 as a reserve for contingent ship construction and reconversion. Sincerely yours, E. S. LAND, Chairman. SALE OF TUGS WAR SHIPPING ADMINISTRATION, Hon. S. O. BLAND, House of Representatives. DEAR JUDGE BLAND: I acknowledge receipt of your letter dated May 14, with which you enclosed a copy of a letter dated May 10, concerning the sale of tugs, addressed to you by Congressman Buck. The Maritime Commission constructed 49 large, seagoing tugs of approximately 1,100 gross tons, 185 feet long, 2,250 shaft horsepower, and twenty-eight 100-feetlong harbor tugs of approximately 190 gross tons, 1,000 shaft horsepower. The seagoing tugs, since their completion and delivery, have carried out the bulk of the War Department's and Navy Department's overseas towing. They have been, and are now, employed in long voyages in the Pacific. The harbor tugs, with the exception of 6 which were retained by the War Shipping Administration for its own use, were delivered to the War and Navy Departments for service at domestic ports and overseas bases, and it is not known at this time just when this equipment will be surplus to present requirements. It is believed, however, that with respect to harbor tugs, their service will be required for a considerable period of time after the end of hostilities, and it is expected, as regards the seagoing tugs, that there will be a very considerable amount of long-distance towing to be done in returning to domestic ports damaged, disabled vessels and surplus non-self-propelled craft of all descriptions, and it will be necessary, furthermore, to operate a large number of tugs at distant establishments and bases. The War Department and the Navy Department, for their own account, have built a very great number of tugs, barges, lighters, and scows, a large percentage of which will, without doubt, at some date in the near future, be declared surplus. These units will unquestionably prove suitable for domestic use. When the date of this prospective declaration can be anticipated with reasonable accuracy, and when the number of vessels can be approximated (it has been reported that there may be some 5,000), I will be in a position to suggest appropriate legislation to deal with the subject. For this reason it is not believed that the tugs which the Maritime Commission built should be included in the ship-sales bill and thereby handled separately and without regard to the somewhat similar types of relatively small craft which the War Department and the Navy Department will declare to the Maritime Commission for disposal, pursuant to the Surplus War Properties Act. It must be borne in mind that the prospective purchasers of smaller vessels as will be surplus, and are not included in the ship-sales bill, are in a very different position than the operators of large, seagoing tonnage. While the owner of large vessels has lost the use of his ships through requisition for title or charter and thus will require replacement tonnage as soon as normal operations are resumed, and when seagoing ships can be made available, the small commercial-vessel operator has, with very few exceptions, been undisturbed by requisition, or procurement otherwise, of such equipment as he owned and operated prior to 1941. To the extent that vessels of 1,000 tons and under were requisitioned, the former owner, under the terms of Public Law 305, Seventyeighth Congress, is enabled to negotiate for the return of the equipment which was acquired. It is, of course, true that very little construction to meet the requirements for replacing worn-out or obsolete vessels has been undertaken by owners of smaller vessels and the surplus market will afford an opportunity of replenishing and reestablishing plant for domestic transportation. The problem of replacement, however, does not now appear to be critical. Sincerely yours, E. S. LAND, Administrator. SUMMARY There are 44 vessels under construction with construction subsidy for purchase under the 1936 act by companies with operating differential subsidy contracts. These companies now own 74 vessels built under that act. These companies need 25 fast new vessels to fill their pre-war commitments for new construction. There are 9 vessels under construction with construction subsidy under the 1936 act for purchase by companies not holding operating subsidy contracts. These companies now own 13 vessels built under the 1936 act. These companies need 2 new modern vessels to complete their replacement obligations in connection with the 1936 act program. There are no vessels under construction for purchase by any companies without construction subsidy. Shipping companies without operating differential subsidy have purchased 18 vessels (exclusive of about 60 tankers and 16 lake ore carriers). Vessels under construction for purchase by private owners include C-2's, C-3's, C-2, and C-3 combinations, ocean ore carriers, refrigerator vessels. (See letter from Admiral Land to Judge Bland under date of February 28, 1945, in response to letter of February 7, 1945.) Eighty-seven vessels built with subsidy under the 1936 act are now owned by purchasers, and 53 are under construction with subsidy. Some 62 vessels have been lost or resold to or requisitioned by the United States from the owners. Vessels are now under construction for purchase by United States Lines, United Mail, Mississippi Shipping, Lykes, Grace Lines, Bethlehem Steel, American South African, American Export. Eighteen vessels built under section 509 of the 1936 act without subsidy are now owned by purchasers. VESSELS BUILT UNDER MERCHANT MARINE ACT, 1936, AND NOW OWNED BY OR UNDER CONSTRUCTION FOR PRIVATE OPERATORS Vessels for which construction-differential subsidy allowances have been granted Indicates buyers who have not received operating-differential subsidies. All other buyers contracted for the vessels for operation under existing operating-differential subsidy agreements with the Commission. Sold without construction-differential subsidy (all completed and delivered) Tankers acquired by private operators pursuant to provisions of sec. 509 of Merchant Marine Act, 1936, as amended (with and without trade-in allowances authorized under sec. 510) Keystone Tankship Corporation (including merged Kaymar Tankers, Inc., and Seaman Tankers, Inc.). ? Old tonnage requisitioned by War Shipping Administration but adjustment contemplated consistent with see. 510. Total number of said 64 tankers wherein sec. 510 allowance is applicable, 34. Basic data: Adjustment of sales price of tankers under H. R. 1425 Approximate sales price 64 tankers sold under sec. 509, Less 25 percent estimated excess war cost--- Pre-war domestic cost Less 50 percent__ Pre-war foreign cost-- Adjustment of sales price to pre-war domestic cost.. COUNTER ADJUSTMENTS ON ACCOUNT OF TRADE-INS $187, 873, 500 46, 968, 400 140, 905, 100 74, 452, 550 70, 452, 550 46, 968, 400 117, 420, 950 As part consideration for the sale of 34 of the 64 tankers, trade-ins were involved. Total allowance for trade-in vessels. Allowance exceeds values under War Shipping Administration General Order 37. $38, 840, 034 2, 008, 500 20, 682, 400 26,734, 900 COMPUTATION OF ADJUSTMENT LESS COUNTER ADJUSTMENT Adjustment of sales price to pre-war domestic cost__ Excess over values under War Shipping Administration General Less counter adjustment on trade-ins Adjustment of sales price to pre-war foreign cost... Excess over values. under war shipping administration general Order 37... Net adjustment__. $46, 968, 400 2, 008, 500 44, 959, 900 46, 968, 400 20, 682, 900 26, 285, 500 46, 968, 400 26, 734, 900 20, 233, 500 117, 421, 000 2, 008, 500 115, 412, 500 117, 421, 000 20, 682, 900 96, 738, 100 117, 421, 000 26, 734, 900 90, 686, 100 (NOTE.-One at least of the purchasers of tankers was granted a Certificate of Dry-cargo vessels delivered subsequent to Dec. 31, 1940 (including vessels, sale of Estimated adjustment of sales price to pre-war foreign cost 114 vessels sold under sec. 501 adjusted to pre-war foreign cost. Total... ---- $35, 019, 156 5, 044, 116 69, 526, 026 NOTE. The above adjustment of one-fifth in order to reflect pre-war domestic cost and pre-war foreign cost is a liberal estimate. Because the vessels were delivered over a long period of time many individual vessels will require little or no adjustment, while others may have to be adjusted by as much as one-third. Furthermore, many of the vessels had incorporated in them changes and extras which it is not possible within a short period of time to eliminate. Such elimination would tend to reduce the above estimate. However, for the purpose for which it is being prepared, namely, to estimate the possible cost to the United States of the adjustment of these sales in the event that a provision for such adjustment is retained in H. R. 1425, and for the purpose of showing what counteradjustments in favor of the Government would result in the application of different theories, it is believed that the above statement will be useful. The above table reflects no counteradjustment on account of amortization taken under the provisions of the Internal Revenue Code with respect to the 18 vessels sold under sec. 509 of the Merchant Marine Act, 1936, as amended. PRICING FORMULA-VESSELS SOLD WITH CONSTRUCTION DIFFERENTIAL SUBSIDY The selling price of the vessels sold with construction differential subsidy allowance under title V of the 1936 act is the estimated foreign construction cost of a similar vessel. The final adjusted construction cost paid to the shipbuilder is reduced by the difference between that actual domestic cost of the vessel to the Commission (less cost of national defense features, if any) and the estimated foreign construction cost. The selling price of the vessel may not, however, be less than 50 percent of the final adjusted construction cost. The vessel must under section 506 be operated in foreign trade or on a round-the-world voyage, or in round voyages with certain intercoastal services, otherwise proportionate repayment of the subsidy is required. The actual domestic construction cost of a vessel as to which a construction subsidy has been authorized can not be determined until completion of the Commission's final audit of shipyard costs. There is attached copy of the article in a construction differential subsidy agreement between the Commission and a buyer setting forth the formula under which the sales price and construction subsidy is determined. In addition to the necessity of awaiting final audit before the final construction cost payable to the shipyard for constructing the vessel can be determined, section 505 (b) (2) requires payment to the Maritime Commission of profits of the shipbuilder in excess of 10 per centum of the total contract price, such excess profits being determined under provision of section 505 (b), (c), (d), and (e). SAMPLE CONSTRUCTION SUBSIDY CONTRACT PROVISIONS ART. The Commission will contribute, as a construction-differential subsidy, on account of the cost of constructing, outfitting, and equipping the Vessel a sum equal to, but not exceeding, 50 percent of such cost (exclusive of the cost of national defense features and exclusive of the cost of any items of outfitting and equipment furnished by the Owner) as finally determined under said Construction Contract, and the Owner will contribute the balance; provided, that in the event such cost shall be less than [contract price], the Owner will contribute to such construction cost the sum of (the basic foreign construction cost) and the Commission will contribute the balance; and provided further, that in no event shall the contribution made by the Commission to the cost of constructing, outfitting, and equipping the Vessel (exclusive of the cost of national defense features, and exclusive of the cost of any items of inspection, outfitting and equipment furnished by the Owner) as finally determined under |