amend new section 1104 (a)(2) as added by section 2 of S. 1457 to read as follows: "(2) shall (i) cover a vessel or vessels whose construction, reconstruction, or reconditioning is financed under this title; or shall (ii) cover any vessel or vessels owned by the mortgagor to aid in financing the construction, reconstruction, or reconditioning of another vessel or vessels by the mortgagor, in which event the proceeds of the mortgage, will either be (a) disbursed by the mortgagee to a shipyard as payment, on behalf of the mortgagor, on account of the contract price for the construction of a vessel contracted for by the mortgagor which has not yet been delivered, or (b) to the extent not so disbursed, shall be (i) deposited in a fund from which disbursements may be made only with the written approval of the Secretary of Commerce, or (ii) in the case of a mortgagor receiving operating differential subsidy under the provisions of this Act, deposited in the mortgagor's capital reserve fund;" Senator ENGLE. Thank you very much. Now does that complete the testimony by the industry except for questions? Mr. PURDON. Yes. I would merely like to add, if I may, that I know this legislation has complete industry support from all other steamship associations and if counsel does not now have it, I am confident he will have letters from the American Merchant Marine Institute and Pacific American Steamship Association. Combined with our own group I think that represents 98 percent of the American-flag steamship industry. I would also like to ask your permission, Mr. Chairman, for Mr. Ewers, to either file his statement or supplement what he has already said. Senator ENGLE. Yes, I was going to call on Mr. Ewers again. Mr. EWERS. I have only a one-page double-spaced statement. Perhaps it would be better if I just read it. Senator ENGLE. You may proceed. STATEMENT OF IRA EWERS, COUNSEL, MOORE-MCCORMACK LINES OF NEW YORK Mr. EWERS. Still speaking for Moore-McCormack Lines, in financing of its share of the $6,500,000 replacement program, MooreMcCormack must use such of its own reserve funds as remain available. These can be depleted by operating losses as well as by payment for prior built vessels. The remainder Moore-McCormack must borrow. In such a financing program Moore-McCormack must avoid, if possible, borrowing before the need is imminent and thus avert heavy, unnecessary debt load. At the same time Moore-McCormack must be financially able and prepared to pay its share of the construction costs as they become due. It must be sure that at any time when moneys become due, it has ships which are eligible security for title XI mortgages and not ships which are ineligible because of the stage of their construction and are therefore either too old or too young, which well they might be under existing law and recent regulation. The proposed legislation merely continues the period of their eligibility so that such vessels are security for such title XI mortgages even after their construction and completion. The contrary concept that only new and/or incomplete structures are legal security for loans as has been pointed out by other industry witnesses would be need lessly peculiar to the shipping industry and frustrating to the extent of its impact. Thank you, sir. Senator ENGLE. Thank you very much, Mr. Ewers. Without objection, the letter dated March 24, 1959, from the Pacific American Steamship Association addressed to the chairman of the full committee, Senator Magnuson, signed by J. Monroe Sullivan, the vice president, supporting the provisions of S. 1457 will be made a part of the record as will the letter from the American Merchant Marine Institute, Inc., dated March 24, 1959, signed by Mr. Alvin Shapiro, the vice president, addressed to Senator Warren G. Magnuson, the chairman of the full committee. That will also be made a part of the record. This communication supports the provisions of S. 1457. (The documents referred to are as follows:) AMERICAN MERCHANT MARINE INSTITUTE, INC., Senator WARREN G. MAGNUSON, DEAR SENATOR MAGNUSON: The American Merchant Marine Institute, a trade association representing a preponderance of American-flag shipping, supports S. 1457 which has been referred to your committee for consideration. We concur in the basic principles of this proposed legislation, as it would assist materially in the vessel improvement and replacement programs of U.S. shipowners. The bill would authorize the Secretary of Commerce to insure mortgages which, though now given only to finance construction, reconstruction, or reconditioning, may be placed on vessels other than those under construction, reconstruction, or reconditioning. This would provide the flexibility necessary to enable the owner to make the most economical use of his own funds and to select, within the limits of his resources, the most favorable time to resort to private borrowing. Under existing legislation, the shipowner's only opportunity to raise money on a given vessel by a mortgage insured under title XI is confined to the time when the vessel is under construction, reconstruction, or reconditioning. The effect of this restriction frequently is to force him to obtain private financing at a time when interest rates are high. The restriction in some cases results in an economic loss to the American merchant marine and, consequently, to the Government. Conversely, the granting of express authority to allow insurance on mortgages covering existing vessels to aid in financing the construction, reconstruction, or reconditioning of additional vessels would under certain circumstances enable considerable savings of interest to be effectuated, the benefit of which would inure to the American merchant marine and, consequently, to the Government. Concerning S. 1434, which also would amend title XI, we consider it to be unnecessarily restrictive, and therefore considerably less desirable than S. 1457. Since industry witnesses will present in detail the arguments in support of S. 1457 and the objectionable features of S. 1434, we will not burden the record with a separate statement setting forth all of the points in support of S. 1457 and those in opposition to S. 1434. We respectfully urge your favorable consideration of S. 1457, and ask that this letter be incorporated in the record on these bills. Sincerely, ALVIN SHAPIRO, Vice President. PACIFIC AMERICAN STEAMSHIP ASSOCIATION, Hon. WARREN G. MAGNUSON, Chairman, Senate Interstate and Foreign Commerce Committee, DEAR SENATOR MAGNUSON: The Pacific American Steamship Association representing a large majority of American-flag ship operators on the Pacific coast endorses and supports S. 1457, a bill introduced by you and Senator Engle to provide greater flexibility in private financing of ship construction. This bill as enacted would benefit subsidized and unsubsidized operators, both of whom are represented in our membership. It would further implement the basic objectives of title XI of the Merchant Marine Act of 1936. The purpose of this legislation is to provide a better opportunity for the prudent management of financing for steamship operators who finance construction under the provisions of title XI. This is accomplished by the simple device of permitting an operator to pay cash for his ship when interest rates are high and mortgaging it later to finance new construction when interest rates are more favorable. Thus being enabled to choose the best time for his borrowings, he can reduce interest costs with obvious advantage, and, in the case of subsidized operators, the potential savings in interest costs would be reflected in increased recapture by the U.S. Government. For these reasons, the members of our organization respectfully urge your committee to act favorably upon S. 1457. Very truly yours, J. MONROE SULLIVAN, Vice President. LABOR-MANAGEMENT MARITIME COMMITTEE, Washington, D.C., March 23, 1959. Hon. WARREN G. MAGNUSON, Chairman, Interstate and Foreign Commerce Committee, DEAR SENATOR MAGNUSON: We desire to record our support of S. 1457, a bill to amend title XI of the Merchant Marine Act, 1936, as amended. This bill, if enacted into law, will facilitate the financing of new ship construction. In so doing, it will aid in achieving the goal of retiring older ships which are approaching the period of obsolescence and will provide the Nation with newer, faster, and more efficient ships. This in turn will strengthen the national defense. The bill will give the steamship lines more flexibility in their financing program by permitting them to take advantage of the fluctuation of interest rates for shipbuilding purposes. In doing so, both the steamship lines and the Government stand to benefit in the possible reduction of overall shipbuilding costs. Thus on the one hand, such costs may be reduced to those financing the construction, while at the same time benefiting the Government in the sudsidy recapture processes. We have refrained from specific discussion of the various detailed facets of the bill as such coverage will be handled by those scheduled to appear in testimony before your committee. We support S. 1457. Respectfully, EARL W. CLARK, Senator ENGLE. Now prior to discussing amendments or questions, if we could get the testimony and initial statement of Mr. Morse in the record I think we would be in a position to consider what we ought to do with these bills. Mr. Morse, would you care to come forward and present your statement? We are glad to have you here, Mr. Morse, and are pleased to have your statement. Mr. MORSE. Thank you. I apologize for being late, but I was requested by Congressman Kelly to participate in a TV program. That explains my lateness. I have with me Mr. Eugene Ackerson, our legislative counsel, and Mr. William Burchill, who is in the office of our legislative counsel. They are prepared to speak on technical details of this bill but I have a prepared statement which, if you concur, I would like to read into the record. 38672-59- -4 Senator ENGLE. We will be glad to have you do that. But, first, without objection, a telegram from Mr. L. R. Sanford, Shipbuilding Council of America, dated March 23, 1959, addressed to Senator Magnuson, chairman of the full committee, will be made a part of the record at the same place in the record as the preceding communications. This telegram states that the council desires to go on record in favor of the objectives of both bills, but suggests that in S. 1434 the phrase "when the keel of such vessel is laid," in proposed new section 1107, be deleted as too inflexible, and insert a date certain therefore, tied to either the date of contract or date of delivery. Without objection, the telegram will be made a part of the record. (The telegram referred to is as follows:) Hon. WARREN G. MAGNUSON, SHIPBUILDERS COUNCIL OF AMERICA, Chairman, Senate Committee on Interstate and Foreign Commerce, Council understands that the Merchant Marine Subcommittee is holding hearings March 24, 1959, on S. 1434 and S. 1457. Council desires to go on record as in favor of the objective of both bills, but suggests that in S. 1434 the phrase "when the keel of such vessel is laid" in proposed new section 1107 be deleted as too flexible and uncertain and that a date certain be substituted therefor tied in to either date of contract or date of delivery. L. R. SANFORD. Senator ENGLE. Now, Mr. Morse, we would be glad to have you read your statement, if you desire. Mr. MORSE. Thank you. STATEMENT BY CLARENCE G. MORSE, MARITIME ADMINISTRATOR, ON BEHALF OF THE DEPARTMENT OF COMMERCE AND THE MARITIME ADMINISTRATION Mr. MORSE. You have before you two bills designed to accomplish a similar purpose, which we favor. I repeat, we favor the purpose of both bills. One bill is a bill submitted by the Secretary of Commerce, with the clearance of the Bureau of the Budget, S. 1434. The other, S. 1457, is, I believe, the same text as a bill-H.R. 8129, 85th Congress passed by the House of Representatives in 1958, but not acted on by your committee at the close of the session in 1958. A short hearing was held on it, August 12, 1958, just before the adjournment of Congress. Certain problems of language remained for consideration at that time. We prefer to make our statement on S. 1434, which has the clearance of the Bureau of the Budget, and consideration of which bill, I believe, bring out the essential issues for committee consideration. Inasmuch as title XI is a complicated and technical statute, dealing as it does with private financing of ship construction and with Government insurance of such financing, the bill units in one new section of title XI the provisions relating to the proposed additional mort gage insurance, in the interest of clarity in handling this additional mortgage and insurance procedure in relation to existing procedures, and avoiding the confusion resulting from amendments scattered throughout the title. The bill, S. 1434, would amend the Merchant Marine Act, 1936, as amended, by inserting in title XI, Federal ship mortgage insurance, of that act a new section 1107. This new section would permit the prospective owner of a vessel that is to be constructed to delay placing a mortgage on the vessel until sometime after the vessel has been delivered by the shipbuilder, without losing his privilege of having the mortgage insured by the Secretary of Commerce under title XI. This insurance procedure would be available both to subsidized and to unsubsidized operators. I might interpolate at the moment to say that our present administrative rules will permit a deferment of 1 year after the delivery of the ship in the placement of the mortgage on the ship, provided the operator has obtained from us a letter of commitment prior to the delivery of the vessel. The new section would enable the prospective owner to save interest on financing construction programs, and would reduce the period of time during which the Secretary of Commerce is under risk with respect to the mortgage. An operator who plans to replace his existing fleet by new construction that will be built at staggered intervals over a period of years may have sufficient money on hand to pay in full for the first ship. Under existing law, however, if he does this, he will not later be able to mortgage the vessel and obtain Government insurance of the mortgage in order to obtain the downpayment on future vessels. The problems may be simply stated. An operator with $10 million who has a fleet of four ships, with a replacement program calling for a new ship at 3-year intervals at a cost of $10 million each spends the $10 million to pay for the first ship. However, when the financing of construction of the first ship is accomplished without resort to an insured mortgage, the first ship is not available as security for an insured mortgage to finance the construction of a second or third ship. The construction financed by mortgage insured under title XI is construction of the ship serving as security for the mortgage. In other words, the insured mortgage is to finance the construction of the ship mortgaged, not some other ship. Thus, to finance his replacement program, the operator cannot use his fund to pay in full for the first ship, but must use his fund to make the maximum downpayment on each ship ($22 million if he receives construction differential subsidy) and must mortgage each ship as it is constructed so that the mortgage will be eligible for Government insurance. This situation unduly restricts the operator in arranging his financing, makes the financing more expensive to the operator than is necessary, and keeps the United States under risk on the mortgages for a longer period than is necessary. The draft bill would remedy this situation by authorizing the Secretary of Commerce to make a commitment to the vessel operator before the keel on the first vessel is laid, to insure any eligible mortgages such operator, as mortgagor, may place on the vessel at any time during the life of the vessel to obtain the downpayment on other vessels. The foregoing authorization is subject to conditions which will keep the substance of the mortgage insurance transaction the same as it is under existing law, except that the placing on the vessel of the mortgage that is to be insured would be delayed until such |