Mr. PRINCE. I think the rules are intended, and no doubt do, provide a perfectly equitable method of calculation of what the toll would be on military vessels and what the toll actually is on commercial vessels. Mr. WEICHEL. Has anyone testified to the fact here?

Mr. PRINCE. I do not believe there has been any testimony on that detailed point. The point is that today they do not pay any actual money for the Government vessels transiting the Canal, and no bookkeeping credit is allowed. Under this bill provision is made whereby, I assume, either the Government could actually pay to the Panama Canal the appropriate toll for the transit of its vessels, or else by bookkeeping transactions they could allow a credit, and the Panama Canal Administration would assume, for the purpose of its financial accounts, that such amount of money had been paid in.

Mr. WEICHEL. Having collected a toll from all the ships that pass through from other countries as well as the American flag, if you are going to give back a credit, would there be a credit to those people who paid?

Mr. PRINCE. No, sir; but your tolls would be set up on a basis which, taking into account the estimated traffic for probably a 5-year period, would yield revenues to meet all the expenses of the Canal and the various business adjuncts that are now to be consolidated with the Canal operation.

Mr. WEICHEL. That is the basis upon which the estimate would be made?

Mr. PRINCE. That is right. It is not a precise basis. If your revenues yielded $2,000,000 less this year than expenses, you would not go back and try to assess against people that deficit. I think the sensible way, as a matter of necessity, is to do it on estimate, and if they find over a period of time that their toll was too low, not yielding revenues sufficient to meet all the costs of maintenance and operation and interest on the investment and depreciation, then they will have to up the rate. They will have to up the rate, or should up the rate to a point where they can make a little more than they anticipate will be the expenses for the next 5 years to pick up that deficit.

Mr. WEICHEL. Why would it not be a simpler arrangement to do it on a yearly basis? Why not have everybody pay instead of estimating?

Mr. PRINCE. I should not have undertaken to express a view on this. I think that is a matter for someone far more experienced than I. I have just gotten the impression that there is a feeling it should not be changed too much.

Mr. WEICHEL. You seemed to know the rate. Some of the other people testifying did not even know the rate. You have been helpful in that respect.

Mr. ALLEN. Mr. Prince, there was testimony on Monday, I believe, concerning a trans-Isthmian cable. If I remember the testimony, it was to the effect that in order to better defend the cable it had been run by a very circuitous route rather than direct. Assume it is 50 percent longer than a commercial firm would have run the cable for strictly commercial purposes, would it be your opinion that the commercial shipping should bear any part of the cost of installing that extra 50 percent, or for the maintenance of it?

69057-5010

Mr. PRINCE. Mr. Allen, it seems to me if that cable were run as you expressed it, on a circuitous route because by so doing they thought that afforded a greater protection to the cable from disruption, I think that would be a part of the cost that should be borne by all the users. I was not clear on what the testimony was on that, Monday. My impression was that the cable was not run in a circuitous route just for the purpose of making it a safer installation, but it was run by a circuitous route in order to serve defense establishments. If that were the case perhaps there would be justification for eliminating the circuity because that would be attributable to a defense establishment.

Mr. ALLEN. I believe the testimony was that there was a national defense feature built into a part of the Canal investment which could possibly be allocated as a cost of national defense. I believe that was the testimony.

Mr. PRICE. If that is what it proved to be, I would not think it would be wrong to eliminate a feature which is specifically for the benefit of the military.

Now, there is the question of widening the Canal, making it 110 feet instead of 100. Initially, that was done, as I understand it, to accommodate war vessels. They required that additional 10 feet, not the commercial vessels. Since that time changes have occurred in the size of commercial ships. They have grown, and a report I read on this by this impartial board of three indicated that that additional width greatly facilitated the transitting of commercial vessels. I can see how something put in at one time, especially for the military, might in time become just as important and useful from a commercial standpoint. At such time, then, it ought to go into the accounts and be paid for in part by the commercial users.

Mr. ALLEN. We have had considerable attention given to the proposition of having a low-level canal. I believe it is thought to be necessary by some on the theory that the present Canal would not be defendable in modern warfare.

If it is true that the Canal should be changed and virtually a new canal built, and that was done purely for the purpose of better defense in time of war, would you then assess the cost of the new canal to this shipping which is now satisfied with the present Canal, or would you then change the rate structure and take out the investment?

Mr. PRINCE. Would the shipping use the new canal or the old one? Mr. ALLEN. They are perfectly content with the present Canal with no further investment, but as to that additional investment, would you add that to the rate base?

Mr. PRINCE. Could I beg leave to wait until that event occurs? I really have not given it enough thought to venture an offhand opinion on it.

Mr. O'TOOLE. Before Mr. Fugate asks a question, the chairman. wishes to make an observation, not to question.

The Chair feels that too often industry and commerce feel they have evolved from a natural process and they fail to recognize their existence has only been brought about by the natural richness of a country, or by its people's initiative, which in turn can only continue through its military might in a rapacious world such as we have today.

Mr. FUGATE. Mr. Prince, there are certain mandatory provisions in the bill which we are considering. I call your attention to page 20 of the bill, line 24, which reads as follows:

(b) Tolls shall be prescribed at a rate or rates calculated to cover, as nearly as practicable, all cost of maintaining and operating the Panama Canal, together with the facilities and appurtenances related thereto, including interest and depreciation, and an appropriate share of the net cost of operation of the agency known as the Canal Zone government.

If and when this bill should become law, is it your opinion that in order to provide for these matters it would be necessary to increase the tolls from 90 cents to something greater than 90 cents?

Mr. PRINCE. Mr. Fugate, that is a pretty hard calculation to make. We were not even able to make a guess before the testimony was put in here by the Bureau of the Budget and the Governor of the Panama Canal. On the basis of their testimony we were able to make some very rough calculations. There are a lot of necessary factors that you cannot determine with definiteness on the basis of this bill and, therefore, it is difficult to determine just how it would work out.

My own rough estimate that I tried to work out yesterday indicated that under this bill there would probably have to be some slight advance in the rate to make the project self-sustaining.

Mr. FUGATE. Would you qualify the word "slight"?

Mr. PRINCE. Perhaps 15 to 20 percent.

Mr. FUGATE You are familiar with the history of the operation, I assume-perhaps not in exact dollars and cents-but you know the history of how it has operated over the years, and at no time has it operated at a profit except one given period for a year or so. The over-all history of it is that it has operated at a loss.

Mr. PRINCE. That is correct.

Mr. FUGATE. What affect would an increase in tolls have upon the overland shipping in continental United States?

Mr. PRINCE. I am sure you can recognize that can be answered only in the most general terms.

Mr. FUGATE. Let me go a little further. Granting—and I think we will all have to when we study this bill-there will be an increase in tolls-because by impartial calculation from the history of the operation of the Canal it is definite, based upon a 2.3 percent interest rate that the present toll rates will be inadequate and therefore will necessarily have to be increased, and by impartial calculations it is estimated with interest at 2.5 percent there will have to be a toll charge of around $1.35 per ton-it is going to have a great effect on intercoastal shipping.

Mr. PRINCE. May I say as to your figure of $1.35 per ton, I think that would be the figure you would have to increase the toll rate to under the present policy or present law; that is, to make a return of 3 percent and allow no credit for Government vessels and calculating tolls just in the manner they are now. On that basis, to make it fully self-sustaining you would have to increase the rate to about that figure. We testified to that effect under House Resolution 44, but I do not think it would have to be that high under this bill.

Mr. FUGATE. Say the tolls were $1.15, that would be a 25-cent increase. What advantages would that give, if any, to overland transportation?

Mr. PRINCE. In my judgment, what it would do would be to eliminate an unfair advantage which water competition now has. We have to pay all our costs of operation and we have to meet all our costs fully. We think that is what the private-enterprise system demands. We also think that is what the declaration of the transportation policy set forth by Congress in the Act of 1940 calls for. It calls for fair and impartial treatment of all modes of transportation. The fair and impartial treatment of all modes of transportation demands that each pay its full costs of operation. Now, the full cost of carrying on any business, as all of us know, has gone up very markedly since the war. Why should the shipping interests be allowed to have this cost of operation held down artificially? That is giving them an artificial advantage, and that is a subsidy. We think they should pay their full costs, and if you do meet the full costs of operating and maintaining the Panama Canal, through the imposition of tolls, then that subsidy will be removed. We will then be on a fair competitive basis, and the form of transportation that can handle the particular type of business most efficiently should be entitled to handle that business. That would be the effect of an increase in tolls. It would really be putting it on a realistic basis.

Mr. FUGATE. Testimony has been given here from time to time that there are 65 ships operating in the intercoastal trade, and testimony has further shown that they are having some difficulty in operating at all. With a 30-percent increase in tolls, would not that have the effect of completely eliminating the future operations of those ships, or practically that, and would not that certainly give all the movement of freight, east-west or west-east, to the railroads?

I am not partial to either side. I am just trying to get the facts. Mr. PRINCE. I doubt that I am qualified to answer that except in this way: Of course, that would depend to some extent on what proportion of the total rate that has to be charged by these water carriers is attributable to the tolls. The toll is not the major cost factor, so I do not believe it could have any such overwhelming effect as you indicated some people have thought it might. I do not think that could be so. I do not believe that the toll could be such an important part, or such a large proportion of their operating costs and that it would be the thing that would turn the balance and put all these people out of business. I am surmising. I admit that I do not know the facts.

Mr. BARRETT. Do you have any idea what the net operating return per annum for the Suez Canal is?

Mr. PRINCE. I am afraid I do not know.

Mr. WEICHEL. Did I understand you to say that you are advocating an increase in tolls?

Mr. PRINCE. I did not say anything of that sort.

Mr. WEICHEL. In view of the questioning from the other side, I just wondered if you were indicating that they might be increased or should be increased. The reason I asked that is, the railroads have gotten along pretty well in competition with the present rate of 90 cents.

Mr. PRINCE. Well

Mr. WEICHEL. The railroads have done pretty well against the 90cent toll that the shipping interests have been paying since before the war.

Mr. PRINCE. Before the war-look at what has happened to our costs since the war. I am speaking from the standpoint of principle. We pay our costs of doing business, and they should pay their costs of doing business and then we will let the business fall where it deserves to go-to the form of transportation that can carry it most efficiently. Mr. WEICHEL. One of the Commissioners of the Interstate Commerce Commission testified before this committee several years ago, if I remember correctly, that the rate that the ships have for carriage has not been changed, although an application has been in for a long time with reference to increasing the rate.

The railroad interests complain that the rates are too low. Traditionally, the complaint was always the other way, that the shipping rates were too low compared to the railroad rates, but the testimony from the Commissioner of the Interstate Commerce Commission indicates that while they were setting the rates for each one the railroads controlled all the factors and there was the stevedoring factor that the shipping interests could not control, which went up some 300 or 400 percent.

You still advocate a raise in the rates, the toll rates?

Mr. PRINCE. That is a pretty hard question to answer.

Mr. WEICHEL. I thought perhaps in view of the conversation we had before you could answer it.

Mr. PRINCE. I would like to comment on one or two things. It sounded as though you felt the Interstate Commerce Commission did have control over all the cost factors as far as the railroads are concerned, but did not as far as the water carriers are concerned. Mr. WEICHEL. Generally, yes.

Mr. PRINCE. Generally, of course, they have very little control over the cost factors so far as the railroads are concerned. They have nothing whatsoever to do with the rates that we pay our labor, which is 50 percent of our operating costs.

Mr. WEICHEL. That is true with the water shippers, too. But there is the factor of stevedoring which goes into the over-all cost.

Mr. PRINCE. That is a labor charge, and so is the payment of our employees. That is a labor charge. It is the same thing. They have no control over that. The costs of that have gone up for us tremendously since before the war.

Mr. WEICHEL. The ships have all of that.

Mr. PRINCE. That is correct. They have no control over the costs of materials and supplies we buy. That has gone up about 100 percent. Everything has gone up. I think it is just one of the facts of economic life that the cost of tolls-because of the service they are getting in having their vessels passed through the Panama Canal— should in all probability go up if you are going to have the Panama Canal a self-sustaining sound business enterprise.

Mr. WEICHEL. I meant the Interstate Commerce Commission does not take into consideration the stevedoring rate, whereas in the railroads, when you get an increase in rates, labor is taken into consideration.

Mr. PRINCE. You may be right.

Mr. WEICHEL. That was the testimony here. The railroads got along with the rate before the war. I would not see any real reason for increasing it now when the Interstate Commerce Commission has