SALE OF WAR-BUILT VESSELS TUESDAY, JULY 3, 1956 UNITED STATES SENATE, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D. C. The subcommittee met at 10:50 a. m., in room G-16, United States Capitol, Senator Charles E. Potter (chairman of the subcommittee) presiding. Present: Senator Potter. Senator POTTER. The committee will come to order. First, I wish to apologize for being late. It always happens just about the time you are ready to go to committee that you have a room full of people and long-distance telephone calls coming in. I regret not being able to be here on time. We open the hearings this morning on Senate Joint Resolution 177 which would authorize the Secretary of Commerce, during a period of 6 months after its enactment, to sell the tankers Mission De Pala and Mission San Antonio, on an "as is, where is" basis, to Browning Lines, Inc., for $864,414.66 and $874,371.90, respectively, subject to the condition that the purchaser recondition the vessels in a domestic shipyard for use as container ships in the foreign commerce of the United States on trade routes 3 and 4. The sales price of each vessel would be reduced by $311 a day for the period beginning July 1, 1956, and ending with the date the contract of sale is executed, and in the event the named vessels are not available for sale, the Maritime Administrator is to designate suitable substitute vessels which are to be sold at their statutory sales prices determined under section 3 (d) of the Merchant Ship Sales Act of 1946, but without regard to the floor price fixed by that section, depreciated at $311 a day up to and including the date the contracts of sale are executed. The purchaser would be required to pay at least 25 percent of the sales price of each vessel at the time the contract of sale is executed. The balance of the sales price, secured by a preferred mortgage on each vessel, would be payable in approximately equal annual installments over the remainder of the vessel's economic life, as determined by the Maritime Administration, with interest payable at the rate of 31⁄2 percent a year. The contracts of sale made under the authority of Senate Joint Resolution 177, would be required to contain two provisions that would run with the title to each vessel and would be binding on all owners. Under the first of such provisions, if the Government purchases or requisitions any of the vessels, the owner would be paid either the NOTE. Staff member assigned to this hearing, Albert J. Luckey, Jr. value of the vessel or the sales price under the contract plus the actual cost of capital improvements depreciated on the basis of the depreciation schedule adopted or accepted by the Secretary of the Treasury for income-tax purposes for the vessel, whichever is the lesser. Under the second provision each vessel is to remain documented under the laws of the United States during the remainder of its economic life or as long as there is due the United States any principal or interest on account of the sales price, whichever is the longer period. | The two tankers named in the bill are war-built vessels within the meaning of that term as used in the Merchant Ship Sales Act of 1946. They are of the T2-SE-A2 tanker type with a speed of 16 knots, as contrasted with the 141⁄2 knots of the T2-SE-A1 tanker type. They were transferred to the Navy Department in 1947 and were returned by the Navy to the reserve fleet in 1954. (S. J. Res. 177 follows:) [S. J. Res. 177, 84th Cong., 2d sess.] JOINT RESOLUTION To authorize the Secretary of Commerce to sell certain war-built tankers Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) the Secretary of Commerce is hereby authorized during a period of six months after the enactment of this joint resolution to sell to Browning Lines, Incorporated, the T2-SE-A2 tankers, Mission San Antonio and Mission De Pala, on an as is, where is, basis. The sales price for the Mission San Antonio shall be the sum of $874,371.90, which sum shall be reduced by $311 per day for the period beginning July 1, 1956, and ending with the date of execution of the contract of sale of the vessel. The sales price for the Mission De Pala shall be the sum of $864,414.66, which sum shall be reduced by $311 per day for the period beginning July 1, 1956, and ending with the date of the execution of the contract of sale of the vessel. In the event that either or both of the above-named vessels should be unavailable for sale, the Maritime Administrator shall designate suitable substitute vessel or vessels to be sold within six months from such designation at the statutory price as fixed by the provisions of section 3 (d) of the Merchant Ship Sales Act of 1946 (60 Stat. 41), but without regard to the last two sentences of section 3 (d), so as to allow depreciation of $311 per day up to and including the date of execution of the contracts of sale of such vessels. (b) Each such sale shall be on the basis of the payment by the purchaser of not less than 25 per centum of the vessel sales price at the time of execution of the vessel sales contract, with the balance payable in approximately equal annual installments over the remainder of the economic life of the vessels, which economic life is to be determined by the Maritime Administration, with interest on the portion of the vessel sales price remaining unpaid at the rate of 31⁄2 per centum per annum. The obligation of the purchaser with respect to payment of such unpaid balance, with interest, shall be secured by a preferred mortgage on the vessels in form satisfactory to the Maritime Administrator. (c) Such sales shall be made upon condition and agreement that the purchaser recondition the vessels satisfactory to the Secretary of Commerce in a domestic shipyard for use as container ships and also subject to the further condition that the vessels shall be employed on essential foreign trade routes 3 and 4. (d) Any contract of sale executed under authority of this Act shall provide that in the event the United States shall through purchase or requisition, acquire ownership of any such vessel, the owner shall be paid therefor the value thereof, but in no event shall such payment exceed the actual depreciated sales price under such contract (together with the actual depreciated cost of capital improvements thereon); that in computing the depreciated acquisition cost of such vessel, the depreciation shall be computed on the vessel on the schedule adopted or accepted by the Secretary of the Treasury for income tax purposes as applicable to such vessel; that such vessel shall remain documented under the laws of the United States during the remainder of the economic life of the vessel or as long as there remains due the United States any principal or interest on account of the sale price, whichever is the longer period; and that the foregoing provisions respecting the requisition or the acquisition of ownership by the United States, and documentation shall run with the title to such vessel and be binding on all owners thereof. Senator POTTER. Some of the witnesses who wish to testify, are they here now? The first witness will be Mr. Morse, who is the Chairman of the Maritime Board. STATEMENT OF CLARENCE G. MORSE CHAIRMAN, FEDERAL MARITIME BOARD AND MARITIME ADMINISTRATOR Senator POTTER. I understand your statement is in relation to the transfer and sale of the two tankers. Mr. MORSE. Yes, sir. Senator POTTER. I also have been informed since the introduction of this bill and the scheduling of the hearings, other discussions have taken place about the two other different proposals. It is my understanding that two flattops that are now in reserve might be transferred to the Maritime Board for sale. I also understand two C-4 type vessels could be put in the trade. I understand you have been in on these discussions. Possibly you would care to have your statement made a part of the record rather than to waste your time with a discussion of something with regard to which apparently other negotiations have indicated other types of vessels would be more desirable. We would make your statement a part of the record, if that is convenient for you, and you may discuss the negotiations that have taken place concerning the transfer of the C-4's and the flattops. Mr. MORSE. I am agreeable that my statement be made a part of the record. (The prepared statement of Mr. Morse follows:) STATEMENT BY CLARENCE G. MORSE, CHAIRMAN OF THE FEDERAL MARITIME BOARD AND MARITIME ADMINISTRATOR, ON BEHALF OF THE FEDERAL MARITIME Board, the MARITIME ADMINISTRATION, AND the Department of CommERCE Gentlemen, the joint resolution would authorize the Secretary of Commerce to sell to Browning Lines, Inc., two named Mission-type tankers, or substitute vessels designated by the Maritime Administrator, at prices specified in the joint resolutions. The terms of payment are 25 percent down with the remainder payable in equal annual installments over the economic life of the vessels which is to be determined by the Maritime Administrator. The joint resolution would require that if the Secretary sells the vessels to Browning Lines, Inc., the sale shall be on condition that the buyer recondition the vessels for use as container ships satisfactory to the Secretary of Commerce, and the that vessels be employed on essential trade routes 3 and 4. The joint resolution further provides for continued documentation of the vessels under the United States flag and that in case of requisition of the vessels by the United States they shall be valued at their depreciated cost to Browning Lines, Inc. Since the operating-differential subsidy contract of the New York and Cuba Mail Line expired in 1953, there has been no American-flag service on that portion of essential trade routes 3 and 4, which was formerly served by that company with American-flag vessels. That portion of essential trade routes 3 and 4 is between Atlantic coast ports of the United States and Cuba and Mexico. The Federal Maritime Board, the Maritime Administration, and the Department of Commerce want to have American-flag service on that portion of essential trade routes 3 and 4 which was formerly served with American-flag vessels by New York and Cuba Mail Line. They would welcome such service either on an operating subsidy basis or on an unsubsidized basis. If, however, the service is to be on an operating subsidy basis, the operator would have to be willing and able to meet the requirements of the Merchant Marine Act, 1936, including the financial requirements, the operating skill requirements, and the replacement requirements. We understand that if the joint resolution is enacted, Browning Lines, Inc., will apply for construction subsidy aid and mortgage insurance aid to convert the vessels to container ships, and that they will apply for operating differential subsidy as well. We have not as yet received any formal application from Browning Lines, Inc., for operation on essential trade routes 3 and 4, and we do not know in any detail the kind of operation it proposes. We do not have any current detailed information on its financial status or on its operating qualifications for deep-sea operations, and we do not have information on which to base an opinion as to the economic feasibility of its proposed operations. We do not know whether Browning Lines, Inc., will be able to qualify for construction subsidy aid, or mortgage aid or operating subsidy aid. To obtain an American-fiag operator on that portion of essential trade routes 3 and 4 which is not now served by American-flag vessels,we would favor selling to an American-flag operator two vessels on the same basis that we have sold vessels under new legislation to accomplish special purposes after the expiration of the sales authority of the Merchant Ship Sales Act of 1946. The price at which such vessels have been sold is the sales price of the vessels (computed under the provisions of the Merchant Ship Sales Act of 1946) as of January 15, 1951, depreciated, after reduction for residual value, on the basis of the life of the vessels remaining after January 15, 1951, based upon a 20-year life from date of delivery of the vessels by the builder, such depreciation to be for the period from the expiration of the sales authority of the Merchant Ship Sales Act of 1946 (which is January 15, 1951) to the date of execution of the contract of sale under the new legislation. This forumla results in higher prices than those stated in the joint resolution. Authority to sell under the joint resolution would expire 6 months after enactment. This time is too short in view of the fact that Browning Lines, Inc., has not yet submitted information necessary to permit an evaluation of their qualifications or of the economic feasibility of their proposal. We do not know whether the vessels named in the joint resolution will be available for sale at the time Browning Lines, Inc., may establish their qualifications and the economic feasibility of their proposal. We recommend, therefore, that section (a) of the joint resolution be amended to read as follows: "Notwithstanding the provisions of section 11 of the Merchant Ship Sales Act of 1946, as amended, and section 510 (h) of the Merchant Marine Act, 1936, as amended, the Secretary of Commerce is authorized to sell, within one year after date of enactment hereof, to Browning Lines, Incorporated, on an as is, where is, basis, any two war-built vessels under his jurisdiction if the Secretary of Commerce determines that Browning Lines, Incorporated, is a citizen of the United States, as defined in section 2 of the Shipping Act, 1916, and possesses the ability, experience, financial resources, and other qualifications necessary to enable it to operate and maintain the vessels in service on that portion of essential trade routes 3 and 4 between Atlantic coast ports of the United States and Cuba and Mexico and to maintain adequate service on such portion of such routes. The sales prices of the vessels shall be their sales prices computed under the Merchant Ship Sales Act of 1946, as of January 15, 1951, depreciated (after reduction for residual value) on a straight-line basis for the period from January 15, 1951, to the date of execution of the contract of sale, on the basis of the portion of a twentyyear useful life of the vessels remaining after January 15, 1951.” Section (c) of the joint resolution should be amended by inserting the arabic numeral 1 in parentheses immediately before the first word, by striking out all words in the section after the words "for use as container ships" on line 6, and by inserting at the end of the section the following: "(2) Vessels sold under this Act shall be employed exclusively as dry cargo common carriers on that portion of essential trade routes 3 and 4 between Atlantic Coast ports of the United States and Cuba and Mexico, until the end of their useful lives, as determined under subsection (b) of this Act, or until they are replaced by new tonnage, whichever happens first. These restrictions shall run at law and in equity with the titles to the vessels and are binding upon all subsequent owners." With the understanding that we are not predicting whether Browning Lines, Inc., will be able to qualify for construction subsidy aid, or mortgage aid, or operating differential subsidy aid, or whether their proposal is economically feasible, we have no objection to favorable consideration of the joint resolution, amended as proposed. Mr. MORSE. The statement is prepared fundamentally on the T-2 tanker proposal. The only suggestions we make are directed pri marily to the pricing formula. It is not consistent with the pricing formula, which has been used in the sale of war-built vessels on 2 other occasions, namely, the sale of 2 C1-MAV-1 vessels to Alaska Steamship Co. and the sale of the President Wilson and President Cleveland to APL. So we are suggesting the pricing formula be changed to be consistent with the past actions. That is all spelled out in my statement. Now as to the suggestion that two other types of vessels might be sold instead of the tankers, we would interpose no objection to that, assuming appropriate pricing standards are established for the two types of vessels. Senator POTTER. You have C-4's in the laidup fleet, under the jurisdiction of the Maritime Board? Mr. MORSE. Yes, sir. Senator POTTER. If the present format is consistent with the format of the past, the Maritime Commission would have no objection to the sale of two C-4's for the purpose enunciated in the bill? Mr. MORSE. I can only speak for myself. We have not checked. this out through Commerce and the Bureau of the Budget, but I see no reason why they would have objection to the sale at an appropriate price. Senator POTTER. I am intrigued by this type of arrangement for shipping. During the activities I have had serving on the House committee and over here, there has always been a great need for this container type of shipment. I have been quite intrigued by this new process and I think this would more or less be a pilot program in the field and I think possibly the entire industry might be interested in the program. Mr. MORSE. We have not had an opportunity to check out the economics of the thing because no application has yet been filed. There is a lot that is unknown to us. In principle, I have advocated as Maritime Administrator over the last year or so, that industry should get into different improved types of handling and this seems to be a very definite step forward. I think it is something which should be attempted, to see whether it is feasible. Senator POTTER. Does Counsel have questions? Mr. LUCKEY. Yes. With regard to the pricing formula you spoke about, the sale of the President Cleveland and President Wilson to APL, and the Square Sinnot and the Square Knot to Alaskan Steam is under the present pricing formula. Do you think that is applicable here? Mr. MORSE. We would like to see the same pricing formula utilized here and the price in our computation for the Mission DePala as of June 30, 1956, would be $1,019,872 with daily depreciation at $335.08. For the Mission San Antonio it would be $1,024,254 and the daily rate of depreciation would $332.88. Mr. LUCKEY. What was the first rate of depreciation? Mr. MORSE. $335.08. Mr. LUCKEY. Does this pricing formula take into consideration the floor price or is this a deviation? Mr. MORSE. No, the pricing policy we have proposed is the floor price and also takes into consideration 21⁄2-percent residual value, and then computes the life of the tankers on a 20-year basis. I think the 80890-56-2 |