r U. S. DEPARTMENT OF COMMERCE MARITIME ADMINISTRATION A Review of the COASTWISE AND INTERCOASTAL SHIPPING TRADES DECEMBER 1955 Price $1.00 Prepared by MARITIME ADMINISTRATION, Clarence G. Morse, Administrator U. S. DEPARTMENT OF COMMERCE, Sinclair Weeks, Secretary For Sale by the U. S. Department of Commerce, Washington, D. C, and its Field Offices - Price $1 TABLE OF CONTENTS Page INTRODUCTION 1 I. NATIONAL DEFENSE AND ECONOMY 3 A« Importance of Coastwise and Inter coastal Shipping in the National Defense 3 1. Significance of Coastwise and Intercoastal Transport Capacity 3 2. Ready Availability of the Coastwise and Intercoastal Fleet k 3 . Shipyard Modernization and Expansion • h U. Development of Military-Type Ships 5 5>. Additional Ports and Transportation Facilities 6 6. Supply of Shipboard Personnel 6 B. Importance of Coastwise and Intercoastal Shipping in the National Economy 6 1. Economy of Transportation . 7 2 . Location of Industry 7 3 • Extension of Market Areas • • 7 U. Port Traffic 8 IT. STRENGTH AND WEAKNESS OF THE DOMESTIC MERCHANT FLEET 9 A. Size of the Coastwise and Intercoastal Fleet 9 B. Speed and Age of Ships in the Coastwise and Intercoastal Trades 11 C • Nature of Transportation Service Offered • 16 1 . Prewar and Postwar Traffic • 16 2. The Decline of Dry Cargo Carriage •••• 17 3 • The Decline of Cargo Carried by Common Carriers • 17 k» Atlantic Coastwise 18 £. Atlantic Gulf 19 6 • Gulf Coastwise 20 7 • Pacific Coastwise •• 21 8. Intercoastal (via Panama Canal ) • 21 D. Analysis of Operating Costs of Selected Dry Cargo Operators •• 2k - l — TABLE OF CONTENTS (Continued) Page III. SOLUTION OF THE PROBLEM 30 A. Technological Improvement and Private Enterprise 30 1. The Terminal Problem 31 B. Progress Toward Solution 32 1. Existing Applications of Roll-on, Roll-off and Lift-on, Lift-off Principles , 32 2 • New Projects 32 IV. GOVERNMENT AID 3k A. Types of Government Aid Now Available to Domestic Shipping • 3k 1. Cabotage 3k 2. Accelerated Amortization 3k 3. Construction Reserve Funds 3k k* Mortgage Aid 3k 5. Mortgage Insurance 3k 6. Trade-in Allowance 3$ 7. Preferential Charter Hire 31? 8. Long-Term Charters • 35 B. Immediate Needs •• • 3$ C. Proposals for Construction-Differential Subsidies 35 D. Panama Canal Tolls , 36 E. Proposals for Changing the Rate-Making Mechanism • 38 F. Government Assistance in Research and Development 39 G. Joint Through Rates and Routes 39 H. Revocation of Dormant Certificates i|2 CONCLUSIONS kh RECOMMENDATIONS k6 - ii - TABLE OF CONTENTS (Continued) Page APPENDIX hi A. Maritime Administration Questionnaire, Dry Cargo Group ...... U7 B» Maritime Administration Questionnaire, Tanker Group 51 C. Digest of Replies to Industry Questionnaires • 5U D. Brief of the Intercoastal Steamship Freight Association 72 E • Brief of the Marine Exchange, Inc 89 - in - Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://archive.org/details/reviewofcoastwisOOunit INTRODUCTION An Economic Survey of Coastwise and Intercoastal Shipping was pub- lished by the Maritime Commission in 1939. In summary, this Survey found the fundamental difficulty or our domestic shipping to be an economic squeeze between rising operating costs and inadequate revenue 3, the latter adversely affected by allegedly inequitable competing inland carrier freight rates. The complex subject of rate-making was discussed at some length, and the major element of operating expense was identilied as labor costs, particularly cargo- handling expense. There was a ship replacement problem. The costs of new construction had risen considerably above the prices at which the active snips were built or bought from the government . Lack of confidence in the future discouraged new construction at higher costs. It was noted that the problem centered in the dry -car go trade, particularly in break-bulk operations involv- in substantial and increasing cargo-handling costs. A review of the present picture of the coastwise-intercoastal fleet with very minor exception re-emphasizes the problems facing the industry at the time of the 1939 Survey. 1/ There have been changes since 1939 but they have been changes in degree rather than in substance. The government took over all vessels in the coastwise-intercoastal trade during World War II and the inland carriers, principally the railroads, absorbed the domestic traffic formerly carried by sea. After the war, domestic operations were gradually restored with war built ships either bought or char- tered from the government. The warbuilt ships which found their way into the bulk trades, especially petroleum, were types which have in general proved competitive in the postwar transportation economy. Those which went to the break -bulk operators were basically standard dry -cargo ships, designed pri- marily for use in the foreign commerce of the United States and the war effort, and have turned out to be considerably less successful in recovering the pre- war traffic than have the bulk carriers. As a result, the break -bulk operators now, as in 1939, are in a considerably less favorable economic situation than is the case of the bulk operators. The deadweight tonnage in the domestic dry -cargo ship fleet has declined about 56 percent as compared with the dead- weight tonnage of tankers which has increased by some 32 percent. The prewar passenger ship fleet has vanished from both the coastwise and intercoastal trades . 1/ As used herein, the term "coastwise trade" means trade along the Atlantic, Gulf and Pacific Coasts only. In this respect, it differs from the 1939 Survey, which included under the "coastwise" heading, trade between the continental United States and the noncontiguous American territories of Hawaii, Alaska and Puerto Rico. "Intercoastal trade" means trade moving between east and west by way of the Panama Canal. The noncontiguous trades are not considered in this report because their competitive and operating problems have little relationship to those of the coastwise and intercoastal trades with which we are concerned. - 1 - Traffic figures indicate that the decline in dry-cargo tonnage has concurred primarily, if not wholly, in the break-bulk dry-cargo trades where rising costs, particularly in loading and discharging the ship, have largely eliminated the so-called "inherent" economic advantages of ocean transport. In short, the crux of the coastwise-intercoastal shipping problem is in the break -bulk dry-cargo trade today as it was before the war. The re- establishment and preservation of this segment of the domestic fleet is of vital national defense importance if the immediate needs of a future grave national emergency are to be met. It is obvious that the ready availability of ships employed in domestic operations may well be a critical factor in any initial military or civil defense operation of the United States occasioned by a future atomic or thermo -nuclear war. Further, an economically sound, low-cost domestic fleet will continue to make important contributions to the economic growth and development of the United States as a whole and a balanced national transportation system in particular. The industry's views on the situation now facing coastwise and intercoastal operators were sought at two conferences held in Washington, D. C., in early 1955, one with the dry-cargo operators and the other with the tanker operators . Subsequently, questionnaires requesting detailed in- formation were sent to the industry participants. The replies to the ques- tionnaires are summarized in the Appendix. Also reproduced verbatim therein are two documents submitted by the Intercoastal Steamship Freight Association and the Marine Exchange, Inc., respectively. These papers represent the com- posite opinions of their sponsors and authors and provide a comprehensive expression of the industry's attitude on the subjects covered. This study has attempted to avoid repetitious treatment of many problems which have been raised from time to time and it has endeavored to treat the fundamental needs of the industry and of the country on the basis of a long-term solution. "What then are the major problems to be overcome so that the coastwise- intercoastal fleet may return to its proper place in the United States trans- portation complex? Briefly stated, they involve the restoration of the "inherent economy of ocean transportation" element to break-bulk dry-cargo operations • How may this best be accomplished? At present the Maritime Adminis- tration has received a number of applications from individuals proposing a solution to this problem, within the framework of existing law, which involve the construction of new types of break-bulk ships incorporating the latest technological features designed to reduce car go -handling costs and thereby achieving the low-cost relationship once enjoyed by the break-bulk carriers. There is every reason to believe that some or all of these proposed solutions will proceed to successful, i.e., profitable, conclusion. In any event, again as in 1939, the long-range solution appears to be along the lines of private enterprise and know-how proceeding with a vigorous replacement program of their capital equipment so as to offset the higher operating costs of their present units and thus regain a truly competitive position. - 2 - I. NATIONAL DEFENSE AND ECONOMY Coastwise shipping has been of traditional significance to the economic welfare and the national security of the United States, It was one of the earliest commercial enterprises developed by American colonists and it has played a very important part in the growth and the prosperity of the population of the country, the greater portion of which is located in close proximity to deep-sea shipping. It is also of the greatest importance to national security. Twice during the present century, in World War I and again in World War II, the United States had no alternative except to requisition all of tne sea-going vessels operating in the deep-sea continental coastwise and intercoastal trades and the break -bulk ships operating in the Great Lakes trade capable of ocean- going navigation and to place these vessels at the disposal of the military forces transporting troops, equipment, and supplies to the various theaters of war. « A. Importance of Coastwise and Intercoastal Shipping in the National Defense . Vessels engaged in the United States coastwise and intercoastal trades are important to the national security in various ways. They provide the country with a substantial amount of transport capacity which is readily avail- able upon the outbreak of hostilities lor the outward movement of troops ana supplies, they provide United States shipbuilding ana ship repair yards with work, and they provide seaports with cargo, thus enabling the ports to construct port facilities which are needed in time of war. Moreover, they are a means for training additional seamen needed in time of national military emergency and are expected to be a natural laboratory for the development of roll-on, roll-off type vessels which are so important to military logistics. 1. Significance of Coastwise and Intercoastal Transport Capacity . Ships engaged in the continental United States deep-sea trades constitute a large pro- portion of the total United States merchant marine actively engaged in commercial operations. As of July 31 , 1955, there were 358 ships with a deadweight capacity of 5, 193*000 tons and these vessels constituted about 35 percent of the total number of United States-flag vessels and about U0 percent of the deadweight tonnage so employed. While all types of vessels are indispensable to a large scale military operation, the continental coastwise trades are especially significant to modern military planning since the bulk of the tanker carrying capacity registered in the United States is engaged primarily in those trades. Of the 5,575,000 dead- weight tons of American-flag tankers in active operation on July 31, 1955, U, 220, 000 tons, or 76 percent, were so operated. Modern warfare places heavy dependence upon petroleum products with which to prosecute land, sea, and air operations, and tankers must be used to transport virtually all of those com- modities wnich are moved by sea. Since only 1,235,000 deadweight tons of tanker shipping were engaged in the foreign trade, of which 702,000 tons were operated in the nearby foreign trades, 1/ it is obvious that the continental United States 1/ A substantial number of United States-flag tankers are operated in the nearby foreign trades only because they are used in the coastwise trade interchangeably • - 3 - domestic trades are of great importance to the national security as a major source of tanker carrying capacity. While the deadweight tonnage of tankers engaged in the coastwise and intercoastal trades has increased during the post-World War II period, the deadweight tonnage of the dry-cargo fleet has decreased and, as of July 31, 1955, amounted only to 97U,000 tons deadweight, or about 12 percent of the total active United States-flag dry-cargo tonnage which amounted to 8,182,000 tons. In sharp contrast, the deadweight tonnage of such vessels on June 30, 1939 comprised 2,565,000 tons deadweight out of a total of 5,395,000 tons, or U7«5 percent of the total United States dry-cargo tonnage operated at that date in all seagoing trades. Since all the pre-World War II coastwise and intercoastal dry-cargo vessels were requisitioned by the government during the war, it is obvious that the prewar dry-cargo fleet provided a relatively large amount of shipping for wartime duty. The current decline in the size of the dry-cargo segment of the American coastwise and intercoastal fleets is of such magnitude that they can contribute only a relatively small amount of dry-cargo shipping to the military for wartime duty. 2. Ready Availability of the Coastwise and Intercoastal Fleet . In addition to a national defense stockpile of laid-up merchant-type ships which can be reactivated as a war progresses, the national security is dependent upon an adequate supply of ocean transport capacity in active operation composed of various types of seagoing vessels which would be available immediately upon the outbreak of hostilities. However, it is generally recognized that the United States will have difficulty in maintaining such a merchant fleet to meet imme- diate mobilization requirements. Consequently, this national security problem must be given careful attention so that the plans of the military authorities upon the outbreak of hostilities will not be thwarted by the lack of sufficient numbers and types of deep-sea vessels. The problem of maintaining an adequate nucleus of water transport capacit in active operation becomes more serious as fewer United States troops are main- tained in foreign areas. Such a policy requires the redeployment of larger numbers of men, supplies, and equipment during the initial phases of another war and places greater significance upon the problem of maintaining an adequate number of vessels of suitable types in a state of immediate availability. Coastwise and intercoastal shipping is extremely vital in any program developed to solve this problem. As these vessels are operated along the coast of the United States, their availability to lift early military cargoes outward from the United States is much greater than that of ships laid up in reserve fleets or of a large proportion of the vessels engaged in the foreign trade which are likely to be located in foreign ports or areas far from the United States. Moreover, vessels engaged in trades close to the United States seaboard are more secure from enemy destruction or seizure than ships engagea in foreign areas located some distance away from our shores. 3. Shipyard Modernization and Expansion * Modern and efficient ship- building and ship repair industries are absolutely essential to the national security of the United wStates. Their significance in this respect was amply demonstrated during World War II when, with the exception of British and Canadian yards, the yards located in the United States were the only worthwhile source of new ships to replace the thousands of vessels destroyed, to increase the water transport capacity required by the military in its prosecution of the - k - war. and to repair damaged ships. This situation could be repeated. Therefore, it is imperative that the United States shipbuilding and ship repair industries be supplied in time of peace with as many orders as are necessary to provide an adequate nucleus of modern and efficient facilities to build and repair the ships necessary in time of war and to employ the number and type of shipyard and ship repair labor needed for rapid expansion in time of military emergency. Under normal shipbuilding conditions, the American merchant marine is the only customer for the building of seagoing commercial ships available to ship- yards located in the United States. Ships operated under foreign-flag registry are built in foreign shipyards where costs are much lower than in American ship- yards. Obviously, the size of the American merchant marine will determine the bulk of uhe business available to shipbuilding and ship repair yards located in the United States — the smaller the fleet, the less work that will be available. The yards are supported by ships engaged in both the domestic and foreign trades, but if the coastwise and intercoastal fleets do not prosper to any greater ex- tent than they have during the post-World War II period, fewer shipbuilding and ship repair yards will be in operation when needed during a national military emergency. ii. Development of Military-Type Ships . Modern warfare has greatly in- creased the need for fast vessel loading and discharge in combat areas in order to obtain maximum logistic performance and to reduce the length of time that ships and cargoes are subject to damage or destruction in port. These problems now are of intense concern to military authorities especially since modern weapons have become so singularly destructive. One of the approaches to the solution of this problem is the develop- ment of ships capable of transporting fully loaded combat and general-purpose vehicles which are moved into and out of ships under their own power and on their own wheels. Such vessel designs greatly expedite and facilitate cargo- handling time, decrease cargo -handling costs, and simplify the dispersal problem connected with cargo loading and discharging operations. Because of the competitive pressure exerted on coastwise and intercoastal freight rates by land transportation agencies and the increasing costs of water carriage, due especially to cargo handling, many operators in the United States continental seagoing trades have concluded that the traditional type of break- bulk package freighter in which cargo is handled piece by piece or on pallets is obsolete and that a new type of vessel must be constructed, incorporating the plans and designs considered by the military authorities as necessary for their requirements. Such a ship using roll-on, roll-off or lift-on, lift-off methods will decrease the time required to load and discharge cargo, minimize longshore labor costs, and decrease pilferage and cargo damage • It is of great interest to the national security of the United States that one of the transportation requirements of the military authorities in- volving ships of this novel design should coincide with the impelling need for coastwise and intercoastal operation to achieve major cost reductions by using ships of the same design. This situation establishes the coastwise and inter- coastal trades as a low-cost natural laboratory for the development of such a ship design. Moreover, it is believed that the new type of ships, if successful commercially, will provide the military authorities with a very substantial number of rapid handling cargo ships which will be invaluable additions to the national defense potential. - 5 - 5. Additional Ports and Transportation Facilities . Modern warfare is extremely destructive of physical facilities and a great deal of attention has been given to the problems resulting from this condition by military authori- ties. Transportation facilities obviously are of principal importance to a country of continental proportions such as the United States and the successful prosecution of military operations is dependent upon transportation. Conse- quently, if our major seaboard ports and inland transportation centers are attacked successfully, alternate facilities will be highly desirable. Coastwise and intercoastal shipping can play an important part in pro- viding certain of the needed alternative facilities. It not only will be in a position to provide for the movement of traffic in the domestic trades, but its existence during peacetime will provide the United States during an emer- gency with harbor and terminal facilities in the smaller port areas or in the areas a safe distance away from the major port areas. Such alternative trans- portation centers also could be used by vessels operating in the overseas trade until such time as the major ports are placed in usable condition. The devel- opment of ships operating on the roll-on, roll-off principle will decrease the need of coastwise operations having terminals in the immediate vicinity of large ports. Since the cargoes would be loaded on wheeled vehicles, the terminals for these ships could be located reasonably i'ar from congested port areas which would be vulneraole in an atomic war. 6. Supply of Shipooard Personnel . Manpower requirements are increased substantially by military demands lor a much larger fleet of naval and merchant vessels. This situation was experienced during World Y/ar II and again during the 1950-1952 period when the Korean emergency and the European coal shortage required the United States to reactivate several hundred vessels from the re- serve fleet. This acute problem was overcome only with difficulty and the United States Coast Guard was required to issue waivers permitting many seamen to sail in billets which called for higher ratings and licenses than they held. Nevertheless, a number of ships were delayed for lack of adequate manpower. The coastwise and intercoastal trades employ a substantial number of seamen. In addition, they have been responsible for the training of a large number of seamen who have left the sea for employment on shore, many of whom can be induced to return during a national emergency to man the greatly expanded naval and merchant fleets. In view of the acute difficulty of manning vessels during emergencies, it is apparent that a larger continental domestic trade fleet will minimize the problem of manning vessels when such conditions arise. B. Importance of Coastwise and Intercoastal Shipping to the National Economy . The coastwise and intercoastal shipping industry has played an impor- tant part in developing the economy of the United States. It is an integral part of our national transportation system which, together with other trans- portation agencies, has been built up over a long period of time. As a result of its close relationship to our over-all transportation system, its relationships to other transportation agencies are both complementary and competitive. The industry is complementary to the degree that it possesses a decisive cost advan- tage over other types of transportation agencies. It is competitive when its cost advantages are not so pronounced and it must compete with other types of carriers for the traffic. - 6 - As is characteristic of a dynamic economic society, material changes occur from time to time which have a distinct bearing upon the economic im- portance of any industry. Coastwise and intercoastal shipping is no exception to this rule as substantial changes have taken place in the volume and the composition of individual items of traffic which it has moved. However, it must not be assumed that because of these changes the continental domestic water trade, as a mode of transport, is no longer significant to the economy of the United States. Furthermore, it does not follow that such changes, particularly those of an adverse nature, are permanent. 1. Economy of Transportation . The current importance of coastwise and intercoastal transportation to the economy of the United States is clearly evi- dent in the transportation of goods and commodities in which water carriers possess a definite cost advantage over competitive land transportation carriers. Such a condition exists in the movement of bulk commodities. With the exception of bituminous coal shipments moving along the Atlantic coast, which have de- creased because of competition with other types of fuel, bulk commodities such as petroleum, petroleum products, sulphur, and phosphate rock, are moving in the domestic fleet in record volume. As a consequence, many industrial or- ganizations, such as oil refineries and fertilizer plants, have been located at the seaboard to take full advantage of low-cost water transportation. 2. Location of Industry . A number of elements are responsible for the location of industries all of which are relative to each other. Transportation rates are one of those elements, but they are not always the controlling, factor,, Other elements such as power costs, or low wage rates, or the presence of an adequate supply of skilled labor may be more important. However, there is one group of industries whose location is strongly influenced by transportation costs — the industries whose location depends upon the relationship between rates on raw materials and rates on finished products manufactured from those raw materials. To be more specific, if rates on raw materials are high in re- lation to the rates on the finished product certain industries will tend to locate near the source of their raw materials. Conversely, if raw material rates are low in relation to the rates on finished products, industries will tend to locate near the market for their products. As a result, the low rates charged by domestic water carriers have been significant in the location of certain industries near their markets such as oil refining and fertilizer manufacturing • 3. Extension of Market Areas . Low transportation rates are an impor- tant factor in determining the size of the market available to a particular concern. Ihile this condition is true of high -valued goods to a certain degree, it is of more direct importance in the marketing of low-valued commodities which cannot pay a high transportation rate. In this connection joint rail and water rates are significant in widening the market area. As a result of water trans- portation, certain items can be moved for very long distances. For example, iron and steel products still move in substantial volume from the East Coast to the West Coast of the United States and lumber moves in the opposite direction. Common carriers operating between United States Atlantic Coast ports maintain joint through rates applicable via all-water or rail-and-water routes on traffic moving between Eastern territory and Southern and Southwestern territories that generally are differentially lower than corresponding rates applicable via all- rail routes. The water rate structure on commodities moving between Atlantic and Gulf ports is somewhat similar to that existing in the Atlantic coastwise trade although the "spread" between the joint rates and the all-rail rates for - 7 - the Atlantic-Gulf routes is somewhat greater than the differentials maintained on the Atlantic Seaboard. Such lower rates are helpful in providing wider markets, U. Port Traffic . While a large portion of the traffic moving through ports of the United States is classed as foreign trade, a large amount of traffic also originates at United States ports and is destined to other United States ports. This situation prevails not only at the smaller ports, but also at the larger ports including New York, Boston, Philadelphia, Baltimore, New Orleans, Los Angeles, San Francisco, Seattle and others. Coastwise and intercoastal trade is therefore of decided interest to many ports of the United States and an impor- tant source in increasing the amount of traffic moving over their port facilities and in providing employment for many of their citizens . - 8 - II. STRENGTH AND WEAKNESS OF THE DOMESTIC MERCHANT FLEET The coastwise and intercoastal trades, taken as a whole, cannot be considered a sick industry. Total traffic, due largely to the movement of petroleum, has enjoyed a substantial, long-term growth and is currently at its highest levels. The improvement in the volume of coastwise and intercoastal traffic since World War II, however, has not been uniform as to type. Passenger^ ship transportation as such has been abandoned and the volume of package freight has decreased sharply. On the other hand, bulk cargo shipments excluding coal, both dry and tanker, have increased in volume. Bulk cargoes are principally indus trial or proprietary in nature while package freight operations are largely of the common carrier type. Vessels transporting bulk cargoes have been able to meet the competition of inland carriers in part by the adoption of technological improvements in loading and discharg- ing methods and equipment, but the break-bulk trades have not been able to obtain comparable results. An analysis of the size and composition of the coastwise and inter- coastal fleet, and of its traffic patterns, is given below: A. Size of the Coastwise and Intercoastal Fleet The changes that have occurred in the number and deadweight capacity of ships employed in the coastwise and intercoastal trades since World War II are shown in Table 1. Significant highlights are as follows: Between 1939 and 195U, the total number of ships of all types declined from 675 to 377, or Uh percent. The decline in total deadweight tonnage, however, amounted to only about eight percent, or from 5,833,000 to 5,377,000 tons. During this same period, there was a slight reduction in the number of tankers from 297 to 273, but the deadweight tonnage of this category increased from 3,268,000 to U,309,000 tons, or 32 percent. The dry-cargo ships in these trades decreased both numerically and in aggregate tonnage. In 1939, there were 350 ships in the dry-cargo group, whereas in,195U this number had declined to 10U ships, a reduction of 70 percent. Deadweight tonnage of dry- cargo ships decreased from 2,UUU,000 to 1,067,000 tons, or 56 percent • The average deadweight tonnage per ship, both dry cargo and tanker 5 has increased substantially. This is due primarily to the fact that the war-built ships that now make up the greater part of the fleet are larger than their prewar counterparts. In the case of the tankers, part of the increase in average deadweight is due to the postwar construction of supertankers with deadweight ranging from around 18,700 to 32,500 tons. - 9 - TABLE i UNITED STATES-FLAG OCEAN-GOING SHIPS ACTIVELY EMPLOYED IN THE COASTWISE AND INTERCOASTAL TRADES OF THE UNITED STATES BY NUMBER, DEADWEIGHT TONS AND GENERAL VESSEL TYPE BY YEARS, 1933-1939 AND 19U8-195U (Thousand Gross Tons and Over) Combination Total Ships Dry-cargo Ships Tankers No. Total No. Total No. Total Average No. Total Average Year -: c- d.w.t. d.w.t. d.w.t. d.w.t. d.w.t. d.W.t. 599 (000) U,6lU 55 (000) 229 325 (000) 2,198 219 (000) 2,186 1933 6,763 9,982 193U 556 a,uo8 U8 19U 266 1,769 6,651 2U2 2, ma 10,087 1935 618 U,880 U5 20U 329 2,231 6,781 2UU 2,UU3 10 a 012 1936 68U 5,Ul7 U3 216 378 2,5U9 6,7U3 263 2,650 10,076 1937 698 5,939 33 183 372 2,5Wi 6,839 293 3,210 10,956 1938 582 U,983 25 93 299 2,062 6,896 258 2,825 10,950 1939 675 5,833 28 120 350 2,hhh 6,983 297 3,268 11,003 7-yr, Av. 630 5,153 - - 331 2,257 6,808 259 2,660 10,U38 19U8 370 U,829 99 958 9,677 271 3,871 U*,28U 19U9 U27 5,628 136 1,30U 9,588 291 U,323 1U,856 1950 U01 5,271 135 1,328 9,837 266 3,9U2 1U,820 1951 U13 5,595 121 1,159 9,573 292 U,l436 15,192 1952 U13 5,751 111 1,128 10,162 302 U,622 15,305 1953 371 5,260 102 1,012 9,922 269 U,2U8 15,792 195U 377 5,377 10U 1,067 10,260 273 U,309 l5,78Ii 7-yr. Av. 396 5,337 - - 115 1,137 9,858 281 U,250 15,171 *■ As of June 30 for years 1933-39, inclusive, and as of December 31 thereafter. - 10 - None of the 28 combination ships in the 1939 coastwise and intercoastal fleet were replaced after World War n. Tables 2 and 3 show that the postwar coastwise and intercoastal fleet no longer comprises the major part of the U. S. merchant marine, as it did before World War II. Before the war (1933-1939 average), 5U percent of the ships in active service were in the coastwise and intercoastal trades, as opposed to k6 percent in the offshore trades. Since the war (19U8-195U average), only 35 percent have been engaged in the coastwise and intercoastal trades, as opposed to 65 percent in foreign trade. In terms of deadweight tonnage, lj.0 percent of the prewar seven-year average was engaged in foreign trade and 60 percent in coastwise and inter- coastal trades. The postwar average shows an exactly opposite distribution, namely, 60 percent foreign and I4O percent domestic. Military planners have evolved a formula for measuring the relative lift capabilities of the various types of ships in the merchant fleet in terms not only of numbers of ships and deadweight tonnage, but also applying the factors of speed and port time. By this formula, the percentage re- lationship of any given type of ship or of a group of ships of various types can be established in terms of "notional" ships (Liberty in dry cargo and T2 in tanker). While any such broad formula may not be strictly accurate when used in measuring ships in a particular service because of variations in length of voyage and proportion of in-port time, the "notional" ship concept does provide a better measure of lift capabilities, especially from a defense point of view, than does a straight comparison of either numbers of ships or deadweight tonnages. In terms of "notional" ships, the total coastwise, intercoastal and noncontiguous V fleet has increased from 521 ships in 1938 to 539 in 195U. Within this total, however, the dry-cargo segment has declined from 318 "notional" ships in 1938 to 161 in 1951+, or a reduction of about 50 percent. The tanker segment has grown from 203 notional ships in 1938 to 378 in 195U, an increase of 86 percent. B. Speed and Age of Ships in the Coastwise and Intercoastal Trades A comparison between prewar and postwar ships in the coastwise and intercoastal trades in terms of age and speed is given in Table k» In brief summary, this table reflects the fact, first, that the war-built tankers had somewhat higher speeds than their prewar counterparts, while the average speed of the freighters was unchanged; and second, that the age of the ships in these trades has been determined generally by the period during which large numbers of ships were constructed for war purposes. Between the two World Wars, the coastwise and intercoastal fleet consisted mainly of ships built during World War I. Since 19U5, the fleet has consisted primarily of l/ As no information is available on the identification of tankers in the noncontiguous trades in 1938, this computation necessarily includes all ships, dry cargo as well as tanker, in these trades. - 11 - TABLE 2 TOTAL NUMBER OF UNITED STATES-FLAG OCEAN-GOING MERCHANT SHIPS ACTIVELY EMPLOYED IN THE FOREIGN, COASTWISE AND INTERCOASTAL TRADES OF THE UNITED STATES BY YEARS, 1933-1939 AND 19U3-195U* (Thousand Gross Tons and Over) lea] Total 1/ 1933 997 193 k 992 1935 1,0U2 1936 1,10)4 1937 1,116 1938 9U5 1939 983 Average 1,025 Percent 100 19U8 1,276 I9h9 1,116 1950 981 1.951 1,538 1952 1,032 ; 959 195k 967 Average .-, f 1 -■ i + Percent 100 Coastwise Foreign and Intercoastal Trade Trades 398 599 lii6 556 U2U 618 1+20 68I4 J4I8 698 363 582 308 675 39$ 630 U6 514 906 370 689 1|27 580 1*01 1,125 103 619 103 588 371 590 377 728 396 65 35 *- As of June 30 for years 1933-39, inclusive, and as of December 31 thereafter* 1/ Noncontiguous excluded. TABLE 3 TOTAL DEADWEIGHT TONNAGE OF UNITED STATES-FLAG OCEAN-GOING MERCHANT EPS ACTIVELY. EMPLOYED IN THE FOREIGN, COASTWISE AND INTERCOASTAL TRADES OF THE UNITED STATES BY YEARS, 1933-1939 AND 19U8-1951** (Thousand Gross Tons and. Over) Year Total 1/ 1933 19 j h 1935 1936 1937 7/968 8,152 8,526 9,028 9,511 1936 1939 8,271 8,519 Average Percent 8,563 100 19148 19k9 1950 1951 1952 1)4,815 13,386 11,875 17,850 12,628 1953 195U 11,8UU 12,117 Average Percent 13,502 100 Coastwise Foreign and Intercoastal Trade Traces 3,351* 3,7kh 3 , 61*6 3,611 3,572 U,6la 14,1*08 14,880 5,U17 5,939 3,288 2,686 1*,983 5,833 3,U1U 5,153 60 9,986 7,758 6,60U 12,255 6,877 U, 829 5,628 5,271 ^»S9$ 5,751 6,581* 6,7UO 5,260 5,377 8,115 60 5,387 1*0 * As of June 30 for years 1933-39, inclusive , and as of December 31 thereafter, 1/ Noncontiguous excluded. 13 TABLE h UNITED STATES OCEAN-GOING MERCHANT SHIPS ACTIVELY EMPLOYED IN THE COASTWISE AND INTERCOASTAL TRADES OF THE UNITED STATES BY DESIGN TYPE AND PRINCIPAL CHARACTERISTICS (Thousand Gross Tons and Over) Design Type No. of Shi ps 193^ 19 EC2-S-C1 EC2-S-AW1 ZET1-S-G3 VC2-S-AI2 VC2-S-AP3 Cl-B C2-S-E1 C2-S-AJ1 C2F C3-S-A2 cU-s-aU cU-s-b5 Cl-M-AVl C1-MT-BU1 N3-M-A1 R1-S-DH1 E.F.C.* 231 Built under 1920 Act* 7 Built under 1928 Act* 2 Private construction* 131 Foreign construction* 11 Former L.S.T.* Total dry cargo Average dry cargo Deadweight Tons* 193B 195IT Dry Cargo 33 19 2 1 8 8 1 10 382 10U 10,800 10,600 10,800 10,850 10,850 10,700 9,10*1 12,515 13,U98 Ase 1938 195U 10 9 10 9 9 10 12 10 8 Speed in Knots 1938 195U 11 11 11 15 17 15| 16* 17 2 1 - 3,787 3,900 - 8 10 - 12 8 7 2 k 7,115 2,680 1,250 6,U8U 11,200 11,800 19 13 6 22 35 22 9 11 16 21 12 10 16 16 2 2 5,310 U,850 It, 100 2U 15 10 12 11 10 6,735 . 10,l6ii 20 12 12 12 * Average of present actual— different from design type by reason of post- construction changes. - lit - Table U — Continued. (United States Ocean-Going Merchant Ships Actively Employed in the Coastwise and Intercoastal Trades of the United States by Design Type and Principal Characteristics — Thousand Gross Tons and Over) Design Type No. of Ships 1938 19& Deadweight Tons* - 19J5 195F" Ase 193o 1951; Speed in Knots 1935 195U Tankers T2-or T2A T2-SE-A1 T3-S-A1 T3-S-BF1 T3-S-3Z1 T3-M-AZ1 ZET1-S-C3 Cl-A (converted) Tl-M-Al T1-M-A2 T1-M-BT1 T1-M-BT2 Super tankers h 139 16 U 1 1 3 1 1 5 2 2 3 15,850 16,765 16,015 18,500 23,000 17,575 10,800 5,300 1,1483 1,U50 U,130 U,205 30,200 Total tankers Average tankers 320 273 12 10 10 10 9 11 11 10 11 10 9 9 2 E.F.C.* 93 1 10,522 10,900 19 3U 10 Built under 1928 Act* 9 3 1,U65 Hi, 700 8 2U 11 Private construction* 212 85 11,913 15,610 15 11 11 Foreign construction* 6 1 11,089 lli,800 2k 18 10 Former L.S.T.* 1 3,900 11 11,200 15,82U 16 11 11 16J Hit I5f 16| 16| ia 11 Hi 10 10 10 10 17 11 10 ih ni 10 Hi Total dry cargo and tankers 702 377 Average dry cargo and tankers 8,967 1U,260 19 11 12 lU * Average of present actual— different from design type by reason of post- construction changes. -15 - ships built during World War II, While the second World War ended is k$, delivery of ships continued into 191*6. Thus, the fleet's average age of 12 years, as of December 31. 195U, approximately equals the number of years since the midpoint of shipbuilding during the last war* G. Nature of the Transportation Serv ice Offered The coastwise and intercoastal shipping industry is comprised of some seventy operators. Although a few companies have both dry-cargo ships and tankers, the companies are about equally divided between dry-cargo ship operators and tankship operators. The tanker companies, however, operate much the greater number of ships— 273 tankers versus 10u dry-cargo ships as of December 31, 195U« Nearly all tankers regularly in coastwise and intercoastal service are owned by the major oil producing and marketing companies or by inde- pendent owners chartering tonnage to the majors, A few transport firms hold themselves out to render such transportation services on a contract basis. There are no common carriers. Section 303(d) of the Interstate Commerce Act provides that, "Nothing in this part shall apply to the transportation by water of liquid cargo In bulk in tank vessels •...," In other words, the tanker portion of the coastwise and intercoastal transportation business is essentially a private industry carrying its own goods and is exempt from the regulation of the Interstate Commerce Commission. As opposed to the tanker operation, the dry-cargo section of the coastwise and Intercoastal business is mostly one of common carriage— about one-half of the companies .and about two-thirds of the ships being so engaged. The other half of the dry-cargo operators have about one-third of the ships, a few are in contract-carrier service and the remainder are in "exempt" service. Dry-cargo carriers are exempt from I.C.C. regulation if they carry no more than three commodities at a time. Such commodities are mostly coal, sulfur and fertilizer materials. In summary, in coastwise and intercoastal shipping virtually all of the tankers and about one-third of the dry-cargo ships are in other than common-carrier ser ce, •*■• f,L e ^g£._, an 5v...^°stwar ? i\affic. Except during World War II, when virtually all of the ships in domestic service were requisitioned by the Government for use elsewhere in the national defense effort, the total coast- wise and intercoastal traffic has gradually increased in volume. Following World War I the total traffic increased until by 1939 it totalled 13 5> million tons© tJ For each of the years 1950-1953 the total has been around 155 million tons s For these and other tonnage figures, see Table 5; for per- centage distribution figures, see Table 6, i"7~H0X"Tal : ^^ in tons of 2,000 pounds,;. (2) exclude carryings in ships of less than 1,000 gross tonsj and (3) exclude non- contiguous trade, - 16 - 2, Thejjjscline of Dry~Cargo Carria ge, In the coastvri.se and inter- coastal tracfej carr^ngs™Tn~d : ry'-»ca'rgo vessels have not kept pace with the traffic in tankers. Table 5» Cargo Carried by Dry-cargo Ships and by Tank Ships in Coastwise ancTliitercoastal Commerce and in the Foreign Trade of the U, S, During 1939 and 1953— -in Millions of Tons of 2,000 Pounds Area of Trade Total 1951 Dry Cargo 1939 195: Tanker I9J9 *nr? Coastwise and Intercoaste^ Foreign Trade of the U, S, (Vessels of all flags) Tit 89 155 170 U2 55 18 97 93 3U 137 73 Table 6, Cargo Carried by Dry-cargo Ships and by Tank Ships in Coastwise and Intercoastal Commerce and in the Foreign Trade of the If. S, Daring 1939 and 1953— in Percentage Terms 1939 1953 Total Dry-cargo Tanker Total Dry-car gc Tanker Coastwi.se and Intercoastal Foreign Trade of the U, S. (Vessels of all flags) 100 100 31 62 69 38 100 100 12 57 86 U3 From a figure of forty-two million tons in 1939, dry-cargo coastwise and intercoastal carryings continually declined, reaching eighteen million tons in 1953* Tanker traffic in this same segment of trade increased from 93 to 137 million tons in 1953, The distribution in 1939 was 31 and 69 per- cent dry-cargo traffic and tanker traffic, respectively. By 1953, the decline in dry-cargo carryings plus the increase in tanker traffic changed the distribution figures to 12 percent dry-cargo and 88 percent tanker. Attention should be directed to the decided increase in the trans- portation of chemicals and related products by liquid -cargo ships. The movement of this commodity group, comprised mainly of coal tar and industrial chemicals in tanker ships, gradually increased from 650,U7ii tons in 1950 to 1,532,92? in 1953. The dry-cargo transportation of chemicals and related products, consisting largely of phosphate fertilizer materials, amounted to slightly over two million tons annually during the period 1950-1953* 3* The Decline of Cargo Carried by Common Carriers. There follows a breakdown of cargo traffic carried in 1953 in the coastwise and inter- coastal. trades by each type of water-carrier service. - 1Y - Cargo tons carried in coastwise and intercoastal trade l5U,92k,l|8U In tank ships 136,561,153 In dry-cargo ships 18,363,331 By industrial or private carriers 11,792,272 By common carriers 5,805,652 which are in domestic service only ... 5,U87,791 which are in foreign and domestic service . 317,861 By irregular carriers 765, H07 On the basis of the cargo breakdown, the following points can be made: a. All of the cargo carried by common carriers was dry cargo, b. The 5,805,652 tons carried by common carrier was 32 percent of the total of dry cargo carried. c. Approximately one-half of the dry-cargo operators are in common- carrier service, own two-thirds of the dry-cargo fleet and carry one-third of the total domestic dry-cargo traffic. The summations to follow of the principal commodity items transported within each domestic trade segment are for calendar year 1953 and have been abstracted in the Maritime Administration from data gathered by the Department of the Army, Corps of Engineers. The data for 1937 appeared in Appendix U of "Economic Survey of Coastwise and Intercoastal Shipping," a publication issued in 1939 by the United States Maritime Commission. h» Atlantic Coastwise . The dry-cargo Atlantic coastwise trade in 1953 totaled 7,515,217 tons, over 93 percent of which consisted of bulk movements of coal. Of the remaining tonnage, the commodity group of wood and paper con- tributed less than three percent, and metals and manufactures less than two percent. General cargo dropped from approximately five million tons in 1937 to less than U00,000 tons in 1953. The bulk coal trade, which comprised approximately 68 percent of the 1937 traffic, decreased from 17 million to 7 million tons over the same period. Since 1937, the movement of petroleum and other tanker commodities be- tween ports along the Atlantic coast has doubled. The decline in coal shipments and the rise in tanker traffic may be attributed primarily to the substitution of oil for coal as household and industrial fuel. Presumably the land carriers absorbed the greater part of the U.6 million tons of prewar general cargo traffic lost by the deepwater - 18 - Atlantic coastal lines, but there are strong indications that a not incon- siderable portion of this traffic has been taken over by the barge lines and shallow-draft self-propelled vessels operating on intracoastal waterways. It is impossible to measure with any degree of accuracy the amount of intracoastal waterway traffic that can be considered directly competitive with the offshore coastwise trade. Some of this traffic is clearly noncompetitive, in that it begins or ends at points that cannot be served by coastwise shipping, for either physical or economic reasons. The annual reports of the Corps of Engineers, however, give a breakdown of intracoastal waterway traffic figures that segregates through traffic from traffic originating or terminat- ing within each segment of waterway for which data are reported. It is a fair assumption that a large part of the through traffic on an important segment of waterway is directly competitive with the long-haul coastwise trade. One such segment is the Atlantic Intracoastal Waterway between Norfolk, Va. and the South Carolina State line. The Corps of Engineers Report for 1953 shows that in that year the through traffic on this section of the waterway amounted to l,2lj7,771 short tons, exclusive of some 278,000 tons of inbound, outbound and local traffic in the area Of the 1,21*7,771 tons of through traffic, about 299,000 tons consisted of petroleum products. The remaining 9h9,000 tons could all be classed as general dry cargo. The greater part of this, about 700,000 tons, consisted of pulpwood and paper products, the pulpwood moving south and the products north. The balance of 2l±9,000 tons was made up of a variety of products including sub- stantial amounts of soybeans, salt, sand and gravel, steel mill products, industrial and miscellaneous chemicals, and phosphate fertilizer materials. By this measurement, it appears that intracoastal waterway traffic in general dry cargo is somewhat more than twice as large as the deepwater Atlantic coastwise traffic. AH of the through traffic on this section of the waterway may not be directly competitive, but some of it is; and it must be remembered that there are other parts of the waterway further north, such as the run from Camden or Wilmington down the Delaware, through the canal and via the Chesapeake to Baltimore or Norfolk, which are known to carry other traffic in direct competition with the coastwise trade. In any event, it is clear that the intracoastal waterway general dry-cargo business on the east coast is con- siderably larger than the coastwise business. There is evidence also that intracoastal waterway traffic has increased considerably since World War II. Without a breakdown segregating through traffic, the Corps of Engineers reports that traffic of all kinds on the Nor- folk-North Carolina stretch of the waterway increased from 873,063 tons in 19U7 to 1,525,561 tons in 1953. 5. Atlantic-Gulf . The coastwise commerce moving between the Atlantic coast and Gulf coast has probably maintained greater consistency over a period of years than have other segments of coastwise trade. The only downward trend has been a slight tapering off in tanker carryings from the 1951 figure of 87. h million tons to 8U.0 million tons in 1953. Since the 1953 tonnage is still greater than that of 1950 and at least U0 percent higher than that of 1937, it seems reasonable to conclude that the 1953 decrease in petroleum products was largely due to the increased importation of fuel and crude oils during the past few years. - 19 - Sulfur and phosphate fertilizer materials amounted to nearly 59 percent of the 1|,U99,138 dry-cargo tons transported in 1953. In 1937, the Atlantic- Gulf coastwise dry-cargo carryings of these two bulk commodities comprised about UO percent of the U»l million tons carried. Although the general cargo content of this trade remains as diversified as it was during the prewar years, the volume has been reduced considerably by the elimination of a few specific items from water-borne commerce. The largest single item to disappear is that of copper and copper products, amounting to 283,019 tons in 1937; a substantial amount of flour and meal (116,327 tons) was transported from the Gulf coast to the Atlantic coast in 1937, and this item also does not appe ar in 1953. In the instance of copper, queries were made (a) to determine if similar tonnages had been diverted to land transportation, or (b) to establish that the commodity was no longer available for transportation between Gulf and Atlantic areas. This movement has been captured by rail transportation; the same may have occurred in the case of flour and meal. In contrast to the disappearance of some commodities from this area of intercoastal trade, a study of operations shows some encouraging trends among the numerous commodities remaining in the trade. The 1953 carryings of rice, synthetic rubbers and industrial chemicals exceeded those before the war. A percentage breakdown of the principal commodities transported during 1953 in dry-cargo ships, in order of tonnage importance, lists: sulfur, 30.8 percent; phosphate fertilizer materials, 28 percent; industrial chemicals, 9»3 per- cent; paper, related products, and manufactures, 5»9 percent; rolled and fin- ished steel mill products, 3.1 percent; and all other commodities, 22»9 per- cent. Four of these commodity groups reached their maximum figures for the postwar period; namely, animals and animal products; vegetable products, inedible, except fibres and woods; wood and paper; and machinery and vehicles. 6. Gulf Coastwise . From the available prewar statistics portraying the water-borne commerce confined to the domestic ports on the Gulf of Mexico, there appear to have been no extensive operations at that time in dry-cargo ships. In 1937, the deep-sea commodity movement totaled less than a million tons after excluding approximately ten million tons of petroleum products presumably carried in tanker ships. About one-half of the other-than- petroleum tonnage consisted of bulk movements of limestone and shale, sulfur, phosphate materials, and miscellaneous nonraetallic minerals. The remaining traffic of less than 500,000 tons was comprised of unclassified merchandise and other general cargo commodities. Tanker tonnage during the period 1950-1953 continued to be near ten million tons annually. By 1950 the carryings of dry-cargo ships had dropped to 518, 95U tons, 8U percent of which consisted of phosphate fertilizer materials and sulfur. By 1953 the Gulf coastwise dry-cargo trade reached a low of 252,770 tons. In view of the fact that 90 percent of this amount was made up of phosphate fertilizer materials (85.7$) and sulfur (H.6$), little tonnage remained to ships seeking general cargo. The declining trend of general cargo traffic is contrary to the in- dustrial and economic expansion of the entire Gulf coast area. As in the Atlantic coastwise trade, the amount of traffic carried on the Gulf intra- coastal waterway is impressive as compared to the deepwater coastwise traffic. On the Gulf coast, however, it is even more difficult to measure or identify - 20 - amounts or areas of direct competition between the two channels of transpor- tation. In other words, a major factor in the location of new industrial plants along the Gulf intracoastal waterway was obviously the economy of trans- portation via waterway direct to and from the immediate vicinity of the plants. Most of the new traffic generated by this development was never carried by deepwater coastwise ships, and cannot be considered competitive. The water- way service in this area is, in effect, a door-to-door service somewhat simi- lar to the inland service provided by railroads and trucks, and for the most part it is simply not available to, or suitable for, the coastwise trade. The volume of deepwater Gulf coastwise dry-cargo traffic was never large. It is a fair assumption, however, that some part of the decline in this traffic is due to absorption by the far larger and expanding intracoastal waterway system. As an indication of the volume of traffic carried on the Gulf intra- coastal waterway, the Corps of Engineers Report for 1953 shows that vessel traffic (everything but rafted logs) on the Lake Charles Deepwater Channel, Louisiana, increased from 8.5 million tons in 19U7 to 16.2 million tons in 1953. The 1953 total was almost 100 percent through traffic. Crude and refined petroleum products accounted for about 11.7 million tons. The remain- ing U.5 million tons may be considered dry cargo, with exceptions for certain industrial chemicals and coal-tar products, totaling approximately one million tons, some part of which was carried in liquid bulk. The other major items were 1.2 million tons of crude sea shells, another 1.2 million tons of iron and steel scrap and metal products, U30,000 tons of sulfur and 235,000 tons of wheat. 7. Pacific Coastwise . The Pacific coastwise domestic trade has generally followed the pattern of other segments of the coastwise shipping industry. Annual increases in tanker carryings, predominantly of petroleum origin, occurred in each of the years 1950-1953. Liquid cargo carried by tankers during 1953 amounted to 28,9U9,209 tons, which appears to be the max- imum tonnage recorded for this type of transportation. An estimate of liquid cargoes hauled on the Pacific coast during 1937 does not exceed one-half of the 1953 tonnage. The dry-cargo tonnage in 1937 has been estimated at 3.7 million tons as compared with an approximate 1.5 million ton annual average for the four postwar years for which data are presently available. The dry-cargo carry- ings in 1953 totaled 1,537,322 tons; of this amount about 95 percent was made up by four bulk-type commodities: namely, lumber 53 «9 percent; build- ing cement 21.3 percent; salt 12.1 percent; and standard newsprint paper 7.6 percent. The present situation bears resemblance to that of the Gulf trade in the limited quantity of general cargo freight available for berth service transportation of such commodities as grains, flour, canned goods, iron and steel manufactures, and general merchandise. These commodities, which had provided substantial tonnage for the prewar trade, virtually do not appear in recent data. 8. Intercoastal (via Panama Canal ). A means of direct intercoastal domestic water-borne commerce was made possible by the completion in 191U of the Panama Canal and the resulting elimination of cargo trans-shipments - 21 - across the Isthmus by rail. The resulting low cost of water transportation quickly attracted the marketable products of the widely-separated coastal areas. Prior to World War II, the volume of trade had grown to an approxi- mate level of 11 million tons in 192li and then varied between 6.I4. and 8.9 million tons until its suspension during the war. The prewar expansion of the petroleum industry in the areas east of the Panama Canal caused a major portion of the decline in eastbound canal tonnage. Postwar tanker carryings eastbound almost ceased, except in 1950 when an un- usually large surplus of specific petroleum oils was moved to the Atlantic coast. The gradual increase in westbound tanker commodity tonnages, which include chemicals and related products, discloses an encouraging four-year trend. It is not expected, however, that the intercoastal tanker traffic will again be an important proportion of the trade, unless a significant change in the present sources of petroleum products occurs. Of greatest importance to the intercoastal trade are the services offered by the dry-cargo carriers. In 1953, approximately one-fourth of the domestic coastwise and intercoastal dry-cargo tonnage was in this intercoastal service. The data contained in Table 7 show tonnage figures for commodity groups for the years 1939, 19U9 and 1953. The total figure for 1953 is about four and one-half million tons — a decline of 38 percent from 1939 but an in- crease of 18 percent over 19U9. Lumber continues to be the most important commodity group eastbound. Only one commodity group showed an increase in traffic, 1939 to 1953. This increase, both eastbound and westbound, in machinery and vehicles, was very slight, both in total and in the extent of the increase. Study of itemized commodities indicates a trend toward fewer items. In this respect, the intercoastal trade is slowly assuming a similarity to the bulk-type transportation that has become dominant in the coastwise seg- ments of domestic deep-sea commerce. For the year 1953 the commodity groups of wood and paper, and vege- table food products and beverages comprised over 93 percent of the 2,559,OU5 tons transported eastbound . Further, the seven principal eastbound items in order of volume are contained within the above two groups and represent approximately 90 percent of the total. These items and their percentages of the total eastbound movement are as follows: lumber and shingles, 59.8; vegetables and preparations, canned, 9.5; fruits and preparations, canned, 9.1; wood pulp, 3.3; groceries and food, 2.5; fruits and preparations, dried, 2.3; and paper and manufactures, 1.9. Somewhat greater diversity exists in the westbound trade. In 1953, six of the ten commodity groups made up approximately 93 percent of the 1,999,839 tons moving westbound. Although the total eastbound tonnage is greater than that moving west- bound in the intercoastal services, berth service carryings of the westbound segment exceed those carried eastbound due to the nature of the commodities carried. ■12 CO O, 3 o M o >> t p •H TS o -^"X ■§ fr\ CO § in •73 o O o rH o >> ?2 fX, £> c 3 O O TJ o O cd ■Kf •» m o cv E-« rH Cm 3 O P en to CO O c! cO rH o O E-« o CO & 3 O p CD C r* CO M TJ o 3 cd be T3 to (a CD 3 o o % g >; O U Q • IT- CD r-i ,£> cd En T3 O -P CO T3 O ^1 P CO CD 3 PA in en in O r-i en o o •H P 05 o •H Cm •H CO CO cd rH O a o m o >> p •H o o o o in in cv S? 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Analysis of Operating Costs of Selected Dry-Cargo Operators Examination of the operating revenue and expense statements of dry- cargo shipping companies in the coastwise and intercoastal trades reveals a very mixed pattern. Some companies engage in such activities as terminal, towage and lighterage, or stevedoring operations, as well as carrying freight. Some operate ships chartered from others, and some charter their ships out. Other factors affecting the operating formula include the types of ships used, the cargo consist, the routes served, the extent of participation in offshore trades, and the proprietary relationships of the operators. The dissimilarity between operations limits the areas in which general or significant statistical comparisons can be made. With the qualification that all measurements are merely broad indicators of a general situation, however, some information pertinent to the aims of this study can be obtained from a selective analysis of certain key elements of income and expense. The analysis that follows is based on operating data submitted to the Interstate Commerce Commission by coastwise and intercoastal shipping compa- nies subject to regulation. While the data are open to public inspection and are, in part, published in I.C.C. quarterly and annual reports, the identification of individual companies is avoided here. Without full expla- nation of all the circumstances causing variations between operations, direct comparisons would be subject to possible misinterpretation. There is an interesting general similarity of pattern in the relation- ships between certain key factors — labor expenses and freight revenue — among operators known to be engaged in carrying break-bulk dry cargo as an im- portant part of their business. Labor expense includes shipboard wages and cargo expense and, as used here, wages include payroll taxes and welfare contributions. In the following tabulation, nine operators are listed in the order of their total labor expense ratios to freight revenue: 1953 Labor Expenses in Cents per Dollar of Freight Revenue Nine Selected Carriers of Break-Bulk Dry Cargo in the Coastwise and Intercoastal Trades Primary Type of Operation Wages Cargo Expense Total 1. Intercoastal lii.6 57.9 72.5 2. Coastwise 18.7 U8.8 67.5 3. Intercoastal 22.8 1*3.6 66.U U. Intercoastal 16.9 U8.3 65.2 5. Mainly Noncontiguous 18.8 hh.h 63.2 6. Intercoastal 18.8 U2.9 61.7 7. Intercoastal 1U.7 U3.2 57.9 8. Intercoastal 15.U 3U.1 U9.5 9. Mainly Foreign 16.9 25.1 U2.0 - 2k - The general characteristics of the above pattern are a narrow range of variation in wages and a much wider range of variation in cargo expense. Except for one operator with a wage cost of 22,8 cents per freight- revenue dollar, the range in wages is between Hu6 and 18.8 cents, or approximately four cents. The range in cargo expense, however, is from 25.1 to 57.9 cents, or almost 33 cents. It should be noted that the measurement of wages in terms of freight revenue produces doubtful results for purposes of comparison to the extent that wages are affected by chartering operations. If a company obtains freight revenue from the operation of time or voyage- chartered ships, the wages are paid by the owner of the ship and are hidden in the operating statement under the heading of charter expense. The owner, however, reports wages not only for the ships he operates himself, but also for the ships he has chartered to others. In either case, the relationship of wages to freight revenue is distorted. One intercoastal operator, for example, not included in the tabulation, operated entirely with chartered ships in 1953, and reported a wage bill of zero. Seven of the nine operators in the above tabulation used chartered ships for part of their 1953 opera- tions and three of the seven also chartered ships to others in that year. The fact that there is some degree of error in the wage ratios shown is recognized, but there is no way by which the error can be measured, nor can it be determined whether the indicated range of wage ratios would be in- creased or decreased if the error were eliminated. All ratios of expenses to revenues are affected also by the freight rate structure of the individual operator. For example, two companies could operate identical ships, pay identical wages in dollars, and carry identical amounts of payable tons of cargo, but if one carries high-rate and the other low-rate cargo, the first will have a lower wage ratio to freight revenue than the second. The lower costs of stevedoring in foreign as compared to domestic ports is responsible, at least in part, for the relatively low cargo costs of the last operator on the list, most of whose freight revenues were foreign. No conclusions are warranted as to the reasons for the variations in cargo costs shown. In summary, the above tabulation indicates that from one-half to three-fourths of total freight revenues are dispensed for crew wages and cargo expenses. "When we examine the labor cost relationships of operators that can- not be classified as break-bulk carriers we find a different and more varied pattern, as shown below: 1953 Labor Expenses in Gents per Dollar of Freight Revenue Six Selected Carriers of other than Break-Bulk Dry-Cargo in the Coastwise and Intercoastal Trades Primary Type of Operation Wages 1. Bulk and Specialized Industrial Cargo 17.8 2. Bulk and Specialized Industrial Cargo 23.0 3. Bulk and Specialized Industrial Cargo 27.7 U. Packaged Lumber 35.5 5. Packaged Lumber 32.U 6. Seat rains 15 .U - 25 - Cargo Expense Total U3.1 60.9 30.1 53.1 2U.5 52.2 7.5 143.0 7.0 39.U 2.7 18.1 This tabulation shows one operator, known to carry considerable bulk cargo, whose labor cost ratios were quite similar to those of the break-bulk carriers in 1953. The other two carriers of bulk and specialized industrial cargo had somewhat higher wage ratios and lower cargo expense. In the case of packaged lumber carriers, the relatively high wage ratio may be traced in part to performance of cargo handling work by the crew, and in part to the relatively low freight rates on this commodity. While the savings in cargo expense are thus partially offset by increased wages, the total labor costs are lower than in any other type of operation except the seatrains. Reverting to the seven selected carriers of break-bulk dry cargo whose labor expenses totaled over 50 percent of the freight revenue dollar, five are intercoastal operators. Despite differences in their operations, these five companies have had roughly similar histories in recent years in the trends of their cargo handling expenses and revenues. They also comprise the only group that may be considered sufficiently homogeneous to permit combined statistical treatment in tracing these near-term trends. The combined totals of freight revenues, domestic and foreign, and of cargo expense for this group in the years 19k9 through 1953 are shown below in tabular and graphic form: Freight Revenues and Cargo Expenses of Five Selected Intercoastal Carriers of Break-Bulk Dry Cargo l/ (Thousands of Dollars) 19U9 1950 1951 1952 1953 Freight Revenue, Domestic 39,172 H9,911 52,527 58,22U 71,398 Freight Revenue, Foreign 6,568 3,U03 6,987 5,651 U,U03 Total Freight Revenue T^TW 53,3IU WP^k 63,875 K^OT Cargo Expense 17,559 23,539 28,663 30,556 38,55U l/ Shipboard wages are not included in this tabulation because of the element of error in wage data previously noted. Due to variations in chartering operations and other factors, the wage data as re- ported to the I.C.C. give a distorted picture of actual wage costs in relation to freight revenue. Such data may serve as a rough and admittedly inaccurate measurement of cost ratios for individual operators in a given year, but spread out over a number of years for a group of operators and in terms of dollars, the error would be compounded and any trend indicated by the figures would probably be far from accurate. - 26 - FREIGHT REVENUES AND CARGO EXPENSES OF FIVE SELECTED INTERCOASTAL CARRIERS OF BREAK- BULK DRY CARGO MILLIONS OF DOLLARS 80 70 Total Freight Revenue Foreign and Domestic n^ 60 50 40 Total Domestic Freight Revenue 30 V Total Cargo Expense 20 10 1949 1950 1951 1952 1953 - 27 - The most striking observation derived from the above data is on the manner in which by one means or another, these operators managed to increase freight revenues somewhat more than the increase in cargo expense during the five-year period 19U9-1953. The increases and decreases in dollars over the period were: Freight Revenue, Domestic: Increase $32,226,000 freight Revenue, Foreign: Decrease 2,165,000 Total Freight Revenue: Increase $30,061,000 Cargo Expense: Increase 20,995,000 Excess of Freight Revenue Increase over Cargo Cost Increase: $ 9,066,000 This does not mean that the profit position of the five operators was improved to the extent of anything like $9,066,000, if at all. Operating expenses other than cargo costs also increased during this period, and to maintain the same profit position, it would be necessary to increase revenues to cover not only increased cargo costs, but also the aggregate increases in other expense items such as wages, fuel, subsistence, repairs, and insurance. Comparisons or measurements of actual profits are of questionable value for present purposes because of the variations in methods of operation previously discussed. Net profits are affected by such factors as interest and dividend income, interest expense, and in some cases, by non-shipping operations. Gross profits from shipping operations are affected by such variable items as terminal and cargo handling operations for other account, inactive vessel expense, and amortization and depreciation. However, the apparent fact that there was no general improvement in the profit position of these five operators between 19U9 and 1953, traceable to an improved freight revenue/vessel operating expense ratio, is at least strongly indicated by the following summary of their gross profit and loss from shipping operations for those years. Gross Profit (or Loss) from Shipping Operations Five Selected Intercoastal Carriers of Break-Bulk Dry Cargo (Percent of Total Waterline Operating Revenues) Operator 19U9 1950 1951 1952 1953 1 3.52 6.52 5.72 1.89 (1.13) 2 1.21 ( ,U0) 3.38 (U.86) .93 3 (2.61) (1.98) (2.96) (U.25) (2.07) h 6.95 6.86 U.5U 2.19 5.52 5 2.21 3.67 1.37 (U.83) 2.i£ From the available records it can be shown that the increase in freight revenues for these five intercoastal operators was due to increases in revenues per ton of pay-load freight rather than to increases in tons carried. There is no means of determining the extent to which increased revenue per ton was due to increased freight rates on specific commodities or to changes in cargo consist from low-rate to high-rate cargo. The com- bined totals of tons carried, and the freight revenue and cargo expense per - 28 - ton for the five intercoastal operators were as follows: 19U9 1950 1951 1952 1953 Payable Cargo Tons (Thousands) 3,300 2,1|82 2,675 2,699 2,96U Freight Revenue per Ton $13.82 $21.U7 $22.28 $23.68 $25. 5U -Cargo Expense per Ton $ 5.30 $ 9.h7 $10.77 $11.30 $13.02 In the above tabulation it will be noted that between 19U9 and 1950 there was a rather sharp drop in cargo tons accompanied by sharp increases in both freight revenue and cargo expense per ton. Thereafter, all three factors show comparatively moderate increases. On examining the individual operating statements, we find that in 19U9 two of the five operators carried relatively large tonnages of cargo at abnormally low rates as compared to the next four years. It would appear that measuring the increases (and in the case of cargo tons, decreases) from 19U9 as a base year gives a somewhat distorted picture of the actual trends during this period. If 1950 is used as the base, by 1953 cargo tonnage had increased by U82,000 tons, freight revenue per ton $lu07, and cargo expense per ton $3.55. It has been stated previously that all measurements in this. field of multiple variations are no more than broad indicators. Care must be taken to avoid unwarranted interpretation of the data presented. The fact that a limited group of operators in the intercoastal trade has managed to meet ad- vancing expenses with increased freight revenues in recent years does not mean that this can go on indefinitely. The trend lines, in other words, can- not be projected into the future, and uncertainty of the future is unquestion- ably a major factor in any consideration of replacing the present fleet with ships of essentially similar types. The figures show, or confirm, a few simple facts: Labor costs, par- ticularly cargo handling costs, take a large part of the freight-revenue dollar. Their importance diminishes substantially in certain types of oper- ations. While all the determining factors cannot be identified, it is clear that cargo consist has a substantial influence, and that the lowest costs are found in operations using so-called radical ships and methods that eliminate a large part of the costs of conventional cargo handling. Without conclusive proof, the figures suggest that in the recent past, the break-bulk dry-cargo business has been neither disastrously unprofitable nor satisfactorily profitable. Cargo tonnage has held up pretty well, and by increasing freight revenues per ton, the operators have managed to con- tinue operations in the face of substantial increases in expense. - 29 III. SOLUTION OF THE PROBLEM A. Technological Improvement and Private Enterprise , To understand where the basic solution to the break-bulk dry cargo carrier problem lies, it is necessary to note, first, the wide difference between the cargo handling costs of conventional hatch-loading package freight operations, and the comparable costs of handling cargo by mecha- nized means (dry and liquid bulk), or by greatly increasing the size of the cargo unit (Seatrain and packaged lumber operations). We have seen that the costs of break-bulk dry cargo handling constitute by far the largest item of operating costs, amounting in some cases to as much as 50/& or more of total freight revenues. By contrast, the cargo handling costs of packaged lumber operations are only about 7%, and of the Seatraia operation only 2,7% of the freight revenue dollar. This clearly indicates an area in which truly substantial benefits may be attained, assuming that by one means or another the technological principles of low-cost cargo handling can be applied to the handling of package freight. Second, it is significant that certain basic principles of low- cost cargo handling have been well understood for a number of years. It is self-evident that rapid loading and unloading, with a minimum of direct manual labor costs, is a fundamental principle of economical cargo handling. Rapid loading and unloading can be accomplished in a number of ways and in varying degrees. Palletizing or packaging of cargo is an improvement over the multiple-handling processes involved in broken cargo handling. The operating economies increase as the size of the sling load in a hatch-loading operation increases. When the sling load or package unit is increased to the size of a freight car or truck trailer, maximum economy is attained from the size-of -package factor. Finally, it is more rapid and therefore more economical to move a large package on its own wheels laterally between ship and shore than to lift or lower the package through a "hole in the roof". This, in brief, is the theory on which the present wide interest in the development of roll-on, roll-off ships is based. No figures based on actual experience are available on the costs of operating roll-on, roll-off ships. However, in connection with one of the projects for the construction and operation of roll-on, roll-off highway trailer ships, 1/ cargo expense was estimated at 2.22 percent of freight revenue. In the same statement a figure of 2.57 percent was given for seatrain cargo expense. This closely approximates the 2.7 percent figure previously reported for the 1953 Seatrain operation. l/ Statement of David G. McDonald, General Counsel and Director, McLean Trucking Company, Washington, D. C, October 7, 1954. - 30 - It is significant also to note that the loading and unloading time for this roll-on, roll-off operation was estimated as 4 hours at each terminal as compared to approximately 8 hours for the Seatrain operation. The reduction of in-port time, together with other factors such as manning scales of which the details are unknown, produces an additional reduction in the cost ratios of -vessel expense and other voyage expense in the roll-on, roll-off operation. It is not intended here to suggest that the roll-on, roll-off method is the only one by -which economies may be effected in the trans- portation of break-bulk dry cargo. There may well be segments of the domestic trades in which roll-on, roll-off operations may not be feasible. There is evidence that new applications of the vehicle lift-on, lift-off principles similar to the Seatrain operation are planned. Further, there is no question that substantial economies can be effected even in conventional hatch-loading operations through well planned cargo- handling methods including palletizing, packaging, and efficient shoreside cargo-handling methods and equipment. It seems clear, however, that of all presently known methods of handling break-bulk dry cargo, the roll-on, roll-off principle appears to offer the greatest potential operating economies. The present costs of building new roll-on, roll-off ships range from around 8 to 11,5 million dollars per ship. In addition, a consider- able investment must be made in specially constructed terminal facilities and equipment. Substantial progress in what appears to be at least potentially a revolutionary change in shipping methods can be accomplished only through the initiative, constructive imagination and courage of private investors and operators. Happily, the opportunity and the willingness to take advantage of the opportunity are evident in the present situation, 1, The Terminal Problem , It should be emphasized that adequate terminal facilities, organized and operated for maximum efficiency, are of substantial importance in obtaining maximum savings in operating costs, whether the ships are special purpose roll-on, roll-off vessels or the conventional type of hatch loaders. Many of the terminals now used by domestic water carriers, however adequate they may have been when pick-up and delivery were per- formed exclusively by rail cars and local drays, cannot handle the large over-the-road trucks and trailers in their present numbers without costly delays in all phases of the operation. Many of these terminals were constructed, also, to serve the smaller prewar coastwise ships, and cannot handle without congestion the cargoes of some of the larger vessels now in use. In some of the older terminals the roof column spacing is so close, pier aprons so narrow and deck surfaces so rough as to limit the use of mechanical handling equipment. The high cost of replacement or modernization of terminal facilities constitutes a serious deterrent to their improvement. The use of certificates of accelerated depreciation may provide a partial answer. -31 - Where traffic warrants the capital outlay, reconstruction or new- construction can provide partial answers. Operators of several newly- constructed terminals, using conventional methods and handling conven- tional ships, have reported large increases in efficiency in comparison with results achieved with older facilities. The emphasis, in both reconstruction and new construction, is on ample facilities for handling trucks, larger sheds designed to permit full utilization of the time and labor-saving potential of mechanical equipment, and rail trackage not only in or behind the shed but also at ships ide. Relevant to the problem generally, it should be noted that most operators of special marine termi- nals consider the transit shed alone to be unprofitable; the supporting warehouses and other storage surfaces providing the profit margin for the terminal as a whole. B, Progress Toward Solution , 1. Existing Applications of Roll-On, Roll-Off and Lift-On , Lift-Off Principles , At the present time there are a number of shipping operations in the United States based on roll-on, roll-off or li£t«K>n, lift-off principles. For the most part these operations are engaged in carrying freight cars or other types of vehicles relatively short distances on inland or protected coastal waterways such as the Great Lakes, Puget Sound, and the Hudson River, There is one off-shore service, the Suwanee Train Ferry Lines, which operates two converted LSD's between Fort Lauder- dale, Florida to Havana, Cuba, The capacity of these ships is 23 freight cars on each of 3 decks. The only operations of this type engaged in the deep-water coastwise trade are those conducted by Seatrain Lines, Inc., and McLean Industries, Inc, The Seatrain operation applies the lift-on, lift-off principle in carrying freight cars between rail system terminals on the Atlantic and Gulf Coasts, Seatrain ships accommodate 100 freight cars which are loaded and unloaded by means of fixed shore cranes. The loading and unloading is usually accomplished in somewhat less than 8 hours at each end of the run, McLean Industries, Inc., has recently initiated the operation of two combination tanker-container ships. The basic ship is a T2 tanker, upon which has been superimposed a cargo deck elevated somewhat above the normal tanker deck, in order to protect cargo containers or vehicles loaded on the cargo deck from water damage in heavy seas. All cargo is lifted on and off by cranes. The novel feature of this operation is that a dual purpose ship is provided, whose pay load may thereby be increased on the normally unprofitable return leg of the Houston to New York tanker run, 2, New Projects, A substantial number of new and apparently firm projects for the construction of roll-on, roll-off ships for use in the coastwise, intercoastal and noncontiguous trades testifies to the - 32 - more than casual interest in this type of operation in investment and shipping circles. Some 29 ships are involved in these projects. The following is a brief description of the proposed operations, to the extent that information is available: a. Alaska Trains hips, Inc. ; This company, a subsidiary of Alaska Steamship Company, proposes to build and operate two roll-on, roll-off ships between Seattle and Whittier, Alaska, The ships are de- signed to carry 110 rail cars which will be loaded on 3 decks via stern ramps. One feature of these ships is that they are capable of carrying wheeled and tracked highway vehicles, and provision has been for the loading of such equipment through side ports located at the bow and stern on each side. b # American-Hawaiian Steamship Company : This company proposes to construct ten large, fast ships for intercoastal operation. Design specifications have not been finally determined at present, but the company has stated that the ships are to carry some 570 specially built highway trailers on four deck levels, loading through the bow, c. Pan-Atlantic Steamship Corporation ; This company proposes to trade in 7 C2's against the construction of 7 roll-on, roll-off trailer- ships for use in the coastwise trade. d. American Liberty Steamship Corporation ; This company proposes to build 3 roll-on, roll-off ships to be operated between northeastern ports and Galveston-Houston. The ships are designed to carry 98 loaded rail cars on a 19-knot operating speed. The ships are designed to permit the rail cars to be moved on and off via a variable stern ramp, similar to that used for loading rail car floats. e. TMT Trailer Ferry, Inc. ; This company currently operates a roll-on, roll-off tow service between Florida and Puerto Rico. Highway vehicles are rolled on and off a converted LST, which is towed by a seagoing tug. The company now proposes to construct a roll-on, roll-off 16~knot ship which will transport 105 large highway trailers and 80 auto- mobiles. f. Puerto Rico Railroad and Transport Company ; This company plans to build two large truck trailer ships for operation between New York and Puerto Rico. No further details are available. g. Trainships, Inc. ; This company proposes to construct two trainships for operation in the domestic coastwise trade between North Atlantic ports and Texas, No further information is available. h. Transportation Utilities, Inc. ; This company proposes to construct two trainships of special design for charter to the Erie and St, Lawrence Corporation, for operation by the latter between New York and Jacksonville, Florida. - 33 - IV. GOVERNMENT AID A. Types of Government Aid Now Available to Domestic Shipping . The various types of government aid now available to the domestic shipping trades are summarized briefly below: 1. Cabotage. What is perhaps the most effective form of govern- ment aid provided by Congress for the domestic shipping trades is the complete reservation of these trades to vessels built and documented under the U. S. flag. This protective principle, which effectively eliminates foreign competition, was first placed into effect by legisla- tion enacted in 1817, which has subsequently been broadened to cover shipping serving noncontiguous U. S. territories* 2. Accelerated Amortization . Section 124A of the Internal Revenue Code authorizes accelerated depreciation of facilities, including shipping, certified to be necessary for national defense. To qualify, a construc- tion project must normally be covered by an established Expansion Goal. Two such goals for tankers and special purpose (roll-on, roll-off) ships are now in effect. A few projects have been certified as necessary for national defense on a "one-of-a-kind' basis, but in the shipping field only one project, the construction of a large ocean-going tug, has been so certified. 3. Construction Reserve Funds . Section 511 of the Merchant Marine Act, 1936, as amended, authorizes the establishment of construc- tion reserve funds for the purpose of building or acquiring new vessels* Certain deposits to such funds are not subject to income tax at the time of deposit provided they are used to build new ships within a specified time. Such tax-deferred deposits, however, must be applied to the tax basis of the new vessel. This form of assistance, therefore, does not amount to tax exemption, but to a limited tax deferments 4. Mortgage Aid. Section 509 of the 1936 Act provides for gov- ernment financing of 87-1/2 percent of the construction cost of ships of not less than 3,500 gross tons and capable of a sustained speed of not less than 14 knots, secured by a 20-year mortgage bearing interest at 3-l/2 percent, 5. Mortgage Insurance . Under Title XI of the 1936 Act, private mortgage financing of ship construction may be protected by a government guarantee of up to 90 percent of 87-l/2 percent of the cost of the vessel, or in the case of special-purpose ships certified by the Secre- tary of Defense as essential to national defense, (now limited to roll-on, roll-off ships), up to 100 percent of 87-1/2 percent. - 3U - 6. Trade-in Allowance, Section 510 of the 1936 Act authorizes the Maritime Administration to acquire obsolete ships traded in agains o new con- struction, crediting the trade-in value to the purchase price of the new ships. 7« Preferential Charter Hire , The Merchant Ship Sales Act, 1946, authorized the Maritime Commission to charter Government-owned warbuilt ships to citizen operators, and under certain conditions to fix the rate of charter hire below the established rate of 15 percent of the statutory sales price. Under this authority the Commission, to encourage private operations in the domestic trades, established the bareboat charter rate for such trades at 8.5 percent of the statutory sales price, with an additional 6fj percent pay- able from earnings before any participation in such earnings by the charterer, 8, Long-Term Charters, Public Laws 575 (tanker charter and build) and 663 (roll-on, roll-off charter and build) provide incentives in the form of long-term oharters by the Department of Defense for the private construction of ships of these types, B, Immediate Needs, The sponsors of the several new projects for the construction of roll-on, roll-off ships have sought no forms of Government aid other than those now available. In all cases mortgage insurance is requested. As this is written, only two applications for rapid tax amortization and one for vessel trade-in against new construction have been received, but there has been informal indication that there will be more such requests. In addition, any defense features incorporated in the new ships will be underwritten by the Government to the extent that the cost of such features exceeds their commercial value, C, Proposals for Construction-Differential Subsidies , Various recommendations have been made for the payment of a construction-differential subsidy for ships to be operated in the coast- wise and intercoastal trades. Inasmuch as foreign-built ships are barred from operation in the domestic trades, no basis exists for a construction- differential subsidy because of lower cost of foreign construction. Thus any such subsidy would have to be justified on the basis of a more favorable position of the land carriers in acquiring operating equipment from lower- cost foreign sources. Investigation discloses that railroads, truckers and airlines, despite the relatively low levels of protective tariffs, buy little of "their equipment from foreign manufacturers and that only where the equipment is not available in the U. S. market. Moreover, it is not now evident that a construction-differential subsidy is necessary to accomplish the construction of ships to replace and perhaps expand the present coastwise and intercoastal dry cargo break-bulk fleet. In addi- tion to substantial tanker construction during the post-World War II period, all of the new projects for the construction of roll-on, roll-off type ships contemplate private financing with government aid being limited largely, as previously indicated, to mortgage insurance. We conclude, therefore, that there is no basis upon which a construction-differential subsidy could be justified for the acquisition of vessels to be operated in the coastwise and intercoastal trades, • -35- D, Panama Canal Tolls The policy of free transit of the Panama Canal for United States flag vessels engaged in the United States coastwise trade was considered by the Congress prior to the completion of the Canal, The results of those deliberations was Section 5 of the Panama Canal Act of August 24, 1912, which provided that "no tolls shall be levied upon vessels engaged in the coastwise trade of the United States" • This particular provision of that legislation was objected to immediately by certain foreign countries on the grounds that it was in violation of the Hay-Pauncefote Treaty of 1901 which, among other things, provided that "the Canal shall be free and open to the vessels of commerce and of war of all nations observing those rules on ter^s of entire equality so that there shall be no discrimination against any such nation, or the citizens or subjects, in respect of the conditions of changes of traffic, or otherwise. Such conditions and changes of traffic shall be just and equitable". As a result of these objections, Congress, in the Panama Canal Toll Act June 15, 1914, repealed the exemptions for American coastwise shipping and, as a consequence, commercial vessels of United States registry at all times have paid the same toll rates as vessels of foreign-flag registry. However, certain interests, from time to time, have urged the elimination of tolls for vessels operated in the intercoastal trade, but considerably greater support of virtually a continuous nature has been given to the problem of bringing about a reduction of tolls for vessels of all flags. Advocates for the elimination of Panama Canal tolls for vessels operated on the intercoastal trade have urged the adoption of such a policy as a form of immediate financial aid which would enable the industry to continue on its present scale of operations pending the development of more basic and permanent solutions of its problems. They also claim that the provisions of the Hay-Pauncefote Treaty of 1901 would not be violated by eliminating tolls charges now paid by intercoastal vessels engaged exclusively in the United States intercoastal trade which is reserved solely for vessels built in the United States and owned and operated by American citizens and therefore not in competition with vessels of foreign- flag registry. They also assert that the present policy of the Panama Canal Company in not charging tolls of vessels owned, operated, or charter- ed by the United States Government, but of receiving credit for such tolls against its obligations to the United States Treasury has established a precedent which could be adopted for commercial vessels of United States registry operated in the intercoastal trade. It is claimed that such a policy would not be unjustly discriminatory against vessels of foreign registry because the tolls which would have been paid by the vessels engaged in the intercoastal trade are credited to the accounts of the Panama Canal Company; since tolls are to be charged only to the extent that they are adequate to liquidate the investment of the United States in the waterway project and to maintain and operate the Canal, foreign- flag vessels would not be required to pay higher tolls than they would have to pay if intercoastal vessels were charged tolls. Those groups which oppose the elimination of tolls paid by vessels engaged in the intercoastal trade of the United States state that the - 36 - adoption of a free transit policy for those vessels violates the historical policy of Congress and investigating committees appointed by Congress that the Canal should be self-liquidating and self-supporting. They state that intercoastal vessels would be given a subsidy for operating over a route on which there is no foreign-flag competition. They claim that toll pay- ments constitute only a minor percentage of the total costs of intercoastal ship operations and that the subsidy thus provided will not, of itself, promote any worthwhile increase in intercoastal shipping activity. Moreover, subsidized vessels operating in both the foreign and the intercoastal trades, would be awarded an additional subsidy which would not be available to subsidized and non-subsidized vessels of United States registry operating exclusively on foreign trade routes. Furthermore, they do not agree that the elimination of tolls for vessels operating exclusively in the inter- coastal trade would not be in violation of the Hay-Pauncefote Treaty of 1901, As an example, such vessels are in keen competition with many foreign-flag vessels which operate in the lumber trade between British Columbia and United States Atlantic and Gulf ports. Finally, several important United States ship operators 1 organizations have gone on record in favor of their willingness to pay tolls to liquidate that portion of the waterway expendi- tures attributable to commercial transit as well as the costs of maintenance and operation of the waterway also incurred by commercial transit© Advocates for a reduction in tolls for vessels of all registries argue that they do not support a free toll system at the Canal nor a prefer- ential toll charge favoring certain ships of United States registry. They desire the Canal to be self- liquidating and self-supporting as far as commercial transit is concerned. They have opposed the free transit of ships owned, operated or chartered by the United States Government, They are in favor of excluding military and civil government expenditures which do not have any relationship to commercial cargos. They are willing to pay their full proportionate share of all expenses directly connected with commercial transit, but not any part of military or civil government expenses incurred in the Canal Zone or in connection with the Panama Canal, They have asserted that the proper application of the tolls formula pre- sented by Congress in Public Law No, 841 would result in decreasing Panama Canal tolls substantially. In this connection, the 1954 Panama Canal audit prepared by the General Accounting Office states that "based on the financial results of the Canal activity for the past 3 years, toll rates would have to be reduced substantially if hearings were held at this time", (Page 45)* However, the General Accounting Office has submitted recommendations to Congress which, if adopted, would decrease the profits of the Panama Canal Company rather substantially. In consideration of all factors, there appears to be no real justification for special treatment of intercoastal shipping through the reduction or elimination of Panama Canal tolls. However, if, as reported by the General Accounting Office, tolls have been charged at levels higher than those prescribed by Public Law 841, 81st Congress, 2nd Session, correction of this situation would be especially helpful to intercoastal shipping, and every effort should be made to expedite a determination as to the proper level of toll charges, - 37 - E, Proposals for Changing the Rate-Making Mechanism It has been suggested from time to time that in the interests of the domestic ocean carriers, it would be desirable to change the setup of the regulatory authority. On examination, there are a number of reasons why such proposals do not appear sound. One suggestion has been that the regulatory authority over water- carrier rates should be returned to the Maritime Administration, whose precedessor, the Maritime Commission, had this authority prior to 1940, This proposal ignores the fact that it is rail rates, not water rates, with which the water carriers are concerned, A related proposal is that each form of transportation would be regulated by an independent board. Over and above this group of boards would be a coordinating commission. The basic idea is to provide a limited means of appeal to the coordinating commission, l/ The need for coordinated regulation of the different forms of transportation to resolve conflict and to give effect to a balanced national transportation policy is generally recognized, even by those who believe that some sort of reorganization of the present regulatory body is desirable. It is difficult to see, however, how a process that starts with partisan action at one level and ends in presumably impar- tial action at another level of the organization, would produce any better results than if the issues were referred to the coordinating body in the first place; and the former procedure would certainly be more elaborate and costly in time and money than the latter. Merely shifting the responsibility for making final decisions to another element of the regulatory mechanism would not make the decisions any more impartial or judicially sound, A consideration of all the factors involved leads to the con- clusion that where there are questions as to the interpretation and application of the regulatory provisions of the Transportation Act of 1940, the answer does not appear to be in making adjustments in the regulatory mechanism. l/ See Appendix D, Brief of the Intercoastal Steamship Freight Association. - 38 - P» Government Assistance in Research and Development * We have seen that the new projects for building roll-on, roll-off ships are largely private ventures, with a minimum of government assistance. In like manner, the construction and modernization of shore-side terminal facilities is the responsibility of shipping operators, port authorities, and the state and local communities that will benefit from expanded port operations. In our free enterprise system it is quite proper that the primary responsibility for technological development, from drawing board to com- pleted construction, should rest with private investors and operators. The part played by the Federal Government should be limited to the support of projects that for good reason cannot be accomplished without government help, or which, in the public interest, can be facilitated or expedited by such help. Within the above limitations, it is believed that the government may quite properly contribute in certain areas of research and development. While no fine line of demarcation can be drawn between the activities in which the government should or should not engage, provision should be made on an "as needed" basis for government assistance in undertaking or participating in engineering studies, prototype ship and terminal facility construction and, if necessary, the operation of ships, terminals or experimental equipment during trial periods, G» Joint Through Rates and Routes The transportation system of the United States comprises a variety of transportation media which together make for a vast transportation network. Each of these transportation media has had its own development and none was regulated until it had attained a definite niche in our economic system. Coordination of the country's transportation facilities as a national transportation policy has been stressed for only a little more than two decades. Prior to that time the country had depended largely upon the laissez-faire doctrine which brought about a regulatory policy in which competition was regarded as the keystone for protecting the public against unreasonably high rates and as the best means of promoting economy and efficiency. Minor departures were made from this principle, but such exceptions were not particularly signif icart. At that time, Congress believed that competition among carriers would result in more adequate, economical, and efficient service for the public and it pursued a policy of encouraging such competition by various means such as by exempting certain types or classes of carriers from regulation and com- pelling one type of carrier to coordinate its facilities with another. The policy of coordinating the different parts of our transpor- tation system is intended to develop a coordinated transportation system in which the agencies are brought together as complementary, but competitive parts of a unified organization. It is intended as a means of establishing complementary and cooperative relationships among the competing agencies of transportation, where practicable, with each agency - 39 - rendering the service for which it is best fitted with greater economy and efficiency. It is designed to bring forth the advantages of each form of transport in such a way as to permit the public to enjoy the inherent advantages of each. Coordination and integration may be brought about either on an intra-agency or on an inter-agency basis* Inter-agency coordination may be obtained by the cooperation of different types of carriers as rail with water and rail with motor, Intra-agency coordination may be obtained by the cooperation of the same types of carriers as rail with water and water with water. Of the two types it is probable that inter-agency coordina- tion is more important to the public since it is a means of bringing together the separate transportation agencies into a more unified trans» portation system. In this connection^ the n pickaback w operation of carrying truck trailers on railroad flat cars 9 and the carrying of both rail cars and highway trailers on roll-on* roll-off ships are examples of one type of inter-agency coordination* Those who advocate an extension of the use of the principle of coordination assert that it maintains the forms of competition that are desirable within each class of carrier and at the same time it eliminates or at least minimizes to a substantial degree the types of competition that are considered to be uneconomic® Competition is kept within such bounds as to be helpful rather than destructive to the carriers and therefore the principle of coordination and integration is of benefit to the public. Joint routes and joint rates lower than a combination of local rates together with the advantages of through billing and fewer rat® calculations will result in lower transportation rates to the public. Legislation promoting the policy of coordination was enacted by Congress from time to time, but the intent of this legislation at first was not to create a national transportation system in which the inherent advantages of each transportation agency were to be recognized and pre- served, but to protect water carriers from the competition of rail carriers and to enable water carriers to obtain traffic originating at and destined to interior points. The Transportation Act of 1940 continued the policy, adopted in earlier legislation, of establishing through routes, joint rail-water rates, and traffic interchange facilities. Water common carriers are required to establish through routes with other water common carriers and with railroads and if they fail to do so, the Interstate Commerce Commission, after hearing, is empowered to make such arrangements Similar arrangements may be made with motor carriers but under voluntary terms and conditions. They must provide reasonable facilities for the interchange of traffic with connecting water and rail lines and such facilities must be available to all shippers on equal terms. Common carriers also are forbidden to discriminate unjustly between connecting lines. In prescribing reasonable differentials between all-rail rates and joint rail-water rates, the Commission may determine the divisions of the revenue obtained from through shipments, but in passing upon a disputed division the Commission must consider the efficiency of the carriers involved, the revenue required by each carrier, the significance of the carriers to the public, the originating carrier, and any other - kO - fact or circumstance which might entitle one carrier to a greater or less proportion than another, without regard to mileage. Throughout all this legislation, Congress emphasized the need by- water carriers for through rates, joint rates, and traffic interchange facilities in connection with railroads. While all carriers are dependent to varying degrees upon through rates and joint rates to make fuller use of their facilities, water carriers are especially dependent upon those two transportation practices. Otherwise, their services would be largely limited to the waterway over which they operate and would be restricted to the communities located within close proximity of the ports which are served. As a rule, no water carrier can be operated profitably by traffic developed within such narrow limits and the establishment of through rail-and-water routes, supplemented by joint rates, extend the benefits of water transportation services to localities not situated on a waterway. To be more specific, shippers located at an interior point usually cannot benefit from a waterway to any considerable degree unless land transportation agencies are willing or are compelled to interchange traffic with water carriers. Desirability of Coordination and Integration . As a general principle, there appears to be general unanimity as~"to the desirability of coordination and integration as one policy which is significant in the development and maintenance of a national transportation system adequate to meet the growing needs of commerce, industry, and agriculture as well as those of the general public for economical and efficient transportation service. However, the coordination of transportation facilities involves certain practices which require carriers to share traffic and divide revenues with each other and as a result, objections have been raised by those transportation interests which prefer to carry the traffic by means of their own facilities as far as possible. Moreover, the Interstate Commerce Commission in matters of joint rates involving rail and water carriers has established the principle that the water carrier must absorb the entire differential under all-rail rates. It is obvious, therefore, that objections will be raised to certain practices which are deemed essential to the development of a coordinated national transportation system. A report from the Secretary of Commerce to the President of the United States l/ stated with respect to the subject that "a more effective utilization ofThe different forms of regulated transportation might result if greater use were made of joint rates, routes, and facilities. There are shipments which from a cost-of-performing-the-service standpoint could utilize a combination of transportation services from origin to destination. The law at present requires that rail and domestic water carriers establish such joint rates, but relatively few are in effect and there are likewise few joint rail-motor rates although such rates are permitted by statute. In the case of the regulated carriers, more vigorous actions should be considered to require the establishment of economically justified joint rates ... The purpose of such a step would be to encourage expanded use of transportation resources and allow shippers to reoognize l/ Issues Involved in a Unified and Coordinated Federal Program for Transportation, December 1, 1949, Page 71. -lil - and use the inherent advantages of each form of transportation, an objective of the national transportation policy • n The above recommendation was made six years ago, but it appears equally sound today. It is evident that there is adequate legislative and regulatory authority to permit, and if necessary to impose an integrated system of one -package through rates on joint land-sea routes. The conven- ience and economy of such a system to shippers and consignees, as well as the need for offering joint rates in the solicitation of traffic also seem clear. On the initiative of the domestic shipping operators, and in their own interests, or on the initiative of the Interstate Commerce Commission as authorized by law, more positive action should be taken in the establishment of through rates on joint land-sea routes. H. Revocation of Dormant Certificates As indicated in the replies to the Maritime dry cargo questionnaire, the existence of dormant water-carrier certificates is considered by some members of the industry to be a deterrent to starting new coastwise and intercoastal services, and to investment in ships for these trades. Part III of the Interstate Commerce Act does not provide for revocation authority and procedure such as are found in Parts II and IV of the Act or in the Civil Aeronautics Act. In U.S. v. Seatrain Lines, Inc . (329 U. S. 424), the Supreme Court indicated that the Commission is without authority to revoke water-carrier certificates or permits in whole or in part once they have become effective and the time fixed for requesting rehearing or reconsideration has passed. For several years, the Interstate Commerce Commission in its annual reports has recommended that Part III of the Interstate Commerce Act be amended to provide for revocation of water-carrier certificates or permits. In seeking this authority, the Commission advances the view that the existence of these dormant operating rights is not only a deterrent to the initiation of new operations, but that it also makes it difficult for the Commission to determine the extent to which new authorities should be granted, in view of the potential danger of creating a surplus of competitive service on a given route which might be detrimental to the interests of both the carriers and the public. Legislation now before Congress would give authority to the Commission to revoke, amend, or suspend water-carrier certificates or permits for wilful failure to comply with the provisions of Part III of the Interstate Commeroe Act. In brief, these bills would provide that water-carrier certificates and permits may be revoked (l) upon applica- tion of the holder, or (2) upon complaint or on the Commission's initiative after notice or hearing for wilful failure or on the Commission's initiative after notice or hearing for wilful failure to comply with the provisions of the Act, rules, regulations, and order issued thereunder or the certificate or permit. The proposed authority is similar to that already granted the Commission under Parts II and IV of the Act with respect to motor carriers and freight forwarders. However, in both Part II and Part IV the Commission may not revoke a certificate or permit unless -U2 - the carrier has failed within a reasonable tijne to comply with an order of the Commission commending rectification of the violation. The latter provisions have not been incorporated in the proposed legislation. Members of the industry are somewhat divided in their opinions as to the merits and needs of the proposed legislation. Nevertheless, consideration of all the factors involved leads to the conclusion that the power to revoke operating certificates and permits should be given to the I. C. C. in accordance with legislation now before Congress. The interests of holders of dormant certificates would appear to be fully protected by the provisions of the proposed legislation, and the power to revoke for good cause should not only facilitate I.C«C» deter- minations, but should also remove a potential barrier to healthy development of coastwise and intercoastal shipping. -U.3 - CONCLUSIONS 1. A strong domestic merchant fleet is of vital importance to national defense. It is important also to the national economy, but defense considerations are paramount. (Chapter I) 2. Taken as a whole, the coastwise and intercoastal shipping trades are in a reasonably healthy condition. The exception is in the break-bulk dry cargo trades, and the principal weakness in this area is in excessive operating costs, particularly the costs of cargo handling. (Chapter II) 3. The basic, long-range solution of the break-bulk dry cargo prob- lem appears to lie in the adoption of technological improvements which will reduce cargo handling and other related costs and result in less in-port time and better vessel utilization. (Chapter III) h. This can best be accomplished through the initiative, enterprise and knowledge of private industry proceeding with a vigorous replacement program. (Chapter III) £. Considerable progress towards solution of the problem is evident in the proposed construction and operation of some 29 roll-on, roll-off ships to be employed in the coastwise and intercoastal trades. (Chapter III) 6. The immediate need for government assistance in the construction of new roll-on, roll-off ships involves only mortgage insurance, and in certain cases, vessel trade-in and rapid tax amortization. In addition, defense features incorporated in the new ships will be underwritten by the government to the extent that the cost of such features exceeds their commer- cial value. (Chapter IV) 7. There is no present need or justification for construction- differential subsidies. (Chapter IV) 8. There appears to be no real justification for special treatment of intercoastal shipping through the reduction or elimination of Panama Canal tolls. If, however, as reported by the General Accounting Office, tolls have been charged at levels higher than those prescribed by law, correction of this situation would be especially helpful to intercoastal shipping. (Chapter IV) 9. Various proposals for changing the rate-making mechanism do not appear to answer questions of the interpretation and applicability of the regulatory provisions of the Transportation Act of 19U0. (Chapter IV) 10. The primary responsibility for technological development rests with private investors and operators. It is believed, however, that the government may properly contribute in certain areas of research and develop- ment. (Chapter IV) -kk- 11. The establishment of through rates on joint land-sea routes is desirable in the interests of the public shippers, consignees, and the domestic shipping industry. (Chapter IV) 12. The lack of authority in the Interstate Commerce Commission to revoke dormant water carrier certificates is a potential deterrent to the establishment of new coastwise and intercoastal services, and to investment in ships for these trades. (Chapter IV) -45 - Revised October 31, 19!?£ TtECOMMENDATIONS 1. Provide direct Government assistance in the field of research and development by undertaking or participating in engineering studies, prototype ship and facility construction, especially pertaining to break-bulk dry cargo operations, and if necessary, the operation of same during trial periods. 2. Continue the granting of certificates of necessity for accelerated depreciation involving ships and/or related shoreside facilities required for national defense to be used primarily in the coastwise-intercoastal trade. 3. Accelerate trade-in-and-build programs by requesting funds as re- quired to utilize the trade-in allowance provisions of Section £10, Merchant Marine Act, 1936, as mended, h» Amend Section S^ 9 Merchant Marine Act, 1936, as amended so as to permit non-subsidized oper tors to make voluntary deposits in the construction reserve fund with the sa r .e benefits as are now available to the subsidized operators under Title VI. 5>. Intensify consultations between the Maritime Administration and other Federal agencies with port authorities at state and local level with a view to accelerating programs of port improvement and facility modernization consistent with vessel replacement programs. 6. Amend Title VII to authorize the construction, for Government account, of ships to be used in the coastwise-intercoastal service and their sale/charter to operators in these trades and under conditions which will allow the operators to (a) charter the ship for a ^-year period, and (b) purchase the ship from the United States at its then depreciated cost at any time during that period, such purchase price to be reduced by the amount of charter hire in excess of depreciation plus interest to date of sale paid to the Government. Projects under this authorization would be undertaken only upon Presidential determination that national policy cannot be realized within a reasonable period of time under other provisions of law. 7. Support legislation authorizing the ICC to revoke, amend, or suspend water-carrier operating certificates and permits of coastwise- intercoastal carriers for wilful failure to comply with the provisions of Part III of the Interstate Commerce Act within a reasonable period of time after that Agency has issued a decision stating its findings and an order requiring compliance with those findings. 8. To the extent that funds required for carrying forward the programs needed for the national economy and national defense as contem- plated by the findings of this study and the pertinent general provisions of the Merchant Marine Act, 1936, as amended, are not covered by specific appropriations or otherwise, the adequate appropriation requests should be submitted. -U6 - APPENDIX A MARITIME ADMINISTRATION QUESTIONNAIRE - DRY CARGO GROUP COASTWISE AND INTERCOASTAL SHIPPING The following questions deal with the major problems of coastwise and intercoastal dry-cargo shipping: Regulation, Development and Promotion 1. In your opinion, do shipping interests and the various affected Government agencies fully utilize all the means now provided by law for: a. The regulation of coastwise and intercoastal trades in furtherance of the national transportation policy? b. The development of coastwise and intercoastal trades in furtherance of the national transportation policy? 2. If you feel that the law as it now reads, or as it is now admin- istered, handicaps the economic development and the promotion of the coast- wise or intercoastal trade, what are your recommendations for change and amendment? Cite specific examples upon which you base your recommendations and include, if you wish, specific wording to accomplish such changes. Areas in which statutes or regulations exist, and which you may wish to consider, are: a. Certification and revocation of operating authority for nonuse. b. Limitations on subsidized foreign trade operators engagirg in coastwise and intercoastal services. c. Ship construction, reconversion and betterment, research and development. d. Allocation of regulatory and other Government functions among such agencies as the Interstate Commerce Commission, the Department of Commerce, the Maritime Administration, and the Federal Maritime Board. e. Limitations on land carriers engaging, financially or operationally, in coastwise and intercoastal waterway transportation^ and similar limitations on water carriers engaging in land transportation. -U7 - Conference, January 25>, 19!?3> f . Collective bargaining and the settlement and prevention of strikes, 3, As a result of competitive freight rates, what traffic: a. Suitable for water carriage, have you never been able to obtain? b, Moving by water before the war, have you never been able to regain? c, Have you lost since the war? d. Are you now carrying at less than compensatory rates? In each case, trace the actual water and competitive rates by land carriers and differentials on important commodities, citing tariff authori- ties and docket numbers where appropriate, H» What traffic moving by water before the war has disappeared for reasons other than loss to competing carriers? What were the causes of such traffic losses? £. What existing fourth-section relief orders, blanket rates, and other rate devices adversely affect your movement of traffic? Identify by commodity, applicable rate and authority, and appropriate order. 6, Have you actually discontinued, or do you contemplate discon- tinuing, any of your services because of the existence of such rates? Cite specific instances, 7, Does the possibility of the establishment of any additional rates of the above types discourage expansion of your service? Cite specific examples, 8, In connection with your operation, are there any joint rail- water or truck-water rates in effect? If so, please cite tariff authority and indicate whether such arrangements were voluntarily established or re- sulted from an ICC order. If joint rates have not been established, please indicate the reason. Would shippers and operators benefit if joint rates were more extensively available? 9, Is the joint-rate type of land-water transportation integra- tion desirable in the public interest? If present joint rates and the method for obtaining them are unsatisfactory, please indicate any sugges- tions you may have for improvement. - U8 - Conference, January 25>, 195>£ Revenue and Operating Costs 10. Measure the extent, and appraise the influence, of each of the following factors in the determination of your profit and loss position during the postwar period: a* Changes in operating revenues due to changes in traffic volume, cargo characteristics, and freight rates. b. Increases in prices paid for materials, supplies, fuel, repairs, and increases in shipside and shore side wage rates. c. Changes in efficiency of vessel and shoreside operations. Data supporting your analysis is requested. Vessel Replacement 11. Are the vessels you now employ in the coastwise and inter- coastal services satisfactory from the standpoint of operating cost, capital costs, port accommodations, cargo handling facilities, and any other factors which you regard as important? 12. What characteristics do you believe should be .incorporated in vessels specifically designed for your services? 13. Eb you have any plans for replacing ships which you presently employ in the coastwise and intercoastal services? If feasible, supply such pertinent details as type, number, cost and financing, and age of ships to be replaced. llu If the apparent acquisition price for new ships were lower, would your plans be modified and in what respects. General lf>. What problems, other than those already mentioned, face your company? 16. Since World "Bar II, what steps have been taken to solve the problems in the coastwise and intercoastal business by: a. Your company? b. The industry? - U9 - Conference, January 25, 1955 17. "What further steps do you believe should be taken by our company and the industry? 18. What steps do you believe the Government and other interested parties should take in solving these problems? 19. What order of priority should be attached to the problems of the coastwise and intercoastal trades in seeking their solution? -50 APPENDIX 3 MARITIME ADMINISTRATION QUESTIONNAIRE - TANKER GROUP The Merchant Marine Act, 1936, contemplates the establishment and main- tenance of a privately-owned American flag fleet capable of carrying its domestic commerce and a substantial portion of its export and im- port foreign commerce, constructed in the United States, manned by United States citizens and capable of serving as a naval and military auxiliary in time of war or national emergency. At the present time it appears that the American- flag, privately-owned fleet is sufficient to meet commercial needs but insufficient to meet defense needs in case of an emergency. Moreover the industry faces the problem of replacing its existing vessels within the immediate future. The Office of the Under Secretary of Commerce for Transporta- tion and the Maritime Administration are endeavoring to obtain informa- tion for the purpose of compiling a report on possible methods of stimulating the tanker segment of the shipping industry. Such in- formation will be treated as confidential and incorporated in the report only in a consolidated manner. In view of the foregoing, the Maritime Administration would appreciate receiving from you data and information on the following subjects: Postwar influences 1. Each of the factors mentioned below may have had an influence on your operations since the end of World War II. If such influence ex- isted, please describe this influence — -cause and/or effect— using pre- cise data: a. Changes in operating revenues b. Changes in types and/or volume of cargoes c. Changes in basic routes served d. Changes in cost operation e. Increase or decrease of foreign flag competition f . Carriage of Government financed cargoes g. Operations and chartering of tankers by M.S.T.S. h. Changes in size and speed of your vessels or competing vessels i. Increased or decreased efficiency of shoreside operations -51- Comparative costs 2. Please supply the cost (average) or freight rate per barrel of trans- porting black oil or gasoline by: a. T2 tanker b. Tanker of the replacement type contemplated in question 5 c. Railroad tank cars, where such competition exists (freight rate) d. Pipeline, if existing or contemplated (freight rate). Indicate whether pipeline is existing or contemplated. Vessel replacement 3. Indicate in what respects, if any, the tankers you now employ in the domestic trades are not satisfactory from the standpoint of operating costs, port accommodations, cargo handling facilities, and any other fac- tors which you regard as important. In Indicate in what respects, if any, the tankers you now employ in the offshore trades are not satisfactory from the standpoint of operating costs, capital costs, port accommodations, cargo handling facilities, and any other factors which you regard as important. £. Please indicate with respect to each tanker which you own: a. Tentative year of replacement without reference to Government acceleration incentives b. Tentative year in which you would be willing to replace under Public Law 5>7U (trade-in and build legislation) c. Estimated trade-in value under b d. Estimated cost of replacement under b 6. Please state whether or not your replacement program would be accel- erated, and to what degree, if the changes recommended by you under ques- tion number 9 were made. 7. Please state what use you plan to make of Section 5>09 (lending assist- ance) of the Merchant Marine Act, 1936, in relation to the replacement of your vessels and how such replacements would be aided by the use of that section. - 52 - 8. Please supply information with respect to the types of vessels most suitable for your principal domestic trade and principal offshore trade, giving: a. Deadweight capacity b. Speed c. Length and draft d. Any unusual piping arrangements, in excess of or different from those now contained in a T2 type vessel. Development and promotion 9. In what ways do you feel that existing laws could be amended so as to be of greater assistance in furthering the aims of the Merchant Marine Act, 1936? Areas which you may wish to consider are: a. Mortgage insurance b. Deposits of tax-deferred earnings to provide for vessel replacement c. Depreciation and amortization provisions d. Construction differential subsidies e. Trade-in and build program (Public Law 5lh) f • Administration of inspection and navigation laws g. Transportation of Government-owned or -controlled cargoes General 10. What problems other than those already mentioned face your company? 11. What steps (including but not limited to legislation) do you believe the Government and other interested parties should take in solving these problems of the industry? 12. What order of priority should be attached to the problems of the domestic and offshore tanker trades in seeking their solutions? February 18, 195£ -53 - APPENDIX C DIGEST OF REPLIES TO INDUSTRY QUESTIONNAIRES On January 25, 1955, a conference of coastwise and intercoastal dry- cargo shipping operators was held in Washington at the request of Mr. Louis S. Rothschild, then Maritime Administrator. This was followed by a conference of tanker operators on February 1, 1955. After these conferences questionnaires were sent to the industry participants. The following is a general and necessarily condensed summary of the industry's point of view as expressed by the replies to the questionnaires. There are two documents, however, that are reproduced verbatim later in the Appendix because of their comprehensive coverage of certain subjects of key importance, and because they represent the composite opinions of their sponsors and authors, the Intercoastal Steamship Freight Association (Appen- dix D) and the Marine Exchange, Inc., (Appendix E) respectively. It is recom- mended that these two documents be read carefully, for more complete under- standing of the situation as evaluated by the operators than can be given in summary form. The paper submitted by the Intercoastal Steamship Freight Association gives factual data and opinions on behalf of the Association's members in direct reply to the dry-cargo questionnaire. The Marine Exchange, Inc., paper was prepared before the questionnaire was issued, but is equally pertinent to certain major subjects covered by the questionnaire. The dry-cargo carriers ' comments are summarized first, under general subject headings rather than specific questionnaire items, many of which are so closely related or overlapping as to require consolidated treatment. Where appropriate, references to specific questionnaire items are indicated by item numbers in parentheses, e.g., (2.f) or (10. c). DRY CARGO GROUP Labor Throughout all replies to the dry-cargo questionnaire more emphasis was given to the subject of labor costs and productivity, and to the resis- tance of long-shore labor to measures designed to reduce cargo -handling costs, than to any other subject with the possible exception of freight rates and rate-making. It enters into the comments of the associations and of individual operators not only with respect to the question (2.f) on collective bargaining, but in relation also to the questions on the efficiency of vessel and shore- side operations (lO.c), vessel characteristics (11 and 12), ship replacement plans (13), and the general questions (15 through 19) at the end of the ques- tionnaire . The general thesis is that longshore labor has not only been the source of the greatest increase in the operators' costs, and the greatest impediment to improvement in cargo-handling methods, but that it is also the main element of uncertainty for the future, as a potential obstacle to technological pro- gress and a deterrent to ship replacement and forward planning. -5U - With respect to stevedore productivity, the most comprehensive state- ment was given in the Intercoastal Steamship Freight Association brief, which reads as follows: "l. Taking all intercoastal ports as a unit, there has been a substan- tial decrease in the man-hour production of longshoremen. This situation is much worse at some ports than at others . Indeed, there are some ports at which present man-hour production equals that of 1939* If an earlier pre-war date than 1939 were used, the present situation would make an even worse com- parison; for by 1939 productivity had already declined substantially compared with 1935. "2. All through the post-war years, both as to shore labor and seagoing personnel, the intercoastal trade has been plagued with strikes, and with what are termed "work stoppages" in cases where a strike would violate a contract, "3. There have been many sporadic slow-downs by dock labor. Sometimes these are due to alleged grievances against management, but by far the greater part of them are the result of jurisdictional disputes between rival unions or disputes among union personnel. At certain ports these slow-downs have been so prevalent as to make the word "sporadic" a misnomer. 'fy.. The same fundamental causes for the slow-downs also produce gang shortages, which of course operate to delay the ship and increase carrier costs. It is significant that the ports at which gang shortages are the most prevalent are the same ones at which slow-downs are the most frequent. "5>. A new device employed just a few months ago, for several weeks almost paralyzed that part of the trade using west coast crews. Its use was engendered by a dispute involving a single ship, a ship not employed in the intercoastal trade or by an intercoastal operator, and it consisted of a re- fusal by all members of west coast crews to work overtime hours while a ship was in port. One effect of this was to more than double the time spent in port. A secondary effect, due to the fact that all cargo handling to and from such ships had to be done during the straight time ship hours, was to create an artificial gang shortage during straight time hours, thus compelling opera- tors of ships with east coast crews to do most of their cargo handling during overtime hours. "6. Efforts of intercoastal operators to adopt improved methods of cargo handling have been overwhelmingly resisted by labor. We have in mind particularly palletizing, bundling, and the use of containers or similar units. Very recently, however, we have been advised by responsible labor representa- tives that they will now cooperate in an effort to work out such problems. w On the part that might be played by the government in labor matters the opinions were mostly negative or inconclusive. Some replies indicated that existing labor legislation was satisfactory, but that its application or administration might be improved. Some expressed strong objections to inter- ferences by government in collective bargaining or labor relationships in general, though in one case it was suggested that the Maritime Administration might help by impressing on labor, in its own interest, the need for preserving the industry as a source of jobs, and to this end, for giving better production and abandoning "make-work" practices. -■$$ - Freight Rates As indicated above, freight rates and rate-making was one of the two subjects that received the most attention in the replies to the dry-cargo questionnaire. Unquestionably, more space was given to discussion of this subject than any other. This is due in part to its complexity, but also to the industry's opinion that this is one of the two principal horns of their operating dilemma, the other being labor. The papers submitted by the two shipping associations go into the subject thoroughly. For present purposes it is enough to say simply that the industry believes that the Interstate Commerce Commission has not acted in conformity with the National Transportation Policy as established by statute, and as a result the railroads have an unwarranted advantage which threatens the water carriers' existence. In considering possible remedies for the situation, the brief of the Intercoastal Steamship Freight Association states the belief that, "coordinated regulation of the different forms of transportation is necessary if destructive competition is to be prevented and the long neglected Transportation Policy carried into effect. Perhaps the name assigned to the body to which such regu- lation is entrusted is unimportant The mere transfer of regulatory power over water carriers to a separate body would in no way operate to prevent the railroads from continuing their present destructive practices against the water carriers. The rail carriers and the Interstate Commerce Commission would still play the tune to which the water carriers would have to dance." The brief goes on to suggest, however, that, "Perhaps some considera- tion should be given to a scheme of transportation regulation which was con- sidered a few years before the passage of the Transportation Act of 1^0 ... ... but never formally proposed ...... Under the schemes referred to each form of transportation woula be regulated by an independent board. Over and above this group of boards would be a coordinating commission. The basic idea was to provide a limited means of appeal to the coordinating com- mission." The duties of the coordinating commission "would embrace the preven- tion of destructive competition between different forms of transportation." The paper submitted by the Marine Exchange, Inc., recommends action considered not only "a plain remedy but one appearing to have some possibility of achievement." The proposal is for "legislation defining the compensatory rate and eliminating the result in the Baltimore -Ohio case by requiring the route cost measuring stick rather than the system cost." (In the Baltimore- Ohio case the Supreme Court in 1952 held that a rate is not necessarily non- compensatory under the Act unless it is shown that it affects the profit and loss picture of the entire rail system. The basic contention of the water carriers is that the railroads have an inequitable advantage in being permitted to quote non-compensatory rates on routes where there is land-sea competition, and higher rates where such competition does not exist.) A number of suggestions were made, both in replies to the questionnaire and in discussion at the dry cargo conference on January 25, 1955, to the effect that some form of intercession by the Maritime Administration in proceedings before the Interstate Commerce Commission in matters of importance to the water carriers would be of benefit to the domestic water lines. Without specifying any particular procedure, the general feeling appears to be that the shipping - 56 - companies need a friend in court, that the Maritime Administration's respon- sibility for the protection of the merchant marine makes it the logical agency to assist the industry by sponsoring and exerting influence in matters favoring the industry's interests. Two questionnaire items (8 and 9) dealt with joint land-water rates . As these items were covered in the brief of the Intercoastal Steamship Freight Association and endorsed by reference in the individual replies of the Associa- tion's members, very few other comments were received. The comments may be summarized as follows: Joint land-water rates are desirable and beneficial to shippers and consignees, simplifying their rate calculations and paper-work, and usually providing a lower point-to-point rate than the combination of the individual rates of the carriers affiliated in the arrangement. To effect such a reduction, however, it is necessary to reduce the rates somewhere along the line, a step which the individual carriers are reluctant to take. The Intercoastal brief indicated that joint rates have not as yet produced the volume of business hoped for, and that their value to the water carriers can be tested only by further experimentation. Item 10 .a of the dry cargo questionnaire requested an appraisal of the influence of changes in operating revenues due to changes in traffic volume, cargo characteristics, and freight rates, during the postwar period. Consider- able data were submitted in the industry members' replies on specific increases in various elements of costs and the narrowing of freight rate differentials between land and sea carriers, but only one, estimate was made of the relative weight of the factors under consideration. With the reservation that the opinions expressed are no more than estimates at best, the Intercoastal Steam- ship Freight Association notes that the average rate per ton or cargo handled in the intercoastal trade during the third quarter of 195k was $2U«25, as com- pared to $10.00 in 1939. In their opinion this increase of approximately 150 percent is due about two-thirds to increases in rates on commodities that are still moving, and one-third to changes in the consist of cargo carried. The change in cargo consist involved the complete disappearance of certain low-rated cargo, changes in the relative volume of the different commodities carried, and an increase in the volume of high-rated less carload traffic. Costs and Traffic No attempt is made here to summarize the rather considerable volume of data submitted on various elements of operating costs and traffic. To the extent that available statistical material is subject to comparative analysis, these subjects are examined more fully in Chapter II. Panama Canal Tolls No direct reference was made in the dry cargo questionnaire to Panama Canal tolls. The subject is mentioned, however, in both of the shipping association briefs, and the Marine Exchange, Inc., urges that it be given first priority for action by the Maritime Administration, as a matter on which posi- tive results may be reached quickly. The other three main points of emphasis made by the Marine Exchange, Inc., namely, the rate structure, cargo handling, and vessel design, are considered long-range projects. -57 - The Marine Exchange, Inc., ana the Intercoastal Steamship Freight Association approach the subject of Panama Canal tolls from some-what different angles. The position of the Marine Exchange, Inc., is that the tolls can be eliminated by amending the Canal Zone Code so as to provide for the same treat- ment of toll charges against intercoastal operators as is applied with respect to military ships, namely, by a bookkeeping entry that credits the Panama Canal Company with the amount of tolls that would be earned from the intercoastal operators, without a compensatory increase in the tolls paia by foreign or American offshore operators. The Intercoastal Steamship Freight Association expresses the view that the Canal Company is not conforming to statutory requirements for the estab- lishment of tolls based on a formula covering all operating and capital costs plus a share of the Zone Government costs. General Accounting Office estimates are cited to indicate that the Canal Company's Canal Division revenues have exceeded costs in the three year period from July 1, 1951 to June 30, 195k by such an amount that a substantial reduction in tolls could and should be made if the law and sound accounting practices were followed. Ship Characteristics (11 and 12) Items 11 and 12 of the dry cargo questionnaire inquired as to the suitability of the vessels now used in the coastwise and intercoastal trades, and on characteristics that should be incorporated in ships specifically de- signed for these trades. The consensus of replies on the suitability of the present ships was that such vessels are generally satisfactory. There were, however, several comments that hedged this opinion in such terms as the following (emphasis supplied) : "The Liberty type vessel, as converted by us for the intercoastal trade has been generally found satisfactory .... when compared to other types of vessels presently available ." "The vessels .... we are using .... are satisfactory in many respects, but do not provide all the facilities that could be used to advantage "Yes, the present vessels would be very satisfactory if we received a good day's production for the excellent pay the men afloat and ashore receive ." "The C-2 vessels presently operated .... are entirely satisfactory from the standpoint of capital cost and general design for such use. However, the operating costs .... are inordinately high due primarily to the exces - sive costs of direct labor and the unreasonable manning scale . ..." "The breakbulk type of vessel presently operated is satisfactory from the standpoint of capital costs, port accommodations and cargo handling facili- ties ( the latter with certain reservations ) , but is not satisfactory from the standpoint of operating costs ... . " -58 - Several operators specified characteristics considered desirable in these trades, including the following: On Liberty conversions - "Heavier cargo-handing gear, longer booms, winches of greater lifting capacity, larger natch openings ana tne opening of various holds ana tvveen bulkneaas. Tnese alterations have resulted in improved despatcn, better hatcn distribu- tion and the ability to accommodate articles of unusual length." For the record, it should be notea that i,he following comment was made by an operator engaged in the intercoastal trade merely as a subordinate ele- ment of his foreign trade, which is his primary fie 3d of operation. "We consider vessels of about 620,000 bale cubic, engines aft with speed of 18 knots, complete with facilities for carrying bulk liquids, refrigerated cargo, etc., eminently suited for such service. Such vessels have substantial carrying capacity, and with engines astern much improved stowage of cargo can be accomplished; their rated speed of 18 knots would permit service more in keeping with the desires and requirements of the trade; refrigerated space would be useful to the growing demand for carrying frozen foods; and aeep tanks should permit a better chance of utilizing the deadweight capacity of the vessels, as well as providing the trade with needed facilities of that nature." Another operator commented that: "The general characteristics desirable for vessels in the intercoastal trade are large hatch openings, generally square or rectangular holds (that is to say, hatches with a sharp shear are undesirable), raised winches of 10-ton capacity, long booms, ana .... quick opening hatches • • , it is also de- sirable that decks and holds have as few obstructions as possible." One coastwise operator referred to his plans for a new type of vessel for sea-land trailer ship operation, with the comment tnat "these and other such labor-saving devices are essential if the coastwise water carriers remain in operation." Another stated that his company is "proceeding with a detailed study involving seatrain-truck-trailer-van type ships. The vessels contempla- ted for utilization are the C-U-5-Alj. type which would be converted for this special purpose". Two suggestions were made on possible government help in the matter of ship design. The brief of the Marine Exchange, Inc., says, "Vessel design is the problem here and except for some minor innovations such as side port load- ing, which has been tried and virtually abandoned, and except for the sea train operation, the industry has simply not had the economic facilities at its dis- posal to experiment with prototype vessels with radically changed designs. This seems clearly a field in which government could serve. In addition to the economic factor pointing in the direction of government functioning in this field, there is the labor factor. The prestige of government recommendation for broad application of a new vessel design vrould tend to substantially re- duce labor opposition." Much the same thought was expressed in one of the individual company replies, but covering the somewhat broader field of research and development. The respondent believes that the government should "study such a program in order to develop plans which will provide for, on any new construction, such items as quick opening hatches, speedy rigging equipment to trim cargo gear and any other labor saving devices which will permit American ships to be more - 59 - competitive with foreign flag vessels." Despite the reference to foreign com- petition, the operator who made this suggestion is engaged primarily in the domestic intercoastal trade. Ship Replacement (13 and Ik) With the exception of one operator engaged primarily in foreign trade, and the two companies previously referred to that are interested in roll-on, roll-off ships, all replies to the questions on ship replacement indicate that there are no plans for future construction. The consensus of the comments is that while a reduction in cost (presumably by construction subsidy or trade-in- and -build arrangement, or both) would be a factor of importance, it is only one factor that must be considered in relation to others, such as the uncertainty of profitable operation under unfavorable labor conditions and freight rates. The operators expressed willingness to examine any proposition, but could not commit themselves to any specific plan at present. Revocation of Certification for Nonuse (2. a) There was a general, though not unanimous, agreement that dormant cer- tificates are an impediment to forward planning, to investment, and to providing services that might expand the water carriers' field of operation. Specific recommendations varied. One suggested cancelling certificates for nonuse after three years, another for prolonged nonuse, and another for willful failure to engage in or continue service on the certified route. Limitations on Subsidized Foreign Trade Operators (2.b) The answers to the question on limiting the participation of subsidized foreign trade operators in the coastwise and intercoastal trades, as might be expected, varied in accordance with the trades served by the respondents. Those with substantial foreign trade interests, subsidized and nonsubsidized, opposed any limitation, while those engaged primarily in domestic operations thought the subsidized lines should be prohibited from operating in this field. One of the opponents of limitation advanced the thought that "American vessels subsidized in overseas trade might actually be encouraged to engage in coastwise and intercoastal operations when such needed service is not, or cannot be provided by exclusively domestic carriers, as possibly being the only way the public needs can be met under such circumstances." One of the proponents of limitation stated, "If the defense benefits of having a substantial fleet operating exclusively in domestic waters is desir- able the joint operation should be discouraged. To have either foreign or intercoastal service dependent on condition of the other is bad because there is then no assurance of adequate service for either. Exclusive two-way service which is best for the public interest and most difficult to maintain should be given preference in all situations, regulatory or otherwise. The granting of one-way certificates for the best leg threatens by dilution of traffic to destroy the two-way operation of others." -60 - Special Government Rates Under Section 22 of the Interstate Commerce Act, common carriers are permitted to charge the Federal, State or Municipal governments lower rates than those charged the general public. The Intercoastal Steamship Freight Association and its members, as well as other individual respondents to the questionnaire, urge that these provisions of Section 22 be repealed. The contention is that intense, unregulated competition for the large volume of government traffic imposes a heavy burden on the transportation system, and diverts traffic from intercoastal water carriers who cannot or will not meet the low government rates quoted by the transcontinental railroads. Other Problems (15) Item 15 of the dry-cargo questionnaire asked: "V/hat problems, other than those already mentioned, face your company?" As the questionnaire was designed to bring out information on the major problems of the industry, it is not surprising that the answers to this question, and related answers to other general questions, touch upon what may be called fringe problems — matters of some concern to the industry, but not of the same basic importance as others. In view of their limited significance, these f rings problems are merely listed here, without discussion. a. Unregulated truck transportation of agricultural commodities. b. Proposed "user taxes" on the use of harbors, rivers and other waterways • c. Legislation having the effect of raising bunker oil prices. d. Equal regulation on liquid bulk carriers vs. deep tanks of regulated freighters. e. Support of commercial intercoastal shipping by Military Sea Transportation Service. f. Repeal of 3 percent tax on public contract carriers. g. More equitable taxation and more realistic treatment of reserves for depreciation. h. Simplification and speed-up of regulation. i. Government help in providing better terminals and facilities. j • Better means of financing the purchase and replacement of vessels. k. Restriction of operations of proprietary lines. - 61 - TANKER GROUP General The tanker questionnaire was answered by eleven oil companies and three independent tankship owners. V/hile certain broad aspects of the picture pre- sented by all respondents are essentially the same, in some particulars the com- ments of the two groups reflect significant differences in point of view. In brief summary, the general postwar situation is described as follows: High costs of operating under the U. S. flag and low rates quoted by foreign competitors have effectively eliminated American tankers from open-market opera- tions in the offshore trades. The postwar domestic traffic in petroleum products has increased substantially, but for a number of reasons including the fact that a certain amount of American tanker tonnage that cannot find offshore employment has backed up into the domestic trade, the market has been over-tonnaged except during seasonal peaks and in special situations such as the Korean war when the privately-owned tanker fleet was called upon to help carry the large volume of military cargo. The over-tonnaged market, with the attendant frequent lay-up of privat'ely-ovmed tankers, has made the private shipowners particularly sensi- tive to the government -owned tanker operations of the Military Sea Transporta- tion Service. In view of the government's interest in preserving the tanker fleet for defense purposes, the tanker owners hold that government trai'fic should be carried by privately-owned ships, and that if any tankers have to be laid-up, seasonably or otherwise, they should be government-owned rather than privately- owned ships. Both the oil companies and the independent owners are concerned with the over-tonnaged market, as each group is interested in varying degrees in char- tering or contract operations for the account of others • But there is this difference: The oil companies provide the greater part of their own cargoes. Their interest in open-market chartering may be considered marginal and supple- mentary to their main operations. The independent owners, however, are wholly dependent upon chartering or contract operations . To the extent that they have long-term bareboat charters, their position is somewhat similar to that of the oil companies — they have transferred the problem of vessel employment to the operating charterer. But otherwise they have to find customers in the open market, and in a soft market their situation is not good. This basic difference between proprietary and independent tanker owners affects their respective attitudes towards ship replacement. In general, the oil companies look on their tankers, at least for the time being, as capital equipment essential to the conduct of their business. Unless costs continue to rise beyond the point that would make pipeline transportation more economi- cal, in due course the equipment will have to be replaced, with or without government help or incentive . If a good deal can be made with the government on "trade-in-and-buila", the oil companies may be interested, but they do not consider this a primary determining factor. By and large, they believe re- placement will be governed by economic considerations and company needs rather than by any form of government action. The independents, on the other hand, do not loresee any new construc- tion except on firm long-term charters. While they place considerable emphasis on the need for eliminating government competition, they imply that this alone would not give sufficient strength to the market to stimulate much new - 62 - construction, and that to create a favorable investment climate it would be necessary not only to receive government aid affecting the cost of new con- struction, financing, taxes, depreciation, and amortization, but probably also the payment of an operating subsidy to make it possible for U. S. flag ships to compete successfully in the offshore trades. Failing this, they believe that a liberal attitude should be adopted toward foreign sale and transfer of their excess tonnage. 1. Postwar Influences a. Changes in operating revenues Eight of the eleven oil companies who replied to the questionnaire indicated that postwar changes in operating revenues had no influence on their operations. This was explained by the fact that the tankers were operated for company account and not for revenue, except for charter revenue on tonnage surplus to company needs. One company stated that revenues increased after the war, but that since 1950 they had decreased about five percent. Two other oil companies gave the following figures on average charter rates for the years indicated, expressed in percentages of the USMC scale; Year Company A Company B 19U6 100 No Report 19U7 100 100 19U8 118 132 19U9 6U 73 1950 106 112 1951 20U 190 1952 136 149 1953 62 8k 19bk 65 72 One of the above two companies said that the indicated break -even point for a T2 tanker ranged from approximately 80 percent of the USMC scale in 1950 to 88 percent in 1955 • On this basis, it would appear that charter operations were at least potentially profitable in six of the nine years covered. One of the three independent owners stated that the average charter rates for the years 1953 and 195U were less than break -even, which agrees with the data given above on these two years. Another of the independents gave the following average monthly freight rates for dirty cargoes (crude and fuel oils) carried from the U. S. Gulf to ports north of Hatteras, for January and July of the years 19U8 through 195U, and for January of 1955? as percentages plus and minus the USMC scale (minus percentages are shown in parentheses); - 63 Year January July Year January July 19U8 200 (22i) 1952 200 (10 19U9 (15) (50) 1953 (22£) (U0) 1950 (U0) (32*) 195U (3U) (65) 1951 175 17} 1955 (o) The company that gave these figures stated that, "As soon as post- World War II tanker building programs created a surplus of tonnage, freight rates dropped to the point where T2-type and less efficient tankers could not operate profitably except during periods of high seasonal demand, or demand created by a Korean type situation and military requirements." Both the seasonal variation and the influence of the Korean War on the 1951 and 1952 rates are evident in the above tabulation. The third independent company gave no figures, but stated that (in- dividual) revenues in the postwar period have decreased because of excess tonnage in relation to demand. This company gave as the cause of the excess tonnage: (i) postwar building; (ii) foreign competition in offshore trades; (iii) U. S. ships formerly in foreign trade returned to domestic trade; (iv) increased imports of oil from the Near East, reducing domestic coastwise traffic; (v) pipeline competition; and (vi) MSTS competition. b. Changes in Types and/or Volume of Cargoes The replies to this question varied widely. Some of the respondents reported virtually no change in types, others that there has been a substan- tial increase in the number of types of clean products or so-called special- ties carried. There was general agreement among the oil companies that postwar volume has increased substantially, and one of the independent com- panies said that the volume available to U. S. tankers had declined due to increased imports. Another independent company indicated that tanker traffic volume on the Pacific Coast had declined because of the use of pipelines to northwest ports from new inland fields. c. Changes in Basic Routes Served The general consensus of replies was that tnere had been no changes in basic domestic routes, but there were two comments on the loss of foreign trade routes previously served. d. Changes in Operating Costs The respondents agreed that operating costs have increased substan- tially since World War II, but the figures varied, partly because of different base years. The range of variation on overall operating costs is shown by the following summary of replies: - bk - All Costs Labor From To Percent Increase 70$ Percent Increase Not Stated Not Stated 19U6 195U 75$ 19U6 1» 93% About 25k% 19U6 195U 3,2% Over 99$ ISkl Not Stated 58$ 19U7 Not Stated 31% 19hl 1953 100$ One of the independent owners gave the following tabulation of average wage costs per day including overtime and fringe benefits for T2 or equivalent ships of U. S. and British registry: % Increase Jan. 1939 Jan. 19U6 Jan. 1955 1939 to 1955 U. S. Flag $19U $U25 $932 380$ British Flag $101 $18U $276 176$ In connection with these figures, it was stated that the average percent of wage increase in ail U. S. manufacturing industries between 1939 and 1955 was 210 percent, as compared to the 380 percent increase shown here in the tanker payroll. Another independent owner gave the following representative daily opera- ting costs of a T2 tanker unaer the U. S. flag: 19U7 1950 1952 1955 Wages Stores and Miscellaneous Insurance Repairs $U32 $575 $705 $895 120 165 180 200 186 161* 175 155 151 178 Ull Ull TOTAL $889 $1,082 $1,U71 $1,661 % increase over 19U7 21.7$ 65.5$ 8b. 8% Cost of bunker "C" fuel at Houston - per bbl. $1.53 $1.60 $1.85 $2.05 % increase over 19U7 U.6$ 20.9$ 3U.0$ e. Increase or Decrease of Foreign Flag Competition The comments on this question reflected the general opinion expressed elsewhere, that it is economically impossible for U. S. flag ships to compete in the offshore trades, and that the lower foreign costs make it attractive or necessary for U. S. citizens to build and operate under foreign flags if they want to participate in foreign trades. -65 - f • Carriage of Government Financed Cargoes Eight of the fourteen respondents either expressed no opinion on this question, or stated that carriage of government financed cargoes had no in- fluence on their operations. Four others apparently considered government financed cargoes to be military cargoes carried by MSTS, and related their answers here to the next question (l.g) on MSTb operations and chartering. Only two referred directly to foreign aid cargoes, one stating that "50/50 has helped," and the other that, "There is little doubt but that the carriage of government financed cargoes has helped provide and increased utilization of American-flag ships. How long this will continue is, of course, problem- atical." g. Operations and Chartering of Tankers by MSTS One oil company did not answer this question, and three others stated that MSTS operations had no material influence on their operations . All the rest, including the three independent owners, told essentially the same story. Under the Voluntary Tanker Plan they provided MSTS with ships for the Korean War lift at the established rate of USMC plus 25 percent for T2s. It was not contended that operations under the Pool were unprofitable, but open market rates at the time were plus 100 percent to plus 200 percent, and in some cases it was necessary for the owners to pay these prices in the open market to replace the tonnage contributed to the Pool. They contend that when the government needs decreased and open market rates fell below the Pool rate, MSTS discontinued requesting tonnage from the Pool and obtained their requirements on bids at rates below the Pool level, and often at less than cost. Rather than operate at a loss, from time to time the private owners have been forced to lay up substantial numbers of their ships. More- over, they maintain that the rates would not have been at such low levels except for the continued operation of government-owned ships by MSTS in service that could have been provided by private companies. They conclude that the operation of from around 36 to 50 MSTS tankers (the June 1955 figure was 32) "adds to the over-tonnaged condition of the only markets open to U.S. flag tankers, and depresses rates." h., i., 3, k, and 8. Vessel Characteristics and Shoreside Accommodations Five items in the questionnaire having to do with vessel characteris- tics and shoreside accommodations are overlapping to an extent requiring combined treatment in this summary. The following, briefly, are the main points brought out in reply to these questions : The economy of operating large tankers is commonly recognized, but size is limited Dy port accommodations, especially water depth, and the re- quirements of the intended service. In reply to question (8) on vessel characteristics most suitable for the domestic and offshore traaes, four companies specified size of 30,000 to 32,000 deadweight tons for the domestic trade, against nine who believed that somewhat smaller ships of from 18,000 to 26,700 deadweight were more suitable. On foreign trade there were only three replies, one calling for 25-32,000 and the other two for 38,000 deadweight tons. One of the latter replies stated that for the company's purposes in carrying clean products, a 16,000 deadweight ton ship would be most suitable. - 66 - Speed was evidently a secondary consideration. From 15 to 16f knots was specified in all cases but three which called i'or speeds of 17-18 knots. These three, incidentally, were in the 25,000 deadweight ton class for the domestic trade. The speeds specified for the "big" supertankers of 30,000 deadweight tons and over were all in the 154- 16-g- knot range. With respect to shipboard piping and pumping equipment, the replies varied, but in a number of cases it was indicated that provision should be made for segregating from six to fourteen grades of diversified cargoes. There was general agreement on the importance of efficient shoreside terminals, adequate storage capacity, larger and more pipelines, and better pumping systems, all of which contribute to rapid loading, unloading, fast turn-around, and increased carrying capacity over a given period of time. Throughout the replies to the questions on vessel characteristics and shoreside facilities there were repeated comments on the need for greater water depths in harbors and channels to accommodate the larger, more efficient ships . 2. Cost or Freight Rate Per Barrel Considerable data were submitted on the relative cost of carrying petroleum products coastwise by T2 tankers as compared to tankers of replace- ment types specified by the respondents. Because of variations in cargoes, length of haul, and possibly also the basis of calculation, there was little uniformity of pattern beyond the general principle that larger ships have lower per-barrel costs than T2s . One company, for example, indicated that on a T2 cost index of 100, tne comparable costs on replacement vessels of 20,000, 25,000 and 30,000 deadweight tons, respectively, would be 95 > 8I4 and 75 e Another reported an estimated index cost of 73 for a 26,700 deadweight ton ship — two points lower than the 30,000 ton vessel just mentioned; and a third company gave a cost of 91 on a 29,000 ton ship — five points higher than the 25,000 ton cost of 8k quoted above. Where a respondent gave costs on more than one replacement ship, the larger ships had progressively lower costs, but in comparing costs on ships of the same or approximately equal tonnage estimated by different companies, there were substantial differences. In one case it was estimated that transportation costs on replacement vessels would be about the same as on T2s, because the efficiency of the new ships would be offset by increased depreciation on higher acquisition costs. In another case, with no reason given, the costs on new ships were estimated at levels somewhat higher than T2 costs. In both instances the specified replacement ships were comparatively small, in the 17-20,000 deadweight ton range • No figures were given on comparable pipeline transportation costs, although this information was requested. Only one comparison was given on railroad tankcar versus tanker costs. On the Houston to Marcus Hook run, the T2 cost of transporting crude oil is - 67 - given as 230 per barrel, and of 200 per barrel on a supertanker of 30,200 deadweight tons. Against this, the railroad tankcar rate is $6.01 per barrel — almost 3,000 percent higher. 5, 6 and 7, Vessel Replacement Item 5 asked four questions on: (a) Tentative years of replacement without regard to government acceleration incentives; (b) Tentative years in which owners would be willing to replace under public Law Slh (Trade-in-and-Build) ; (c) Estimated trade-in value; and (d) Estimated replacement costs. The replies to these questions may be summed up as follows: (a) Without regard to government incentives, such replacement as might be undertaken would occur generally on the 20 -year maturity schedule, with some slight acceleration. This would replace most of the T2s and T3s in the years 1961 through 1965, some prewar types earlier, and a small amount of postwar construction as late as 197U. (b) Only two of the oil companies indicated any positive interest in construction under Public Law 57U. One is now building three ships under this legislation, and states that further construction depends on service performance after delivery, and on demand for vessels of this size. The other reported that replacement under Public Law 57U is contingent, in part, on the action taken on an application now before the Maritime Administration under this law. A third oil company gave a tentative schedule on which construction of three ships representing approximately half of its present tonnage might be considered in the years 19i>6~58, if the owner were allowed to build what he considered the economical commercial speed. A few replies were definitely negative. One oil company stated that it is not interested in Public Law 57U, and an independent owner expressed the belief that the law offers no incentive unless all other problems can be solved. The difference between trade-in value and replacement cost was considered so great that in the absence of clear-cut demand or other incentive, this company could not see how they could incur the added debt and increased debt charges. Another independent company considered Public Law 57U no incentive unless secured by long-term charter, in light of the over-tonnaged market. All the other respondents were noncommittal, indicating that their re- placement policy had not yet been established, that they have no present plans, or that their decision depends upon further investigation and consider- ation. The answers to the questions on trade-in value and replacement costs can be summarized only in the broadest terms. A number of respondents said they could not give figures, and where figures were given, they usually had - 68 - no common denominator. That is, the trade-in value of a T2 would be compared to the construction cost of a new supertanker. One estimate was submitted, however, indicating that replacement cost per deadweight ton would be from four to seven times the trade-in value per deadweight ton. Item 6 of the questionnaire asked if replacement programs would be accelerated, and to what degree, if legislative changes recommended in answer to question 9 were made. Parenthetically, the answers to question 9, as will be seen later, cover a very wide field of both legislative and administrative re commendations • The general tenor of replies to question 6 was more negative than otherwise. Tito of the oil companies and one of the independents stated flatly that replacement would not be affected by new legislation. One oil company made no comment. Another, owning no ships, stated that their present policy is to avoid the employment of capital funds for tanker ownership purposes, that modification of existing laws might affect their policy, but that their present plans indicate no need for replacement (of chartered ships) prior to I960. The composite attitude of the rest may be summed up as follows: The recommended changes are desirable and might or might not affect the replace- ment program; but as of now the degree of possible influence cannot be ap- praised, and there are other considerations. For the oil companies generally, their own operating requirements and economic factors outweigh the influence of legislation. For the independent owners, unless the over-tonnage problem is solved or they are able to participate profitably in foreign trade, re- placement will occur only to the extent that long-term charters can be ob- taine d. Item 7 of the questionnaire inquired as to plans for using the government loan procedure for vessel replacement authorized under Section 509 of the Merchant Marine Act, 1936. Ten of the fourteen respondents, nine oil companies and one indepen- dent, statea that they do not contemplate using Section 5>09« One additional oil company said that they did not know whether or not they would use this method of financing, and another that they were making an investigation of the subject. Favorable comments came from the remaining two independents only. One of these stated the belief that Section 509 is potentially one of the most effective aids to new construction, as a means of financing that might not otherwise be obtainable.lt was considered "preferable to government in- surance in many cases because (i) the interest rate is reasonable and (ii) most insurance companies and other institutional lenders will not lend up to 872" percent of the cost of the V3ssel unless the owner obtains government mortgage insurance covering 100 percent of the loan." However, it was noted that there are no funds presently available and the need for assurance that the owner be permitted to depreciate the vessel over the period of mortgage amortization was emphasized. The other independent company expressed the opinion that Section 509 aid would be potentially effective if funds were made available and if loans of 100 percent of the construction cost were authorized — in other words, no down payment. This was considered necessary in view of the high cost of new construction and large working capital requirements. - 69 - 9, 10, 11, and 12, Other Problems and Recommendations The last four items comprise, in efi'ect, the summary and conclusions section of the questionnaire. Item 9 asked lor suggestions on the amendment of existing laws; item 10 for comment on problems not pre /iously covered; item 11 for recommendations on steps to be taken by the government and other interested parties in the solution of these problems; and item 12 for the order or priority that should be attached to the problems of the domestic and offshore tanker trades. The replies to these questions reflected the general difference in viewpoint between the two tanker groups — proprietary and independent. The oil companies, on the whole, had comparatively little to say, whereas the independent owners offered comments and recommendations on a wide and varied range of subjects. The result is that there appear to be only a few areas in which there is any substantial degree of common interest. As between the two grjdps, this is undoubtedly true, and while the importance of a problem to one company is not measured by its importance or lack of importance to another company engaged in basically different types of operation, it is at least pertinent here to differentiate between the subjects on which there are varying degrees of interest. On this basis, and because it is the only practicable way of putting together the scattered pattern of varied opinion, the following summary is presented under problem headings, with notations as to the degree of interest shown by the two groups of tankship owners • MSTS Competition : As previously reported in connection with item (l.g) of the questionnaire, there was wide agreement that MSTS competition has contributed to the over -tonnage d market situation. There was somewhat less emphasis given to this problem in question 9 on legislative recommenda- tions, but in reply to question 12 on problem priorities it was given first place by five of the six respondents and second place by the sixth. A num- ber of comments were made to the effect that the need for eliminating govern- ment competition is implicit in the declaration of policy of Title I of the 1936 Act. Depreciation and Amortization : Four of the eleven oil companies and all three independents favored amendment of the Internal Revenue law or the applicable regulations to liberalize the method by which depreciation may be charged off, so that the rate of depreciation could match the rate of loan amortization, or where financing is not involved, owners could depreciate their ships and build up reserves during the early years when the ships are most productive. Deposit of Tax-Deferred Earnings Toward Vessel Replacement : Two oil companies and two independents proposed amendment of Section i?ll of the 1936 Act to permit the deposit of tax -deferred earnings in construction reserve funds. Public Law 57U — Trade-in-and-Build : It has been previously noted that positive interest in building under Public Law 51k is extremely limited at the present time. This probably accounts for the scarcity of comment on the subject in replies to question 9 on suggestions for legislative change. Three oil companies and one independent commented on two aspects of the law - 70 - — trade-in valus and speed. The trade-in value was considered too low on the present basis to give adequate help in financing new construction. One sug- gestion was made that the trade-in value snould be the greatest of replacement value, world market value, or depreciated value. On speed, the opinion was that owners should be permitted to build for the speed they consider economical, and that the government should pay for the costs of building for any higher speed required for defense purposes. Administration of Inspection and Navigation Laws ; Two oil companies and two independents recommended changes in the administration of inspection and navigation laws. Biennial inspection as proposed by S. 7U3 was recommended in two cases, and another suggestion was that inspection should be conducted at the time of drydocking. There were three comments on the overlapping of juris- diction between the Coast Guard and the American Bureau of Shipping or Lloyd's Bureau of Shipping, with recommendations that the Coast Guard should accept inspection reports of the civilian agencies, or that inspection authority should be transferred to the latter. In addition, one of the independent companies called attention to two matters that appear to be of minor importance here — wage penalties on short voyage terminations, and quarantine inspection delays on arrival after "working hours. Construction and Operating Subsidies : Both construction and operating subsidies were recommended by one independent owner, and endorsed in principle by one oil company respondent, as the only means of making possible the par- ticipation of U. S. flag tankers in the foreign trades. Another independent company also favored a construction subsidy. It was suggested that construc- tion subsidies should be paid the shipbuilder rather than the shipowner. Transfers Foreign : Two independent companies favored a liberal policy on the transfer of registry to foreign flags. The position taken is generally that transfer to a friendly foreign flag, particularly under continued U. S. citizen ownership, would be more advantageous in the long run than to force future construction into foreign yards for foreign operation. One company suggested that the government should aid U. S. citizens in building modern competitive tonnage for registry under friendly foreign flags to engage in foreign trade, as an adjunct to the privately -owned tanker fleet that would be available for military use in time of war. Deeper Yfaterways : Despite the many references in answer to a previous question on the limitations to the operation of large vessels caused by in- adequate channel depths, the subject was mentioned only once as an industry problem about which something should be done. The oil company that made this comment expressed the opinion that the need for deeper waterways leading from the sea, so that largei- deadweight calling for deeper draft can be utilized, is the biggest problem facing the industry, of those which cannot be solved by individual effort. Miscellaneous : One independent company noted a number of other prob- lems which, while they are undoubtedly Yrarthy of consideration, appear some- what extraneous to the general scope of this study. Accordingly, they are merely identified here without elaboration: Extension of the Marine War Risk Insurance Act; Convertibility of foreign currencies; Discriminatory clauses of Section 9 of the Ship Sales Act; and Potential competition with government-owned pipelines. - 71 - APPENDIX D BRIEF OF THE INTERCOASTAL STEAMSHIP FREIGHT ASSOCIATION SUBJECTS la AND lb Considering the present instability in the intercoastal trade due to labor conditions, continued attacks by the transcontinental railroads, and present practices of the Interstate Commerce Commission, we believe that the intercoastal carriers are doing everything possible under the law to further the development of the intercoastal trade and the National Trans- portation Policy. Many improvements in the handling of cargo are prevented by the failure of labor to cooperate. There exist, under the law, subject to Interstate Commerce Commission approval, possibilities for the pooling of cargo or revenue with an accompanying reduction in costs; successful pooling, however, needs a basis of stability in the trade. The destructive competition deliberately engendered by the transcontinental railroads is dealt with in specific terms elsewhere herein, as is the failure of existing regulatory authority to stop such destructive practices. It is not the fault of the intercoastal carriers that the National Transportation Policy is not being effectuated. We believe the pages that follow will show that the National Transportation Policy is being flouted. SUBJECT 2d The passage of the Transportation Act of 19 UO, changing the word- ing of the National Transportation Policy, broadening the regulation of water carriers and transferring the regulation of water carriers to the Interstate Commerce Commission, was responsive to a wide spread belief, endorsed by the Interstate Commerce Commission, that effective regulation of interstate transportation required that competitive forms of transporta- tion be regulated by the same governmental body. Although the Transportation Act is riddled with exceptions, the Interstate Commerce Act as so amended gave the Commission effective control over most of the main arteries of rail, truck and water transportation in interstate commerce. Its power over the transcontinental railroads and their intercoastal competitors should enable it to carry out the National Transportation Policy in that field of competi- tive activity at least. If not, then the Commission should have long since explained to Congress the deficiencies in the statute and asked for the re- moval of such deficiencies. The Transportation Act of 19^0 has been in effect approximately l£ years. Transcontinental railroad rate cutting prac- tices for the purpose of taking business away from the intercoastal trade are worse today than ever before. As a matter of fact, the Interstate Commerce Commission's major effort in preventing destructive competition by railroads against water carriers was made in 1922, at a time when it had no control over the intercoastal carriers. The transcontinental railroads at that time sought to put into effect drastic rate reductions admittedly designed for the purpose of taking away the bulk of intercoastal cargo. The railroads sought Fourth Section Relief. The Commission denied the relief, and this destructive rate cutting by the railroads was thus prevented. In its decision, Transcontinental Cases of 1922, 7U I.C.C. U8, the Commission - 72 - laid down a standard which, if it were applied to the many recent destructive rate reductions by the transcontinental railroads, would require their can- cellation. The Fourth Section clause involved in 71; I.C-C. I4.8 is the prohibi- tion against charging more for a shorter than for a longer distance over the same route in the same direction when the shorter distance is included in the longer distance. The Commission is authorized in special cases to permit carriers to violate this prohibition, provided the charge for the longer haul is "reasonably compensatory." Nowhere else in the Interstate Commerce Act is the expression "reasonably compensatory" used. In denying relief from the statutory prohibition the Commission found the proposed rail rate reduc- tions were not reasonably compensatory and held that to be reasonably compen- satory a rate "must (l) cover and more than cover the extra or additional expenses incurred in handling the traffic to which it applies; (2) be no lower than necessary to meet existing competition; (3) not be so low as to threaten the extinction of legitimate competition by water carriers; and (U) not impose an undue burden on other traffic or jeopardize the appro- priate return on the value of the carrier property generally, as contemplated in Section 15a of the Act." The Commission added that reasonably compensa- tory rates ought, wherever possible, to bear some relation to the value of the commodity carried and the value of the service rendered in connection therewith. In ~L9hl , the Intercoastal Steamship Freight Association sought to have the Interstate Commerce Commission apply this same standard to all com- petitive transcontinental-intercoastal situations. Counsel for the Associa- tion contended in effect that the language used by the Commission in 7h I.C«C« Ii.8 was broad enough and appropriate enough to be applicable to situations where relief from the hth Section was not sought. Evidence was offered to show that the transcontinental railroads had reduced many rates since 1922 to levels as low or even lower than those condemned by the Commission in 1922 as not reasonably compensatory. The Commissioner presiding at the hear- ing was unimpressed. He insisted upon an acknowledgment from counsel for the Intercoastal Steamship Freight. Association that Section h is the only section that speaks of compensatory rates. He went further. He insisted upon getting the Association's witness then on the stand to testify that "the reference to compensatory rates in the Act occurs only in Section U." (Transcontinental Rail Rates-Intercoastal Water Rates, etc., Docket 29663, 2966U and 29708 - Washington hearing April 23, 19U7, pages 2lr?-252). Of late, however, this word "compensatory" crops up every now and then in Commission decisions having nothing to do with the Fourth Section. Sometimes its use betrays an administrative attitude which, subconscious or otherwise, if not pro-railroad is certainly anti -water carrier. Consider, for example, two Investigation and Suspension proceedings - one I & S Docket 6063, decided in 1953, covering a reduced transcontinental rail rate on tin plate; the other I & S Docket 6l6U, decided in 195U covering a reduced intercoastal rate on tin plate. The decisions were rendered in each case by Division 2 of the Commission, and one participating member of that Divi- sion was the same Commissioner who presided at the April 23, 19U7 hearing in Transcontinental Rail Rates-Intercoastal Water Rates referred to above. No Fourth Section question was involved. In Investigation and Suspension proceedings the statutory burden of proof is on the carrier defending the - 73 - rate. In the decision on the rail rate reduction, I &S 6063, the Commission found in favor of the railroads, and the Commission's report contains the following sentence (289 I.C.C. 38U, 386) : "There is no indication that the rate proposed is not compensatory." In the decision on the water rate reduction, I & S 6161; , the Com- mission ordered the reduction cancelled, and its report contains the follow- ing sentence (293 I.C.C. l£7, 165) : "It is not at all clear from the evidence before us that the rate would be reasonably compensatory so as not to cast a burden upon other traffic." There may not be one law for the rich man and another for the poor man, but it appears that there are two different Interstate Commerce Acts. Although we do not wish to dwell here on the merits of either the rail case or the water case, it is proper to note that in 20 years the rails by a series of rate reductions on tin plate and the intercoastal carriers by a series of rate increases on tin plate had narrowed the gross spread between their rates from 70 cents tc 20 cents. It was an attempt by the intercoastal carriers to restore the gross spread to 35 cents that the Com- mission condemned. In neither proceedings were any cost figures introduced of record. The subject here under discussion is the "allocation of regula- tory and other Government functions among such agencies as the Interstate Commerce Commission, the Department of Commerce, the Maritime Administration and the Federal Maritime Board." The only virtue in having all forms of transportation regulated by a single commission is that such control, it would seem, should prevent destructive competition between the different forms of transportation. This result has not been achieved under the present regulatory set-up. Actually, the transcontinental railroads are today waging the worst kind of warfare against the intercoastal carriers. The failure of regulation concentrated in the hands of the Com- mission to achieve anything approaching the results expected by many is due, we believe, to an attitude within the Commission. The Commission cannot today contend that it can do but little to prevent destructive competition between water and rail carriers because of the absence of control over water carriers. It has no basis for asserting that the intercoastal water carriers are guilty of indiscriminate rate reductions. The intercoastal carriers for nearly 20 years have been innocent in that respect. Destructive competition between the transcontinental railroads and the intercoastal carriers can only be terminated now, in accordance with the National Transportation Policy, by forcing the transcontinental railroads not only to cease their destructive rate cutting but to revoke certain of their rate cuts which the Commission failed to stop. This is the nettle of regulation that the Com- mission refuses to grasp. Even when the transcontinental railroads in a time of financial stress were willing to increase certain of their rates made against the intercoastal trade, the Commission but grudgingly gave partial consent. - 7k - We refer to the decision of the Commission in Transcontinental Rail Rates - Intercoastal Water Rates , mentioned above. The Commission's decision is reported in 26b I.C.C. 567. That investigation, in form, was on the Com- mission's own motion. Actually it was instituted, with obvious reluctance, responsive to a petition from the United States Maritime Commission and the War Shipping Administration, which had previously attempted an intercoastal operation at a considerable financial loss due largely to existing transcon- tinental rail rates. The petitioners alleged such rail rates were "unjust and unreasonable in violation of the Interstate Commerce Act in the follow- ing respects: in many instances they are lower than necessary to meet water competition; many represent excessive reductions below normal rates; in some instances they are lower than rates heretofore condemned by the Commission because they did not meet the criteria established by the Commission of reasonably compensatory rates." The Commission finally instituted the investigation, after first requiring the submission of a considerable amount of preliminary data and argument. We have already commented on the attitude and remarks of the pre- siding Commissioner in connection with the word "compensatory." During the hearings, the Maritime Commission and the intercoastal carriers submitted a mass of factual testimony and exhibits dealing with railroad rates and costs. Although the investigation was on its own motion, the Interstate Commerce Commission not only offered no assistance but actually made it dif- ficult for the water carriers to get much of their evidence into the record, including particularly railroad cost figures compiled originally for other purposes by members of its own staff. Attempts of the intercoastal carriers to cite the divisions accruing to individual railroad participants in trans- continental hauls were thwarted by the refusal of the Commission to admit into the record any evidence concerning divisions, despite the fact that in 7U I.C.C. U8, referred to hereinabove, the Commission had very properly taken into consideration the measure of divisions in arriving at its condemnation of the rail reductions proposed therein."* #The lawfulness of the divisions of transcontinental rates is now under attack in I.C.C. Docket 31503. In that proceeding the eastern railroads claim their divisions of such rates do not yield fair, just and reasonable revenues. In the same proceeding by cross-complaint, the western railroads are contending that their divisions of transcontinental rates are unjust, unreasonable, inequitable and unduly prejudicial to the western railroads. Intercoastal carriers are not a party to this proceeding nor could they become one. It is their contention, however, and it has been their position since at least April, 19hl f that the divisions accruing to the western roads and the divisions accruing to the eastern roads are everything the respective groups of rail carriers contend. The trouble lies in the rates themselves. Moreover, the Commission forced the intercoastal carriers to name indivi- dual articles and rates thereon and to deal with such articles and rates only. The Commission ignored completely the general practice of the trans- continental carriers of basing their rates almost entirely on intercoastal competition w:\thout considering rate making factors normally held necessary by the Commission in proper rate making. - 75 - The mass of evidence finally forced into the record was suffic- iently impressive to elicit a statement from the transcontinental railroads that they were willing to increase their rates on most of the articles carried by them in competition with the intercoastal carriers 3 if the Com- mission would let them. The increases proposed were small, but the Com- mission appeared reluctant to permit even those increases. Finally, however., some but by no means all of them were approved, together with corresponding increases by the intercoastal carriers* The Commission's action was entirely permissive. It uttered no condemnation of destructive competition by the railroads j it made no finding as to a proper minimum level of rates; it did not analyze the evidence submitted by the intercoastal carriers concerning transcontinental rates and costs. Its report did contain, however, (268 I.C.C. 567, 572, 573) a statement that showed quite clearly whose toast was being buttered: -JBWHHfit appears that competition from the intercoastal ships will probably have much less effect on transcontinental rail rates than it has in the past." It had been the simple-minded understanding of the intercoastal carriers that the proceeding was intended to deal with the effect of transcontinental rates on intercoastal competition. In its mishandling of the competitive relationship between the transcontinental railroads and the intercoastal carriers, the Commission has certainly shewn itself instinctively anti-water carrier. Evidence that water transportation is the Commission's step-child is plentiful in other matters • Consider, for example, the degeneration of what was once called the Commission's Bureau of Water Carriers, but is now called Bureau of Water Carriers and Freight Forwarders. The Bureau of Water Carriers was created by the Commission January 6, 19Ul. Its duties were ill-defined, but at least- it seemed to provide a bureau of the Commission which would concen- trate on water transportation problems and assist the Commission in arriving at intelligent decisions in cases or other problems involving water carrier operation. Its field of activity included nothing but water transportation. In 19U2 the name of the Bureau was changed to Bureau cf Water Carriers and Freight Forwarders, and there was assigned to it the same type of duty in connection with Freight Forwarders as previously assigned to it in connec- tion with water carriers. Since that time, although the name of the Bureau has not been changed, the Bureau has also been assigned the handling of agreements filed for approval under the provisions of Section 5a of the Act, the so-called Reed-Bulwinkle Bill, irrespective of the form of trans- portation involved. In the meantime the personnel of the Bureau has been drastically reduced. It is obvious that the water carriers are lost in the shuffle. Perhaps a Bureau of Water Carriers equipped to function properly would have prevented the mistake the Commission made in its 66th Annual Report issued under date of November 1, 1952, in recommending amendments to the Act which would make common carriers by water "liable for payment in reparation awards to persons injured by them through violations of the Act." The Commission already had that power. Another legislative recommendation, contained in the Commission's latest annual report issued under date of November 1, 195h, is also symp- tomatic. In that report the Commission asks to be given the same emergency powers with respect to service by water carriers as it already has with respect to car service by rail carriers. This same legislative recommendation - 76 - had been made previously by the Commission. At a meeting in Washington, following the earlier recommendation, representatives of ocean-going water carriers explained to a committee of three Interstate Commerce Commissioners that other Federal Government agencies already had extensive powers over ocean-going water carriers and that what the Commission was asking for would lead to conflict of jurisdiction, particularly in view of the fact that the same ship on the same voyage was frequently engaging in transpor- tation subject to the Federal Maritime Board as well as transportation sub- ject to the Interstate Commerce Commission. These commissioners appeared to understand the situation when so explained to them, and subsequent annual reports of the Commission contained no such legislative recommendation. In the 1952 report, however, it was resurrected, and it appears again in 19 £3 and 195U. The intercoastal carriers believe that coordinated regulation of the different forms of transportation is necessary if destructive compe- tition is to be prevented and the long neglected Transportation Policy carried into effect. Perhaps the name assigned to the body to which such regulation is entrusted is unimportant. However, the Interstate Commerce Commission has been unsuccessful in such coordinated regulation. The mere transfer of regulatory power over water carriers to a separate body would in no way operate to prevent the railroads from continuing their present destructive practices against the water carriers. The rail carriers and the Interstate Commerce Commission would still play the tune to which the water carriers would have to dance « Perhaps some consideration should be given to a scheme of trans- portation regulation which was considered a few years before the passage of the Transportation Act of 19h0, by Commissioner Eastman and others but which was never formally proposed because of immediate opposition within the Interstate Commerce Commission. Under the scheme referred to each form of transportation would be regulated by an independent board. Over and above this group of boards, would be a coordinating commission. The basic idea was to provide a limited means of appeal to the coordinating commission. For example, if the board dealing with railroad rates handed down a decision adverse to the interests of a water carrier, the latter would have the right of appeal to the coordinating commission whose duties would embrace the prevention of destructive competition between different forms of transportation. SUBJECTS 3 $ h AND 5 We believe these three subjects overlap sufficiently to warrant our treating them as a unit. We know of no type of cargo suitable for transportation bj water that intercoastal carriers have never been able to obtain. We know of no cargo being carried in the intercoastal trade at less than "compensatory" rates, but a great deal of cargo is being carried at less than "adequate" rates, A discussion of "compensatory" will be found in our comments on Subject 2d* Even the lowest rated cargo in the intercoastal trade pays more than out-of-pocket cost to the carriers and contributes to the general costs of operation. ... 77 - Intercoastal carriers operate ships which have a carrying capacity of 10,000 tons and up. The whole carrying unit must be moved at one time. Except for the costs incident to the physical handling of the cargo on the dock, into the ship, and out of the ship, cost items for the voyage vary per ton of cargo in proportion to the volume per ship. Overhead per ton of cargo, along with such cost items as depreciation, also varies with volume. Largely because of the destructive rate practices of the transcontinental railroads, volume in the intercoastal trade remains far below pre-war. These practices have not only operated to deprive the intercoastal carriers of a volume of cargo they should receive but also keep many rates below a level which the intercoastal carriers could justify and are entitled to receive on the cargo they do carry. Since the termination of World War II there have been a series of general rate increases permitted the railroads by the Interstate Commerce Commission. The Bureau of Transport Economics and Statistics of the Inter- state Commerce Commission has estimated "the average over-all increases" in rail rates allowed by the Commission to be 78.9$, As you know, the various percentage increases permitted by the Commission were "held. down" on various commodities by maxima, and this percentage figure reflects such "hold downs". The percentages allowed in each territory have also differed. On some commodities in eastern territory the full percentage increases granted have amounted to 106$, The "hold downs" in the general increases have affected trans- continental rates. In addition to this factor, transcontinental rates are substantially lower than they would otherwise be because of voluntary re- ductions by the transcontinental railroads. The following table shows the transcontinental rates in effect June 30, 19U6 on a substantial number of commodities that are among the most important, historically, in the intercoastal trade, the present rate thereon, and the percentage of increase. June 30th, 19U6 rates reflect the situation just prior to the series of rate increases referred to by the Bureau of Transport Economics and Statistics. Present rates used include the latest increases under Ex Parte 175. The 19U6 Westbound rates are taken from Agent Kipp's I.C.C. 15>07 and Eastbound from Agent Kipp's I.C.C. 15>19, except the rate on lumber which is found in Agent Kipp's I.C.C. 15>11. The present Westbound rates are taken from Agent Prueter's I.C.C. iSShl and the present Eastbound rates from Agent Prueter's I.C.C. 1561, except lumber which is published in Agent Prueter's I.C.C. 1511. All rates shown are to or from Transcontinental Group A points, except in the case of Iron and Steel Sheets and Plates, where we have shown both Group A and Group B rates; Pulpboard, where we have shown both Group A and Group K rates; Wrought Iron Pipe, where we have given the Group B rate; and Shelled Peanuts, where we have given the Group K rate. - 78 - Per- COMMODITY Item Rates centage WESTBOUND No. 6/30/U6 Present Increase Linoleum U700 150 22U 5o Wrought Iron Pipe 5570 (B)127 192 51 Iron or Steel Plate & Sheet 58) 4 5 (A)1U3 212 1*8 (B)127 192 51 Candy- U0U5 182 305 67 Matches 6265 165 21*2 U7 Shelled Peanuts 6U50 (K)116 16U 1*1 Pulpboard (Sec. 2) 6855 (A)123 166 35 (K)117 166 1*2 Tin Plate 19hS 77 102 32 Hand Fire Extinguishers 1*660 277 U12 U9 Tire Chains 390', 213 336 58 Wallboard 3255 110 166 51 Magazines 6?U0 110 11*0 27 Beer 3U50 132 166 26 Cameras 69U0 385 368 1* Reduction Photographic Suppl.i 3S 69ii5 275 368 3U EASTBOUND Borax 3035 88 lW* 61* Canned Goods 3800 102 176 72 Magnesite 51*56 80 115 1*1* Lumber 2150 82 130 58 Rice 6210 95 152 60 It should be kept in mind in connection with this table of transcon- tinental rate changes that the 191*6 rates were, by the evidence of the trans- continental railroads themselves, greatly depressed. Exhibit Uk in Dockets 29663, 2966I4 and 29708, introduced by the intercoastal carriers, in the 19l*7 investigation, Transcontinental Rail Rates - Intercoastal Water Rates, (268 I.C.C. 567) contains abstracts from a large number of hearings involving trans- continental rates in which railroad interests stated such rates were depressed. We have lost a substantial amount of business to the transcontinental railroads because of the rate treatment shown in this table. The list of articles therein could be substantially augmented. A startling example of the effect of these rate changes upon the intercoastal competitive relationship with the transcontinental railroads is evidenced by the rate changes shown above on Cameras and Photographic Sup- plies. You will note that the transcontinental rate on Cameras has been reduced k% and that the rate on Photographic Supplies has only been increased 3k%» In the meantime, the eastern railroad rate from Rochester to New York on both Cameras and Photographic Supplies has increased over 100$. The inter- coastal carriers formerly enjoyed a substantial movement of these commodities from Rochester, much of it destined to Hollywood, the movement from Rochester to New York being by rail. These railroad rate adjustments have eliminated us from the picture. We could not afford to carry these products at a rate which would be competitive with the transcontinental rail rate. - 79 - We are enclosing a copy of a letter written the Interstate Commerce -Commission by the Intercoastal Steamship Freight Association under date of Jan- uary 19, 1954, requesting the Commission to suspend the latest transcontinental rail rate reduction on canned goods, one of the commodities listed in the pre- ceding table. The Commission declined to suspend. The intercoastal carriers have not as yet met this transcontinental rail reduction, and a substantial vol- ume of canned goods has been diverted from the intercoastal route, where it form- erly moved, to the all- rail route. Since the practice of the transcontinental railroads of reducing rates to take business away from the intercoastal carriers has been going on for many years, particularly since 1933 when for the first time intercoastal carriers were required to file their actual rates with a regulatory body, a long list of important commodities could be compiled on which rail cuts have diverted busi- ness from the intercoastal route to the transcontinental route. Any such list, in addition to the commodities already mentioned, would include whiskey, win®, chocolate, glass and glassware, soya bean meal, soda ash, cotton piec® goods , aluminum, bra'ss, bronze and copper articles. We have also lost considerable business formerly enjoyed because of the substantial increases in rates between the interior points of origin and the port cities. This business has been diverted to the all-rail route from such points of origin. For example, we formerly enjoyed a substantial movement of automo- biles and automobile parts, even from as far west as Detroit and Indianapolis. This business we no longer get. The movement of automobile parts has been di- verted to the railroads, but some of the movement of automobiles, of course, is now being handled by the so-called "drive away companies". Other business which we have lost because of the increases in rates to seaboard include a substantial movement of earthenware, plumbers' goods, welding rods, sodas, furniture and drugs . Since the war there has been a great increase in the movement of lum- ber from British Columbia in foreign flag ships. Such lumber replaces United States lumber which would have moved in American flag intercoastal ships. The fact that many of these foreign flag vessels were constructed with Americcua tax payers' money and were purchased from the United States government at bargain terms adds salt to our wounds. One class of business which the intercoastal carriers have lost since the war consists of low valued commodities on which it has become necessary to increase rates, in order to place them on a remunerative level, beyond the point where the commodities can continue to move in the intercoastal trade. These commodities have not been diverted to the transcontinental route except possibly to a limited extent. What has happened is that the markets formerly supplied by an intercoastal route are now being supplied by production areas much closer to such markets, either by rail or by truck. Among these commodities are roof- ing granules, elay, sand, coal, coke and nitrates. The intercoastal carriers have also lost substantial business because of the fact that producers who used to ship intercoastally have found it exped- ' ent to build plants closer to the consumption areas and no longer use the inter- coastal carriers. It is doubtful if much of this business has been diverted in any way to the transcontinental route, but a substantial amount of it undoubted- lv is being carried by some of the same railroads via a shorter haul. - 80 - Other business has been lost to the intercoastal carriers because of the fact that high cost operation has necessitated every effort possible to shorten the turn around. This has, in many instances, necessitated the elim- ination of some ports of call. The high costs of operation have also neces- sitated the elimination of the pre-war practice of extending transshipment rates to and from various Pacific Coast ports, under which practice those ports received the same rates as such major ports as Los Angeles, San Fran- cisco and Seattle, the intercoastal carriers absorbing the charges of the smaller vessels which moved the cargo to and from such ports from and to the major ports served by direct call of the intercoastal carriers. The added cost of the intercoastal route to shippers located in such minor ports has undoubtedly resulted in substantial diversion of cargo to the all-rail route. We know of no existing Fourth Section relief orders which adversely affect the movement of traffic in the Atlantic-Pacific intercoastal trade. The firm action and supporting statements by the Commission in Transcontinental Cases of 1922, 7U I.C.C. Ij.8, already referred to above under Subject 2d, and similar action in certain other cases decided prior to the enactment of the Transportation Act of 19U0, have been a strong deterrent to any possible rail- road Fourth Section applications directed against the intercoastal route. The railroads, however, are now trying to persuade Congress to repeal the long and short haul prohibition in the Fourth Section, Blanketing of rates by the transcontinental railroads is widespread. Rates on certain commodities suitable for intercoastal transportation have been blanketed so that the rates from Pacific coastwise producing territory to Atlantic coastwise territory are no higher than the rates from the same Pacific coastwise territory to such interior points as Denver, Colorado, and Cheyenne, Wyoming. For example: Sodium Sulphide, Item 3365 (part 2); Talking Machine Record Blanks, etc., scrap, Item 3505 and Champagne, Item 5300; Item references are to Agent Prueter's I.C.C, l56l. Similar blanketing occurs in the westbound transcontinental tariff, Agent Prueter's I.C.C. 156U, so that rates on numerous important commodities are no higher from Atlantic Coast producing territory to Pacific coastwise territory than from such points as Denver and Cheyenne to the same Pacific Coast territory. For example: Can Tops & Bottoms, Item 3780; Can Stock, Item 7950; Tin Plate, Item 79U5; Carbon Furnace Electrodes, Item 3796; Compressed Air Cylinders, Item U259; Safety Fuses, Item U5U3; Frozen Fish, Item 1|665, Part 2; Linoleum, etc., Item 1|700; Matches, Item 6265; Asbestos Paper, Item 6729; Magazines, Item 67I4O; Cameras, etc, Item 69I4O; Talc or Soapstone, Item 781|5; Fire Fighting Apparatus, Item 8203. These same tariffs also contain many items in which the blanketing is less extensive. Chicago, for example, is frequently given the same transcon- tinental rate as Atlantic seaboard points, both eastbound and westbound. Transcontinental eastbound rates on lumber and related products are published in Agent Prueter's I.C.C. 1511, and are so blanketed as to be no higher from west coast producing points to Atlantic seaboard than from the same points to Indiana. It must be remembered in connection with these blanketed rates that where, for example, the rate from New York to the Pacific coast is the same as the rate from Denver to the Pacific Coast, the same rate is applicable from all intermediate points, between New York and Denver, to the Pacific Coast. Moreover, transcontinental rates also operate as maximum rates wherever a rate published in any tariff covering a haul between points inter- mediate on the transcontinental route is higher, as published, than the trans- continental rate. Otherwise, there would be a violation of the Fourth Section, in the absence of Commission relief therefrom. A recent rate device of the railroads which will have a serious effect on the intercoastal carriers if we are not successful in eliminating its use is being employed in eastern territory to and from the port cities. In num- erous instances, the railroads have reduced r^tes on specified commodities moving within eastern territory but have restricted the applicability of such reduced rates so that they do not apply on traffic moving to or from the docks served by the intercoastal carriers. Thanks almost entirely to some of our shipper friends, this device has not gone into effect as yet on any important commodities. The railroads recently proposed reductions on iron and steel articles and on various paper products within eastern territory, commodities of major importance to the water carriers, and announced that the reductions would not apply on traffic to and from the docks, but the restriction was removed at the insistence of shippers. Another device which has a deleterious effect on the intercoastal carriers is a railroad practice in connection with meeting competitive sit- uations between inland points covering only portions of eastbound or westbound transcontinental hauls. Limited rate reductions may well be warranted in situations of this type because of truck competition, and it would appear that the intercoastal carriers should have no interest in the matter. Such is not the case, however, because the transcontinental carriers broaden adjustments of this type so that reductions are eventually made to ex- tend to the entire coast-to-coast movement. By this method the railroads weaken the intercoastal carriers financially by forcing them to make corres- ponding reductions, or, if the intercoastal rate is not reduced, recoup some of the revenue lost to them because of their own reductions between the in- terior points through means of the added traffic diverted from the water carriers. For example: In late 1954 the railroads drastically cut the dried bean rates from southern Idaho to all western trunk line and southwestern line areas to meet unregulated truck competition. Producers in the Pacific Coast states demand- ed similar treatment into the same territory, and such reductions have just been published by the railroads. Up to this point, the intercoastal carriers have not been affected. However, the railroads have also approved, through their rate making organizations, reductions in rates from the entire Pacific Coast to eastern territory served by the intercoastal carriers. Although they have not yet approved, so far as we can learn, an extension of the reduction into the Atlantic Coast port cities themselves, the normal sequence of events will produce that result eventually. Thus a probably legitimate effort to meet truck competition between interior points far distant from intercoastal territory develops into unwarranted attack on the intercoastal carriers which the latter must meet with a rate cut of their own or lose business. SUBJECTS 8 and 9 In connection with the Atlantic-Pacific intercoastal trade, there is only one tariff of joint rates. This is Agent Harry S. Brown's M.F.I .C .C . No. 2. It is on file with the Interstate Commerce Commission and the arrange- - 82 - merits covered thereby -ware voluntarily established. The joint rates therein apply from Pacific Coast ports to various trucking destinations in New Jersey, New York and Pennsylvania, with transfer from water carrier to motor vehicle taking place at docks in New York Harbor. The tariff covers only a limited number of commodities that seemed suitable lor joint rate treatment, and only those inter coastal carriers carrying a large tonnage of such commodities are parties thereto. Six different trucking companies participate. The tariff has been in effect less than a year and a half, was regarded largely as ex- perimental and as yet has not produced the volume of business hoped for. Joint, single factor rates have obvious advantages in convenience to shippers and consignees over combination rates which must be constructed by adding local rates and charges at transfer points. Moreover, shippers or consignees usually have their paper work simplified when such joint rates are available. These advantages are supplemental to the saving in out-of-pocket cost to the man who pays the freight bill whenever, as is usually the case, the single factor rate is less than the combination. Under the joint rate tariff mentioned above, the divisional arrangement with the trucks provides that the intercoastal carrier receives the same revenue as would accrue to the intercoastal carrier under its local rate tariff. The intercoastal carriers have felt, up to this time at least, that they could not afford to shrink their locals -when entering into these joint rate arrangements. The trucks have been willing in some instances to take a shrinkage under their locals, however, and such joint, single factor rates, therefore, effect some out-of- pocket saving to the man who pays the f rei ght . The desirability of joint rates can only be tested by experiment. Because the hinterland along both coasts has many gateways served by diff- erent carriers both by water and by land, such experiments present man;y prob- lems, including, for example, conflicting port interests, the possible di- verting of cargo from one long established route to another, and violation of the Fourth Section. It is our understanding that the Interstate Commerce Commission considers that motor carriers, not subject to the Fourth Section as to their local movements, become subject thereto when they enter into joint rates with water carriers, who are subject to the Fourth Section. SUBJECT 10 The average rate per ton of cargo handled in the intercoastal trade during the third quarter of 195H, the latest quarter for which figures are available, was $2L|..25« This compares with $10.00 in 1939 • The increase of approximately 150 percent is due (l) to increases in freight rates and (2) to changes in the consist of cargo handled. The relative effect of each of these two causes can only be estimated. Present rates on heavy moving commodities have not been increased by us a uniform percentage over rates in effect prior to the war. It is our best opinion that of the 150 percent increase in the average freight rate, approximately two-thirds is due to in- creases in rates on commodities that are still moving; the other one -third to changes in the consist of cargo carried, including the complete dis- appearance of certain low-rated cargo, changes in the relative volume of the different commodities and articles still carried, and an increase in the volume of high rated less carload traffic. - 83 - The total volume of cargo in the intercoastal trade in 1939, according to Report 317 of the Maritime Commission, was 8,370, l£l short tons. The Inter- state Commerce Commission figure for the trade in 19f?3, the latest year for which that Commission has released figures, is only li,U5l,273. However, these figures afford no satisfactory basis for comparison. It is our understanding that the Maritime Commission figures include movement in tankers whereas the Interstate Commerce Commission figures do not. Moreover, Interstate Commerce Commission figures do not show carryings by certain companies who operated in the trade under special so-called "emergency authorities". Making the best estimates we can for these unknown factors, it is our belief that the inter- coastal carriers regulated by the Interstate Commerce Commission are carrying approximately two-thirds as much cargo as was carried in 1939, exclusive of tanker cargo. We have previously commented on the various factors that have contributed to the decline of intercoastal cargo tonnage. It is impossible to even estimate how much each such factor has contributed to such decline. The changes in the wage scales of all seagoing personnel since 1939 is reflected with reasonable accuracy in the changes in the pay of able bodied seamen. Certain members of the crew have received greater percentage increases, others less. A wage comparison for each crew member would not reflect the changes in the duties of each. The following comparisons in connection with able bodied seamen is a fair picture of what has happened to crew pay since 1939. As of July 1, 1939, the basic pay of an able bodied seaman was $72.50 a month. At the present time it is $3lU.Ul a month for an east coast crew and $302.00 for a west coast crew. In 1939 the working week, for both* east coast and west coast crews, at the basic wage was 56 hours; at the present time it is U0 hours. In 1939 overtime pay, for both east coast and west coast crews, was at the rate of 70 cents an hour; at the present time it ranges from $1.71 to $2.h7, depending on the time, the place, and the nature of the work performed. Shoreside labor, that is, longshoremen and pier workers, not including foremen and salaried employees, received basic pay of $1.05 an hour on the east coast and 95 cents an hour on the west coast as of July 1, 1939. Present basic pay is $2.U2 on the east coast and $2.21 on the west coast. The overtime rate on the east coast in 1939 was $1.60 an hour, and on the west coast $l.i|0 an hour. At the present time the overtime rate on the east coast is $3.63 an hour, and on the Pacific Coast $3.3li cents. On both coasts, and in 1939 as well as the present time, the normal working day is from eight to five with an hour off for lunch. Under the union contracts, the working week on the east coast in 1939 was kk hours, or 5i eight-hour days. At the present time it is J4O hours, or 5 eight-hour days. On the west coast in 1939 the working week was 36 hours, or 6 six-hour days. At the present time it is 30 hours or 5 six-hour days. The practical major effects of these provisions in the union contracts are that: (1) any work performed before eight o'clock or after five is at overtime rates; (2) any man working more than eight hours a day on the east coast or six hours on the west coast receives overtime pay for such per- iods of time; and (3) any work performed on Saturday, Sunday or specified holidays is at overtime rates. The price paid by an intercoastal carrier for fuel oil depends on the place at which the oil is purchased and whether or not the carrier deems it desirable to contract for his oil for a period of time irrespective of fluc- tuations in the spot price. The greater part of the fuel oil purchased by the - 8U - intercoastal carriers is bought at San Pedro, California. The posted, or cash price, on July 1, 1939, was 90 cents a barrel; at the present time it is $1.80 a barrel. We believe these figures fairly reflect the change in the price of fuel oil used in the intercoastal trade, and that contract idiosyncrasies and prices of oil purchased at other points would only confuse the issue. The wage figures we have given do not include fringe benefits of any kind, or pay roll taxes. Such items of cost were almost non-existent in 1939. Today they add approximately 15$ of these pay roll costs. It would be impossible to give you figures which would show, item by item, the changes in prices paid by an intercoastal carrier for materials and supplies. Operators of ships have to purchase such a wide range of articles that we believe your purpose, as we understand it, can best be served by using the index of unit prices for materials and supplies which has been used many times by the railroads in proceedings before the Interstate Commerce Commission. That index, with fuel excluded, shows an increase from 1939 to 1954 of 144 per cent. The increase in the cost of ship repairs can only be roughly estimated. The biggest item of expense in connection therewith is labor, and the increase in this factor is probably best reflected by a comparison of the average earned rate of hourly paid workers in a shipyard from 1939 to the present time. In 1939 this was 88 cents an hour. At the present time it is $2.40 an hour, an increase of 173 per cent. The 144 per cent increase in the cost of materials and supplies which we have cited in the preceding paragraph is as good an index as any we know to the changes since 1939 in the cost, other than that of labor, of ship repairs. Under 10c, your memorandum calls for comment on "Changes in efficiency of vessel tnd shoreside operations." We assume you refer to labor productiv- ity. Intercoastal carriers have suffered greatly from decreased efficiency compared with pre-war operations, especially as described in the following tab- ulation: 1. Taking all intercoastal ports as a unit, there has been a substantial decrease in the man-hour production of longshoremen. This situation is much worse at some ports than at others. Indeed, there are some ports at which present man-hour production equals that of 1939. If an earlier pre-war date than 1939 were used, the present situation would make an even worde comparison; for by 1939 productivity had already declined substantially compared with 1935* 2. All through the post-war years, both as to shore labor and sea- going personnel, the intercoastal trade has been plagued with strikes, and with what are termed "work stoppages" in cases where a strike would violate a contract. 3. There have been many sporadic slow-downs by dock labor. Sometimes these are due to alleged grievances against management, but by far the greater part of them are the result of jurisdictional disputes between rival unions or disputes among union personnel. At certain ports these slow-downs have been so prevalent as to make the work "sporadic" a misnomer. 4. The same fundamental causes for the slow-downs also produce gang shortages, which of course operate to delay the ship and increase carrier costs. It is significant that the ports at which gang shortages are the most prevalent are the same ones at which slow-downs are the most frequent. -85 - 5. A new device employed just a few months ago, for several weeks almost paralyzed that part of the trade using west coast crews. Its use was engendered by a dispute involving a single ship, a ship not employed in the intercoastal trade or by an intercoastal operator, and it consisted of a refusal by all members of west coast crews to work overtime hours while a ship was in port. One effect of this was to more than double the time spent in port. A secondary effect, due to the fact that all cargo handling to and from such ships had to be done during the straight time ship hours, was to create an artificial gang shortage during straight time hours, thus compelling operators of ships with east coast crews to do most of their cargo handling during overtime hours. 6. Efforts of intercoastal operators to adopt improved methods of cargo handling have- been overwhelmingly resisted by labor. We have in mind particularly palletizing, bundling, and the use of containers or similar units. Very recent- ly, however, we have been advised by responsible labor representatives that they will now cooperate in an effort to work out such problems. MISCELLANEOUS Among the problems, not previously mentioned herein, confronting all the intercoastal carriers are the following: A - Section 22 rates Under Section 22 of the Interstate Commerce Act, common carriers are permitted to charge the United States, State or municipal governments lower rates than the general public. Such special rates are without regulatory control. Such rates, particularly those to the United States government, are so far below published rates, and the total volume carried under them today is so enormous, that they cast a heavy burden on commercial traffic carried at the higher pub- lished rates. This competition for high volume United States government freight has become a vicious thing. It should not be permitted. In the last Congress legislation was introduced to repeal these provisions of Section 22. Similar legislation will be considered in the present Congress. It should be supported by every friend of the domestic merchant marine. Although intercoastal carriers are refraining from offering such rate concessions, they are losing a substan- tial volume of government business to transcontinental railroads who quote such unregulated rates on competitive business. B - Unregulated Truck Transportation Section 203(f) (b) of the Interstate Commerce Act provides in part: "Nothing in this part * * * shall be construed to include * * * motor vehicles used in carrying property consisting of * * * agricultural commodities (not including manufactured products thereof), if such motor vehicles are not used in carrying any other property, or passengers, for compensation." A study of the legislative history of this exemption provision makes it clear that Congress had im mind the exemption from regulation of truck move- ment from farms to nearby markets or processing plants. Partly because of the badly worded statutory provision intended to put such exemption into effect, and partly because of administrative interpretation by the Interstate Commerce Commission, both the regulated railroads and the regulated water carriers have been badly hurt in their efforts to compete with unregulated trucks. At the present time, for example, large quantities of such commodities as dried fruit are moving all over the United States by unregulated trucks from processors - 86 - and middlemen to wholesalers, brokers, and stores. In efforts to meet this unregulated competition, railroads and water carriers have both been reducing rates. In such efforts, the transcontinental railroads have fared better at the hands of the Interstate Commerce Commission than the intercoastal carriers. We are enclosing a copy of a communication to the Interstate Commerce Commission dated January 20, 1955, which was our answer to a request filed with the Com- mission by the transcontinental railroads asking suspension of the intercoast- al tariff change intended to meet (1) the unregulated transcontinental truck competition and (2) the transcontinental rail rate reduction, on dried fruit. Although the Commission permitted the rail reduction to go into effect, despite a protest from the unregulated truck industry, it has suspended the intercoast- al tariff ch a nge although it was not protested by any trucking company . Not only have the intercoastal carriers been deprived of a legitimate right to compete with the transcontinental trucks, but they are helplessly witnessing a diversion of dried fruit from the intercoastal trade to the transcontinental rail route. In the face of such treatment by the regulatory body, along with similar treat- ment illustrated elsewhere herein, the intercoastal carriers are not amused when the present chairman of the Interstate Commerce Commission is quoted in the Wall Street Journal of February 9th as saying he personally would favor less regulation of railroads and truck lines by the government. USER CHARGES The railroads have been seeking for some time to secure the enactment of legislation which would require water carriers to pay a charge, or tax, for the use of harbors, rivers and other waterways. These proposals ignore the fact that the greatest beneficiaries of waterways, whether improved by Federal Gov- ernment aid or not, are the towns and cities located on and served by such water- ways. They also ignore the fact that a substantial portion of railroad tonnage receives either a preliminary or terminal movement over such waterways. It would be difficult to overestimate the importance of New York harbor facilities to the railroads serving New York and New Jersey points, or many other harbor facilities in the United States. A user tax against water carriers as suggested by the railroads would almost certainly be unconstitutional, but that fact is not too reassuring to the water carriers, particularly in view of the present system of tolls for the use of the Panama Canal. The Panama Canal Code, as amended in 1950 requires the Panama Canal Company to establish tolls in accordance with a formula covering all operating and capital costs of the Canal proper and a share of the Zone Government costs. In determining the capital costs the company is required to establish a "value" for the Canal and to deduct therefrom the value which is "properly allocable to national defense." The Canal is required to publish a prescribed toll rate in the Federal Register and to hold public hearings. Despite these statutory requirements, the Canal Company has continued to charge the old 90£ a ton rate and has not yet taken any of the above steps - notwithstanding that this year the law will be five years old. The General Accounting Office has advised that on the basis of the Company's published reports its Canal division revenues have exceeded costs by $27.8 million for the three year period from July 1, 1951 to June 30, 1954. For the fiscal year 1954 the General Accounting Office advises that the Com- - 87 - pany 1 s revenues from Canal tolls exceeded costs by over $10 million, or the equivalent of 240 a ton (leaving an indicated toll rate of 660 a ton instead of 900 a ton). There is good reason to believe, that if Canal tolls were computed in accordance with the law and on sound accounting practices, the rate would be reduced to the range of 550-60$. - 88 - APPENDIX E BRIEF OF THE MARINE EXCHANGE. INC. COMMERCE DEPARTMENT MARITIME STUDY - INTERCOASTAL STEAMSHIP TRADE This refers to the April 1954 study of the Department of Commerce relating to the American-flag steamship industry and particularly to that portion wherein it was suggested that a separate study be made concerning the intercoastal trade and that it be published upon completion. The purpose of this memorandum is to offer the view of people vitally interested, .and also responsible for the policies of intercoastal steamship op- eration serving this trade continuously for over a quarter of a century. The importance of maintaining an adequate intercoastal service is self- evident. Two of the principal reasons are the national defense advantages and the stabilizing effect on transcontinental transportation costs. The national defense requires the maintenance of a pool of operating vessels immediately available to the Defense Department. That the intercoastal and coastwise vessels constitute this pool and that they are essential has been stressed in so many levels of government that the subject need not be elabora- ted on further here. History is replete with illustrations of the results of monopoly. The intercoastal steamship industry is close to its demise and will certainly cease operation as a real freight service unless substantial remedies are promptly applied. With the oldest line in the trade recently abandoning, there seems to be little doubt that grave concern must be felt. If the intercoastal steamship service is completely abandoned or so re- duced as to no longer be a competing factor with rail, then the railroads have a clearly monopolistic situation in long haul freight cargoes. True, the motor carrier is continuously expanding its reach from short haul to longer haul posi- tion, but even that industry will not contend today that it compete with the transcontinental rail carrier. If this monopolistic situation prevails, rail rates will be increased. Of that there can be no doubt. They will be based upon the market rather than connected in some way to the cost of competing carrier. Such a monopoly in- evitably leads to abuse, and the next step is nationalization. An over simplification of the immediate problem of the intercoastal carriers is that even under prudent efficient operation and with substantial cargoes both west and eastbound, expenses exceed income. The principal fac- tors that have brought this once flourishing industry to the closing stages of a fight for survival are a depressed rate structure and the upward spiral of costs since the end of World War II. - 89 - The situation is not without elements that could restore the industry to some measure of health. The most promising of these appear to be: 1. The water-r<*il rate picture - This is one of two fields in which there is not only available a plain remedy but one appearing to h«ve some possibility of achievement. The record of transcontinental rail rate adjustment since the opening of the Panama Canal is clear. There is a substantial spread between the percentage of increase in transcontinental rates on a host of cargoes moving by water and on cargoes where the water lines do not offer competition. The basic contention of the water carriers is that the rails, through the device of "hold downs" or "loss leader" rates on water competitive cargoes, are diverting more than their proper share of those cargoes away from water to rail by the illegal means of handling them at a non-compensatory rate. The contention is also made that rates over non-water competitive routes are unjustly high and are financing the loss on the water competitive routes. The intercoastal trade was wiped out during World War II when all of the ships were seized under war powers. The railroads escaped seizure in World War II and satisfactorily served the military need as well as their own custom- ers and the customers of the water lines. At the end of World War II, the War Shipping Administration re-entered the intercoastal trade as a principal, ap- pointing as operating agents the former intercoastal operators. It is note- worthy that within two to three years after the institution of the trade, the agency program was at an end and the lines were operating as principals, How- ever, the water- rail rate problem remained and even before the end of the agency operation thfc. Government, through the War Shipping Administration, in- stituted action (ex parte 164) before the Interstate Commerce Commission seek- ing to have numerous "loss leader" rail rates vacated on the ground that they were not "reasonably compensatory" as required under the Interstate Commerce Act. The Interstate Commerce Commission entered into extensive investigations of the coastwise and intercoastal rates and the competitive rail rates. As a result some measure of relief was granted on a limited number of commodities. However, the rail carriers never disclosed their operating costs on transcon- tinental traffic, so that in effect the question of the compensatory level of their ratio was not cleared. Moreover, it is noteworthy that early this year the railroads reduced their eastbound rates on canned goods to a level that severely restricts the steamer lines* participation in this, the most important source of eastbound traffic. The steamer lines had protested the reduction at the time it was pro- posed but the Interstate Commerce Commission refused to interfere with the rail carriers* action. Subsequently, the Interstate and Foreign Commerce Committee of the Senate, in the 81st Congress (Report No. 2494, pages 89 et seq.), became so concerned with the problem that they made this comment*- "From the legislative standpoint, it would appear that the remedy for the discrimination which the ICC allows the rails to indulge in lies in several directions. One would be an investigation of costs of operation reflected in certain transcontinental rail rates, with an eye toward determining whether they are compensatory. At the present time there is no Government agency charged with this responsibility, - 90 - although it is a specific obligation outlined in the declaration of policy of the Transportation Act. If the ICC appears reluctant to undertake this project, then funds should be allocated to the new Federal Maritime Board to do so." On page 90, the Committee continued - "One thing is clear, and that is that the intent of Congress regarding the allowance of discriminatory practices by one form of transportation against another is sufficiently clear as to call for an immediate change from what appears to be undue favoritism shown the rail lines in quoting of rates at noncompensatory levels in one place and at in- flated levels in another. Communities not served by domestic water competition should no longer be asked to bear the burden of coastal areas in the matter of freight rates." No such action has ever been taken, however, though this report was issued four years ago. An additional aggravation is the fact that the Supreme Court of the United States in the Baltimore-Ohio case in 1952, held that a rate is not necessarily non-compensatory under the Act unless it is shown that it affects the profit and loss picture of the entire system . At this point the inter coastal steamship industry cannot stand the delay of bringing up such a matter again to litigation. It seems perfectly clear that the only real remedy in this direction lies in legislation defin- ing the compensatory rate and eliminating the result in the Baltimore-Ohio case by requiring the route cost measuring stick rather than the system cost. If the Administration is to face up to this problem realistically, it would seem that it must make a recommendation for such legislation even though it is not an easy thing to do and might ultimately result in a major ad«* justment in rail rates, some upward and some downward. In suggesting that Government make this recommendation, it is rec- ognized that volumes of arguments have been presented on both sides of the question and that traffic people on both sides of the question will argue at length, with just as much argument on the side of the denial of the non-com- pensatory nature of the rate. Nevertheless, the undeniable fact remains that the railroads have in a substantially disproportionate manner increased rates on non-water competitive cargoes. Just the other day, the ICC granted publishing a rate on westbound pulpboard from the gulf area to the Pacific Coast. In the words of the West Coast Paper Traffic League, "Proposed rate is a destructive competitive practice inconsistent with objectives of national transportation policy." The chair- man of the League goes on to say that the proposed reduction in rates forces the railroads to reduce their rate, plus a reduction in rate from the North Atlantic and further, that the purpose of national transportation policy is to preclude a carrier from initiating a destructive rate adjustment. The chair- man has asked that the rate and all its ramifications be investigated care- fully through suspension procedure. The interstate Commerce Commission recently granted eastbound oper- ating rights to a number of carriers in the intercoastal trade. This has dan- - 91 - gerous repercussions because it means that eventually a one-way operation will squeeze out those who maintain an operation both eastbound and westbound. The westbound shipper faces the loss of his rights to receive cargo from the East Coast to the entire Pacific Coast, The reason for this is that traditionally, in the intercoastal trade, eastbound revenue makes it possible to maintain regular westbound service which, in itself at best, can operate only on a break-even basis. In short, the recent history of the intercoastal trade is replete with the ICC*s lack of interest in protecting domestic water carriers. In fact, the ICC is seriously considering elimination of its Water Carrier Bureau, 2, Cargo Handling Costs - From 55^ to 65^ of every dollar of gross freight revenue must be allocated by the domestic ship operator merely to load and to discharge general cargo. The cost of handling cargo is by far the largest single item of expense in the trade today. Again, several factors are in- volved. Substantial increases in wage rates and restrictive working practices have been compounded by a decrease in efficiency, i.e., tonnage output per man hour. Many efforts have been made to offset these conditions by the use of labor saving methods and equipment, such as unit loads, increased size of palletized loads, and mechanical devices and equipment both in the vessel and on the dock. Any substantial progress has been stopped, in part, by union opposition and the concurrent lack of bargaining power on the side of the entire industry, and on the other hand by lack of facilities and resources in the industry to do necessary research and testing particularly as there is little reason to believe that if research were successful, the improvements developed could be instituted. Here is one place where the resources and talent available to the Government could perform a valuable service. 3, Vessel Design - One of the most common criticisms of the industry, particularly by those uninformed, is the fact that the industry is still "swinging cargo over the side of the ship with a boom and a line, lowering it into the hold through narrow hatches and snaking it into the wings with expensive labor." As in the case of most such criticisms, there is an element of truth in it, although it constitutes too broad a condemnation. Vessel design is the problem here and except for some minor innovations such as side port loading which has been tried and virtually abandoned, and except for the sea train operation, the industry has simply not had the economic facilities at its disposal to experiment with prototype vessels with radically changed de- sign. This seems clearly a field in which Government could serve. In addi- tion to the economic factor pointing in the direction of Government function- ing in this field, there is the labor factor. The prestige of Government recommendation for broad application of a new vessel design would tend to sub- stantially reduce labor opposition, 4, Panama Canal Tolls - The round trip transit cost on a C3 is in the neighborhood of $15,000. Total operating cost for a round trip voyage is in the neighborhood of $ 150, 000. Thus, depending upon the nature of the vessels and the number of ports served, the Panama Canal tolls constitute from 5 to 10% of the operating costs. Some, if not all, of the intercoastal lines operated in the red in 1953, In almost every case where a loss is shown it is believed that a sub- traction of the tolls item from the operating cost would have allowed the lines - 92 - to show a modest profit for the year. By the terms of the Hay-Pauncefote treaty, the United States has agreed to treat all vessels alike in the matter of tolls at the Panama Canal with a reservation for its own domestic ships which are not in competition with foreign flag ships because of the terms of the Jones Act. Early in the history of the Canal, the United States Government remitted all tolls on domestic intercoastal ships. There was an immediate protest from France on the ground that the lack of contribution from such tonnage thus in- directly increased the transit cost for the foreign flag ships. The toll was reinstituted for domestic ships. The problem in forgiving tolls for intercoast- al ships is not insurmountable. Railroads would undoubtedly oppose, but they cannot consistently do so without opposing also the toll free policies of the twelve other federally built canals now in operation, and on which some $450 million of federal funds have been spent in construction as against some $200 million (on an interest free basis) at the Panama Canal. The twelve other canals would have earned about $100 million in tolls in 1951 as against some $20 million at the Panama Canal if tolls had been charged at the same rate. — The fact that tolls will be required at the St . Lawrence Seaway is no strong prohibition against free tolls for intercoastal ships at the Panama Canal. The St. Lawrence Seaway is internationally owned and rates are nego- tiated by the Canadian and American Governments. — However, it is believed that the offshore American-flag operator, steel interests, lumber interests, canned goods interests, petroleum interests, cer- tainly maritime labor, shipyards and others, would join in such a proposal pro- vided the forgiveness of tolls to the intercoastal operator would not increase the toll on the foreign operator or the American offshore operator. This could be done in the same manner that tolls which would be earned on military ships are simply credited to the Panama Canal Company by means of a bookkeeping entry. This prevents the loss of revenue from Government ships reflecting itself in higher tolls on other vessels. This was accomplished by means of an amendment to the Canal Zone Code in 1951, and the Code can again be amended so as to pro- vide the same crediting of Canal Company accounts for tolls that would have been paid by intercoastal lines. This method of handling should also neutralize opposition from foreign countries. Of these four main points, the first three - namely, rate structure, cargo handling and vessel design - will require considerable study and probably should be considered as relatively long-range projects. It is not expected that help from these sources can be obtained promptly enough to aid the domestic op- erators in their present economic crisis. Immediate and positive relief can be obtained, however, by prompt action on the part of the Maritime Administration towards obtaining exemption from Panama Canal tolls. Such exemption, we believe, should apply only to bona fide common carriers, as certificated by the Interstate Commerce Commission, who were operating their own vessels, both east and westbound, in regularly scheduled ■service on January 1, 1954. Exemption from tolls can be further restricted to vessels owned by the common carrier. - 93 - We earnestly request that these four points be incorporated in the study being made by the Department of Commerce and that the study of ex- emption from Canal tolls for domestic operators be given this trade, and we believe it is, this is one avenue leading to prompt and effective assistance. - 9k - PENN STATE UNIVERSITY LIBRARIES ADDDD71SbS131