STUDY OF ALASKA TRANSPORTATION

WEDNESDAY, OCTOBER 25, 1961

U.S. SENATE,

COMMITTEE ON COMMERCE,

Juneau, Alaska.

The committee met, pursuant to notice, at 3:30 p.m., Hon. E. L. Bartlett presiding.

Senator BARTLETT. The committee will be in order.

This is near the end of a series of hearings being conducted on the Pacific coast by the U.S. Senate Commerce Committee. Hearings heretofore have been held at San Raphael, Calif., and Seattle, Wash.; and that disposed of the three more southerly Pacific Coast States. Then the committee moved to Petersburg, Dillingham, Naknek, Homer, Kodiak, Fairbanks, Anchorage, Cordova, and now, somewhat belatedly, we are at Juneau.

The committee has been hearing testimony principally on the Pacific coast fisheries, but likewise on transportation problems, and this has been the case in Alaska, where there was considerable testimony offered at both Fairbanks and Anchorage relating to transportation matters.

The first witness today is Mr. James A. Williams, director of the Division of Mines and Minerals, Department of Natural Resources, State of Alaska.

STATEMENT OF JAMES A. WILLIAMS, DIRECTOR, DIVISION OF MINES AND MINERALS, DEPARTMENT OF NATURAL RESOURCES, STATE OF ALASKA

Mr. WILLIAMS. I am here on transportation. Are we taking this testimony now?

Senator BARTLETT. The time is appropriate.

Mr. WILLIAMS. I have possibly two short statements, certainly one. This first statement is made at the express request of Phil Holdsworth, commissioner of natural resources. Mr. Holdsworth requested that I read into the record the statement that he presented to the State chamber of commerce at Ketchikan on October 13, 1961.

When your chamber manager Don Dickey asked me to speak on this panel today, he suggested that I discuss world trade in relation to Alaska's resources, with special reference to Japan.

Over the past 40 years there has been a noted lack of interest on the part of U.S. industry to develop Alaska's natural resources. There is, of course, a good reason for this. U.S. industry is almost selfsufficient as regards availability of raw materials and low-cost power in the southern 48 States. If this attitude on the part of the U.S. industry is to continue, how are we to develop our resources-particu

larly in a manner which will create a sound basic economy within the State?

If we are to develop our resources by any means whatever, there are certain steps that must be taken. First, we must know what constitutes our resource raw materials. We must inventory those which are evident, such as forest products, agricultural land and potential products, stock raising capabilities, and those mineral deposits which are known or have surface expressions. Secondly, we must develop markets for these potential products. And finally, to assure the realízation of trade which usually results in matching supply and demand, we must develop an attractive industrial climate within the State. Actually, all three of these activities must be pursued simultaneously.

You may recall that at the June International Development Commission meeting with Canadian officials in Juneau, British Columbia's minister of mines and petroleum, W. K. Kiernan, was conspicuous by his absence. He was in Japan at the time developing markets for British Columbia's natural resources and negotiating for Japanese participation in development of those resources.

In the September issue of Western Miner and Oil Review, Mr. Kiernan reports that new records are being established in British Columbia in the staking of mining claims and in the value of mineral production. He credits this satisfactory condition largely to Japanese markets for British Columbia's mine products and also to the Japanese willingness to subscribe to the development and mine-preparation costs in advance of production.

This same issue of Western Miner and Oil Review, in the editorial section, mentions my recent trip to Japan and subsequent comments made as to the interest in Alaska's resources. The editorial closes with this comment:

If a lesson is to be learned from his observations, it is that western Canada has some definite advantages in the establishment and development of trade patterns with Japan and the Orient in general, but that the benefits to be gained (and they are substantial) can easily be lost to competitors, either by neglect or default.

It is important to realize that this market situation is extremely competitive. We must compete not only with the friendly countries of Canada, South America, Australia, and the Philippines but also with Russia and Red China. The big question is: Can we be competitive?

It is quite evident that under present conditions our labor market is not competitive with other possible suppliers. This must be offset by other favorable factors, such as quality or grade of product, shorter and more economical transportation routes, availability of large blocks of cheap power, et cetera.

A favorable political and tax climate is also important. The political uncertainty of some of our competitors is certainly in our favor and we have attractive State corporation, mining, and industrial tax incentive laws.

Now let us consider those potential Alaska resources amenable to early development for export.

You are all aware of the first breakthrough in our potential hardwood industry. The plant of Alaska Hardwood Co. at Wasilla will produce finished birch lumber to be marketed by O. B. Williams Co. of Seattle. Products are shipped via the Alaska Railroad to Seward.

thence to Seattle by Puget Sound Van Lines. Past experience has shown that once a new operation has proven its economic feasibility, others will follow.

That two pulp mills here in southeastern Alaska are now established operations, one shipping its product to the southern 48 and the other to Japan. These two plants and existing sawmills are utilizing about one-half of the estimated allowable annual cut of the Tongass National Forest, based upon sustained yield management.

Timber allotments were set up for two other proposed operations in the Tongass Forest; namely, Georgia-Pacific Alaska Co. and Pacific Northern Timber Co. The former has dropped its concession and the latter, after investing approximately $2 million in a sawmill installation which is presently idle, is apparently looking for joint venture capital.

In this connection, the Japanese press recently stated that Toyo Pulp and two of the large Japanese trading companies, C. Itoh & Co. and Marubeni-Iida, are negotiating with Pacific Northern to establish a joint venture to include a pulp mill of economical size in addition to the sawmill.

While on this subject of timber, it might be well to briefly summarize the limited information we have on our interior forests. These comprise some 120 million acres of forest land about one-third of which are considered commercial. Commercial forest land is defined as that land which is producing, or is capable of producing, forest stands having 5,000 board feet of timber per acre in trees 11 inches or larger in diameter. The estimated 40 million acres of interior commercial forest land support a stand containing 180 million board feet, with an estimated net yearly growth of 4 billion board feet. It is estimated that 55 percent of the timber land is in conifers (softwoods), 17 percent in broadleaf (hardwoods), and 28 percent mixed. This resource exists even though almost every acre in the interior has ben burned over at one time or another, and growth has been reduced by insects and disease.

You are probably wondering why I spend so much time discussing this one resource. It is because this resource is the one most critically needed by Japan, a country presently importing nearly 4 billion board feet annually as lumber and logs. These imports presently come from five areas; 17 percent from the United States and Canada, 14 percent from Russia, 45 percent from the Philippines, 14 percent from Borneo, and 10 percent from New Zealand.

Instead of letting our own forests "die on the vine," shouldn't we make some effort to supply this market? The harvesting of such a replenishable resource under proper management will result in greater yields the second time around. Here again, we must be competitive with other sources of supply, or the market simply doesn't exist.

Other Alaskan resources of immediate interest to Japan are in order of importance: coking coal, iron ore, copper, nickel, petroleum products, lead, zinc, and antimony. Japanese industry is interested in purchasing these raw materials from local suppliers, participating in joint ventures with U.S. companies in their development and production, or even establishing a wholly owned domestic corporation under Alaska laws to accomplish the same purpose.

In any event, Japanese industry is seriously interested in our known, and yet to be discovered, mineral deposits. We want to keep this interest alive and feel that we can help to do so by being sure that it is fed the best and most factual information available. It is with this in mind that we recently issued a policy statement which bears repeating here.

Following the recent official visit to Japan, the department of natural resources has received numerous requests for the names and addresses of specific companies in Japan who might be contacted by prospective suppliers of natural resource raw materials in Alaska. In discussing with prospective Japanese purchasers those commodities: we believe are available in Alaska, the department offered the same service it has been providing U.S. industry in the past; namely, acting as a clearing house for interchange of factual information between the supplier and the buyer.

The department is, among other things, charged with "protecting the interest of the investor in the mining industry." It is this responsibility which has dictated our past policy of providing examination and evaluation services to Alaskan mining property owners, while at the same time protecting the prospective developer or consumer by providing factual information on the potential resources.

The department's activities in this area will be closely coordinated with those of the division of planning in the Governor's office and the department of commerce. The division of mines and minerals will continue to assist the owners of Alaskan mineral deposits in their exploration and evaluation of such deposits and, where considered justified, to place the owner in direct contact with a purchaser or developer.

Another potential Alaskan resource, which was reviewed with the Japanese trading companies and in which they expressed an interest,. was reindeer meat. There is a market in Japan for not only the meat itself but also for bonemeal-resulting from slaughtering opera-tions—as feed for their rapidly expanding poultry industry. Here is a potential resource in northwestern Alaska worthy of development. This part Mr. Holdsworth asked me to bring to your attention. In the process of developing trade with Japan, what are the various factors affecting the economic feasibility of such trade and is there anything we can do to enhance the possibilities of success?

First, let us consider one of the most important-transportation costs. This has always been a touchy subject with Alaskans, and so-called monopolies have been blamed for the major portion of our high cost of living. Any trade we can develop with the Orient, especially that which results in the development of backhaul tonnage destined' for the southern 48, should improve our position.

In connection with the Alaska hardwood development at Wasilla, the Alaska Railroad has made every effort to assist the operation by establishing new rates and procedures for the gathering of birch logs along the railbelt and shipment of finished lumber to Seward. Similar efforts are being made to assist development of coal shipments : from the Matanuska Field to the Orient, in cooperation with the port of Anchorage.

It is difficult for transportation agencies to agree to rates which, on a limited tonnage basis, would indicate an operating loss. At the

same time, it is good business to consider these things on a long-term basis. One successful enterprise leads to the establishment of others, and a short-term operating loss could well develop into a long-term profit, especially where the development of backhaul tonnage is concerned. The end result could well be an overall reduction of freight charges on the commodities used or consumed by Alaskans.

Our present trade with Japan has so far been principally confined to tonnage handled by the Kawasaki or K Line, made up mostly of pulp from Sitka and lumber from Wrangell, but including a limited tonnage of building materials and oil well pipe to Anchorage. Hull insurance for the K Line is carried by Lloyd's of London and, as Alaskan waters were considered by them to be extremely hazardous for shipping, the rates were high.

The K Line selected Capt. S. Asami of their staff to make an extensive study of sailing conditions and harbor facilities in Alaska. His report, coupled with 2 years of experience in shipping from southeastern and to Anchorage, resulted in a reduction of hull insurance rates. This had much to do with the recent reduction in the 30 percent surcharge applied to freight rates from Japan to Alaska as compared with rates to the Pacific Northwest.

It is interesting to note, however, that during my recent visit to Japan I was advised that the K Line had refused to accept shipments from Alaska to Japan by competitors of their principal customer. A request was made that something be done to break this apparent monopoly, a term which has become a nasty word in Alaska. In transportation, as in any other business, competition is necessary if Alaska is to be successful in entering the field of world trade.

The benefits of long-range planning are by no means limited to railroads or steamship lines; they should also be seriously considered by barge lines, truckers and airlines. This may be wishful thinking on my part, but I can visualize Alaska as the transfer point or hub for trade between the Orient and most of the United States and Canada.

Japanese bottoms will be coming to Alaska to pick up any natural resource raw materials we have to offer, including the present and future pulp and lumber tonnage from southeastern. Certainly they will not come empty, especially when they could be bringing those manufactured products normally sold in the eastern United States and Canada.

In view of our proximity to Japan, it would be reasonable to assume that these manufactured products could be transferred to another carrier at some point in southeastern Alaska for barge and rail shipment to eastern markets, leaving the Japanese bottoms free to load out raw materials from Alaska for direct delivery to Japan. To me,, this presents an interesting possibility.

This is the end of that portion which Mr. Holdsworth asked me to bring to your attention.

Another key factor affecting trade development is labor costs. Actually, the first questions asked by foreign interests are: "What does labor cost?" and "Do you have the labor force in Alaska?"

In answering the first question, What figures do we use? Our major industry for many years has been military construction. Wages paid by this industry are based on the Associated General Contractors'