11. New vessels and replacements: A full subsidy should assure replacements, as contractual obligations, and thus assure permanency to our merchant marine in foreign trade. (See letters, p. 48 and p. 53; also chs. 5 and 6 hereof.)

Page

(a) The tests or factors in vessel accounting by which to measure
a fair subsidy include, in addition to voyage expenses, the
items of interest, insurance, and depreciation; but when
"depreciation" is included some provision for its rein-
vestment in new vessels should be made, to assure per-
manence
6 (16) (8)

(b) Contracts made not only include these but greatly exceed all
handicaps and all deficits (see also Subsidies very ex-
cessive, 9 (b) above)‒‒‒‒.

6 (8)

23 (19)

(c) Notwithstanding this, most of the contracts mentioned do
not require new vessels to be built, or replacements--- 12, 21 (16)
(d) Distinction between amortizing the investment and supply-
ing capital for new and larger vessels-----
(e) Voluntary construction of new vessels by an owner does not
cure the contract as defective in not creating an obligation
to build.

(f) "Mutually agree": A provision that new vessels will be built
if the parties mutually agree to do so is not a contractual
obligation ----

66

the

12. Modern vessels and equipment contemplated but not required___
(a) The 1928 law prescribes that the vessels should be
latest and most approved types, with modern improvements
and appliances" (sec. 403) --

(b) The trend in world trade is and has been for finer and faster
vessels, even in cargo vessels--

23

ཧི

(16)

49

(50)

20, 49 (17)

(c) The development of motor vessels, Diesel engines, a fac-
tor___.

20, 49 (12-13)

(d) The vessels subsidized include many of the now archaic
ships built for the war fleet, and with no provision for
new construction.

19, 20
(a) Tabulation of sales prices and of the cost of construction 14 (15)
(b) Sales prices were intentionally lower than market values,
the concession having been, in effect, a subsidy for guar-
anty of service, etc----

13. Sales price of vessels sold by the Government:

13 (14)

(c) Distinction between cost of construction and market
values

13 (14)

(d) "Postal contracts" to such lines thus became a double subsidy when at maximum rates___. 11, 19 (11) 14. Reservations in contracts: Contracts were modified and extended in radical ways, without complying with legal requirements, on ground that reserved powers authorize them--

(a) Such reservations, if valid, destroy competitive features_-
(b) Do such reservations in fact justify or do they nullify?_
(c) Illustrations of result

15. All-American vessels and fleets: The vessels subsidized are, of course,
under the American flag. Whether they in all cases should be
American built, and whether the owner must operate only Ameri-
can vessels, are pertinent factors:

(6)

(7)

(7)

(7)

15 (51)

(a) The law requires that new subsidized vessels shall be built
in the United States (sec. 405)----

(b) But the law has a proviso under which two new vessels of
the Grace Line then building in foreign yards were treated
as qualified (sec. 405).

16 (51)

8, 16 (10)

(c) Maximum rates had reference to construction costs in Amer-
ican yards, and yet maximum rates were awarded the
new foreign-built vessles of the Grace Line___
(d) Whether an order to foreign yards by owners of subsidized
vessels is consistent with owners' (moral) obligation to
the American merchant marine----

16 (11)

15. All-American vessels and fleets, etc.-Continued.

(e) Exclusive operation of American vessels: Whether owner of
subsidized vessels should be required to operate only
American vessels, with possible distinction between serv-
ice with ports of the United States, and a subsidiary or
feeder service, wholly in foreign waters_____

(f) Congressman Davis's references to foreign vessels operated
by the Munson Line___

Page

(14)

(14)

16. Transportation of mails: A true subsidy system does not necessarily
contemplate that the payments shall be commensurate only with
the transportation value of mails actually carried; hence sec. 24 of
the 1920 act, being clearly a subsidy, authorized payments to main-
tain the merchant marine___.
16, 18 (1) (29)

(a) The 1928 postal contract law is phrased to exclude all refer-
ence to subsidies, and to appear only to be a contract of
transportation ___
16, 18 (1) (29)
(b) Poundage rates paid American vessels by the United States
exceed International Postal Union rates and the excess is
a subsidizing rate-----

7 (10) (36)

(c) Statement by Postmaster General that such contracts were
really not postal matters____

(d) Certain Senators and Representatives, when the law was
enacted, did not regard it as a subsidy. ---- 9 (14) (1) (2) (3)
(e) What is authorized by this law-a contract of transporta-
tion or a subsidy to American shipping?__

(1)

17. Preferential treatment of bidders: (a) Monopoly in bidding--

4 (3)

(b) Competition, in substance, intentionally excluded, though
expressly prescribed by the law.

5 (3)

(c) Advertisements for bids were so framed that they favored
special persons__-

5

(d) Reasonable time not given to encourage competition by new
capital.

5 (4)

(e) Requirements prescribed could be met only by special per

sons..

5 (4)

(f) Transportation requirements in our foreign trade not duly
considered____.

5 (3) (2,36)

(g) Debtors to Government not entitled to preference_-.
(h) Operating agents of board not entitled to preference_----- (2,23)
(i) Illustration of procedure followed__
8, 5 (4,26)

18. Subsidized services with Philippine Islands: Our relations with the
Philippine Islands demand that any subsidy system duly author-
ized should be an instrument to obtain the quickest and most effi-
cient transportation with the Philippine Islands:

(a) Present subsidies to the Dollar Lines, one from San Fran-
cisco to Manila and one from Seattle to Manila, are by
indirect routes, viz, via Japan and China___

48 (29)

(b) A direct route, from San Francisco to Manila, faster by
seven days than the above, was opposed by representation
of the United States Shipping Board___
(c) Apart from importance of directness of the route is the fact
that there was inadequate American tonnage to meet trade
requirements, e. g., copra___

(d) Concurrent with vast subsidies to Dollars, for trans-Pa-
cific lines, the board, through its chairman, advocated
extension of coastwise laws to the Philippine Islands,
which would eliminate the very factor justifying subsi-
dies, viz, foreign competition, and yet there was no pro-
vision for revision of rates in that event_-_-

66

(31)

5 (32)

(32)

19. Discrimination against South Atlantic ports: The policy of section 8, merchant marine act of 1920, and the express provisions of the 1928 law that these contracts should be distributed so as to equitably serve" the various geographical areas, demanded an equitable award of contracts to South Atlantic ports----- 25, 30

19. Discrimination against South Atlantic ports, etc.-Continued.
(a) Total subsidies to lines out of New York alone exceed
$135,000,000, whereas for all ports on the Atlantic coast
south of Baltimore only one has received a contract, viz,
Savannah, Ga., i. e., the subsidy to the South Atlantic
Steamship Co., a total to all South Atlantic ports of
less than $4,000,000...

(b) Letter of John Nicolson, then of the United States Ship-
ping Board, to the Post Office Department, dated August
17, 1928, advocating a route to Europe from a South At-
lantic port for a "post contract ".

(c) Criticism by Commissioner Plummer of Mr. Nicolson's ac-
tivity through the above letter in favor of southern ports_
(d) Letter dated February 26, 1931, from Mr. Nicolson, author
of Senate Document 210, to Senator W. L. Jones,
replying to Mr. Plummer's criticisms of his activity in
behalf of the Savannah contract..

(e) Savannah, Ga., the only Atlantic port south of Baltimore
having a contract___.

(f) References to shipping and commerce of Savannah__
(g) Parcels-post survey revealing possibilities of parcels posts
for Europe from the Southeastern States, moving through
a South Atlantic port----

(h) Southern ports entitled to benefits though Southern repre-
sentatives may have opposed subsidy laws. Attitude
aptly declared by Senator Morgan, of Alabama....

20. Loans for ship construction: The lower cost of these loans to the
borrower, even at rates not an expense to the Government, oper-
ate as a subsidy to shipping:

(a) Law intended interest rate should not be lower than inter-
est cost to the Government. Comments by Senators
Vandenberg, McKellar, Norris, and Fletcher____

(b) Loans have, in fact, been made at interest as low as 1%
per cent, which for the entire term will be at great cost
to the Government and are in violation of the spirit and
intent, if not the text, of the act--
2, 8, 11, 50, 52

(c) Comments by Senators on Senator Vandenberg's bill, then
pending (Calendar No. 520), to correct the interest-rate
interpretation which had been applied___.

(d) Article from The Log, introduced by Senator Dill, review-
ing the ability of Pacific coast shipyards to build great
vessels, but handicapped by the higher transportation cost
of material, and suggesting the handicap be offset by a
differential in interest rates on loans___.

21. References to earlier acts:

(a) Significance of the repeal of section 24, merchant marine
act of 1920___

8,9

56

16, 21, 56

(b) Section 24 of the 1920 act clearly authorized subsidizing
rates___

16, 21, 56

(c) Ocean mail act, 1891.

22. References to the text of the 1928 law:

19

(a) Full text of Title IV of the merchant marine act of 1928--- (50) (b) Its phraseology indicates transportation contracts only, not subsidies were intended__

18 (1)

(c) Former subsidy provisions expressly repealed by it..
(d) Extract from it (sec. 409a) relative to maximum rates,
inserted in the Record by Senator Fletcher_.

16 (1)

16

(e) Competitive bidding prescribed by it (secs. 406-407) was in
substance ignored. (See also 17, Preferential treatment
of bidders)

4 (3)

(f) That it was not intended as a subsidy when enacted was
the view of some Congressmen and Senators----- 9 (1) (2)

OCEAN MAIL CONTRACTS

CHAPTER I

RELATIVE TO ITEMS IN THE RECORD OF DECEMBER 20, 1930, UNDER THE TITLE: TREASURY AND POST OFFICE APPROPRIATIONS

Mr. KING. I want to ask the Senator if the greater part of that appropriation is not a pure subsidy, and is in excess even of the operating expenses of the ships?

Mr. Moses. Mr. President, the latter part of that question I can not answer, and I do not think anybody in the Post Office Committee of either House or Senate can answer it.

As to the first part of the question, undeniably a certain portion of this sum is in the nature of a subsidy. I have never sought to conceal my view about that, but inasmuch as the Congress has apparently determined that this is the method in which it will undertake to encourage ocean-borne commerce, I accept it, although for myself I would much rather frankly appropriate money for a subsidy, and call it such.

Mr. KING. Mr. President, will the Senator let me have the floor for a few minutes?

Mr. MOSES. I yield the floor to the Senator.

Mr. KING. Mr. President, I have a letter written me by one of the most distinguished Senators upon the floor, one who has perhaps given more attention to merchant-marine problems than any man in public life. I refer to the senior Senator from Florida [Mr. Fletcher]. In that letter he directs my attention to an important publication presented by the Senator from Tennessee [Mr. McKellar] on June 30, 1930, and printed as a public document. The publication is entitled "The Truth About the Postal Contracts." In the letter to which I refer appears:

The facts revealed in this Senate document relate to a field with which I am fairly familiar, and the document itself has been carefully examined by me. It is a splendid piece of work, and the author has rendered a fine public service. The abuses not only obviously possible under the present law but which have been actually committed in existing contracts are so flagrant that we should be prompted to review and give consideration to all legislation employing postal contracts as an aid to our merchant marine. I am speaking as a friend of the merchant marine, and it is needless to mention to a colleague that I have been a firm supporter in the Senate for many years in aid of our merchant marine.

When we find, for instance, such contracts on the Atlantic as that with the Munson Line, between New York and Buenos Aires, where the company not only received an initial subsidy of many millions in being sold four magnificent vessels for about one million each, which cost the Government over seven million each to build, and is then given a mail contract which will yield it over $13,000,000, and without any obligation whatever to build a single new vessel in return for this munificent bonus from the Public Treasury, and when