The Commission had the collaboration of all the defense agencies of the United States and said:

The merchant marine is an essential part of naval operations. The United States with 60 harbors and 7,000 miles of coast line is peculiarly dependent upon the Navy for defense. Although various claims have been made concerning the percentage of naval strength attributable to commercial vessels, the determination of such percentage is believed to be an impossible and unnecessary task. The question of relative importance, it might be said, is about on a par with endeavoring to determine the comparative value of the lungs and the heart in a human being. For the purposes of this study it is only necessary to state that a large volume or merchant tonnage is necessary to the effective functioning of the armed forces of the Nation in time of trouble.

The Commission pointed out that for many years after the United States had embarked on an aggressive naval program, we did little or nothing to develop an adequate merchant marine auxiliary, even though an American, Admiral Alfred T. Mahan, propounded a philosophy of sea power that was accepted by the entire world.

We quote:

Mahan developed the classic formula of maritime strength-sea power equals naval vessels plus bases plus merchant vessels-which is used to this day by the military instructors of foreign nations. The American people were content to build a navy without auxiliaries. The policy came to a rather ludicrous climax in 1908 when we put the Navy on exhibition by sending it around the world. The gesture lost much of its force, unfortunately, because of the fact that our mighty battleships had to be serviced by a stream of tenders flying the flags of various foreign nations.

More serious than our situation in 1908 was our problem in 1898 when we were actually at war. Then we did not have American ships or seamen for the war. We had to search the ports of Europe for transports and colliers. We even bought steamers abroad for war purposes. We had to enlist landsmen and foreign seamen to man our fighting vessels. If the nations of which these foreigners were nationals had favored the enemy, we would have been short of men and ships.

It is not surprising that President Theodore Roosevelt, who knew of these conditions, later said:

To the spread of our trade in peace and the defense of our flag in war, a great and prosperous merchant marine is indispensable. We should have ships of our own to convey our goods to neutral markets, and in case of need, to reinforce our battle line.

We must have ships built for conversion into armed vessels in time. of war, and ships that may be used as colliers, fuel carriers, work ships, hospital ships, airplane carriers, and for other defense purposes. The increasing importance of the airplane for defensive, as well as offensive, purposes makes it imperative that, in the event of national emergency, we may be prepared to transport them, if necessary, to farther distances from our shores for protection of our coast line, which on the Pacific alone has been said to be 18,350 miles, that is, 2,410 miles of continental coast line plus 6,540 miles of mainland coast line in Alaska, plus 8,590 miles of island coast line in Alaska, plus 810 miles of coast line for the Hawaiian Islands.

We agree with the conclusion of the Maritime Commission:

The United States is maintaining one of the largest navies in the world. It would not be the part of wisdom for us to maintain such an establishment without an adequate complement for auxiliary vessels.

IMMEDIATE REPLACEMENT OF SHIPS IMPERATIVE

The first witness at the open hearing on the bill (H. R. 8532) was Mr. Kennedy, then Chairman of the United States Maritime Commission, who outlined changes necessary to improve the Merchant Marine Act, 1936, and make it workable.

Mr. Kennedy said:

The outstanding weakness of American shipping, in all categories, is its high degree of obsolescence. This is especially true of the subsidized fleet, 85 percent of which will become 20 years old within the next 5 years. The majority of vessels in this fleet were built during the war period. They will obsolesce practi cally as a unit. Someone must replace these vessels. With the amendments contained in this bill, and a few others, we hope to enable the private operators to carry a substantial portion of this burden. The only alternative is construction for Government account. The greatest stumbling block to private construction at this time is the hesitancy of private capital with regard to shipping.

Before going into the proposed amendments, I desire to discuss briefly reasons why the United States needs a merchant marine. The principal reasons, of course, are commerce and defense. Were the world organized on a basis of perpetual peace, we might be justified in entrusting our goods to those who could carry them at the lowest rates. Unfortunately, the world is not at peace and a merchant marine of some proportions is a necessary precaution against the disruption of our trade through the withdrawal of foreign carriers. The Commission's survey found little to substantiate the claim that American vessels reduce rates or prevent discrimination. The survey did find, however, that American vessels in a trade tend to improve the service given to our goods, and that, in the final analysis, we have no other insurance against a repetition of the situation confronting us in the early part of the World War.

It must also be pointed out that the United States is maintaining, as a defensive measure, one of the largest navies in existence. That Navy would be greatly handicapped without a plentiful supply of efficient modern merchant vessels.

The policy of the United States, with regard to shipping, should, we believe, be to maintain the smallest merchant fleet consonant with the needs of commerce and defense. We are now carrying about 35 percent of the cargo entering and leaving our shores. Subsidized vessels carry slightly less than half of this cargo, or 16.6 percent. It would not seem to be the part of wisdom to entrust to foreign vessels any more of our goods than they now carry.

Your committee is of the opinion that evidence exists that American vessels reduce rates and permit discriminations. Otherwise this conclusion of the Maritime Commission is in complete accord with the views of your committee, as will appear from the report filed by your committee on June 20, 1935, in support of the bill which became the Merchant Marine Act, 1936. Your committee then said:

The gravity of the situation becomes obvious when we consider that the useful life of a ship is 20 years. Our merchant marine today operating in the foreign trade of slightly less than 3,000,000 tons includes 224 vessels of 1,400,000 tons which were purchased from the United States Government. There is a high percentage of old and obsolete vessels in the number. Of the 3,000,000 tons, there are about 1,000,000 tons having contracts for carrying mail; in other words, that are subsidized. At the end of 7 years 86 percent in number and 77 percent in tonnage of the vessels now operating on ocean-mail routes will have become 20 years old.

seas.

Obviously, something must be done quickly or our flag will disappear from the We shall be reduced to our pre-war position when we had 81 vessels of less than 500,000 tons operating on our regular services at which time we carried less than 10 percent of our commerce in American ships.

Α

There is practically no construction work now in American shipyards. record prepared by the United States Shipping Board Bureau of the Department of Commerce for the quarter ended March 31, 1935, as taken from Lloyd's Register of Shipping, an authentic source, shows that merchant vessels of 100 gross tons, and over, under construction throughout the world totaled 1.269,534 tons, with the United States as eleventh on the list.

There has been very little improvement since that report was submitted, and the time rapidly approaches when 86 percent of our fleet will be obsolescent. Of the six principal maritime nations, the United States now ranks fourth in tonnage, fifth in ships with a speed of 12 knots or over, and sixth in vessels 10 years of age or under. In competitive power, therefore, we stand near the foot of the list.

SHIPPING AS AN INVESTMENT

There is a hesitancy of private capital with regard to this industry. Mr. Kennedy reported that the conclusion seems to be inescapable that we may expect no appreciable amount of new money for the subsidized lines from outside sources, and that whatever money is forthcoming probably will come from the so-called "insiders" who have an investment to safeguard and who may have an interest in some related industry benefited by the maintenance of the ship line in question. He advised that only nine companies are reasonably assured of continuing existence under the Merchant Marine Act, 1936; that three of these companies do not require any new vessels at this time; that the six remaining lines will require about 66 vessels to replace their existing fleets and to provide for anticipated expansion; that they have given written assurances to the Commission that they are prepared to embark upon a construction program involving the replacement of 60 of these 66 vessels within a period of 5 years; that these plans are predicated upon a change in the down payment requirement for new vessels from 25 percent of the American cost to 25 percent of the foreign cost, upon a minimum subsidy of 40 percent, and upon the granting of "satisfactory" operating subsidies. It was said that the plans, in addition, are known to depend to a considerable extent upon business conditions and a solution of the labor problem, and that the plans, even though broached in good faith, are no guaranty of achievement as there are too many factors, some of them unpredictable, to make the contemplated construction program anything more than an expressed intention.

STABLE POLICY REQUIRED

Your committee agree with the statement of Mr. Kennedy that the policy of the United States with regard to foreign-going vessels has been vague and inconsistent, and that as a result our shipping has been, since the decline of the clippers, an extremely unstable proposition. It is true that the history of the American merchant marine for the past three quarters of a century has been characterized by a vacillating attitude on the part of our people. But this attitude has existed throughout the life of the Republic to a greater or less degree, for, as Mr. Kennedy said when appearing before your committee:

The American Colonies began to enact shipping laws almost as soon as they were established. The adoption of the Federal Constitution is said to have been inspired largely by the necessity of concerted action on the part of the separate States for the protection of their commerce. The first statute passed by the first Congress of the United States was the Tariff Act of July 4, 1789, which contained discriminatory provisions in behalf of American vessels. From the adoption of the Federal Constitution in 1789 to 1830, no less than 50 legislative acts affecting ocean shipping were passed. We have been grinding out additional legislation ever since.

It is essential, therefore, that the industry shall feel that there is a fair measure of stability for some years in the policy of Government

aid that has been adopted. We agree with the conclusions of the Commission in the Economic Survey:

Our present attempt to compete in the international carrying trades was born of the World War. Previous to the war we were a negligible factor in the overseas trade. Then, goaded by necessity, we requisitioned, bought, seized, and built vessels at a rate never equaled in the history of the world. We blanketed the oceans with ship services in a frenzied effort to make up for our negligence of the preceding half century. Today we have gone back a long way from the ambitious program of the early 1920's. We are about to start again, not in a riot of enthusiasm, not with an expenditure of billions, but with a carefully planned program that gives due regard to the factors of need, method, and cost. Therein, we believe, lies our hope for the future of the American merchant marine.

SUBSIDIES ARE NECESSARY

The report of your committee submitted June 20, 1935, shows that subsidies are essential, and the economic survey demonstrates the same conclusion by a hurried review of aids granted by other countries. This review, though less extensive than is contained in your committee's report, brings the study more nearly up to date.

There is no doubt that American operating costs are higher than those of our principal competitors. Domestic industries, including those which supply materials for the building and operation of ships, have been shielded by tariffs and thus enabled to maintain a price level above that of other countries. The result, so far as shipping is concerned, has been that the American shipowner is forced to produce according to the American standard of living, and to sell, meanwhile, in an international market. It is certain that practically all of our subsidized services would disappear if Government support were withdrawn.

Mr. Kennedy, in his statement released November 10, 1937, supplementary to the special report to the Congress says:

Consideration of the merchant marines of foreign countries indicates a pro nounced trend toward government participation in shipping. Russia and Brazil have 100-percent Government ownership and operation. The Italian Government owns all of the stock of the liner services, but permits private operation under rigid Government control. The French Government owns one service outright and is heavily interested in the major company (Government officials serve as directors). The German Government is reported to own 75 percent of the stock of the Great Hamburg-American-North German Lloyd combination, a fleet larger than that of all our subsidized lines put together. Great Britain has forced consolidation of its two greatest lines, and, in addition to building superliners, has even contributed working capital. Japanese shipping is dominated by three feudal families which work under strict Government supervision. The Government of Poland owns 75 percent of the stock of the Gdynia-American Line.

In the report of the Commission, as a result of the very careful study made by the Commission, by the distinguished men whose names have been listed, and by the other experts it was said:

Government aid to merchant shipping is granted by every important maritime nation and by a number of minor countries. The amount of aid has varied widely from nation to nation; in certain cases aids have been modified at frequent intervals; but for the world as a whole, aid is now granted at a rate never before equaled.

The recent world depression in shipping, together with rising nationalism and economic disorganization in many countries, has greatly accelerated the tendency toward government ownership or interference.

Of the major maritime nations, only Norway, Sweden, and Denmark were found to have entirely private merchant marines, and even these countries aid shipbuilding on a fairly extensive scale.

It was pointed out that over 100 distinct kinds of government aid to merchant shipping are known, and many more subtypes varying widely in legal or administrative methods of attaining the desired ends. The extent and type of aids given differs greatly in the various nations, and is often modified from year to year, thus adding to the difficulty of assessing the relative extent of foreign subsidy or of determining the degree to which the aids affect individual American lines. Hidden aids often escape notice, and even when detected are difficult to analyze, for it often happens than nothing official is published thereon, for very obvious reasons, or that published statements are false. Furthermore, some aids are capable of direct monetary measurement while others are not, and the boundary between is indefinite.

No casual student of the subject can escape the conclusion that Government aid, both in construction and operation, is indispensable or we are faced with the alternatives of (a) Government ownership and private operation or (b) Government ownership and operation.

AMENDMENTS SUGGESTED

Various amendments were suggested. Most of these were contained in the bill (and in amendments to said bill) on which hearings were held. Open hearings were held for 16 days beginning December 2, 1937, and ending January 25, 1938. Thereafter the bill was considered in executive session for several days, and experts from the Commission were present whenever desired to give detailed information to your committee.

None of the amendments suggested were rejected, but some were omitted, as it was desired either that they should be studied further, or that additional information should be obtained, or that the incorporation of such amendments would be undesirable now, or that said amendments would fail to accomplish the purposes desired. Among those thus deferred were the suggestions for the training of seamen, for a Mediation Labor Board, for construction of ships abroad under certain circumstances, the aircraft provisions and for removal of limitation on salaries. Your committee adopted a resolution authorizing and directing a continued study of all suggestions made by the Commission, with authority to ask permission to continue the study in recess of Congress, if necessary.

Such a study is designed to be complete, comprehensive, fair, unbiased, impartial, and exhaustive. There has been so much crimination and recrimination, so many charges and countercharges, indications of propaganda, elements of suspicion, and conflicting rumors, affidavits, and reports of all kinds, that your committee feels that it should try to ascertain the truth for itself. The material collected by the Maritime Commission, by the Bureau of Marine Inspection and Navigation, by the State, War, Navy, Commerce, and Labor Departments, and by other agencies, will be of much benefit to your committee, and will be utilized so far as possible. Such a study could not be completed, even if no additional information were obtained, without unduly delaying consideration of the bill which contains many salutary features which should be enacted into law at an early date.