Mr. BLACKWELL. If you can bear with me a minute?

Mr. SARBANES. Surely.

Mr. BLACKWELL. Here again, we will get different answers, as you suggested, but on an f.o.b. basis, from the Persian Gulf, depending on the type of oil, Arabian light, Arabian medium, you get a range of prices on an f.o.b. basis per barrel between $2.94 and $3.07. We calculate that the cost of transporting that oil on a time charter basis, is about $1.38 from the Persian Gulf. It is a fairly substantial portion of the price.

Now, it may not be a fair comparison, but if you look at current spot rates, that is where a vessel owner will fix a ship, not on a long-term basis, but just to play the spot market, the rates are two and three and four times that, at least.

The rates in the Persian Gulf today are, I think, are in the neighborhood of, between 400 and 450. I think that that would come out to $34, $36 a ton, seven barrels to a ton, and you can make your own calculations.

Mr. SARBANES. In previous figures you gave the cost of shipping as about 40 percent of the cost of the oil in this country.

Mr. BLACKWELL. That is right.

Mr. SARBANES. On page 17, in the table there at the bottom of the page, what are the pertinent figures for the percentage cost in the U.S. ships with the CDS, relative to the cost of foreign-flag ships?

Mr. BLACKWELL. We do not have the numbers on this percentage basis, but we do have numbers, say from the Persian Gulf, and we have calculated these in 1975, U.S.-flag without CDS; shipments cost to include oil, in dollars per barrel, would be $1.33; U.S.-flag with CDS, $1.20; foreign-flag ships, $1.18. This again is based on a 265,000-ton tanker. You would get some change in these rates, depending on the size of the ship.

Mr. SARBANES. I think it might be helpful if we could get the total at the bottom of page 17 carried out in one more column to provide the comparison between U.S. ships with CDS and foreignflag vessels.

Mr. BLACKWELL. We would be happy to do that. [The information referred to follows:]

Mr. SARBANES. And one other question I have on pages 25 and 26. I have a little bit of trouble with some of your figures with respect to the U.S. penetration of the carrying trade. From the figures at the bottom of page 25, I take it that the total demand for tanker tonnage for U.S. imports in 1975 would be 39.9 million dwt?

Mr. BLACK WELL. That is right.

Mr. SARBANES. And at the moment we have 9.6 million dwt available?

Mr. BLACKWELL. Right.

Mr. SARBANES. And are constructing an additional 4.5 million? Mr. BLACKWELL. That is right.

Mr. SARBANES. Which I assume would be ready by 1975, is that correct?

Mr. BLACKWELL. Not all of them, no. Some of these ships would not be delivered until 1976, and some into 1977.

We have placed in some yards, Congressman Sarbanes, significant numbers of the orders that these yards have, 8 to 12 ships that these yards are working on.

Mr. SARBANES. Well, how much of the 4.5 million would be available by 1975?

Mr. BLACKWELL. I just-I could give you the number for the record-I would say about 3 million tons.

Mr. SARBANES. Well, I guess my question really is that, adding this figure to the existing capacity, and balancing it off against our demands, are we not in a position to penetrate into the market in 1975, if we utilize all of that capacity to about 30 percent?

Mr. BLACKWELL. I think that figure that we gave in terms of 4.5 million also includes ships that are being built in the United States, not for international trade, but say, for instance, the Alaskan trades. Those are not all CDS ships built for foreign trades. There is some capacity in there.

I would say over a million tons are being built for domestic trades in this country, built without subsidy.

Mr. SARBANES. Well, we look forward to having you back.
Mr. BLACKWELL. Thank you.

Mr. CLARK. Mr. Downing?

Mr. DOWNING. I would like to follow up Mr. Sarbanes' questions. In regard to whether we will be able to meet our requirements in 1975, and 1980, under the present tanker program, did you say that we would?

Mr. BLACKWELL. It depends on what you perceive the requirements to be, Congressman Downing. We feel that under the current program, with the current level of funding maintained over the next 8 to 10 years, we can successfully build enough ships without straining our program, and still giving us some capability to build a balanced fleet, that is some non-tankers, and provide by 1980 about 18 percent of market penetration, and by 1985 roughly 19 percent, close to 20. As I indicated, I think that that is a significant penetration, particularly when you make a judgment where we are now, and where we have been. The number of ships that we would require in that time-frame is significant in terms of any historic maritime program. We contemplate, within this long-range projection, the construction under the program of some 55 very large crude carriers.

Mr. DOWNING. Does that answer my question, that you think we will be able to meet our requirements in 1975-80?

Mr. BLACKWELL. Requirements to carry between 18 and 20 percent, yes, sir.

Mr. DOWNING. All right.

Let us get to the balance-of-payment issue. Has this been brought up?

Mr. CLARK. I do not know.

Mr. DOWNING. What will be the effect upon our balance of payments in 1975 and 1980?

Mr. BLACKWELL. Well, in my testimony, here again using what we call notional ships, Congressman Downing, we ran some numbers on 90,000-dwt tankers, and 265,000-dwt tankers, and for every 90,000-dwt tanker that we build for the foreign trade that replaces a foreign-flag ship, we calculate that there is a $41 million balanceof-payments saving over the life of the ship. For a 265,000-dwt tanker, we calculate $114 million in savings in terms of balance of payments. Again, over the life of the ship.

If we use the projected penetration level that is envisioned in this bill, that is 30 percent, in the 1980 timeframe, we calculate that over the lives of the ships that would have to be built to meet that penetration level, there would be a balance-of-payments contribution of over $11 million.

Mr. DOWNING. $11 million?

Mr. BLACKWELL. $11 billion, I am sorry.

Mr. DOWNING. Yes.

Mr. BLACKWELL. Now, we also have run some numbers on an annualized basis, and again these are all subject to the assumptions that we make with regard to ship size, et cetera. If foreign-flag ships are used exclusively for the carriage of our oil, we make these judgments as to what the balance-of-payments deficit would be from the use of these ships just for transportation. By 1975, $798.8 million. By 1980, $1,517,600,000. By 1985, $2,094,500,000. If you take those as benchmarks and try to calculate a savings, all you have to do is take either the 18 or 20 percent of the penetration that we think is worthwhile to strive for, or 25 percent, or 30 percent, to try to get the net gain by substituting American ships for these ships.

Mr. DOWNING. Is that not an important matter?

Mr. BLACKWELL. Yes, sir.

Mr. DOWNING. And have you weighed the effect of the increase in balance of payments against the desirability of having an import quota

Mr. BLACKWELL. Well, we feel that much of this benefit, in terms of balance-of-payments contributions, will be achieved if we pursue the current program to an 18 to 20-percent level.

Mr. DOWNING. But we are talking about the difference between 20 percent and 30 percent.

Mr. BLACKWELL. That is right. We think there are offsetting disadvantages in terms of keeping the program vis-a-vis a substitution in terms of cargo preference.

Mr. DOWNING. My 5 minutes have expired.

Thank you.

Mr. CLARK. Mr. Lott?

Mr. LOTT. Thank you.

Our time has expired totally, I think.

I want to thank you for your statement. I think you made it clear that you do not think that what is called for on this bill can be cured by just changing gear into phase IV. I take it you are opposed to this concept that is called for in the bill?

Mr. BLACKWELL. I am for supporting the U.S. merchant marine. I think we have a vehicle to do that, Mr. Lott. And in terms of a choice of alternatives, I think the present program is the best way to do it.

Mr. LOTT. That is all, Mr. Chairman.

Mr. CLARK. Mr. Kyros?

Mr. KYROS. Thank you, Mr. Chairman.
Mr. Secretary, nice to see you here.

I would like to bring to your attention, one point mentioned in your conclusions.

You say that you are opposed to oil cargo preference legislation. for the following reasons, and then, as I understand it, you explained that you mean to build up our merchant marine through the Merchant Marine Act of 1970. But is it not a fact that if we in Congress try to set spending levels we would be more certain of having the money actually spent, not only authorized, and even appropriated. This legislation would require funds to be spent for tankers since by a certain date, 25 percent of all oil coming into the United States must be carried under American-flag ships.

Now, it seems to me that there have been times in the past when we simply have not spent the money authorized and appropriated although we have had the programs, is that not correct?

Mr. BLACKWELL. That is correct. However, the fact that there is a requirement that a certain portion of 30 percent, or 25 percent of oil moved on American bottoms, still leaves open the question of who pays for it.

What you have in this testimony, and I believe in terms of the track record of the administration, is a long-term commitment to support the American merchant marine at a level established here. some 3 years ago. In fact, the administration is spending more money today on an annual CDS basis, including inflation factors, than they indicated they would spend. So you do have that type of a commitment.

You do have the problem, I think, of whether the administration would be willing to spend considerably more to achieve these higher levels. This bill, as I indicated in my testimony, does not provide. a mechanism as to who is going to bear the increased cost. It does not indicate whether the subsidy program will, whether some remission system will, based on taxes, or whether it will be passed on to the consumer, and there is no question that there is a higher cost in using American ships.

The real critical question is who is going to pay for it, and how. Mr. KYROS. But at the same time there is no question, also, about the objectives that our tanker fleet should be at least carrying 20, 25.30 percent of our own oil.

If what we see in the world today is a forecast of the kind of insecurity that will exist for a long time, that is to say we do not

know what can happen with political questions from other countries if we rely on them to carry our oil.

If so, we have to face those costs at any event. Your way of doing it is to continue building the merchant marine, and there is nothing wrong with that.

We passed those bills and supported them. But even in those bills, Mr. Secretary, I seem to remember some occasions when all of the money that was required in those bills was not spent for one reason or another.

Mr. BLACKWELL. That is no longer true, Mr. Kyros.

Mr. KYROS. In your testimony here, you mention getting oil from the Virginia Islands, and how import fees, I understand, are waived for ships coming from the Virgins, because you have claimed that no U.S. ship is available.

Now, in some of those cases, have not there been arguments where there was a U.S. ship available?

Mr. BLACKWELL. Yes, I know of one instance. It occurred almost immediately upon passage. We did have a clear difference of opinion with the people who administered that, the Interior Department. They had made a judgment after discussing the subject with some brokers, that no U.S. ships were available. They called us to check, and we determined that there were U.S. ships available.

Mr. KYROS. What criteria does Interior use to determine whether or not a situation is available, and what could have been done?

Mr. BLACKWELL. I do not think they are capable of making that judgment. I think the only people capable in the Government are the Maritime Administration. What they did was call a couple of brokers who basically serve foreign-flag interests.

Mr. KYROS. And had anything been done, Mr. Secretary, to prevent that from reoccurring?

Mr. BLACKWELL. Yes, I wrote a nasty letter over there.

Mr. KYROS. Well, I certainly am pleased to see you before the committee, and thank you very much.

Mr. CLARK. Mr. Pritchard?

Mr. PRITCHARD. Well, I came in on the tail end of your comments, and it is really difficult to ask questions without having heard your remarks.

Mr. BLACKWELL. I understand I am going to be invited back, Congressman.

Mr. PRICHARD. I am sure you are, so we will get a few more whacks at you.

I gather from your testimony that you do not agree with the approach.

Mr. BLACKWELL. I think that is a fair summary.

Mr. PRICHARD. I will have some questions later.
Thank you.

Mr. CLARK. Thank you, Mr. Pritchard.

Mr. Blackwell, only 18 months ago the world and domestic tanker markets were suffering from a deep depression. Today, operating market rates have reached all time highs.

As a result, interest in the construction of American ships, built with subsidy, are now exceeding the available construction capacity.