Senator POTTER. Admiral, yesterday you were asked about our experiences during World War II in regard to the availability of allied shipping to us and to the extent we furnish shipping facilities to our allies. You gave a very clear answer as to the cooperation arrangement between our allies.

If you would bear with me, I would like to take this opportunity to read just a paragraph from Winston Churchill's book The Hinge of Fate, which I think gives a pretty good picture that that cooperation did exist. This is on page 199 of his book.

Shipping was at once the stranglehold and sole foundation of our war strategy. With the entry of Japan into the war, the strength of the Anglo-American military effort depended almost directly upon the replacement of our shipping losses by new production. During the first 6 months of 1942 the sinkings of British and American vessels were nearly as heavy as for the whole of 1941, and exceeded the whole shipbuilding program by nearly 3 million tons. At the same time the demands of the American Army and Navy increased enormously. But already in March the United States building program for the following year was raised to 14 million tons. By May 1942, the Americans balanced their current losses with new ships. It was only late in August that this goal was achieved by the Allies as a whole. Another year elapsed before we could replace all our earlier losses. In spite of increasing American commitments, we were allowed to retain in our service nearly 3 million tons of American cargo and tanker shipping. Even this generous decision on the part of the United States did not make up for the mounting casualties in the British Merchant Navy.

The whole scene was soon to receive a brighter light from the first American naval victories over Japan in the Pacific, and all sea problems were eventually to be solved by the stupendous United States construction of merchant vessels.

I think that bears out the testimony you gave, that even with all the fine cooperative effort with the British merchant fleet and ours combined, there was still a great lapse there, which in another emergency may not be working in our favor.

Admiral WILSON. That, of course, is the philosophy that is behind the statement contained in my statement of yesterday, that we should place maximum reliance on the defense of the United States in an American-flag merchant marine.

Mr. DREWRY. Your statement as to sizes, composition, and so on, are directed to that alone, not to any supporting effort that we might be called upon to make?

Admiral WILSON. That is correct.

Senator POTTER. Admiral Wilson, I want to thank you for your most cooperative effort. I know the maritime industry and the people who recognize the situation, know the merchant marine is an arm of our national defense, and will be most appreciative for your efforts, for the first time in a long time, to give us the military needs of our merchant marine.

I know a lot of work has gone into this. I sincerely hope this is a continuing effort. We want to assure you this committee will work with you. We are not after anyone. We are seeking information. I think it will be a great help to the merchant marine to have spelled out just what are the requirements for national defense of the merchant marine. Thank you kindly.

Admiral WILSON. Thank you, Senator. It has been a privilege and a pleasure to be here.

Senator POTTER. We had intended that Under Secretary Murray of the Department of Commerce would be the next witness. He is

in Europe. As you know, the Department of Commerce has been stricken with illness, and they prefer to wait until a later date to submit their recommendations to the committee.

We are fortunate this morning in having Mr. James Farrell, who is president of Farrell Lines, present. Mr. Farrell will present a statement not only in his own behalf but in behalf of all the subsidized lines. Mr. Farrell, we are most appreciative of the fact that you yourself have taken the interest you have to give us the benefit of your thinking on this problem.

STATEMENT OF JAMES A. FARRELL, Jr., PRESIDENT, FARRELL LINES, INC.

Mr. FARRELL. Thank you very much, sir. As you know, I have a prepared statement. As you wish, I would like to invite your interruption for questioning, or at the end, as you prefer.

Senator POTTER. Thank you kindly.

Mr. FARRELL. I will first identify myself, although you have been kind enough to do so. My name is James A. Farrell, Jr. I am president of Farrell Lines, Inc. I am appearing here on behalf of the following 14 steamship companies which are members of the Committee of American Shipping Lines Serving Essential Foreign Trade Routes: American Export Lines, Inc.; American Mail Line, Ltd.; American President Lines, Ltd.; Farrell Lines, Inc.; Grace Line, Inc.; Lykes Bros. Steamship Co., Inc.; Mississippi Shipping Co., Inc.; MooreMcCormack Lines, Inc.; New York & Cuba Mail Steamship Co.; Pacific Argentine Brazil Lines, Inc.; Pacific Transport Lines, Inc.; Seas Shipping Co., Inc.; The Oceanic Steamship Co.; United States Lines Co.

SUBJECT MATTER

My subject concerns the strengths and the weaknesses of the American merchant marine of today. I shall leave to later witnesses to deal with the question: What should be the attainable size and the composition of the American merchant marine in the future? While I shall touch on the total picture as it now is, I shall not discuss in detail the situation as it concerns the ships in domestic commerce or the tanker fleets, although some statistics I have with me do bear on that.

I shall devote most of my discussion to the dry-cargo and passenger ships engaged in foreign commerce. My object will be to analyze for you, qualitatively and quantitatively, this segment of the presentday American merchant marine which is serving the foreign trade of the United States, that is, the fleet in being.

NATIONAL DEFENSE ASPECTS

For obvious reasons, it will be unnecessary for me to deal with the requirements of national defense, which has been very well put to you by Admiral Wilson, except so far as it may concern the operation of our merchant fleet.

I would like to interpolate here that perhaps Admiral Wilson did not stress one defense aptitude of the fleet, which is for the essential trade route carrier to bring to this country during the time of war

the basic essential war materials to keep our domestic and wartime economy in motion.

I assume there is general agreement that the commercially operated ships can never suffice to fill the needs of national defense in times of war. I further assume that a strong and modern, privately owned merchant fleet must form the nucleus for national emergency needs, and consequently the indispensable fourth arm of our defense. Í limit myself to pointing out that the most economical method of furnishing some such nucleus is by fostering an active and efficient merchant marine. The fact that we spent for ship constructing $4 billion during World War I and $12 billion during World War II is sufficient evidence of the need for maintaining the best possible merchant marine. The fact that we spent for ship construction $4 never allow our merchant marine to sink to the low state that it did in the early 1900's and again in the early 1930's. As a result of the working of the Merchant Marine Act of 1936, our situation was incomparably better at the outbreak of World War II than it was at the commencement of World War I.

With these preliminary observations, let me return to an analysis of the strengths and the weaknesses of our present-day merchant marine.

Senator POTTER. Can I ask this question? Will the Mariners be used for commercial purposes?

Mr. FARRELL. It is difficult to answer that question categorically. the Mariner is structurally and mechanically a very good ship. She is too big for ordinary commercial purposes.

Her cost, and any estimate of her reduced cost under construction differential that I have yet seen, is too high to earn enough to sustain her fiscal charges for interest, depreciation, overhead, and insurance. Furthermore, her daily fuel oil consumption is extremely high. Strictly from a comparable commercial purpose, the ship will not produce the results a C-3 will produce.

Senator POTTER. I was interested in Admiral Wilson's statement. He wasn't speaking, I don't believe, of necessarily the Mariner but of other ships. He spoke of the requirement for quite a high rate of speed, which might not be necessary for commercial use. With your speed you have increased cost in operation?

Mr. FARRELL. An increased capital cost.

Senator POTTER. He made a statement that it wouldn't be necessary to operate these ships for commercial use at the speed that would be required for defense purposes. Is there still quite a cost item there in operating, even if you don't utilize all the speed the ship has?

Mr. FARRELL. There is, Senator, although the answer I am afraid is a pretty technical one. It is that a ship is designed with stated speed. The horsepower to produce that speed is installed. Capital costs increase as horsepower is increased. They don't increase on a straight line. They increase with a logarithmic curve. In addition whenever you run a powerplant, be it ashore or at sea, at lower than its rated speed, you are perhaps saving fuel, but you are losing efficiency.

Senator POTTER. I was interested in that point. I am sorry to interrupt you at this point.

Mr. FARRELL. I am glad of the question.

STRENGTHS OF OUR PRESENT MERCHANT MARINE

It should be obvious that its strength cannot be measured merely in number of ships. We must look critically at the quality of those ships. We must take into account the trained personnel who man the ships and the trained organizations that direct their operations. We must add the skills of shoreside facilities and the skills of shipbuilding and ship-repair yards to the appraisal of our merchant marine. The American merchant fleet employed at the present time in the foreign and domestic commerce of the United States by that I mean at sea and not in lay-up

Senator POTTER. This is the private merchant marine? including in this MSTS?

Are you

Mr. FARRELL. No, I do not. This is the commercially owned fleet, privately operated.

The fleet at the present time consists of 791 large vessels of all types, having an aggregate tonnage of 8,403,000. Of this total, I would classify 625 vessels, having a total tonnage of 6,643,000, or 79.1 percent, as being good commercial vessels. This leaves 166 vessels with a total tonnage of 1,760,000, or 20.9 percent, as being already obsolete. The details of this analysis are shown in the attached schedule I, from which you will note that the one-fifth of the present merchant fleet which is already obsolete consists principally of the Liberty-type vessels.

I would like to call your attention to the fact that when I use tonnage applying to cargo vessels and combination cargo vessels, I use deadweight tonnage, and when concerning passenger ships it is gross tonnage.

Now, let us further analyze that segment of our merchant fleet employed in foreign commerce and consisting of dry-cargo and passenger vessels. I will not deal further with the tanker fleet or with ships engaged in domestic commerce. The privately owned dry-cargo and passenger fleet in foreign commerce consists of 629 ships, having a total tonnage of 6,767,000. The details are shown in the annexed schedule II. You will note therefrom that the subsidized lines own 289 ships, having a total tonnage of 3,115,000, and that all of them consist of modern vessels. On the other hand, nonsubsidized companies own 340 ships, having a total tonnage of 3,652,000, of which only 144 ships of 1,509,000 tons, or 41.1 percent, are modern, and the remaining 196 ships of 2,143,000 tons, or 58.7 percent, consist of Liberty-type and other obsolete type vessels. Eliminating those obsolete ships, we have the following situation in the foreign trade:

Subsidized lines..

Unsubsidized companies..

Total..

Modern ships

The details of the above are shown in the annexed schedule III. The influence of the Merchant Marine Act of 1936 is quite evident. The subsidized lines own and operate the great bulk of the modern

dry-cargo and passenger vessels; and they do not own or operate any old or obsolete vessels, for the simple reason that such do not qualify under the act. On the other hand, most of the unsubsidized companies, which own and operate modern vessels, fall into three principal categories: (1) Institutional carriers such as those serving the Aluminum Company of America, United States Steel Co., and United Fruit Co.-excellent companies with excellent fleets doing an excellent job-(2) companies which are ineligible, because they directly or indirectly own or operate foreign-flag tonnage, and (3) companies which are ineligible because they are unable or unwilling to confine their business to shipping. The details of the foregoing are shown in the annexed schedule IV.

Mr. DREWRY. By "ineligible" you mean?

Mr. FARRELL. They are ineligible either through age, speed, or lack of safety requirements.

Mr. DREWRY. Ineligible to qualify under the 1936 act for a subsidy? Mr. FARRELL. Yes, Mr. Drewry. Another strength of the presentday merchant marine is found in the statutory reserve funds, which the subsidized lines are required to maintain under the 1936 act. Those funds, under joint control with the Maritime Administration, aggregated $165 million at December 31, 1951, and are available for purposes of vessel replacement, to permit continued operation during lean years, and for other statutory purposes. The act encourages accumulation of capital, which is available for ship replacements. As a result, the stockholder equities of the subsidized lines has grown to $450,418,000, which represents about 18.8 percent of their future replacement requirements as estimated by the Maritime Administration. (See Department of Commerce Report to the President, dated November 1, 1952.) I do not endorse the replacement program then put forth, but this is a computation sustaining it. I know of no comparable accumulation in the hands of the unsubsidized lines.

It is quite apparent, therefore, that the great strength of the drycargo and passenger fleet employed in foreign commerce, lies in the vessels owned and operated in conformity with statutory requirements of the Merchant Marine Act of 1936. During the 15 years since the inception of the act, the fleets of the subsidized lines have grown from 171 older vessels in 1937, to 289 modern vessels by the end of 1952. That growth is a great deal more than a numerical growth. It is a growth in class, speed and newness.

During the same period, the increase in yearly carrying capacity of the subsidized fleet has about tripled, having grown from 4,600,000 deadweight tons in 1937 to more than 13 million deadweight tons in 1953. Their annual capacity for transport has been even more greatly enlarged by increased speed, permitting more voyages per year. The only passenger vessels built in the United States since World War II have been for subsidized lines, including the steamship United States, the steamship Independence, and the steamship Constitution, which we could class as the queens of the American merchant marine.

All of this has been accomplished at a relatively low cost for operating-differential subsidies. I would like to emphasize the next paragraph because of an exchange that took place on the Senate floor last week. On June 4, 1953, the impression was left that only 1% percent of such subsidies have been recaptured by the Government from the operators' profits. The fact is that during the first 10-year period