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waii, the crossroads of the Pacific and the base for commercial development throughout that vast area, is one of the top markets for mainland industry.

It should be recognized that the economy of Hawaii, and perhaps to a lesser degree, Alaska and Puerto Rico, is, in truth, an extension of the mainland economy. In the conduct of their business, they are geared to the production and distribution pattern that prevails in the continental market. Their conditions of employment and standards of living are high. They must follow the same business practices in order to survive. To accomplish these things and to sustain half a million people, the islands must have frequent and regular service by ocean-going vessels adapted to the particular needs of the

area.

No alternative methods of surface transport can be utilized. In the continental United States there is a vast transportation network which has received substantial aid in its development. If a highway connected Hawaii with the mainland, there would be little question as to the source of money if new sections had to be built. Hawaii has no connecting highway for its interstate commerce. Hawaii has only a bridge of ships-ships which operate without Government aid.

Unless the ships maintained in these services can be operated on a profitable basis and at a reasonable rate level, the communities which they serve will not be able to preserve, much less improve, their present standard of living.

Ships of inferior speed and design, obsolescent or wornout from other use, cannot be employed without running the high risk of undermining the social-economic structure of the islands. Yet the wherewithal to build and maintain replacement tonnage, to develop new techniques in cargo handling and operation must, under existing conditions, come from the revenues derived from the trade.

To sustain depth and scope of service for Hawaii, two operational requisites are (1) diversity in equipment and (2) diversity in its use. The company goes to considerable lengths to meet both.

Since war-built ships were designed for auxiliary military service and not for a particular trade, it was necessary for Matson to buy the best types available and spend additional millions adapting them for their most efficient and economic use.

This adaptation or readaptation of equipment to meet the changing needs of the Hawaiian trade is a continuing thing. Recently, new types of wider-range refrigeration were installed to accommodate the carriage of a larger variety of perishables, while currently, modification of certain shipboard equipment is being made for the transport of aqua ammonia in deep tanks.

These are but two examples of the multiple, specialized kinds of component services evolved over the years. They are possible only because the principal carrier, Matson, has applied with diligence for the support of shippers and consignees to maintain two-way volume in the trade. It could not be accomplished economically otherwise, because Matson, like every other domestic carrier, must obtain a high use factor for successful operation. The high requirements from cargo, revenuewise per voyage, make Matson vulnerable to forces which might reduce available tonnage below the level of reasonable

return.

Cargoes to Hawaii depend on the purchasing power of the islands in terms of dollars available for spending on the mainland. The Hawaiian trade has stabilized and leveled off at about 1947 levels. Additionally, the island population is on the decline. The uncertainty of the present rate of Government expenditures for military and other purposes in Hawaii likewise induces a considerable degree of uncertainty for the future.

Another significant item is that cargoes inbound from Hawaii consist largely of sugar and pineapple, and both continuously face growing competition from other producing areas in the same markets. Hawaii is buying fewer motor cars, less lumber, tinplate, and steel. The postwar shortage of plantation, public utility, and other productive equipment no longer prevails, so it is reasonable to say that the demand for capital equipment now is dictated more by replacement than expansion needs. The islands' agricultural exports are also on a plateau, graphically speaking, largely due to the limitations on land available for agricultural endeavor.

In summary, it may be stated that in the foreseeable future, Hawaii cannot expect an expansion in purchasing power nor in the volume of its trade. In terms of this company, it means that the services provided are adequate for immediate and short-range needs of the area and that commodity tonnage will remain fairly constant.

We have examined island economic factors which preclude a growth in business. Now, let us look at another of the forces applying upon this company-the cost of doing business.

Senator MAGNUSON. Do you have any plans for low-cost passenger transportation to the islands?

Mr. SEVIER. I don't know if there is such a thing. If we thought it possible, we certainly would be in that business today. We have explored the market

Senator MAGNUSON. Types of ships would not be the thing

Mr. SEVIER. Of low-cost tonnage. There is simply nothing, nothing that we have encountered or located that is available that would be suitable.

New construction is, I believe, quite out of the question because the revenue simply isn't there to provide the

Senator MAGNUSON. Do you think that would offer a new field of increase of volume in Hawaii, passenger trade, if it were possible at a reasonable cost to have the type of ship that would insure sort of a tourist price for a lot of people that of course want to go to Hawaii, who cannot afford the Lurline or can't get on?

Mr. SEVIER. We know that is a problem.

Senator MAGNUSON. I don't know your business, but it seems to me that if you people could achieve some low-cost tourist transportation you would enlarge your business. I appreciate it takes a type of ship. Isn't the old Aleutian from the Alaskan run going to attempt it? Mr. SEVIER. That starts service later in the year.

Senator MAGNUSON. We hope they don't go broke. It will help everybody.

Mr. SEVIER. I think it would be a fine thing. However, there is a ship that is not new.

Senator MAGNUSON. It is very old.

Mr. SEVIER. I think probably the answer to any low-cost transportation would of necessity require new construction, and that just isn't cheap.

Senator MAGNUSON. Doesn't it all point up the fact that in order to do these things, which I know would be desirable to many thousands of people that can't afford the passage now, who would like to go and have more time for recreation, that the whole problem we are discussing here is the shipbuilding and the encouraging of the types of ships that could do this job for the American people?

Mr. SEVIER. That is right. Later in my statement I touch on the question of passenger service and the problem that is entailed in rendering the service.

The biggest single expense item under this heading is labor-both seagoing and shoreside. In the postwar years the industry as a whole has been subjected to numerous upward adjustments in basic wages and in the so-called fringe benefits of welfare programs and pension plans, with the end result that the maritime crafts today are among the highest paid in the country. There was a time when the marine trades admittedly were underpaid, but that condition no longer exists.

How much labor charges have advanced is not fully realized outside the industry; sometimes, not even within it. A recent survey brought out that from the autumn of 1945 through the fall of 1952, the increase in average monthly earnings of American seamen nearly doubled. similar earnings of workers in manufacturing and in building construction. It was more than double that of earnings in shipyard work and railroading. Seamen's earnings were slightly below those of steel and automobile workers in 1945, according to the same study, but, by last autumn, they were 19-percent higher than earnings in steel and 21 higher than those in auto manufacturing.

For every 1-percent increase in the national cost of living the seamen's earnings rose nearly 3 percent. The pattern of other maritime crafts was no different.

Unfortunately, with this advance in worker earnings we have not purchased stability. We have no quarrel with what is past. We do not begrudge maritime labor the high standard of living it has attained. We do regret that our efforts have not solved the problems of production and industrial relations in our industry.

Without attempting to assess responsibility, the strikes and frequent work interruptions, whether economic or of a jurisdictional nature, have been costly from the viewpoint of (a) revenue losses and (b) the undermining of public confidence on the reliability of service. If costs to domestic operators continue to rise, these questions come to mind: Do we raise freight rates? Do we reduce the quality of service in order to keep cost factors in line? Or do we go out of business?

In its relationship with the Hawaiian Islands, Matson is reluctant to do either of the first two and certainly does not contemplate the latter.

We feel that we have a historic obligation to the Territory to provide full scope of integrated shipping service at the lowest possible charge. The company is deeply aware of the impact transportation charges can and do have upon this or any other insular community. Revenues in the postwar period have not kept up with increased

operating costs. In a regulated industry, such as domestic water transportation, the timelag in adjusting rates to higher costs has depressed earnings. Seldom is it possible or desirable to recoup the entire burden of higher operating costs through the medium of higher freight rates.

The result is a restriction on earnings, which in turn makes the problem of fleet replacement a difficult one."

According to Maritime Administration figures for the Mariner-class freighters, it would cost Matson $136 million to replace the World War II built fleet. Ships are expensive to acquire and maintain. Even the surplus tonnage sold by the Government at reduced prices set by Congress was not cheap. Built essentially for auxiliary military use, these ships had to be adapted and converted for commercial employment. This work cost Matson $8 million in addition to the $21 million acquisition cost.

Aside from the difficulty of obtaining capital to finance new vessels, the depreciation and carrying charges on such a fleet, estimated at $10,200,000 a year, would most certainly be reflected in higher freight charges.

Senator BUTLER. Would you comment at that point on the effect of the recent legislation in connection with ship mortgages, and tell us whether you think it is workable?

Senator POTTER. Private financing.

Senator BUTLER. Have you studied that law?

Mr. SEVIER. I haven't studied it intimately, Senator. That doesn't address itself to the problem of replacement because you still have the full shipyard cost to bear in the noncontiguous or any domestic trade. You borrow your money from private capital instead of the Government. I don't believe it answers the problem we have. Senator BUTLER. An amendment in the law as far as a ship built to your requirements would in some large measure answer your problem?

Mr. SEVIER. That would require enabling legislation. Obviously, there is no existing law to cover that.

Senator BUTLER. With that, in connection with the ship-mortgage law, you may be able to get some new vessels.

Mr. SEVIER. I am sure that would solve the problem of replacement, when that time comes.

A question I cannot answer-how can expenditures of this magnitude for ships in domestic use be financed?

Up to this point no mention has been made of our passenger operation with the liner Lurline whose 29 scheduled round trip voyages each year contribute materially to the islands' third industry, the tourist trade, and to the prestige of the American merchant marine. It is estimated that over 39,000 passengers will be transported in 1953. Operation of the Lurline is unique in that she is the only American passenger liner in service without subsidy of any kind, and it is remarkable that despite increasing air competition-subsidized air competition, I might add her per voyage load factor has grown steadily in the last 3 years.

Because of the extremely high outlay for designing, building, and operating a liner the replacement of a passenger-carrying vessel today presents an even more acute problem. Existing maritime laws do not extend construction assistance in domestic or noncontiguous trade, 36174-54-pt. 2-5

whereas such assistance is available under certain conditions to vessels in foreign commerce.

Although the Lurline has reached near capacity on an annual basis, returns from this operation are not sufficient to attract investment money for replacement. If this vessel should be retired without replacement, the Territory would lose a substantial contributor to its economic welfare and the Nation would lose a valuable adjunct to its national defense and economy.

There are other aspects of trade with noncontiguous areas that should not be overlooked.

It is frequently assumed that since the noncontiguous trades fall within the domain of domestic service they are "protected"-therefore, exempt from competition. This protection, however, is limited.

Carriers actually do encounter foreign competition from foreign byway service and from United States subsidized vessels calling at noncontiguous ports en route to other destinations. Extension of this type of competition can only lead to a dilution of traffic volume and, in consequence, carriers confined to the noncontiguous trade would be faced with extinction.

There are two inescapable conclusions.

One is that urgent need exists for concentrated attention by the Government on domestic shipping problems whose gravity cannot be overstressed.

One line of inquiry must be the possible extension of assistance to private operators in the construction of replacement tonnage for domestic and noncontiguous use. This requires special and specific enabling legislation so that assistance on the building of ships for noncontiguous operation becomes a part of the national policy for the merchant marine.

It seems likewise imperative that technological improvements in commercial vessel design and structure, in speed and motive power, in cargo handling, be developed and utilized if the inherent advan tages of water transportation are to be preserved.

The bulk of the present American merchant fleet comprises warbuilt ships that were designed to give primary consideration to the military's transport requirements. Even the postwar mariners fall in this class. But if the merchant fleet is to survive as private enterprise, there is need to concentrate attention upon the commercial requirements as our foreign competitors have been doing. And this means that radical changes must be made to result in specific ships for particular purposes and in new methods of cargo handling. The basic research remains to be done so as to produce new hull types for packaged carriers that will bring forth new loading gear, and that will advance procedures to cut down port time.

This is a vast undertaking reaching far beyond the means of any one company or trade. It has wide ramifications for private enterprise as well as for the military. It is therefore a program which only the Government can initiate and sponsor.

Such a program can be successfully undertaken and successfully accomplished only with the full and active support of the Federal Government, so that, through an appropriate department of the Government, (1) industry is given access to the extensive research into logistics and related activities now being conducted by the military,

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