The CHAIRMAN. Testimony before the Armed Services Committee is that not only were they vitally needed but they were of an immediate need, that it ought to have been done last year. The statements on the floor were to that effect.

Mr. SANFORD. My only interest in this whole thing is to help try to

get this program off of dead center and get some contracts awarded. I

think you understand that, Mr. Chairman.

I want some work in the shipyards because they are in a rather desperate condition and every day that goes by that condition gets a little worse. As a matter of fact, if it had not been for a good deal of work that the Navy saw fit to give us in the way of new construction we would be in desperate condition at the present time. That has helped in some yards. But bear in mind that not all shipyards take Navy work, and it does not help the shipyards that have no Navy work.

The CHAIRMAN. I want to ask a special-purpose question. Is the condition worse on the west coast than on the east coast?

Mr. SANFORD. The condition usually is worse on the west coast than on the east coast. You know that, Senator.

The CHAIRMAN. Senator Pastore, do you have some questions?
Senator PASTORE. Yes.

Mr. SANFORD. I might say that I have understood that some of these Navy tankers, MSTS tankers, would be possibly built on the west coast if we can get this thing underway.

The CHAIRMAN. Under law, three of them would have to be. Out there there is practically no new ship construction at all.

Mr. SANFORD. Of course. We know that and we know the reasons for it.

The CHAIRMAN. Senator Pastore?

Senator PASTORE. This will be developed during the progress of the hearing. Are you familiar with any reason, either expressed or suspected, as to why these millions have not been committed? These millions that have been appropriated and are available?

Mr. SANFORD. The only reason that I can give you, Senator, is that the Maritime Administration up to now at least has not conceded that they are special-purpose ships. That being so they of course, say that they cannot proceed with the 100 percent mortgage loan insurance, and all the investment people tell you that unless they have a hundred percent mortgage loan insurance they cannot be financed privately. Senator PASTORE. That does not apply to the appropriations under the 1936 act, does it?

Mr. SANFORD. No. No. I misunderstood you.

Senator PASTORE. In any event you have given me one reason insofar as special service vessels are concerned.

Mr. SANFORD. That is right.

Senator PASTORE. Let's get down to the vessels that are authorized under the 1936 act. There are appropriated there unexpended and uncommitted $44,500,000.

Mr. SANFORD. Are you talking about the passenger ship section? Senator PASTORE. That is right.

Mr. SANFORD. It is pretty hard to say. You know the designs for these passenger ships are prepared by the owners. They come into the Maritime Administration for their review and approval. They have to go to the Navy for their approval for national defense features.

But

It is somewhat of a long-drawn out, arduous undertaking. nevertheless these designs have been under way for a matter of 2 years now. It seems to me that that is just too long.

I said earlier that the invitations, so I understand, for the MooreMcCormack ships are going out next week. I believe Monday. The Grace Line ships, I don't know why they are bogged down. They won't come out, I am told, until much later in the year.

The CHAIRMAN. We ought to make clear that under the 1936 act there is a provision for people to make applications to build under that act. If the Maritime Commission grants those applications, then they come to Congress and ask for the money to carry them out. Mr. SANFORD. Of course, they can't do anything with the money. We know that.

The CHAIRMAN. In this particular case, in the last few months. there have been no requests made to the Congress for money to carry out the provisions of that act because no applications, with the exception of these passenger ships, have been recognized by the Maritime Board.

Mr. SANFORD. That is right.

The CHAIRMAN. So the act has been ineffective. It has been suspended, almost, in the air. Nothing has happened.

Mr. SANFORD. Naturally Maritime can't request an appropriation until it has something in view in the way of a ship.

The CHAIRMAN. But every time they have come to the Appropriations Committee, I know in the Senate, with a proposition to enhance our Merchant Marine or needed ships, we have been very receptive.

Mr. SANFORD. Yes.

Senator PASTORE. Maybe the Chairman will enlighten me on this. Apparently a very strong presentation must have been made before the Appropriations Committee when they got the $44,500,000. Why hasn't that been committed in all this time?

The CHAIRMAN. That is what we are trying to find out here today. Mr. SANFORD. It would seem to me that the place to ask that question is not of me but of the Maritime Administration.

Senator PASTORE. I know that. I was merely trying to get your opinion on that. We will ask that question of the proper authorities.

Mr. SANFORD. I realize and I think others must realize that it is a rather long drawn-out procedure to get the final plans and specifications perfected. But it seems to me that it has been just too long, that those ships should have been underway at least by the early part of this year.

Senator PASTORE. I merely was trying to get your point of view on the subject.

Mr. SANFORD. We are disappointed in that because they haven't been underway. They would have helped, too.

The CHAIRMAN. I have one other question which is of a general nature. I think we are all familiar with it. We need not go into the details.

By comparison with shipbuilding programs in other maritime nations of the world, which are bound to become sooner or later more and more competitive with our merchant marine, they are going full blast.

Mr. SANFORD. That is correct.

The CHAIRMAN. Their ways are filled.

Mr. SANFORD. And they have been for several years.

The CHAIRMAN. They have been ever since the war. Naturally they were way down and had to come up.

Mr. SANFORD. As a matter of fact, some of the foreign maritime nations have rebuilt their merchant marines to a point beyond what they had when the war started.

The CHAIRMAN. I haven't the latest figure from the Japanese, but they are beyond their tonnage, their prewar tonnage.

Mr. SANFORD. That is true of a number of countries.

The CHAIRMAN. And I think the Swedes also.

Mr. SANFORD. We have given them no slight assistance in accomplishing that result.

The CHAIRMAN. I don't mean that that should cause us to build ships we don't need. Nevertheless if we present to Congress a plan that the ships are needed, that the merchant marine needs to be enlarged to keep up with world competition, keep the American flag on the seas, the comparison between what we are doing in shipbuilding and other nations is almost alarming.

Mr. SANFORD. It needs more than just to be enlarged, Senator. Here is the situation that you have.

The CHAIRMAN. And to keep it up to date.

Mr. SANFORD. These foreign nations are building new ships all the time. Their ships are modern and the average ages of their fleet are much lower than the average of our fleet. Unless we start some replacements we can't keep up in competition of old ships against new ships. It just isn't in the books to do that.

That of course is the objective of this program that the Maritime Administration has now, to anticipate the replacement requirements of the various subsidized lines and not wait until the ships are actually 20 years old and then try to do it all at once, which would be an impractical proposition. In the meantime you wouldn't have any shipyards left in which to do it.

The CHAIRMAN. Of course we might proceed in reverse and keep transferring ships, foreign, our old ships. Finally after 40 years they will have the obsolete merchant marine and we will have the new one. Mr. SANFORD. I wish it could work out that way.

The CHAIRMAN. Senator Payne, do you have any questions?

Senator PAYNE. No, I have no questions. I want to listen to a little more of the testimony.

The CHAIRMAN. Thank you, Mr. Sanford. We appreciate your testimony.

Do you have any questions, Mr. Pellegrini?

Mr. PELLEGRINI. Yes, sir.

Mr. Sanford, you mentioned the fact that Public Law 575 contains certain onerous terms. What terms do you have reference to, sir? Can you detail those?

Mr. SANFORD. Maybe I cannot mention all of them offhand but I have particular reference to the provision that not more than twothirds of the cost can be amortized by the end of the charter term period; the provision that the applicant may not sell any of his existing ships foreign during the life of the charter; the provision for the purchase of the ships at the end of the charter period by the Government at book value or market value, whichever is less.

All of those are very onerous terms for an operator of ships to take on when he is taking them on for a period of 10 years. Ten years is a long time. He may want to dispose of some of his older ships in the meantime. It may be economic for him to do so.

Mr. PELLEGRINI. By dispose you mean dispose of the ships foreign? Mr. SANFORD. That is right. He is prevented from doing that under the terms of this act.

Mr. PELLEGRINI. When you say dispose of the ships foreign, you are talking about tankers?

Mr. SANFORD. In this particular case it would be tankers, yes, because only tankers are involved. But as a matter of fact I do not know; I have not thought of that feature of it; whether that prohibition would apply to ships other than tankers owned and operated by the same company. I assume it probably would, although as I said I have not gone into that angle.

Mr. PELLEGRINI. What is our present situation with regard to tankers, as you understand it?

Mr. SANFORD. As I understand it-my understanding is based on the findings of the Department of Defense-we are rather short in tanker tonnage for any emergency that may arise. That was the purpose of some of these bills. The trade-in and build was to get the old ones, hold them for an emergency, but to get in new ones.

Mr. PELLEGRINI. The Defense Department has testified, has it not, that our shortage of tankers is a shortage that exists for initial impact and not the long pull?

Mr. SANFORD. That is true also of the passenger ships. Those are the two categories in which we are in short supply-particularly in short supply.

Mr. PELLEGRINI. In case of emergency, as of today we are short of all classes of tankers, and it behooves us to have all classes of tankers under the American flag. Is that accurate?

Mr. SANFORD. I might make a slight clarification. It behooves us to keep all classes of tankers under the American flag. However, if there were an opportunity to replace an old tanker foreign and replace it with a new one it would be a good deal.

The CHAIRMAN. The pressure has been to take the T-2's and transfer them foreign on the premise you would get new tankers. Otherwise the scrap value of the T-2 would run maybe a quarter million dollars, whereas the minute you put a foreign flag on it, it is worth $600,000 or $700,000. That is the pressure. Each one.

Mr. PELLEGRINI. You said only two-thirds of the tankers can be amortized during the 10-year period. That is a protection for the Government, is it not?

Mr. SANFORD. That is right.

Mr. PELLEGRINI. Also there is a provision that you described as onerous in the legislation, that the Government has the right to purchase these ships at the end of the 10-year charter period at the depreciated book value or market value, whichever is lower.

Mr. SANFORD. When I say onerous I mean onerous to the owner. Mr. PELLEGRINI. I realize that. That is a particular advantage to the Government, is it not?

Mr. SANFORD. Oh, yes. No doubt about it.

Mr. PELLEGRINI. Even with these onerous conditions, can you tell us whether or not, in your opinion, these ships could be financed, the construction of these ships could be financed or would be financed by private investors?

Mr. SANFORD. Yes, there is no question but what they can be financed because, as I understand it, certain of the applicants already have the necessary commitments for that financing.

Mr. PELLEGRINI. There is a further provision in Public Law 575 that you did not detail, and that is a $5 ceiling per ton.

Mr. SANFORD. That is right.

Mr. PELLEGRINI. On a charter rate?

Mr. SANFORD. It is a pretty slim margin.

Mr. PELLEGRINI. You say that is a slim margin?

Mr. SANFORD. It is a slim margin and I have heard a lot of talk in various sources about windfalls under these contracts. I do not think there is any opportunity for a windfall on a $5 limitation on charter. Mr. PELLEGRINI. So that then, as I understand it, you have as your condition, your $5-charter limit, two-thirds amortization provision, and the purchase provision. But you feel, in spite of those provisions, which are for the benefit of the Government, that these ships can be built.

Mr. SANFORD. I think they can be built. I see no reason why they should not be built.

Mr. PELLEGRINI. Do you think they could be built with 90 or 87% percent, in your opinion?

Mr. SANFORD. All of my information is to the effect that it is not possible to get private financing on the basis of 90-percent mortgageloan insurance.

Mr. PELLEGRINI. Why?

Mr. SANFORD. Because the investment people, the financial people, will simply not take that risk.

Mr. PELLEGRINI. Why will they not take the risk? Is there not enough in the deal?

Mr. SANFORD. You had better ask them. I am not a financier.
Mr. PELLEGRINI. I have no further questions.

The CHAIRMAN. They testified here on the bill that they would not sharpen their pencils on 90 percent, and only naturally if they could get a hundred.

There have been

Mr. SANFORD. That is human nature, of course. some very, very definite attempts made on the part of many people to see whether or not it was possible to get 90-percent mortgage-loan insurance on this. So far as I know, none of them have been successful.

Mr. PELLEGRINI. In your opinion, you are not going to be able to get these ships built without 100-percent insurance on the part of the Government; is that correct?

Mr. SANFORD. I do not think so. If that is the case, then the whole program bogs down.

The CHAIRMAN. Thank you, Mr. Sanford. We appreciate it.
Mr. Pettis?

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