30 vessels per year. Others argue that from the standpoint of national survival, we should be building as many as 40 general cargo ships each year. But, the annual average, actually contracted for, in recent years has been closer to 15. And little or no attention has been given to our deficiencies in ore ships, tankers, and passenger ships.

(2) What additional volume of contracts, in numbers of ships, could the private yards absorb?

The present shipbuilding industry could efficiently handle a building program of 50-60 merchant ships yearly without the need for expansion in capacities. A program of this magnitude would insure further capital investments in mechanization and automation.

(3) On that basis, could the costs to the Government be reduced?

If an annual program of 50-60 ships were available, profit margins should improve which would enable the yards to invest considerably more in plant improvements than is now possible. With a larger program and with better plant improvements, the cost of new ships could be reduced, but not greatly below current levels unless substantial numbers of duplicate ships were constructed in each year. This is the most fertile technique to reduce the unit cost of new ships; i.e., multiple production of duplicate ships in each yard.

(4) What additional shipyard modernizations could be undertaken?

As has been said before, many technological advances are already being adopted by the U.S. shipbuilding industry. But, unless there are more contracts to provide a better climate for amortization, a gap in industrial utilization could develop as a consequence of the pure economics of the situation and the lack of sufficient capital. The following advanced techniques can be more fully utilized if adequate opportunity for amoriztation of the capital investment is available. 1. Computer controlled drafting, lofting, fairing, and shape cutting. 2. Numerical control of other shop machinery and processes.

3. Increased automation in material handling and transport.

4. Scientific advances in automatic vertical and horizontal welding equipment and techniques.

5. Semiautomatic pipe fabrication, welding, and brazing equipment. (5) What new systems, methods, and/or concepts can be anticipated? The newer systems, methods, and techniques for ship construction are well known to the American shipbuilding industry. The extent to which they would be further adopted in any given case will likewise depend on the type of ship to be built, its complexity (whether a simple structural job such as a tanker or general purpose cargo ship or a more complex ship such as a combination cargopassenger ship or passenger liner), the numbers of each type likely to be built in each yard, and the estimated durability of the market in the future. Maximum automation and reductions in costs can, of course, be achieved in ships of simple design built in maximum numbers.

It is understood the Maritime Administration is presently considering the recommendations of the maritime evaluation committee in this area. Some attention might be given the desirability of awarding more Government-stimulated research and development projects and studies to the shipyards with the view of practical applications rather than theoretical determinations of cost savings.

It has also been suggested that the entire vessel replacement contract for a particular subsidized operator might be awarded as as single contract spread over a period of years. For example, 20 ships for a particular shipping line might be contracted for with 1 shipyard for delivery as required during the replacement period. This approach would require some modification of present contracting and, perhaps, financing procedures.

Other possible opportunities for cost savings in the ship construction field might result if the Government were to give consideration to the following: (1) Encourage the building of automated ships to reduce crew and crew accommodations as a step in the direction of reviving dormant or deteriorating trades and thus provide greater employment for U.S. seamen and workers.

(2) Encourage more standardization, simplification, and austerity in ship design and ship components.

(3) Encourage relaxation of rigid workrules to permit the interchange of skills among shipyard labor.

(4) Stimulate periodic conferences between operators, builders, labor, Government, and allied suppliers for the purpose of targeting areas for cost reduction.

Eliminate duplication of effort in plan approvals and inspections. Differing requirements from locality to locality also contribute to greater costs, especially with respect to Maritime Administration, Coast Guard, and Public Health Service requirements.

(6) Reduce onerous contract administration which leads to extra costs for builders, operators, and the Government, and minimize interference of the Government in relations between shipyard and owner-operator.

(7) Encourage the award of building contracts in multiple units of greater numbers.

(8) Sponsorship of low-interest loans, accelerated depreciation, or tax advantage for shipyard improvements.

To repeat the consensus of our industry is that the required incentive for 1 further investment in "mechanizaton and automation" by the private shipyards lies in a shipbuilding program of greater magnitude than at present with assurance of continuity in the future.

We greatly appreciate this opportunity to provide our views on a very important aspect of our industry, and stand ready to furnish any additional comments you might desire.

With warm personal regards always, I am,

Cordially,

EDWIN M. HOOD, President.

Mr. DREWRY. Well, if there were more work, then your costs would come down?

Mr. HOOD. Yes, the overhead is spread and inevitably it is going to @result in

Mr. DREWRY. Your productivity inevitably would increase?

Mr. HOOD. Hopefully, yes.

Mr. DREWRY. And, hopefully, in time the prices would begin to come down?

Mr. HOOD. Yes.

Mr. DREWRY. And the gap would be narrowed.

So, from the Government's standpoint, in considering the narrowing of the gap, if they do not want to see but a handful of ships built each year then that program itself is keeping the gap wider?

Mr. HOOD. That is correct.

Mr. DREWRY. So, the Government can be said to be a contributor to the width of the differential gap?

Mr. HOOD. I would interpret it that way, yes.

Mr. DREWRY. At least as far as the subsidized production is concerned?

Mr. HOOD. That is right.

Mr. DREWRY. Now, do you have any information on the comparative orderbook during almost any reasonable period like the last 2 or perhaps 3 years so one could see perhaps how much business the major shipyards of Europe had on hand compared with what we have or had on hand at the same time?

Mr. HOOD. We have just finished a report, Mr. Drewry, as of January 1, 1964, which shows merchant shipbuilding in the principal countries of the world.

It is broken down by cargo, bulk, tanker, passenger-cargo, miscellaneous, total. We compare it with the previous reporting period of July 1, 1963.

I will be happy to make it available to you.
Mr. DREWRY. I would like it, Mr. Chairman.
The CHAIRMAN. That will be put in the record.
(The information referred to follows:)

Mr. DREWRY. There again, my point is if you are comparing differentials you compare one ship at a time, but if you are comparing the cost of price of producing a ship in a U.S. yard that maybe has five ships this year and maybe only three the last year, and maybe seven the year before and none the year before that. Then you are not really comparing differentials, if you are comparing it with a shipyard that had its ways loaded during the entire period.

Mr. HOOD. That is right. I believe that point was brought out yesterday in Mr. Nemec's testimony. Here on this tabulation the United States is the ninth country in the world in terms of merchant ship construction activity. Japan continues to lead the world, building 218 ships to our 45.

Mr. DREWRY. Thank you.

The CHAIRMAN. Mr. Hood, we more or less suggested that this discussion of the Maritime Administration's idea of ascertaining foreign costs be deferred.

But do you have any observation that you might care to make now with respect to that?

Mr. Hood. We do not believe that the averaging system as proposed supports the doctrine of parity as prescribed in the act. We have so informed the Maritime Administration. We would hope that when you have your hearings on this subject, that we, too, would be invited to come in and present some backup to support that point. The CHAIRMAN. Thank you, Mr. Hood.

Mr. HOOD. Thank you, sir.

The CHAIRMAN. Our next witness is our old friend, Mr. Hoyt Haddock over there.

STATEMENT OF HOYT HADDOCK, EXECUTIVE SECRETARY, AFL-CIO MARITIME COMMITTEE

Mr. HADDOCK. Thank you, Mr. Chairman. My name is Hoyt S. Haddock. I am executive secretary of the AFL-CIO Maritime Čommittee.

This legislation that is before you now, Mr. Chairman, is legislation or a subject on which a great deal of discussion took place prior to the enactments of this act.

There was considerable fear of shipyards at that time and I have been trying to find out why. I cannot remember why the committee wanted to protect themselves against the shipyards, and I have gone back through the hearings trying to find out why that was, and I have not been able to and I do not remember. But I do recall that considerable discussion was had on this subject and that the committee wanted to set a 33-percent differential which would permit the Commission to, if the differential reached that point, permit the building of ships in foreign yards and then if it went up to 50 percent to permit the shipowner to go to foreign yards without the permission of the Commission.

We said at the time that it was a mistake to set a percentage on shipbuilding, that what really ought to be done was to permit the steamship company construct their ships and let the Government pay for them as though they were being built in a foreign yard chosen by the steamship company. We said at the time that Congress would

be faced with this percentage question on a number of occasions and that there would be considerable difficulty with it if it was not set in the act in basically the same way that the operating differential subsidy was.

Now, last year, in the Senate when this question was considered, there was great discussion on it and this bill only got through the Senate by the skin of its teeth, the 55 percent provision.

Senator Lausche attacked it vigorously, pointed out that this question had come up a number of times and that this was not going to be the end of it, that the Senate would have a bill before it just as soon as it appeared that this one was going to expire, and the same question would be before the Senate again.

Well, this is certainly true, and the thing that I would like to urge most strongly again is that the percentage be cut out of this bill, that the shipyards be reimbursed in an amount equal to whatever the differential is determined to be by the agency, and it be put on that basis so that we will not have this question coming up from time to time but it will be there and I think we can look for protection from the

agency.

If there is still any fear, and I cannot see any reason for there being any fear, of the shipyards, they certainly have shown that they are as competitive as any other type of American industry with foreign industry, and certainly there have been no scandals to indicate that we need to fear them in any way.

I think we have outgrown that period in 1936, and for the life of me I cannot remember why they were so suspect at that time and I do not find anything in the hearing to indicate why they were, but I think we should get rid of this question once and for all and have the shipyards reimbursed to the percentage that they should be for the particular ship that is being built at the particular time.

And that is my only recommendation.

The CHAIRMAN. Mr. Tollefson?

Mr. TOLLEFSON. I agree with you. We discussed this same subject at some earlier hearing right here and I think the only reason for the ceiling is there was a fear on the part of some Members of Congress that the differential might grow too large, but the Maritime Adminis tration in its testimony in the earlier hearings said that they fixed the CDS-the construction differential subsidy-at whatever the differential actually was. This has been the case all through the years, even when the ceiling was 3313, they did not automatically fix the subsidy at 3313, they fixed it at what the facts showed it to be.

I certainly agree with you, I would like to see the percentage figure stricken and some other language substituted as you have indicated perhaps similar to the language dealing with the operating differential subsidy.

There will always be those people in Congress, they are the ones that we have to be concerned about, who just do not seem to understand this merchant marine problem. They will not listen; they do not want to know.

Mr. HADDOCK. Well, and there are those who are basically opposed to subsidies under any condition.

Mr. TOLLEFSON. That is right.

Mr. HADDOCK. And you just cannot overcome those people because they have a blind spot on subsidy and that is all there is to it, and as