industry. We have the imperative necessity both to give labor decent protection and to permit the American ships to remain real competitors on the oceans of the world.

There is, I am sorry to say, not much time to lose. The NYK and KKK lines, the Japanese, have already informally reported to the Japanese Transportation Ministry that they will construct cargo liners in which crew members will be reduced to 28, and perhaps even lower. Three Japanese companies already have new automated vessels with respectively 35-, 37-, and 41-man crews to compete on equal terms with APL's Searacers and Mariners, and other lines, which are manned with a crew of 58 plus 2 cadets.

3. The major liner services of the world are based on conference ratemaking. Without the conference system rate wars and trade chaos would be the rule. I know this is very close to Senator Bartlett's heart, ratemaking, and it is very close to ours too. Yet, because of the overtonnaging of the world's routes, we are faced with rapidly increasing nonconference rate-cutting competition. The only defense of the conference is the contract rate system, by which a lower freight rate is given those who contract to move all their goods by conference vessels. The Supreme Court in 1958 held the contract. rate system, at least in the usual case, illegal under the Shipping Act of 1916. Congress in 1961 authorized its use, subject to a great many particular restrictions. A number of imperfections have developed in the actual implementation of the law. Each is minor in itself but in the aggregate they threaten to make the system unworkable and the authorization of the Congress illusory. Every one of the 21 American-flag lines has joined to seek these minor adjustments. As I hope your committee will shortly hold hearings on this bill, I shall not here develop the detail of our own proposals.

4. The Shipping Act, both as enacted in 1916 and as amended in 1961, also contains larger problems, less easily solved than those of the dual rate contract system. One day the committee will have to give thoughtful attention to at least these two fundamental issues:

(a) The Act forbids rebates, mismeasurements and other malpractices in all the ports of the world so long as the goods move to and from the United States. But in actual practice the Commission cannot get witnesses or records except from the American-flag lines. We have, accordingly, so far as concerns transactions abroad, a most rigorous policing of American-flag lines and none at all of foreign lines and they are prone to engage in malpractices and rate cutting. Thus the process of regulation is itself more discriminatory than the practices it seeks to regulate out of existence.

(b) The foreign governments and their lines have, on the other hand, been bitterly opposed to the whole concept of one-nation regulation. Why, they ask, should the United States exact tariff-filings, forbid rates considered detrimental to commerce, and undertake to regulate the morals of transactions in Calcutta, Singapore, and Yokohama? No other nation in the world does this and, so soon as the nations on the other end of the movement begin, there will be a chaos of conflicting regulations. It will, I am confident, soon be necessary to surrender the jurisdiction that can't in practice or in prudence be made effective, either to the conference or to a painfully developed international body.

5. The essence of effective competition in the shipping business is flexibility. To be able to respond to demand freely spells the difference between a break-even and a profitable voyage.

Only one roadblock remains to the realization of this flexibility and that is to be found in the exercise of the so-called deviation rule of the Maritime Administration. This rule, as it has been administered in the past, provides that any deviation of a vessel beyond the prescribed route of a vessel to serve a port which would require more than 32 days subjects the shipowner to a subsidy deduction for the period during which the excess deviation is made.

This rule is an unnecessary restriction to competitive flexibility. Our foreign-flag competitors are free to provide service where it is demanded whereas we are not; we are limited. We are under the threat of economic reprisal by the Maritime Administration. If the rule cannot be abolished completely, and I can conceive that it may be necessary under certain circumstances, it is my view that any deviation should be approved on the basis of economic reasonableness and not on the basis of an arbitrarily determined time period. 6. One problem which the Pacific steamship lines share in common with their customers is the urgent need for stabilization of currencies. Perhaps the most dramatic example is that of Indonesia. The official rate of local exchange is 45 rupiah to the dollar. The commercial rate is 1,150 to the dollar. When we pay for stevedoring in Djakarta, for example, we pay the local rate but computed at the official exchange. Thus the local rate involves 25 times the local cost. I am sure that exporters and importers have experiences which are equally costly. The basic cure must be developed by Indonesia itself, but I should hope that the United States and the International Monetary Fund will lend whatever assistance they

can.

7. The intercoastal and coastwise services of the United States have been under constant review by various committees of the Congress and agencies of the Government. There has been a steady decline in this phase of important waterborne commerce and certainly it is a subject worthy of further study, it seems to me, by the Commerce Committee of the U.S. Senate. For instance, the three major intercoastal carriers, American Hawaiian, Luckenback, and Pope & Talbot have actually terminated their services. This reduced the annual intercoastal arrivals into San Francisco from approximately 350 pre-World War II to 173 in 1963. Seven million tons of cargoes were customarily carried in this trade which has now dropped to considerably less than half, and the tonnage which is moving today consists largely of full loads of steel and lumber, without those former all-important carryings of general cargo.

8. This leads into what is far and away the most important factor in any assessment of our trans-Pacific and South Pacific trades. It is beyond my competence to develop, but not beyond the wisdom of your committee to study and recommend solutions. It is, however, necessary to take respectful note of the question of political stability, which overshadows all else in fixing the course and the consequences of trade with the Orient and the vast South Pacific areas.

The magnitude and the importance of the problem can be indicated by considering what would happen to the trade routes of the Pacific if: Red China resumed commercial relations with the United

States, Vietnam and Korea were each united and at peace, and the Chinese energies were devoted to the constructive development of a great nation of 600 million people on a peaceful and responsible basis.

I have no sovereign remedy, and doubt that anyone has. I can only repeat my opening thought: if somehow trade could be begun or increased so would international understanding be a consequence. Whatever you can do to help the international commerce of the Pacific area will inevitably bring with it a measure of help toward the political maturity and stability which is so badly needed.

Thank you.

Senator ENGLE. Mr. Killion that was an excellent statement. It shows that a great deal of thought and preparation must have gone into it. I will have to say that you have raised more questions than I have answers for, and more, I suspect, than anyone in Government today can wholly answer.

I was interested in your comment on the rubber situation as applied to Indonesia, Thailand, and Vietnam, and Malaya, and the statement made by Malaya's Deputy Prime Minister. I am a member of the Stockpiling Subcommittee of the Senate Committee on Armed Services.

Mr. KILLION. I know you are.

Senator ENGLE. I can assure the Deputy Prime Minister that we haven't any intention of dumping these strategic stockpiles, whether they are rubber, tin, manganese, copper, or whatever on to the market in such a way as to disrupt the market. It creates difficult problems, and we propose to find some way to manage those problems.

With reference to rubber, we do have even a more difficult situation. Manganese and copper, for instance, will not deteriorate, but the stockpile of rubber constantly has to be rotated because deterioration does occur. So having in mind these problems we have to scout around and find some way to utilize this deteriorating rubber stockpile without disrupting the whole business.

Now, you have spoken of the problems with the Shipping Act. I made the statement yesterday afternoon, speaking before the Propeller Club, that I have a series of amendments already before us. The bill hasn't been introduced, and I don't know what will come out of it. Probably the best thing for us to do is open up with some exploratory hearings, because the amendments we have are those suggested by the Maritime Administration and I know they don't meet all the problems that have arisen since this act was amended. We knew we weren't getting the job wholly done when we passed

that bill.

Mr. KILLION. If I might interpose, since that time Admiral Carlisle and Tom Statham have gone abroad and studied the impact of the legislation which was passed at the last session of the Congress, and I believe they realized, too, that amendments were necessary. Senator ENGLE. It finally got through to them?

Mr. KILLION. Yes.

Senator ENGLE. It took some head banging. I had a group of foreign ship operators-I think there were 20 or 25 of them-who came in to see me. Senator Magnuson steered them right into my office because I had handled this legislation, and I turned around and steered them right down to see Mr. Statham and right to the State Department.

Mr. KILLION. And he shot them back to you.

Senator ENGLE. And that is the way it went. I told the foreign lines, "I can't initiate hearings at the request of foreign lines." The local people came in and I told them to get together and if our American-flag lines wanted to take another try at this we would consider it. So they did, and now, as you indicate in your statement, the whole industry wants to see if we can't straighten some of these things out. This matter of these regulations has been very aggravating.

Mr. KILLION. Yes, it is very serious.

Senator ENGLE. I suppose when we set up and permitted this conference system, we set up a monopoly, and we recognize them as such. When they were set up, I asked them to set up a self-disciplined organization inside the board.

Mr. KILLION. A neutral body?

Senator ENGLE. That is correct, and that was authorized to be done. But the foreign participants in the conferences won't give the papers into the neutral body, because when the Maritime Commission insists on laying their paws upon those papers they object to that and claim that it is an infringement of their zone rights-in fact, their governments protested.

Mr. KILLION. It is one sided.

Senator ENGLE. And they refused to permit them to do it, and so they get in trouble at home. But I think we can make some progress, and I am as aware as you are that we need an American merchant marine and we are going to try to do the things that will make it possible.

I want to compliment you on this very excellent statement.
Mr. KILLION. Thank you, sir.

Senator ENGLE. Next time, come with some answers, please. I want to recognize my colleague the Senator from Alaska. Senator BARTLETT. Mr. Chairman, I want to say that you have made a most encouraging step in the Senate, because you said you told these merchant marine people to get together. I have and they didn't. I have conducted a multitude of hearings, and at one time I thought I had a little controversial bill. It didn't turn out that way; an opposing wind turned up.

I do want to say for the record-which you already know so well, Mr. Killion-that the bill that you and the chairman have been discussing would not be in existence today had it not been for the determination, the intelligence, the dedication, and the logic which you and your Senator from California, Mr. Engle, provided, because this was a highly controversial piece of legislation and it was fought very bitterly and we considered it important and essential for the American merchant marine. I think that if we had not been blessed with a man of the caliber of Senator Engle, then it wouldn't have materialized.

Mr. KILLION. I agree with that heartily.

Senator BARTLETT. You refer, Mr. Killion, to the President's transportation message, and I am now looking especially at his words relating to the fact that it is necessary to have a stepped-up research program "for developing ways and means of increasing the competi

tive efficiency of our merchant marine and related industries." He also urges that "sound development in technology and automation be applied to merchant shipping as rapidly as possible."

Now, you said that the private lines couldn't undertake this; it was too big a job.

Senator ENGLE. That is on page 7.

Mr. KILLION. I have it. You mean the President's statement? Senator BARTLETT. Yes. Now, you said that the job would have to be undertaken by the Maritime Administration. You also said that you thought a pilot ship of this character could be ready in a few years. Is the Maritime Administration, so far as your knowledge runs, doing very much on this right now?

Mr. KILLION. Senator Bartlett, about 2 months ago Administrator Alexander and his staff held a very significant meeting down at Palo Alto and they called together the shipowners and the labor unions. They met for 3 days studying the problems of automation. The labor unions indicated that they were willing to cooperate and so did the shipowners. They recognized, of course, it presented many problems of handling displaced personnel. What would the Government's role be if the crew was cut down two-thirds? Would these men be retained on the payroll? Would they be subject to studies? Would they be reduced over a period of years? There were lots of unsolved and unanswered questions, but the Government has made an effort and at the last session of Congress they attempted to obtain an appropriation to build an automated ship.

Now, American President Lines at the present moment is out for bids to build three what we call "master mariners" for the transPacific trade. We are required to have two cadets aboard as well as the crew. We have discussed among ourselves and the Maritime people the possibility of establishing automated equipment aboard our vessels, but it is a hazardous undertaking because we don't know what the answers will be in the future. If we have automated ships it could be more difficult.

Senator BARTLETT. You don't know what the answer will be as regards the labor situation?

Mr. KILLION. That is right, as well as the Government's position. Senator BARTLETT. Why is it that you have to place aboard two cadets, or do you have to do that?

Mr. KILLION. We are required to do it at the request of the Maritime people.

Senator ENGLE. What was that?

Mr. KILLION. Two cadets.

Senator BARTLETT. You gave some very startling figures relating to the maritime industry. Let me ask you how your dockside labor situation is on the Pacific coast now.

Mr. KILLION. We are at peace at the present time. However, there is one big problem and that is that there are insufficient gangs to meet the demand. There has been a great shortage of gangs in Los Angeles, and the Pacific Maritime Association has been working with ILWU in an effort to open the membership rolls so that the gangs can be increased. Ships are delayed in Los Angeles and here sometimes 2 and 3 days, and right at the present time there are