Furthermore, one of the offerors, Mr. Gordon Duke, in a letter to Mr. Donald Leavens, dated December 30, 1954, stated: "If the Secretary of Commerce should decide that he would insure only 90 percent of an 87% percent mortgage on these tankers, then private owners could not afford to build them because a double payment of interest on the 10 percent uninsured portion of the mortgage is required and would add over $300,000 to debt service and thus about wipe out most of the cushion.' At my request Mr. Duke furnished me a copy of this letter, which, I understand, he also furnished your staff. Your recent letter would indicate that contrary to Mr. Duke's conclusion, the difference would probably approximate $100,000 for the charter period or about $0.03 per deadweight ton per month, rather than $300,000. Because of this difference in estimates I have asked Mr. Duke for further information. I would also appreciate it if you would furnish me with a more detailed breakdown of your $100,000 conclusion and an appraisal of the costanalysis contained in Mr. Duke's letter to Mr. Leavens. With kind regards, I am, JOHN MARSHALL BUTLER, Hon. JOHN MARSHALL BUTLER, DEPARTMENT OF THE NAVY, MILITARY SEA TRANSPORTATION SERVICE, United States Senate, Washington, D. C. MY DEAR SENATOR BUTLER: I note from your letter of January 31, 1955, that representatives of some of the firms that have offered to charter large fast tankers to the Department of the Navy under the program encompassed by Public Law 575, 83d Congress, have indicated to you that they could not construct the tankers without obtaining mortgage insurance from the Government for 100 percent of 871⁄2 percent of the cost of construction. Shortly after the offers were submitted members of my staff interviewed representatives of each of the offerors and asked the specific question of whether his firm could construct the tankers offered with mortgage insurance for 90 percent of 871⁄2 percent of the construction cost. All but one answered in the affirmative and that one did not condition his written offer on receiving any mortgage insurance although he orally stated that he would require 100 percent of the 87% percent coverage. However, recently several others have indicated that mortgage insurance for 100 percent of 872 percent of the construction cost is necessary. Regardless of their present position there is no doubt that in the beginning most of the offerors were convinced they could offer charters with mortgage insurance of less than 100 percent of 871⁄2 percent. As to the difference in cost to the Government in charter hire between mortgage insurance of 90 percent and 100 percent of 871⁄2 percent of construction cost, again my estimate of $100,000 savings to the owner was based on estimates by the various offerors. Mr. Gordon Duke, whose estimate of $300,000 is quoted by you, originally concurred in the $100,000 estimate but later advised that the proper figure was approximately $300,000. Mr. Duke's last estimate is based on the assumption that with 90 percent of 871⁄2 percent coverage of construction cost by mortgage insurance furnished by the Government, the Government would not permit a reduction of the 10 percent of 87% percent of the borrowed capital not covered by Government insurance until after the full payment of that portion of the loan insured by the Government. This assumption, if true, would require the owner to pay full interest at perhaps a relatively high rate on the full 10 percent of 87% percent for the entire term of the loan insured by the Government. Mr. Duke also assumed that with mortgage insurance for 90 percent of the 871⁄2 percent of construction cost he will be required to borrow a substantial sum to keep on hand as a "cushion" against extraordinary off hire periods. These assumptions apparently account for his apprehension as to the great difference in costs to the owner under mortgage insurance of 90 percent and of 100 percent of 871⁄2 percent of construction costs. No other owner has made the same assumption as Mr. Duke. As the Secretary of Commerce has announced no terms for mortgage insurance on vessels chartered to the Government for 10 years, I am not in a position to say whether Mr. Duke's estimate will prove more accurate than those of the other offerors. It seems clear, however, that if an owner is permitted to pay off at any time uninsured borrowed capital from earnings in excess of that required to retire the portion insured by the Government, the extra cost to the owner may reasonably be expected to be about $100,000 for the 10-year charter period. This of course assumes that the 10 percent of 871⁄2 percent can be borrowed as junior capital at a reasonable rate of interest. If I can be of any further assistance to you in this matter, please do not hesitate to call upon me. Sincerely yours, Vice Admiral, USN, Commander Military Sea Transportation Service. F. C. DENEBRINK, MARCH 30, 1955. DEAR SIR: The letter of March 15 addressed to Congressman Bonner by John J. Grogan concerning the building of tankers for charter to MSTS and the report concerning the insurance of mortgages on such vessels which appeared in the March 24 issue of the Congressional Information Bureau Bulletin, together with your recent pronouncement with respect to the tankers not being special purpose vessels, have caused us to give the matter involved further study and review with regard to what we had in mind when we used the words "special purpose" vessels. As a practical matter, the legislative history may seem somewhat confusing. It will be recalled that our committee considered and passed Public Law 288 (H. R. 6441) during the first session of the 83d Congress. The enactment of this law produced no private financing of merchant-type vessels. Later we considered H. R. 8637, the revision of which became H. R. 9987, which was enacted as Public Law 781. Meanwhile, we had enacted Public Law 574, which had to do with a trade-in tanker program based on a bill considered in the Merchant Marine Committee, and Public Law 575 coming out of S. 3458 which was considered in the House Armed Services Committee. The situation which we were endeavoring to meet came out of a confusion of the testimony. We think that the underlying purposes common to the whole effort were to get some tankers for both operating and reserve capacity for the Navy and to give the shipyards some immediate work. Inasmuch as there was no doubt in our several minds as to what purpose we were trying to accomplish, one can presume that we never questioned the use of the words which seemed to express our purpose sufficiently to pin down an exact meaning for someone who might not have been involved in the various actions leading up to the passage of the several laws. The fact remains that our committee was aware of the tanker bill of the Armed Services Committee, and had in mind the possibility of those tankers being constructed with funds to be made available under the private financing measure rather than with Government funds. We have reviewed the hearings in the House committee concerning H. R. 8637 from which Public Law 781 developed without finding any discussion intended to define the words "special purpose.' "" When H. R. 9987 was called up in the House on July 30, 1954, at which time the House passed the bill, the discussion between Mr. Shelley and Mr. Allen was on another point of uncertainty which they wished to make clear. It can be presumed from the fact that they discussed one uncertainty and no others would in itself indicate that there was no uncertainty in their minds concerning the other points in the bill. When S. 3458 was enacted in the House on July 14, 1954, there was quite a discussion between Mr. Tollefson and Mr. Vinson and subsequently between Mr. Vinson and Mr. Allen (p. 9959 of the Congressional Record). The closest language to a definition of the ships presently involved which we have run across was the statement of Mr. Vinson to Mr. Allen as follows: "The gentleman loses sight of the fact that there are specially designed, high-speed tankers. These tankers are being built to meet certain military requirements on account of the submarine menace. Mr. Allen's difference with Mr. Vinson was not on the point that the tankers involved were for a special purpose but only that tankers built with private financing and privately owned and operated could carry out the purpose as well as Government-built and Navy-operated tankers. Mr. Tollefson's point was that it would be less costly to build the tankers with private financing than with Government funds. When the Senate was considering H. R. 9987, Senator Butler made the following statement: "In certain instances, for special purpose vessels which the Secre tary of Defense has certified are essential to national defense, the Secretary of Commerce may pay as insurance up to but not to exceed 87% percent of the amount paid by and for the account of the mortgager or borrowers " Probably the situation could be summed up this way. We recall no exact definition of what was intended by the words "special purpose" vessels which would exactly solve the present uncertainty. On the other hand, we are quite sure that had the question which was posed to you for determination been posed to us at any time throughout the consideration of the bill or afterwards, we would have taken the position that the language of the bill and the intention of the committee was such that 100 percent insurance of an 871⁄2-percent loan was such that 100 percent insurance of an 872-percent loan on the tankers presently under consideration for building and charter to MSTS would have been permissible. We are still of the opinion that the need for the tankers as a matter of national defense continues great and that the condition of the privately operated shipyards as a potential mobilization base is exceedingly poor. We are, therefore, hopeful that you might reconsider your position and find that these Navy tankers are such "special purpose" vessels as are qualified to be built under the 100-percent insurance provisions of Public Law 781. Sincerely yours, Thor C. Tollefson, M. C.; John J. Allen, Jr., M. C.; John F. Shelley, DEPARTMENT OF COMMERCE, MARITIME ADMINISTRATION, Washington, D. C., April 11, 1955. Hon. THOR C. TOLLEFSON, House of Representatives, Washington, D. C. DEAR MR. TOLLEFSON: This is in response to your letter of March 30, 1955, signed and concurred in by several members of the Merchant Marine and Fisheries Committee and other Members of Congress, concerning the insurance of mortgages on tankers built for charter to the Navy under Public Law 575, 83d Congress. You request reconsideration of the Maritime Administration conclusion that those proposed tankers are not special purpose vessels and, therefore, are not eligible for 100-percent ship mortgage insurance under Public Law 781, 83d Congress. We have carefully examined the history which you kindly set forth in your letter and find that it does not call for any modification of our own conclusion from the legislative history to the effect that the granting of the mortgage insurance lies within the sound administrative discretion of the Administrator, and that insurance up to 100 percent on 87% percent of the owner's construction cost of the vessel may be granted, provided that the vessels are special purpose vessels and are certified by the Secretary of Defense to be essential to national defense. With this history of Public Law 781 in mind, we have determined, after a study of the characteristics and intended use of the proposed tankers, that they are not special purpose vessels for the purposes of Public Law 781. It is our understanding that the tankers will be used by the Department of Defense to meet the general requirements of the armed services for the transportation of petroleum, and that additional requirements of the armed services of a similar character will be met by regular commercial tankers. It is our further understanding that the proposed tankers at the end of the Navy charter thereof could be employed in the carriage of petroleum for commercial account. The Maritime Administration appreciates the importance of moving forward with the Navy charter and build program under Public Law 757. The Maritime Administration is considering applications for Federal ship-mortgage insurance up to 90 percent of 872 percent of the cost of construction of the tankers. We are presently considering 2 applications on the basis of 90-percent insurance. An application from 1 company involves construction of from 2 to 5 tankers. The second applicant has informed the Maritime Administration of his intention to ament his application on the basis of 90-percent insurance. This involves possible construction of nine additional tankers. We are hopeful that other pending applications can be worked out on the 90-percent insurance basis. Sincerely yours, CLARENCE G. MORSE, Maritime Administrator. AMERICAN BUREAU OF SHIPPING, DESPARD & Co., INC. New York, N. Y. New York, N. Y., January 4, 1955. (Attention: Mr. Clement L. Despard, Chairman.) DEAR MR. DESPARD: We have your letter of December 21, 1954, with which you submitted for our study a set of general design plans representing a type of tanker designed to be built by private capital for charter to the Navy for 10 years under the terms of the long-term charter bill authorized by Public Law 575 and requesting the opinion of the Bureau as to whether there are any unusual features of the design such as would warrant the vessels being considered to be of a special type, designed for special purposes. It should be noted that the plans submitted to us cover a design prepared by only one of a number of shipbuilding concerns each of which presumably has developed his own design and that the clients on whose behalf you have made this request may deal with a concern different from the one whose plans were submitted. However, it is understood that no matter what design is actually selected it will have to conform to the basic characteristics as contained in the letter inviting bids, issued by the MSTS under date of August 20, 1954, which are as follows: (a) Design. Commercial, with 4 independent cargo systems equipped with pumps rated at 4,100 gallons per minute at 125 pounds per square inch, capable of simultaneously handling 4 different grades of products without commingling. (b) Deadweight tonnage.-25,000 plus or minus up to 500 at the summer load line in salt water, to include permanent bunker capacity to allow tanker a steaming radius of 18,000 miles at 18 knots. (c) Draft.-Not to exceed 32 feet at the summer load waterline. (d) Designed sea speed.-Minimum of 18 knots under trial conditions at 32-feet draft at 80 percent of designed normal horsepower. (e) Beam.-Not to exceed 84 feet. (f) Length.-Not to exceed 650 feet overall. We have made an extensive review of the various types of modern tankers built during the past several years for American companies in an effort to determine which, if any, of these limitations are out of line with the present trends and have to advise as follows: (a) The provision of four independent cargo systems as specified in this item is a quite unusual feature of the modern commercial tankers. (b) The limitation of the deadweight tonnage to 25,000 plus or minus up to 500 results in ships of somewhat smaller size than are now under contract or being contemplated to be built for American companies but there are under construction or being planned to be built for many foreign companies a number of tankers of even smaller capacity and whether this limitation could be said to constitute a special feature is debatable. The requirement for permanent bunker capacity for a steaming radius of 18,000 miles is not unusual for commercial vessels intended for what are termed the "long haul" services but at the present time planning for such services usually contemplates vessels of much greater capacity than 25,000 deadweight tonnage. (c) (e) and (f) The limitations on principal dimensions when taken in association with the limitation on deadweight (but disregarding the speed discussed under item (d) should not impose any hardships on design or present the need for any unusual compromises. (d) The provision for a minimum sea speed of 18 knots at the full load draft with only 80 percent of the designed normal horsepower is considered to present one of the most unusual features of this design by comparison with normal commercial practice particularly when taken in association with the limitations on the size of the vessels. We have not been associated with the development of the hull forms for these designs but in association with the limits on size there would appear to result a speed-length ratio greater than that normally adopted for ordinary commercial ships with the possibility of an attendant loss in propulsive efficiency and fuel economy. This comparatively high speed dictates a hull of unusually fine form which increases the hull cost per deadweight ton and the high power required when taken in relation to the deadweight further increases the total cost per deadweight ton over and above that of the larger tankers of more moderate speeds now representative of commercial tankers. In summation it is our opinion that, based upon the types of tankers being built for ordinary commercial service, there are features of the required general characteristics of these charter tankers which indicate that they are of a special type designed for special purposes. The plans which were submitted with your letter are being returned herewith. Very truly yours, D. P. BROWN, Senior Vice President and Technical Manager. The CHAIRMAN. We will call first the president of the Shipbuilders' Council of America, Mr. L. R. Sanford. Mr. Sanford, we will be glad to hear from you. STATEMENT OF L. R. SANFORD, PRESIDENT, SHIPBUILDERS' COUNCIL OF AMERICA Mr. SANFORD. Mr. Chairman, I do not have a prepared statement. Time did not permit me to prepare one. With your permission I will give an oral statement. The CHAIRMAN. You know the subject well enough to give it. Mr. SANFORD. I think I do. I hope I do. My name is L. R. Sanford. I am president of the Shipbuilders' Council of America, which is a trade association of the shipbuilding and ship-repairing industry. I might add that all of the shipbuilders who are interested in these particular programs which you mentioned in your opening statement are members of our organization. The CHAIRMAN. I might at this point also state for the record, as long as you bring out the overall shipbuilding program, that appropriations under Public Law 456, Department of Defense Appropriation Act for 4 special-purpose vessels for MSTS, amounted to $50 million. Public Law 574, Tanker trade-in and building program, which permits the trade-in of 10-year-old tankers toward the purchase of new, was given $26 million for an initial program. Public Law 575, which is the long-term chartering of tankers, 20 in all, was given $30 million for the 5 tankers to be built by the Navy. Then the supplemental appropriation act provided a construction differential for 4 passenger vessels, 2 for Moore-McCormack and 2 for the Grace Line, of $44.5 million. So there is plenty of money appropriated here. That is why we hoped we might get some action on this matter. Now go ahead. Excuse me for interrupting. Mr. SANFORD. I would like to start in by saying that I think it is well known what the condition of the shipbuilding industry is and has been for the past several years. Until the latter part of last year there had not been a contract awarded for a seagoing merchant vessel since November 1952. The industry was largely working, has been during the past 2 years, on the Mariner program which is now practically approaching completion, and also on a number of private tanker contracts also rapidly approaching completion. Without any backlog of further orders it has been inevitable that as ship by ship in these two groups was delivered, employment in the shipyards has been going down because there has been no work for the men. That employment has been going down steadily, and as of December 31, our last report on employment, it was still going down. We do not yet have the figures for the first quarter of 1955. We will have those probably in a few days and we can see what the trend is as of March 31, 1955, but my own impression is that the trend will still be downward. |