Lapas attēli
PDF
ePub

STATEMENT BY NATIONAL BULK CARRIERS, INC.

PUBLIC LAW 575 (83D CONG.)-LONG-TERM TANKER-CHARTERING PROGRAM

This memorandum has been prepared for the purpose of analyzing some of the provisions of the above act and to set forth certain constructive criticisms and suggestions which we believe are pertinent to the formulation of amendatory or supplemental legislation essential to induce established and responsible American-flag tanker owners to construct and operate ships under this act.

Section 1 (a) (2) provides that preference shall be given to those exclusively engaged in the operation of American-flag ships. This provision could be interpreted and administered so as to apply to vessels of foreign registry owned by companies related to or affiliated with the contractor. Inasmuch as almost all the larger American-flag tanker owners have some kind of foreign affiliation, this provision precludes the more substantial, efficient tanker operators from participating in this program. Accordingly, we would suggest that this restriction be eliminated from the act or limited so as to apply only to the specific contracting company.

Section 1 (b) provides that the average rate of charter hire shall not result in the recovery of more than two-thirds of construction costs of the chartered tanker. Assuming a construction cost of $9 million, this provision limits the contractor's recovery over the 10-year charter period to $6 million. On the expiration date, therefore, the tanker owner is confronted with the problem of recovering his remaining $3 million investment with a vessel which is in need of extensive maintenance and replacement work due to deterioration caused by the carriage of clean products.

The present limitation on the recovery of construction costs is unrealistic and in order to stimulate a more general response on the part of the tanker industry to this program, we strongly urge that consideration be given to increasing the allowable recovery of construction costs over the 10-year period to at least 80 percent instead of 66% percent as presently provided.

Section 1 (c) (1) requires the contractor to agree that during the charter period he will not transfer to foreign registry any tanker owned by him at the time of entering into such contract. This language should be clarified to remove any doubt that this prohibition applies solely to the corporation executing the contract and not to any parent, subsidiary, related or affiliated company.

By entering into this contract and agreeing to this prohibition on foreign transfers, the participating contractor is penalized by being placed at a competitive disadvantage with American tanker owners who do not enter into similar contracts and also with those who form companies specifically to operate under this program. Newly formed participating companies, presently owning no vessels subject to this prohibition would have complete freedom to avail themselves of legislation now in effect or which may be enacted during the contract period permitting them to transfer to foreign registry vessels which might be acquired after they had entered into contracts with the Navy. It is quite clear that the provision as it presently exists discriminates against long-established American-flag operators who are anxious to take part in this program.

Section 1 (d) provides that the Secretary of the Navy shall have an option to purchase any tanker chartered at the expiration of the contract at its then depreciated value or its fair-market value, whichever is lower. It further provides that the option need not be exercised until 9 years of the charter term have expired. Whether the term "depreciated value" contemplates normal or accelerated depreciation is not clear, nor is it known whether "fair market value" extends to the world market for similar type vessels or is limited to the more restricted market for American-flag ships. A further complication is that there will probably be no "fair market" as these vessels, because of their particular type, do not have a commercial counterpart.

While this provision successfully protects the Government against loss from the effects of a fluctuating market for American-flag tanker tonnage, it has precisely the opposite effect on an owner participating in the program. The only equitable arrangement is to have the risk borne equally. This result can be achieved by providing for a purchase price based solely on depreciated cost. Under this arrangement, the Government still retains its protection against a depressed market inasmuch as it can refrain from exercising its option to purchase.

With reference to the provision that the Navy need not exercise such purchase option earlier than 1 year prior to the expiration of the contract period, we should like to point out that this effectively prevents the owner from negotiating

for any forward commitments for his vessel except during the last year of the contract. In view of the substantial unrecovered investment represented by the vessel at the expiration of the contract, we strongly urge a revision in this provision to require the Navy to exercise its option at least 2 years prior to the termination of the charter.

Section 3 provides that all tankers constructed pursuant to the terms of this act shall be approximately 25,000 deadweight tons each, and shall have a speed of not less than 18 knots. We understand that the Maritime Administration has designed and desires to construct a prototype tanker for use in the coastwise trade having a national defense speed of 20 knots. It is assumed that both the Navy and the Defense Department approve the national defense speed of that type of vessel. In our opinion, it is in the best interest of our Government to have this act amended to provide the Navy with the option of chartering tankers with speeds of either 18 knots as presently provided or with national-defense speeds greater than 18 knots up to 25 knots. The greater speed may be obtained by providing the Secretary of the Navy with authority to pay charter hire in excess of the $5 per deadweight ton presently allowed. Such additional charter hire would be fixed and determined by the Secretary of the Navy, based on his calculations, to cover the additional costs of construction and maintenance of the propulsion equipment required to obtain the greater speeds.

The CHAIRMAN. The committee has also received a statement from L. R. Sorenson, production manager of the Newport News Shipbuilding and Dry Dock Co., which we will make a part of the record. (The above-mentioned document is as follows:)

STATEMENT OF L. R. SORENSON, PRODUCTION MANAGER, NEWPORT NEWS SHIPBUILDING AND DRY DOCK Co.

Mr. Chairman, last year, with other shipbuilding representatives, 1 appeared before your committee and, after outlining the current workload in our shipyard, stated that, unless pending legislation in connection with shipbuilding was passed, the plight of labor in our yard in 1955 would be very discouraging, if not desperate. Our yard and the shipbuilding industry in general were very much encouraged by the legislation passed by the 83d Congress, but, as we all know now, little has resulted from this legislation insofar as new contracts and work in our yard are concerned.

A year ago, we had 5,500 men employed on the building of merchant ships (1 Mariner-class cargo vessel and 5 large tankers) and 750 men on ship repairs. Today, approximately 1 year later, we have a total of 50 men (designers and mold loftsmen) working on a single tanker for the Texas Co. We received this contract for the building of the Texas tanker a few weeks ago, approximately 9 months after the trade-in-and-build tanker bill was passed. This contract is 1 of the 4 tankers that have been authorized to date under the trade-in-and-build legislation and is the only concrete result, as far as our company is concerned, that so far has developed from the shipbuilding legislation passed by the 83d Congress. In addition to the 50 men mentioned above, we have 800 men working on ship repairs.

If it had not been for the Navy contracts we have been fortunate enough to obtain, on which we have approximately 8,500 men employed, we most certainly would be in a desperate condition; in fact, our yard, one of the oldest and bestequipped private shipbuilding companies in this country, probably would have had to go out of business, and our force of trained shipbuilding mechanics, a majority of whom have been with us for more than 10 years, would have had to leave Newport News and find employment in some other industry elsewhere.

In connection with the 15 MSTS high-speed tankers, we worked up a design and specifications to meet the requirements laid down by MSTS, and all I can say from an engineering standpoint is, if these vessels are not special-purpose vessels, they certainly have so many special design requirements, that under no circumstance could they be called commercial tankers.

In closing, I am compelled to say that the delays in carrying out the legislation passed by the 83d Congress have now become so prolonged that by the end of 1955 we will have been forced to cut down the number of employees in our plant by about 6,000 from the number employed in May 1954, even though additional contracts may be awarded to the company during the balance of this year.

The CHAIRMAN. Is Mr. Sanford here this morning?

Mr. SANFORD. Right here, Senator.

The CHAIRMAN. I understand that you have some further testimony you would like to give us briefly. I think probably we did not sufficiently clear up yesterday on this suggestion that has been made-whether or not by the Administration, I do not know-that the shipyards would assume 10 percent of the financing of these tankers. I wondered if, in a general way, you had surveyed the situation with your organization as to the feasibility or possibility of that happening, or what is your opinion in that matter?

STATEMENT OF L. R. SANFORD, PRESIDENT, SHIPBUILDERS' COUNCIL OF AMERICA

Mr. SANFORD. I think I would rather put it this way, Mr. Chairman: I had a talk yesterday with Mr. Sorenson, who is production manager at Newport News, who was here yesterday, but was unable to be here today; and he assured me that his company-that is, the Newport News Shipbuilding and Dry Dock Co.-had made no commitment in the financing of these vessels.

The CHAIRMAN. Then you also had testimony direct from the Ingalls Shipbuilding Corp.

Mr. SANFORD. And I also talked to Mr. Pixton, vice president of the Ingalls Shipbuilding Co., Pascagoula, Miss., and he advised me that the Ingalls Shipbuilding Corp. had made no commitment to participate in financing of these tankers.

The CHAIRMAN. Let me ask you one further question, and you may answer this in a general way. How many yards in the United States are available for the construction of these tankers?

Mr. SANFORD. A relatively few. I think I can name them off for you: the Ingalls Shipbuilding Corp. at Pascagoula, Miss., which we just mentioned; Newport News Shipbuilding and Dry Dock Co. at Newport News, Va.; the Bethlehem Sparrows Point Yard at Sparrows Point, Md.; the Bethlehem Quincy Yard at Quincy, Mass.; and the Bethlehem San Francisco Yard at San Francisco. The Sun Shipbuilding and Dry Dock Co. already has a contract for three tankers and so will have no participation in this particular program. The CHAIRMAN. Which is at Chester, Pa.?

Mr. SANFORD. Which is at Chester, Pa. The New York Shipbuilding Co., at Camden, N. J., could also participate in this program. I think that just about covers the list.

The CHAIRMAN. You have only one on the Pacific coast, is that correct, as far as you know?

Mr. SANFORD. That is correct.

The CHAIRMAN. What about the Union Iron Works?

Mr. SANFORD. That is the Bethlehem San Francisco yard.

Mr. CHAIRMAN. That is the San Francisco division?

Mr. SANFORD. Yes. I had better put it this way, that those are the only yards that have evinced interest in this matter.

There might be other yards who might be capable of building these tankers, but who have evinced no interest in this matter. The CHAIRMAN. Off the record.

(Thereupon, there was a discussion off the record.)

The CHAIRMAN. Do you have anything else, Mr. Sanford? I know that this meeting was called somewhat hurriedly, and your testimony yesterday was gotten up by you somewhat hurriedly, and you may have had some afterthoughts overnight on that matter. If you do, I would be glad to hear from you.

Mr. SANFORD. I think it was sufficiently well covered yesterday. Of course, there are always other points you can bring up, and you can go on indefinitely; but I think the other witnesses will bring those

out.

The CHAIRMAN. Thank you.

The next witness will be Mr. J.

Whitney Lewis, president of the Oleum Transport Corp.

STATEMENT OF J. WHITNEY LEWIS, PRESIDENT, OLEUM
TRANSPORT CORP.

Mr. LEWIS. Mr. Chairman, my name is John Whitney Lewis. I am president of the Oleum Transport Corp., which has tendered an offer to build 3 tankers and which is seeking 100 percent insurance of the loan by the Maritime Administration. Full details of our plan for complete financing, which is definitely committed providing we receive this insurance, is already in the hands of the committee, at least a copy of that is.

The CHAIRMAN. Yes, I have it right in my hand, which you have sent to the committee under date of March 18, 1955.

Mr. LEWIS. And I appended a copy, I think, of our application which gives the full financing.

The CHAIRMAN. Which gives the financial proposals?

Mr. LEWIS. Yes.

The CHAIRMAN. That have not been culminated?

Mr. LEWIS. No, sir; we have a letter stating that we could qualify under the 90 percent insurance, and the requirements, we believe, can be met satisfactorily in all respects.

I did not know that I would be called before this committee until an hour ago, so I did not prepare any material. I wish to state that I only represent my company and the financing of our company is being done by Eastman-Dillon & Company, who are also doing the financing for Equitable International Corp., which is represented by A. J. Anderson, who is present, and Atlantic Lines, which is represented by the president, Nicholas Manoulis, who is present.

Mr. Anderson, if required, is prepared to discuss the financing of Eastman-Dillon, and I believe has or will be able to place on record a prepared statement.

The CHAIRMAN. The counsel reminds me that Eastman-Dillon is represented by Mr. McKnight and Mr. Power who are not here, but are prepared to file a statement in the record in this matter.

Mr. LEWIS. Yes, and Mr. Anderson represents them should there be any questions.

The CHAIRMAN. I am somewhat interested in the last paragraph of your letter to us on March 18, 1955, and I quote from it:

Our bid to MSTS covering three of the subject tankers, and the time for Government action on all bids, has been extended to April 1 which is also the expiration date of the firm offer without escalation for the building of the tankers by Bethlehem Steel Co. and other shipyards.

And here is the pertinent part of it:

Since no bank or insurance company approached by us will agree to lend without the aforesaid Government insurance of loans and mortgages covering seveneighths of the cost of the vessel, permissible under the very terms of Public Law 781, our program will fail unless such insurance is forthcoming from the Secretary of Commerce acting through the Maritime Administrator.

Is that about the general story?

Mr. LEWIS. That is correct, but that will be supported in specific detail by Eastman-Dillon. A great many of the institutions are forbidden by law to touch them unless it is insured all the way through.

The CHAIRMAN. With your permission, I would like to place in the record a letter from the Eastman-Dillon Co. to the Maritime Administrator dated March 14, in which they set out in detail this matter and also the summary information which also sets out in detail the facts and figures as here regarding this matter. (The above-mentioned documents are as follows:)

Hon. WARREN G. MAGNUSON,

OLEUM TRANSPORT CORP.,
New York 1, N. Y., March 18, 1955.

United States Senate, Washington, D. C. DEAR SENATOR MAGNUSON: Knowing of your interest in the proposed building in American shipyards of fifteen 25,500 deadweight ton high-speed tankers for ten year charter to the Military Sea Transport Service under the provisions of Public Law 575, 83d Congress, 2d session, we are sending you herewith a copy of our application submitted March 16, 1955, to the Maritime Administration requesting Government insurance of 100 percent of loans and mortgages covering 871⁄2 percent of the cost of construction of three of the subject tankers. Last November we submitted a bid to MSTS covering three such tankers and our bid and the time for action by MSTS have both been extended to April 1, 1955.

An examination of our application will reveal that our plans for constructing, financing and operating the 3 tankers represent a 100 percent American program and follow the aforesaid enabling legislation in all particulars. Every director and stockholder of our company is an American citizen. We plan to construct the vessels in American shipyards and operate them under the American flag. Our bankers are Messrs. Eastman, Dillon & Co. of 15 Broad Street, New York 5, N. Y., and the lending institutions which they have interested in financing our program, and the programs covering an additional six tankers of other bidders represented by Eastman, Dillon & Co., include the following: The National City Bank of New York, New York, N. Y.; Chemical Corn Exchange Bank, New York, N. Y.; the Northwestern Mutual Life Insurance Co., Milwaukee, Wis.; the Mutual Benefit Life Insurance Co., Newark, N. J.; Connecticut General Life Insurance Co., Hartford, Conn.; and other life insurance companies throughout the country. Through the investments of the aforesaid institutions, thousands upon thousands of policyholders throughout the United States will become investors in American-flag shipping.

Our bid to MSTS covering three of the subject tankers, an I the time for Government action on all bids, has been extended to April 1, which is also the expiration date of the firm offer without escalation for the building of the tankers by Bethelhem Steel Co., and other shipyards. Since no bank or insurance company approached by us will agree to lend without the aforesaid Government insurance of loans and mortgages covering seven-eights of the cost of the vessel, permissible under the very terms of Public Law No. 781, our program will fail unless such insurance is forthcoming from the Secretary of Commerce acting through the Maritime Administrator. We would welcome any assistance you are in a position to give to further this program.

Very truly yours,

J. WHITNEY LEWIS, President.

« iepriekšējāTurpināt »