The origin of the present war-built merchant fleet of the United States is so well-known that it is needless to review it here. Suffice it to say that shortly after the close of the World War the United States found itself in possession of a merchant fleet far in excess of its normal economic requirements and faced the difficult problem of utilizing it to the best advantage.
In any consideration of the merchant marine it is well to keep in mind the fact that Congress in no unmistakable terms has declared the natural policy of the American Merchant Marine to be in part as follows:
“That it is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States. . . . .”
That is our national policy, and it is significant that no political party, no section of the country, no important element of public opinion has voiced any objection to it. Probably no act of Congress has been more favorably accepted.
Let us consider for a moment why this pronouncement was made by the Congress. It is quite generally understood that the national prosperity is largely dependent upon our finding a market for our surplus products. While in time of peace it may be practicable to depend to a certain extent upon foreign-flag carriers for our imports and exports, such dependence is most undesirable since it places our trade facilities largely in the hands of our competitors; and in time of war foreign-flag vessels are likely to be withdrawn from their usual trade routes for war purposes or for more lucrative employment. In times past, when this country was a negligible factor in the deep sea carrying trade, we have experienced such withdrawals of tonnage from our shores and the results have been very costly to our importers and exporters, and to the people in general. With a large merchant fleet of our own this condition would be minimized. In addition, with a large fleet of vessels under the American flag, millions of dollars which formerly went out of the country to foreign ship owners would be kept at home and used to our own advantage.
Then there is the further fact that the national defense requires a strong merchant marine as an adjunct to the navy. How can we prosecute a foreign war without vessels for the transportation of troops and our munitions? To answer this query, one has but to recall our experience in the late war when we were dependent on Great Britain, in large part, for such services.
The merchant marine of the United States divides itself naturally into three groups: that in the coastwise and intercoastal trade, that in the near-by foreign trade, such as the West Indies and Caribbean, and that in the overseas trade. Fortunately, our coastwise and intercoastal shipping has been protected by law and has been reserved to vessels built in the United States and flying the American flag; therefore, it is not to be wondered at that this particular division of the merchant marine, being free from foreign competition, is on a safe business footing. The near-by foreign trade shipping of the United States is in a similar situation, since while the trade itself is not protected, yet the advantages accruing to American-flag ships in this trade, such as the proximity of home ports and the opportunity of engaging in part in our coastwise or intercoastal trade, more than offset the higher operating costs of American ships as compared with foreign competitors.
The third division, that employed in the overseas trade, is that to which the government has given particular attention, and it is here that our real problem lies, for it is here that our ships must meet the competition of cheaper foreign labor and cheaper operating costs in general, as well as compete with vessels which have been constructed more cheaply in foreign yards. Our problem applies equally to privately-owned and government-owned vessels in this trade, and I do not wish to give undue prominence to the government fleet in its relation to our merchant marine. While the government fleet is the larger and is more in evidence because of the problems it presents to the public, the private fleet is going its way and doing its work quietly and inconspicuously.
At the time of the post-war inflation of trade and shipping the shipping board services were being carried on by nearly 200 managing operators and most of the government fleet was in use. Many of the services overlapped and competed with each other as well as with private American lines. Only a few of our lines were of the nature of pioneer services, most of them having been established along the major trade routes on which a very considerable commerce normally flowed, although most of it before the war had been under foreign flags. Later, when the period of deflation set in, many services were discontinued, many vessels were laid up, and the number of operators was reduced until, about a year and a half ago, the active fleet comprised approximately 350 vessels and the managing operators had been reduced in number to forty. However, there were still too many over-lapping services which created an unbusiness-like situation and it was evident that a general readjustment was necessary. This the Fleet Corporation undertook to accomplish by consolidating overlapping or conflicting lines and forming a single comprehensive line of each route.
In making these consolidations every endeavor was made to obtain a combination of the organizations of the managing operators concerned, because it was desired to retain experienced operating personnel and because it was undesirable to eliminate any managing operator who had rendered good service to the government and who was a potential purchaser of shipping board tonnage. In most cases, unfortunately, this proved impracticable.
In furtherance of our announced policy to dispose of the lines to private owners, in consonance with the mandates of the Merchant Marine Act, 1920, we desired to make every effort possible to place them on a sound business footing. This end was accomplished to a considerable extent through the consolidation program above mentional. Such consolidations made possible the withdrawal from service of the least efficient services, resulting directly in important economies; they placed a larger fleet in the hands of a single managing operator and gave him a larger regional area in which to operate. This resulted in greater flexibility of service, enabled the operator to route his ships to better advantage, shortened the time of the ships’ voyages, and materially decreased operating expenses without curtailment of service.
In consolidating services none of the essential trade routes were abandoned and on many of them no reduction of tonnage was made. On some of the routes, which are highly competitive, our services are and will be maintained with a view to giving only such frequency of sailings as may be necessary to protect American commercial interests and to hold our position in the trade until conditions improve. As trade conditions improve and better freight rates are obtainable the services can be gradually expanded to meet additional demands. The additional tonnage should not be put on with a view to maintaining an artificially low scare of rates, that, in effect, would be giving a subsidy to shippers at the expense of the merchant marine and would prevent the lines from becoming self-sustaining and, therefore, salable.
The efforts of the Fleet Corporation are being directed not only toward the improvement of the lines but also to other matters which afford opportunity for reducing expenses without impairing efficiency. In the last eighteen months the annual payroll of the corporation has been reduced by more than two million dollars. We have reduced stevedoring costs materially through new and more favorable contracts; important economies in fuel consumption have been realized through the education of ships’ personnel and the institution of a system of competition among the engineers. Most important of all, perhaps, has been the establishment of a budget system by which our disbursements are governed in accordance with the usual business practices. But, while much has been accomplished, there is yet much to be done to place our lines on an efficient commercial basis.
In connection with the subject of consolidation of trade routes and reduction of tonnage, it may be of interest to know that we have carried as much cargo during the last year, with the reduced number of ships, as was carried during the previous year, before consolidations were effected, while the loss of the entire fleet has already been reduced from $50,000,000 a year to about half that amount, and a further induction is now under way.
Most business men agree that the government has no place in the shipping business. I would qualify that by saying that the government should be in the business only as a means to an end—that end being to salvage the war-created fleet to the best advantage and to promote the national trade interests, at the same time attempting to get as many of the ships as possible into private American hands for permanent service on the essential trade routes. The question is not merely whether or not it is wise for our government to maintain shipping lines at very considerable cost—it is broader than this; it is whether the government shall, by its maintenance for a time of certain important services, bring about the establishment of our privately-owned interests both commercial and defensive. Such security is certainly worth paying for but we should not let it cost the country more than is absolutely necessary.
The entire country is coming to realize more and more that the problems of the merchant marine are not sectional; that it is a matter of vital concern to the western farmers as well as to the eastern industrialists whether or not we are maintaining adequate services to the chief markets of the world for the carriage of our surplus products, and our essential imports. No country, however rich in resources, is or can be self-sufficient; it must look beyond its borders for the commodities it lacks and find markets for the surplus products of its industries. It follows that no country vitally dependent on international commerce for its prosperity and progress can afford to rely unduly on other nationals for the handling of its surplus products, for the reason that these other nationals are usually its rivals in the world’s markets. It is self-evident that we cannot leave the carrying of our goods to our rivals, nor can we afford to depend on them to give primary consideration to our needs in an emergency. It is obvious that if access to foreign markets is controlled by alien interests they have it within their power to minimize the advantages of American products and in a large measure eliminate our exports from successful competition with the products of other countries.
In order to take care of the needs of our foreign commerce, the Fleet Corporation maintains cargo services which extend to every part of the world where there is any considerable trade with the United States, except on those routes which are adequately served by private American lines, it being the fundamental policy of the Shipping Board to avoid competition with private American services.
Regarding the national policy that “the United States shall have a merchant marine of the .... most suitable types of vessels sufficient to carry the greater portion of it commerce and serve as a naval or military auxiliary in time of war or national emergency,” it should be mentioned that during the past year the President appointed a committee to consider certain matters relating to the merchant marine, which committee was composed of the following members: Chairman of the Shipping Board, Chairman of the Committee, Secretary of the Treasury, Secretary of War, Secretary of the Navy, Secretary of Commerce, and the President of the Fleet Corporation.
Among other things, the committee made a careful estimate of the number and types of vessels that the merchant marine might be called upon to furnish for the use of the Army and Navy in the event of a war of such character as might involve the national safety. The following may be given as a summary of this study.
Comparing the estimated requirements with the available tonnage, it was found that:
- Our merchant marine is deficient in large, fast passenger vessels which would be suitable for airplane carriers and fast cruisers.
- There is a considerable deficiency in combination passenger and cargo vessels suitable for troop transports, and so forth, if a large armed force were to be transported a considerable distance; but this deficiency could be largely made up by utilizing available cargo vessels.
- There is a large surplus of cargo vessels, and a sufficient fleet of tankers.
On the whole, the army and navy requirements could be met fairly satisfactorily, and there would remain sufficient vessels to carry on a considerable portion of our commercial business.
In time of war it would be essential that this country should continue adequately to move two characters of imports: (a) materials necessary for a reasonable measure of comfort of our civilian population; and (b) materials essential for the manufacture of articles necessary to the prosecution of the war. Modern war is so much an affair of whole nations and there is so little demarcation between civilian industry and military industry that a differentiation between (a) and (b) is possibly academic.
Similarly, the country must, during war, export goods for two primary reasons: (a) to maintain as favorably as possible its trade balance and hence its currency and foreign credit; and (b) to supply the raw materials which are essential to foreign industries which, either normally or by reasons of our expended war-time needs, are supplying us with vital manufactures.
There are two methods of effecting the necessary transportation; in our own vessels or in those of neutral nations. Carriage in our own bottoms is advantageous in that presumably our vessels will render more faithful and loyal service and their direction and control will be simpler and more effiacious than any which we could exert over neutral shipping.
There will be routes on which it is essential that commerce be conducted in our own bottoms. There will be routes where the danger of raid or interruption is great. Such ships will, of necessity, be largely under naval supervision, even though commercial in purpose. They will be drawn from the best vessels remaining after the direct military needs have been met, and the military services themselves must, in setting up their requirements, have such services in mind.
Neutral carriers will be available in sufficient number to handle, at a price, our commercial transportation in time of war provided that such neutrals are protected to a reasonable degree against destruction by the enemy. It must not be forgotten that the bulk of our commerce is still an export commerce and that many of our exports are almost essential to foreign nations, especially to those nations possessing considerable tonnage of merchant shipping. Though it is essential to us in time of war to market a reasonable amount of cotton, grain, and petroleum it is almost equally essential on the part of consuming nations to continue to receive such commodities. They must, therefore, if our ships are withdrawn, send their own or suffer internal demoralization. Since their ships most come for exports, they will ordinarily be in a position to bring to us needed imports.
The first step in supplying the sea-borne commercial requirements of the nation engaged in war is to secure “command of the sea.” That is to say, enemy forces must be destroyed or contained in port to such an extent that the great majority of our commerce may move without hindrance by the enemy. This step is naval and not commercial. Without command of the sea no known means can be found of supplying our overseas commercial requirements.
The entire commercial shipping of the United States must be under a centralized control by experienced shipping men, in order that the most flexible and efficacious use can be made of all tonnage. It will probably be desirable that this centralized control shall act as a selecting authority to meet the needs of the Army and Navy, as the Shipping Control Committee acted during the last war.
Returning to the subject of our efforts to put the government-owned fleet on an economical basis, a little more than a year ago we were operating 320 cargo vessels at an average loss of more than $25,000 a voyage. During the year ended last June, the average loss was reduced to about $20,000 and at the end of that period it had fallen below $17,000. After careful analysis of the factors of expense and revenue, we feel that the loss can still further be reduced to about $8,500 per voyage, even if the present low freight rates continue, and that this last figure represents about the best that should be expected under government ownership. If and when this result is reached, the total operating loss of the cargo fleet would be only about $10,000,000 a year, which, however, does not include interest and depreciation charges, which must be included if proper comparison is to be made with private operating results.
The figure of $8,500 loss indicates our present goal. The present loss of about twice that amount shows that we still have a long way to go in improving our revenues and reducing our expenses.
Our study of 1,200 voyages to all parts of the world in a twelve month period indicates that, if under the best practicable operating conditions the government losses (including interest and depreciation) were $13,500 per voyage, the average capable private American owner of this tonnage could reduce that loss to about $4,500. Further, the same fleet on similar services, if operated under British conditions, would about break even. In other words, the differential between the operating results of government-owned and privately-owned vessels is estimated to be about $9,000 per voyage, while the differential between operating results of private American and British vessels, operated with equal efficiency, is believed to be about $4,500.
This last figure, $4,500, may be taken as an approximate measure of the amount of government aid that would be required to place American vessels on a competitive footing with British vessels. For a cargo fleet of the size of that operated by the Fleet Corporation, about 2,500,000 deadweight tons, this aid would amount to about $5,000,000 a year, and extending this to include all American cargo vessels in foreign trade, the total might amount to $7,500,000. This, as stated before, does not include passenger services, each of which constitutes a more or less special problem so far as government encouragement or aid is concerned. Passenger and mail lines are usually aided by means of mail subventions, or subsidized on the basis of naval defense requirements, and the amount of such subventional aid cannot be estimated in advance of the determination of the national policy regarding such lines, but probably it would be somewhere between $5,000,000 and $10,000,000 a year, or say $7,500,000. Thus it would appear that the total amount of government aid necessary to put the American Merchant Marine in foreign trade on a competitive footing would be about $15,000,000 a year.
Under continued government ownership, a fleet of the present proportions would cost not only the $10,000,000 operating loss above referred to, but also a large sum annually for replacements, for if the government is to continue indefinitely in the shipping business, the necessity of replacing gradually the present fleet with new and improved vessels must be faced.
The life of our ships may be assumed to be twenty years; they are now about six years old. Replacements should be made gradually since it is unwise to allow a fleet as a whole to deteriorate to the point of obsolescence and then to completely rebuild it. Owing to the gradual improvement in types of vessels, their machinery, and equipment, the fleet can be kept up to date only through continuous replacement of the oldest and least efficient ships with new ones.
What would a replacement program cost the government? We may say that the average replacements would be about twenty vessels per year when the replacement program is fully under way. In a large fleet of vessels distributed over the various trade routes of the world, there would be a considerable variation of types. They would range from the ordinary, comparatively slow cargo vessel of around 8,000 tons to the faster, superior equipped cargo liner of 10,000 to 15,000 tons. Most, if not all, of them would be motorships, and a considerable number might be provided with limited passenger accommodations. Their cost probably would range from around $800,000 to $1,500,000 each; therefore, if our replacement program calls for twenty vessels a year, the cost would average about $20,000,000 per year for new construction for the cargo fleet alone.
As for passenger liners and combination passenger and cargo vessels, of which we are operating a total of fifteen, the replacement cost would range from $5,000,000 to $15,000,000 per vessel, and would average probably $10,000,000 a year.
Thus, unless the government can find a way to transfer its fleet to private ownership, as contemplated by the Merchant Marine Act, we face the definite prospect of having to spend about $30,000,000 a year continuously for replacements alone. With the improved administration and higher efficiency toward which we are working, the operating loss of this fleet may be reduced to about $10,000,000. Therefore, the prospective cost of continued government maintenance of a fleet of about the present size is about $40,000,000 a year.
To summarize, our country faces three alternatives in respect to the merchant marine in foreign trade: first, continued government operation costing ultimately around $40,000,000 a year; second, government aid to private shipping amounting to about $15,000,000 a year; or third, the gradual but certain disappearance of our flag from the international trade routes, and a return to our pre-war condition when less than 10 per cent of our foreign commerce was carried in American vessels.