The nation that controls the seas of the world controls the trade of the world, and the nation that controls the trade of the world controls the riches of the world, and consequently the world itself.” So said Sir Walter Raleigh some three hundred and more years ago. Great Britain took that creed to heart at that time and has followed it ever since. It was the same creed that had been previously realized and lived up to for 700 years by Italy, by the Hanseatic League, by Portugal, Spain, and Holland; by all the great states that had held the command of the sea since the days of Tyre. The people of the United States inherited an inkling of this creed. In the early part of the nineteenth century the American clipper ship was the envy of the world. Ninety per cent of the net tonnage entered and cleared in the foreign trade of the United States in 1821 was of United States registry. In 1912 this net tonnage had fallen to 25 per cent. During and after the war the proportion of United States registry in foreign trade rose to 51 per cent in 1920, since which year it has decreased to 39 per cent in 1928. During the period from 1821, when the United States captured the North Atlantic trade (the bitterest competitive ocean) to 1860, just before our Civil War began, an average of 77 per cent of our imports and exports were carried in American bottoms; from 1861 to 1865, the period of the war, an average of 41 per cent; from 1866 to 1913, an average of 14 per cent; in 1928 an average of 33 per cent, which is about the same as in 1867. The total value of water-borne exports and imports in 1928 was $7,662,500,000 of which vessels of United States registry carried $2,574,000,000. A rightful share of this trade would be 50 per cent or $3,831,000,000. By not exercising this right our people paid freight and insurance charges on cargo to the value of $1,257,000,000 to carriers of Great Britain, Japan, Germany, Holland, Norway, and others. It would be interesting to know how much such charges amount to per year. However, such a computation, on account of the extreme complexity and variability of ocean freight rates, is difficult to average. This will be more fully discussed later in the paper.
In 1915 and the early part of 1916 the rates on many commodities exported from the United States to Europe, were more than five times the rates prevailing immediately before the war; and those on shipments to non-European neutral countries located far away from the war zones advanced 300 to 400 per cent. Many considered this to be the maximum that the traffic could bear. Later in 1916, however, it appeared that war traffic could seemingly bear an almost limitless burden. In 1917 the general index number was 785.3 as compared with 69.6 in 1914 and 100 in 1900. Ocean transportation is less competitive today than in the past; but is more competitive than rail transportation.
Principles of Transportation
Now, since we are once again realizing that we wish to transport our own goods in our own bottoms instead of in the vessels of our commercial rivals; since we no longer wish to be in the position of the great department store owner delivering his goods by means of his competitor’s trucks; we must organize and increase our ocean transportation until we are able to deliver the service reasonably and equitably.
The United States was able to do this under sail. It can be done under steam and motor. Our colonial ancestors were in part a seafaring people; they needed a merchant marine as a means of transportation and communication; the shipbuilding trade grew as the demand increased, from a pinnace in 1607, a schooner in 1700 (built at Gloucester), the first square-rigger launched in Bath in 1760, the fleets of successful combination trading and privateering ships of the Revolution, the phenomenal growth afterwards. This growth was caused by a natural demand supplemented by discriminating navigation laws made from 1789 to 1792 following the example of our competitors. The first of these laws, enacted in 1789, provided for a 10 per cent reduction in duties on imports brought in by vessels owned wholly by citizens of the United States. Later a tax was placed on shipments through indirect trade and tonnage taxes were enacted forcing American built and owned vessels. Still later a surtax of 10 per cent was placed on all importations in foreign flag vessels. At the end of 1789, 17 per cent of our imports and 30 per cent of our exports were carried under our flag; five years later, after the enactment of these laws, we were transporting 95 per cent of our imports and 90 per cent of exports. However, one of the clauses of the peace treaty of Ghent at the end of the War of 1812 forced the United States to repeal the discriminatory tariff laws of 1789-92. In spite of this serious repulse our shipping continued to advance and by 1821 we had taken the cream of the North Atlantic trade. It was in 1817, that the coastwise trade was wisely restricted to American flag vessels. During the period from 1821 to 1860 the net tonnage of American vessels entered and cleared in the foreign trade, increased from 1,570,000 to 12,000,000, while during the same period the net tonnage of foreign vessels engaged in this trade increased from 164,000 to 4,978,000. Of the net tonnage 29 per cent entered and cleared, and 33 per cent of the goods by value were under foreign flags. Then came the Civil War and at about the same time the growth of the iron-hulled steamship which was largely developed abroad; while the United States was occupied by a great war, followed by tremendous internal development absorbing capital and labor. From the beginning of the Civil War until 1910, there was a fairly gradual fall in the percentage of United States tonnage entered and cleared from 70 per cent to 22 per cent and at the same time a fall in percentage of value of merchandise carried by United States flag vessels from 65 per cent to 8 per cent. During this time, the total value of exports and imports increased about five times to $2,982,800,000 in 1910. During the period from 1910 until 1920 there was at first a gradual, then a sharp rise in percentage of American vessels cleared in the foreign trade and a lesser increase in the percentage of merchandise transported under the American flag. The total value of exports and imports in 1920 was $11,875,000,000, of which 42 per cent was carried in American bottoms. Even then we were not getting our reasonable share of 50 per cent although 51 per cent of the vessels entered and cleared in the foreign trade that year were of United States registry. From that time until 1928, there has been again a gradual decline in the amount of value of imports and exports carried under the American flag. The percentage in 1928 was 33, although in that year 39 per cent of the vessels entered and cleared were of American registry. The answer seems to be that: (1) We have not enough vessels in foreign trade; (2) those that we have are not getting the cargoes.
Mr. J. E. Sheedy, formerly vice-president of the U. S. Shipping Board, stated in a lecture delivered at the Army War College in 1924 that it is generally estimated that the freight and insurance charges approximate 7 per cent of the value of the products. He was speaking of normal times and this figure is of course to be taken in the most general way. However, if this percentage is applied to the foreign water-borne commerce of the United States for the years 1920, 1924, and 1928, and a comparison drawn between the freight rate and insurance that actually went to the owners of American flag vessels and the amount that would have gone to them under a reasonably fair division of the business—50 per cent, we arrive at a column of increasing losses.
Round Numbers
Year | Total value exports and imports | Total freight rates and insurance | U. S. owner got | U. S. owner fair share | Loss to U. S. |
1920 | $12,000,000,000 | $840,000,000 | $358,680,000 | $420,000,000 | $61,320,000 |
1924 | 7,000,000,000 | 490,000,000 | 177,870,000 | 245,000,000 | 77,130,000 |
1928 | 8,000,000,000 | 560,000,000 | 188,160,000 | 280,000,000 | 91,840,000 |
We were then in 1928 paying our competitors in world ocean-borne trade some $92,000,000 more than we should have done for transporting our goods. That is a lot of money; approximately the wages and subsistence of 95,600 American able seamen for one year or the interest of 6 per cent on a capitalization of more than one and one-half billions of dollars. This appears to be too large a sum with which to subsidize a foreigner’s merchant marine. To what foreign nations does the money go? If we assume that the people of the United States as ultimate consumers pay freight and insurance rates (7 per cent of value) on all imports we find that in 1928 we paid in round numbers $83,000,000 to American shipping, $81,000,000 to British, $27,000,000 to Japanese, $13,000,000 to German, $11,000,000 to Norwegian, $10,000,000 each to the French and the Dutch and lesser amounts to a number of others; a total sum of $253,000,000 of which $170,000,000 went to our rivals in the trade of the world.
Now we cannot afford to depend upon our commercial rivals carrying our cargoes. We are by no means self-sustaining in resources. We must keep open markets abroad or curtail production. The Merchant Marine Act of 1920 sets forth a policy which is reaffirmed in the Merchant Marine Act of 1928, familiarly known as the Jones-White Act. Such policy is as follows: “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.” This act of 1928 sets forth a logical and practical means of carrying out this policy.
The Shipping Board upon the affirmative vote of five members, may sell any of its vessels only when the building up and maintenance of an adequate merchant marine can be best served by such sale. The board may recondition its vessels so as to equip them for competition in the foreign trade. The act recognizes the necessity for replacement of vessels controlled by the board and for the construction of additional up-to-date cargo, combination cargo and passenger, and passenger ships, to give the United States an adequate merchant marine; and directs the board to make recommendations setting forth what new vessels are required for permanent operation in foreign trade and their estimated cost in order that Congress may make the necessary appropriations. All vessels built for the board shall be built in the United States and shall be planned with reference to their possible usefulness as naval auxiliaries.
The act creates a construction loan fund for a maximum of $250,000,000 which shall continue to be a revolving fund; repayments on loans being credited to the fund, while interest is conveyed into the Treasury as miscellaneous receipts. This fund is partly made up from the sale of vessels; but largely from authorized appropriations. The minimum rate of interest is set at 3.5 per cent. No loan shall be for a greater sum than three- fourths the cost of reconditioning, or for a longer time than twenty years. The principal shall be repaid in equal annual installments definitely prescribed in the particular contracts. Proper security and insurance are required. This construction loan revolving fund is one of the greatest aids to our Merchant Marine in the foreign trade ever extended by Congress. Provision is made so that if a vessel, built by help of this fund, is removed from the foreign trade and placed in coastwise trade, the rate of interest is raised during this time from 3.5 per cent to at least 5.25 per cent, a matter of $8,750 a month on a vessel costing $8,000,000. However, there is no reason why such a vessel should not engage in a combination coastwise and foreign trade—for instance, New York, Havana, San Francisco, or east to west coasts via one or more Central American or Mexican ports. This may explain some of the opposition to the bill by certain United States interests. Of course the great opposition was directed by foreign shipping, working through American agents as always in the past.
The act then revises the ocean mail service. The Postmaster General is required to certify to the Shipping Board what ocean mail routes should be established; the board shall then certify to the Postmaster General the type, size, speed, and other characteristics of the vessels which should be employed. Such vessels are required to be steel, motor, or steam driven, registered under the laws of the United States before February 1, 1928 (if built before that time) and during the entire time of such employment. Any vessels employed which have been built after the passage of this act must be constructed in accordance with plans and specifications approved by the Secretary of the Navy, with particular reference to economical conversion into an auxiliary naval vessel or a vessel which will otherwise be useful to the United States in time of national emergency. All licensed officers are, as always, required to be citizens of the United States and for the first four years, until May 22, 1932, one-half of the crew must be citizens. Thereafter, two- thirds of the crew shall be citizens of the United States. This is a most important clause, which will promote the seafaring reserve tremendously.
Contracts for the carrying of ocean mails shall be awarded to the lowest bidder, who in the judgment of the Postmaster General possesses such qualifications as to insure proper performance of the mail service under the contract. The vessels employed in mail service are divided into classes accord- mg to sustained speed and gross tonnage and compensated according to class. For instance, vessels in class 7—vessels capable of maintaining a speed of 10 knots at sea in ordinary weather and of a gross registered tonnage of not less than 2,500 tons— $1.50 per nautical mile. This would amount to $360 per normal day and would pay for 240 barrels of fuel oil at Panama Canal prices or seventy-two tons of coal at Newport News. A type crew for such a vessel would consist of thirty-six officers and men with a standard monthly wage of $3,399 and subsistence of $720, or daily cost of $137. We shall not go farther into this at present, but it can be seen that the mail compensation pays a substantial proportion of the normal sea operating expense of a vessel. For vessels of class 1, vessels capable of maintaining a speed of 24 knots at sea in ordinary weather, and of a gross registered tonnage of not less than 20,000 tons, the compensation is $12 per nautical mile, amounting to $6,900 per day: $37,500 for the voyage New York to Cherbourg; $63,000 for the voyage New York to San Francisco via the Panama Canal.
It is interesting to see that this act provides that naval officers on the active list may volunteer for service on any vessel employed in the mail service under the provisions of this bill and if accepted by the owner or master, may be assigned to such duty by the Secretary of the Navy. While in such service, naval officers receive half pay, exclusive of allowances from the government, and such other compensation as may be agreed upon. In making the appropriation necessary to carry out the provisions of this Merchant Marine Act 1928, provision is made that the United States may take and purchase or use at a fair compensation to be determined by the President: (1) Any vessel on which a loan has been made from this construction loan fund at any time during the life of the loan; (2) any vessel under contract for carrying ocean mails, during the life of the contract. .
The enactment of this legislation is now showing its effect. Shipbuilding activities in home yards are advancing rapidly. Contracts for seventeen ships totalling nearly $70,000,000 have been made. These, with additional ships to be constructed under the mail contracts to be awarded, will make a total of fifty-two modern vessels, comparable to any in the world. “With the program now under way for the building of modern ships and with the people and the government solidly behind the movement to support American shipping, the success of an adequate privately owned merchant marine is definitely assured.” The Marine Engineering and Shipping Age for January as quoted in the New York Herald Tribune gives a fair picture of the change that has resulted from the passage of the Merchant Marine Act of 1928. Prospects are more encouraging now than at any time since the war. In addition to the fifty-two vessels being built or planned for the ocean mail service, plans are being developed for the construction of at least 120 other vessels of various types. The output of fifty-four shipyards in 1929 was reported at 284,000 gross tons. Forty-eight of these yards report 215 merchant vessels of 359,460 gross tons now under construction. This tonnage under construction is an increase of 244 per cent as compared with that on order at the end of 1928. Sixty- three yards were active in 1929 as compared with forty-one in 1928. Among the outstanding vessels now under construction are two 18,500-ton liners for the Matson Navigation Company and one 7,000-ton passenger ship for the New York and Porto Rico Steamship Company. The Newport News Shipbuilding and Dry Dock Company is building two 21,000-ton turbo-electric ships for the Dollar Line and two 11,300-ton turbo-electric ships for the Ward Line. The New York Shipbuilding Company is building four 8,500-ton passenger vessels for the Export Steamship Company and the 8,000- ton liner Santa Clara for the Grace Line, which is now (March, 1930) undergoing speed trials. Two 15,000-ton tankers are under construction at the Federal Shipbuilding and Dry Dock Company while the Sun Company at Chester is building a liner for the American South African trade and eight 9,000-ton Diesel tankers. A survey by the American Bureau of Shipping shows that tonnage under construction in American yards is increasing rapidly from month to month and estimates that the contracts recently awarded will keep 8,000 men employed for two years. The director, Department of International Shipping, Georgetown School of Foreign Service, Dr. Alfred H. Haag, writes in the Washington Post this winter that there are now employed in foreign trade 671 American flag vessels of 3,865,000 gross tons, a 500 per cent increase in number and 550 per cent increase in tonnage since 1914. The enormous Shipping Board tonnage of 1920 has been reduced so that now there are 3,280,000 tons in 595 vessels remaining under the board’s control, of which 229 of 1,335,000 tons are in active service. “In 1928, 5,100 vessels of 23,000,000 gross tons, flying the flags of twenty-eight countries, transported 1,750,000 passengers and 100,000,000 tons of cargo passed through 1,600 American and foreign ports in the foreign trade of the United States. The combined passenger and freight revenues approximated $1,000,000,000.”
It is difficult for the man in the street to realize the extent of sea-borne foreign commerce of the United States. Last year it was 113,000,000 long tons; the equivalent of dispatching railroad trains of fifty cars, each car holding thirty tons, at seven minute intervals day and night throughout the year. At least half of this transportation business is properly the right of the American people. That people has at last made a decisive move, through the Merchant Marine Act of 1928 to recover this right lost since the year 1862.
Let us assume a hypothetical freight liner of 12,000 gross tons, sustained speed of 18 knots to ply between Baltimore and Hamburg, a distance of 4,000 nautical miles. We shall call our ship the “SS. X-ray” and assume her cost in an American shipyard to be $2,000,000. The normal interest on such a sum in the open market may be taken as $120,000 or $10,000 a month. Now assume that $500,000 of this amount is borrowed at 6 per cent and the remainder at 3.5 per cent under the provisions of the act of 1928. We then get an interest charge of $6,875 a month or a saving of $3,125 from the normal interest charge. The “X-ray” would fall in class 3 of the Ocean Mail Service, thereby receiving a compensation of $8 per nautical mile or $32,000 per one way voyage which would normally take ten days. With a proper and normal turn around and with normal yearly overhaul and semi-yearly drydocking, eleven round trip voyages per year may be conservatively assumed. The mail compensation would be $352,000 per year or $29,333 a month. Adding this to the saving in interest, we find a sum of $32,458 a month in virtual subsidy.
A line of four such vessels would receive assistance of $1,558,000 per year. This is a marked advance over the $1,644,000 expended by the United States in 1927 as a direct aid to all foreign shipping. In 1927 when the United States expended this amount Great Britain expended $3,685,000; Italy $13,000,000; Spain $11,210,000; Japan $3,451,000; France $4,650,000. Turning now to the report of the Postmaster General for the fiscal year ending June 30, 1929, we find that the weight of mails dispatched by sea to foreign countries and possessions that year was 87,354,737 pounds, an increase of 5 per cent over that of 1928 and 54 per cent over that of 1922. The appropriation to cover this was $19,050,000 while the actual expenditure was approximately $17,000,000 of which 89 per cent or $15,000,000 went to American ships. The postage collected is estimated at $10,591,095, an increase of 13 per cent over 1928. During the fiscal year 1929, twenty-five contracts were let under the Merchant Marine Act of 1928 for transportation of mails to foreign countries. The Postmaster General states in this connection that the main purpose of the act of 1928 is to develop the American Merchant Marine and with that object in view those contracts require the placing in service of forty-two larger and faster vessels and the equipping of four additional with facilities for carrying passengers and with refrigeration space. It is specifically required that twelve of these vessels shall be new, and some of the remaining thirty vessels will be newly constructed.
Now let us return to our fast freight liner the “X -ray” in service from Baltimore to Hamburg, eleven voyages per year, receiving monthly aid from the government at a rate of $32,458. Her gross tonnage being 12,000 the net tonnage may be assumed as about 8,000. We may conservatively estimate an average cargo load of 6,000 tons, assuming that she gets an approximately full cargo each way. Now freight rates vary so greatly that assumptions are difficult to make. Supposedly, rates will go down appreciably when the new ships are put in service. Between 1920 and 1924, the general average movement of ocean freight rates declined from an index number of 394.7 in 1920 to 142.6 in 1921 to 102.1 in 1924. In 1917 the general index number had been as high as 785.3 as compared with 69.6 in 1914 and 100 in 1900. However, if we use the figures of Dr. Alfred H. Haag, we may take the average value of a ton of cargo in the foreign trade for 1928 as $80 and the approximate average rate as one-eighth or $10 a ton. This is probably a fair average. It seems high for wheat or lumber or fuel oil, but is certainly exceedingly low for a cargo of automobiles, or machinery, or cotton. If we take this rate of $10 a ton for an average cargo each way of 6,000 tons, eleven round trip voyages a year, we arrive at a freight income of $1,320,000, which, would be exceedingly satisfactory on the original investment, even without the government aid of $32,458 a month. However, the operating expense of such a vessel would be only a small part of the operating expense of the line, including the cost of enormous shore personnel required at home and abroad. For instance the United States Lines, in 1928 showed a net loss of $465,000. . In order to arrive at an idea of the operating expense, we shall examine the figures for me United States Lines for the fiscal /year 1928. The figures given take account of all operating, repair, and betterment costs, lay op expenses, overhead costs, and a proper share of the administrative expenses of the Merchant Fleet Corporation. At this time, the United States Lines comprised the Leviathan, George Washington, Republic, President Harding, President Roosevelt, and in the latter part of the year the America returned to active operation after extensive reconditioning. These six vessels during the year made only sixty-one crossings of the Atlantic, carrying 201,894 tons of cargo and 88,891 passengers, at an estimated revenue of $16,266,178.98. The estimated voyage expense was $14,222,616.85, a profit here of about $2,000,000. However, there was an adjustment of $161,864.26, insurance of $408,627.30, maintenance costs of $964,214.51, betterment costs of $286,057.11, advertising $382,065.74, administrative cost $306,041.79, making a total expense of $16,731,487.56 or net loss of $465,308.58.
If we make certain reasonable assumptions and apply the ocean mail rates provided by the Merchant Marine Act of 1928 to these voyages of the United States Lines for the final year 1928, we shall turn this deficit into a reasonable profit. There were sixty- one crossings, assume thirty-one eastbound with mails, of which ten were made by the Leviathan and the remaining twenty-one by the other five vessels, all in approximately class 4; all voyages to Cherbourg, which is 3,125 miles from New York. We get a mail compensation of $768,750, turning the deficit of $465,308 into a net profit of $303,442.
It seems sufficiently clear that the Merchant Marine Act of 1928 is promoting and will continue to promote the growth of a modern well equipped fleet capable of transporting a fair proportion, at least half, of the foreign commerce of the United States. It will also increase the number and quality of seafaring men, the basic naval reserve for war purposes. All licensed officers in our Merchant Marine have long been required to be American citizens. This act requires that until 1932, 50 per cent of the crews shall be American citizens and after that time, two-thirds of the crews. In the fiscal year ending June 30, 1928, there were shipped and reshipped in our total Merchant Marine, below the grade of master, 327,573 of whom all the officers and 54 per cent of the enlisted men were native born or naturalized citizens of the United States. Of these, there were shipped and reshipped at that time in the foreign trade, over-seas and near by, 21,795 native born and 12,729 naturalized citizens, officers below the grade of master, and 112,667 citizens out of a total of 214,381 men, or 52 per cent. By May of 1932, this percentage must be increased by 14 per cent or, if the total number is not increased, by 31,500 men. This would give a total number of citizens shipped and reshipped in the foreign trade below the grade of master of 178,627, plus 58,000 in the coasting trade, a grand total of 236,627 able-bodied seafaring citizens from which to form a reasonable naval reserve in time of war. The number of men shipped and reshipped gives a fair approximate idea of the total personnel serving at any one time which in 1928 for a total of 27,842 vessels, 16,823,522 gross tons, was 212,000 officers (below the grade of master) and men. We may with reasonable conservatism add to this number 19,000 masters.
Conclusions
The act of 1928 will not only enhance the quality and the number of vessels under the American flag in our foreign trade and promote the quality and quantity of American seamen suitable for a naval reserve, but each vessel built in accordance with this act must, as set forth above, be constructed according to plans and specifications approved by the Secretary of the Navy, with particular reference to economical conversion into an auxiliary naval vessel or a vessel which will be otherwise useful to the United States in time of national emergency. This provision boils down to a measure for providing a naval reserve of cruisers, aircraft carriers, freight and troop transports, mine layers, and other craft likely to be needed by the government in prosecution of a war on the seas. Not only are the plans and specifications approved by the Secretary of the Navy, but a board of naval officers inspects the vessels building and when completed.
As treaties for the limitation and reduction of men-of-war are made and carried out, the status of the Merchant Marine as a primary means of waging war at sea becomes more important. Just as the Washington reduction and limitation of battleships treaty of 1921 caused an immediate growth of cruiser tonnage, so a limitation of all sea arms will cause greater dependence to be placed upon commercial tonnage readily convertible into men-of-war in time of emergency. If an agreement had been reached at London abolishing not only battleships, but all other vessels built specifically for war purposes, Great Britain, because of her overwhelmingly superior Merchant Marine, would retain a fair control of the seas of the world and with that control of the seas, a control of the trade, a control of the riches and a control of the world. The Merchant Marine Act of 1928 is a farsighted step to gain for the United States a proper share in the control of the seas in peace and in war; a proper share in the control of trade, of wealth, and of the world.