Are the Proposed Solutions Acceptable?
THE QUESTION might well be asked at the outset: Since the government owns practically the whole United States merchant marine today why should it dispose of it at all? Why not keep it and operate it for the government, or at least keep ownership of it and only charter it to shipping companies? These questions gather strength when we recall that the major reason for having a merchant marine, one which needs government protection or government subsidy, is national defense. And who can care better for national defense than the national government?
The question of government operation of the merchant marine is fraught with complications and difficulties. To start with, the Merchant Marine Act of 1936 declared our aim was to have a privately owned and operated merchant marine. Furthermore, it takes years to develop good working staffs and all the rest of it. The shipping companies have the experience; the government will probably be better off to let them use that experience for the national good.
This does not weaken the proposal that the government still retain ownership of the ships while chartering them to the experienced private operators. This sounds particularly feasible for the transition years. Until trade returns to normal it might be very difficult for the shipping companies to determine just what their peacetime business is going to amount to. This naturally will affect the price they will be willing to pay for ships offered for sale. By chartering from the government, they could establish flexible charter rates, depending upon the volume of traffic available:
There is, of course, another side to this picture, a side very much worth considering. This is the shipping companies’ side. The companies naturally want to move from the war period to the normal period as quickly and smoothly as possible. They want to get their fleets lined up, their crews ready, their routes selected. They want, that is, to settle as many things as they can as quickly as they can, so as to he ready for business when normal business returns. Thus they may not want to charter ships; they may not want to run somebody else’s ships, be they government ships or not. Therefore, they will probably want the government to sell its ships as quickly and as fairly as possible, the quicker to return to normal business. This goes for foreign shipping operators as well as Americans, as there probably will be urging on the part of the foreigners as well as Americans to settle the ownership problem as quickly as possible.
What about the price?
If the government decides to sell, how should it go about it? Should it set a price or sell at auction? Should it sell for cash or credit? Should it sell at equal terms to Americans and foreigners?
The Ship Sales bill, introduced into Congress in January 1945, contemplated selling to Americans and foreigners at fixed prices, not at auction, and on credit, after a down payment. According to the terms of the bill the price would be based on prewar construction costs. The down payment would be small. The remainder would be paid in a way similar to paying a mortgage.
The shipping companies have objected to this bill on the grounds (1) that the price set was much too high and (2) that the credit features opened the door to little speculators. Such speculators, according to the established companies, might grab the ships for a small down payment, run them only in the early profitable years just after the war, and then when they made no more profits, drop the ship, the mortgage, and all the rest of it. This would constantly upset the whole shipping picture. Many special provisions in the bill were also objected to by the representatives of different trades.
The shipping companies as a group, however, could agree on at least two principles: (1) that the price set should ignore the actual cost of the ships and be determined by their potential earning power over a period of years or (2) that the ships be made available in exchange for old ships at a liberal trade-in allowance to keep the price down.
Most of the companies would also just as soon have the ships sold for cash. They have considerable cash on hand from insurance payments on war losses—what they don’t have on hand they can easily borrow or raise by selling stocks.
The companies also prefer to let foreigners buy the Liberties, at least, on the same terms as Americans. Foreigners will be eager to buy ships in the period when shipping will be active and profits great. They will be eager to buy, for then they will have ships long before they would otherwise have them if they had to build new ones of their own. The Americans, in turn, would rather have foreigners come into the market with American ships than with brand new ships of their own, built at low cost, diesel-powered, and adapted altogether for peacetime purposes. The American companies would rather have the foreigners run the same hind of ship the Americans will be running.
Just what is the demand?
Naturally all shipping companies want to get their ships at as low a price as possible, but there are stakes of different value involved here. The subsidized lines, due to their operating subsidies and certain tax exemptions, can afford to pay prices equal to the cost of foreign construction. The unsubsidized operators, however, faced with foreign competition abroad and truck and railroad competition at home, are very fearful of paying too much for their tonnage. Many of them do not plan to buy at all if the price seems too high. All of them agree that if they do buy, they want do restrictions on where they can operate. That is, if, they can make money competing with an American subsidized line they want the same freedom to do so that will necessarily be enjoyed by the foreign purchaser.
The amount of trade is the key
On coastal and intercoastal routes, the demand for ships will depend upon the amount of traffic to be carried. This will be hard to estimate. All this trade moved by rail and truck during the war; much of it was lost to these land carriers before the war. In general, the protected companies failed to make profits during the 1930’s.
You may well ask why, if they aren’t profitable and if they can’t pay the cost of new ships, these trades should be encouraged to continue? The answer is the same as in the case of the rest of the American merchant marine; They serve as the first line reserves of operating ships in case of war. And we must have operating ships as well as laid-up ships. We must have experienced officers and men to form the skeletons of the crews for expanded war operations. So, Congress presumably will try to set a price that will encourage the coastwise and intercoastal people to buy and continue in business.
The demand in the subsidized trades is likewise difficult to estimate. However, there have been guesses at our foreign trade after the return to more or less normal business conditions. At best, this trade is placed at about 10 billion dollars’ worth of exports alone during postwar prosperity. This is a tremendous increase over the peak prewar years. In those times our foreign trade expanded steadily from 1921 to 1929. After that, however, until 1939, it remained more or less static. There is every hope that it will move upward again after the war. Whether it will reach the high figure quoted is problematical. It depends on the whole business life of the world, and it; response to postwar conditions.
But suppose we hit the estimated peak. How many ships will be required?
In 1939, when we carried about 25 percent of our foreign trade we had about 300 ships regularly operating in that field. Suppose we increase our trade say by 50 percent; and suppose we increase the proportion of this amount carried in our own ships to 40 percent. Then how many of the new fast ships would we need? A rough estimate might be about 650 ships.
What will we do with the rest?
Between supplying the permanent needs of the Army and Navy and the needs of American and foreign shipowners, it should be possible to sell all the 1,000-odd C-Type and Victory ships. The Army and Navy will take theirs first. The real problem is whether foreigners should be allowed to buy as soon as Americans. Some people think that our own people should have as much as two years in which to make their selection before foreigners are allowed in. Others point out that if we wait two years, foreigners will build their own ships. In any case, it’s not likely that these fast freighters will be laid up for lack of demand if they are offered to all comers at a low enough price.
A knotty problem
That’s the situation. That’s it, at any rate, as simply as it can be stated. The whole question of the disposal of the merchant marine is full of guesses, estimates, and, to be sure, different points of view arising out of a multiplicity of interests. This much can safely be said: For some years to come there will probably be a great surplus of ship tonnage in the world. There always has been such a surplus in peacetime.
The following questions arise: Will it be the American Liberties that are laid up? Do we want them laid up as a reserve? Do we want a laid-up reserve of fast freighters as well? If prices are kept high enough, we might have both if they are made low enough, we might have neither. Do we want an active American shipbuilding industry that can expand quickly in case of war? Must we dispose of many of our present ships abroad so that new ones may continue to be built in this country? Have the shipping companies that lost their fleets in the war a moral claim for restoration of ships as good competitively as those they lost—granting that the whole plane of competition may be raised by the new ships? Do we want a large American merchant marine? Do we want to keep ships operating even if they can’t pay their way? These are a few of the questions!