The present law, if treated as a subsidy, must have regarded the maximum rates named in it as ample, if not more than ample, to cover the handicap involved; otherwise, as a subsidy, the plan would have been abortive. When such "contracts" were awarded lines previously sold by the board the "compensation" or subsidy granted should have been coordinated with the value of the earlier subsidy granted in the form of the low sales price, so that the sum of the two would at most not have exceeded the maximum rate named in the law. There was no such coordination. In awarding the second subsidy the maximum rates were awarded precisely as if the contractor was burdened with the capital charge of brand-new vessels. In such cases, therefore, the Government, in large measure, has paid and is continuing to pay the same bill twice. This is true of practically all subsidies awarded to purchasers of lines from the board; the extent of such concessions varied somewhat, depending on the trade route involved and the competition between bidders for the purchase of the line. An illustration of the extent of the concession is reflected in the sale to and the "postal contract" with THE MUNSON STEAMSHIP LINE We will first present facts relating to the postal contract, and then data relating to the purchase price of the line in the sale to it by the United States Shipping Board. SUBSIDY IN THE POSTAL CONTRACT The contract awarded this company, dated July 13, 1928, is for 10 years and provides for 26 voyages on the route from New York to Buenos Aires, Argentine Republic, with stops at Rio de Janeiro, Brazil, and Montevideo, Uruguay. The service required by the contract is substantially the same as that maintained by the company when the contract was awarded and which it has "guaranteed" to maintain in return for the low sales price of the vessels. The "compensation" under the postal contract exceeds $1,300,000 annually, and will therefore exceed in the aggregate $13,000,000. In return for this great subsidy, the Munsons are not obligated to increase the American merchant marine by building even one new vessel; nor is it required even to replace its present vessels, by which the service is performed. The contract will therefore result in a net loss to our merchant marine-not merely in money but in ships. When this contract was made the four vessels involved were substantial assets to the American merchant marine-commercially as potential naval auxiliaries; they then had 12 more of the usual 20 years allotted for efficient service by a vessel. Provision should, of course, have been made for their replacement, at least, during the term of the contract. However, even had this been required, the subsidy would still have been very excessive. Not only will the net loss result from the age of the vessels, even if current repairs are faithfully made, but long before then they will probably have become obsolete for competition in foreign trade, so rapid has been the movement in recent years for new types of vessels, both in speed, capacity, and general efficiency, especially in the development of Diesel engines. The explanation given a committee of Congress (see "Hearing," H. R. 8715, p. 97) by the chairman of the Shipping Board for the omission of new vessel requirements from this contract is as follows: "We did not require it * * because they were practically new boats, and you could build in the next 10 years just as well as now." This explanation is not convincing. The point is: Not only is the subsidy excessive even had new construction been required, but that at no time, either now or "in the next 10 years" or at any other time, are the Munsons required to build new vessels in return for the multimillions to be received from the Federal Treasury. If the construction of new vessels had been required, with the privilege to the contractor of building them any time during the life of the contract, and the question had been why they were not required to be built at once, the chairman's "explanation" would be relevant, viz, that they were not required at once, and therefore “you could build in the next 10 years just as well as now." In the same paragraph containing this "explanation," the chairman had made it clear to the committee that the contract had no requirement whatever "for replacements or new construction"; hence there was no confusion of facts. The relevancy of the comment quoted is not apparent, notwithstanding it was made with a finality as if it should silence all criticism of the failure to require new vessels. We are reluctant to assume that the comment was intended to persuade the committee that although the beneficiary of the Government was not required to build, the physical fact remained the vessels could be built-by somebody. This possible interpretation would not be mentioned, but for the fact that many of the contracts reflect such an attitude. There has been unjustified zeal to give the favored lines the maximum possible under the law and to require only a minimum of return either in services, new construction, or otherwise. Mr. FLETCHER. I next desire to have inserted the matter under the headline Subsidy in the Sales Price, which is found in this document (S. Doc. 210) on page 13 down to the top of page 14. There being no objection, the matter was ordered to be printed in the Record, as follows (p. 13, S. Doc. 210): SUBSIDY IN THE SALES PRICE The Munson Steamship Line, known also as the Pan America, purchased these vessels from the Shipping Board in November, 1925. The vessels were built in 1921-22. The prices at which sold to Munson, and their respective costs of construction, were as follows: As the vessels were built by the United States, the above statements of their cost does not include any interest accumulating during their construction, although such interest is a well-recognized factor in computing the cost of a vessel. But even with interest ignored we find the cost of these vessels to have been substantially $25,000,000. The The total purchase price for the four vessels was only $4,104,000. sales price, or, rather, the price at which the vessels were sold to Munson, was thus more than $20,000,000 less than their cost; that is, it was only about onesixth of their cost. The cost of construction is not a final test of their market value in 1925. There must be deducted the usual annual allowance (5 per cent) for depreciation, but this would not exceed, say, $5,000,000 for the whole time to date of sale. These vessels are high-grade, combined passenger and cargo steamships, each of 13,700 tons, gross, with speed of 161⁄2 knots. With liberal concessions for depreciation in market value, the sales price was not nearly one-half of their normal market value. The price concession therefore, made solely to enable the buyer to operate the vessels in foreign trade, substantially exceeded $1,000,000 per vessel, or a total sales-price subsidy exceeding $4,000,000. If the same ratio is applied to these vessels which is applied in the contract of sale to the vessels of the Export Steamship Co., the sales-price subsidy in the Munson sales will exceed $8,000,000. Mr. FLETCHER. The next extract from this document I desire printed in the Record begins on page 33, under the headline "List of Sales Price Concessions," and goes down to the bottom of page 35. There being no objection, the matter was ordered to be printed in the Record, as follows (p. 15, S. Doc. 210): OCEAN MAIL CONTRACTS LIST OF SALES-PRICE CONCESSIONS Subject to the same general comment elsewhere submitted (p. 56) concerning the relation of sales price to cost of construction, the following list, relating to lines sold by the board since January 1, 1925, shows the sales price and the cost to the United States of building the vessels: 1. Admiral Oriental Line (year of sale, 1926): Number of vessels, 5; total sales price, $4,500,000; cost to build, $31,939,000; cost exceeded sales price by $27,439,000. 2. American Scantic Line (year of sale, 1927): Number of vessels, 10; total sales price, $572,670; cost to build, $16,960,000; cost exceeded sales price by $16,387,330. 3. American South African Line (year of sale, 1926): Number of vessels, 5; total sales price, $777,900; cost to build, $9,297,000; cost exceeded sales price by $8,519,100. 4. American West African Line (year of sale, 1928): Number of vessels, 10; total sales price, $2,261,240; cost to build, $18,123,000; cost exceeded sales price by $15,861,760. 5. Dollar Steamship Line (year sold, 1925): Number of vessels, 5; total sales price, $5,625,000; cost to build, $32,478,000; cost exceeded sales price by $26,853,000. 6. Export Steamship Corporation (year sold, 1925): Number of vessels, 23; total sales price, $1,299,000; cost to build, $42,105,000; cost exceeded sales price by $40,806,000. 7. Munson Steamship Co. (year sold, 1925): Number of vessels, 4; total sales price, $4,104,000; cost to build, $24,989,000; cost exceeded sales price by $20,885,000. 8. Oceanic & Oriental Navigation Co. (year sold, 1928): Number of vessels, 21; total sales price, $1,981,700; cost to build, $40,311,000; cost exceeded sales price by $38,330,128. 9. Pacific Argentine Brazil Line (year sold, 1929): Number of vessels, 8; total sales price, $396,285; cost to build, $15,084,000; cost exceeded sales price by $14,687,715. 10. States Steamship Co. (year sold, 1928): Number of vessels, 13; total sales price. $1,199,400; cost to build, $27,490,000; cost exceeded sales price by $26,290,644... The 10 subsidized lines enumerated above represent 104 vessels sold. The total sales price for these vessels was less than $23,000,000. The total cost of construction for the 104 vessels was $258,000,000. Their cost of construction, therefore, exceeded the total sales price by more than $225,000,000. In other words, the sales price in the aggregate was not 10 per cent of this cost of construction. Mr. FLETCHER. These items will be very instructive, I am sure, and I have no reason, as I have stated, to question the facts upon which they are based. Next, I should like to have printed, beginning on page 60 of the print I have, the matter under the heading "The present law is defective." I think it is important to put that in because that is one thing we must look after. Undoubtedly there are some defects in the present law which ought to be corrected. There being no objection, the matter referred to was ordered to be printed in the Record, as follows (p. 27, S. Doc. 210): IX. THE PRESENT LAW IS DEFECTIVE RESPONSIBILITY FOR THE KIND OF "CONTRACTS" MADE IS CHARGEABLE EITHER TO Responsibility for the contracts which have been made is primarily with the administration of the law, for the text contains no mandate that a single contract be made under it. discretional with the Postmaster General, the amount of compensation was As the making of each of the contracts was wholly under his control, for the contract need not have been made if the bidder would not accept the amount tendered. The fact that there was an advertisement inviting bids; that a bid was tendered; that it was an only bid and at the maximum rate imposed no obligation, legal or moral, to accept the bid nor to award a contract. These transactions, furthermore, were not demanded by the requirements of the Post Office Department. As between the text of the law and the officials who administered it, viz, the Post Office Department and the Shipping Board, the responsibility for the grave and costly errors which have been committed is that of the officials. However, as between the text of the law and the rights of the people and of the Federal Treasury, the law is responsible unless certain contracts are voidable, as in violation of the law, because of their terms and because of the circumstances under which they were awarded. The fact is, the law contains ambiguities and contradictions which may explain, though not justifying, some of the awards made. The following are illustrations: First. An elaborate classification of vessels is laid down in section 408 (a), under which the compensation is presumptively controlled by two factors, viz, the size and the speed of the vessels involved. This having been done, it is then promptly nullified by paragraph (b) of the same section, which provides the rates named can be paid vessels having the speed named, irrespective of size! As a result, a contract has been made (New York & Porto Rico Steamship Co.) for a service between Porto Rico and San Domingo (only 222 miles) in performing which a comparatively small motor boat can be used-yet the compensation is $4 per mile for a 13-knot boat, irrespective of size, whereas the classification as first stated would have required an 8,000-ton vessel! The quantity of the mail can be readily handled in the smaller motor boat, with a very small crew, and yet over $800 per trip for 52 trips annually has been promised for a service which can be rendered by a motor boat between sunrise and sunset! Second. It is required by section 405 that plans and specifications of new vessels shall be approved by the Secretary of the Navy, in accord with the much-published fact that subsidies are justified in proper cases, because the vessels will be of value in our national defense. And yet the requirement that the plans, etc., shall be approved by the Secretary of the Navy are nullified by clause (2) of the paragraph, which makes acceptable, without the Secretary's approval, every vessel "which will be otherwise useful to the United States." This qualifies for the ocean mail service every vessel complying with the specification, having commercial value, though having no value as a "naval auxiliary," for they would be "otherwise useful," as commercial vessels. Third. More serious in their possibilities than these are the provisions of paragraph (e) of section 409, authorizing the Postmaster General to "allow additional compensation in amounts to be determined by him" if airplanes are "used in conjunction with vessels." Thus far the maximum rates granted have been limited to the rates printed in the law, and these rates are the maximum if airplanes are not used "in conjunction with the vessel." But if airplanes are thus used it may be claimed that there is no limit whatever on the Postmaster General's discretion; that he is not limited to the extra expense of the airplane service only; and that he could allot $20 per nautical mile for a vessel otherwise limited to $10 per mile. Presumptively, the law has reference to a vessel physically equipped for planes to land on or depart from its decks, but the language used is not limited to that interpretation. An airplane dropping mail to the deck may be claimed as "used in conjunction with the vessel." If this interpretation should be applied (though we think it should not) would the contract be a legal obligation of the United States? * Fourth. The qualification of vessels to be used are given in section 405 of the law, the dominant requirement being that they shall be "American built and registered and the whole theory of a subsidy applies to Americanbuilt vessels only. Notwithstanding this fact item (3) of the first paragraph makes also acceptable vessels: 率 actually ordered and under construction for the accounts of citi zens of the United States, prior to February 1, 1928, and registered under the laws of the United States during the entire time of such employment." OCEAN MAIL CONTRACTS This clause was inserted in the bill chiefly at the instance of the Grace Steamship Co. because it was building two new vessels at the time, in a European shipyard, intended for its service between New York and the west coast of South America. It is an interesting fact that at the very time this company placed orders for new vessels in a foreign yard, it was enjoying a subvention from the United States, under section 24 of the merchant marine act, 1920, this fact is emphasized elsewhere (p. 23). Whether the exception should have been introduced solely to accommodate the foreign-built vessels of the Grace Line need not be further considered; we think it should not. Having qualified under the law, there was nothing in the law justifying the award of maximum rate for them. In fixing maximum rates Congress did so on the basis of construction costs in American yards; and yet the Grace Line not only has the benefit of the lower construction costs in foreign yards, but enjoys the maximum rate applicable, if otherwise justified, only to the higher construction cost of American yards. The 1928 act should not have qualified these vessels; having done so, however, the Postmaster General was under obligation to fix a lower maximum rate, to offset the fact they were built abroad. Another aspect of the law subject to criticism, if this law is to be applied as a subsidy, is the fact that it expressly modified section 24 of the 1920 act and omitted, intentionally omitted, that clause which clearly made that section a ship subsidy by indicating that "postal contracts" under that section were not to be regarded as mere contracts of transportation; we refer to the following provision, which was omitted from the 1928 law: "The board and the Postmaster General, in aid of the development of a merchant marine adequate to provide for the maintenance and expansion of the foreign shall determine the compensation to be paid the vessel. 99 commerce, Now the deliberate omission of this clause clearly implied that computations under the 1928 act were not to be primarily "in aid of the development of a merchant marine." The fact is, in planning and phrasing Title IV of this 1928 act, every sentence and word susceptible of criticism in debate that it was a subsidy, was carefully and intentionally avoided. Mr. FLETCHER. From page 52 of Senate Document 210 I desire to have inserted in the Record all of section 409 of the act and what follows under the heading "Compensation Under Contracts," showing that the law itself provides that the rates shall not exceed those mentioned, and in every contract, so far as I am advised, the rate has been fixed at the maximum. There being no objection, the matter referred to was ordered to be printed in the Record, as follows (p. 52, S. Doc. 210): COMPENSATION UNDER CONTRACTS SEC. 409. (a) The rate of compensation to be paid under this title for oceanmail service shall be fixed in the contract. Such rate shall not exceed: For vessels of class 7, $1.50 per nautical mile; for vessels of class 6, $2.50 per nautical mile; for vessels of class 5, $4 per nautical mile; for vessels of class 4, $6 per nautical mile; for vessels of class 3, $8 per nautical mile; for vessels of class 2, $10 per nautical mile; and for vessels of class 1, $12 per nautical mile. As used in this section the term "nautical mile" means 6,080 feet. (b) When the Postmaster General is of opinion that the interests of the Postal Service will be served thereby, he may, in the case of a vessel of class 1 capable of maintaining a speed in excess of 24 knots at sea in ordinary weather, contract for the payment of compensation in excess of the maximum compensation authorized in subsection (a), but the compensation per nautical mile authorized by this subsection shall not be greater than an amount which bears the same ratio to $12 as the speed which such vessel is capable of maintaining at sea in ordinary weather bears to 24 knots. (c) The Postmaster General is of opinion that to expedite and maintain satisfactory service under a contract made under this title, airplanes or airships are required to be used in conjunction with vessels, he may allow addi |