The American Merchant Marine


By JOHN W. HANES, Chairman, Executive Committee, United States Lines

Delivered before the Academy of Political Science, New York City, April 5, 1945

Vital Speeches of the Day, Vol. XI, pp. 504-507.

AS the end of the European phase of World War II approaches, it is only natural that the United States should begin to evaluate its place in a world at peace. Right now we are developing an ambitious program for postwar foreign trade; a very necessary adjunct is a Merchant Marine. There is first the task of rebuilding a war-torn Europe. As factories rise and millions of men are demobilized and returned to peacetime pursuits, we will resurrect a nonexistent international trade. A high percentage of postwar trade will be with America. This can be carried in American merchant ships. We are also counting upon the revival of foreign commerce—counting perhaps too heavily—to provide possibly ten per cent of the new jobs in our postwar program of full employment.

We cannot devise these blueprints for the future quite as simply as that. First, we cannot act unilaterally in the rebuilding of our Merchant Marine, nor in the disposal of that surplus of ship tonnage which will be ours when the war ends. I need not remind you that, as a result of the war and the existing maldistribution of ocean shipping, the United States is today in possession of a total tonnage in excess of all the ships owned by the Allied powers prior to the outbreak of World War II.

These twin problems of rebuilding foreign trade, on the one hand, and disposing of surplus ships on the other, do not stand by themselves. They in turn are small segments of still larger problems. For example, the dimensions of the shipping "surplus" will be determined by our national defense needs after the war. The "surplus" will also be conditioned, to some extent, by the overseas military obligations which America assumes in policing a vanquished Germany and Japan. It will also be determined by our part in helping to build a new world order.

America is not quite as dependent, as are many European nations, upon foreign trade. Yet, it is the uncertainty over what America proposes to do in this area of international shipping, that creates such great indecision abroad as to postwar planning. Take for example, the position of Great Britain. Prior to 1914, the British merchant fleet totaled more than 21 million tons, as against an American Merchant Marine of slightly over 5.3 million tons. When the present war ends, that situation will be reversed; British merchant tonnage will be reduced to between 10 and 12 million tons, while our war-built vessels will total between 35 and 40 million tons!

In planning for a great postwar trade, we expect the European nations—neutral and Allies alike—to more than double prewar purchases of American goods. That expectation is based upon their needs rather than their ability to pay for what they buy. We must not overlook the fact that a part of the exchange required to pay for their imports from us, can only come from a restoration of their former position as maritime powers.

The position of Norway graphically presents the problem. In normal prewar years, Norway's merchant fleet earned most of the foreign exchange which in turn paid for approximately one-third of Norway's total imports. Similarly, foreign shipping revenues accruing to Great Britain and the Netherlands, provided eight and ten per cent respectively of the foreign exchange requirements of these two nations. Therefore, a broad perspective from our standpoint is necessary in planning for the future.

We must recognize another important limitation in building America's future on the seas. If we assume leadership in planning for the postwar world, we ought to conform to the postwar international agreements which have been negotiated. We are parties to the declarations of the Atlantic Charter; to decisions as yet undisclosed reached at Teheran and Yalta; to the undertakings regarding the future of international fiscal policy and future world security reached at Bretton Woods and Dumbarton Oaks. We have ourselves initiated understandings with regard to postwar aviation at the Chicago Conference and with regard to petroleum as set forth in the British-American Petroleum Agreements now pending in the Senate.

What we do in the area of world shipping is also governed by the terms of the United Nations' pooling agreement now in effect and which will continue in force until six months after the war. Staggering in their complexity, are the problems of unscrambling ownership titles and reallocating literally thousands of vessels now operating under one universal command. In projecting its own plans for a postwar merchant marine, it goes without saying that America must, and will, observe the basic principle on which it has been so insistent—both for the war and postwar period. That principle is cooperation within the United Nations structure.

We have voluntarily foresworn the right to use, without reservation, our own tremendous economic power solely to serve our own interests. We are now committed to go forward on that same program of international cooperation to which the war has given such tremendous impetus.

Contrast, for example, the attitude of the Allies toward each other during the first and second World War. Back in 1914-18, Great Britain, France and the United States jealously watched one another. They conceded to General Foch and the Supreme Command only the minimum requirements established for each particular offensive. Today the Combined Staffs sitting at Washington and London mobilize and dispose of the military and economic resources of all the Allied Nations. Without this unprecedented kind of cooperation and collaboration, a quick victory would not have been possible.

Whether these patterns are to be discarded in the future, will be primarily America's responsibility to decide. We must choose between a new world economic order, which goes beyond a mere legal alliance between nations, or a return to bitter, competitive nationalism, which inevitably will lead to still another world war.

Indeed, the whole problem of world recovery, as has been demonstrated by experience in France and the other liberated nations of Europe, is tied in to the decisions which must be made soon with regard to international shipping. For these reasons I should like to second the suggestion made by Basil Harris, President of the United States Lines Company, some months ago—that a new international maritime conference be called to work out the many unsolved factors

in the problem. This should be a conference, not merely of the governments concerned, but of the operating agencies—private companies and others—directly related to world transportation.

The problem will drift from bad to worse unless our Allies—notably Great Britain, the Netherlands, Norway, France, and Greece—know where they stand vis-a-vis the United States. They can make no move until they know whether or not, in rebuilding their shattered economies, they have any call upon American shipping resources. That decision in itself may determine whether our dream of enduring world peace may prove to be possible of realization, or remain, like so many pious resolves of the past, wholly ephemeral and impractical.

Admiral Land and other governmental leaders have already outlined the factors essential to the establishment of a sound postwar maritime policy for the United States. That policy was really initiated with passage in 1936 of the Merchant Marine Act. The new Maritime Commission, in its first survey of the problem, made this candid admission:

"It must be admitted that despite millions of dollars lavished on the American Merchant Marine during the past fifteen years (including the payment of a quarter of a billion in mail contracts and other subsidies), the effect so far as the establishment of a sound merchant marine policy is concerned has been a failure."

I haven't time—nor is it material here—to review all the mistakes that were made between 1921 and 1936, a period which saw America's maritime tonnage engaged in foreign trade steadily decline from 11 million to 3 million tons. Due to these mistakes and the political handling of problems that are primarily economic in character, the American merchant flag virtually disappeared from the high seas. Between 1900 and 1914 only nine per cent of American overseas trade was carried in ships flying the American flag. The first World War brought a temporary boom and by 1922, the percentage of trade moving in American ships had risen to about 50 per cent. From that level it steadily declined until, in 1939, it was less than 15 per cent again!

The postwar shipping policy which Admiral Land has designed to regain that position lost through these decades of inertia is briefly summarized as follows:

1. A United States foreign trade merchant marine of from 10 to 13 1/2 million tons.

2. A laid up "reserve" of 5 million tons (largely of war-built Liberty ships).

3. Transportation of 50 per cent of our foreign trade in American vessels.

4. Engaging in trade through indirect lines and the development of tramp shipping.

5. Continued subsidies.

6. Elimination of Axis shipping.

This program, broad as it is, does not deal adequately with the situation. If the American Merchant Marine is to keep the seas without costing the taxpayer too great a sum in subsidy, several collateral steps are also necessary. Our operating costs are at least 50 per cent higher on the average than are those of our foreign competitors; this means we must greatly increase our efficiency both at sea and ashore. Here we are confronted with basic weaknesses which endanger our whole future position.

I have great sympathy with the lot of men who "go down to the sea in ships." Every one of them, as well as every operator, has a stake in eliminating working restrictions which impair America's ability to compete with other nations. Since, in the long run, the maritime employee's job is at stake, it seems to me it would be a wise policy for the leaders of the maritime unions to join in the elimination of the "make-work" practices, both ashore and at sea, which have so seriously handicapped the American operator. When peace returns and European ports rebuild and modernize their facilities, American operators will have a tough enough time with our foreign competitors.

The second basic weakness to be overcome, if we are to hold our own in competition with other nations, lies in the absence of any constructive program for continued shipbuilding after the war. As was demonstrated in the 1918-1936 period, no American Merchant Marine can build solidly toward the future on the basis of constantly aging, inefficient war-constructed vessels. Here again we must be on our toes, building special type ships for special type services, meeting our foreign competitors on their own ground. This means passenger vessels, combination cargo and passenger vessels, refrigerator ships, tankers, and so on.

Perhaps at this point something should be said regarding postwar competition between established steamship lines and trans-oceanic planes. Here too, we must be very sure that American policy is sound. Opinion is divided over the course America should pursue. Some believe in an old-fashioned competitive struggle between all comers. Other fear the consequences of such a policy, pointing to the highly complex technological factors involved in air transportation.

Many who have studied the problem believe that the best solution is provided by a single agency operating under close government supervision, in which other transportation agencies, i.e., domestic air lines, railroads, steamship lines—should be given the opportunity to acquire a financial interest. Both the railroads and the steamship companies would book for the air carrier, thus preserving their own experienced relationships with the traveling public.

Operating under close government scrutiny, and being at the same time broadly representative of all interests in the transportation field, the potentialities for rapid growth for a single overseas operating unit, are far greater than if the same volume of traffic were to be divided among a number of smaller, competing airlines, with none among them sufficiently strong to weather a long period of unprofitable operations. Nor could such a quasi-public enterprise be charged with occupying a monopolistic position, so long as its operations will be paralleled by foreign air carriers.

As a matter of fact, the British, who refused to accept some of the conclusions reached at the Chicago Aviation Conference, now have declared in favor of a single integrated system in which the government, the steamship companies, and the railroads will have an interest. This system wiB be subject to economic and policy control by the British Government. A recently issued White Paper explains the position of the British Government on this controversial point. Let me quote one sentence irom this important document:

"It is therefore a necessary part of the government's plan that the undertakings [operators] which will be granted the right to run air services both within the United Kingdom and between the United Kingdom and other countries shall possess such right on their allotted routes to the exclusion of other United Kingdom air transport operators."

What this really means, when one gets behind the diplomatic language, is that the British accept the principle set up in the McCarran bill now pending in Congress. All future development of air transportation within the British Empire is to be entrusted to the British Overseas Airways Corporation and its various affiliates. This corporation is not publicly owned—as the proposed American air flag line would be—but is owned 100 per cent by the British Government

No competition is to be permitted but the expansion of this new transportation agency must take place, so the British declare, "within an ordered plan."

With the British air-sea program thus cleanly integrated, sound Americans policy will seek to maintain proper competition in the public interest, but to avoid, causes of future friction or the development of any dangerous rivalry between Great Britain and ourselves. Such a course is plain common sense, fully recognized by the leaders of both countries, I hope.

The British stress the necessity of maintaining maritime communications as a part of any program of national defense and of strengthening the bonds of Empire. The London Economist, often a spokesman for official policy, declares flatly:

"It seems unlikely that the British government or the British public will be deterred from their purpose which rests not so much on economic considerations as on the essential elements of national safety."

Both the British and American programs, you will note, rest on the assumption that shipping is strategically vital to the national defense. Quite without respect to the economic factors involved, both nations embark on programs which envision that their merchant fleets are to carry one-half of the foreign trade of each country. This 50 per cent clause is a political phrase that always sounds well, and yet can be a bad mischief maker and source of friction between nations. Indeed, it can be as provocative to national pride as the naval limitation "quotas" proved to be between the United States, Great Britain and Japan.

Admiral Land sets as a goal for America's future maritime fleet, a total of 13 1/2 million gross tons. Here again, it seems to me that we are setting up, as a matter of national policy, phantom totals and theoretical divisions of a not yet existent volume of trade, which are both unrealistic and in themselves provocative of serious international misunderstanding. If such a tonnage is to be used profitably, it will require a great expansion of world commerce. It would mean that American foreign trade would have to be increased by more than 20, per cent over that of the record year 1929. It would certainly seem clear, as I have pointed out before, that we cannot raise American exports to any such high levels simply on the basis of a unilateral program of our own. If. foreign nations gain the idea that we are attempting to reach out and appropriate: to ourselves a. large part of the foreign, shipping revenue which is so vital to their own rehabilitation, then we shall be seriously endangering the program of future world relations, for which we so fervently hope the San Francisco Conference will provide a sound cornerstone.

In discussing the second basic factor of our problem—that of ship disposal—we must be no less candid in emphasizing that the American ship operator is entitled to a square deal from the government in Washington. He has not always had this in the past.

The relationships between American ship operators and officials entrusted with the administration of governmental policy, have not been, by and large, as satisfactory as they might have been, over the past two decades. The ship operator has been the victim of vacillating political policies; that he has survived at all under such conditions is a tribute to his resourcefulness and ingenuity and is nothing short of a miracle.

The decline of American shipping has been primarily due to the fact that the operator, on the one hand, has been little more than an agent of a federal authority which supervises every detail of operations while, on the other hand, he has been completely at the mercy of the maritime unions who exploited their political influence on the Pacific and Atlantic Coasts and sought, at the same time, to exercise some of the prerogatives of management. Unless the American Merchant Marine is to pass completely under full government operation, and thus be removed from the realm of private enterprise, the spirit of regulation over the maritime industry must be completely changed from what it was during the '20s, and '30s. Until the passage of the Maritime Act of 1936, there were few incentives to warrant the taking of such risks by capital.

Only from this background of incentive and risk can we take up the question of ship disposal after the war. The debate now taking place, both in public and private, centers around thueev major points:

1. The prices which the government should ask for different categories of ships;

2. The terms under which ships should be sold (particularly to foreign operators);

3. Restrictions on operations to be incorporated as a part of the sales contracts with regard to wage standards, conditions of employment, sizes of crews, etc.

It is particularly important, in disposing of our "surplus" ships, that we avoid the mistakes made after the last war by the Shipping Board. The over-grasping attitude on the part of the government, as well as errors in policy, were primarily responsible for the distressed state to which, in the }30s, the American shipping industry was desperately reduced. For example, some American operators were forced to buy vessels on the basis of approximately $220 a ton. A few years later as prices kept dropping, other operators could acquire the same type of vessels for as low as five dollars a ton! Such a situation encouraged many "shoe-string" operators—short on cash, but long on political influence—to enter a field not yet developed, and where profits seldom got beyond the visionary stage. Is it any wonder that the more responsible American shipping companies were unwilling to embark upon replacement or new building programs? Is it any wonder an almost complete stoppage of building took place?

Some of these same mistakes of the '30s, now seem likely to be repeated. Here I refer specifically to a bill for ship disposal recently introduced by Representative Bland (H, R. 1425). This measure seeks to lay down, before the war is ended, a fixed formula on which tie government is to dispose of merchant tonnage when hostilities are over. Again, prices for the different categories of ships are to be specifically fixed, with sales to foreign interest authorized to replace merchant vessels that have been sunk during the war. For the would-be American purchasers, on the other hand, certain restrictions governing operations will be established, while at the same time no recognition seems to be given to the economic or competitive circumstances which will determine success or failure.

This type of approach, I submit is basically wrong. A ship has no economic value, on a dollar-per-ton, or indeed on any other basis, except in relation to the trade route on which it is to function. It is nothing but a piece of machinery to haul cargo. Without the cargo it is valueless, The first consideration, therefore, must be the trade route on which the ship is to function; the second, the experience and skill of the operator who is using the ship as a tool in building American foreign trade. Any other consideration is completely without validity.

Unless we know what we are doing and how to do it, we are likely to fail, as we have failed before. An excess of competition between American ship operators who have

bought vessels simply on a "bargain" basis, and seek a "quick" profit from the exploitation of some particular stepping route, not only will intensify economic chaos but, again, will seriously impair the program of world rehabilitation which is now so vital.

From this all too brief summary of the problem confronting us with regard to postwar shipping, one important conclusion would seem to emerge. If America intends to remain a maritime nation, we need a completely new orientation in attitude to meet the responsibilities that necessarily go with this new position. We have "been given a great opportunity. What we do with that opportunity depends, in large measure, upon how realistically we approach and deal with the present situation.

The elimination of Germany and Japan as world powers creates vacuums in both the Atlantic and the Pacific. Just as the last century had its primary emphasis in the Atlantic, so the century now beginning may well belong to the Western ocean. The Orient is awakening from a long sleep and senses its new power; it looks to America for leadership and help in developing its limitless resources.

Once before, at the beginning of the present century, America was confronted with a similar choice. We turned our backs upon the building of an American empire overseas. We refused to follow up the conquest of Spanish possessions with alluring programs of imperialistic expansion.

The fruit of that policy is to be seen today in the re-dedication of freedom now taking place in the Philippines—in the efforts of China to modernize herself through the use of American patterns—in the stirrings of latent ambitions everywhere visible throughout the Far East. Both in the future, as well as now, America must continue to be .the "arsenal of democracy"—which once more, seems destined to become the hope of mankind.

To the liberated peoples of Europe, as to the slowly awakening peoples of Asia, the bridge to that new future is truly a bridge of ships—the American Merchant Marine.