Outlines Further Reasons for Supporting

•W33

H

EDWARD N* HURLEY

in a leti^jfce '"

PRESIDENT COOLIDGE

Outlines Further Reasons for Supporting

The President's Plan

For a Privately-owned Merchant Marine

^0\;*/- /v

ILLINOIS M A N U F A C T U R E R S ' A S S O C I A T I O N

231 South La Salle Street

Chicago, Illinois

MR.

HURLEY'S

LETTER

January

Twentyeight

1928

T o the Honorable Calvin Coolidge,

The White House,

Washington, D . C .

Dear M r . President:—

Your shipping policy as outlined in your Message to Congress, of December 6, 1927, and in

your recent statements to the press, is so sound

and constructive in the public interest that I a m

venturing, as an interested business m a n , to proffer some further suggestions that I hope m a y

prove helpful.

O u r government for eight years has been

operating a large fleet of ships, at a big financial

loss. This failure, while in part due to serious

post-war problems, nevertheless is a demonstration of the government's inability to operate

ships successfully, and emphasizes that your pol'

icy of private ownership and management should

be vigorously supported.

In m y letter of N o v e m b e r 8th last, to the

Shipping Board, I referred to the importance of

Congress' granting reasonable concessions to offset the higher cost of building ships in American

yards in comparison with the cost of foreign

yards. Such concessions would place the United

States on a parity with other nations in the matter of fixed charges against capital invested in

ships engaged in overseas commerce.

Intercoastal Freight Revenue Insufficient

I understand that the freight revenue received

at present from intercoastal business is not sufficient to provide a fair net'average annual return

on the capital invested in these ships. O n e of

the reasons is that the methods n o w employed

for classifying commodities are unscientific. A n other reason is that the Conference agreements

n o w in force to regulate rates in coastwise trade

TO

PRESIDENT

C O O L I D G E

and approved by the Shipping Board under the

Act of 1920, are being constantly interfered

with by non'conference ships which are cutting

the agreed rates. Participation in a Conference

is purely voluntary. If a member of the C o n '

ference wishes to cut rates, he m a y do so, but if he

does he thereby withdraws from the Conference

and becomes a non'conference operator.

This is a discouraging situation, and some cooperative steps should be taken to remedy it.

W e have a great fleet of about 150 ships—prob'

ably a surplus of twentyfive more than is neces'

sary to move the cargo offered—all owned and

managed by Americans engaged in interstate

traffic, representing millions of dollars, and with

only a conference or gentleman's agreement to

maintain rates which are being subjected to con'

stant attack by non'conference ships.

Only ships under the American flag are en'

gaged in this service, so competition from for'

eign vessels cannot be cited as a reason w h y they

are not operating on a profitable basis.

Remedy Lies in Private Ownership

There is only one w a y in which a merchant

jnarine can be maintained. That is by its receiving sufficient revenue over and above the

cost of operation, to pay a fair return on the

capital invested and to provide the necessary depreciation for replacements.

If private capital is invested in American ships,

there is no question but that they will be more

efficiently managed than if government'owned.

T h e unsatisfactory conditions that n o w exist regarding the class of cargo carried by our ships

and the low freight revenue received for the

service must be changed before w e can maintain

a competitive position on the seven seas. G o v

ernment'owned ships n o w in service are not im'

proving the situation. Private ownership can and

must solve it through closer co-operation and

the adoption of better business methods.

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MR.

HURLEY'S

LETTER

Let the I. C . C . Establish Rates

Ship owners m a y well study the railroad sit'

uation of today and contrast it with the chaotic

era before the Interstate Commerce Commission

was vested with the power to fix and regulate

freight rates. If the commission had authority

to regulate intercoastal rates, it could easily as'

sist in wiping out m a n y present evils and help

to place.this branch of shipping on a profitable

basis. For instance, if the Commission had the

rate-making power and found it necessary to

raise the present rates only forty cents a ton, or

two cents on every 100 pounds, on the 5,884,272

tons of freight (eastbound and westbound) that

went through the Panama Canal in 1926, that

raise would yield an increase (over the present

net annual revenue) amounting to t w o million

three hundred and fifty-three thousand seven

hundred and eight dollars and eighty cents

($2,353,708.80). That sum would pay five per

cent interest on forty-seven million seventy-four

thousand dollars ($47,074,000.00) invested in

ships.

If it were found by the Interstate Commerce

Commission that the rates on some commodities

were too high and on others too low, a re-adjustment could be made along the present line of

making railroad rates, so that the rates would be

equitable and just to all concerned.

T h e ships in intercoastal trade are interstate

carriers, and they should be regarded as being

in the same rate category with the railroads.

Since the problems to be worked out by the

shipping lines are very similar to railroad problems they are susceptible of solution in m u c h

die same manner as are the m a n y intricate ques'

tions incident to railroading.

T h e Interstate Commerce Commission n o w

controls rates in coastwise shipping on the A t lantic and Pacific, where railroads connect with

and o w n coastwise ship lines. T h e service they

render is satisfactory to both shipper and carrier.

Their experience with the making of rates for

TO

PRESIDENT

COOLIDGE

coastwise business would be helpful if legislation

were to extend their authority so as to permit

them to co-operate in the official regulation of

* intercoastal rates.

Survey is Needed

If five m e n schooled in rate structure were

selected by you, M r . President, to make a survey of intercoastal rates and to submit their recommendations, their report would be most helpful in determining the advisability of the government's participating in controlling intercoastal

rates. O n e rate expert might be chosen from

the Interstate Commerce Commission, one might

be selected from railroad Classification C o m mittees, two from the shipping interests engaged

in this service, and one from the Shipping Board.

W h e n w e can show favorable balance sheets,

American shipping securities will be purchased

by bankers and sold to the investing public; and

the industry as a whole will be placed on a

sound basis.

Foreign ship owners are borrowing millions

of dollars of American capital with which to

build and operate ships in competition with ours.

Recently the North German Lloyd Steamship

Company sold in N e w York twenty million dollars ($20,000,000) worth of twenty-year sixpercent, sinking-fund gold bonds; and a very

creditable statement regarding earnings was published in the newspapers, which showed the remarkable progress that company has made since

the war. T h e statement mentioned that on the

basis of present assessments it is estimated that

the individual Dawes Plan Debentures which

would have to be issued by the company to meet

German reparations would not exceed three millionfivehundred thousand dollars ($3,500,000),

in respect of which the m a x i m u m annual charge

covering their 123 overseas passenger and freight

ships would be two hundred and ten thousand

dollars ($210,000). With this additional government burden and the regular fixed charges,

five

MR. HURLEY'S LETTER

the directors stated that they expected earnings

to continue to grow steadily. This C o m p a n y is

privately owned and operated.

Better Business Methods Needed

Shipping met the post'war problems and u n '

derwent a reorganisation similar to that which

American business generally experienced before

and following the war. M a n y American m a n u '

facturers operated unprofitably up to 1914,

chiefly because competitors w h o did not k n o w

the costs of their products sold their wares at a

loss, thus not only demoralizing the particular

industry of which they were a part, but injuring

business generally. B y organizing trade associa'

tions and standardizing methods of cost account'

ing, depreciation, et cetera, they n o w k n o w their

costs and are selling their goods at a price fair

to the consumer and yielding a fair profit to the

manufacturer. W e also n o w have many efficient

American-owned and privately operatedfleetsin

overseas and intercoastal trade, and real Ameriican leaders in the shipping world w h o are demonstrating their ability to operate successfully

a merchant marine.

After fifty years of indifference, w e are n o w

trying to regain our former maritime position,

with war-built ships (some of which are obsolete), n e w crews, n e w organizations and n e w

managers. After this long period of inactivity

and the unusual post-war conditions, the various

problems cannot be settled over-night.'

All shipping m e n should seriously endeavor to

do their full share in developing more efficient

organizations, both on land and sea. There is

always room for improving the management, in

shipping as well as in manufacturing; and every

effort, individually and through shipping associations, should be made so that it will be obvious to Congress that any assistance received

from the government in reducing the capital cost

of ships will not cause vessel owners to relax

SIX

TO

PRESIDENT

COOLIDGE

their efforts to reduce operating costs and other'

wise place American snipping in the category

of efficiently managed industrial enterprises.

It is a remarkable fact that today less progress

is manifest in improving the efficiency of ship

operation throughout the world than in any

other branch of industry. While there are

hundreds of efficiency expert organizations in

nearly every line of manufacturing, there is not

one exclusively or even specially devoted to the

study of cost'reduction in ship operation.

It m a y be true that the cost of operating

government'Owned ships, n o w under the control

of the Shipping Board, far exceeds the cost of

operating privatelyowned ships. Be that as it

may, the Shipping Board will doubtless lay be'

fore Congress the actual facts, and Congress will

act in the light of those facts.

H o w Can Overseas Transportation Be Sold

A t a Profit?

Regulating of overseas freight rates in world

commerce, because of the m a n y international

problems involved, always will be more or less

complicated.

T h e success or failure of a ship or ships in

any trade depends upon the revenue received

and upon efficient private management.

T h e small item of seamen's wages, which is

discussed so seriously by the public and by some

shipping men, is not a menace to American shipping. W a g e s amount to only about ten percent

of the total cost of operating a ship. If shipping

men will maintain their conference rates; or, if

they are not in a conference, if they will add a

few cents a ton, a single voyage would absorb

a year's differential in labor cost on a ship flying

the American flag.

N o other form of business enterprise in the

world of commerce is so delicately susceptible to

influence by the laws of supply and demand as

seven

MR.

H U R L E Y ' S

L E T T E R

is overseas shipping. A slight variation in the

amount of the total world tonnage in service m a y

readily cause fluctuations of from ten to twenty

five percent in commodity rates in certain trade

movements.

Vicious Competitive Practices

Ocean carriers as well as railroads are unable

to operate successfully in unrestrained competition with each other. T h e disastrous results

caused by greatly over-tonnaged trade routes in

the later years of the past century forced steamship owners to form the so-called conferences

and pooling agreements in every important

"world trade route." Before the time of the

Conference agreements, steamship companies paid

secret rebates and granted other special privileges to powerful shippers, to the detriment of

the smaller shippers. "Fighting ships" were held

in readiness to discourage would-be competitors

w h o berthed tramp ships at non-conference rates.

These and other vicious practices resulted in the

initiation of legislation at Washington which was

designed to outlaw all conference and rate agreements; but the world w a r intervened to halt its

enactment. T h e British Government, through

its Board of Trade, had conducted a thorough

and scientific inquiry into conference affairs, and

gave such practices a clean bill of health, recognizing the economic necessity for some such control of competitive conditions.

N o t until American war-built fleets were

forced to contend for business against the superfluity of tonnage available throughout the world,

with bottoms to carry twice the amount of cargo

actually available, was Congress convinced of the

necessity of legalising the general principle behind the formation of conference and rate agreements which were designed to obviate ruinous

competition. But no such direct control of ratemaking in overseas trade as that maintained over

rail traffic is either expedient or practicable.

eight

TO

PRESIDENT

COOLIDGE

Incongruities That M e a n Losses

Today the merchant fleets of the world are

confronted with a situation which in any other

business would be considered absurd in the ex'

treme. For instance, a steamer finds itself idle

in N e w York Harbor, with a cargo of grain

available at Buenos Aires for transport to London. She must either sail 7,000 miles in ballast

or take on a cargo of coal at a rate which actually shows a loss of fifty percent of the rate.

C o m m o n sense indicates that no matter what is

to be the ship's business after the vessel reaches

Buenos Aires, the owner should receive at least

for his coal cargo a rate sufficient to show a

slight margin of profit. A grain carrier from

Oregon to London must cut his rate one-half

cent per bushel to enable the seller to compete

with the shipper of wheat from Australia. In

order to enable American chemical manufacturers

to compete with the German producer w h o

routes his chemicals all water from Hamburg to

San Francisco, the Intercoastal Conference Lines

must cut their rate on soda ash, from the A t lantic to the Pacific Seaboard, to a non-profitable

basis.

O n e of the greatest disadvantages under which

American freight tonnage operates in international trade is our lack of knowledge of the facts

essential to successful trading as related to bulk

cargo movements all over the world. A t least

ninety percent of the full cargo chartering of the

world is directly controlled in London—not because the tonnage is all controlled there, but because the traders in London keep their sensitive

finger-tips on the pulse of world markets in a

manner entirely foreign to anything known in

America. N o purely domestic plan, designed

only to stimulate American shipping, but which

would conflict with this intelligent and economi'

cal regime in the marketing or raw products and

bulk commodities at low rates, would be effec'

tive or helpful to us. It would do us vastly

nine

MR.

HURLEY'S

LETTER

more harm than good. It would disturb our

operations in world industry and commerce.

Railroads Can Help

Ocean transportation originates at so m a n y

points of the world that absolute control of overseas rates is impossible. Rates o n American

shipments from railroad points might be fixed

at the source. T h e railroads are in a position

to direct or route a substantial part of the traffic

originating o n their o w n lines to foreign ports

by the issuance of through bills of lading, thereby controlling shipments to the ultimate destinations. W h e n e v e r this control is relinquished at

the seaboards, however, the ocean power of ratemaking frequently runs rampant in ruinous competition.

Through their Classification Committees, the

railroads could, if asked, also be quite helpful

toward the standardisation and stabilization of

rates on overseas transportation by applying their

knowledge of the classification of goods into

limited groups or classes.

Thousands of different commodities are carried by railroads and ships. These articles differ

greatly in value, density, quality and nature.

These variations affect the ability of the articles

to bear the freight rates and tend to account for

variations in the cost of handling the articles.

These and other factors must be reflected in

freight rates. It is obviously impracticable to

publish commodity rates o n every article, between all the thousands of shipping and receiving points, or to make uniform rates on all articles. T h e railroads, through their Classification Committees, group all commodities into a

limited number of classes and make rates by

classes instead of by particular commodities. Exceptional cases are handled by removing the application of the class rates on certain commodities

between particular points where lower rates are

needed to m o v e the traffic, through the use of

ten

TO

PRESIDENT

COOLIDGE

exceptions to classifications, and by general and

specific commodity tariffs.

In our transoceanic trade in 1926 there were

293 Shipping Board vessels and 170 vessels privately owned. These 463 American-flag ships

carried 13,396,235 tons of cargo at the extremely

low average rate of six dollars and fortythree

cents ($6.43) per ton. This freight consisted

to a large extent of bulk goods or a low-paying

class of commodities, instead of higher class merchandise that commands fast service with higher

rates. That was because of our lack of more

modern, competitive types of ships. Infrequent

sailings likewise were in a measure responsible

for our being forced to carry only the lowpriced

cargoes.

Cargo Liners vs. T r a m p Ships

Unfortunately our cargo liners on established

routes are receiving only the same average rate

per ton as are the tramp vessels engaged in handling bulk cargoes. That rate is too low. O u r

cargo liners should carry a larger proportion of

higher class goods, at higher rates, and the tramp

vessels should carry the bulk cargoes.

In the trans'Atlantic trade there are one million (1,000,000) tons transported annually, at

rates varying from twenty-five to eighty dollars

($25.00 to $80.00) per ton. This represents of

course the highest class cargo on the high seas.

Most of this tonnage goes to foreign vessels.

If say twenty cents a ton or one cent on each

one hundred pounds (100) wer^ added to the

six dollars and fortythree cents ($6.43) per ton,

the amount of tonnage carried in American ships

in 1926 (13,396,235 tons) would yield additional

revenue of two million six hundred and seventynine thousand two hundred and forty-seven dollars ($2,679,247.00). That increase would be

equal to five percent yearly interest on fiftythree

million five hundred and eighty-four thousand

nine hundred and forty dollars ($53,584,940.00).

eleven

MR.

HURLEY'S

LETTER

T h e necessity of scientific classification of commodities, so far as practicable, and of equalising

and stabilizing rates for overseas shipments must

be admitted w h e n one realizes that an average

increase of only a few cents per hundred pounds

would make the difference between failure and

success for ship owners. That important work

would require a careful joint survey and joint

action by the several Conference groups n o w

dealing with world shipping rates.

But it will be difficult to get for our ships a

higher'paying class of freight until w e can give

better and faster service and our merchant m a rine policy is settled and all our vessels are privately owned and operated.

Shall Ships B e Scrapped?

T h e distinguished shipping authority, M r . Emil

Lofgren of Stockholm, recently gave to the London press an interesting statement which was

presented by him to the members of the International and Baltic Maritime Conference. H e

recommended the scrapping of 2,000 ships n o w

Hying the various European flags. M r . Lofgren

recalls that the present surplus of tonnage has

arisen through various circumstances caused by

the world war. It is only right, he contends,

that extra-ordinary measures should be taken to

bring the amount of tonnage in service back to

normal proportions with relation to the demand

for ship transportation. T h e present amount of

cargo available for transport in Europe is eight

and one-half percent less than that available in

1913, he estimates. It is his suggestion that all

European owners should come to a mutual agreement to scrap perhaps ten percent of each country's tonnage, in order to remove the old, uneconomical steamers which n o w are spoiling the

freight market. H e points out that such a reduction would in the course of a year make available over one hundred million (100,000,000)

tons of additional cargo for the ships remaining

in service.

TO

PRESIDENT

COOLIDGE

It is very evident from M r . Lofgren's statement that the leaders in international shipping

abroad recognize the vital necessity of closer cooperation between the different Conference

groups as it pertains to tonnage and rates.

If American shipping were in the hands of

American citizens, and privately-owned, representatives of all our overseas tonnage could meet

in conference with foreign ship-operators, to devise ways and means by which rates could be

equalized and stabilized on a basis equitable to

shipper and carrier. This would be most helpful in making possible the successful operation

of American ships. Neither the managers of

government-owned ships nor the Shipping Board

can consistently take part in such a conference

with private shipping interests without the danger of eventually involving our government in

the controversial questions which inevitably

would arise in the keen rivalry of an international

business.

Disturbing Aspects of Government Ownership

There is some sentiment in Congress in favor

of government ownership and operation of our

shipping. T h e principals in international shipping conferences and associations discuss and act

on m a n y important problems, such as rates for

passenger and freight service to different countries, and other questions that have international

aspects. H o w could our government shipping

representatives take part in such conferences in

other than a consulting capacity? T h e y might

agree temporarily on a given policy on rates,

service, et cetera—but always with the risk of

having their agreements rejected by our government.

O u r government enforces the law against unfair competition in industry, believing that the

public interest is better served w h e n competitors

are fair to each other. N o matter h o w fair our

government might try to be in international

thirteen

MR.

H U R L E Y ' S

L E T T E R

shipping, there always would be a latent sentiment that a government with great financial resources should not competitively enter the field

against private capital and private ownership.

I believe that if our ambassadors, consuls and

commercial attaches were to express their pri'

vate opinions, they would strongly urge that

solely in the interest of our foreign trade the

government should retire from the shipping busi'

ness and allow our merchant marine to be pri'

vately owned and operated.

Rate-Cutting W o u l d Demoralize Shipping

Should the government decide to continue in

the shipping business, and expand and control a

largefleetof overseas ships, with the ever'present

uncertainty of the rate-structure, it might have

to cut rates (publicly or privately) to meet the

competition of foreign ships. That would seriously affect the government's shipping income

and would likely demoralize world shipping.

O u r laws prohibit railroads and coastwise ships

from cutting rates to obtain business without permission from the Interstate C o m m e r c e C o m m i s sion. W e r e the government to establish "fighting rates" on overseas business, while at the same

time prohibiting under severe penalties similar

action at h o m e , its position, to say the least,

would be rather inconsistent.

T h e w a r forced us to build all kinds of ships,

for w a r purposes, at w a r prices. Since the w a r

w e have sold a number of vessels, and w e still

have a number tied up, not in operation.

It is n o w agreed that to meet foreign competitive service and to balance our fleet, w e must

have faster freight and passenger ships. S o m e

of our people contend that the government

should not only continue in the shipping business, but should also build n e w , modern vessels

and operate permanently a large fleet in competifourteen

TO

PRESIDENT

COOLIDGE

ion with American and foreign privatelyowned

ihips.

W e have today forceful leaders in shipping,

{railroading and business w h o , if encouraged by

•slight concessions from Congress in the w a y of

Mending money at a low rate of interest, could

Ibuild modern vessels, in harmony with your

views, and establish on a sound and profitable

basis a private American merchant marine, able

to compete successfully in the carrying trade of

the world.

Very respectfully yours,

t

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