# Outlines Further Reasons for Supporting > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Aftc%3A207822152b4c254f ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text •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. three 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 fifteen --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Aftc%3A207822152b4c254f. Public record. Not legal advice.