(7) It has failed to recover 25 percent down payment on all ships sold, although required by law to do so; (8) It has repurchased ships for sale to the Navy, paying the owners for the full amount they had invested without deducting for use of the ships or depreciation, as required by law; (9) It has been a party to transactions whereby it has sold ships, both completed and under construction, to private corporations, which have thereupon, in accordance with understandings had with the Commission before it transferred title, resold the same ships to the Navy at higher prices which were not justified by increases in value (the case of the Tampa Shipbuilding Corporation is an example of this); (10) It has permitted willful extravagance, incompetent management, and looting to prevail at shipyards holding contracts with the Commission for the construction of vessels on a cost-plus-fixed-fee basis. As a result of the Maritime Commission's extravagant and incompetent handling of the merchant marine, American taxpayers have been virtually robbed of untold millions. In the light of all these circumstances, I must protest against the enactment at this time of special legislation to provide a promotion for the head of the Maritime Commission. I respectfully request your committee to withhold its approval of this legislation unless and until a satisfactory explanation is forthcoming with respect to the apparent irregularities herein mentioned, which, to my mind, raise grave doubts as to the efficiency and reliability of the Commission and its Chairman. We Finally I make this observation. American men are scattered on the far-flung battle fronts of six continents. The final outcome of the war may well depend upon America's ability to keep them supplied with the materials of war. must rely upon the American merchant marine to maintain the life lines between them and their country. Only a merchant marine managed by an upright, fearless, competent, and strong Maritime Commission can perform the functions devolving upon it in this critical hour. The Congress should promptly inaugurate an impartial investigation to determine what changes in personnel and policy are necessary and take such steps as will insure those changes being carried out. Wastefulness, special privilege, and incompetence must go. Very truly yours, REPLY OF ADMIRAL LAND TO SENATOR AIKEN Admiral LAND. I ask permission to insert a statement in reply. Mr. DIRKSEN. I think you should put in your reply. Admiral LAND. Yes; we will follow that with the reply. (The statement is as follows:) Hon. GEORGE L. RADCLIFFE, UNITED STATES MARITIME COMMISSION, Chairman, Subcommittee on the Merchant Marine of the Committee on Commerce, United States Senate. DEAR SENATOR RADCLIFFE: You have requested the comment of the Commission on the letter of October 28, 1942, addressed to the chairman of the Committee on Naval Affairs, by the Honorable George D. Aiken, Senator from Vermont (printed in the Congressional Record of October 29, 1942, p. 8961), which has been referred to your subcommittee of the Committee on Commerce. Inasmuch as Senator Aiken has alleged failure of accomplishment by the Commission, it is deemed appropriate to cite the record. When the Maritime Commission came into existence in 1937, the American merchant marine was composed, with few exceptions, of slow and obsolete vessels built during the last war, and the financial condition of our shipping industry as a whole was precarious. Only two oceangoing dry-cargo freighters were built in the United States between 1922 and 1937. rehabilitation and new ship construction was planned by the Commission under A long-range program of financial the terms of the Merchant Marine Act of 1936, which inaugurated a complete reformation of governmental policy toward the merchant marine. In the latter part of 1937 the Commission's long-range building program was commenced, calling for the construction of 50 ships per year (approximately half a million tons) for a 10-year period. The program entailed new designs for groups of standard-type vessels, including engines and auxiliaries. The most modern technical developments and engineering improvements, and all known materials and devices for fireproofing and safety, were incorporated in these designs. Perfecting the plans, creating a large and competent technical organization, and laying the ground work for the management and production phase of such a program in themselves comprised a huge task. The gratifying performance of the Commission's standard C-type vessels in actual service has proved the worth of their designing, while the expansion of the building program under the pressure of national emergency and war has demonstrated the value of the Commission's advance planning. In 1938 and 1939, 52 ships were delivered. In 1939 the Commission anticipated the war in Europe and, with the approval of the President, increased its building schedule for the next year from 50 to 100 of the C-type vessels, although some critics questioned the need for such increase. Today 2,800 oceangoing merchant ships, aggregating 30,000,000 deadweight tons, have been built, are under construction, or under contract. Of this number, 2,300 ships, of 24,000,000 tons, are for construction in 1942 and 1943. Thirty million tons of shipping represent nearly half of the total merchant tonnage of the world (of 2,000 tons and over) before losses began as a result of the war, and double the amount of the Axis Powers (Germany, Italy, and Japan) in September 1939. As of November 1, 1942, 6,000,000 tons of ships (three-fourths of the 8,000,000 tons scheduled for 1942) have been delivered, and the balance of the year's schedule is assured by the current rate of production. In addition, 800 small craft have been built in 1942. The schedule for 1943 calls for the production of 16,000,000 tons-three times the 5,500,000 tons delivered in the 12 months' peak of the 1918-19 effort. Plant facilities are available to build even more than 16,000,000 tons of shipping in 12 months In Such expension of the shipbuilding program necessitated the creation of many new shipyard facilities as strategic locations along all coast lines. 1937, there were only 10 yards with 46 shipways (excluding navy yards) capable of building 400-foot cargo ships. There are today more than 60 yards with more than 300 shipways in full operation on merchant vessels, representing much greater merchant shipbuilding capacity than all other nations of the world combined. Upon the inauguration of the accelerated building program, the Commission adopted the Liberty ship as a type of more simplified design. The large volume production program was planned by the Commission as a mass production assembly project. The Commission established a central procurement organization under its control, and contracted with the shipyards to fabricate and assemble the ships. The procurement of steel, engines, gear, and auxiliary equipment is the responsibility of the Commission. Such centralized purchasing has made for the orderly flow of materials, filling the needed deliveries at the right places at the right times. The establishment of new shipbuilding facilities in the minimum of time and under the pressure of war demands (competing for priority with the manufacture of naval craft and munitions of war), together with the assembling and development of competent management and trained workers, has been no simple task. In the direction of this program, the Commission has had the support of the nucleus of shipyard management available at the start, of leaders in allied industries, and of the interested labor organizations. As of September 1, 1942, 464,000 men were employed in the shipyards. A very large proportion of these men was trained in the yards and in facilities designed and built by and for the Commission. When it is considered that 560,000 additional men are employed in yards engaged in naval construction, it is possible to discern the initial problems (which have to a great extent been overcome) of the dilution of management and executive abilities and skilled shipyard craftsmen. In addition to the shipyards in 24 States on the Atlantic, Pacific, and Gulf coasts, and the Great Lakes, nearly 1,000 small manufacturing plants in 32 States, employing more than a million men, are engaged in the production of materials, parts, and supplies for merchant ships. This distribution of con struction geographically and to small industrial concerns throughout the country was undertaken by the Maritime Commission before general acceptance of the wisdom and feasibility of such methods. As an indication of progress, the average construction time from keellaying to delivery into service has been reduced since last March from 225 days to 65 days, a reduction of more than 70 percent. A ship-construction schedule which many informed sources said a year ago was fantastic is now being accomplished. The greatest ship-building program ever undertaken in any country at any time is being carried out. Senator Aiken suggests that the final outcome of the war may well depend upon the ability of the American merchant marine to maintain the supply lines of our fighting forces. Our ships have already played an important part in sending American men and materials to the battlefronts of six continents. The production and operation of a large fleet of modern craft, the transfer (by sale or charter) of more than 300 merchant vessels to the Army and Navy, the use and direction of almost the whole of the American merchant fleet, and the rapid speed-up in production of new ships from keel laying to delivery (now measured in days instead of months), have had a large part in the effort of the United States to keep the war distant from American shores. The following comment is offered with respect to the 10 conclusions listed by Senator Aiken. 1. The Commission has not paid exorbitant or outrageous prices for old ships. The prices determined by the Commission are based upon multiple factors existing at the time of sale. Among them are the condition of the vessel, the cost thereof (original cost minus depreciation, and reproduction cost considering depreciation), the earning power of the vessel in the hands of the owner, and sales of comparable vessels. For example, the original cost minus depreciation will, as a general rule, furnish a satisfactory guide in determining the value of a comparatively new vessel, while such a formula is not so useful in determining the value of an older vessel. In making its determinations, the Commission has been guided largely by what it would have to pay by way of just compensation if the vessels had been requisitioned for title. This question is a complicated one, especially in the case of older vessels. The Supreme Court of the United States long ago pointed out (Boom v. Patterson, 98 U. S. 408) that "So many and various are the circumstances to be taken into account in determining the value of property condemned for public purposes that it is perhaps impossible to formulate a rule to govern its appraisement in all cases. Exceptional circumstances will modify the most carefully guarded rule." The prices paid for ships by the Commission have been determined by it to be fair and reasonable, and reflect widely accepted interpretations of legal principles covering just compensation for private property taken for public use under the guaranty of the fifth amendment to the Constitution of the United States. In the fall of 1941 the Commission paid $75 per deadweight ton for five vessels that had been built in 1919 and 1920. Comparison is invited with the following sales between private parties of cargo vessels made between May and October 1941 wherein the Commission was not a party. In the light of all of the circumstances, the Commission is of the opinion that criticism of the prices paid for the vessels bought by it is unwarranted. On the whole, comparatively few vessels of any kind have been purchased by the Commission from American owners, considering the extent to which the war effort has required the use of the American merchant marine. Voluntary charter arrangements (and latterly requisitioning for use) have been used by the Commission and the War Shipping Administration as the most advantageous method of obtaining the services of the American merchant fleet in the war effort. The Commission bought five vessels from the Waterman Steamship Corporation late in 1941 because tonnage was most urgently required for use in the Russianaid program. It bought ships because all private owners were naturally reluctant to charter their vessels for use in the extremely hazardous and unusual trade routes to Iceland, Murmansk, and Archangel. The basic misconception on the part of the Comptroller General of the Commission's transactions with Waterman Steamship Corporation evidently arises from a misunderstanding of the nature of the contract made with Waterman at the time the Commission sold five vessels to the corporation in June 1940. The importance of the relation of general requisition for title to the repurchase by the Commission of the vessels so sold appears to have been overlooked by the Comptroller General in his special report on the Waterman transactions. (See H. Doc. No. 840, 77th Cong., 2d sess.) If it be deemed that the Government should have requisitioned the title of all privately owned vessels of the merchant marine, the decision of the Commission to purchase vessels other than those previously sold would present a different question. At the time the ships were bought from Waterman, however, the Commission was endeavoring, as far as possible, to obtain the ships required for the defense effort under charters based upon voluntary arrangements with the owners. The five vessels so sold have since been requisitioned for use. One of them has been lost. For this loss, and for the loss of any other that may occur, the value will be based upon the price at which the Commission sold to Waterman, plus repairs and improvements made at Waterman's expense, less depreciation. 2. The Commission has not paid unwarranted subsidies for construction based on foreign costs after foreign competition has ceased. The determinations upon which construction-differential subsidies are based were "frozen" as of September 3, 1939, by Public Resolution No. 82, Seventy sixth Congress, the terms of which were extended by section 1 of Public Law 46, Seventy-seventh Congress, and Public Law 610, Seventy-seventh Congress (approved June 16, 1942). Hearings were held on each of these items of legislation, and full information and complete details concerning construction-differential subsidies were laid before the Congress through its committees. Moreover, subsidies paid for construction under such authority have been reported annually to Congress, and have been fully discussed with the various committees having charge of general legislation. Also, full data thereon have been currently submitted to the Committees on Appropriations. 3. Effective July 1, 1941, the Commission brought about the voluntary reduction of approximately 75 percent of all operating-differential subsidies. All items of subsidy differential except wages were eliminated, and the wage differential was reduced by one-half. While the action thus taken was based in part upon a lessening of competition in many trade routes, the main consideration was that such competition had, from an economic point of view, becomes less effective. Furthermore, up-to-date information as to foreign wages had become very difficult to obtain. Shortly after the entrance of the United States into the war, it was seen that foreign competition had substantially ceased over most of the American trade routes, and that diversion of the subsidized fleet to war needs was necessary. Accordingly, many subsidized vessels were taken under bare-boat charter, which move was followed in April 1942, by a substantial total requisition for use of passenger and cargo vessels and tankers. As a result of these developments, it was suggested to Congress that it would be wise to suspend all subsidy agreements and eliminate all subsidy payments as of January 1, 1942, for the period of the war, and legislation to this effect is now under consideration by the Committee on the Merchant Marine and Fisheries of the House of Representatives. 4. In connection with the construction-differential subsidy paid for ships purchased by the Alcoa Steamship Co., it should be pointed out again that such a subsidy payment does not go to the shipowner, but to the shipyard, and that the chief beneficiary of the subsidy is American labor, since a large proportion of the cost of a ship is represented by the cost of labor. The purpose and effect of the Alcoa Steamship Co. construction-differential subsidy, and the advantages to the Government flowing therefrom, are fully discussed in the Commission's letter of February 8, 1941, to the Honorable Lawrence J. Connery, Member of the House of Representatives, copy of which is enclosed. As appears from the letter to Congressman Connery, the situation which Senator Aiken describes results from the mandate of Congress. 5. The Commission has not failed to collect statutory interest charges from shipping corporations or other debtors. Senator Aiken's reference to "the statutory 3% percent interest charge on secured and miscellaneous accounts constituting an estimated indebtedness of $45,139,824," is not clear to the Commission. There is no uniform statutory interest charge on all indebtedness to the Commission, and the Commission is unable to identify the Senator's "estimated indebtedness of $45,139,824." All interest legally due the Commission is in a current state of collection. 6. The Commission has not failed to recover excess profits from shipbuilding corporations. On the contrary, very substantial sums have been so collected and additional amounts are in the course of determination. It is possible that Senator Aiken has reference to the fact that recovery payments of excess profits have not been required under ship-construction contracts immediately upon the completion of each vessel. Under section 505 of the Merchant Marine Act, 1936, as amended, recapture of profits is not based upon completion of the individual vessels, but is computed on the basis of all contracts completed within the contractor's taxable year. In the case of contracts involving a group of ships of the same type that are built in sequence, it is not possible to determine excess profits until all the vessels in the contract group have been completed. The Commission has found that by careful, continuous audits (including audits of subcontracts), some of which are extremely complicated and require considerable time, the amounts collected and to be collected have been materially increased over the recoveries apparently due from preliminary figures. 7. The Commission has not failed to collect down payments required by law on vessels sold by it, but has collected more than the amount required in many instances. In the case of vessels sold under title V, a 25 percent down payment is required in those cases where a construction-differential subsidy has been granted. Where no such aid is granted, the minimum down payment is 121⁄2 percent for the larger vessels and 25 percent for certain smaller types. The Commission has in all such cases collected at least minimum down payment, and, in many instances, has required a down payment in excess of such minimum. In the case of vessels sold under section 508 of the Merchant Marine Act, 1936, as amended, cash payments are required and have been collected. In the case of other statutory powers of sale, the amount of down payment is left to the discretion of the Commission, but as a matter of practice, most of such sales have been made on the basis of cash payment in full. 8. On ships repurchased for sale to the Navy the Commission has not paid the owners the full amounts invested by them without deducting for use or depreciation. While the Commission is unable to identify the particular statutory provision upon which Senator Aiken bases the phrase "as required by law," all of the requirements of law have been fully complied with in the Commission's transactions involving the transfer of ships to the Navy, as fully explained in our letter to Senator Aiken under date of March 27, 1942. 9. The Commission has not sold ships, either completed or under construction, to private corporations for resale by them to the Navy at higher prices. Such an interpretation of the Commission's actions in effecting the transfer of hulls on the ways to the Navy is believed erroneous. With respect to the Tampa Shipbuilding Co., cited as an example in this connection, the position taken by the Comptroller General in his report on this matter (S. Doc. 230, 77th Cong., 2d sess.) appears to the Commission to be without adequate foundation. Attached is a copy of a letter on this subject forwarded to the Comptroller General on April 14, 1942-prior to his special report-which was apparently disregarded in the preparation of the report. Also attached is a brief memorandum on the Commission's transactions with the Tampa Shipbuilding Co. and the Navy's acquisition of vessels under construction in the Tampa yard, from which it appears that (1) the Government, represented by the Maritime Commission and the Reconstruction Finance Corporation, and other creditors of the old company, were saved from loss by the reorganization outlined by the Commission, (2) the disintegration of a going and much needed shipbuilding organization (that was rapidly taking its place |