Discriminatory Ocean Freight Rates the Balance Of

ZC( DISCRIMINATORY OCEAN FREIGHT RATES AND THE BALANCE OF PAYMENTS HEARINGS BEFORE THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES EIGHTY-EIGHTH CONGRESS SECOND SESSION MARCH 25 AND 26, 1964 PART 4 Printed for the use of the Joint Economic Committee U.S. GOVERNMENT PRINTING OFFICE 20-707 WASHINGTON: 1964 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C., 20402 - Price 50 cents JOINT ECONOMIC COMMITTEE (Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.) PAUL H. DOUGLAS, Illinois, Chairman RICHARD BOLLING, Missouri, Vice Chairman SENATE HOUSE OF REPRESENTATIVES JOHN SPARKMAN, Alabama WRIGHT PATMAN, Texas J. W. FULBRIGHT, Arkansas HALE BOGGS, Louisiana WILLIAM PROXMIRE, Wisconsin HENRY S. REUSS, Wisconsin CLAIBORNE PELL, Rhode Island MARTHA W. GRIFFITHS, Michigan JACOB K. JAVITS, New York THOMAS B. CURTIS, Missouri JACK MILLER, Iowa CLARENCE E. KILBURN, New York LEN B. JORDAN, Idaho WILLIAM B. WIDNALL, New Jersey JAMES W. KNOWLES, Executive Director MARIAN T. TRACY, Financial Clerk HAMILTON D. GEwEHR, Administrative Clerk ECONOMISTS WILLIAM H. MOORE THOMAS H. BOGGS, Jr. GRALBD A. POLLACK ALAN P. MURRAY DONALD A. WEBSTER (minority) II CONTENTS STATEMENTS Page Barton, Frank L., Deputy Under Secretary of Commerce for Transporta- tion, Department of Commerce; accompanied by Robert A. Nelson, Director of Transportation Research Staff, Office of Under Secretary for Transportation; Daniel O'Keefe, Office of General Counsel; M. E. Parr, Chief, Division of Trade Routes, Office of Government Aid, Maritime Administration; E. K. Sullivan, Deputy Chief, Office of Research and Development; and Maitland Pennington, Special Assistant to the Mari- time Administrator - -605 Harllee, Adm. John, Chairman, Federal Maritime Commission; accompanied by Timothy J. May, Managing Director; James E. Maure, Assist- ant to Chairman; and Robert J. Blackwell, Chief, Bureau of Hearing Counsel - -645 Mater, Daniel H., Federal Mariitime Commission -669 COMMUNICATION Douglas, Senator Paul H.: Letter with attachment, from C. D. Martin, Jr., Under Secretary of Commerce for Transportation -639 EXHIBITS Chart: Table 3: Profits of a U.S.-flag operator on trade route 12 (U.S. Atlantic-Far East) export and import cargoes, 1963 -615 Committee of European Shipowners, "Further Comments on Allegations of Foreign-Flag Discrimination and Domination in U.S. ExportTrade" 631 List: Ways in which the Department of Commerce has provided assistance to the Federal Maritime Commission, exhibit submitted by Frank L. Barton - 609 "Ocean Freight Rate Disparities," memorandum from Thomas H. Boggs to Senator Douglas - 598 "Import Versus Export Ocean Freight Rates of the United States," exhibit prepared by Dan H. Mater and Gordon P. Smith, Federal Maritime Commission - 671 m DISCRIMINATORY FREIGHT RATES IN OCEAN SHIP- PING AND THE BALANCE OF PAYMENTS WEDNESDAY, XARCH 25, 1964 CONGRESS OF THE UNITED STATES, JOINT EcoNomic COMMITrEE, Washington, D.C. The joint committee met, pursuant to notice, at 9 :05 a.m., in room AE-1, U.S. Capitol Building, Hon. Paul H. Douglas (chairman of the committee) presiding. Present: Senators Douglas and Pell, Representatives Griffiths and Curtis. Also present: Thomas H. Boggs, Jr., economist, and Hamilton D. Gewehr, administrative clerk. Chairman DOUGLAS. The hour of 9 o'clock has arrived and passed. The committee will come to order. Before we begin today, I would like to briefly summarize past events which led to this hearing. On June 20 and 21, 1963, the Joint Eco- nomic Committee held its first hearing on discriminatory ocean freight rates and the balance of payments. These hearings were initiated as a result of earlier testimony which indicated that ocean freight rates were a contributing factor to the $800 million decline since 1955 in U.S. steel trade. Prior to these hearings, it had been my firm belief that every agency of the Federal Government was striving to redress our balance-of-payments deficit which exceeded $2.6 billion in 1963. Much to my sur- prise, I learned that policies of the Federal Maritime Commission and the Maritme Administration were operating in direct opposition to the Trade Expansion Act and other programs to eliminate this deficit. In brief, the Federal Maritime Commission testimony indicated that: 1. It costs American exporters more to ship many American- made products to Europe or Japan than it costs those countries to send comparable products to the United States. 2. It costs more on a per-ton-mile basis to ship U.S. exports to third market areas of South America, South Africa and India than it costs to send comparable products from foreign ports to these same markets. 3. Ocean freight rates in U.S. foreign commerce are set by steamship conferences-associations of foreign and domestic steamship lines-which are dominated by foreign-flag lines and, by bloc voting, can maintain higher rates on American exports than on foreign exports. 597 598 DISCRIMINATORY OCEAN FREIGHT RATES 4. The FMC had sufficient statutory authority to disapprove ocean freight rates if they are unreasonably high or low but it had never exercised such authority. 5. The FMC had not initiated an investigation of ocean freight rate disparities or of malpractices of the steamship conferences although it had been directed to do so by the Merchant Marine Act and by a congressional committee in 1962. Testimony received from the Maritime Administration indicated that it was the policy of that agency to require American steamship lines to belong to shipping conferences or agree to their rates, rules, and regulations in order to receive operating subsidies. This policy forced American lines to remain in conferences and charge conference- established rates even though such rates appeared to be detrimental to U.S. exports. It was the belief of the Joint Economic (Committee that the testimony of the Federal Maritime Commission and the Maritime Admin- istration revealed their failure to enforce existing laws and to use their statutory authority to protect American exporters and to pro- mote the foreign commerce of the United States. As a result of this hearing, the Joint Economic Committee unanimously recommended specific corrective action to the FMC and the Maritime Administra- tion. The committee received responses to its recommendations which indicated that corrective measures would be taken. However, similar assurances were given to the House Antitrust and Monopoly Subcom- mittee upon issurance of its March 1, 1962, report but no action was taken. Consequently the committee asked that a progress report be submitted early in 1964 by these two agencies. On November 19 and 20 representatives of the American steamship companies testified before this committee that: 1. Outbound-inbound rate disparities were not harmful to American exporters. 2. Many of the outbound-inbound disparities result from "pa- per" rates. 3. Any U.S. exporter making a "reasonable" rate reduction request to the conferences would, in almost all cases, be granted a reduction. Elaborate statistics were presented to back up these conclusions. An evaluation of these statistics indicates they are inconclusive and in no way disprove the allegations made at previous committee hearings. I ask unanimous consent to insert in the record a staff memorandum dated March 6, 1964, entitled "Ocean Freight Rate Dispari- ties." which evaluates these statistics. (The memorandum is as follows:) CONGRESS OF THE UNITED STATES, JOINT EcONOMIc COMMITTEE, Mlarch 6, 1964. MEMORANDUM To: Senator Paul H. Douglas, Chairman. From: Thomas H. Boggs. Subject: Ocean freight rate disparities, trade route 12. Mr. Donald F. Wierda, appearing before the Joint Economic Committee on November 20, 1963, as spokesman for the American Steamship Traffic Executives DISCRIMINATORY OCEAN FREIGHT RATES 599 Committee (composed of traffic executives of U.S.-flag liner companies), con- Clude(l: .* * * that it is not true (that U.S. export rates are higher), because we are showing you with these tables that of the cargo which actually means something and moves, the export rates, which are usually negotiated with shippers * * * are actually lower * * *" (p. 487, pt. 3). Prior to this statement. the ASTEC spokesman presented to the committee a series of tables showing that outbound rates were lower than corresponding inbound rates on 300 of 395 major moving export commodities. On the basis of these statistics, the ASTEC group reached their conclusion. It is the purpose of this memorandum to evaluate such a conclusion and the statistics on which it was based. The ASTEC statistics covered 13 trades routes. In the limited time available, it was not possible to check each route. However, the largest single trade route (No. 12-U.S. North Atlantic-Far Eastern trade) was selected for study. The ASTEC statistics revealed that 15 of 25 major moving export commodities on this route have lower freight rates than corresponding import commodities. For example, it costs U.S. exporters $68 per measurement ton to ship airplanes and parts to Japan, but it costs $75.75 per measurement ton to ship Japanese airplanes and parts to the United States. The ASTEC contention was that on "major" U.S. exports to Japan, such as airplanes, 60 percent of the outbound rates were lower than corresponding inbound rates. Is this sufficient proof that outbound freight rates are lower than inbound freight rates? We think not. Quan- tity shipments will get better rates than rarely traded commodities. On major moving exports, therefore, the freight rates should be low. Furthermore, as the ASTEC witness repeatedly stated, commodities which move in large volume outbound from a country usually do not move in large volume inbound. While the U.S. exports a large quantity of airplanes and parts to Japan, it does not import any. As a consequence, on the 25 major moving export commodities, it would be expected that outbound freight rates would be lower than corresponding inbound rates if no principle of rate equality existed.

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