DISCRIMINATORY OCEAN FREIGHT RATES AND THE BALANCE OF PAYMENTS HEARINGS BEFORE THE SUBCOMMITTEE ON FEDERAL PROCUREMENT AND REGULATION OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES EIGHTY-NINTH CONGRESS FIRST SESSION PART 1 APRIL 7 AND 8, 1965 Printed for the use of the Joint Economic Committee U.S. GOVERNMENT PRINTING OFFICE 48-06 0 WASHINGTON: 1965 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C., 20402 -Price Si.00 JOINT ECONOMIC COMMITTEE (Created pursuant to sec. 6(a) of Public Law 304, T1th Cong.) WRIGHT PATMAN, Texas, Chairman PAUL H. DOUGLAS, Illinois, Vice Chairman HOUSE OF REPRESENTATIVES SENATE RICHARD BOLLING, Missouri JOHN SPARKMAN, Alabama HALE BOGGS, Louisiana J. W. FULBRIGHT, Arkansas HENRY S. REUSS, Wisconsin WILLIAM PROXMIRE, Wisconsin MARTHA W. GRIFFITHS, Michigan HERMAN E. TALMADGE, Georgia THOMAS B. CURTIS, Missouri JACOB K. JAVITS, New York WILLIAM B. WIDNALL, New Jersey JACK MILLER, Iowa ROBERT F. ELLSWORTH, Kansas LEN B. JORDAN, Idaho JAMES W. KNOWLES, Executive Director JOHN R. STARK, Deputy Director MARIAN T. TRACY, Financial Clerk HAMILTON D. GEWEHS, Administrative Clerk ECONOMISTS WILLIAM H. MOORE THOMAS H. BOCGS, Jr. GERALD A. POLLACK DONALD A. WEBSTEn (Minority) SUBCOMMITTEE ON FEDERAL PROCUREMENT AND REGULATION PAUL H. DOUGLAS, Illinois, Chairman JOHN SPARKMAN, Alabama WRIGHT PATMAN, Texas WILLIAM PROXMIRE, Wisconsin MARTHA W. GRIFFITHS, Michigan LEN B. JORDAN, Idaho THOMAS B. CURTIS, Missouri WILLIAM B. WIDNALL, New Jersey THOMAS H. BoGas, Jr., Consultant II CONTENTS CHRONOLOGICAL LIST OF WITNESSES Page Hon. Paul H. Douglas, opening statement -1 Charles S. Murphy, Under Secretary of Agriculture- 7 Vice Admiral Glynn R. Donaho, USN, Commander, Military Sea Trans- portation Service; accompanied by Wilbur L. Morse, Counsel, MSTS; and Lane C. Kendall, Commercial Shipping Adviser, MSTS -19 William S. Gaud, Deputy Administrator, Agency for International Development; accompanied by Leslie A. Grant, Deputy General Counsel -70 Statement of David E. Bell, Administrator, Agency for International Development, before the Senate Banking and Currency Committee, Mar. 9, 1965 --- 74 Nicholas Johnson Maritime Administrator, Maritime Administration, Department of 6 ommerce -93 Marshall P. Safir, on behalf of Sapphire Steamship Lines, Inc.; accompanied by Gerald M. Robison, president, Sapphire Steamship Lines, Inc., and Stanley L. Temko, counsel -106 W Lyle Bull, special representative of American Export-Isbrandtsen Lines, appearing in behalf of the American Steamship Traffic Executive Committee and the Atlantic & Gulf American Flag Berth Operators; accompanied by Alec Cocke, president, Lykes Bros. Steamship Co; Edwin A. Wester, vice president of Pacific Far East Line; and Elmer Maddy, counsel -118 John C. Gorman, vice president, Farrell Lines, Inc., appearing on behalf of the American Steamship Traffic Executive Committee -144 Richard W. Kurrus, general counsel, American Tramp Shipowners As- sociation, Inc -159 Reginald A. Bourdon, assistant legislative director of the American Maritime Association -173 APPENDIX Letter from Hoyt S. Haddock, executive secretary, AFL-CIO Maritime Committee, accompanying statement -183 Statement from AFL-CI(O Maritime Committee -186 Statement from the Seafarers International Union of North America, AFL-CIO- 196 Telegram: AGAFBO to Federal Maritime Commission -200 Federal Maritime Commission docket No. 1105 (Sub. 1) covering Report on Agreement No. 8900 -201 Letter from Ray R. Murdock, legislative director, American Maritime Association, to Chairman Douglas, Joint Economic Committee -210 List of AGAFBO members and WCAFBO members -216 Letter from John C. Gorman, ASTEC, to Chairman Douglas -217 Letter from Chairman Douglas to W. J. deWinter, Flour Millers' Export Association -219 Letter from W. J. deWinter to Chairman Douglas -219 Letter from Jakob Isbrandtsen, American Export-Isbrandtsen Lines, to Chairman Douglas -221 Proposal for establishing an American-flag bulk carrier fleet, submitted by American Export-Isbrandtsen Lines -223 III DISCRIMINATORY OCEAN FREIGHT RATES AND THE BALANCE OF PAYMENTS WEDNESDAY, APRIL 7, 1965 CONGRESS OF THE UNITED STATES, SUBCOMMIITEE ON FEDERAL PROCUREMENT AND REGULATION OF THE JOINT ECONOMIC CoMMITrEE. Wa8hington, D.C. The subcommittee met at 10 a.m., pursuant to call, in room AE-1, the Capitol, Senator Paul H. Douglas (chairman of the subcom- mittee) presiding. Present: Senator Douglas; Representative Griffiths. Also present: Thomas H. Boggs, Jr., consultant; James W. Knowles, executive director, and Hamilton D. Gewehr, administrative clerk. Senator DouGLAs. The subcommittee will come to order. During the 88th Congress, the Joint Economic Committee held extensive hearings on the subject of discriminatory ocean freight rates and the balance of payments. The committee reported to the Congress in December 19641 that ocean freight rates discriminate against American exports, resulting in unfair advantages to our for- eign competitors and adverse effects on the balance of payments. Specifically, the committee stated that: The international ocean freight rate structure is weighted against U.S. exports. Our exports bear most of the cost of vessel operation, even in trades where Imports approximate exports in value and quantity. Government studies re- veal that on trade between the U.S. Pacific coast and the Far East, freight rates on American exports exceeded rates on coresponding imports on 80 percent of the sampled items. The same discrimination prevails on 70 percent of the prod- ucts shipped by American exporters from the U.S. Atlantic and gulf ports to the Far East, and on 60 percent of the commodities shipped from the Atlantic coast to Western Europe. The committee also reported that it costs more to ship U.S. exports to the growing markets of South America, Africa, and India than it costs to ship comparable products to ports of these countries from our leading competitors in Europe and Japan, even though distances may be greater from those foreign ports. Although the United States has a trade surplus, it is my belief, and the belief of the Joint Economic Committee, that this surplus could be greatly expanded if American exports were assessed fair freight rates. Members of the Joint Economic Committee are still concerned about these discriminatory rates and have instructed the Subcommit- tee on Federal Procurement and Regulation, of which I am chairman, to continue the investigation begun by the full committee last Congress. In early May we hope to hear from Admiral Harllee and from officials of the Department of Commerce concerning what the admin- aS. Rept. 1, 89th Cong., 1st sess. 1 2 DISCRIMINATORY OCEAN FREIGHT RATES istration and the Federal Maritime Commission have done to elimi- nate rate discrimination against American exports. I want to take this occasion to praise Admiral Harllee for the courage with which he is pursuing this task. He is surrounded by opponents, both from within the Commission and from outside, in the form of American shippers and in the form of foreign shippers and foreign governments. He is moving manfully, like the brave sailor that he is, to deal with these problems. We often have criticisms of public officials, and I know that fre- quently the pressures against affirmative action are great and that the natural tendency is to relax. The public is frequently nonappre- ciative, but I want to take this occasion today, and I will take it again tomorrow, to praise Admiral Harilee and to try to hold up his hand. In my opinion, if our regulatory Commission is not successful in the near future in eliminating rate discrimination, it will be necessary for the Congress to make some basic changes in our shipping laws. During the course of the committee's investigation, evidence was intro- duced which indicated that rates on Government-impelled cargoes are higher than rates on comparable commercial cargoes, and that revenues generated from Government cargoes account for most of the gross revenues earned by U.S.-flag steamship companies. The Deputy Under Secretary for Transportation stated to the Con- gress last year that AID and Department of Defense cargoes were in part responsible for the high rates on American exports. He indi- cated that since American carriers do not have to compete for this cargo, it was in their interest to maintain high rates on it, and that these high rates themselves influence the entire outbound freight tariff of the United States. I would like to inject a personal statement, if I may, on this point. The London Economist, one of the finest journals of the world, has been devoting a tremendous amount of attention to these hearings and to the issues which have arisen, notably the requests for publica- tion of the proceedings of the inbound shipping conferences. They published an editorial entitled "Has Senator Douglas Struck His Flag?" implying that we had quit in this investigation and that the shipping conferences have nothing to fear. I do not wish to take this occasion to unduly inject myself into the situation, but for the information of the London Economist, and for such other few persons as may be interested, may I say that we have not struck our flag and we intend to pursue this matter and seek pitiless publicity on the proceedings of these conferences, and the votes and decisions by which discriminatory rates are imposed upon Ameri- can shipping So these hearings on governmental shipping are not intended to divert attention from the subject of discriminatory shipping rates but are merely one phase. Members of the subcommittee are now seeking to ascertain whether the U.S. Government pays fair and reasonable rates for ocean ship- ping, the effects of Government shipping rates on the commercial rate structure, and the effects of Government cargoes on the availability of space on U.S.-flag vessels for the commercial commerce of the United States. DISCRIMINATORY OCEAN FREIGHT RATES 3 I want to emphasize that the purpose of these hearings is not to change or to criticize cargo preference laws. We are not here to ques- tion whether or not cargo generated by the U.S.