Stormy Weather

Like busy tugs about a liner, two congressional committees last week were nosing about a leviathan among federal agencies, the Federal Maritime Board. In the last 15 years, the Maritime Board and its predecessor, the Maritime Commission, have spent $14.5 billion on the U.S. Merchant Marine. The spending has gone almost unnoticed by the public because, in the words of one shipper, "there are a lot more people in the U.S. interested in potatoes than in ships." How much waste or skulduggery was there in the spending? Last week:

P: One congressional committee was probing the millions in profits made overnight in the sale of surplus tankers used to carry oil to China (see NATIONAL AFFAIRS).

P: The Justice Department was checking into the sale of 47 surplus ships sold at bargain prices, to see if it could force their return to the Government.

P: Senator Lyndon Johnson's watchdog committee was looking into reports that shippers who had chartered ships from the Maritime Board were making as much as $1,000 a day a ship, hauling supplies to Korea and cargoes to Europe for the Mutual Security Agency.

The Missing Billions. The stormy weather in which the, Maritime Board found itself was not the fault of its present boss, Vice Admiral (ret.) Edward Lull Cochrane. Boss of the Navy's Bureau of Ships during World War II and a crack naval architect, Cochrane became head of the Federal Maritime Board in 1950, when it was set up within the Commerce Department to replace the old Maritime Commission. He has been trying diligently to unscramble its problems ever since.

The biggest problem was the mess of wartime claims. During World War II, the Maritime Commission spent $13 billion and supervised the building of 5,300 ships. But after the war the commission couldn't even account for $2 billion it had spent. Said Comptroller General Lindsay Warren: "There was never a charge on our part that there was fraud or that anybody stole the money . . . That could have been but . . . we could not substantiate it."

When Cochrane took over, he cleared out top deadwood, cut the staff from 4,853 to 4,211, whittled the backlog of claims. Cochrane is proud that the board and its predecessor sold 1,956 ships worth $4.4 billion for $1.7 billion, chartered ships for another 1/2 billion. He insists that it was a better return than any other agency got on war-surplus property.

Launch & Drydock. But he also found that despite the billions spent on the U.S. Merchant Marine, the fleet was a bad second in size to Britain's, and in poor shape. Cochrane wangled $350 million to build 35 Mariner cargo ships, the first new class of cargo ships built by the board since the war. The new class is bigger (12,500 deadweight tons) and faster (20 knots) than World War II's Victory ships. As the first Mariner slid down the ways last month, it was plain that the $350 million would be only a down payment to modernize the U.S. Merchant Marine. Cochrane was thinking about asking for another $150 million for 15 more Mariners. Yet last week, as the new ships were abuilding, the Maritime Board announced that it is laying up 120 of its ships now in ocean service. There is not enough business to keep them busy. This paradoxical situation is a prime example of the hit-or-miss, short-range U.S. Maritime policy.

Costs & Competition. Another big reason for the poor shape of U.S. shipping has comparatively little to do with board policy; it is the simple fact that U.S. labor costs are so high that U.S. ships cannot compete with the rest of the world on an even footing. U.S. ships are 25% to 50% more expensive to build than foreign ships, more costly to repair in American shipyards, and immeasurably more expensive to operate. Joe Curran's C.I.O. National Maritime Union and Harry Lundeberg's A.F.L. Seafarers' International have sent wages soaring. U.S. shippers pay an able-bodied seaman a basic wage of $260 to $270 a month v. Sweden's $84, Britain's $62 and Italy's $34.

Because of high building costs, only 80 of the 1,500 ocean-going ships now being built throughout the world are being constructed in U.S. shipyards. And among the ships abuilding in foreign yards, more than 100 are for U.S. shippers. As another economy, many U.S. owners register their ships under foreign flags to cut operating costs and high U.S. taxes. Most popular dodge is to register ships in Panama, where non-union labor and fewer expensive safety devices cut costs. Furthermore, dollar earnings are almost entirely taxfree. Today at least 134 U.S. ships are registered in Panama, 240 others are operating under other foreign flags. This practice, plus the fact that foreign owners can often offer better and cheaper service, has meant that less than 40% of all U.S. foreign commerce is carried in U.S. bottoms. The figure would be even lower but for the stipulation that 50% of all foreign aid be carried in U.S. bottoms.

Foreign Flags. To avoid a more drastic shift from U.S.-built and operated ships, the Maritime Board has a complicated system of subsidies imposed by Congress in 1936. Under this system, the board will 1) pay the difference between the cost of building a ship in the U.S. and what it estimates it would be in a typical foreign port, 2) pay for any features of the ships that have been added for defense purposes, e.g., double engine rooms, extra speed, etc., and 3) grant operating subsidies to make up the difference between the cost of running a ship under the U.S. flag and under a foreign flag. Some operating subsidies have been paid back to the board out of shipping profits, but the total of all subsidies to the U.S. Merchant Marine since 1936 is close to half a billion dollars.

Because of pressure from an economy-minded Congress, the subsidies are subject to change without recourse. Recently, for instance, the Maritime Board junked a 3 1/2-year-old agreement with American Export Lines under which the Government would have paid nearly half the cost of the $47 million spent on building the luxury liners Independence and Constitution. Said Vice Admiral Cochrane: the board would pay only $11 million toward the ships' cost, not the $23 million originally agreed to. If American Export didn't like it, it could return the ships to the Government and run them on a charter basis. Such sudden shifts in policy would hardly encourage more shipbuilding.

Club 13. Are the subsidies handed out fairly? Under present law, only lines that sail 32 "essential" trade routes are eligible for construction or operating subsidies, and 13 big U.S. shippers virtually monopolize these routes. When others have tried to board the subsidy liner, "Club 13" has seemed a closed corporation; three applications have been pending before the board for three years or more, with no action. Club members themselves are sometimes torpedoed by the red tape of the board.

Actually, not all outsiders want subsidies. The reason is that once a shipper gets a subsidy he is straitjacketed by a host of rules. Examples: he cannot quit a subsidized route even if it turns out to be a money loser; he must replace old ships with vessels made in U.S. yards; he cannot embark on any auxiliary or any new enterprise not connected with shipping.

Mass Obsolescence. Despite all its troubles, the U.S. Merchant Marine is in better statistical position, on paper, now than ever before in peacetime. It has 2,027 seagoing vessels in operation v. 1,089 in 1941, plus a mothball fleet of 1,336. But numbers alone are no true measure of strength.

Most of the mothball ships are obsolescent Liberty ships--whose wartime value would be doubtful. The U.S. is better off in its tankers; the booming oil industry has had 77 built since the war; 26 others now on order will bring the total to 477 v. 384 before the war. But the greatest lack is passenger ships, which could be converted to troop transports for war. Prewar, the U.S. had 162 of these; now it has only 61.

The most significant--and dangerous--fact of all is that 80% of all U.S. merchant ships were built during World War II, hence are becoming obsolescent in a block. As a result, the U.S. merchant fleet, less than adequate in peacetime, would be shockingly short of what the nation would need in wartime.

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