A A SOUTI 1 J3 8 9 5 8 ^ ARY FACI LIT' 9 THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES / ' IIEGLLATORY FEATURES OF SHIPPING BILL HEARINGS BEFORE THE COMMITTEE ON THE MERCHANT MARINE AND FISHERIES HOUSE OF REPRESENTATIVES SIXTY-FOURTH CONGRESS First Session ON H. R. 14337 TO REGULATE CARRIERS BY WATER ENGAGED IN THE FOREIGN AND INTERSTATE COMMERCE OF THE UNITED STATES APRIL 13 TO 22, 1916 WASHINGTON GOVERNMENT PRINTING OFFICE 1916 COMMITTEE ON THE MERCHANT MARINE AND FISHERIES. House op Representatives. JOSHUA W. ALE RUFUS HARDY, Texas. MICHAEL E. BURKE, Wisconsin. EDWARD W. SAUNDERS, Virginia. PETER J. DOOLING, New York. HENRY BRUCKNER, New York. LADISLAS LAZARO, Louisiana. WILLIAM S. GOODWIN, Arkansas. JAMES F. BYRNES, South Carolina. JESSE D. PRICE, Maryland. CARL C. VAN DYKE, Minnesota. XANDER, Missouri, Chair wan. OSCAR L. GRAY, Alabama. DAVID H. KINCHELOE, Kentucky. WILLIAM S. GREENE, Massachusetts. ASIIER C. HINDS, Maine. CHARLES F. CURRY, California. GEORGE W. EDMONDS, Pennsylvania. WILLIAM A. RODENBERG, Illinois. GEORGE A. LOUD, Michigan. LINDLEY H. HADLEY, Washington. FREDERICK W. ROWE, New York. C. Bay, Clerk. LIST OF WITNESSES. Bush, Mr. Irving T.. prosident of the Bush Terminal Co., New York Gl Dearborn, Mr. George S., president American-Hawaiian Steamship Co., New York 91 Franklin, Mr. Philip A. S., receiver of the International Mercantile Marine Co., New York 116 Gregson, J^Ir. Fred P., traffic manager of Associated Jobbers of Los Angeles, Cal ;■-■;■- 182 Johnson, Dr. Emory R.. professor of transportation and commerce. University of Pennsylvania. Philadelphia, Pa 10 Jacobs, Mr. Isidor, president of the California Canneries Co., San Francisco, Cal . 45 Kirlin, Mr. J. Parker, attorney at law. New York 128 Mann, Mr. Seth, representing San Francisco Chamber of Commerce, San Francisco. Cal 158 Rhett, Mr. R. G., president of the Chamber of Commerce of the United States, Charleston, S. C '. 148 Sherman, Mr. Lawrence K., vice president of W. R. Grace & Co., New York. . . 77 Wettrick, Mr. S. J., attorney at law, Seattle, Wash 186 EXHIBITS. r^ Page. . Ia Text of H. R. 14337 5 ^s^ Telegram from the chairman of the merchant marine committee of the Boston curing a.s favoralile a rate of insurance on cargo carried, having due regard to the class of vessel, as is granted to such carrier or person. Any common carrier by water, or other person subject to this act, or, whenever such carrier or person is a corporation, any director or officer thereof, or any receiver, trustee, lessee, agent, or person acting for or employed by such corporation who, alone or with any other person or party, shall knowingly and willfully do or cause to be done, or shall willingly suffer or permit to be done, any act, matter, or thing in this section prohi])iled and hereby declared to be unlawful, or who shall aid or abet therein, shall be deemed guilty of a misdemeanor, and shall, upon conviction, be subject to a fine of not to exceed $5,000 for each offense: Providrd, That if the offense for which any person shall be con\dcted as aforesaid shall be an unlawful discrimina- tion in rates, fares, or charges for the transportation of passengers or propertj% such person shall, in addition to the fine hereinbefore provided for, be liable to imprison- ment in the penitentiary for a term of not exceeding two years, or both such fine and imprisonment, in the discretion of the court. Sec. 5. That whenever, after full hearing upon a complaint, or under an order for investigation made by the board on its own initiative, the board shall be of opinion that any rates or charges demanded, charged, or collected by any common carrier by water in foreign commerce are unreasonably high, or unjustly discriminatory between shippers or ports, or unjustly prejudicial to exporters of the United States as compared ^\dth their foreign competitors, or represent an unjust relation between classes of commodities, the board is hereby empowered to determine and prescribe what shall be the just and reasonable rates and charges to be thereafter observed as the maximum to be charged, and to make an order that such carrier shall cease and desist from publishing, demanding, or collecting any rate or charge in excess of the prescribed maximum, such order to continue in force for such period of time, not exceeding two years, as shall be prescribed in the order of the board, unless the same shall be suspended, modified, or set aside by the board, or be suspended or set aside by a court of competent jurisdiction. The board is hereby also empowered upon formal complaint, or in proceedings instituted of its own motion and after full hearing, or detennine, prescribe, and order enforced just and reasonable regulations and practices relating to or connected wdth the receiving, handling, storing, and delivering of property by any such carrier. Sec. fi. That every common carrier by water in interstate commerce shall establish observe, and enforce in interstate commerce just and reasonable rates, fares, and charges and just and reasonable regulations and practices affecting cla.ssifications, ra,t(>s, or tarilVs, the issuance, form, and substance of tickets, receipts, and bills of lading, the manner and method of presenting marking, packing, and delivering jjrojierty for transportation, the carrying of personal, sample, and excess baggage the faciUties for transportation, and all other matters relating to or connected with the receiving, handling, transporting, storing, and delivering of property. WTieneyer the board shall, upon formal complaint or in proceedings instituted of its own motion and after full hearing, be t)f opinion that any of the aforementioned rates, charges, classifications, regulations, or practices are unjust or unreasonable, the board is hereby empowered to determine, prescribe, and orrler enforced just and reasonable rates, charges, classifications, regulations, and practices. Every common carrier by water in interstate commerce shall file with the board and keep open to i)ublic inspection, in the form and within the time prescribed by the board, all the rates, fares, and charges for transportation between different points on its own route and points on the route of an 3^ other carrier by water when a through route and joint rate have been established, and if no joint rate over the through route has been established the several carriers in such through route shall file the separately estaljlished rates, fares, and charges applied to the tln-ough transportation. No in- crease shall be made liy such carrier in the rates, fares, and charges, or joint rates, fares, and charges which have been filed in compliance wdth the requirements of this sec- tion, except after 10 days' notice to the board, which notice shall plainly state the increase proposed to be made. The board is hereby empowered to determine and 8 REGULATORY FEATURES OF SHIPPING BILL. prescribe what shall be the maximum rates, fares, and charges to be observed and charged by such carrier, and to make an order that such carrier shall cease and desist from demanding or collecting any rate, fare, or charge in excess of the piescribed maximum, such order to continue in force for such period of time, not exceeding two years, as shall be prescribed in the order of the board, unless the same shall be sus- pended, modified, or set aside by the board, or by a court of competent jurisdiction. Sec. 7. That whenever a common carrier by water in interstate commerce reduces its rates on the carriage of any species of freight to or from competitive points below a fair and remunerative basis with the intent of driving out or otherwise injuring a competitive carrier by water, it shall not be permitted to increase such rates unless after hearing by the board it shall be found that such proposed increase rests upon changed conditions other than the elimination of said competition. Jurisdiction is herel)y conferred upon the board after full hearing upon a complaint made, or after full hear- ing under an order for investigation and hearing made by the board on its own initia- tive, to determine questions of fact as to whether said carrier did reduce rates below a fair and remunerative basis with the intent of driving out or otherwise injiu-ing said competitor. Sec. 8. That it shall be unlawful for any common carrier by water, or other person subject to tliis act, or any officer, agent, or employee of such carrier or person, or for any other person lawfully autlwrized by such carrier or person to receive informati(jn therefrom, knowingly to disclose to or permit to be acquired by any person other than the shipper or consignee, without the consent of such shipper or consignee, any infor- mation concerning the nature, kind, quantity, destination, consignee, or routing of any property tendered or deli\ ered to such common carrier for interstate transporta- tion, or for transportation between the United States and a foreign country, which in- formation may be used to the detriment or prejudice of such shipper or consignee, or which may improperly disclose his business transactions to a competitor, or which may be used to the detriment or prejudice of any carrier; and it shall also be unlawful for any person to solicit or knowingly receive any such information which may be so used : Provided, That notliing in this act shall be construed to prevent the giving of such information in response to any legal process issued under the authority of any court of a State or of the United States, or to any oflicer or agent of the (Tovernment of the United States, or of any State or Territory, in the exercise of his powers, or to any oflicer or other duly authorized person seeking such information for the prosecu- tion of persons charged with or suspected of crime, or information given by a common carrier to another carrier, or its duly authorized agent, for the purpose of adjusting mutual traffic accounts in the ordinary course of business of such carriers. Sec. 9. That the board is hereby empowered to investigate fully all complaints (or to undertake investigation on its own initiative) against any common car-rier by water, charging unfair treatment of sliippers in the matter of cargo space accommodations or other facilities, having due regard for the proper loading of the vessel and the available tonnage, or unfair or discriminating contrarning any mailer about which the board is authorized or required by this act to in(piire or keep itself informed or which it is required to enforce, or to require from any such carrier specific answers to all questions upon which the board may need information in carrying out this a(;t. Any such reports, accounts, records, rates, charges, and nunnoranda, or answers to <}ues- tions, shall l>e under oath whenever the board so rccpiires, and shall be furnished in the form and within the lime prescribed by the board, if any carrier referred to in this section (and if such carrier is a corporation, any director or ofiicer thereof, or any receiver, trustee, lessee, agent, or person acting for or employed by such corporation) shall fail to file any report, account, record, rate, charge, or memorandum, or shall fail to make specific arswer to any question authorized by this section, within such reasonable time as the board may prescribe, such <'amer shall forfeit to the United States the sum of .'SlOO for each and everv dav it shall contiiuic to he h\ default with RROULATOKV FEATURKS OF SHIPrJNCi IMLL. 9 respect thereto. Any person (or where the carrier by water it* a corporation, ai'y director or officer thereof, or any receiver, trut^tee, lessee, agent, or person acting for or em))loye(l l)y such corporation) who shall willfully falsify in any manner whatso- ever,. or who shall willfully destroy, mutilate, or alter, or who shall willfully neglect or fail truthfully to tile any such report, account, record, rate, charge, memorandum, or answer, shall he deemed guilty of a misdemeanor, and shall be subject, \ipon con- viction, to a hue of not more than $5, 000, or imprisonment for a term not to exceed three years, or by both such fine and imprisonment. Sec. 11. That any commo)i carrier by water or by railroad or other person subject to this act, or whenever such carrier or person is a corporation, any director, officer, receiver, trustee, lessee, or agent of, or person acting for or employed by such corpora* tion who alone or w ith any other person willfully does or causes to be done or w illingly suffers or permits to be done any act, matter, or thing in this act prohibiting or declared to be unlawful, or who aids or abets therein, or violates any order or regulation made by the board in ])ursuance of the provisions of this act, or who aids or abets therein, or willfully omits or fails to do any act, matter, or thing in this act required to be done, or causes or willingly suffers or permits any act, matter, or thing so directed or required by this act to be done not to be so done, or aids or abets any such omission or failure, or is guilty of any violation of this act, or who aids or abets therein, shall be guilty of a misdemeanor, and upon cojuiction thereof in any district coiut of the United States within the jurisdiction of wluch such offense was committed shall, except as in this act otherwise provided, be subject to a fine of not to exceed $5,000 for each offense: Provided, That any person convicted as aforesaid of a A-iolation of sections 5, 0, or 9 of this act shall be subject to a fine of not more than ?1,000 for each day during wliich such A'iolation continues: Provided further, That any person convicted as aforesaid of a violation of section 8 of this act shall be subject to a fine of not to exceed $1,000 for each offense. Every violation of this act shall be prosecuted in any court of the United States having jurisdiction of crimes within the district in which such violation was com- mitted, or through which the transportation may have been conducted; and wdienever the offense is begun in one jurisdiction and completed in another it may be dealt with, inquired of, tried, determined, and punished in either jui'isdiction in the same manner as if the offense had been actually and wholly commiited therein. Sec. 12. That any person who .shall be injured in his business or property by reason of any common carrier by water or by rail, or other person subject to this act. doing, causing to ))e done, or permitting to l)e done any act, matter, or thing in this act pro- hibited or declared to be unlawful, or omitting to do any act, matter, or thing in this act required to be done, may sue therefor in any district court of the United States in the district in wliich the defendant resides or i-^ found, or has an agent without respect to the amount in controversy, and shall recover double the damages by him sustained, and the cost of suit, including a* reasonable attorney's fee. Sec. 13. That it shall be the duty of every common carrier by water or other person sul)ject to this act. within sixty days after the taking effect of this act, to designate in w-riting an agent in the city of Washington, T3i.strict of Columbia, upon wdiora service of all orders, notices, and processes may be made for and on behalf of said common carrier or person in any proceeding or suit pending Ijefore the board, and to tile such de.signation in the ofHce of the .secretary of the board, which designation may from time to time be changed by like writing similarly fded: that thereupon service of all orders, notices, and proces.ses may be made upon such carrier or per- son by leaving a copy thereof with such designated agent at his office or usual place of residence in the city of Washington with like effect as if made personally upon such carrier or person; and in default of such designation of such agent service of any order, notice, or process in any proceeding before the board may be made by post- ing a copy of such notice, order, or process in the office of the secretary of the board. Sec. 14. That the board shall execute and enforce the provisions of this act. in so far as they may be applicable to the enforcement of, and not inconsistent with this act, there is hereby made applicable to, incorjiorated in, and made a part hereof, all the provisions of the acts entitled "An act to regulate commerce," approved February fourth, eighteen hundred and eighty-seven; "An act making appropria- tions to supply urgent defitiencies in appropriations for the fiscal year nineteen hun- dred and tliirteen, and for other purposes," approved October twxnity-second, nine- teen hundred and thirteen; "An act in relation to testimony before the Interstate (Commerce Comnussion, and in ca.ses or proceedings under or connected with an act entitled 'An act to regulate commerce,' a])pr()ved February fourth, eighteen hundred and eighty-seven, and amendments thereto." apl)ro^'ed Fe])ruary eleventh, eighteen hundred and ninety-three; "An act defining the right of immunity of witnes.ses under 10 EEGULATORY FEATURES OF SHIPPING BILL. the act entitled "An art in relation to testimony l)efore the Inlerslate Commerce Com- mission,' and so forth, approved l-'ebniary eleventh, ei^diteen hundred and ninety- three, and an act entitled 'An act to establish the Department of Commerce and Labor,' approved Febriiary fourteenth, nineteen hundred and three, and an act entitled "An act to further refjulate commerce ^\^th foreii,'n nations and amons? the States.' approved February nineteenth, nineteen huiidrcd and lhre(>. and an act entitled "An act makinir appropriations for the leirislaiive, executive, and judicial expenses of the Government for the fiscal year endinc: June thirtieth, nineteen hun- dred and four, and for other ])urposes.' approved F'ebruary twenty-fifth, nineteen hundred and three." approved June thirtieth, nineteen hundred and six; ''An act to further re,e;ulate commerce with foreign nations and among the States." apj)roved February nineteenth, nineteen hundred and three: "An act to expedite the hearing and determination of suits in equity pending or hereafter brought under the act of July second, eighteen hundred and ninety, entitled 'An act (o i)rotect trade and com- merce against unlawful restrainis and monopolies." '.\n act to regulate commerce.' approved February fourth, eighteen hundred and eighty-seven, or any other acts having a like purpose that may be hereafter enacted," approved February eleventh. nineteen hundred and three, and all acts amendatory thereof. Sec. lo. That to carry out and give effect to the provisions of this act, the board is authorized to emi^loy such experts and other assistants as may be necessary, and to appoint special agents or examiners who shall have powers to administer oaths, examine witnesses, and take testimony. Sec. 16. That this act shall not be construed to afifect. or in any wise reduce or impair the present power of the Interstate Commerce Commission over rates, or any other subject matter heretofore committed to its jurisdiction and control. Dr. Emory R. Johnson, of Philadelpliia, is hore this morning and I will ask him to make a statement to the committee. STATEMENT OF DR. EMORY R. JOHNSON, PHILADELPHIA, PA.. PROFESSOR OF TRANSPORTATION AND COMMERCE, UNIVERSITY OF PENNSYLVANIA.' The Chairman. You have studied the provisions of XL K. 14337'^ Dr. Johnson. I have gone over it with some care, Judge. The Chairman. You are also familiar with the provisions of H. R. 450, are you not ^ Dr. Johnson. I am; or at least I was. The Chairman. I recall that you reviewed the provisions of that bill at one time in an article, and while that bill was in preparation I recall that Dr. lluehner and 1 had the benefit of your advice and service in framing the bill. We would be pleased now to have you proceed and give us your views on this bill. Dr. Jonxsox. ^Ir. Cliairman, I think it is un(U>rstood by the com- mittee that I ai)pear here to-day upon your invitation and not uj)on my own suggestion; by wliicli 1 mean that 1 am very glad to come if I can l)e of any assistance to the committee. That is my only reason. The Chairman. 1 invited Dr. Johnson to come for lh(>. reason I have stated, that when we liad up the preparation of II. R. 17328, in the Sixty-third Congress — of which li. R. 450 is an exact copy — the bill under consideration being a co]iy of same, Dr. Johnson gave us the ])ene(it of his views ojt the matter and of liis assistance, and all the while has kept in touch with the work of the committee and is familiar with the recommtMidations of the committee following tlie investigation of what is known as the Shipping Trust. Dr. Johnson. It seems to me, Mr. (Chairman, that 1 may most advantageously present a brief prepared statement, which will not take me more than 15 miiuites to read, setting forth the main provi- REGULATORY FEATURES OF SHIPPIXG BILL. 11 sions of the bill and discussing certain principles which it seems to me support and justify those provisions. The Chairman. Before doing that. Doctor: you are an author of various works on the question of transportation and rates, are you not? Dr. JoHNSOX. I did publish in 1911 a book upon railroad traffic and rates and, in 1906, a book on ocean transportation, in which the subject of steamship conferences and ocean rates was discussed. I have also published other discussions of the subject and have endeav- ored to keep myself impartially informed on the subject of ocean transportation. Shall I proceed ? The Chairman. Yes. Dr. Johnson. Believing that transportation by water as well as by rail is a busmess of a public nature that should be performed in accordance with the stanclards of reasonableness that the public has come to expect all common carriers to observe, I am in accord with the general purpose of the bill now before the committee. The meas- ure is very similar to the ])ill that the committee reported to the House in 1914, and which would probably, have, ere this, been enacted mto law had not events in Europe given legislation on maritime and many other subjects an unexpected turn. The bill under consideration bj' the committee proposes to substi- tute Government regulation in the place of unregulated competition and micontrolled monopoly in the ocean transportation business, the main purposes of the proposed regulation being to insure fair methods oi competition, to put a limit upon private monopoly and to prevent unreasonable discriminations in the rates, services, and practices of ocean carriers. The l)ill seeks to extend to the ocean transportation business the standards of fair competition that the act to create a Federal trade commission requires of those engaged in commerce. The measure aims to correct the evil results of un- regulated, competition, the granting of rebates to favored sliippers, the running of '"lighting ships'' to drive out undesired competitors, and the penahzing of shippers who patronize independent carriers. The bill recognizes tlie fact that ocean lines will inevitably form associations or conferences for the purpose of regulating competition among members of the conference and between the lines within and those outside of the conference. These conferences formed by the steamsliip companies are deemed by the companies to be absolutely necessary, and the investigations made b}' tliis committee show that the conferences have been, and can be, of service both to the carriers and to sliippers. Tlie bill under consideration permits such con- ferences to he formed, but prevents their actions from being injurious by requiring all conference agreements to be subject to approval b}' the Government. It must be evident that these conferences of ocean carriers must either be prevented or regulated, if independent American hues, whether under private or Government ownership, are to engage in the future, profitably, in the South American and other trades. The ocean transportation field can be and is largely preempted by the conference lines which, when it is to their advantage, make deferred rebate contracts with the larger shippers and thus close the door of opportunity to the independent carrier seeking cargo to keep his 12 REGULATORY FEATURES OF SHIPPING BILL. ships regularly and full}* oinployed. It is necessary that the ocean transportation field should be op(^n to all carriers on like terms. Unless this is assured, the United States can not hope- to make much j)rogress in the development of its merchant marine. It seems to me this bill is fundamental, then; it is the first step in the development of a merchant marhie under present conditions of "conference'' regulation of the ocean transportation business. Plaving provided for preventing unfair competition and for limiting monopoly in the ocean transportation business, the bill makes it unlawful for common carriers by water to make unreasonable dis- criminations in rates or services or to indulge in secret preferential practices, it being the evident purpose of the bill to apply to carriers t)y water, in so far as applicable, the principles that have successfully and with advantage to the public been apphed to carriers by rail. The bill gives the board entrusted with the enforcement of the act power in certain conditions to fix the maximum rates charged by ocean carriers in the foreign trade. As this is such an important feature in the bill, and inasmuch as it is especially important that these features of the bill be exactly understood, not only by this com- mittee but by others, I shaU at this point take the liberty, with your permission, of quoting the two or three paragraphs which contain the provisions in regard to regulation of rates. It is provided by the bill : That whenever, after full hearing upon a complaint, or under an order for inA-estiga- tion made by the board on its own initiative, the board shall be of opinion that any rates or charges demanded, charged, or collected by any common carrier by water in foreign commerce are unreasonably high or unjustly discriminatory between shippers or ports, or unjustly prejudicial to exporters of the United States as compared with their foreign competitors, or represent an unjust relation between classes of com- modities, the board is hereby empowered to determine and prescribe what shall the just and reasonable rates and charges to be thereafter observed as the maximum to be charged and to make an order that such carrier shall cease and desist from publish- ing, demanding, or collecting any rate or charge in excess of the prescribed maximum, such order to continue in force for such peiiod of time, not exceeding two years, as shall t)(' prescribed in the order of the board, unless the same shall be suspendeil, modified, or set aside by the board or be suspended or set aside by a court of competent juris- diction. The law, however, does not provide that the board shall require carriers by water in foreign commerce to file their rates or tariffs. Experience will show whether it is jiracticable and desirable to require ocean carriers in the foreign trade to file their rates and to charge oidy such rates as have })oen filed with the Government. This difference between the pending measure and the present interstate ('omnKU'ce law is of present importance. This bill, if enacted into law, wiU provide a very different kind of regulation, by the shipping ])oard, over the rates of ocean earners, than the Interstate Com- merce C'ommission exercises over carriers by rail. In the case of carriers by rail, their rates must be published and filed with the com- mission; only the piddished rate may be charged; no change in the rate, up or down, may be made except upon 30 days' notice to the Government, and any important increase in rates may be suspend by the Interstate Commerce Commission; thus giving the commission ])racti(^al control over the rates of the railroads. There is no such proposition contained in the proposed measure. REGULATORY FEATURES OF SHIPPING BILL. 13 The proposed measure subjects carriers by water in interstate commerce to somewhat stricter regulation than is provided for car- riers by water in foreign commerce. The bill provides: TKat every common carrier l)y water in interstate commerce shall establish, observe, and enforce in interstate commerce just and reasonable rates, fares, and charges and just and reasonable regulations and practices effecting classifications, rates or tariffs, the issuance, form, and substance of tickets, receipts, and bills of lading, the manner' and method of presenting, marking, packing, and delivering property for transporta- tion, the carrying of personal, sample, and excess baggage, the facilities for trans- portation, and all other niatters relating to or connected with the receiving, handling, transporting, storing, and delivering of projjerty. Whenever the board shall, upon formal complaint or in proceedings instituted of its own motion and after full hearing, be of opinion that any of the aforementioned rates, charges, classilications, regulations, or practices are unjust or unreasonable, the board is hereby empowered to determine, prescribe, and order enforced just and reasonable rates, charges, clas,sifications, regulations, and practices. The carriers by water in interstate commerce are further required to— * * * file with the board and keep open to public inspection, in the form and within the time prescribed by the board, all the rates, fares, and charges for transporta- tion between different points on its own route and points on the route of any other carrier by water when a through route and joint rate have been established, and if no joint rate over the through route has been established the several carriers in such through route shall file the separately established rates, fares, and charges applied to the through transportation. No increase shall be made by such carrier in the rates, fares, and charges or joint rates, fares, and charges which have been filed in compliance with the requirements of this section, except after 10 days' notice to the board, whicli notice shall plainly state the increase proposed to be made. The board is hereby empowered to determine and prescribe what shall be the maximum rates, fares, and charges to be observed and charged by such carrier and to make an order that such carrier shall cease and desist from demanding or collecting any rate, fare, or charge in excess of the prescribed maximum, such order to continue in force for such period of time, not exceeding two years, as shall be prescribed in the order of the board, unless the same shall be susjjended, modified, or set aside by the board or by a court of competent jurisdiction. That section of the act, Mr. Chairman, is tlie only one, so far as I read the bill, that required the pul)hcation and filing of rates, and those are joint rates applying over connecting carriers. To enable the board to carry out its important duties it is given full power to investigate the rates and practices of carriers by water, and to require the carriers to make such periodical or special reports as the board may need in order to keep fully informed regarding the business of the carriers. The effective powers of the board as a supervisory and regulatory body are strengthened by the section which provides that the pro- visions of the interstate commerce act of 1887, and subsequent laws for the regulation of railroads, shall, in so far as applicable to the business of ocean transportation, be incorporated in, and made a part of, the proposed law. It is, however, wisely provided that the pro- posed act ''shall not be ^construed to affect, or in anywise reduce or impair the present power of tlie Interstate Commerce Commission over rates, or any other subject matter heretofore committed to its jurisdiction and control." So much, Mr. Chairman, as to the main provisions of the law. Now a few words as to the general ])rinciples upon which this bill was framed. The proposed legislation is based upon principles that have not hitherto prevailed in the laws of the United States for the regulation 14 REGULATORY FEATURES OF SHIPPIXG BILL. of carriors, whcthor ])y rail or by water. The law proposes to allow rival steamship lines to form eoiiferences and to enter into agreements as to rates and services; it proposes to regulate rather than to pro- hibit conferences of ocean carriers. In the past, the generally ac- cepted theory has been that the public interest required that compe- tition among carriers, whether by rail or by water, be enforced by ■ law, and that the cooperation as well as combination of rival carriers b(> jiroliibited. AVliatever the theory of legislation has l)een, tlie fact is that the car- riers now engaged in the foreign trade of the United States are practi- cally all members of conferences. The investigations maile by this committee established this fact beyond question, it having been found by the committee that — It is the almost universal practice for steamship lines engaging in the American foreign trade to operate, both on the inbound and outbound voyages, under the terms of written agreements, conference arrangements, or gentlemen's untlerstandings, which have for their principal purpose the regulation of competition through either (1) the fixing or regulation of rates, (2) the apportionment of traffic by allotting the ports of sailing, restricting the number of sailings, or limiting the volume of freight which certain lines may carry, (3) the pooling of earnings from all or a portion of the traffic, or (4) meeting the competition of nonconference lines. The members of these conferences include steamship lines under the American flag and under foreign flags. Whether it would be pos- sible as a matter of practical legislation and administration to prevent all carriers, foreign as well as American, engaged in the foreign trade of the United States from entering into conference arrangements and agreements I will not attempt to say. It is probable, however, that a law ])rohibiting conferences could be enforcetl more effectively against vessels under the American flag than against vessels under for.>ign flags, and that such a law would be more effective against conferences formed in the United States than against conferences formed in foreign countries. Without going into this phase of the subject in any detail, it seems to me that it would be impracticable as well as inadvisable to prohibit steamship conferences. This is equivalent to saying that the proposed legislation proceeds in the riglit direction. It permits rival steamsliip lines to form con- ferences and to enter into agreements for the regulation of services and rates, but subjects the agreements and all the rates fixed by agreements to government knowledge and regulation. Legislation of this kind is sound in priiu'ij)le and is needed in the public interest. At the present time ocean carriers, both coastwise and in the foreign trade, form conferences and miter into agreements. Wliat transpires in those conferences and what agreements are entered into are kept from the public. Similarly each ocean line nuiy make secret rates favoring such shi])pers and such ports as it may wdsh to aid, there being nothing to prevent secret rebates and discriminations. In a word, at the present time, ocean carrier* engaged in the domestic and foreign trade of the United States are carrying on a business of a public nature by secret methods, and are being permitted to estab- lish such a degree of monopoly as it is possible by combination to maintain. While it is well known that competition is active in many parts of the ocean transportation business, it is also well known that powei-ful steamship lines by conferences can (>sta])lish conditions which contain elements of monopoly. Tlie vei-y j)Ui'pose of tlie con- EEGULATORY FKATUHKS OF SllIPPlNG BILL. 15 fercnco agrecmoiits is to limit coinpctition. Monopoly is the opposite of compotition. The present condition of unregulated competition in ocean trans- ])ortati()n is desirable neitlier for the public nor for the carriers. ComjK'tition must be regulated, and is regulated — not by means known to the public and sul)ject to Government control — but secretly by combinations of the carriers. The pu])lic interest requires that the agreements of carriers shall be subjected to the fullest measure of publicity, and that the rates, practices, and services of ocean car- riers shall be subject to ap])roj)riate regulation by the Federal Government. The theory in accordance^ with which the bill has been framed is that the law for the regulation of carriers by water sliall state with precision what is required of carriers as regards their agreements, rates, and practices. Instead of providing in general language that ocean carriers shall not charge rates that are unreasonably high or unjustly discriminatory as between persons, places, and commodities, the bill contains specific prohibitions and a series of defii.ite require- ments. Deferred rebates, "fighting ships," and retaliation against shipj^ers are prohibited. The ])ill also prohibits unreasonable dis- criminations in charges and the granting of special rates to favored shii)pers. The carriers are recpiired to inform the Government of all agreements with each other, and clianges in those agreements must receive the approval of the shipping board. Carriers by water in interstate commerce are also recpiired to hie their joint or interline rates with the shipping board. If the charges of carriers by water, whether in interstate or foreign commerce, are found upon investiga- tion to be mireasonable, maximum rates may be established by the shipping board. The proposed act thus confers specific powers upon the shipping board, while at the same time it gives the board a large measure of discretionary authority — it being left with the shipping board to determine what reports shall be required of carriers by water in foreign commerce and to determine to what extent the provisions of the interstate-commerce act and other laws for the regulation of commerce will be found to apply to the enforcement of the pending act should it become a law. The experience which the Interstate Commerce Commission has had in the regulation of carriers by rail show^s the importance of m- cluding m an act, such as the one mider consideration, a specific and detailed enumeration of the prohibitions and requirements imposed upon the carriers, and of the powers that may be exercised by the board mtrusted with the administration of the act. A law less defi- nite than the one proposed w^ould almost certainly lead to controversy and litigation. The result would be an ineffective and unsatisfactory regulation of ocean carriers. It is important that an act for the regulation of ocean carriers should not take from the Interstate Commerce Commission any of its powers. The purpose of the proposed law is to extend the scope of regulation of transportation w'ithout limithig or conflicting with the agencies of of administration that have previously been established. While the Interstate Conmnerce Commission has certam jurisdiction over such carriers bv water as unite with railroads in forming through routes, there ought to be no conflict of jurisdiction betAveen the Interstate 16 REGULATORY FEATURES OF SHIPPING BILL. Commerce Commission and the proposed sliipping board. This con- flict of jurisdiction will })r()bably be obviated by the last section of the proposed law. which provid(>s tliat nothing in the act sliall impair the powers of the Interstate Connnerce Connnission over mattei-s now committed to its jurischction. The CuAiRMAX. Referring to that last matter, that there is to bo no conflict of jurisdiction between this board and the Interstate Com- merce Commission, is it not your opinion that experience may de- velop a situation where the two boards must act jointly — that is, the Interstate Commerce Commission and tlu^ shipping board — with reference to various matt<'rs and provider a form of a.ihninistration ? Dr. JoHXSox. I thiidv tluit is entireh' possi})le, Mr. Chairman. The two fields will, of course, touch each other; and the two boards, in dealing with practical questions, will have to mark out the limi- tations of the two fields. This proposed measure would be incom- plete, however, if it did not do as it does do — that is, make perfectly clear that this proposed measure^ is not a transfer of the powers, nor in any sense an infringement upon the powers, of the Interstate Commerce Commission. The Chairmax. Yet it wifl take experience to develop and disclose just where this joint control may be necessary? Dr. JoHxsox. I think it will; yes, sir. The Chairmax. In the committee, in the consideration of this bill, the question has come up with reference to the tramp steamer. We have no purpose to hamj^er them or circumscribe^ their activities or limit their power in tlie way of competition and tlie regulation of ocean rates. It is claimed by the conference lines that rates are largely controlled by charter rates. Now, is there anything in this bill which would do that ? Dr. JoHxsox. I liave read the l^ifl carefully, Mr. Cluiirman, with that query in my mind. I detun it impracticable to establish in the ocean transportation business the situation that has been establishwl in the rail transportation business, namely, that only the published rates on file witli the Government may be charged. There is nothing in this bill which requir(;s the owner of n tramp vessel to file his rates with tlie shipping board. Nor is there anything in tliis bill that will prevent him from quoting such a rate to-day as he deems com- petitive conditions require him to quote. He is limited in his actio7i. so far as I can discover, only by the section of the bill Mr. Hardy. Section 3 ? Dr.- Johnson. Section 3, which lays down certain standards of fair competition. If he, by his individual, micon trolled act, violates those standards, he runs the risk of a complaint l)y a rival or of an investigation by the shipping board, which can correct liis practice in the future. Tlie Chairman. In other words, he is not permitted to practice discrunination as between shippers or ports or in any other manner that would not be ])ermitted to the regular lines? Dr. Johnson. That is right. Mr. Hardy. As I understand your construction, and that is what seems right to me, an individual, single, line, or single shij)owner, having no agreement witli any otlier sliipowner, is a free lance as far as rates are concerned, ])rovided he does not discriminate between persons or places? REGULATORY FEATURES OF SHIPPING BILL. 17 Dr. JoiLWsoN. That is my undorstanding of the })ill. Mr. Hardy. And this bill does not attempt to give the l)()ard authority to fix rates that shall he charged, but they have the I'iglit to prevent siieli discriminations by the c()m])ination lines or the con- ference lines ? Dr. Johnson. Your statement is in accordance with my under- standing, and I think it well to emphasize a distinction that should be kept in mind. The powers conferred by this bill upon the pro- posed shipping board are purely corrective powers as regards rates. They are not powers to prescribe, ab inito, a scheme of rates or a system (»f rates to prevail in the field of ocean transportation. The' line cari-iers, or individual shipowners, will go ahead after this law is passed and work out their own rates, and will not even be obliged to file them with the Government unless they are joint rates. Dr. Hahdy. That is, you mean unless they are conference rates? Mr. Johnson. No; unless they are joint interline rates over two c;)nnecting water carriers. .The ('Iiatrman. That is the interstate commerce act? Dr. Johnson. The interstate commerce, act gives the commission jurisdiction over joint routes and joint rates by rail and water lines, including the wator portion of the joint route. This bill deals with joint routes over connecting carriers by water and the shipping board may require those interline water rates to be filed. But those are the only rates that have to be filed with the board. All other rates are made by the several steamship lines as they think best — of course subject to the general limitations and requirements in this bill as to fair competition. The same is true of the tramp steamer and even perhaps in a larger degree, because the practice of tramp steamers is to make rates not for periods of time or by schedules but v/ith refer- once to a particular vessel sailing at a particular time. Do I make myself clear? Mi\ Byrnes. Doctor, how do you construe section 6 on page 10 ? Dr. Johnson. That section states that every common carrier by water in interstate commerce shall establish, observe, and enforce in interstate commerce just and reasonable rat'^s, fares, and charges and just and reasonable regulations and practices affecting classifications, rates, or tarifi^s, and so forth. Mr. Byrnes. Now the last part, beginning in line 23, ''Whenever the board shall, upon formal complaint or in proceedings instituted of its own motion." Dr. Johnson. The early part of the section which I read imposes upon the carriei's when they make their rates the standards of reason- ableness. The latter part of the paragraph to which you specifically refer gives the board the power to determine in particular cases wheth(vr that standard of reasonableness has been observed or not. If the ])oard finds it has been violated the board can correct what has been done. Mr. Byrnes. And onU^r in force what they consider to be just and reasonable rates? Dr. Johnson. Yes. Mr. Byrnes. That is just interstate. Now, as to foreign, is there not the same provision in section 5 — th(? power to fix a maximum rate ? 38534—16 2 18 REGULATORY FEATURES OF SHIPPING BILL. Dr. JoHxsox. A similar jiowor is ihovo granted. Tho ])art that possibly you have in mind is tliat the bill does not limit the extent to which the shippuig board may fix rates nor limit the time wliieh those rates shall remain m force. Mr. Byrnes. I was only inquiring because I understood you to say that they had nothing to do with the fixing of rates or regulating. Possibly I may have misunderstood you. Dr. Johnson. I did not intend to say quite that. The board has the power to correct a rate upon complaint or, upon investigation , upon their own mitiative. The rates, however, are made da}^ by day by the tramp carrier. Wliat the board does is to pass in judgment upon what the carrier does upon his own initiative. Now, in actual practice what would come before the board would be a complaint not against the rates m general of- an ocean carrier but a complaint against certain specific charges; and any correction that the board would make would deal with individual specific rates and not witli a general schedule or classification of rates. The act hi its practical workings would, I think, not transfer to the board the general rate- makmg function. Mr. Burke. Doctor, permit a question. In section 5, commenchig on line 20, "prescribe what shall be the just and reasonable rates and charges to be thereafter observed as the maximum"; that is, the board is empowered to do that after an investigation upon complahit made. What I desire to know is, Will the tramp ship be bound by any maximum rates that the. board may make as a result of an investiga- tion of a complamt ? Dr. Johnson. Of course the order will run against the specific carrier; it could not run against any other carrier than that one. And if any other carrier deemed the conditions of transportation to be different — conditions of competition and conditions of transportation to be different — than they were when the order was issued against the other carrier, 1 would say that the tramp owner would be free to take such action as he deemed to be permissible under the requirements of the act. In other words, to answer specifically, I do not thmk an order running against me to-day would necessarily apply against you to-morrow. Mr. BuHKE. But the maxhnum fixed to-day agahist a given tramp ship would continue against that ship, if it continued in the same route, until changed ? Dr. JoHNSOx. It would continue as long as the order of the l)oard ran. It is customary to put a two-year limit on orders of the Inter- state (commerce Commission. And, in fact, orders, I thiid<, are limited to a two-year periotl by the bill. The CiiAJHMAX. 1'here is a two-year lijiiit in tliis connection also — it is not to exceed two ytnirs that the order shall I'un. Mr. Hardy. Then this section 5 only prescribed the fixing of the maxim ujn; that would not prevent a vessel from low(>ring the rate? Dr. Johnson. Oh, no. It does not prescribe the absolute nor minimum rate 'f Mr. Greexe. I am very sorry I was not here all the time you were talking, but frojn what I did hear it seemed to me you made the state- ment that interstate commerce would be restricted or jnore re- stricted than the regulation of foreign cojnmerce. That is to say, this bill would affect more paiiicularly tiie interstate coiujnerce, the EEGULATOKY FP^ATUEES OF SHIPPlXd 15] LL, 19 coastwise traffic, rather than the ocean traffic, and would affect com- petition in the coastwise traffic more than it would in the over-seas traffic. Ain I correct in that ? Dr, Johnson. Essentially. What I said was that the regulation — - Mr. Greene. I did not lioar all you said, because I Wiis unfortu- nately called out. Dr. Johnson. What I said was the proposed measure subjects carriers by water in interstate commerce to a somewhat stricter regu- lation than is provided for carriers by water in foreign commerce. And then I called attention to the second paragraph of section 6, w4iich gives the shipping board authority to require tlie fihng of the. interline rates on two connecting carriers by water in interstate com- merce. In the absence of an interhno rate fixed l)y the carriers form- ing a joint route, the board may require the separate rates which each carrier charges for tlie joint haul to be filed with the board. And the rate thus filed can not be changed except upon 10 days' notice. That is a kind of a provision that is rather important and it does not apply to carriers in the foreign commerce. Mr. Greene. The purpose of this bill, as I understand it, was to make it easier for Americans to do business in tlie foreign trade. Now, is it necessar}'^ to interfere with the interstate commerce in order to make the ocean commerce more advantageous to people who v/ant to enter into that? Dr. Johnson. Possibly you state one purpose rather than aU the purposes of the bill. Mr. Greene. I have stated the purpose that struck nie most forci- bly in what I heard you say. I did not hear it all; but I thought from what I heard you say, as I understood you, that you said this bill would particularly affect the interstate commerce, but it could not reach all the elements of the foreign commerce. The point I want to make is this: This bill it seems to me — I may be incorrect in it — is not ])eneficial to the American shipper, but is rather in the interests of the foreign shipper. The American shipowner who goes into the trade, or is in it now, or has been in it, and has his business established, is more likely to be interfered wdth by this bill than he would if the bill was not enacted into law. The men who have established a foreign trade, have established it with a great deal of competition, and that competition is liable to be very much more severe when this war is over — I do not know when that will be — it will be very much greater, and there will be a great many more entanglements to which the American shipowner will l>e subjected by reason of the enactment of this bill. Now, I want to know wherein the bill in an}- way provides any more freedom or more opportunity or more advantage to the Amer- ican shipper than there would be if this bill was not put into law. Does not tliis tie the American shipper up more and more; and it is not to get at the foreign shipper, because the foreign shipper can not be reached except, of course, he comes hito ovu- ports and thus be subject to the same restrictive regulations; but ho will keep out of our ports and do liis dir(>ct foreign trade without coming in, which we want to get. Dr. Johnson. Your question is so full}' stated that the reasons back of it are made clear. 20 EEGULATORY FEATUEES OF SHIPPING BILL. Mr. Greene. Yes. Dr. Johnson. And it is those reasons I will attempt to consider very briefly. ^Ir. Greene. What do j'oii mean by the ''reasons back of it?'' Dr. Johnson. The reasons for asking the question. ]\Ir. Greene. That is what I want to know. I do not ask the question in an}^ sense of being a shipowner, which I am not, and never did own a cent's worth of stock in a ship. I want to get the purpose of this bill, if I can. It seems to me, as far as I read it, it is not advantageous to American shipping. The Chairman. The American exporters, though, think it is. Mr. Greene. The men I hear from do not think so. The Chairman. You may be sure they are not shipowners. Mr. Greene. I do not know. The Chairman. You will find out w^lien they come'^ Mr. Greene. I have a telegram I would like to read here. The Chairman. I suggest that you wait until Dr. Johnson answers the ciuestion. I beg your pardon, Doctor, for interfering myself. Dr. Johnson. It would be accomplishing the opposite of what is intended if the result of this bill was to make it more difficult for American shipowners to enter the business of ocean transportation and if it were made more difficult for the American merchant marine to develop. Your feeling is, if I get your thought correctly, that by imposing the requirements of this law upon ocean transportation, upon the ocean carriers, the effect may be to make it more difficult for American shippers to enter the field and develop a merchant marine ? Mr. Greene. Then I am attacking it on the ground that they will be subject to foreign competition, which was severe for a great man}^ years — a well-established competition — and is to-day well estab- lished, notwithstanding the war; that when the war is over the competition w^ill be very much more severe, and w^e are not able to get at that and try to destroy it — we may try to destroy it. but our measures will be ineffective — and at the same time it will bind the liands and tie the feet of the American shipowner and the American exporter. Dr. Johnson. That very question was considered in general terms in w^hat I stated in the beginning and with your permission I will restate that, and then extend the thought slightly. What I said was that it must l)e evident that these conferences of ocean carriers must either be pi-ovented or regulated, if independent American lines, whether under ])rivate or Government ownership, are to engage in the future, ])i'ofitably, in the South American and other trades. The ocean transj)ortation i'u'ld can be and is largely preempted by the confcirence lines which, when it is to their advantage, make deferred rebate contracts with the larger shippers and thus close the door of opportunity to the independent carrier seeking cargo to keep his smps regulailv and fully (nnployed. It is necessary that the ocean transportation field should be open to all carriers on like terms. Unless this is assured, the United States can not hope to make much progn^ss in the develo]un(Mi1 of its merchant marine. In order to engage yM'ofitubly in a trade })etween the Ignited States and South Anuu'ica, a new steamsliip line must enter an open trans- portation fi(\ld. The conferences now liave covered the larger part REGULATORY FEATURES OF SHIPPING BILL. 21 of the traflic from South America to the United States by coiiferenco agreements including the deferred rebate contract. ""I'he great diffi- culty of starting a new line from the United States to South America is that e perfectly lawful rates from Ham})urg to the United States wiiich our shipping hoard would hold to be unlawful, and tliere would follow a conflict of sovereignty vdiich miglit make impracticahle the enforcement of the provisions of tlie act. Mr. IIadley. The German, French, British, and the Japanese do make discriminating rates, even among their own people, and they do provide for rebates, and they give a preference to one shipper over another at home: and under this bill we could iiot correct that evil. Dr. Johnson. I think we could require every line engaged in com- merce at an American port, every foreign line a member of a confer- ence, to hie with the shipping board a copy of its conference agree- ment. I think we can throw light upon practices of the foreign steamship companies. Mr. Hadley. But not correct them ( Dr. Johnson. How far we can go in actual practice I am not pre- pared to say. I do think, as I have alread}^ stated, that it would not be practicable for the United States Government actually to fix the rates from foreign ports to the United States. Mr. Hadley. Do you think we can go even as far as you suggest without changing certain treaties ? Dr. Johnson. I am not prepared to answer that, because, candidly, I have not examined the treaties with that in view. Mr. Hadley. I mean the commercial treaties, of course. The Chairman. Dr. Johnson, let me put this case to you: Suppose ainanufacturer in the United States was submitting a bid on a com- modity with the same commodity manufactured in England to a purchaser in Buenos Aires. There is a steamship line from England to Buenos Aires and a steamship line from the United States to Buenos Aires. Now, these are British-owned lines, members of the conference, and this line quotes the English bidder a rate, considering the distance and the service, that discriminates in favor of the Eng- lish manufacturer to the extent that the American bidder can not compete with him. Is it your opinion that under the provisions of this bill that line might be compelled to treat the American manu- facturer on equal terms with his foreign competitor or else be subject to the fuie provided in this bill: or you might go even so far as to say if you discriminate against the American manufacturer we will exclude you from our ports ^ Dr. Johnson. As you have stated, I thhik the American representa- tive of that foreign line might be prosecuted under this act for dis- crimination against the American importer. The Chairman. These are both exporters, one from England to South America and one from the United States to South America. Dr. Johnson. I beg your pardon, I misunderstood you. 24 REGU1,AT0RY FEATURES OF SlIIPPIXG BILL. The Chairman. All we want is oquul troatmeiit. Dr. Johnson. Yes. I think tlie inaltor of export rates clearly can be brouglit in practice under the act. My ai^swer to Congress- man Curry had reference to rates on imports. Mr. Edmonds. You mean then, Doctor, foUowiiig uj) Mr. Alex- ander's question, that you could take the agent of this English line — we will assume it is an English line — running boats from New York to South America and from England to vSouth America — that you could take him to task for an act committed in England, entirely out of the supervision of the United States, and it would not lead to international complications if you did such a thing? The Chairman. I did not say anything of that sort; i do not want you to inject that into my question. Mr. Edmonds. I want to bring it in because it is necessary, Mr. Cliairman. The Chairman. Oh, no, it is not necessary at all. I am assuming now, as a matter of law, that we may compel foreign ships entering and trading from American ports, to treat us right, and if they do not they can not come to our ports. Will you l)e able to change that, do you think ? Mr. Edmonds. I will stop nt that point, then, and I won't say "international complications"; I will say this: Could you take an agent in New York to task for an act committed entirely in England and under English supervision ? The Chairman.' It is not entirely in England. That ship comes to our port, the vessel comes here, and that contract is carried out here. In other words, do you mean to say because a contract is made abroad and partly executed in this country, that we have no jurisdiction over the contract or its terms, or how it may be enforced ? Ml'. Edmonds. My understanding is you are trying to find out whether we would have any control over agents in New York on account of making a higher rate here than th<\y did over in England to South Anierica. The Chairman. They might do that, and under the provisions of the bill you could even go to the extent of excluding them from com- ing to an American port. Mr. Edmonds. T think you might have that right. The only ques- tion I had in mind was what it might lead to. The Chairman. Yes — I say whether we shall sul^mit to discrimi- nations such as that supinely without any effort to correct it. Some ])eople might be willing to submit to such discriminations as that, but 1 do not care to. Mr. (JuRRY. I think we have that right, and I hope W{; will get a bill out of here which we can all agree can be enforced. I think possibly you may not have understood or I did not under- stand the question of the chairman. I understood what the chairman intended to ask, or at least w^hat I understood liim to ask, was that a British line makes a contract to carry goods from Liverpool, we will say, to Ruenos Aires, and they cany those goods from Liverpool to Buenos Aires cheaper than the same line carries similar goofls from New York to Buenos Aires. Under this bill will we have a right to compel that same British line to carry from New York to Buenos Aires as cheap as they do from Liverpool to Buenos Aires? REGULATOKV FKATUin:S OF SHIPPINC BILL. 25 Di-. Johnson. No; we would not havo the rirnational law I do not know. Dr. Johnson. At least, you would probably feel it might be wise to have some public authority look into the question to determine whether there had been an unfair discrimination against the American exporter or not ? Mr. Curry. This bill, I think, will contain a section creating a shippmg board with authority to look into those conditions. It ought to. Mr. Saunders. In that connection. Doctor, I would like to point out that that presents a situation tliat conceivably could not be reached by this board at all. The English exporter mioht very well have gotten better rates from England to this point in Chile than the American exporter got without having "jotten them as the result of an unfair discrimination of any particular line. If that was so, of course that would present a situation that under this section could not be reached. Dr. Johnson. I do not tliink Congressman ('urry intended to sug- gest that the existence of a shi])})ing l)()ard would necessarily guar- antee to us as many ships out of American ports as there are out of HE(iULATORV FEATURES OF Sllll'l'IXG BILL. 27 English ])orts and rates that prevail as low from the United States as prevail from any other country. Mr. Saunders. No. I was just calling- attentioji to tho limitations in that section. 1 was trying to point out tliat a situation which would create a hardship, you might say, on our American exporter did not necessarily present a situation that would l)e reached hy this section. There would have to be some discrimination in there on the part of the line going out of our ports. Mr. Hardy. It occurred to me while we were discussing this that one of the very functions of this board would be to make a full investigation of our rights and the best possible means of ascertaining them and correcting the evils — that that would be one of its useful functions. And along that line there was a proposition to insert a paragraph giving them full power of investigation. Mr. Greene. And to hold up the cargo in the meantime? The Chairman. Oh, no. Mr. Edmonds. I am glad Judge Hardy is getting over to my idea. I said to stop at section 3 and then let the board suggest the regula- tions. Now, the judge is getting over my way. Mr. Hardy. If the gentleman thmks we are getting together, I hope we are. I want to do something while we wait. Mr. Edmonds. In the first paragraph, section 4, I would be glad to have you tell me what effect that would have on regular lines and also on tramp steamers. Dr. Johnson. The section to which you refer provides that it shall be unlawful for any common carrier by water, or other person subject to the act, either directly or indirectly, to charge, demand, collect, or receive from any persoh or persons by any special rate, rebate, drawback, or other device a greater or less compensation for any service rendered or to be rendered m the transportation of pas- sengers or property subject to the provisions of this act than it charges, demands, collects, or receives from any other person or persons for doing for him or them a like service in the transportation of a like kmd of traffic under substantially similar circumstances and conditions. That is the clause to which you refer? Mr. Edmonds. That is the clause to which I refer. The balance of it does not affect it. Dr. Johnson. To attack a big question by piecemeal I would suppose that it prohibited a rebate or a drawback on a rate. I think that would be an absolute prohibition. Mr. Edmonds. Yes. Dr. Johnson. Now, a prohibition also runs against any special rate, which is, of course, the crux of the question as far as rate making is concerned by line steamers and by tramp steamers. If a different rate is given to one shipper than is given to another for the transpor- tation of a like kind of property, and it is done lawfully after this becomes a law, there must be substantially dissimiliar circumstances and conditions surrounding the two services. Now, to what extent dissimilar circumstances and conditions prevail at the beginning of the lading of a vessel and at the end of the lading of a vessel that is on the berth, for instance, is a question which I would not like to determine at the present time. In other words, a board might pos- sibly hold that the owner of an individual vessel that is on a berth seeking cargo might ])e justified in making a slightly different rate 28 KEGULATORY FEATURES OF SHIPPING BILL. for two different shippers on the same article, provi(U>(l one shipper shi]3s in ix very hii-ge quantity and another in a small quantity. There might, ])ossibly, to take an extreme case which would, perhaps, be the most difficult case to arise, be justifying circum- stances and conditions warranting different rates to different shippers on the same steamer. I do not say that there would, but there might be. I doubt whether the canon reasonableness that would recjuire exactly the same rate for every shipper of the same kind of a commodity on a tramp steamer. The line usually has established rates on the line vessel. Any deviation from that by a line would probably constitute a special rate coming under the prohibition of the law. That I would be fairly clear about. But whether the provision of the law would impose absolutely the same rate upon all shippers by a vessel upon the berth, I would somewhat question. It would depend, I think, upon the decision which an intelligent board might reach after looking into the ques- tion. Mr. Edmonds. Suppose I had two steamers in Philadelphia and they were both .5,000-ton boats, both owned by myself. I load one of those with 5,000 tons of coal to go to Brazil, we will say. A couple of days after that a man comes along, another shipper, and says, ' ' I will take that other boat of yours ; what are you going to do with it." "I am going to load it with ballast," I will say, "and send her over to Spain: I haven't got a cargo here for it," or I am going to send it somewhere else. "Say, now; you look here; if you will take another 5,000 tons of coal for Brazil," at a rate, we will say, of 25 cents a ton less than I am getting on the other steamer, "I can get that cargo for you." The natural supposition would be I would take that cargo, lacking cargo for my boat. I would then be making a special rate to the second shipper for exactly the same service. Dr. Johnson. I am not sure you would be making that second rate under circumstances and conditions exactly similar to those that prevailed when you were making the first rate. Mr. Edmonds. Would not that lead to a whole lot of legal com- plications, complaints before the board, and hearings that would never be finished; and would not the shippers be coming down here to Washington time after time and time after time to appear at these hearings ? Dr. Johnson. I do not know how that would work. Mr. Edmonds. You know yourself — you are a member of the Maritime Exchange of Philadelphia, and you know exactly what would ha])pen; and so do I. Dr. JonxsoN. I do know that the most troublesome clause for- merly in the interstate commerce act was the clause "under sidistan- tiaUy similar circumstances and conditions"; and I do know that the flexibility of conditions of rate regulation in England grows out of that veiy phrase "under substantially sinfilar circumstances and condi- tions." But in answer to your first c{uestion, I do believe that that phrase gives flexibility enough to the statute to obviate the necessity of quoting every shipper the same rate for the shipment of like kinds of commodities. Mr. Edmonds. You would api)rove then of keeping that in this bill at the present time ? REGULATORY FEATURES OF SlilPPIXti BILL. 29 Dr. Johnson. I wouli] koop it in and try it out until I found out how the thing workcnl. .Vnd th{Mi if oxjiorience seemed to suggest modifications of it, I would modify it. Mr. RowE. Don't you think that this law as you have it (h-awn here, at least for the first two or three years, would work Dr. Johnson. I did not draw it. Mr, RowE. As it is drawn here — no; I know you did not; pardon me — will work a hardship more on our domestic ships sailing under our American flag than under foreign flags; for instance, ship com- panies doing business between the United States and South America. Dr. Johnson. I know what you mean. But on the whole, as I said in answer to Mr. Greene's question that was asked before luncheon, I think that the American steamship line and the American ship in the future will have a better opportunity if this act is passed than it will have if it is not passea. Mr. RowE. That is your belief under this act? Dr. Johnson. Yes; that is. I recognize that regulation involves more or less limitation of action; that is the essence of regulation, of course. And from time to time that limitation upon individual action may be a hindrance to the development of the export and import business; but the total effect, I think, of such a measure as this would be to give a fairer field and larger opportunity to the American shipper. Mr. RowE. Just one other question: Has it not occurred to you in reading over and studying this bill that the operator of the tramp steamer will have an advantage over the regular lines? Dr. Johnson. Yes; I think he is less restrained by the act than the regular lines. The Chairman. He is under existing conditions, is he not? Dr. Johnson. Oh, yes; he has no restraint whatever now, does he? Mr. RowE. Under tlie nev/ conditions he would have very much less than the regular lines. You can get at the regular lines, in other words, and regulate them; but it is very hard to regulate a tramp. Dr. Johnson. You see, this law deals first witli tiie general condi- tions of competition and second and most specifically with conference agreements and the lines that are members of the conference. So that the law proceeds some distance in the regulation of lines before tramps are reached at all. Do I make my point clear >. Mr. RowE. Yes; I think you do. Now, would tranqis, in your judg- ment, come under control like tramps started out \)\ English and German lines combined, as they were before the war, to break up a trade ? Dr. Johnson. The law proliil:)its fighting ships. Mr. RowE. Fighting ships, not tramps? Dr. Johnson. It prohibits unreasonable discriminations; it pro- hibits secret rebates; it prohibits a whole lot of things. And the pro- hibition runs just as mucli against the foreign-owned vessels as it is against the American-owned vessels. Mr. RowE. You know in some of the English l)oats they incorporate every boat of any size into a separate company. vSuppose that follows in the United States as it does in Englind, how are you going to con- trol them by your board ? Dr. Johnson. I (hi not see, ofl'hand, Mr. Rowe, how incorporation affects the situation. The law would reach the l)oat owned by indi- vidual persons just as much as by a corporation. 30 EEGULATORY FEATURES OF SHIPPING BILL. Mr. RowE. Yes; but then it would only act each time in reference to the individual boat, would it not Dr. JoHxsox. Yes; I said that. Mr. RowE. Instead of the line? As long as 20 boats are con- trolled by one line, then you can have your effect; but when you get down to 20 different companies Dr. Johnson. If those 20 different companies operated their ves- sels under a common management, over a defuiite line with fixed sailings and all that, it would become a line service, I would say, sub- ject to the provisions of this act just as much as it would be if there were not 20 different ownerships. Of course, I do not pretend to speak on that point after any mature reflection, because it is a new point to me; but offhand, I do not see that that would affect the situation, Mr. RowE. But you just said a few minutes ago — and that is what brought that idea out — that your decision would affect the individual compan}^ rather than affect the trade from your port. The Chairman. No; he said ''as well." Mr. RowE. I understood him to say it would affect the individual company; that the proceedings of the board would be against that company, not against the trade from that port and other companies trading from that port. Dr. Johnson. No; I was merely stating the question of law. The order of a commission, as well as of a court, runs against the parties in the case. That is all I meant by that statement. The order that may run wholly against me would apply to me and to the act that I committed. Congressman Edmonds has not been covered by that order necessarily, although he would probably, in view of the order against me, not do this very same tiling I have done. Mr. RowE. In proceedings under this bill you can bring in all other people carrying on the same trade, if you wished ? Dr. Johnson. Tliey could substantially be brought in. The order would not I'un against him; it would only run against the parties at issue in the case. Air. Hardy. ^Vlong that line, to begin with, my understanding of the custom of incorporating the separate boats is a sort of a special American practice. Mr. Row^E. Oh, no; it is an English custom more especially. We are adopting it now. Mr. Hardy. It is very especially so here in order to avoid liability. But leaving that cpiestion out, if it were apparent the one manage- ment controlled 20 different l)oats each separately incorporated, acting together, does it not occm* to you that it would bo within the province of the court trying that ([uestion to hold that method is simply evasive of this law and enter its order against' that whole management ? Dr. Johnson. The line itself can l)e made a party respondent and it would run against the whok; line. Mr. Hardy. Including the whole of the ships under that control? Dr. Johnson. I would assume that. Mr. Hardy. That is what seems to me to l)e the case. Dr. Johnson. I perhaps did not understand your question. Mr. RowE. I am just asking for information. Di'. Johnson. I did not understand your ciuestion. REfiUI.ATORV FEATURES OF SHIPPING BILL. 31 Mr. Hardy, I would like to follow tliat Idea out, because it seemed to mo a new oiu^ when you suggested it, but it seems to me if one company adopted tli(^ rule of incorporating ships separately in order not to have the ships excluded from our ports because of the manner in which they were operating, the court would investigate and go into that question. Mr. Saunders. I would like to ask two or three questions along the line Mr. Edmonds was pureuing a moment ago. Take the case he suggested of the two tramp ships owned by one man; the first ship loads coal for a Soutti American port at a certain rate; and, under the conditions that he suggested, the second ship loads coal for the same port at a lower rate. Now, just asking for your interpretation of the law and not what some future board may interpret it to mean — ■ because of course we can not fix that — but looking at the bill as you see it, don't you think there is enough authority given in the bill — you are interpreting it — to allow you to hold under the conditions stated by Mr. Edmonds those tw^o ships could be la\\'fully allowed to carry the coal at the different rates suggested i Dr. Johnson. That was my answer or the sense of it. Mr. Sai'nders. I say would not you interpret the bill as giving you suflicient authority for that ruUng ^ Di. Johnson. I was rather guarded, but that was essentially my answer to Mr. Edmonds. Mr. Saunders. Such a ruling as that would be in the interest of trade and commerce, would it not? Dr. Johnson. Yes, if the courts upheld it. Mr. Saunders. I mean now in your judgment, ilon't you think that ruling would ])e in th.e interests of fair dealing and of trade and commerce ( Dr. Johnson. Oh, yes. I would not ))e disposed to put a straiglit jacket upon the foreign trade of the United States. Mr. Saunders. Then, as a conclusion from all that, is it not fair for us to presume that a board of such a personnel as we contemplate this board would be would make such a ruling, upon such a set of facts as I have suggested, as you have indicated you would make? In other words, a ruling that would promote American trade and American interests (! Dr. Johnson. I will let the chairman answer that question, if I may. Mr. Saunders. I think any of us might answer that; but don't you think it would be fair to assume that such a board as I have indicated would make such a ruling, and that it would be in conformity with what you say is the authority given in the law and would be in con- formity, also, with what you say would be in the interest of American trade and American commerce ? Dr. Johnson. I would say any board would be disposed to inter- pret the law with a view to promoting rather than hindering the foreign trade of the United States. Mr. Saunders. In other words, trying to promote om" interests rather than hampering and crippling them, since this bill is ostensibly and actually designed to promote these interests, that it would be given an interpretation that would carry it out and give it effect along those lines ? Mr. Edmonds. I would like to say. Judge Saunders, that if that interpretation is correct, there would be no difficulty for any tramp 32 REGULATORY FEATURES OF SHIPPING BILL, to make any rato wliidi it chose to make simply by saying he can not get any commerce at the other rate. ^Ii'. Saunders. He can not make a fictitious reason. A man can not impose on a tribunal in any such way as that; you would soon get hauled up if you came into court with a fictitious excuse. Mr. Edmonds. I would like to ask Dr. Johnson a question on another line. I beheve you studied the Pacific conditions pretty well when you were at Panama, did you not ? Dr. Johnson. I have made some study of Panama matters; yes. Mr. Edmonds. The Japanese line is subsidized to about the extent of 5 per cent on its capital, I believe — the Ihie running to San Fran- cisco — and a Ime competing Vvith it would not be subsidized. You would not be able to make a freight rate on the American Ime less than you would on the Japanese Ime, and the Japanese line can run for cost and still make 6 per cent on its capital. How is this gomg to aid m building up these two competing lines by rate supervision 'i Dr. Johnson. I do not think that this bill would nmch change the present situation. Of course, as you say, the Japanese lines now are subsidized and the American lines are not. Tliat is a situation which this bill does not reach at all. I do not know that tliose who drafted the bill thought that it would reach that condition. Does my answer seem evasive ? Mr. Edmonds. You said this would build up a merchant marme, and I am trying to find out how it would do it. Dr. Johnson. I am not testifying here as to what has been claimed for it; but my testimony this mornmg was that the bill was framed in accordance with right prmciples. That is, I made an argument in support of regulation and took the position that this bill was drafted according to right principles. I do not want to be drawn into this larger question of how we should aid the American marine, because that is not really before the committee, as I understand, at the present time. Mr. Edmonds. Yes; but you made the statement a few minutes ago, since I have been here, that you thought if this was put mto operation, it would build up our merchant marine. I am trying to find out how it would. Dr. Johnson. No; I think the conditions won Id ])e better with it than they would if it were not enacted; that is what I intended to say. Mr. Edmonds, It may be you said that. I thought your answer to Mr. Curry's question was that this was going to make a })etter condition of affairs for the American merchant marine. Dr. Johnson. Yes; that is what I inten(hHl to say. Mr. Hadley. lender the terms of this bill as you have interpreted it, I would like to know how an American line out of Seattle or Puget Sound ports is going to undertake to compete from Hongkong witli a British line from Hongkong to \^ancouver, British (\)hrnd)ia, meet- ing the railroad terminals^ Dr. Johnson. That again is a situation, as I said just now to Mr. Edmonds, that is reached by this bill, is it not? Mr. Hadley. I ask you if you interpret this that the American line is to be subject to the regulation of this boar(h Mr. Johnson. It should be subject. Mr. Hadley. If we can reach out and i-egulate the British line that does not touch our ports at all, all right; but I understood y(m KEGULATORY FEATUKEti OF SHIPPING I'.ll.l.. 33 to concede and everybody to concede that it can not be done. Now, that hne conies into direct competition witli us because the moment it strikes the American seaboard at Vancouver, the terminal of the Canadian line, of course it has immediate access through our porta by rail and there would be no way on earth of controlling it. I am getting at the condition we would be in on the Pacific coast under the operation of this bill. Dr. Johnson. Would not the scope of that competition affect any decision as to reasonableness of the rates from Seattle? The ques- tion that would arise would be as to the reasonableness of tlie rate from Seattle to Yokohama, we will say, and if the reasonableness of the rate was questioned, would not any board in determining the question before it take into consideration all of the conditions of competition which had to be met in the making of that rate? la that not so ( Mr. Hadley. J am askmg your view of it. I can see that there is force ill that and that there are other lines that will compete with the Puget Sound line I referred to, and there will be complications between those lines; and when you come to regulate between a foreign line and an American line at any Puget Sound ports you have also to take into consideration other circumstances, such as competition between Amer- ican lilies; and if one line can not make any discrimination at all as against another one, then I do not see how you can take advantage of the similar ckcumstances and conditions under this bill, with the British or foreign line competing in a British port and thence raihoad into our country tlie products of foreign countries. Dr. Johnson. The Interstate Commerce Commission in many cases has justified lower rates for services performed under exacting condi- tions of competition than it justified for another service without those conditions of competi^.ion. And I would think that that broad prin- ci])le would apply in ])assiiig upon the reasonableness of the rate from Seattle. It might be that Seattle because of its location, close to the Canadian border, would be entitled to a lower trans-Pacific rate than San Francisco. Mr. Edmonds. It is the same as the AUan Line steamers from Mon- treal and Nova Scotia to England. Ml'. CuKKY. I would like to know what would happen to San Fran- cisco then? Mr. Hadley. That is what I had in mind in asking the question; and while this may seem to be afield, I do not think it is at aU. I think it is immediately in point. I simply want to get your view, I have not a well thought-out view of this myself. It is a matter of new consideration and I want your view while you are here, and then I will give it my own consideration. Dr. Johnson. I do not think regulation means a level rate among all Pacific ports on export traffic nor level rates on export traffic to Europe from all the several Atlantic ports. The reasonableness of the rate is determined by all the conditions which surround the service and the rate. Mr. Curry. Would not the reasonableness of the rate apply only to a single ship that was carrying the goods, or would it apply to a line or to a class of ships ? 38534—16 3 34 REGULATORY FEATURES OF SHIPPING BILL. Dr. Johnson. I think under this act that any one of those questions could be brought forward on complaint; that is, a rate on the specific article, a rate on the particular vessel, or a particular schedule of Une rates. I think they coidd all be subject to investigation and deter- mination under this act. Mr. Curry. I am interested in knowing who would have the right to make a complaint. Would any one except a party at interest, such as the shipowners, the shippers or the importers ? Dr. Johnson. The bill is indefinite there. It does not state who may be complainant. Perhaps that is a point to be considered. Mr. Curry. Of course the ship ought not to be subject to bo held up and tied up by a trouble maker who has no financial interest, directly or indirectly. Dr. Johnson. As I read the bill, there is nothing in the bill which states who may enter a complaint. Mr. Greene. The point you seem to make — I do not know that I am correct on it — is this: You talk about the reasonableness of a rate, as to whether it is too low or too high. An American owning a ship getting no assistance from the Government and coming in competi- tion with others that have assistance from their Government, could not afford to make a very low rate unless he ran his business for nothing or nm his vessel at a loss. He could not afford to name a lower rate and continue in business; he would have to name a higher rate. He would be discriminated against by reason of somebody else, some foreign line, runnirg near Seattle or in that region — Puget Sound — by those vessels which are subsidized, like the Japanese or the English Government, or a preferential rate of the English Govern- ment, running also the Canadian Pacific Line. It seems to me he is at a direct disadvantage under this bill by being regulated by the United States; it seems to me clear he would be at a disadvantage. Dr. Johnson. Let me suggest, Mr. Greene, that discriminations are of two kinds, reasonable and unreasonable. A discrimination of itself is not necessarily an unlawful act. If a carrier charges a higher rate, an American carrier, than a Japanese competitor charges, and can show that his costs of service are higher, can show that the Japanese Line receives a subsidy and he does not, he may be able to justify locally a higher rate; that is, he may justify a lau^ul discrimi- nation. Mr. Greene. Oh, I do not question but what he can justify it, but my (question is he would not get the business; he woidd be starved to death. The Chairman. Tliat would not be the fault of this law, but be- cause the other fellow performs the same service for less money. Mr. Greene. No, it is because we do not make any provision for him to give the man a chance to compete; you have the law so tight the man can not get any chance to compete. If you put a subsidy in your bill, then you will have something to do it with. That is really what ought to go into the bill. The Chairman. I want to say to you. Brother Greene, it may possibly be that ultimately we wiU have that to do. Mr. Greene. But I do not want you to strangle every shipper before that is done. The Chairman. I do not want anything like that unless we have this law on the statute books first. REGULATORY FEATURES OF SHIPPING BILL. 35 Mr. Greene, I want to keep this law oft", because I think it would strangle them to start with. The Chairman. Oh, yes; you would like to subsidize the lines and give them a free hand to exploit the trade. I do not want to do that. I want to regulate them first. Mr. Greene. I want to regulate them. The Chairman. I have some regard for the consumer. Mr. Greene. I have, too. Mr. Saunders. You have read this bill with reference to the proposed control over the interstate water carriers. Does it occur to you that there is anything in the provisions of the bill that is intended unrea- sonably to oppress or harass that traffic ? Dr. Johnson. No; I do not see anything in the bill that will put any handicap upon the commerce by water in interstate traffic, Mr. Saunders. I believe rate regulation of the railroads through the medium of the Interstate Commerce Commission is fully justified to-day by pubhc opinion, is it not? Can we not say that that is so ? Dr. Johnson. I believe so. I would like to make just a brief state- ment in this connection Mr. Saunders. I just want to finish out what I was going to say, that if there is any sufficient reason justifying the regulation of rates of the railroads by the Interstate Commerce Commission, is there any objection to conferring upon some like tribunal a control and juris- diction over the water-borne traffic in interstate traffic ? Dr. Johnson. In general answer to that question, I think the interstate-commerce act has justified itself, and I do not think that even the carriers themselves would care to go back to the conditions of 1887. Mr. Saunders. That is what 1 was seeking to develop. Mr. Greene. Is there not a vast difference between water and land transportation ? Dr. Johnson. I was just going to make a brief statement in this connection. I do not think it would have been wise for this com- mittee to have subjected the carriers by water to the same kind of regulation to which we now subject carriers by rail; and the bill, if it proposed to subject carriers by water to the same kind of regulation that the railroads are now subjected to, would not meet with my approval. But what is proposed is something very different. The carrier by rail must publish and file every rate he charges on inter- state traffic with the Interstate Commerce Commission; and in prac- tically every State he must file with the State authority his intrastate rates. He can not charge any other rates; he can not change them except upon 30 days' notice. The rates are established by law, practically. I do not think it would be practicable to conduct the water trans- {)ortation, ocean transportation, under such restrictions. This bill eaves it to the steamship line to work out its rates, which it does not have to print, even if it does not choose to ; certainly it does not have to file them. The owner of a vessel seeking traffic makes such rates as he feels that he can afford. There is no requirement that he has to notify anybody about it, except the part}'^ who is interested in it. The only rates that are required to be filed are those applying on a joint shipment over two or more connecting water lines. With that freedom of rate making and the ability to change the rates hourly, 36 REGULATOKV FEATURES OF SHIPPING BILL. if necessary, subject only to very broad requirements that the ratt^s shall conform to the standard of reasonableness set down in the act, I believe it is possible for the ocean carrier to go ahead and conduct the business without the degree of limitation that would be really restrictive in a business sense. That was the general statement 1 wanted to make. Mr. Saunders. My question, which you have answered, was deal- ing solely with the authority proposed to be conferred by this bill upon the board. There was nothing in my question that suggested that we should give to this board the same authority over interstate water traffic as is given to the Interstate Commerce Commission over railroad rates. I asked, in substance, having in mind that that commission had justified itself, if there was any reason why we should not give such a control as was contemplated in this bill to a like tribunal or board. Dr. Johnson. My answer to that is that there is no reason as I stated this morning. Tlie business of transportation upon the ocean is a busniess of a pubfic nature. It ought not to be conducted secretly; it ought to be conducted under conditions known to the Government and under conditions that enable the Government to correct unfair practices. In other words, it is not a purely private business: it is a business of a public nature that ought to be sub- jected to that degree of publicity and Government regulation that corresponds with the nature of the business. Mr. Saunders. And I believe you assented to the proposition that there is nothing in this bill, so far as you have examined in the pow- ers given to this board over the present interstate commerce water carriers that is calculated to oppress or depress or in a general way to operate prejuditially against the business of such carriers. Dr. Johnson. I do not think so. Mr. Saunders. If there is, we would like to have you point it out. Dr. Johnson. I do not think so. Judge Saunders. Mr. Hadley. In the statement this morning, if I remember your analysis of the biU — I did not hear all of the statement — in the do- mestic trade the board, under its corrective power would have the power and authority to fix a rate irrespective of any maximum would it not in the coastwise trade ? Dr. Johnson. Perhaps I do not understand you. It has the power to fix the maximum rate. Mr. Hadley. I thought that was in the case of the foreign trade. Dr. Johnson. That applies to both kinds. Mr. Hadley. It does? There is a limitation iipon the domestic trade that does not exist in the foreign trade, if 1 understand your analysis this morning. I would like to have you restate that, because I am not sure I got your idea. Dr. Johnson. The additional limitation upon domestic commerce, that is, carriers by water — in interstate commerce— is that they shall file with the boa-d and keep open to public inspection the rates be- tween points on their own route and points on a connecting route of a carrier by water. Mr. Hardy. What line is that you are reading from ? Dr. Johnson. Lines 5 to 12, page 11. Mr. Curry. But in that case there would practically be a fixing of rates where there are two boat lines that perform a service; because REGULATORY FEATURES OF SHIPPING BILL. 37 if they do not tile thair joint rates, each separate company has got to tile its rates, according to line 13. Dr. Johnson. It might work out that way. I assume that the purpose of those who drafted that part of the bill must have been to guarantee to the shipper a through sei'vice and a through rate with the accompanying bills of lading, so that a man who wants to ship to a distant point wiiich he can reach by two connecting water lines, can compel those two connecting lines to take that through traffic and to give him a through bill of lading. If the boat lines do not establish a joint route, the board can establish a joint route, but they need not establish a joint rate. Th3 board can require the carriers to file with it the rates that they severally charge, their two local rates, and of course the board can pass upon the reason- ableness of those two local rates. It was found necessary in the his- tory of the interstate commerce act to grant authority to the Inter- state Commerce Commission to establish through routes and through rates in order to secure to the shippers the through service which the traffic required. That was provided by the act of 1906, the Hepburn act, as regards tlii'ough routes by rail ; and by section 1 1 of the Panama act of August 24, 1912, which gives the commission the power to es- tablish a through route by rail and a connecting water line and also gives the commission the power to order a physical connection be- tween the rail and the water carriers. I am inclined to think if I had been drafting the particular section we now have under consideration, that I would have put in a little more and have required the initial carrier to provide through billing. Mr. RowE. Instead of compelling the separate companies to file rates ? Dr. Johnson. I would not have disturbed that; I think that is logical. Mr. RowE. That in most cases would make known to everybody the rates. For instance, the boat line on the Eric Canal bringing goods down to New York and transferring to the ship line to Savan- nah, Ga. Dr. Johnson. Yes. Mr. RowE. Both companies, in case they did not file a joint rate, would have to file their rates for that transportation ? Dr. Johnson. Yes. Is there any objection to that? Mr. RowE. I thought you said the theory of this bill was not to fix rates; not to make them absolute. Dr. Johnson. Even in that case the requirement is that those who fix the rates shall file them; that is, the companies who make. the rates shall file them with the board. The Chairman. It does not say that the board shall fix the rates for them; they fix them themselves. Ml'. RowE. It does, if they do not do it. These several carriers in such through routes shall file the separately established rates. Now, in that case, you can order them to file the rates. Mr. Curry. That is the same as the Interstate Commerce Commis- sion, and yet pi-actically the Interstate Commerce Commission fixes the rates. Mr. Hadley. There is a section in this bill that provides for the correction of rates where there is discrimination. a,7id that amounts to the fixing of rates indirectly. 38 EEGULATORY FEATURES OF SHIPPING BILL. Dr. Johnson. Yos. Mr. Hadley. That is a distinction without a difference. Tliey fix t\e. rates upon a comphiint and correction — the authority exists to fix a rate. It does not matter wnether they fix the rate in the first instance or fix it by correction. The Chairman. Are you in favor of discriminations? Mr. Hadley. No. The Chairman. Then, this would result in a remedy by having the board fix the rates. Mr. Hadley. I am not discussing the merits of the question. Mr. RowE. We are trying to get at what the effect will be. The Chairman. If the effect is to avoid discrimination and the rate is a reasonable one, I suppose everybody would be happy. Mr. Hadley. I am in favor of preventing discriminations if it is bad and would strangle anybody, but that is another question. Dr. Johnson. May I add to the answer I gave a moment ago ? It seems to me there is, in effect, a very substantial difference between the power to revise and the power to prescribe. If you leave to the carrier the initiation of rates and vest in the public authority the power only to correct such particular rates as are found, upon com- plaint and investigation, to be erroneous, it seems to me 5^ou are giving the Government a very much narrower range of powers than you are if you give them the power of prescribing rates generally. Mr. Hadley. It has not the initial power, but simply depends upon the initiation of somebody else. Dr. Johnson. Under this bill the carrier not only has the power to make the rate, but it does not have to publish or file it. The Government comes into the matter only when a particular rate is complained of or when the Government discovers an unreasonable practice through investigation which it initiates. Mr. Curry. The interstate water commerce of California is super- vised by the public service commission out there, and it works very well. Mr. Edmoxds. 1 do not find much fault with the interstate com- merce. It is easier to handle interstate commerce. Mr. IIardy. I do not know that I undorst; nd you, hut it soems to me section 6 does require intcrstat(5 commerce water carriers to iile their mtcs. ;Mr. Kowe. That is the very one we are talking about, on page 11. Mr. Hardy. Yes; page 11. from line 5 down' — every common cir- rier by w-itcr in interstate commerce sh-! 11 file with the board; that is, in tho interstate (ommcrce. I ]>e]haps s between ]>oints on its own route ;«nd ])oints on the other line. Dr. Johnson. Xo; I do not so r»^"(l it. REGULATORY FEATURES OF SHIPPING BlLl . 39 Mr. Hardy. If you will gt) down tlurc to the lower p.irt of it, you will iiml " no iiu ref.se shall be mr Mr. Blodgett was out of town when this report was adopted and, therefore, did not have opportunity to pass upon it. REGULATORY FEATURES OF SHIPPING BILL. 45 If tlie pie.sent legislation aa now presented to Congi-ess be for tiie purpose of the re- eatablishmeiit and upbuildine; of tlie American mercliant marine, it will prove a failure. I am convinced that the enactment into law of the proposed bill (H. R. 14337) would, after the abnormal conditions due to tlie war have passed away, be the means of de- creasing the amount of American tonnage and preventing the profitable handling of fame under the American flag. Yours, very truly, J. P. Seeckiz, Secretary. (Thei'oupon, at 4 o'clock p. m., the committee adjourned until to- morrow, April 14, 1916, at 2 o'clock p. m.) Committee on Merchant Marine and Fisheries, House of Representatives, Washington, D. C, Friday, April 14, 1916. The committee met at 2 o'clock p. m., Hon. Joshua W. Alexander (chairman) presiding. The Chairman. Mr. Jacobs is here from the Pacific coast and in his organization he has done some work on merchant-marine matters. He is on his way to Europe and I thought the committee would like to hear him briefly on H. R. 10500; that is, on any provisions of the bill to which he cares to address himself. We have under considera- tion especially at this time the provisions of bill 14337. STATEMENT OF ME. ISIDOR JACOBS, SAN FRANCISCO, CAL., PRESIDENT OF THE CALIFORNIA CANNERIES CO. Mr. Jacobs. I am president of the Calif or aia Canneries Co., of San Francisco; president of the Inland Waterways Association of California; also director in the Canners' League of the State of Cali- fornia. Mr. Edmonds. Is that a private concern? Mr. Jacobs. The California Canneries Co. is. The California League is, an organization of practically 95 per cent of all the fruit and vegetable canners of California, associated together not for profit but for mutual protection of the industry. The Chairman. Lias your league given any consideration to this question of shipping? Mr. Jacobs. Yes, sir. At the annual convention which was held at the Palace Hotel, San Francisco, in January, at which an output practically of $20,000,000 per annum was represented, a resolution was presented and was carried unanimously, after considerable dis- cussion, indorsing the bill that you have for the creation of a merchant marine. The Chairman. H. R. 10500? Mr, Jacobs. Yes. I think the resolution was sent to your chair- inan. The Chairman. Yes; it is in the record — page 226, of the hearings on H. R. 3 0500. Mr. Jacobs. Yes. (Mr. Edmonds. Did you have the bill at that meeting? Mr. Jacobs. Yes. The Commercial Club had it there. ■ Mr. Edmonds. How was the action taken — reading it by sections iihd taking up each section; or did you take it up as a whole ? 46 REGULATOKY FEATURES OF SHIPPING BILL. Mr. Jacobs. They took it up as a whole. The bill was read and then was taken up as a whole. The reason it was not considered sec- tion by section was because there was no opposition manifested in the discussion. The discussion took the line of something being abso- lutely necessary to roheve the present burdensome conditions that the fruit industry is laboring under in seeking foreign markets and which it has been laboring under for a long time. The discussion took" entirely the Une of addresses on the necessity for prompt action to relieve the situation. We are confronted there by practically a loss of our entire industry unless some relief is had, unless we can get ships to move our products to the markets. The foreign trade heretofore has been nearly entirely in the hands of the British steamship owners and, whether by com- bination or otherwise, rates have been estabhshed by the different companies at the same time and the same rates. After the Pacific Mail was purchased by the Atlantic Transport Line — the rates had been very high — they dropped the rates to get some of their steamers loaded for Englard ard immediately the other hues all dropped at the same time. The rates are now about 600 per cent higher than they were before the war started, but even before the war started, they found their ability to advance rates, and although the opening of the Panama Canal reduced the time in transit from San Francisco to Liverpool ard London to 30 days instead of 60 days — although some of the steamers used to take 90 days around via the Straits of Magellan — they gave the shippers no concessions at all as a considera- tion for the opening of the canal; the rates remained the same. They did not consider there was any advantage obtained as far as the ship- pers were concerned and, of course, that means the producers of our State as well — there was no advantage obtained by the fact that the canal had been opened, and the fact that their cost of transportation had been reduced considerably upon that account. Mr. Edmonds. What percentage of your goods goes to foreign markets ? Ml'. Jacobs. Personally, our own concern, 85 per cent of our busi- ness is in foreign markets. But of the output of our California canned fruits, about 35 per cent — probably from 35 to 40 per cent. Mr. Edmonds. Goes to foreign markets? Mr. Jacobs. Yes. In our own trade, though, it is 85 per cent in our own business. I may say that this question of an American merchant marine has been up before our annual conventions for the last 12 years; every year the same discussion has come up, and we favored the ship purchase bill which was defeated in the last Congress. We believe if that bill had been adopted the present conditions would have been relieved, because we would have had sufficient tonnage controlled, either directly or indirectly, by the Government to have kept a leverage upon rates. If I remember correctly — I was chairman of the committee of the league at the time — I think it was expected that the Government would control, either directly or indirectly, over 600,000 tons, and that would have been sufficient in this country not only in California, but for the fruit trade of the country and the East as well as West, to have kept a leverage upon the freight rates which to-day, although they say they are based entirely upon supply and demand, as a matter of fact are based upon all they can get. And, as I say, REGULATORY FEATURES OF SHrPPING BILL. 47 they keep on; there is no stabihty now. If we to-day should enter into contracts in Nonvay and Sweden — they started in by telhng us the rates would'be 100 shillings; by the time we got the contract, they said now the rate is 150 shillings. Well, we said we would have to submit that to the buyer on the other side. Two days later, if we had an order come m, they would say the rate is 170. And so it went on, and we got disgusted and just quit trying to quote at all. Mr. Edmonds. Still, you expected the buyer on the other side to pay the freight rate, whatever it was ? Mr. Jacobs. Naturally. The goods are sold "c. i. f.;" that is, tho goods are sold cost, insurance, and freight delivered in the foreign markets. But we would figure the thing down just as low as we possibly could and if there was anything in it we would take the order; but as it turned out, for instance at Genoa, last year, wo made a contract wdth a shipping company in New York, the Italian line, and we sold tho goods based upon that freight rate. The goods went thi-ough the Panama Canal — it was before the slide started; when they got to New York, they got there, so they said, one day after the steamer had sailed on which they expected to put these goods and they boosted the rate on us. And on that little shipment we lost $1,800 below the absolute cost of the goods. So we just quit the business after that; we would not quote at all. Mr. Edmonds. You are selling goods to-day. though, subject to those conditions? Mr. Jacobs. Very few, though, on account of the high fr?ight rates. We are practically stopped now on account of the tremen- dous freight rates. You can imagine what it amounts to w^hen I tell you that the present freight rate to England is $1.37 a case for two dozen cans of fruits, when at the beginning of last year the rate was 35 cents a case. Tho Chairman. It is now how much ? Mr. Jacobs. $1.37. The Chairman. As against 35 cents last year? Mr. Jacobs. Yes. So you can see that it practically means the cessation, the absolute impossibility, of sending any more goods there under these rates, unless they are absolutely necessary. If the Gov- ernments over there buy some of these goods and have to have them, of course, they will pay that rate; but it has knocked off the French trade completely. We started in to send 30,000 cases of goods to Paris through Havre and engaged a ship to Havre, but the rates from New York became so tremendous we could not ship them. To show there was no stability to it, we had our own office in New York, and they thought we had the goods coming on the way to New York and they had to go on one of these steamers, so they boosted the rates to 200 shillings. I immediately wired the office in New York and told them to keep the goods there and not to ship them, and they reduced the rate to 150 shillings the next morning, a difference of 50 shillings. Mr. Edmonds. Yes; they were getting the best price they could get, there is no doubt; I do not think there is any question about it — just the same as you would do for your goods or any other man, get the best price he can. Mr. Jacobs. Yes. We believe the national-bank reserve act has reheved the fuiancial stress upon business by reheving us from pan- ics or panicky conditions, and we believe that the time has come 48 REGULATORY FEATURES OF SHIPPING BILL. now that the United States Goveinniont should rchevo the business conditions, in getting a foreign market, by reguhiting tlie steamship business under the American flag. We think that it can be done. It has been tried for 40 years without regulation, and nothing has been accomplished, just as we had been trying for years with the currency act and never had been able to accomplish the results with that. I l)elieve the purpose of the currency act was to relieve busi- ness conditions so tliat they might not tremble all over this country; and I believe the business men now know where they are. I believe the same thing about the j^Vinerican merchant marine. I might say, though, pereonally, that our large organizations have been fighting it — the large chambers of commerce throughout the country — but we beheve they do not represent the general run of business interests in this country to-day in connection with the establishment of an American merchant marine any more than they did in connection with the reserve act. The Chairman. Wliy do you think that? Mr. Jacobs. Because we find in getting out these referendunis that the United States Chamber of Commerce got out that in our local chambers of commerce in all large cities like San Francisco, Los Angeles, Portland, Seattle, and in the East, New York and all the large ports, they sent out a letter to their members. We will say that our local chamber of comn^erce in San Francisco consists of 3,700 members and they will send out a letter to them saying, "We are asked by the Cliamber of Commerce of the United States to take a referendum upon whether you believe in the establishing of an American merchant marine; we recon\mend that you answer "yes.'" "Do you believe in the establishing of an American merchant marine by the Governmert having anything to do with it? We recommend that you answer 'no.'" "Do you believe in it by means of subsidy? We recommend that you answer 'yes."' I tested that by sending out a letter myself to the members of our local chamber of commerce. The answers received by the chamber of commerce itself were between 500 and 600 out of 3,700 members. I got over 800 answers directly opposed to the referendum that the chamber of commerce took, but I did not suggest how they should .answer the questions. Mr. Greene, May I ask you a question? Mr. Jacobs. Yes. Mr. Greene. Do you mean to say that the chamber of commerce in their document that they sent out indicated how they wanted them to reply ? Mr. Jacobs. Yes, sir; and I have one in my possession. Mr. Greene. I would be glad to see one. Mr. Jacobs. I would be glad to send it to you. Mr. Greene. I know, but where is it? Is it at the hotel? Mr. Jacobs. I would be glad to send it to you. Mr. Greene. I have the documents and I have never seen any- thing of the kind. The Chairman. He is going to send it to you he says. Mr. Byrnes. He is talking about the organization sending it to the members ? Mr. Jacobs. Yes; in San Francisco. REGULATORY FEATUHKS OF SI I li'l'I i\(; BiLI.. 49 Mr. Greene. Oh, yes; 1 know what he said, llo said they liked to have you vote "ves;" '"we bohovo 'ves.'" Or "wo want you to vote 'no.'" Mr. Jacobs. I did not say that. Mt; Greene. What did you say ( Mr. Jacobs. I said the local chunilx'r of conimerce sent a letter to their members with the referendum and in this letter they said "Our board of directors on merchant marine, or committee, have agreed to recommend that you vote 'no' to this ()uestion," and so forth. Mr. Greene. That is different. I understood you to say the United States Chamber of Commerce. Mr. Jacobs. No; I did not say that. Mr. Hadley. He was not clear in it and I was about to ask the question to which one he referred, myself. The Chairman. I was not clear about it myself. Mr. Greene. I understood you to say the United States Chamber of Commerce sent out that appeal. They sent out a direct appeal without makhig any recommendation at all to the people about how they should reply to it. Ml-. Jacobs. I beg your pardon; they did not send out any direct appeal at all; they only sent it to the local chambers of commerce. They only sent it to the members of the United States Chamber of Commerce, which is made up of the organizations and some in- dividuals. Mr. Byrnes. I understood the gentleman. Mr. Edmonds. Mr. Jacobs, I was visited by a man the other day who runs quite a largo fruit and vegetable farm — he grows tomatoes, and so on — and he wanted me to draw up a bill for the Government to go into the canning business. He said the exactions of the canners were so severe and the price paid for the tomatoes so small, he thought the Government ought to go into the canning business. Mr. Jacobs. Yes, sir. Mr. Edmonds. That is something on the same order as going into the shipping business. That would be perfectly justified and I pre- sume your association would recommend that if I put in a bill? Mr. Jacobs. I do not thmk it is a perfectly smiilar situation at all. But I do not think I would object to it if it was for the benefit of the people. I think they would recommend it if it was for the benefit of the people. 1 want to give you an idea by something that is on record here in Washington right now. It has not boon generally known — although I was engaged in that fight — but it is exactly the same tiling that is going on to-day with these matters. Under President Roosevelt we brought to the attention of the administration in Washington that the Pacific Mail Steamship Co. going out of San Francisco was not seeking any business and that formerly when it was organized by the Southern Pacific, the railroad owning 55 per cent of the stock of that c(nr.pany, they received a subsidy of $900,000 a year from the transcontinental railroads to go out of the port of San Francisco eni])ty on their business to tiie Atlantic. When the contract was broken up through our efl'orts or, rather, an organ- ization which I formed out there, the Pacific Mail still did not seek any business, and a comiuittcH' of the chamber of conimerce was .38.5.34—16 4 50 lti:oLLAiOKY lEA'lLKES OF SUimisG lilLL. appointed to -investigate. After a great deal of trouble wc had a committee appointed to investigate the matter; we called the atten- tion of the administration in Washington to it and Mr. Taft, who was then Secretary of War, sent Mr. Bristow out. He was appointed special Panama commissioner to go out and examine into the condi- tions we had comphxined about. He reached .California and went up and down the State; he had a hearing hi the State of Oregon, one hi Washington, and in different places hi California, too; but he could not get any expression on the part of the mercliants because they were afraid to express themselves hi the presence of tlie rail- road officials and the steamship officials. .4nd I made the suggestion — altliough we have been large shippers always — the only way he would get at the facts was to invite them to his liotel and get in secret the information they were afraid to give in public. And in his report which is on file in Congress— you have the report somewhere, T know, and you can find it very easily — he says lie then obtained the true facts. Notwithstanding tliat, the chamber of commerce brought in a report acknowledging the conditions — that is, the committee did — and objecl^ed to any interference on the part of the Government. And immediately we came on here and we saw Mr, Bernard Baker, who was then in "the shipping business, and he said if the situation did not change he would start a steamship line to relieve the situation, and immediately the Amcn-ican-Hawaiian Steamship Line was started and there was an increase in the ocean-borne traffic from 15,000 tons, I think it was, per annum — I have the correct figures in my suit case — to something like 225,000 tons ])er annum in one year. And from that time on it commenced to increase. So that the chambers of commei-ce do not represent — our chamber of commerce, and I am a member of it, and I do not hesitate to tell them just what I am 8 lying right here — the business interests of the country. They r.^present generally the one ir.an who is able to control the boards ol" directors in those organizations. Mr. Hadley. You predicate that general statement upon what you observed in San Francisco ? Mr. Jacobs. Ai\d elsewhere. I have made it my business, and I am doing it at my own expense. I have been up and down the coast tryhig to break up this system, and I delivered an address to the chamber of commerce in Portland about four months ago. I deliv- ered five addresses up there to the diffareiit commercial organizations in two clays, and when I was invited there I wrote to the president that they would not like what I had to say. He said, "Well, we are here to hear what you have to say." And when I finished, there was quite a crowd there and ex-Gov, West of Oregon got up and said he was gohig to get off his chest something he had had there for a long time, and he substantiated what I said. And the vote was taken there, and it was nearly unanimous on the part of the mem- bers, repudiathig the action of the Chamber of Commerce of Port- land hi connection with the shipping bill. The Chairman. I was there and met with the subcommittee that had the shipping bill under consideration, and the majority of the com- mittee was made up of railroad and steamship men, ana their report never was submitted to the chamber of commerce for ratification; yet you have their report as the sense of that organization. And at Seattle, the Commercial Club indorsed the old ship purchase bill, and the REGULATORY FEATURES OF SHIPPING BILL. 51 chamber of coinmorce, made up of those mterests and controlled by the same elements to which you refer, opposed it. Mr. IIadley. I want to disclaim any acquiescence in the last statement of the chairman, as to the nature of the organization of the Seattle Chamber of Commerce. The Chairman. T was told that by tiie secretary of the Commer- cial Club. Mr. Hadley. I am not going to debate it; 1 just want to (hsclaim the statement. I know something of the situation in Seattle. Mr. Edmonds. A situation like that is not true of the eastern chambers of commerce; I will say that. I do not know anything about the West. Mr. Greene. It is not true in Massachusetts. The Chairman. Mr. Rosenthal said two memb(>rs of the Com- mercial Club of Chicago — composed of 5,000 members — made the report on this bill, and his statement has gone unchallenged so far. Mr. Edmonds. But even on the face of your own statement, the canners have not taken up this situation at all; they have only taken up the question of Government ownership. Mr. Jacobs. I did not say that; I said that the sentiment at our meeting was that it does not make much difl'erence how we get an American merchant marine as long as we are going to get it in the right way. Mr. Edmonds. All you want is a merchant marine? Mr. Jacobs. Yes; that is what we want. Mr. Edmonds. That is exactly what I am driving at, and on the face of your statement I say you did not study this bill any more than the chamber of commerce did. Mr. Jacobs. I did. Mr. Edmonds. You may have, personally, but the f)rganization did not. Mr. Jacobs. I did not say they did. Mr. Edmonds. You know just as well as I do how those things are conducted. I belmg to boards of trade and chambers of commerce, and I know myself, and I will say this, in the East that we never get anything through without having a big fight on our hands, particu- larly when it is anything as big as this. Mr. Jacobs. At the Inland Waterways Association, which has probably a much larger and more representative organization of men, because it is composed largely of producers in the State, the bill was debated, and the reason it was debated was that the resolu- tions committee of 19 brought in a favorable report — a unanimous report on the bill. The Chairman. Where was that? Mr. Jacobs. The Inland Waterways Association at its annual convention. You have a copy of their proceedings here. I think I left it with you this morning. The bill was ]3resented on the floor, and the first man to get up and oppose it was Col. Irish, the same man we have always looked to oppose everything; the same man who fought us when we had the Pacific Mail matter up years ago, when we wanted to reheve the situation; but I, as president of the organization, did not feel it was right for me to attack his position, so I said nothing and was just ready to preside, which I did. Finally, a gentleman from the northern part of the State, a large producer up there, got 52 KEt;ULATOKY FEATURES OF SHIPPING BILL. the floor, and he showed that Col. Irish had always represented, in connection with his attitude on questions of that kind, the special interests, and, in fact, was employed by the special interests. The Chairman. What do you mean by ^'special interests?" Mr. Jacobs. I mean the large railroads and others who have })cen in the past opposed to measures of this kind. Mr. Edmonds. Is not the canners association a special interest? Mr. eJACOBS. No; the Canners League, as I say, is an association not for profit. I am not representing the association here. That is a much larger concern than we are. Mr. Edmonds. You are a special interest, so it works out in Cali- fornia. Mr. Jacobs. We are one of the independents, then, because we are not affiliated with them. After the debate took place there were two speakers that opposed this bill, and the attitude on the part of both of them was well known in the convention before they even came there. And here was a representative gathering of men from all parts of California — in fact, the report says it was the largest and most representative gathering held in 12 years of a league conven- tion; the big room in the Palace Hotel was packed to the doors — and it was carried practically unanimously. I think there were two or three votes against it, but they were so few no attention was paid to them. And the whole thing was fought out on the ground of Government interference in the shipping business. Now, I do not say that I favor Government interference; I do favor an American merchant marine, but I am not like a great many of our directors in our chambers of commerce who howl loud for an American merchant marine, but only want it one way, and that is by means of su])sidy. I favor an American merchant marine to relieve the conditions in this country, but not for my own interests, because I hope to be out of business very shortly; I am pretty near through witli business. Mr. Edmoxds. Would you ba satisfied if the Go/ernment were to buy $50,033,093 worth of sh'pi and ^our association or an association of the shippers in San Francisco could charter one or two of those ships, or three or four of them at a reasonable price and carry your goods ? Mr. Jacobs. Would I be satisfied? Mr. Edmonds. Yes. Mr. Jacobs. I do not know. I have not given any thought to it, but I think so. Mr. Edmoxds. Or do you want the Government to run a compaay from San Francisco to London and Paris for the 200 cases or 300 cases that you lia /o to sh'p ? Mr. Jacobs. I will tell you I believe if the Government put $50,000,- 000 into ships and leased them to private companies and lost the whole $50,000,000 in a year, they would save this country two hun- dred million in a year by the regulation of freight rates, and that would redound to the benefit of the producers and business men of this country. Mr. Hadlky'. Is your discussion on the theory that is what is to be done? Mr. Jacobs. 'Vo lose the money? REGULATORY FEATURES OF SHIPPING BILL. 53 Mr. Hadley. No; I say is your discussion o;ird on its own iuiriarive. tlie hoard sludl he of (ipiuiou that any rates or charjj;es deuiaiided, charj;ed, or colected hy any com- mon carrier l)y water in foreijrn commerce are unreasonahjy high, or unjustly discrlDiinatory between shippers or ports, or unjustly i)rejudicial to exporters of the United States as compared with their foreign competitors, or represent an unjust relation between classes of commodities, the board is herel)y em- I'owered to determine and prescribe ^^■hat shall l)e the just and reasonable rates and charges to be thereafter observed as the maxinnnn to be charged, and to make an order that such carrier shall cease and desist from publishing, de- manding, or collecting any I'ate or charge in excess of the prescribed maxi- nnnn, etc. I won't read the whole section, because I think I can make our point clear already. We believe, in the first place, that beginning again at section 5, that whenever, after full hearing upon a sworn complaint. AVe believe, for the reason which I have already stated, that a man who makes a complaint should make it in public and swear to his complaint. Then, we prefer to strike out " or under an order for in\estigation made by the board on its own initiative," for the reason which I have alread}'' given. And then we continue : * * * the board shall be of opinion that any rates or charges demanded, chai-ged. or collected by any common carrier by water in foreign commerce are unjustly discriminatory — Leaving out " unreasonably high *' — a. * * .^i-e unjustly discriminatory between shippers or ports, or unjustly prejudicial to exporters of the United States as compared with their foreign com- petitors, the board is hereby empowered to alter the rates or charges demanded to llie extent necessary to correct such unjust discrminati(»n or prejudice and to make an order that such carrier shall cease and desist from such unjust dis- crimination or prejudice. The board is hereby also empowen>d upon sworn comiilaint. after full hearing, to determine, prescribe, and order enforced just and i-easonable regulations and practices i-elating to or connected with the receiving, handling, storing, and delivering of property by any such carrier. Our point being that we have no objection to the board having the power to prohibit unjust and discriminatory rates or practices be- tween shippers or anything which will be discriminatory or unjust as between the connnerce of this country and the connnerce of other counti-ies. AVe do object to the power being given to the boai'd to determine what shall be a fair rate or whether a rate is unreasonably high or not. AVe believe that so long as the rate is fair as between all the shippers and no prejudice is done to the commerce of this country as against the connnerce of other countries, that the interest of the public welfare is entirely safeguarded; that there is no way in Mhich this board or any other board can determine wliat shall be a fair rate when it covers vessels of iierh-iips a hundred different types, carrvinjr different cargoes, and of vessels of different costs. EEGULATORY FEATURES OF SHIPPING BILL. 67 Mr. Saunders. Just a word in that connection, ^'oii think, as a matter of sound public policy in the United States, for instance, the railroads ought to be allowed to charge unreasonably high rates ^ Leaving out for the present the difference between inter.state railroad transportation and commerce on the high .seas, do you think the rail- roads ought to be allowed, in the interests of public policy, to charge, unreasonably high rates? Mr. Bush. I think it is the established policy of the country that the railroads shall not be so allowed. Mr. Saunders. That is controlled by a commission ? Mr. Bush. That is controlled by a commission. Mr. Saunders. In other words, that the Government is allowed to apply the law- of reasonableness to railroad transjiortation, forbid- ding the railroads, if they had the opportunity to do it, from charg- ing unreasonably high rates'!' Mr. Bush. Yes. Mr. Saunders. That is a matter of administration in the hands of the Interstate Commerce Commission ? Mr. Bush. Yes. Mr. Saunders. Xow. having in mind the traffic on the high seas, which it is proposed to have controlled by a board, why should a man engaged in traffic of that sort be allowed to charge unreasonably high rates, and why would not a board, composed of the same type of men that compose the Interstate Commerce Commission, be as well able to apply the law of reasonableness to the traffic on the high seas as to traffic on the i-ailroads? What is there to hinder them from doing it? Mr. Bush. I think the difference is that on the railroads you are haulinga train of cars made upof small units, where the fixed operating cost is more or less permanent and more or less easily determined. It is a very difficult thing to determine even in the case of the rail- roads. But Avhere you are operating vessel property, wdiere, perhaps, one man may own one ship — that may be the extent of his invest- ment — unlike the New York Central or the Pennsylvania Railroad, where the law of averages is spread over thousands and thousands of cars, he has one property. I do not like to answer questions in the Irish fashion, but I would like to know^ first how are you going to determine the reasonableness of the charge— are you going to base it on the return on the investment? If you base it on the return on the investment, how are you going to protect the man Avho has a boat for which he has paid $140 a ton as against a man who has paid $iO a ton? Mr. Saunders. Taking up the suggestion that you make, which \f. a perfectly fair and legitimate one, you suggest difficulties rather than a possibility. It may be that all of those elements and those factors you speak of ought to enter into the determination by the board, but that does not make it impossible for them to ari-iAC at a determination. For instance, it is a perfectly plain proposition, after you have all the factors before you, it seems to me, to ascertain whether a man in this business is making more profit than :ie reason- ably ought to be allowed to make at the expense of the public. Mr. Bush. I think I should rest our objection to thsit upon two points 68 REGULATORY FEATURES OF SHIPPING BILL. Mr. Saunders. Just let me finish that in connection with the dif- ferent costs of the vessels you speak of. That would he fairly con- sidered, of course, by the commission. But when that is fairly con- sidered why would not a mind that is capable of suijijovsting tlie dif- ficulties and appreciating them be able to arrive at a just conclusion? It is merely u]'ou a new state of facts or a new equatu)n that the ap- plication of the law^ as to reasonableness is made and why can not that bo done? Mr. Bush. I can only answer that by saying we searched the minds of the steamship operators in New York and have not been able to find thiit mind, although it may exist; but Ave have not been able to find a mind which can suggest a way by wdiich all those different difficulties can be overcome. It is no secret I am personally not an experienced steamship man, but we have men here who are per- fectly capable of giving direct answers to (juestions of that char- acter. I should rest my own answer upon two or three points. In the first i)lace, I would again like to make the point that we have not a merchant marine as we had a railroad system when we began to regulate the railroads. One of the most important things is that in enacting restrictive legislation it is going to discourage American investors from going into the steamship business. I think that the thought in his mind that if he invests half a million or a million dollars in one steamer, that the entire earning power of that steamer is going to be in the hands of a board of eminently just and fair- minded men, but not men experienced in the steamship business; I think that fact itself is enough to prevent me, at least, from going into the steamship business, and if it prevents me, I think it will pre- vent a great many others from doing the same thing. Mr. Saunders. You are afraid that some board might exercise these powers to discourage American commei'ce — which, it seems to me, Avould hardly be a reasonable or a likely thing for it to do — if vested with powers which will enable them to control foreign com- ]ietitors in the interest of American shippers and the capitalist who is disposed to invest his means in American ships. You suggest, which is true, that we are building up an American merchant marine. Is it not fundamental to that process of building it up that you hhould have some way of holding a restraint OAer this foreign com- petition? That is an essential factor in the upbuilding of this budding merchant marine of America on the high seas, it seems to me. Mr. BusiT. We have no confidence that this country can legislate our foreign competitors out of business. Mr. Saunders. We do not propose to do that. Mr. BusiT. We believe that all business must ultinuitely rest upon equal conditions, and when equal conditions have been established it depends then upon the energy and enterprise of the men con- ducting the business. Mr. Saunders. I believe that is fundamentally true. Mr. Bush. We believe that fundamental theory which has to un- derlie the establishing of an American merchant marine is the equal- ization of conditions, and we do not believe you can create that by legislatiA'e means. Mr, Saunders. Let us see about that. Is not one of the difficul- ties — certainly developed, we thought, in the investigation made some years ago by this committee — the fact that there are practices REGULATORY FEATURES OF SHIPPING BILL. 69 among the foreign trades, among the merchant marine and the capi- tal of foreign countries invested in the merchant marine, that are to the distinct prejudice and disadvantage of the capitalists of this country seeking to go into that business ^vith American ships? Mr. Bush. If you refer to rebates and fighting ships, and prac- tices of that kind, Ave believe those practices have existed. Mr. Saunders. Have existed? Mr. Bush. That at the present time, very largely, they do not exist, but they may come back. Mr. Saunders. If we can curb them, is nut that an advantage to the American capitalist? Mr. Bush. We believe the power should be given to this board to regulate to the fullest possible extent in the interest of fair play and in the preventing of any discriminatory practices or any unfair practices; but we have not been able yet to see a way in which can be determined what is an unjustly and unreasonably high rate, and we came down here with a full desire to learn of such a way if it does exist. Mr. Saunders. I perfectly understand that, and that is the reason we are talking over these problems with you now. But you know it is only the maximum rates our bill refers to. while in the regula- tion of railroad rates, in the interstate-commerce law, it is both maxi- mum and minimum rates. I refer to line 21, page 9- The Chair^vian. You speak about the difficulty of determining what will be a reasonable rate. Does not the Interstate Commerce Commission have that same problem to solve ? It costs twice as much per mile to build some railroads, or many times more to build some railroads, than it does to build others; yet they do not allow one rate on a railroad which costs so much more to build and maintain than they do on the other. Don't they take all those factors into consideration in determining what is a reasonable rate on the several lines? Mr. Bush. I think all those things are spread out on the railroads by the law of averages. The Chairman. I suppose that would be true in the merchant marine, too, would it not? You would not expect because a man paid $150,000 a ton for his ship and the other paid $50 a ton, that the first man should charge three times as much? There Avould have to be an average, otherwise the man who paid the higher price in the business could not compete with the man who had the cheaper ship. Mr. Bush. I was speaking not so much of the average in the cost of construction as I was of the average of operating conditions on the railroad, that is spread over the handling literally of hundreds of thousands of cars. But here, you have running between this and any given European port such a steamer as Mr. Franklin operates, perhaps, capable of carrying 20,000 or 25,000 tons of freight, and also the small steamer capable of carrying 3,000 tons. They are running in exactly the same service. We are not willing to admit the theory, although we admit the intent is there to do justice, that it can be done fairly ; we are not willing to accept the statement that it can be done simply on faith in encouraging the upbuilding of a merchant marine, until it can be shown how it can be done. Our theory that this thing would be done or that thing can be done is a matter of 70 REGULATORY FEATURES OF SHIPPING BILL. speculating on business conditions, and very often when you are confronted Avith the actual necessity of shoAving how to do it it is quite a different matter. Before you gentlemen prescribe laws wliicli will give anyone the power to make such drastic regulations of the earning power of vessel property, we think it is up to you, before you pass such a law, to show us a reasonable way in which it can be carried out. And so far that has not been done. Mr. Hakdy. Do you think in the interests of the welfare of the whole people that an established line, for instance, like the Pacific Mail, running to the Orient from our western coast, having a patron- age which makes it splendidly prosperous, should be allowed to double the rates on their freight without any power in existence to say. "■ You shall be somewhat reasonable to the public,'" and to prescribe a maximum? That is all this bill does. Here is a rate on this line that has been perhaps increased 1,000 pev cent because busi- ness conditions permit them to do it and the trade is bound to submit. Ought there to be nowhere under the sun a power to restrain the fear- ful grasp that uses such conditions to oppress the people? Mr. Bush. Those conditions are conditions which are the result of an emergency. Mr. Hardy. Granted. Mr. Bush. And if you attempt to legislate for emergency condi- tions for established lines and which are going to be in force for all time, I think the chances are you Avill do a greater injustice Mr. Hardy. You do not establish rules to be enforced for all time further than you establish a power Avhich shall be in force for all time Avhich Avill prevent this robbery for all time. Is your ansAver that there should be nothing? Is your position that there should be nothing to prevent that ? Mr. Bush. Our ansAver and our position is that the power should not be granted, that there should be no poAver of that kind granted until you can shoAv the business public how you can fairly apply it. Mr. Hardy. Does not the ])resent condition and the condition AA'hich has existed for nearly a year and a half, shoAv that there comes a time Avhen the helpless public needs a power in the hands of a restraining board Avhich prevents oppression? Mr. Bush. It Avould be my ansAver to that, ffudge Hardy, if that poAver had been vested in the Government to-day, that the American shipper Avould liaA^e to stand on the seaboard Avith his A\'ares and the ships Avould be employed in other trades: that the oAvner of the steamship, Avhich is not like a i-ailroad that has to run betAveen tAVO fixed points, is free to move upon its own bottom anywhere in the Avorld. In the present condition, unless i)eople Avho ship goods from America are Avilling to pay the rates of the Avorlcl. the American shipper Avill be Avithout ships, and no greater injustice could be done the American producer than just such legislation as you are suggest- ing noAv. Mr. Hardy. On the other hand, you thing on those goods from here that have to be transpoi-tod. that the ship carrier, knoAving they have to be transported, should be i:)ermitted simply to charge any- thing he pleases? It is taking advantage of necessit,y. Mr. Bush. I do not think I agree Avith you on that, Mr. Hardy. I thinlc the American people must pay the competitive rate for ocean tonnage. REGULATOKV FEATUUKS Oh' SllirriNG Ull.L. 71 Mr. IIahdy. Is not tlie Europoaii countrv bound to have her food supplies ? Mr. Bush. What is that^ Mr. PIakdt. Is not the Kuropean coiiiitry bound to have her food supplies? Mr. Bush. It is bound to have its food supplies; but we are ncjt the only producer of food supplies. Mr. Hardy. But we are the only ade(|uate supplier now (possibly we are not the only supplier) not only of food supplies but of other supplies. It simply seems to me that it gets down to the question of Avhether there ought to be any i)ower anywhere to prevent mo- nopoly, because it is a question of ])reventing monopoly. If com- petition was free. I do not think there would be any need of it; but you are aware that our investigation demonstrated the great shi]) lines were all in combinations and up to the present time they have had the power, whenever conditions arose, to fix arbitrarily just such rates as they thought proper. Mr. Bush. M}^ oavu view. Judge Hardy, is that, broadly speaking, spread over a long ])eriod of years, there is no industry in the woi'ld which is so regulated by the law of supply and demand and com- petition as the steamship industry. There have been special cases where there have been combinations in that trade, as there have been in all other trades, but just as soon as a combination is estab- lished in the ocean-carrying trade, which produces an unduly higli rate, there are other vessels, as there are always in normal times, that are capable of carrying the cargo, those vessels would be di- verted into that trade in a clay's time. You do not have to build a road or a concrete factory, but merely to transfer it. and instead of sending the ship from Boston to South America, say. to send it fi-om Boston to London. Mr. Hardy. To give you an illustration of that kind. I will apj)ly it to a little town in my own State, w^hicli undertook to charter such a vessel because they were charged just such rates. Thev sent that vessel to Baltimore to secure a cargo. Thev kneAv that if the rates charged bv the combination were lived up to. that vessel would pay and Avould make an ample and magnificient return on the investment; but before the vessel got started here was a fighting ship that the combination sent along. Mr. Bush. That, understand, w^e ai)prove of — eliminating fight- ing ships. Mr. Hardy. I understand vou approve of eliminating fighting ships: but if we go down to South America that fighting ship will drive them out of business. And it is apparent that, without any restraint at all, the big combination will drive all competition out of existence. And in that connection South America and other con- ditions might be gone into. So that to-day the combination is left to fix just such rates as they see proper, and you have not the com- petition of the laAV of supply and demand of which vou speak. ]\rr. Bush. I think that at heart we have absolutely the same thing, and the only difference in our conclusion is we conclude we should eliminate all unfair practices, including fighting ships, rebates, or any discriminatory practices; but we do not believe that the power to regulate as to what is a reasonable rate should be given to this board until the gentlemen who frame that legislation can say to us 72 REGULATORY FEATURES OF SHIPPING BILL. definitely and clearly just how you can determine what is a reason- able rate and upon what basis. Mr. Saunders. Just in that connection, let me ask you a question suggested by some of the facts that Judge Hardy brought out, be- cause we want to get at our respective points of view in this mat- ter. Supjjose you were on this board that it is contemplated be created, and we are dealing with present conditions: Is it your judg- ment that the American producer is not to-day oi* within the past 12 months has not been paying unreasonably high rates? Mr. Bush. I do not believe the American producer has had to pa}^ the rates; I think it has been the foreign buyer who has had to pay the rates. Mr. Saunders. Of course that gives rise to the old argument as to which end of it pays the freight. Then we will say somebody in the business. Is it your idea no unreasonable rates have been paid on shipments from the United States? That will eliminate the ques- tion of who pays it. jNIr. Buspr. It Avould be my i)ersonal opinion, speaking as an indi- vidual alone, that some of the rates which have been charged have given a very large profit to the steamship owner. But I think that has been due to the fact that the vessels could only be persuaded to go into this trade if they were permitted to charge the rates which gave them such earnings, because if they had not been able to charge such rates they would have gone into other trades. And I further believe the burden, if it has been a burden, has not rested upon this country but has rested upon the foreign countries. Mr. Saunders. I eliminated that feature. Mr. Bush. Mr. Chairman, I do not wish to decline to answer all these questions; I want to give all the information I can; but as I have frequently stated, I am not a steamship man. I am here, primarily, because I am not: I am merely neutral in these matters iind as a neutral was api)ointed chairman of this committee. We iiave with us gentlemen who are very much more able to answer these questions and give more enlightenment than I can. Mr. Saunders. I understand, but I want to follow that up a little. 1 asked you, as a matter of fact, in your judgment, if shippers from this country had not paid unreasonable rates and your answer to that was there had been some of those ships that had returned a very great profit to the people who received those rates. Now, I think Avi> all agi'ee that there was a certain volume of commerce that con- diti(ms of trade made it absolutely necessary to move from this country. It is true, evidently, that there is a great volume of stuff in this coimtry and tliat conditions were such that it had to go to those countries. Mr. Bush. If that is so. Mr. Saunders. Is not that so? Mr. BusTi. I think that is so; if it is so, what injustice is done to tliis coimtry if it is moved and they pay the expense of moving it? Mr. Saunders. Then you come back to this proposition, that all tliose gigantic rates, of which these people are complaining, have not been really an injustice to this country? Mr. Busii. I think in many cases they have not been an injustice to this country. I have not had the privilege of hearing all the com- REGULATORY Fh:ATURES OF SHIPPING BILL. 73 plaints you have heard; but I think in many cases I have heard of the entire burden has been borne abroad and in many cases the Ameri- can steamship owner has reaped a very hirge profit which has come into this country and stimuLated industry in this country. Mr. Saunders. You say in the main these very high rates have not been a disadvantage to the people of this country, but a distinct advantage ? Mr. Busii. I think in the main they have stimulated the upbuild- ing of the merchant marine; that they have been a stimulus to the upbuilding of our merchant marine and have done a great deal more than (jur bill or your l)ill could possibly do. Mr. Greene. Are not the prices on merchandise shipped from this country made in this country before the shipment goes to the other side and paid for before it is delivered on the other side, or payment arranged for? Mr. Busii. I think that is a correct statement. Mr. Greene. That is the party who has grain to sell, or any kind of merchandise that goes abroad, names the price that he will sell for and then the man who buys the material, or his agent here, pro- vides for the means of shipment? Mv. Bush. I think, broadly speaking, if you can make any gen- eralization, that is true. I would except, perhaps, the price of grain where it is perhaps regulated by the grain producing countries of the world, and certain other great commodities of that kind, where the price of grain here must be determined by the amount of export grain from Argentina, Russia, and Austria. But, broadly speaking, taking manufactured articles, I think your statement is correct. Mr. (treene. The price of grain is fixed before the grain leaves here and determined? Mr. Bush, Yes; it is. Mr. Greene. And is paid for regardless of what the freight rate is? Mr. Bush. The price is agreed to before it leaves here. Mr. Greene, That is it, exacth\ Then I do not see why these other questions that have been argued enter the case at all. Mr. Edmonds. If this bill were in existence to-day and the board were to set a maximum rate on freight from this country to Euro- pean ports, what would be the effect on the shipments from here compared to the shipments, say, from Canada? Would not the majority of shipments go to Canada, and would not the goods be shipped from Canada where the ships could get high freights? Mr. Bush. I have no doubt a great many of the products would go to Canada and be shipped from there, and the ships would refuse to come here unless they could get the rates. INIr. Edmonds. In other words, the shipment of grain and other products would be transferred to Canadian ports and our ports would suffer? Mr. Bush. I have stated I think it would be the most disastrous thing under the present emergencies, with all the surrounding cir- cumstances, that could possibl)^ happen to the American shipper. AVhile theoretically it seems to be a perfectly simple practice, in the end it would deprive the American shipper of the ships wdiich are available to get his commodities abroad, and if his commodities went abroad many Avould possibly pass through Canadian ports, which would not be regulated in that wav. I am verv much em- 74 KEGULATORY FEATURES OE SHIPPING BILL. barrassed. gentlemen, because I think I am takino; a great deal more time than I have a right to, and I would like the following speakers to get a full opportunity. The Chairman. You are here and, so far as I am concerned, I am very interested in wliat you have to say and I do not want to limit you imduly. Mr. Bush. I am trying to limit myself; but I have been asked questions and have to answer them. The Chairman. We would prefer to have you conchule your state- ment. Mr. Bush. I may simply conclude my statement by pointing out that the third fundamental Avhich I will cover in my statement is, we believe, that any of the rulings of this commission should be subject to review by the courts of the country. That is the protec- tion which is accorded every other kind of industry. This board will undoubtedly be a very eminent board and composed of just and wise men, but we believe no one is infallible unless it is the Supreme Court of the United States; and that court of last review is open to every other class of business, and we believe the privilege of revieAv by the courts of the United States should be accorded the vessel owner. Mr. Saunders. Have you looked at section 14 of the bill, where we utilize for the purposes of this new board all the procedure and rights provided for the Interstate Commerce Commission? Mr. Bush. We suggest that those general clauses be eliminated, and I will leave Mr. Kirlin to explain more in detail; and we have suggested the substitution of the specific procedure established in the Interstate Commerce act. Mr. Byrnes. You say Mr. Kirlin will present that? Mr. Bush. Mr, Kirlin will present all of those details. N(jw I should like to file, for the purposes of the record, a state- ment of the changes which we suggest, which, I think, cover 20 or 21 < hanges. Many of them are of very minor importance. Then I should like to have the privilege of* introducing Mr. Franklin as the first speaker. The Chairman. We just do not want any procedure adopted that would prevent a wind-up at some time; we would like to see the end of the controversy in our lifetime. Mr. Bush. We always have an end in the Supreme Court. (The changes in the bill referred to by Mr. Bush are as folloAvs:) AMEXDMEXTS TO If. K. 14337. SCOOESTED HY THE COMMITTEE OF THE CHA.ALnEK OK <0.\rMEHrE OF NEW YOUK. Note. — Instructions of our committee from the cliiunher rehite only to tlie foreign trade. As a committee we make no sufisestions except with reiiard to the provisions of the bill dealinj,' with such trade. Individual meinl)ers of the committee interested in coastwise trade will explain tluMr own views. Section 2, page 4. line 14, before the figui-es " ,$2."'),0(IU," insert the words " not more than." Section 3. page G, line 17, after the word "who," ins(>rt the woi-d "willfully." Section .3, page 6, line 21, before the ftgures " $1,000," insert the words " not more than." Section 3, page 6, line 4, strike out the words " shall be approved or " and insert in lieu thereof " if not." Section 3, page 6, line 5, strike out the words " and when approved." Section 4, pages 7 and 8 and first nine lines of page 9, delete the entire sec- tion. KEGULATOliV FKATUKKS OF SH[PP1X(; lUI.L. 75 Section 5, strike out tiie sei-tion as i)riii(('(l and suhsfidilc the followiii.i:- : "Sec. 5. Tliat wlieiiever, after full hearin.;,' upon a sworn fonijtiaint, tlie board sliall he of ojiinion tliat any rates or cliarj^es deniand(>(l, eiiarjied, or col- lected by any common carrit'r by water in foreii^n co'umr'rcc are unjustly dis- criminatory i)etween shippers or ports, or unjustly prejudicial to exporters of the United States as compared with their foreij,'n com])etitors, the board is hereby empowered to alter the rates or char.ues demanded to the extent neces- sary to correct such unjust discrimination or prejudice, and to make an order that such carrier shall cease and desist from such unjust discrimination or I)rejudice. The board is hereby also empowered upon sworn complaint, after full hearing, to determine, prescribe, and order enforced just and reasona1)le regulations and practices relating to or connected with the receiving, handling, storing, and delivering of property l)y any such carrier." Section 9, page 18. line 2.5, after th-? word "all," insei-t the word "sw(»rn." Section 9, page 13, line 25, strike out at bottom of page 18 and top of page 14 the words " or to undertake investigations on its own initiative." Section 9, page 14, line 9, after the word " empower," insert the words " on a hearing of such complaint." Section 9, page 14, line 11, strike out the words " adopt all rules and regula- tions " and insert in lieu thereof the words " make such order as." Section 9, page 14, line 12, strilve out the word " whicli." Section 9, page 14, line 14, add at the end of the .section the following: " AVlienever the shipping board shall have reason to believe, from any sworn complaint submitted to it. tliat any such person, i)artnership, or cor- poration lias been or is using any unfair practice, undue discrimination, or unfair method of comiietition in coastwise or foreign conunerce, or has other- wise violated any provision of this act, it may cause to be issued and served upon the party complained of a statement of its cliarge and a notice requiring an answer from the party so charged witliin the period of thirty days after the service of the statement. If the answer of the party .so charged shall be un- satisfactory, the board may, at such time and place as it may determine, require the party comiilained of to attend with witnesses at a hearing of which at least thirty days' notice shall be given. The party complained of shall have the right to appear at the place and time so fixed, and upon any adjourned days of the hearings, and show cause why an order should not be entered by the board requiring the party complained of to desist from the violation of law so charged in the statement. The testimony ou such hearing shall be I'educed to writing, filed in the otlice of tlie board, and a copy thei-eof shall be furnished to the party complained of. If, upon such hearing, tlie board shall be of opinion that the matter complained of is prohibited by this act, it shall make a report in writing in which it shall state its findings as to tlie facts, and shall issue and cause to be served on such person, partnership, or corporation comphiined of an order requiring such person, partnership, or corporation to cea.se and desist from using such unfair practice, undue dis- crimination, or unfair method of competition complained of. Until a tran- script of the record in such hearing sliall have been filed in tlie circuit court of appeals of the Ignited States as liereinafter provided, the board may at any time, on its own motion or on motion of the party complained of, rehear the subject matter of the complaint, and codify or set aside, in whole or in part, any report or any order made by it under tliis section. " If the party complained of fails or neglects to obey such order of the board while the same is in eflect, the board may apply to the United States circuit c(mrt of appeals within the circuit where the unfair practice, undue disc!'imina- tion, or unfair method of competition in question was used, or where such per- son, partnershp, or corporation resides or has its principal place of business for the enforcement of its order and shall certify and file with its application a transcrijit of the entire record in the proceeding. On such filing of the applica- tion and transcript of record the court shall cause notice thereof to he served upon such person, partnership, or corporation and thereupon shall have juris- diction of the proceeding and of all questions involved therein. "It shall have power to make and enter, upon the pleadings, testimi>ny, and I)roceedings .set forth in such transcript, and upon such fniMher ])i-oofs as in its discretion, and in the furtherance of justice it may grant leav(> to any party in interest to adduce, a decree aflirming. iiKxlifying. or setting aside the order of tlie board. " The judgment and decree of the court shall be final, subject to review of the Supreme Court upon certiorari, as provided in section two hundred and forty of the .Tudicial Code. 76 EEGULATORY FEATURES OF SHIPPING BILL. "Any party required by an order of the hoard to cease and desist from doing any act comphiined of may ohtain a review of sucli order in tlie circuit court of appeals by filing in the court a written petition praying that the order of the board be set aside. "A copy of such petition shall he forthwith served iipon the board and there- upon the board shall serve and tile in the court a transcript of the record, as hereinabove provided. " Upon the filing of the transcript the court shall have the same jurisdiction to affirm, set aside, or modify the order of the board as in the case of the appli- cation of the board for the enforcement of this order, and shall have the like discretion with regard to granting leave to any party to adduce further proofs. " Proceedings under this act in the United States circuit court of appeals shall, upon the aiiplication of any party, be given precedence over other cases pending therein and shall be expedited. " Complaints, orders, and other processes of the board may be served by any person duly authorized by the board either (a) by delivering a capy thereof to the party served, or to a member of the partnership to be served, or to an executive officer of a corporation to be served, or (h) by leaving a copy thereof at the pi'incipal office or offices of such person, iiartnershi]), or corporati(ni, or (c) b,v registering and mailing a copy thereof addressed to such person, partner- ship, or corporation at his or its principal othce or place of business. " The verified I'eturn by the person deputed to make such service, setting forth the manner in which it has l)een made, shall be proof of the same, and the return post-office receipt shall be ]»roof of the service of any process by registered mail." Section 10, page 14, line 17 after the word "' empowered," strike out the words " in its discretion " and insert in lieu thereof the words " on the hearing of a sworn complaint." Section 10, page 14, line 24, after the words "to the," insert the words "said complaint." Beginning witli the word " carrier," in said line 24, strike out the remainder of that line, all of line 2.5, and on page 15, lines 1, 2, 3, 4, to and including the words " out of this act." Section 10, page 15, strike out lines 9 to 17, inclusive, and the first half of line 18, to and including the word " thereto." Section 11, page 16, delete the entire section. Section 12, page 17, delete the entire section. Section 13, page 18, delete the entire section. Section 14, page LS, delete the entire .section. The committee wishes to make it clear that they prefer the alternative sec- tion with regard to regulations, which was drawn by INIr. Kirlin and submitted to the chairman to be incorporated in House bill 10500 in place of sections 9 and 10. but have submitted the foregoing suggestions for clianges in House bill 14337 in a sincere desire to take the form of legislation suggested by the committee and modify it so that it would be less objectionable from a practical operating point of view. Mr. Bush. Mr. Chairman, I would like to introduce next Mr. Lawrence K. Sherman, who is vice president of W. R. Grace & Co. I would like to call your particular attention to the fact that W. R. Grace & Co. began their business primarily as export mercliants to foreign countries, and while they are now interested both in the mer- chandising and the steamship business, the steamship business is secondary to the merchandising business. They began as merchants and found it necessary, in order to carry their goods to foreign countries, to employ sailing vessels in the first place (one of their large trades being to the west coast of South America), and the sail- ing vessel has gradually grown into a steamship. But their interests in steamships, while large, is supplemental to their interests as mer- chants. Mr. Sherman can speak both from the standjioint of a shipper and as a steamship man. Also, if you desire to ask him upon that point, he can give you a very definite statement about the difference in cost of operating under the English and American flags, because he has in REGULATORY FEATURES OF SHIPPING BILL. 77 his office records of the exact operating cost under the English flag and the exact operating cost of the same vessels after transferring to the American flag. And before making the transfer all those figures were considered. The Chairman. I suppose he is in the same class as the Standard Oil Co. and the United States Steel Corporation, who found it neces- sary, in order to develop the foreign commerce in their counnodities, to own ships themselves so as to provide the necessary tonnage and also to insure for themselves reasonable rates in order to com]:)ete with their foreign competitor. I think it very wise on his part, and 1 wish other merchants would do the same thing. STATEMENT OF MR. LAWRENCE K. SHERMAN, VICE PRESIDENT OF W. R. GRACE & CO., NEW YORK, N. Y. Mr. Sherman. As Mr, Bush has stated, our commercial interests are greater than our steamship interests. Our beginning in the transportation business dates away back of the question of any dis- crimination, or anything of that sort. We ran sailing vessels 50 years ago to South America, and, like all merchants who have gone into shipping, we did it because we found it necessary to carry on our business. In the course of time we fomid it convenient to take outside freight and in general to develop in a steamship way, which latter business has been gradually growing. To-day our steamship interests are considerable, but our commercial interests are consider- ably greater. Mr. Franklin has covered this bill pretty fully, I think, from a steamship point of view, and I concur in what he has said along that line. My objection to the bill, generally, is rather from the other point of view. I think it would be detrimental to our commerce; I think it would prevent the rapid development of the opportunity we now have of extending our commerce, and I do not think we need it. I do not think there has been any unjust discrimination system- matically practiced in favor of Europe as against the commerce of the United States. If there has, I have not seen it in 25 or 30 years' experience. I do not doubt you can find instances here and there, but in the main the United States in the trade with which I am famil- iar — to South America — has had rates which compared favorably with Europe. There are items, like cement, where vessels which would otherwise have to go back in ballast take the cement at a very low rate. But that is a condition we can not compete with. If you were to regulate the rates you would have to recognize that. ^Miere the vessel goes back loaded with freight to Europe and with no re- turn cargo you can get better rates from Europe than you can get from the United States, because they can afford to go out for less. On the question of pipes, the freights from Argentina to Europe have been higher than they have from the United States. We have been bringing coffee and cocoa to New York and transshipping to Europe because we could do so more economically than we could ship direct. Those are all instances which come up from time to time. The rates of the regular lines to South America and the classifica- tions have corresponded pretty closely to the classifications and rates 78 REGULATOEY FEATURES OF SHIPPING BILL. from this side. On some articles Ave have had to make rates slightly lower to try to divert the business. If we did not make such rates, or if we had no power to make such rates, we would not get the busi- ness: and if we have to consult and the other fellow does not, we shall lose the business. There is a lot of business that won't come to us exce])t ui^on a t-ompetitive basis; and if the European line is free to do what it pleases upon a moment's notice and if we have to con- sult a commission here and talk it over, the opportunity will be lost before Ave can get a decision. Rates in the main are controlled by the supply and demand. The business is open competition at any moment. It is impossible to carry on any unreasonable rate in a trade for any length of time, simply because the other boats will flock in and take the business. That is all I have to say generally. I would be glad to answer any questions j^ou care to ask about the business. ]\Ir. Hadley, What do you think would be the effect of the passage of this bill. 14337, upon the effort to build up the trade Avith South America ? You have been engaged in that trade? iNIr. SiiERMAx. I think the effect Avould be detrimental rather than beneficial. Mr. Hadley. Why ? Mr. Shermax. Because Ave have to-day competitive business Avith the Avorld ; Ave have to compete Avith all the world, and, Avorking on that basis, we are not paying higher rates as a rule. If Ave are re- stricted by a maximum rate of tariff, at times we will be deprived of sufficient tonnage to develop our business; if Ave have to consult a commission in order to change our rates, we would lose time, and 3^ou can not Avork it because Ave would lose the business. The CiiAiiiMAx. If that poAver Avere eliminated. Avhat objection Avould you luiA-e to it then ? In other Avords, let me see hoAv you stand. You are a steamship man. Are you in favor of permitting your com- pany to charge, demand, collect, or receive from any person or per- sons by any special rate, rebate, draAvback, or other device a greater or less conii)ensation for any service rendered or to be rendered in the transi)ortation of passengers or property subject to the provisions of this bill than it charges, demands, collects, or receives from any othei- i)erson or persons for doing for him or them a like serA^ce in the trausi)ortation of a like kind of traffic under substantially similar circumstances and conditions? Mr. Sherman. You are speaking noAv from the steamship point of view ? The Chairman. Yes. Mr. Sherman. I do not object to that. I do not Avant discrimina- tion in any way. I was speaking there of the bill from the general point of A'leAv of the merchant; but I do not Avant as a merchant the right to discriminate. The Chairman. This is leveled at you and it is from the standpoint of the merchant who Avants fair treatment; he does not Avant you to play favorites with his competitors. Mr. Sherman. Quite so; I do not want favorites. The Chairman. Very Avell. Then you do not object to that pro- vision, do you? , Mr. Sherman. No. I do not object to anything that aviII affect everybody ; I think everybody should be treated the same. REGULATORY FEATURES OF SHIPPINO ]?II.I.. 79 Mr. RowE. Which paragraph is that? The Chairman. Page 7, the first paragrapli. Again, do you object to this prohibition of you as an operator of steamships, to make or give an}^ undue or uni-easonable preference or advantage to any particuhir person, locality, or description of trallic in any re- spect Avhatsoever or to subject any particular person, locality, or de- scription of traffic to any undue or unreasonable i)rejudice or disad- \antage in any respect Avhatsoever — do you object to that? INIr. SiiER]\rAN, No ; I do not object to it. The Chairman. Do you think you ought lo ha\e a right to do that? Mr. Sherman. I do not object to any part of that. There is noth- ing in it that is objectionable, beyond the difficulties it might create and the annoyances it might give you; otherwise it is of no con- seffuence. The Chairman. There won't be any trouble if you deal fairly with the merchant, and if you do not deal fairly with him, then you ought to have trouble? Mr. Sherman. I am speaking as a merchant. The Chair^nian. I am talking about steamship men. I can not imagine how any merchant could object to it. Of course, if he is a favored merchant, he -would object; just like wdien the railroads were permitted to give rebates, and in Kansas City (that is right at my door) the merchants on the first day of the month found envelopes on their desks with their rebates — the big shippers. They did not complain; it was the little fellow. . Mr. Sherman. I understand. I do not want that at all. That is of no interest to me from either point of view. Mr. Hardy. There is one question, Mr. Sherman : You say that your opportunity as a shipowner W'Ould be lost to carry certain freight if you were not allowed to change rates without consultation Avith the board; that while you were doing that your opportunity would be lost? Mr. Sherman. No; I say my opportunity as a merchant which would enable me to compete in business which may come here or to go to England may be lost. Mr. Hardy. What is there in that? There is nothinir in that to ]5revent you naming a lower rate than the maximum fixed by the board. Mr. Sherman. You can not change without their agreement: you have to get the board to let you make the alterations. Mr. Hardy. There is no requirement for you to go to the board for lower rates, provided you malce the i-eductions uniform and non- discriminatory. Mr. Sherman. Yes; but a company in transacting business can not change a tariff in order to get large lots that come at times. For instance, suppose a man wants 500 cars and a steamship comjiany wants to change its tariff, based upon one. two, or- three cars; he could not make any change in his tariff to get the contract, but the European competitor does change bis tariff in order to get that contract. Mr. Hardy. There is nothinir to ])i'event you from lowcrimr youi- rates under this bill, as T read it. 80 KEGULATORY FEATURES OF SHIPPING BILL. Mr. Sherman. No; but there is to prevent me from imiking special rates on special business. Mr. Hardy. From discriminating with reference to some par- ticular customer, yes. I want to ask you another question : Are not Grace & Co., the shipping company, a member of conference agree- ments ? Mr. Sherman. No, sir; we have no conference agreements in the west coast trade. Mr. Hardy. You have not been in any conferences ? Mr. Sherman. No, sir; never have. Mr. Hardy. The largest ship lines in the world are in them? Mr. Sherman. Yes; they are in them. Mr. Hardy. They can not make those changes. Mr. Sherman. Yes; they do. They have what they call "open list,*' which take care of just such occasions as that, and they make the rates for that special business. Mr. Hardy. So their agreements do not amount to anything when the necessity to break them arises? Mr. Sherman. No; there is an agreement they may change their rates on those articles which are on the open list. That is public property; everybody knows that. Mr. Hardy. I understand those agreements are pretty vital and binding. Mr. Sherman. That is part of the agreement; they do not break the agreement. There are certain agreements they can not break, but on the open list they can make special arrangements for those open lists without affecting the regular tariffs. ISIr. Hardy. But you have here a proposition for the board simply to fix maximum rates, not minimum rates, with no provision that you can not, at any time, go under that maximum rate; and if you have an opportunity as a shi])per to make such a trade I take it all that would be required would be that the ship company should treat you just like it did everybody else, and it could not lower to you unless it was going to lower to everybody else. Now, if your emer- gency requires special rates to you, then I am in favor of giving them to you, but I want everybody else to have the same oppor- tunity you have. Mr. Sherman. I do not object to that. I am speaking broadly. Mr. Hardy. This law will let the shipowner give you a lower rate, provided it is ready to give everybody else a lower rate if they give you a lower rate. Mr. Sherman. But this law would involve a change, as I under- stand it, of the tariffs; whereas they want a special rate for a sjjecial job, that is all, without affecting the ordinary current rates. That you would probably call a discrimination. Mr. Saunders. You mean to say if you have a correct application of this law, you suggest a situation in which you are placed at a dis- advantage with your foreign competitor, because he could make a rate which you could not ? Mr. Sherman. No; I say he could make the rate instantly, while I have to go and get the a]:)pfoval of the board. That takes time, and it would mean we would lose the business. Mr. Saunders. Here is a maximum rate but not a minimum rate. Mr. Sherman. Yes, sir. KlUiUl.ATOlU FEATURES OF SHIPPING BILL. 81 Mr. Saundkhs. AVhere is there anything in tliis bill that woiihl prevent you from reducinarti('ular feature to Avhich I have directed your attention, I understand you agree if this laAv Avill allow you as a shipowner to meet such a situation as you presented, from the point of view of the merchant, then you have no objection to it? Mr. Sherman, I Avas not speaking from the point of view of the shipowner that I want to make such a rate; I am speaking from the point of vieAv of the merchant, I Avant to go to some other steam- ship company and have them free to make me that rate. 84 REGULATOEY FEATURES OF SHIPPING BILL. Mr. Saundeijs. I am trying to get you to ))oint out wherein this bill would hinder you in doing that ^ Mr. EnaroNDS. It was stated in the committee the other day, Mr. Sherman, in discussing the first paragraph of section 4, that if the ship was in a harbor aiad had a half a cargo of coal offered it at a dollar rate and could not get any other cargo, and some other shipper came along and said, " I will giYe you the balance of that ballast in coal at 75 cents," and rather than ballast up or go empty he took that second cargo, that would come under the head of this substantially similar circumstances and conditions and would excuse him for making that rate. Mr, Sherman. Suppose that happens now, and, in order not to go empty, you were obliged to take it at 75 cents and a dollar? Mr. Edimonds. It would not l)e under the same circumstances. I brought that question up in the committee and Judge Saunders, wdio has spoken of it here, said that a condition like that might exist. And :sYhat would happen if it did? Here are two separate shippers filling the ship with the same commodity; one is going at one rate and another at another rate; and the committee in talking it over said that under this clause " substantially similar circumstances and conditions" I would be excused in making that second rate. Mr. Sherman. I do not quite gather, then, wdiat is the object of your bill; Avhat advantage does anybody get out of the bill? The Chairman. There are two shippers there at the same time. I can tell you just exactly what advantage you get. Here is a ship on the berth in Philadelphia, loading with coal; one man only has half a cargo and both want to ship; you let one man have the dollar rate and the other the 75-cent rate; do you think that is fair? Would you want to have that privilege of loading both at the same time in all tonnage? Mr. Sher3ian. No. The Chairman. That is what we intend to prevent by this bill. Mr. Sherman. You say you can do that in case the vessel is short of a cargo — to fill it up at a cheaper rate? Mr. Loud. If the first half would not make sufficient ballast, he would be entitled to do that to get a full ballast — he would have two prices on the same cargo and they would both be reasonable. Mr. Saunders. They might be. Mr. Greene. And he might be fined the penalty provided in the bill and be subject to imprisonment. Mr. Saunders. You observe that is reasonable, and that is ]:)re- cisely what Mr. Sherman wants to do — that very thing; and we are simply pointing out to him that the bill allows him to do that. Mr. Edmonds. That is the question I brought up. I also brought up the question that a ship might take freight to Alanila and Hong- kong, running, say, to both places, and might make the same rate from Hongkong to San Erancisco as it did from Manila to San Francisco, although the boat Avould travel GOO miles farther in going to Hongkong than in going to Manila ; and you said that if they charged a higher rate there, owing to the difference in the distance carried, it would be perfectly legitimate under this clause of sub- stantially similar circumstances and conditions. Mr. Sherman. Under the rates to-day, in a number of trades, you frequently get twice the haul for less money. Eor instance, you take REGULATORY FEATURES OF SHIPPING BILL. 85 the I'iite New York to Valparaiso via Panama, and the rate Kiel to Valparaiso via Magellan, which is 2,000 to 2,500 miles farther. Although the rate is less from New York that is due to the fact that the Panama Railroad has got to compete with Europe via Magellan, and has to take a lower rate. Mr. Saundj^rs. That is tlie verv reason this language is put into the bill. Mr. Hadley. But would not the fact remain in ever}' case that it would be a question of fact to be determined by the tribunal as to whether the conditions were similar or not, before you would know whether you could make the rate ? Mr. Sherman. Ocean rates are not a question of cost and distance. The}' are a question of competitive conditions. The field is wide open and you have to make -rates that will get the business. The world rates to-day are abnormally high everywhere. You say the rates are outrageous to the exporter — and they certainly are enormously high; but we have not had ships enough to move the tonnage in New York. Under our rates we have to get trans-Atlantic ships, and if the rates were unbalanced we could get all the ships in the world coming in and taking the stuff out, but they have not done so. I know, as a matter of fact, that the rates from Argentine to Europe have been higher than from the United States constantly for the last six or eight months. Mr. P^DMONDS. Is it not true in the case of the seller of the goods, in a great many cases he has made the rates himself by competitive bidding? Mr. Sherman. You mean the purchaser of the goods? Mr. Edmonds. Either one. The shipping man has nothing to do with it. he simply sits back and takes the best offer he can get, and he gets it either from the man who wants to purchase or the man who wants to sell the goods. Mr. SiiER^iAx. It is a question of supply and demand; and if he goes out in the market and they want $1,600, if the shipper can get another ship cheaper, why, he does not pay it. Mr. Edmonds. Have not people come into your office and offered higher rates for moving certain stuff? Mr. Sherman. Oh. yes: they have made all sorts of offers. AVe have had them offer much higher rates than we could get in other routes; certainly. Mr. Ed:monds. That is. a case where they made the rates them- selves ? Mr. Sherman. Frequently they make the offer because they can not get anything. Mr. Greene. Let me see if I understand you correctly. As I under- stand you, if you are in the market competing with a foreign ship- owner and a foreign merchant, they are at liberty to make such rates as they please and such agreements as they please, but you would be handicapped because you could not make an agreement under this bill? Mr. Sherman. We could not. Mr. Greene. This bill ties your hands and ties your feet so you can not make an agreement unless you get in communication with the board and get them to act? Mr. Sherman. In Washington here. 86 REGULATORY FEATURES OF SHIPPING BILL. The CiiAiHMAN. I will give a new hat if he shows where that is true. Mr. Greene. I do not care whether he shows it, that is the belief. The Chairmax. I will giAe a new hat if yon can show Avhere that is in the bill. Mr. Greene. That is all right, I am not betting hats; I am asking the plain question of what the effect of the laAv is. The Chairman. He can not answer fi-om that bill and show us where it is true. Mr. Greene. This gentleman is here — a man who has had wide experience. He says he has been connected in the business for over 50 years and has had a wide experience both wdth foreigners and Americans. And then I ask the plain question, if his competitor can make an agreement wdthout conferring with anyboclj^, just as he Avants to, being perfectly free to make it, and this witness, being an American shipper and going out of an American port like New York — whether or not this bill would not put him at a disadvantage? That is what I Avant to get at. Mr. Sherman. Yes; it certainly Avould, because the other man is free and I am not. Mr. Greene. Whether he explains the difference or does not, the bill puts him at a disadvantage — whether he picks out "A" here or " B " there. ]\Ir. Saunders. Now, Mr. Sherman, your competitor would not be at a disadvantage by being compelled to charge higher rates than }- ou, that is certain? Mr. Sherman. No. Mr. Saunders. Then, in order to be at a disadvantage he must be in a position— in competition — where he can charge lower rates than you? That is the only way to put you at a disadvantage? Mr. Sherman, No; he can make rates without consulting anyone; he is free and he can act instantly. Mr. Saunders. He must then be able to give better rates than you? Mr. Sherman. He may be and may not. Mr. Saunders. If he charged higher rates than you, that certainly is not going to put you at a disadvantage. Now, take the bill and show Avhere in any section you have in mind, or combination of sections, your competitor is able to act more instantly than j^ou for the purposes of competition, and charge a more desirable rate than you for the purpose of competition? We all agree that if this l)ill is going to ham])er American commerce and put you at a disad- \ antage and bring the other fellow in and jnit the American out, it is a Ijad l)ill; and the way to do is to take the bill and point out the sections that will operate to that end. Mr. Sherman. Yes, sir. Mr. Saunders. Now. take up the one you have in mind, or the two. or whatever it is. Mr. Sher.man. The clause I just read. Of course you say you uHtdify that. Mr. Saunders. You say if that clause has the meaning that w^e attribute to it, you have no objection to it? Mr. Sherman. No; I have not made myself clear on that. I object to any restrictions at all. As I said at the beginning, I want REGULATORY FEATURES OF SHIPPING BILL. 87 to be as free to do business in any way that suggests itself from day to day or minute to minute as the man I compete with. Mr. Saunders. As your competitor? Mr. Sherman. As my competitor. Mr. Saunders. Show us where you are not just as free to do busi- ness as your competitor !' Mr. Sherman. In England or in (lermany my competitor has no restrictions whatever; he does not have to ask anybody to wait a little while to see whether he can do it, or to wonder whether a board will place this construction on it or that; he goes ahead and does it. Mr. Saunders. You are stating things not in the bill. Just get down to the bill. Have you in mind a German competitor trading out of New York to Buenos Aires ? Mr. Sherman. No, sir; because he has to meet the same conditions I have. I am talking about the man who goes to Hamburg. Mr. Saunders. Who ha\e you in mind? Mr. Siierjman. The German shipper over the German lines to the west coast of South America from Hamburg, the Swedish shipper, or the English shipper on any of the English lines from a British port. Mr. Saunders. Have you in mind now shippers on your vessels from British ports to South American ports? Mr. SiiER>rAN. I am not having in mind my vessels at all: I am talking purely as a merchant. Mr. Saunders. We are talking about .ships, not merchants. Mr. Sherman. I am talking about the way it will injure American trade. Mr. Saunders. We just ha^e in mind the shipowners — the Ameri- can capital in ships. Mr. (Greene. Are you not interested in American trade? Mr. Saunders. Yes. JNIr. Sheriman. Mr. Franklin has gone into the bill from the ship- owner's point of view. There is no use of my going over the same ground, because I would merely be repeating what he has already said. Mr. Saunders. But you are i)ointing out difficulties. Mr. Sherman. My ol)jection is raised as a merchant and not as a shipowner. Mi". Franklin has taken cai'e of the shipowner's side of the question. Mr. Saundei!S. ^'ou are pointing out difficulties with respect to which this bill does not undertake to deal at all. Mr. Sherman. I agree with you it does not. Mr. Saunders. The difficulties you have in mind we are not deal- ing with, because we can not deal with them. You, as an- exporter or as a merchant, can make any rates at all that you want with the German shii)s plying from Hamburg to South America. Mr. Sherman. I know that; but I can not increase my American business by doing that. Mr. Saunders. What I want to point out is liow this bill operates. Ha^■e you in mind American ships plying from our ports to South America and German ships plying from our ports to South America that it would put the American line of ships at a disadvantage in dealing with the .American exporters as compared with the German line? 88 REGULATORY FEATI^RES OF SHIPPING BILL. Mr. Stikuman. There is no difference there. ve will just leave tlfe merchants out for the time being — which will operate to the disadvantage of the American shi]:)owners and the capitalists l)utting money in ships, is there? If there is. what is that thing? Mr. Shkrman. I do not raise any question of that sort under this law, of ships plying in the same trade: that is. trade from the United States. They do not try to discriminate against the American shi])- ])ei's there. I claim it is brcader than that: that it will tend to hamper the development of American trade in competition Avith the European trade, that is all. Mr. Sattndeks. I will not take up that i)hase of it: we are dealing Avith a shipping bill. Mr. Byr>'es. Yonr idea is. as a merchant, that if you want a ship- oAvner at your port to ship a cargo to South America and you asked for a special rate for this very large cargo, the shi]:)OAvner AA'ould hesitate to make you that rate because he would be in doubt as to whether or not it Avould be construed as being substantially similar circumstances and conditions: and by reason of his refusing to make you a special rate it Avould put you at a disadvantage Avith your for- eign competitor ? Mr. Sherman. That is exactly it. You have to discuss whether he can do it. and in the meantime your oi)portunity is gone. Mr. Byrnes. If that section is modified in any Avay Avhereby he Avould have no doubt about his ability to make that special rate for that cargo, then you Avould have no ol)jection? Mr. Sherman. Then I Avould l)e that much better off. The rea- son I am making the objection noAv is that you can not foresee all the conditions that Avill arise from day to day in the shipping business, and on the other side they have no limitation at all; they can go ahead is they like. Mr. Byrnes. I am asking you about this particular section that I have referred to and of Avhich you have spoken; if that is removed, then what other objection have you to that section^ Ia4 us stick to that one; that is the (me you have referred to. Mr. SiiERiMAN. Section 4, the first ]iaragrni)h, is what I objected to. Mr. Byrnes. You and I have agreed, now, if that is removed you luive no objection? Mr. Sherman. Would there be any objectum to ])utting in that the carrier may make special rates, a specific statement, for certain lots of cargo at certain times, :md those i-ates shall not atFect the general tariff? I am speaking now from the steamshij:) ])oint of vieAV. Mr. r>YRNES. If that is arranged hereafter, what othei- objectior^ haA'e you? Mr. Sherman. To that secticm? Mr. Byrnes. To that whole section. Mr. Sherman. I have no objection to the rates being made the same for all; that is the essence of that section. Mr. Byrnes. The only other objection you have made to the bill is the maximum rate provision, is it not? Mr. Sherman. Certainly. Mr. Saunders. I said I Avould not ask you any (luestion from the point of view of the shipper, but I will ask you one. The difficulty REGULATORY FEATURES OP SHIPPING BILL. 89 you have in mind from the viewjDoint of the shipper, as you outlined in your answer, is that you are afraid when you approach the Ameri- can shipowner he would not be able to deal with you as promptly as the treatment 3 our foreign competitor would receive. If under this bill the American shipowner is able to deal with you, as an American, as promptly as the foreign shipowner is in a position to do with your competitor, that is, to give you as prompt an answer, then there is no objection from that standpoint. Mr. Sherman. If he is able to deal as promptly and freely as the other fellow, no. Mr. Saunders. It is our interpretation this bill would do that. It is a mere question of interpretation. Mr. Sherman. My interpretation is the bill is a hindrance; that is all. The Chairman. We have no patience with that view ; I have not, at least. Mr. Saunders. That was the objection of all the railroads to the regulation that the Interstate Commerce Commission placed upon them — that they ought to be left alone. The Chairman. That is the argument the railroads made — just let us alone. Mr. Sherman. The railroads are quite different. You have trans- portation here that is open to everybody ; it is wide open. Anybody can engage in it and it is wide open. The Chairman. This report on the investigation of shipping com- binations shows that is not a fact; and if you will read that report and tlie hearings, you will conclude it is not the fact. Mr. Sherman. It is substantially the fact. The Chairman. The combinations on the seas prior to this war were quite as close and effective betAveen all of the regular lines as on the land. Mr. Loud. Before this witness leaves I Avish to have such informa- tion as he can give us of the cost of operating under the American flag and the foreign flag. The Chairman. He can go into that after lunch. (Thereupon, at 12.55 o'clock p. m., a recess was taken until 2 o'clock p. m.) ak'J'er recess. The committee reconvened at 2.30 o'clock p. m., pursuant to the taking of the recess. STATEMENT OF MR. LAWRENCE K. SHERMAN— Continued. Mr. Hadley. Reference was made by Mr. Bush in introducing you, Mr. Sherman, that you had some statistical data, either in mincl or at hand, on the difference in cost of operating ships under the American flag and foreign flags, and Mr. Loud was seeking to have it presented to the committee, giving them information on the difference of cost between here and abroad. Mr. Sherman. The difference on the ships we have transferred is from $700 to $800 a month. Mr. RowE. What grade of ship is that? 90 REGULATORY FEATURES OF SHIPPING BILL. Mr. Sher:man. Tluit is a ship of 9,600 tons total dead-weight cargo boat — an ordinary English cargo boat. Mr. Gkeenp:. xVs 1 understand it, under the American flag you had to pay that much nioi-e ^ Mr. Sherman. Dii'cctly we transferred the boats. Now, the cost is increasing; both costs are increasing. The Chairman. Why did you transfer your vessels to the Ameri- can flag? Mr. Sherman. We thought it was a good thing to do after the war broke out, of course, under this law, and we transferred several; but we still have six under the l>ritish flag. We did not transfer them all. The Chairman. Did you invite this increased cost for no other rea- son than you wanted to get them under the American flag? Mr. Sherman. I beg your pardon. The Chairman. Whj'- did you incur this additional cost? Mr. Sherman. Because we thought it advisable to get them under the American flag, in view of the war ; that is all. The Chairman. Why was it advisable to put them under the American flag during the war? Mr. Sherman. Because we lost two ships under the British flag. They w ere sunk by German cruisers. We thought it safer to get them under the American flag after w^e lost those two ships. The Chairman. For the protection of the flag? Mr. Sherman. Yes, sir. The Chairman. How many ships do you operate? Mr. Sherman. Sixteen. The Chair:man. Are you compelled to have larger crews? Mr. Sherman. Yes; the crews are larger and the wages are more. The Chairman. Now, just for the information of the committee, how many more men do you have to have in a crew — just a general statement ; we will not go into detail ? Mr. Sherjian. I think it is three or four more men ; I am not certain. The Chairman. On these ships how many men are there in the crew, in all departments? Mr. Sherman. Thirty-nine or forty. Mr. RowE. About 10 per cent more? Mr. Sherman. Yes. The Chairman. Where is that increase — in the deck crew or the engine room, or in what department of the ship? Mr. Sherman. I could not answer that question. I am not in charge of the operation of the shii)s, and T do not know generally. I can send that data if you like. Mr. Greene. You can furnish it? Mr. Sherman. I can furnish it, absolutely; yes, sir. Mr. Hadley. I wish you would do that. Mr. Sherman. Certainly. Mr. Edmonds. Will you show that in detail ? Mr. Sherman. Certainly. No objection at all. The Chairman. What is the name of the ship ? Mr. Sherman. The (^hincha. The Chairman. I am much obliged to vou, Mr. Sherman. REGULATOEY FEATURES OF SHIPPING BILL. 91 STATEMENT OF MR. GEORGE S. DEARBORN, PRESIDENT AMER- ICAN-HAWAIIAN STEAMSHIP CO., NEW YORK, N. Y. Mr. Dearborn. Mr. Bush said I was a member of this committee of the chamber of commerce Avhich has to deal with the features of the bill pertaining to foreign trade. Of course, the company I represent is in the coastwise trade; that is, during normal times. The ships are now distributed in the foreign trade. So my state- ment will be particularly in regard to what I call a technical point — this rate-making power. I am speaking, you might say. for tlie American Line Steamship Co. I beg to remonstrate against those provisions of the bill which w^ould give the shipping board the power to fix rates for water car- riers, and would prohibit any change in rates except upon 10 days' notice; first, upon the principle that the water carrier receives noth- ing from the State, that the ships are operating out of the jurisdic- tion of the State most of the time, and that owners can not be com- pelled to operate their ships. The status of water carriers is entireh^ different from that of rail- roads, which have a franchise and the right of eminent domain, and are compelled to operate. A.ship's status is no different from that of a manufacturing concern; in fact, a ship is a manufacturing plant, producing transportation. Therefore the earning power of ships should not be fixed any more than that of any other industry and should be governed by conditions of supply ancl demand. To apply rate-making powers would be most difficult and in prac- tice would make the business of the water carriers unworkable. It would be necessary to define a reasonable rate. This would be com- paratively simple if relativeness of rates in other trades were to be considered; but if it is the purpose of this bill to fix a rate based upon a return upon the investment the cost of every individual ship of a fleet in a service would have to be considered, and as the cost of ships in commission to-day vary from $40 to $180 per ton ; therefore different rates would have to be applied to different ships. Ships that are being built to-day will cost 100 per cent more than most of the ships now in commission; therefore a reasonable rate for the new ships would be an excessive one if applied to old ships. Ships are of all sizes and types and can not be treated alike in the application of rates. Some are designed for special trades and ' are very much more efficient in handling cargces peculiar to those trades. A tramp steamer has no overhead charges, while there is applied to steamers comprising a fleet in a regular service, a large expense for terminals. The American-Hawaiian Steamship Co., tor instance, with its 26 steamers, in the coast-to-coast service, has a rental expense for terminals, which, if capitalized, would amount to $5,000,000, or about one-quarter of the cost of the ships. The power to fix rates implies that carriers would be compelled to take all freight offered, which would be impracticable in the case of a ship. A snip, the water carrier's unit, is inffexible. There would be only a certain number of ships to deal with, and the character of the cargo each ship could carry would be governed by conditions dur- ing different stages of her loading. A ship requires a limited amount of bottom cargo, then medium and light measurement freight. The 92 REGULATORY FEATURES OF BllIPPlXG BILL. stabilit}- of a ship has to be considered, as well afe a pi()i)er phice to stow freight that could damage other freight. So that, under all of these conditions, which actually exist in the operation of ships, a tariff would be inelfective, as ships would not be physically (pialilied to take all of the freight covered by it. Fixing rates and filling tariffs would not provide space in ships but place a burden upon the shipowners with no compensating benefits to the shippers. The requirement of a 10-day notice before a change could be made in a tariff -svould deprive the ship of a class of freight that Avould be necessary to complete her loading and freight that was available at short notice, and also deprive the shipper of such freight of the space in the ship. Tramp steamers which go on the berth to load from time to time, and are really the most effective rate regu- lators for regular lines, would find it very difficult to secure freights under the regulations proposed, and, certainly, there should be no discrimination made by statute between individual ships designated as tramp steamers and those that comprise a fleet under one manage- ment. The tramp steamer would disappear in a trade under regu- lation, which would remove that competition from the regular lines, whereas if they are exempted they would become unfair competitors. The American-Hawaiian Steamship Co. has been transporting the Hawaiian Island sugar crop to the Atlantic coast for 10 years under a contract at a rate of freight. If the shipping board has the rate- making power, could it not say that the rate which has been mutually agreed upon by the shipper and the steamship company was unrea- sonable, and this would give the board the powder to abrogate the contract. Under such conditions, a steamship company would hardly enter into a contract, and the shippers whose transportation require- ments are for 300,000 tons annually would be deprived of a re- liable service which they absolutely depend upon. The American- Hawaiian Steamship Co., when it resumes its regular service through the Panama Canal, will find its rates fixed to a minimum by the radi- cal reduction made by the transcontinental railroads for the purpose of competing with the canal route, and with the consent of the Inter- state Commerce Commission. I still hold to the opinion, as expressed in a statement made in February, that less litigation and not more is essential for a continu- ance of the wonderful development of our merchant marine which ' is now in process, as evidenced by the unprecedented number of ships now under construction in this country and those that have been transferred to our flag. Why apply a drastic remedy to a ])atient whose coudition is im- proving so riii)idly without one? Let well enough alone. Kemove the menace of Government interference in a healthy growing busi- ness, except so far as unfair practices are concei-ned. Steamship business, in a regular service, dealing with thousands of shipinn-s and trying to please them, makes a greater demand upon the nerves of the managers than most any other, and to have to s^rve another master and be subject to inquiry and espionage, such as there would be under Government control, woidd make it irksome to continue business under such conditions; particularly at this time, when the i-equirements of England for transportation are so pressing that there is a great indiicement to accept the fabulous prices that are being offered for the purchase of ships. REGULATORY FP:ATURES OP SHIPPING BILL. 93 The CiiAiijMAx, England at this time has her curb on her shipping and is compelling her ships to carry goods at much lower rates than they would charge if they had a free hand; is not that true? Mr. Dearborn. I did not understand you. The Chairman. I say England has a curb on her shipping now, and is compelling them to carry freight at a much less rate at this time than they would if they had a free hand. Mr. Dearborn. Under war conditions? The Chairman. Yes. Mr. Dearborn. I say that is a war measure. The Chairman. I know that is true. So that there are conditions under which the Government must interfere to prevent unfair treat- ment? Mr. Dearborn. Well, I suppose the proper way to conduct a war is to put everything under martial law. The Ciiair:man. Your remarks were addressed particularly to the section of the bill relating to interstate commerce? Mr. Dearborn. And to the rate-regulating power. The Chairman. You do not think any governmental body should have any power whatever to interfere, if a transportation company by water should practice extortion? Mr. Dearborn. No. The question would first come, I think. What is the definition of extortion? The Chairman. Well, charging several times more than a service is worth. Mr. Dearborn. What is the service worth? Take conditions to- day. The Chairman. I would say, under ordinary conditions, you should take into consideration the investment, the cost of the Service, and a reasonable return in the way of profit. Mr. Dearborn. Therefore, then, your pur})ose in this bill is to fix a rate based upon the earning poAver of the ship? The Chairman. No; under this bill I do not think we go that far. You asked me what I considered a reasonable rate. Tl!is bill does not undertake to go that far at all. Mr. Dearborn. If I were a member of this board to be a})pointed, and received my power from this committee, I would naturally ask the chairman of the committee to define this section referi-ing to the rate-making power — what is it to be based upon? The Chairman. I think you would take the language of the hnv itself and give it a reasonable construction in the light of conditions if you administered the law intelligently. Mr. Dearborn. Yes; but there is a condition of suppW and demand. My point is that dealing with steamships is no different from dealing with manufacturers. The Chairman. Your opinion is, then, if one man had control of all the flour and bread in the community that he should charge any price he chose for it? Mr. Dearborn. Well, I can not draw^ upon my imagination to such an extent as to make such a picture. The Chairman. But that is the effect of monopoly. Under the provisions of this bill we recognize agreements and that there are certain combinations that may be fair and reasonable, and if these lines — vour line and other lines — should enter into a fast agreement 94 REGULATORY FEATURES Of SHIPPING BILL. by which eoiiipetition was shut out. aiul by reason of the elimination of that competition you shoukl charge just what you })lease. you tiiink the people ought to stand it. do you ? Mr. Deakborx. 1 think you are theorizing. ]\Ir. ("hairman, on a wrong situation. The Chairman. I want to illustrate a principle. Is that true? Mr. Dearhorn. I agree Avith you that if it was possible for any man or group of men to control any industry in this coimtry and fix the price. I should certainly think the Government ought to step in. The Chairman. Sui-ely. I do not think there is any disagreement on that. Mr. Dearrorn. Xo, never. Except in transportation on railroads, I have never heard of such a situation existing. The Chairman. Not to the same extent, maybe ; but what I wanted to get from 3^ou, Mr. Dearborn, is Avhether or not you indorse, as a principle, if the conditions existed by which the tonnage is abso- lutely controlled by a combination, that this ship})ing board should have no power to relieve the public from extortion i Mr. Dearrorn. You are dealing with two situations. You are dealing with a trade where these methods have been adopted of doing business under conferences and combinations ; and practically in this bill you have given immunity from the Sherman Act. The Chairman. If it is reasonable, yes. Does that meet with your approval ? Mr. Dearborn. I should say it would seem logical from the stand- point of this committee, in consideration of this privilege, to have some control of the rates. The Chairman. Yes. Mr. Dearborn, But take from the hands of those on the board the pur]iose to apply this regulating powder, not only to those w^ho are working to-day in defiance of the Sherman Act but those w^ho have no such methods of business, who are foot free, as our company is, wdio would then be i)laced under this embargo with no compensation. That is where Ave differentiate between the two methods of doing business. The Chairman, There are always men who are fair in business and the law is not aimed at them. Just like our criminal law is not aimed against the law-abiding citizen, but against the other felloAv. Now, I assume that the American-Hawaiian Steamship Co. belongs to the class that is free from these conditions — that is, in its business methods, has not provoked this class of legislation. Mr. Dearborn, Yes. The CiiAiRiMAN. But oui- investigation of the Shipping Trust dis- closed conditions out of Avhich these suggestions have been developed. Mr. Dearborn. As a felloAv says, "We are almost too good to be true." The Chairman. No. Mr. Dearborn. I mean to say that it has not been necessary for us. We have gone about our business, that is all. The Chairman. We investigated you along with the other people, and we practicall}^ ga.ve you a clean bill of health, so far as that is concerned. In the coastAvise trade you say you do not think it is practical to vest in the Interstate Commerce Commission, or in this board, the poAver to supervise rates? The Interstate Commerce Toni- missiori does do it noAv. Avhere there is a joint rate, and I noticed the BEGULATORY FEATURES OF SHIPPING BILL. 95 other day that the Ocean Steamship Co. had proposed to increase the rates about 15 per cent and the Interstate Commerce Commission Avoiild not permit it. Mr. Dearborn. That is in connection with arrangements with other raih'oads when they make through rates. The Chairman. Yes. Mr. Dearborn, Of course, that is quite different from making rates from port to port. The Chairman. Why should it be? Mr. Dearborn. That is done because the interstate LaAv clearly states that, that steamship companies having arrangements with railroads and participating or having a division of rates are under the law\ The Chairman. That is true; it is under the law. Mr. Dearborn. Yes. The Chairman. But why should not steamship companies and regular lines in the port to port business come under the law, too? Mr. Dearborn. I will ask you a question The Chairman. I am asking for information. Mr. Dearborn (continuing). How are you going to define a reason- able rate? Take in our own case; we have a fleet of 26 steamers, and our last ship came out about two weeks ago. The average cost of our ships is probably $60 a ton less than the highest price paid — oh, more than that — $100 a ton. Suppose you are going to fix a reasonable rate. We are already in the business. Another concern is going into the business and has paid those high prices for ships. Is that rate to be fixed upon the highest cost of ships in the service? If so, then our rate, if it is fixed on that basis, would be unreasonably high; and if it was fixed upon our cost, the other fellow could not com- pete with us. If it was fixed one rate based upon the cost of one ship and another rate based upon the cost of another ship, the rates would be different in both services. When you touch upon this rate regulating power I do not believe for a moment you mean to fix your rate of freight upon that basis ; but, nevertheless, you are giving this board a power to fix a reasonable rate — a maximum rate. The 'Chairman. When Ave investigated the so-called Shipping Trust the regular lines and the coastwise services on the Atlantic and Pacific filed with us what they said were their schedules of rates. How did they fix them ? Mr. Dearborn. I will tell you. There are certain services that are not subject to competition. I mean to say you take these Atlantic coast lines, lines running between (Charleston, New York, and Savan- nah; they have regular service, have their terminals, their regular freight, and they do not have competition. In another trade, such as ours, between New York and San Francisco, where the volume is very large, we have all kinds of competition. Now, you take a tramp steamer — I understand it is not your purpose to apply this regula- tion to tramp steamers ? The Chairman. We are not going to say that she can not charge a low rate. They would be amenable to the law if they charged an unreasonably high rate, I suppose, and complaint were made. Mr. Dearborn. Well, a tramp steamer is hardly likely to charge li higher rate, because they are in a position to make very much low^er rates. 96 KEGUI.ATORV FKATUKKS OK SHIPPING BILL. The Chaihman. You have a reguhir line service from the Athiiitic coast to the Pacific coast, liave you not? Mr. Dearboijx. Oh, yes. The Chairman. Is there any greater reason why those lines from New York to Savannah and XeAV York to Xew Orleans and Xew York to (ialveston should be regulated than that your line in the intercoastal trade should be supervised and regulated? Mr. Dkarhorn. That is my point exactly, Judge. Conditions are so diiferent in different trades that you can not standardize a method of treatment for all trades, and if you can not standardize them 1 do not see how j^ou are going to do it. The Chairman. Take the lines on the Pacific coast, take the line from Seattle to Los Angeles, and from Seattle to San Francisco, is there any reason Avhy different rules should be applied to them than to those Atlantic coast line services i' Mr. Dearp.orn. No: I think they are in the same category. I do not think the lines running between Savannah, New York, and Charleston would care a bit about working under the interstate law to-day. practically, because they are making rates to interior points through arrangements with the railroads, and their volume of busi- ness is limited. I mean to say that they carry a general cargo, mis- cellaneous freight and freight that a tramp could not get because a tramp could not give the service, whereas in our business there is a great volume of business, and a great deal of it would comprise the coarse freight and round lots of carload freight. AYe are dealing in our business in normal times, eastbound and westbound, with prob- ably 3,000,000 tons of freight. Now, there is no such volume of business in the coast trade. If there is, why, they would charter an outside steamer. I mean to say, if there was a cargo of phosphate to come np here from the Gulf of Mexico or from Tampa that is done in full cargoes. The regular lines do not attempt to deal with that class of freight. So, if I were before your committee to-da}^ and this bill had been passed and the law was in effect, and we w^anted to develop our business, or if I were a new man in the business and wanted to de- velop — Ave were nnder regulation and we had never been under regu- lation before — I would say, '* Please tell us what is the limit of profit we can make in our l)usiness? Please tell us what your rate regula- ti(m means? What is the definition of a maximum rate? " The CHAiR:NrAN. Do you not think, having a monopoly of the coastwise trade, that it would be a reasonable exercise of the i)ower of the (lovernment to say that? Mr. Dearborn. That is where it comes again. I think you might do that where conditions are uniform and permanent. That would happen in the trade, for instance, between New York and Charleston and Savannah. I do not think the factors in that business have changed in years. With our business it is absolutely different. The Chairman. 'Jliis bill is elastic enough for the shipping board to recognize those differences, is it not? Mr. Dearborn. Yes. I discussed this matter once about four years ago with the Committee on Interstate Commerce, on the canal rate tolls. I went to some length The Chairman. I i-ead youi- statement then with a gi-eat deal of interest myself. REGULATORY FP]ATURES OF SHIPPING BILL. 97 Mr. Dearborn. You remember it, then? The Chairman. Yes. Mr. Dearborn, I do not see how it is workable. I do not see how.it is with the types of ships and the differences in cargoes you are dealing with. It is a strange thing. You take a regular service — take our service: We have 20.000 or 30,000 ton ships; we are getting a class of cargo that tramp steamers could not get because they could not give the same service. And here our terminals enter into the total cost of our plant, or about 25 per cent of the cost of our ships. The Chairman. Do you own your terminals in New York? Mr. Dearborn. No; we lease the terminals. We pay Mr. Bush — it is considered the biggest pier in the world — $165,000 a year. We have capitalized that really on the value of three millions or three and a half millions. I think probablv the cost of our terminals go up nearer G.OOO.pOO than 3.000.000. "l can not see how we would work if this law should apply to us. We must go to the board and get the privilege of changing our rates. We often have ships, for instance, leaving the Pacific coast, on which we engage freight. It is all one-sided between the ship and the shipper; the ship is always obligated to take the freight, but the shipper is never obligated to ship it. Now, that is a matter of experience. I mean to say, in the busy season when California products are moving this way, they come in and book, and say, " Here, we will book this freight, about 50 per cent of the space, but we Avill book all of it." Now, they fall down, and a ship is going out with 500 tons of space ; they fall down on the freight, and we ha"\'e no recourse on the shipper. A ship at all times in the regular service in the country must please its ship- pers: it must have the good will of the shipper: it must give him privileges that he is not entitled to. The Chairman. You are speaking now of the regular-line service? Mr. Dearborn. The regular line. The Chairman. And that would apply to your service? Mr. Dearborn. That would apply to our service, if we wanted some freight in a hurry. The Chairman. You call the other ships that are in the irregular service — they are not exactly tramp ships, but their conditions are different from the regular-line service. Do you have regular-line service to Hawaii ? ]Mr. Dearborn. No. We have a service from Puget Sound to Hawaii, and then we take our westbound cargo from New York down mere, and then also local freight from Puget Sound, and then we come back with sugar. The Chairman. Do you have regular sailings? Mr. Dearborn. Oh, yes. We have in our service sailings about every 10 days for the islands, a regTilar sailing. I brought up there tlie rate-making power, as dealing with this contract we have with the sugar factories in Hawaii. They come to us and say, "We have so many .sugars to move. We w^ant you to move all those sugars. We want you to agree to do this; we don't agree to ship by you any sugars except those we are going to send .to the Pacific coast, and we can not tell how many we are going to send." That is a one-sided contract. 38.5.34—16 7 98 REGUl.ATORV FKATUHES OF SHIPPING BILL. The C'liAiHMAN. Do you think ii' this were a hiw it would inter- fere with your contract with the sugar phmters^ Mr. Deakbokx. That is what I want to know. The CiiAiHMAX. You have read the bill, have you not? Mr. Dearborn. Yes; I have read the bill, but j'ou have the rate- making power. What is it? I am still asking the <]uestion. I have heard discussions here this forenoon in respect to the present high rates of freight, and (lod knows they are exorbitant and fabulous. Is this rate-making power to be api)lied, for instance, to this situa- ti(m, or is it to be applied to any other situation? The Chairman. I Avould say this, that under the provisions of this bill, this board has the ])()wer to consider conditions and deter- mine whether or not the conditions are extraordinary, and if they are, they will have the power to recognize that fact and not impose any unreasonable restrictions. Mr. Dearborn. But then they must have some idea in their minds as to what a seasonable rate would be. The Chairman. How did the Interstate Commerce Commission, in this case to which I referred, ascertain that the proposed increase of 15 per cent was unreasonable as applied to the Ocean steam- ship Co.? Mr. Dearborn. Take the Interstate Commerce Commission. The Interstate Commerce Connnission is trying to find a basis now upon which to make rates, is it not? They are going through a process of valuing the railroads. Ultimately they expect to make a rate based upon the return on the investment, or a return, I will say, upon the value of their property. As it is to-day the Interstate Commerce Commission will make rates, I suppose, based upon the dividends as evidencing the prosi)erity of the railroad they are dealing with. Of course, one railroad is prosjierous and another is not prosperous, and the same rate applies to both. The ]ioint I want to make as fundamental in this thing, is whether 3'OU are dealing with companies operating a fleet or dealing w^ith a few ships or one ship, the unit is a ship ; you are putting the ship in the same category as the railroad. .Now, you have trade commis- si! ns. \ ()U have Sherman Act to govern unfair ]))'actices in general business and manufacturing. A ship is nothing but a manufactur- ing plant, but it gets nothing from the State. AVhat do they get, except when you give them the privilege of foi-ming conferences? You do gi\e them something there; I will adn)it that. Mr. Hardy. Right at that point, I want to know^ if the board can not fix reasonable rates; how do you think the conference lines do it? Do you form a conference and agree on rates? Mr. Dearborn. That is the point I have been making. I say you have to differentiate the rates. There are companies, steamship com- panies, doing business under conference agreements. Mr. Hardy. With the rates agreed upon? Mr. Dearborn. Yes; with the rates agreed u])on. Mr. Hardy. And divisions agi'eed upon? Mr. Dearborn. Yes; and divisions agreed upon. Mr. Hardy. But just a moment ago, I understood you to say that this board, neither for the individual ships, nor for the lines — it doesn't make any difference whether they weie tramps or lines oper- REGULATORY FEATURES OF SHIPPING BILL. 99 ating together — that the ship was a unit and that the board could not fix any rates. Mr. Dearborn. Before you came in I said, of course, I would dif- ferentiate between steamship companies doing business under those methods, and steamship companies — which are the great majority — which are foot free. Mr. Hardy. If I get at your proposition — I think maybe I do — 3'ou think this board could regulate the rates for conference lines or regular lines, but could not regulate for the tramps? Mr. Dearborn. Yes; on those now doing business under confer- ence arrangements. Mr. Hardy. Do you think this board should regulate the rates for regular lines? Mr. Dearborn. In theory. I have said to my confreres on this committee, that I do not belieAe in this rate regulating power, and w^hy? As I say, the ship as such, gets nothing from the State, but if ship companies doing business under a conference get immunity from the Sherman act, then, they are getting something from the State. Mr. Hardy. I want to go back, then, and pin something down. Mr. Dearborn. Yes. Mr. Hardy. As I understood you, you admit that the lines that have regular sailings and regular routings might be regulated ? Mr. Dearborn. Yes; if you think it is necessary to do business that way, 3^ou are giving them a privilege, and, I think, fundament- ally they are getting something from the State. Mr. Hardy. You admit — just as a conference would agree upon the rates — then, this board could fix rates w^ith such as much reason- ableness as conference lines can agree upon rates? Mr. Dearborn. Yes ; except that it would be very difficult. Mr. Hardy. ^Vliat would be difficult? Mr. Dearborn. It would be very difficult to fix a rate. Mr. Hardy. How do the conference lines fix them? They fix them, do they not? Mr. Deai{born. Of course, going back to normal conditions, these ccnfereiice lines, I believe, Avere formed not for aggrandizement, not to extort money from the public at abnormal profits, but for self- preservation. Mr. Hardy. That is perfectly natural. I do not blame men for getting together. Mr. Dearborn. Yes; but going back to the purpose of these con- ference lines. I don't think, before the war started and these abnormal rates existed, that there would be any complaints from shippers about the rates themselves. There might be complaints about practices. Of coui'se, the company I represent has never been in that kind of busi- ness, has not lieen in any conference, and never expects to be. Mr. Hardy. Then I imderstand your chief objection to this is that you can not apply this to the tramp steamer? Mr. Dearborn. To what? Mr. Hardy. To the tramp steamer. Mr. Dearborn. No. I am taking our own case. I do not think our steamers — ^we have "26 performing this service; we are not tramps. Mr. Hardy. Have you any regular lines? 100 KEGUl.ATORY l^EATURES OF SHIPPING KII.I.. Mr. Dearborn. Oh. we have a legular service. Mr. Hardy. As I umlei-stand you. are yerated shijjs be- tween the Atlantic coast ports and the Pacific coast ports, and to Hawaii and back to New York. AVe used to operate through JSIagel- lan. Originally we operated sailing ships around Cape Horn. AVe have developed a fleet of twenty-six 10,000-ton steamers, and it all came from the time that the navigation laws were applied to Hawaii. AAHien Hawaii Avas taken over in 1898 the navigation hnvs were apjjlied to Hawaii, and we staited in. AA^e said, "Here is our oppor- tunitv to get return rargo.*' In those times we could get cargo to the Pacific coast, but Ave could not get it back. Mr. Saunders. You say the ship does not get anything from the 'State. It seems to me in that very instance you have given of the apidication of the navigation laA\s to Hawaii, which enabled you to build ui) this trade, that you got something from the State. jNIi-. Dkarhorn. Surely: but any other ship has the same right. Mv. Saunders. Any other railroad could get the same charter as a particular road. Mr. Dearborn. No; rights that the railroad has can not be taken away from it by any other. I say the ocean is free. AA^'e have no trackage rights. Mr. Saunders. No; not in this particular trade. Mr. Dearborn. It is free to ships. Mr. Saunders. It is not free in the trade you operate; it is free to American ships, but it is not free to foreign ships. Mr Dearborn. It is free to American ships. AA^e have no mo- nopoly. A railroad has a monopoly of the territory through which it goes. Mr. Saunders. Not necessarily; they can build a parallel railroad. Mr. Dearborn. I knoAV, but not in the immediate territory. A ship does not control anything. Mr. Saunders. Of course, the railroad controls the immediate track it runs on, but it is not such a great thing. You say it gets some benefit from the Commonwealth or the State that the ships do not get. You illustrated the naA'igation laws that enabled you to buiki up this great business. I have observed several times that the question has been asked, as if it was an unsolvable one. How can we define a reasonable rate? Mr. Dearborn. Yes. Mr. Saundeijs. In everyday business in this country we are con- fronted with the same sort of thing, to define reasonable care. A man is required to exercise reasonable care. How would you define reasonable care? Have you ever served on a jury? REGULATORY FEATURES OF SHIPPING BILL. 101 Mr. Deakroijx. There would be a deg-ree of care, whether it was goino; to preserve a human life or do better than that. Mr. Saunders. Xo; but the courts require you to exercise, under certain conditions, reasonable care. If you ever served on a criminal jury you would be instructed with regard to reasonable doubt. How would you define reasonable doubt. It has been tried several times, l>ut nobody has ever gotten any further than a reasonable doubt is a reasonable doubt. Mr. Dearborn. I say in a case of that kind it all depends upon the evidence. Mr. Saunders. What is a reasonable doubt? Mr. Dearborn. You have the evidence pro and con, but in the case of fixing a rate, there it is not necessary to get anything reasonable — that is, to fix a rate. And what is it based on? Mr. Saunders. I would have replied just as 3'ou have replied with respect to a reasonable doubt; it would depend upon the evidence, and the evidence in that case would depend upon the facts, and the facts would be the factors in this business in respect to which the rate is charged. Mr. Dearborn. If j^ou were chairman of that board you would say. "What is the property cost; what is a reasonable cost; what is the return on the investment ? " Mr. Saunders. I was just going to follow that up. Mr. Dearborn. Yes. Mr. Saunders. You can all tell in the ship business whether you are making money or losing it? Mr. Dearborn. Take a ship in normal times Mr. Saunders. Take normal or abnormal times. Can not you all tell whether you are making money? Mr. Dearborn. Let us deal with the situation to-day. Those who are building ships to-day and those who have bought ships at the high pi'ices — as high as $180 a ton has been paid for ships Mr. Saunders. Yes. Mr. Dearborn. And there are ships in the service that have cost as low as $40 a ton. Xow, if you ai'e going to fix a rate for the service based upon the highest cost ship, it would be an unreasonable rate for the loAvest cost ship. Mr. Saunders. In that condition the element of prime cost would be a pioper element to consider, but can you not, as a company, in operating ships, determine whether you are making money or losing money ? Mr. Dearborn. In operating our ships we charge off 5 per cent for depreciation. Now, you get down to a basis. Suppose it Avas put up to you as chairman of this board, and we show 10 per cent after charging off for depreciation, would you say that was an excessive rate ? Mr. Saunders. Whether that particular thing is a reasonable or unreasonable rate would depend upon the facts in that case. Mr. Dearborn. Yes. Mr. Saunders. I am coming up to that. I ask you the same ques- tion: Can you not, in your business, determine whether you are making or losing money ? 102 REGULATORY FEATURES OF SHIPPING BILL. Mr. Deahboun, Thore have been times in the husiness when it was merely a case of whether you took m more money than you paid out. You didn't ha\e enough to go into it. Mr. Saunders. AVith reference to the sahiries you are paying or dividends you are paying — a man can tell whether he is prosperous or not. Mr. Dkakijohn. A\'hy. certainly. INIr. Sauxdkks. Of course your answer to that must be yes. Mr. Dearhokn. '^'es: a man knows whether he has got a dollar in his pocket or not. Mr. Saunders. A man can tell whether he is prospering greatly, as compared with his condition of whether he is paying big dividends or little dividends. jNIr. Dearborn, ^'es: certainly. Mr. Sainders. Now. when you ha\e all these factors it seems to me it would be \ery easy to determine whethei- any particular rate furnished great i)ros|)ei'ity or modeiate prosi>erity or just sufficient to keep things going. When you all know those things I do not think any man in this room would ha\e any difficulty to determine whether it was a reasonable oi' unreasonable profit. Mr. Dearborn. Sui)pose in our case we have a fleet of ships that v.ere built recently and some other fellow comes along with a fleet of shi})s. a dozen ships, that were built some time ago, and he was satisfied with a mai-gin of profit that would luin us. You are not going to deprive the [)ublic of those more economical ships ^ Mr. Saundeiss, Not a bit in the world. How^ does that hit you? Mr. Dearborn. That hits me, because we are down and out. Mr. Saunders. That is under the law of ethics of competition. Mr. DEARBOitN. Suppose we had a dozen ships (I will reverse it). Our ships were built some years ago. and I think now the axerage cost of those ships would be perhaps $100 a ton less tlian the highest price paid for shi])S recently, but, say, $?j5 a ton less than they are paying foi- ships for delivery two years hence. Now, some man is l)uilding ships perhaps for our trade. We do not know. They are building a lot of American ships. If you fix a rate of freight based upon this cost — my Lord, we are going to Mr. Saunders. But that does not create any difficulty. If I follow the thought you are suggesting, it is that, by reason of the fact that you built your ships cheaper, you would be able at the same time and at the same rate to i)ay nuu;h bigger di\i(lends. INIr. Dearborn. No; if we were satisfied with a lower margin of profit, we AYOuld cut the other fellow and drive him out of business. ]\Ir. Saunders. Very well ; do you think you ought to be alloAved to do that, just simply to uiulercut for the ])urpose of driving somebody else out of business^ Mv. Dearborn. If we are willing to do business at a low margin of jjrofit, I should think we should be able to take the benefit of it. The Chairman. That would be all right if, after ycui ha\e driven the other fellow out. you did not raise the rates. Mr. Saunders. That was to be my next (juestion. Do you bclievo in that case those possibilities ought to be allowed ^ Mr. Dearborn. I am trying to point out the difficulties you are trying to deal with. I really think it is uuw(U'kable. and it could not be made equitable. REGULATORY FKATURES OF SHIPPING BILL. 103 Mr. Saunders. Suppose, to follow out your suggestion — you say it is unworkable; I do not see any great difficulty so far. Mr. Dearborn. Then my words have had no effect upon you what- ever- Mr, Saunders. No; I do not put it that way at all, but 1 say the illustration you have given is certainly solvable, so far as you ha\e gone, because you have admitted you can tell whether you are making big profits, reasonable profits, or little profits. I am taking that very suggestion and taking that ship line you say was l)uilt a few years !igo. that was built cheaply, and you are able, by reason of those conditions, to make 100 per cent, whereas a fellow who is going into the business now, with reference to the increased cost of his construc- tion, operation, etc., could not make more than 10 per cent. Do you think 3^ou ought to be allowed to go on and make 100 per cent and tell me there is not enough authority and ability in the business world to deal with a situation like that and say to you " (Jentlemen. 100 i)er cent under these conditions is unreasonable and extravagant, and the mere fact that you are able to do it does not justify the rashness and impropriety of it." Mr. Dearborn. In the underlying principles applied to an}' busi- ness, every man knows no man can enjoy 100 per cent profit in his business for any length of time. Mr. Saunders. Don't take that illustration : make it r>0. Mr. Dearborn. I say make a normal profit. We have to do busi- ness on a normal profit, and then a great deal depends on the capi- talization. You take a company that is capitalized conservatively; that is, they have put their surplus earnings into new ships, and they have allowed their companies to develop from surplus earnings; they have not issued stock. Just think with how much smaller a margin of profit they can do business. Mr. Saunders. That is all right. Mr. Dearborn. Take in our own case: We liave shi})s that cost $20,000,000, and our capital is only $5,000,000. We luwe held the dividends back and put our money into new ships. Mr. Saunders. That is a problem for l)usiness men to deal with, to see the extent to which you are prospering. Now, let me take that very selfsame illustration. You take a line such as you have spoken of, that has been a reasonable line, and you are making moderate profits — and we all want to see prosperity — and conditions come along in which, instead of making their usual normal dividends of 10 per cent, by reason of these conditions they can dedai-e for one or two or three years 100 per cent dividend. Mr. Dearborn, Yes. Mr. Saunders. Now, is there any difficulty in detei'mining whether that is an imreasonable rate? Mr. Dearborn. But how are you going to start in to make a rate? Are you going to consider the man who has had the courage to come in and pay high prices for ships? Mr. Saunders. So far as that is concerned, that does not enter into the question of determining whether your rates are imreasonable or not. Mr. Dearborn. Suppose this man who has built the high-priced ships and the man who has the low-priced ships are in the same service. 104 REOULATORY FEATURES OF SHIPPING BILL. Mr. Saunders. Yes. Mr. Dearborn. It is not workable, I say, for one company to have one rate and another company to have another rate. Mr. Saunders. Oh, no. Mr. Dearborn. The rates have got to be about the same. Mr. Saunders. Of course. But you have in mind that you estab- lish what for that business would be an unreasonable return. If under that you made all the conditions fair, and you made the rates indiscriminatory, if one man under the law of competition can not live he must go out, as far as that is concerned. Mr. Dearborn. The company in the stronger position wouhl l)e in n position to monopolize then. Mr. Saunders. No: that is exactly what we are going to i^revent in this bill, because this law will prevent monopoly. Mr. Dearborn. Judge, supposing that we are satisfied with a mini- mum and reasonably low return on our cai)it;il or on our lo\v-i)ri('(Ml ships. Ml*. Saunders. Well? Mr. Dearborn. If we made our rates based on that, it woidd i)ut the other fellow out of business. jNIr. Saunders. AVhat of it? So the public gets reasonable rates, we are not concerned what the other fellow makes. We are not concerned with that end of it. Mr. Dearborn. No. Mr. Saunders. We are concerned with this particular business be- ing conducted on a reasonalile basis. I^'^pon that foundation all prosperity is built. Mr. Dearborn. As a matter of fact, as far as our own tratle is concerned, to go back to that, the Interstate Commerce Commission has allowed the railroads to make such low rates to meet the canal comi)etition that our maxiuuim rate is fixed at a niinimmn. In dealing Avith that case they allowed the railroads to fix a rate based upon an out-of-pocket cost; that is to sa.v, ''What does it actually cost you to carry this particular commodity? So much." And it is about a dollar a ton in excess of that. "Well. ymmerce Commission's permission to the railroads to meet canal competition that there is no danger of our ever charging any excessive rates or showing excessive profits. Mr. Sai-.ndehs. You then feel that you have been regulated (' Mr. Deahbohx. We have been i-egulated.- Mr. Sauxdkks. ^'ou have been i-egulated? Mr. Deahboux. We have been regulated. Mr. Saunders. And now, as a result of that, if you find that with your rates you can make a profit Mr. Dearborn. My dear sir, we are out of the business. Mr. Saunders. What business are you speaking of? Mr. Dearborn. The canal is closed. We were in business between New "I'ork. PuL^'t Sound, and Hawaii. We had a fleet of 26 steamers. REGULATORY FEATURES OF SHIPPING BILL. 105 Mr. Saunders, Do you mean you liave j^one out of that per- manently ? Mr. D?:akbokx. The canal closed last September. Mr. Saunders. But that is temporary? Mr. Dearborn. Yes; Ave had 17 ships. The canal remained closed, and the prospects were that it would be closed for another year. Mr. Saunders. What I am getting at is, you are not out of it permanently? Mr. Dearborn. No; but in ser\'ing ourselves and enjoying these very high rates in going into the foreign trade we are doing some- thing for the foreign trade, too. Judge Alexander said to me four or five days ago, " Why don't you go into the South American trade?'' We have 13 ships in the South American trade, and I assure you we are not making any sacrifices. The Chairiman. Of course you are not. I would like for you to explain what foreign trade you are operating in. Mr. Dearborn. We have one ship going to Vladivostok, one going to France, and one going to South Africa. Mr. Saunders. I thought you meant the closing of the canal had put you out of business. Mr. Dearborn. No ; it served us well. Mr. Saunders. It put you in a better business? Mr. Dearborn. Yes; I am not making any complaint. Mr. (treene. Is not that on accoimt of the abnormal conditions? Mr. Dearborn. Oh, yes. Mr. Greene. Ordinarily you would not have been there. Mr. Dearborn. I take it that if you had power to-day to fix these rates that you would expect your board to reduce the present abnor- mal rates of freight? Mr. Hardy. We certainly would. Mr. Dearborn. That is what you would expect. Judge Hardy, and let us see hoAv that would work. The rates ruling from Ncav York to England and France are $25 a ton. You want to reduce those rates to $10 a ton. Who gets that? The ammunition maker. Noav, getting I'ight doAvn to the question of interest, you are more interested in the steamship company than you are in the ammunition man. The (^iiAiR:NrAN. But 00 per cent of our foreign trade, or more than that, is in food products. Mr. Dearborn. I knoAv : but in the products of munitions there is a case in hand. Mr. Hardy. When you have raised the price on our cotton shippers from $1.50 to $15 a bale. Avliere it did not go into a Avar zone or get into any danger, not including insurance or anything of that kind, Ave think something ought to be done. Mr. Dearborn. We think it is terriffic; but, at the same time, the cotton man is getting as much for his cotton: the other fellow is paying for it. iVIr. Hardy. NotAvithstanding the fact that he is paying for it, when you raise the price of cotton to the point Avhere peo])le Avill not buy you can not get the consumption of it; those people can not consume it. The Chairman. He thinks the cotton man oyght to be satisfied with bottom prices where the steamship man gets the Avar prices. Mr. Dearborn. Well, the other felloAv fixes the price. 106 HKGULATORY FEATURES OP' SHIPPIXO BII.I.. Mr. IIahdy. You lune said the other fellow fixes the price? Mr. DEAnu