Carnegie Endowment for International Peace DIVISION OF ECONOMiCS AND HISTORY JOHN BATES CLARK, DIRECTOR PRELIMINARY ECONOMIC STUDIES OF THE WAR EDITED BT DAVID KINLEY Profeitor of Polidcai Economy, University of lilioois Member o( Committee of Reiearch of the Endowment No. 9 INFLUENCE QF THE GREAT WAR UPON SHIPPING BY J. RUSSELL SMITH Professor of Geography and Industry, University of Pennsylvania NEW YORK OXFORD UNIVERSITY PRESS AMERICAN BRANCH; 3S Wmt 32Mt> Stxe«t -LONDON. TORONTO. MELBOURNE, AND BOMBA • ^ - 1919 4'« mm Carnegie Endowment for International Peace DIVISION OF ECONOMICS AND HISTORY JOHN BATES CLARK, DIRECTOR PRELIMINARY ECONOMIC STUDIES OF THE WAR EDITED BY DAVID KINLEY Professor of Political Economy, University of Illinois Member of Committee of Research of the Endowment No. 9 INFLUENCE OF THE GREAT WAR UPON SHIPPING BY J. RUSSELL SMITH Professor of Geography and Industry, University of Pennsylvania NEW YORK OXFORD UNIVERSITY PRESS AMERICAN BRANCH: 35 West 32nd Street LONDON. TORONTO. MELBOURNE. AND BOMBAY 1919 COPYRIGHT 1919 BY THE CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE 2 Jackson Place, Washington, D. C. •^1>G EDITOR'S PREFACE This monograph on shipping, by Professor J. Russell Smith, of the University of Pennsylvania, is one of the series of pre- liminary war studies undertaken by the Endowment, the first of which was published in January, 1918. Few matters connected with the war have attracted the attention of the public of the country, and, indeed, of the world, in recent months so much as the question of the shipping supply. The dastardly policy of the Imperial German Government in sinking all ships, with- out reference to their character or their mission, has proved so serious a menace that for a time some alarm was felt as to the ability of the United States and her allies to find sufficient means of transportation for men and goods. When the question be- came a pressing one for us we turned naturally to the experi- ence of our English brethren. But our problem was somewhat different from theirs, for the reason that we did not have the experience and facilities on so large a scale as had Great Britain. Moreover, it seems as if nations, like individuals, refuse to bene- fit by the experience of others. The British Government, in its attempts to stimulate and regulate ship production, and to con- trol shipping in the general interest, made many blunders which we might have learned from her experience to avoid. For, in spite of the fact that Britain is a shipping nation, we find in the early government attempts to control shipping some such igno- rance, some such blundering and some such inefficiency as have marked our own conduct in the matter. Professor Smith describes and explains the causes of our blundering and inefficiency so fully that it is not necessary to say much about them here. It seems clear, however, to a dis- interested observer that there has been little in our experience during the past year in connection with shipping to justify us in thinking that governments are more efficient than they ever were 248518 iv EDITOR S PREFACE in economic matters ; or that the piibhc interest on the whole is any better served by the entrance of the government upon the field of industrial activity. Regulation the government may undertake successfully, provided it will leave operation and management to individual intelligence, initiative and enterprise. For government departments must work by general rules, .and general rules are not applicable to the details of industry and commerce. No more forcible illustration of this could be found than the story told by Professor Smith of an incident of the British experience, in which, because an order had been issued that ships nearest completion should be used for the most im- mediate need, a vessel constructed for one purpose was stripped to the keel in order to make an oil tanker, while the framework for another vessel was on an adjacent slip and needed only to have the construction go forward to meet the need. But gov- ernment officials thought it necessary to throw away all the labor and time consumed in the construction of the first vessel in order to follow a general rule. To be sure, one might wish for stronger ground for believing in all respects in the efficiency of some of our great business men, if that much lauded efficiency is seen at its best in the parts that some of them have taken in assisting the government in the administration of the war. Their failure, however, so far as it has occurred, may be due to the fact that they have not had sufficient authority. But whatever the cause, it is certainly true that we have had less success than we expected, both from gov- ernment intervention and from the participation of business leaders in government affairs. Fortunately, so far as shipping is concerned, we seem at last to have found the right men, and present efficiency in shipbuilding has restored public confidence in this matter. It is to be hoped that the equals of Mr. Schwab, Mr. Hurley, and their coadjutors may be found in all other lines of government business necessary to the war. One of the most interesting questions connected with the mat- ter of shipping is the policy that will be followed after the war. The savage onslaught which Germany has made on the inde- EDITORS PREFACE V pendence of the world, prefaced as it was by long continued economic penetration, has led many people in dififerent countries to declare that each country must be economically self-sufficing after the war; that never again "shall we depend" upon a foreign Power for things necessary to national existence. But no country can, in the long run, be economically self-sufficing. No country can be mainly so, except at high cost. Nor is such a reversion to extreme nationalism desirable, either from the point of view of national or international ethics, or of international law. One of the aims of the present war is to free the nations from danger of domination, economic or military. With that purpose fully attained, economic domination need not be feared. The pursuit of a policy of economic isolation by the nations after the war would defeat one purpose of the war. This statement, of course, does not mean that economic pressure may not be justly brought upon the Central Powers after the war if, in ad- dition to their military defeat, it is necessary to use such pres- sure to educate them up to the moral plane of the rest of the world. Three lines of policy are open for the w^orld after the war. We may have, as just intimated, maritime independence on the part of each country, under government control, or government operation ; or, in the second place, we may have a restoration of the conditions of competition, without the evil features of pool- ing and monopoly which characterized the years before the war; or, in the third place, we may conceivably have a policy of inter- nationalism in which the shipping supply of the world may by agreement be apportioned among the nations according to some principle agreed on. If every government undertakes to aid shipbuilding and pro- motes shipping, which latter is a different thing, there will surely be a supply of ships far in excess of the world's needs. What shall be done with the surplus? One nation would cut prices to drive out the ships of the others. The result would be, in the long run, such a reduction of cost of shipping to shippers at the expense of the general public, that the whole plan would collapse. -vi EDITOR S PREFACE That the nations can reach a conclusion on an apportionment of shipping is doubtful. The only course left is the restoration of shipbuilding and shipping to individual enterprise. Some assistance may properly be given by governments both to ship- building, and to ship operation, but such assistance should be given either for present or prospective services in return. And we must not forget that we may be generous in our support of shipbuilding and yet render our efforts nugatory by an unwise policy concerning ship operation. The author's criticism of our past policy appears to the editor to be, on the whole, fair, although the author himself must of course carry the responsibility of the personal judgment which he expresses about individual officers. It must be borne in mind in all criticisms of public officers, especially army and navy officers, that they are assigned frequently to do things which they themselves do not feel able to do well. The editor has watched with some care the operation of the government depart- ments as they have expanded under the pressure of war for more than a year. I have found little, however, to encourage my belief in the advantage of government management of business except for certain routine work, or in the wisdom and fairness even of government control. David Kinley, Editor. FOREWORD Late in August, 1917, I was asked to prepare a report for the Carnegie Endowment for International Peace showing the " effects of the war on shipping as a commercial proposition, with especial reference to the United States and Great Britain; giving an account of the ship shortage and its effects on rates and profits; the efforts of the different countries to replace the lost ships; the proposals for new kinds of ships, such as the standard ship ; the efforts to meet the shortage by increased gov- ernmental control such as the taking over of shipping by the British and American Governments; the compulsory and volun- tary diversion of ships from one trade to another, the transfer of ships from flag to flag; the new provisions that have been made to meet the crisis in marine insurance; the effect of the ship shortage and the taking over of ships on imports and ex- ports — the probable loss of trade routes and trade and the absorp- tion of trade by other countries; the preparations during the war for shipping expansion after the war; and finally whether and to what extent socialism produced by the war will be permanent — a question on which the shipping administration during the war has much bearing." This has proved to be a much heavier task than I expected. For example, nearly half the happenings recorded in the book have occurred since I began it, eight months ago. It is so close to the present moment that we have not had time for perspective to develop or for the material to be partly worked up. Accord- ingly, the record has had to be gathered in most scattered places. Many statistics have had to be consulted. All this has been much more work than I could do alone in the time at my dis- posal, and I am therefore indebted to others for much help. I am especially indebted to Mr. John E. Orchard of the University of Pennsylvania for constant, loyal and discriminating assistance. vii viii FOREWORD The chapters on Marine Insurance and Government Aid to Ship- ping are almost entirely his work. I am also indebted to Henri- etta Stewart Smith for much searching for material and for critical assistance with several chapters. For the gathering of material in connection with the chapter concerning trade I am indebted to Mr. W. E. Warrington, Miss Erna Grassmuck and Miss Mary B. Goodhue. To Mr. Octavius Narberth of Lloyd's Register of Shipping I am indebted for m.uch advice and infor- mation. I am similarly indebted to Mr. O. K. Davis of New York. I wish also to express my appreciation of the skilful assistance of my secretary. Miss Anna Y. Satterthwaite. Great effort has been made for the desired but never entirely attainable accuracy. This book is one which by the nature of its preparation should make an appeal for the clemency of the future critic. It is written in the midst of a struggle. As I finish it the Germans are making their terrifying drives toward Amiens, and there is serious Allied talk of the possibility of German occupation of Paris and the Channel ports. In this book I am trying to state and explain the occurrences of the first part of the struggle, so that we may the better understand the period that is to follow. Every passing month gives the critic a gift of new fact and of perspective that is denied the author, who has undertaken this work in the hope that it may do a little to increase the understanding of one of the many phases of economic activity with which our government must deal for our good or our ill. J. Russell Smith. The University of Pennsylvania, Philadciph ia. Pa. , May 30, 1918. CONTENTS CHAPTER PAGE I /The Organization of World Shipping before the Great War 3 II ( The World's Shipping Industry during the War — Brief Summary with Special Emphasis on Freight Rates 26 III The Effects of the War on Marine Insurance .... 49 IV Trade Dislocations Due to War — Some Possible Readjustments 74 V \ Government Aid to Shipping ' 124 VI Control and Operation of Shipping by the British Government, 1914-1918 153 VII "Control and Operation of Shipping by the United States Government, 1914-1918 185 VIII' Shipbuilding during the War — Technical Develop- ment 217 IX Shipbuilding in the United Kingdom 244 X Shipbuilding in the United States, 1914 to May, 1918 266 XI .Shipping Policy after the Great War 308 XII World Shipping, World Organization, World Peace 339 Index 351 INFLUENCE OF THE GREAT WAR UPON SHIPPING CHAPTER I The Organization of World Shipping before the Great War War Destroys the Old Order The war has destroyed the daily life of the citizen, put him into the trenches, giving him an entirely different routine and regimen. Similarly has it destroyed a wide reaching shipping organization, and, as with the men, the ships themselves have in many cases been destroyed, and those that remain are in strange uses or strange management, or both. The management of the world's shipping has not received enough attention from students of industrial organization and social philosophy. For some reason economists have, in times of peace, let it very much alone, despite the fact that it probably affords an unrivaled example for the testing of a favorite piece of social philosophy — the doctrine of the maintenance of equality through the maintenance of equality of opportunity. It is doubtful if there is to be found anywhere else in all the world, or in all history, so good an opportunity to study the workings of individualism with real equality of opportunity as the commerce of the sea affords. The sea is always there. It takes care of itself. Use does not destroy it. No one owns it. In times of peace it lies open to all. The result of man's efforts in this arena of freedom should be of great interest to the student of society. It is true that the prewar organization of ocean commerce is gone, for a time at least, but its present non-existence should not end our interest in it. Even during the period of the Great War the organization of ocean commerce needs to be studied in retrospect, because of the necessity of some kind of reorgani- zation that must follow the war. When the military struggle 3 4 INFLUENCE OF THE GREAT WAR UPON SHIPPING ends, men will have new and greatly enlarged ideas of the role that government may play. Governments themselves will be in complete control of their shipping. Governments will probably own outright much of their shipping, some of their shipyards and many other productive industries. Starvation will have taught us, as books could never teach us, the necessity of com- merce and our absolute dependence upon the sea. How shall we of the postwar world utilize these ships? Shall we reconstruct the old system? By how much shall we vary? In any dis- cussion of this reconstruction we need first to have a picture of the organization of commerce and the operation of the world's shipping as it was before the great explosion. What Was This World Commercial Organization? To understand it we must appreciate the importance of the base fact : namely, that in times of peace the sea is free. Any- body may sail his ship upon it wherever he will or can. Not only is this world's highway toll-less, but it is also lighted free of charge, and is carefully surveyed and charted that the ships may be safe from the perils of nature. Navies protect it from pirates. They hunt out derelict vessels and blow them up. Pilots sail far out from shore to welcome the incoming ship, and with their special knowledge take her safely into port. The ports hold out an almost universal welcome to the ship. Every little port wants to become a bigger port. Every big port wants to become a metropolis. They all strive with each other in the race for facilities that may bring them ships and commerce. ^Millions are spent digging channels through which the ships of all na- tions may sail, and usually free of all cost, into the welcoming harbor. If there are any charges for channels and harbors, they are alike to all shipowners. Not only are the natural facilities of the sea and the artificial facilities of the harbor alike open to all ships of the world, but the organization of business is such that anyone can enter it. It is no more difficult, requires no more special knowledge to own ORGAXIZATIOX OF WORLD SHIPPIXG BEFORE THE WAR 5 a freight ship for hire than to own a house for rent. The method of conducting them is the same. You own your house, or your ship in full or in part, subject to partnership or mortgage. You turn it over to an agent for the business of finding a customer for it. If it leaks, he patches it. If it needs paint, he paints it. If it needs caretakers, he hires them. After a certain period he turns over the proceeds to the owner. Here indeed is an oppor- tunity for the golden age of free competition. But what did we find? We found trusts, the tightest kind of trusts. Between distant countries we found groups of steamship lines that divide the traffic between each other to the hundredth of a per cent. They maintained uniform rates of freight with almost as little variation as the post office maintains the price of stamps. Indeed they succeeded in taking to themselves the trade as definitely as if it had been assigned and divided among them by statute. It has been divided by statute — for the agreements of steamship lines have been the law — even the printed law — of many a trade route. This statement of the astonishing absence of ■ competition where one would expect to find freedom of competition should not be taken as covering the whole of the world's trade. This trade is of two kinds : monopolistic and free. It is carried on in two ways, the line of steamers operated as a unit and the single ship operated as a unit. It is the line traffic that tends to become monopolistic, but in addition to line traffic there were in times of peace thousands of vessels operating independently, commonly called tramps. Those ships were for hire to anybody who could send a shipload at one time. This is a great limita- tion to the freedom of the trade. The necessity of shipping a minimum of 2,000 to 8,000 tons reserves the tramp to special shippers and special commodities. Who ever heard of a ship- load of cotton cloth, or of hats, or shoes, or autos, or locomotives, or freight cars, of cutlery, books, playing cards and musical in- struments, of cigarettes, ready-made clothing, or ostrich feathers, of lard, bacon, butter, biscuits, canned salmon or copper ? These are typical commodities of that very long list of things that must 6 INFLUENCE OF THE GREAT WAR UPON SHIPPING go in small quantities, and therefore can not make use of tramp service but need the regular dependence of the line T vessels sailing on schedule and combining in their cargo a'^nundred or a thousand or five thousand small shipments of assorted ma- terials. Shippers can avail themselves of the freely competing tramps only with goods of great quantity, usually raw materials of low value. At some time of the year you may find on almost every sea ships loaded with coal, iron ore, nitrate of soda, wheat, corn, sugar, lumber. Many of these tramp commodities are seasonal goods, handled in great quantity after harvest in a busy trade that falls away to nothingness a few months later. Thus the Argentine needs one hundred tramp ships per month in November, December and January to take her maize to Europe. During those months she imports a large part of her millions of tons of coal, which comes almost exclusively from Wales. To successfully operate these tramp steamers is a great puzzle in applied commercial geography. The goal of the tramp manager is to keep his vessel always loaded, a fact which the nature of trade always denies to some of them. Therefore the most skilful manager keeps his vessel loaded as nearly all the time as possible. He can not consider a single voyage alone. He must consider the next and the next. He prefers to sail from Wales to Buenos Aires rather than to Cape Town because Cape Town lacks the heavy cargo for return voyages, so that the coal ship from Cape Town must often go in search of cargo across the Indian Ocean to India, or the Atlantic Ocean to South America before her captain can hear the welcome sound of freight going into the hold. If outbound to Australia, she may at some seasons carry coal thence across the wide Pacific to Chile, and load there with nitrate of soda for the North Atlantic. In this ocean her owners would much prefer to discharge at Savannah, Ga., than at London, for Savannah has cotton and lumber to ship to Europe, whereas hungry London has nothing for the tramp, which must go out in ballast, while the liner takes the London export of fine manufactures. Rather than fruitless ballast, any owner would choose to ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 7 take coal at less than cost, and so it happens that the world's coal is distributed as a kind of by-product of the tramp steamer traffic, a: ' Britain is its chief source of supply, not because of superior quality or quantity of her coal, for in both of these respects she is the inferior of the United States, but because Britain is a tremendous importer of food and raw materials, and, as her export of manufactures is much lighter than the raw imports plus the food, she has five or six million tons a month of empty outgoing ships whose owners are glad to carry coal at a nominal price. Since the United States is an exporter of bulky material, a coal vessel leaving our shores would have to come back in ballast, and therefore our export coal freights are entirely in disproportion to British freights, and our role as coal exporter bears no proportion to our role as coal producer, our export in 1913 having been 22,000,000 tons, while that of England was 77,000,000 tons. Yet our coal production was several times larger than that of the British Isles. This tramp traffic reflects the freedom of the sea. It is com- petitive. But this fact is of small comfort to the importing merchant in Rio Janeiro, Cape Town, Melbourne, Calcutta, Shanghai, London, or New York, whose interest lies in groceries, in clothes, in manufactured machinery, or that wide variety of things handled by department stores. Handlers of this class of goods wish to get a few dray loads of boxes and bales which may comprise altogether a hundred varieties of goods. They are interested in the ship that sticks to her route twelve months in the year, and has enough sister ships to make a good schedule. This line traffic has grown up since the period of the steamer. Roughly, it is the creation of a half century. The merchant's ship of an earlier day gave way to the packet ship, and the packet ship to the liner, and the line traffic has been ever in- creasing both in proportion of the world's trade routes that it satisfactorily served, and in the frequency and quality of the service. At the opening of the war, Britain had approximately 3,900 vessels of over 1,(500 tons each, with an aggregate gross tonnage 8 INFLUENCE OF THE GREAT WAR UPON SHIPPING of about 16,900,000 tons. Of these 3,900 vessels, 1,200 with 7,000,000 gross tons, slightly less than half the total tonnage, were liners/ Development of Line Traffic The transoceanic line traffic began on the North Atlantic where the advantages of a short route and great traffic gave it such excellent opportunity, but it has widened out until in 1914 we found ourselves possessed of fairly regular line service, main- taining regular schedule and rather frequent sailings to all the important parts of the world. From New York there were lines to India, China and Japan, to Australia, South Africa, South America, both east and west, to the West Indies, to Central America, to Spain, Italy, Greece, Egypt and Constantinople, to all the countries of western Europe, including Denmark, Nor- way and Sweden, The Evolution of the Shipping Trust After one line has established itself in the trade, its success naturally tempts a rival. Rivals that share one's business are never desired. The natural result is competition and a rate war. Rate wars by rail and ship have been greatly overappreci- ated by the too little thinking citizen. Now a rate war is peculiar, in that it has the same result whether it is won or lost, the re- sult being the elimination of competition. If the newcomer by his competition makes it so unprofitable for the existing service that he must be taken in, there is a rate agreement and competi- tion is ended. If the fight ends so disastrously that one company or the other must fail and go away or be taken over by the sur- vivor, the competition is ended. In fact, open competition among ship lines bears a striking resemblance to the same phenomenon by railroads. For half a century we gleefully clapped our hands when the railroads competed and then we discovered that there could not be any such basis of railroad transport. Now we have come to believe in and apply the doctrine that the railroad is a ' The Economic World, May 19, 1917. Fairplay, November 8, 1917. ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 9 natural monopoly, that rate wars can not be tolerated, and that rates must be controlled by statute. While the sea has been free to carriers, the fact that no one owned it has tended to put its trade beyond the jurisdiction of any country, especially as the dififerent ends of trade routes were usually in different countries. With all this free- dom the last half century has witnessed the creation upon its mobile surface of a situation that bears a striking resemblance to transportation by land, so that by the beginning of the Great War the normal condition in ocean line service the world over was one of agreement among line carriers. Whether it was in the waters of the Tropic or the Arctic, of the Occident or the Orient, the two or more lines engaged in the same trade usually agreed as to rates, sailings, etc., although they might compete as to service, and their agreements might from time to time be ended by fierce rate wars, to be followed again by new treaties of peace, with conditions more or less favorable to the strong or the weak members of the combine. Tlie Prevention of Competition within the Group How are these groups of lines kept from competing with each other on the free sea ? There are several ways. Fear. The simplest means of control is fear of trouble, where with- out any agreement whatever the small companies follow the lead, so far as they can, of the big fellows in the same service. They know they must, or competition will drive them off the seas. This form of agreement of action may, however, have no more formality and apply no more rules than that of an Ameri- can express company which has rates for a certain service that duplicate those of the parcel post. Formal Agreements as to Rates. (1). Fixed rate agreements. In several of the North Atlantic agreements, such as to the Baltic or the Mediterranean, various 10 INFLUENCE OF THE GREAT WAR UPON SHIPPING members of the conference agree on prescribed tariffs which are only changed by mutual consent. (2). Minimum rate agreements. This is the common device in the North Atlantic where the enormous passenger traffic has called into being a fleet of freight and passenger carrying steamers that have much more freight capacity than can be used in normal times, even in the direction of greatest freight move- ment, which is east bound. Here, then, in this empty space was the most pressing necessity for some kind of agreement. Since they can not all get enough freight even by competition the companies have agreed that they will not take it below a certain minimum, which rate is usually the actual rate, because of the impossibility of getting any higher rate when there is so much unused space sailing every day or two. (3). Differential rate agreements. In some services some lines have slower steamers than the others and are allowed to take freight at a lower rate because of that fact. Here again we find an exact duplicate of the freight differentials that have long existed between Chicago and North Atlantic ports, from Newport News to Boston. Division of Territory. Many of these agreements provide that one company shall serve certain ports, and that other companies shall let these ports entirely alone, and have for their own exclusive use certain other ports. Thus the Hamburg-American runs to Ham- burg, and the North German Lloyd to Bremen, and as a result of a recent rearrangement of a conference, Hamburg- American Lines withdrew their New Orleans service, leaving that trade to be served by the British lines of Lamport and Holt, and the Prince Line. Such division of territory works to good advan- tage on a coast with many ports like the west coast of South America, in which many small ports are arranged in a long string so that it is a great advantage to all concerned if the vessels of one line will call at some ports, and those of other lines at the remaining ports, thus giving a faster service to all. ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 11 Division of the Traffic. (1). By restricting the number of sailings on the part of each line. A good example of this is furnished by the agreement as to the American-Brazilian trade by which the Lamport and Holt Line was allowed annually twenty-four sailings from New York; the Prince Line twenty-four sailings; the Hamburg- American Line twenty-four sailings, while returning to America allotments were as follows : Hamburg-American, twenty-four sailings to New York; Prince Line, twenty- four to New York, twelve to New Orleans; and the Lamport and Holt Line, with the lion's share, as many as might suit its conven- ience. This American-Brazilian conference, with seventy-two sailings a year from New York, is an interesting fact to keep in mind the next time some one is heard to announce that we have or had no lines to Brazil. In the general ignorance which prevails con- cerning ocean transportation this particular statement, for which there has been no basis in fact, for several decades has repeat- edly found itself in all kinds of places, including the Con- gressional Record and serious economic discussion. It seems to have been part of the general mythology which in the Amer- ican mind surrounds shipping. This agreement for the seventy- two sailings was signed February 14, 1908, and was the treaty of peace that ended an expensive rate war that had made all parties lose money for a year. Pooling the Freight Money. This rather common device sometimes covers the total income, sometimes a part of the income. Sometimes it is only used as an adjustment to balance up the proportion of traffic which was allotted in advance to each line of the conference. Thus it was applied to a North Atlantic steerage passenger traffic agreement in such a way that any company carrying more than its agreed upon share should pay to the other companies seventy-five francs for each excess passenger. At other times the same result is obtained by raising the rates the moment that the company's 12 INFLUENCE OF THE GREAT WAR UPON SHIPPING quota has been obtained. This automatically shunts the traffic to other lines. An interesting example of agreement between lines was that of January, 1903, between the North German Lloyd and allied lines on the one hand, and the French lines on the other. The lines divided among themselves ^ the entire third class passenger traffic from ports between Cronstadt and Bordeaux, both in- cluded, to the ports in United States and Canada. It was to be divided between the two groups in proportion to the num- bers they carried during the years 1900 to 1902, inclusive. Keeping down Competition of Carriers Outside the Conference The above mentioned methods of controlling competition all refer to those lines that have established places in the agreement. But how shall these agreeing members keep outsiders from com- peting with them ? There are several means. (a). The deferred rebate is one of the most widely used and effective means of making the shipper let rival lines alone. Carriers make an agreement with the shipper, promising to re- turn to him 5 or 10 per cent rebate of the freight he pays, pro- viding he ships by no other than conference lines. The rebates are calculated for a period of three, six, or even twelve months. They are held for six months more before being paid, so that ' "In addition to many other details, the agreement provides,' in article 10, that— The port of Havre is especially reserved, both for freight and passenger business, by direct line to and from the United States and Canada, to the Transatlantique. All other French Atlantic and Channel ports, w^ith the exception of Cherbourg and Boulogne, will be also reserved to the Trans- atlantique, but only as far as passenger business by direct line to and from the United States and Canada is concerned. Article 11 stipulates that — The Transatlantique binds herself not to call at any port between Cron- stadt and French frontier, either for freight or passenger business, except with the previous consent of the N. D. L. V. lines. Article 12 provides that — Passengers from Scandinavia and Finland shall not be considered in any way in this cgntract, and the Transatlantique shall not engage passengers in these countries." S. S. Huebner, Report on Steamship Agreements and Affiliations in the American Foreign and Domestic Trade, 1914. vol. 4, pp. 29-30. U. S. House of Representatives, 63d Cong., Committee on Merchant Marine and Fisheries. This book is an invaluable storehouse of accurate information. ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 13 the carriers always have a club (deferred rebates) over the head of the shipper. He forfeits this rebate money if he ships even one box of matches by a rival line. Naturally this kind of control is more efifective in the long lines of service like that from New York to Africa and Australia than in short lines, because of the greater difficulty of the rival line offering adequate service. If a shipper gets at outs with the conference carriers, he may be at their mercy, and the rival who tries to break in has great difficulty in offering as good service as the existing conference lines together can give, so the position of the lines is strong. (b). Fighting ships are the most easily effective means whereby the conference beats off the rival who tries to get in. The Germans have perhaps carried this thing to a greater degree of organization than any other nation, in that six German com- panies formed a corporation known as a fighting corporation, which owned four small steamships and chartered others as occasion arose. If a rival started a competing service to any of the conference lines, the fighting corporation's ship came alongside, announced the same sailing day, the same ports and proceeded to cut rates far beyond the limit of profit. I remember as a small boy reading with wide stretched eyes a highly colored account of a combat between a diver and an octopus. The huge eight-armed monster of the deep reached out one arm and seized the diver's right wrist. With a second arm he seized the diver's left wrist. With the third arm he throttled him, and still had five arms left to hold tight to the sunken wreck, while he strangled the diver. In this fighting ship of the six great German corporations we see an exact dupli- cate of the many-armed octopus. The six great companies could easily afford to lose on the little fighting corporation, which would kill one aspiring rival after another, while between times its ships would be chartered out on short time charters on profitable work if there was any, or even chartered by some of the various lines that owned the fighting corporation. The fact that the free sea can produce such tight shipping trusts 14 INFLUENCE OF THE GREAT WAR UPON SHIPPING explains the great absence of foreign shipping lines from Ger- man ports, and the wide reach of the German shipping lines over all oceans. The two leading German companies, Hamburg-American and North German Lloyd, in guarding their territory from com- petition, have not only driven and kept rivals away from their own ports, but for the last forty years the establishment of services to Scandinavia, except by Scandinavians, has been re- garded as undue and unpermissible encroachment, because it might carry directly the goods handled by transshipment through Hamburg and Bremen, especially Hamburg. (c). Long time contracts with shippers serve to hold their trade during the existence of the contract. (d). Contracts with railroad companies are very common in the American trade, and their object is usually to put the trade brought by a certain railroad from a certain region into the hands of certain steamship companies.^ Despite all the methods of scaring away the outsider, rate wars have been common occurrences. Like the initial price of ships so the cost of a rate war was a part of the cost of getting established in business — a kind of initiation fee that often amounts to a million or more." It can, however, be safely said that with the sea as with the land, the rate war has declined in frequency in recent years, due to the increasing thoroughness and rigidity of the organization of land and ocean carrying. ' " Judged from their wording most of the agreements have brought about a close preferential alliance between vast railway systems, controlling the traffic of large sections in the interior of the United States, and important conference steamship lines, which is bound to prove a powerful aid to the preferred water carrier as compared with any independent line not thus allied." S. S. Huebner, ofy. cit., vol. 4, p. 293. ^ " Moreover, the federated lines can conduct the competitive struggle with the comfortable assurance that, following the retirement of the competing line, they are in a position to reimburse themselves thru an increase ni rates. To allow the existence of conferences, therefore, generally means giving the trade to the lines now enjoying it. Only a powerful line can hope to fight its way into the trade, and witli the inevitable result, if successful, that it will join the combination or be allowed to exist by virtue of some rate understanding." S. S. Huebner, op. at., vol. 4, pp. 304-305. ORGANIZATION OF WORLD SHIPPING BEFORE THE -WAR 15 Infortiial Agreements. Perhaps the most suggestive thing in the whole list of lines relations is the documentless, even wordless, agreement that works so surprisingly well. Reference should here be made (1) to the tendency toward oral understandings, instead of written agreements, between the lines operating to and from ports of the United States, and (2) the care which has been exercised to pre- vent agreements and understandings from becoming public. While not involving as strong a moral obligation as written agreements, the evidence shows that for all practical purposes oral arrangements are quite as efifective. Judging from the manner in which the lines observe the same, the existing oral understandings give unmistakable evidence of the high order of integrity prevailing in modern business, and justify fully the phrase " gentlemen's agreements." Written agree- ments seem to have accomplished their purpose in many cases and are apparently no longer needed. The lines in some instances need not even meet in conference; they may avoid every appearance and every act which would seem to show the existence of an agreement or understanding; and yet operate in the same spirit of harmony that would pre- vail if a written agreement existed. There is still friendly rivalry in procuring business, but this business is secured at not less than certain understood rates. Again, in nearly all of the few trades where agreements or understandings have been denied by all the interested lines, a remarkable uniformity in rates seems to exist and not a trace of a rate war can be found. The situation has been explained to the committee as one of " following the leader," the dominant carrier fixing the rates and the less important lines adopt- ing these rates, they being allowed to exist in the trade with- out having an effective fight w^aged against them, as long as they conform to the rates and conditions established by the dominant carrier. Where written agreements govern the rates and methods of the lines, the terms of the agreements have been guarded with the utmost secrecy.^ S. S. Huebner, op. cit.. vol. 4, pp. 293-294. 16 INFLUENCE OF THE GREAT WAR UPON SHIPPING Perhaps the force of these understandings might instead have been pointed out as an evidence of the great losses that occurred from rate wars. Such in brief was the condition of competition upon the free sea at the beginning of the Great War. These shipping organiza- tions were among the most international of man's affairs. The fact that the sea is free meant that the shipping combine could sail all seas and reach the ports of all worthwhile lands. Few things could better illustrate the supreme internationality of the sea and its trade than the fleets of Norwegian banana boats ply- ing between the United States and the Caribbean, or the Eng- lish and German lines fighting each other almost to the death for the privilege of carrying the trade between United States and Brazil, and then when the struggle ended dividing the trade up among themselves with mathematical exactness. Our Attitude toward Shipping Agreements It is probably true that the average American has a sense of opposition to this wide reaching and well-nigh universal shipping control by agreement. Yet a further examination shows that in a way it helps to bring to pass a condition for which many of us have a prejudice : namely, the condition of the survival of many small units rather than the creation of one large unit, for it is a fact that the rate agreement keeps the small carrier alive, whereas competition means monopoly through the elimination of the weakest. Attitude of the Shippers toward Shipping Agreements The attitude of the shippers in line traffic is less venomous to conferences than we might at first expect. The conference rates are stable rates, and stability of rates is very important for the development of the export trade in which men have to quote prices for goods delivered at future dates. During a period of competition the exporter is continually receiving complaints from his customers in foreign countries because one man gets goods ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 17 from this week's steamer at a certain price and the rate on his rival's goods on next week's steamer may be lower and the customer objects to his rival getting this low price. The con- ference places all shippers on the same basis, just as the public railway rate of America when adhered to puts us on the same basis and gives none of us the advantage of a railway rebate. Many ocean shippers aver they would prefer high uniform rates for all rather than low but fluctuating rates. The peacefully working conference gives a much better distribution of sailing days than three or four warring lines which may send off three competing steamers on the same Saturday and then none for a fortnight. The Necessity of Government Interference Despite these advantages to the shipper the agreements of carriers produced a situation fraught with problems — a condi- -tion that democratic legislatures did not look upon with favor. The control of world shipping was rapidly working around to the place where governments would have had to take some action for the protection of individuals. The competitive system had largely ended, so far as line traffic was concerned, and one need look no further than the historic facts of human nature to know that seeds of trouble lay in the secret monopolies, under the name of shipping conferences, that practically encircled the world. These conferences were in the nature of a monopoly, and one need scarcely cite history to prove that monopoly, carry- ing unlimited authority, is one of the things that the human being is incapable of using humanely. So much power turns his head, and it has been found to do so in all ages and in all climes, whether in ancient Egypt, modern Mexico, Germany or New York. The shipping conference has many advantages, but even in times of congressional investigation, shippers are loath to com- plain,^ for fear of some form of retaliation. Occasionally one can be found to speak out and say that carriers have become un- ' S. S. Huebner, op. cit., vol. 4, pp. 309-314. 18 INFLUENCE OF THE GREAT WAR UPON SHIPPING reasonably slow in settling damage claims, unreasonably care- less in the handling of goods, that they advance rates without due notice. Shippers claimed that once the authority of car- riers is unquestioned, it is apt to develop into unfair favoritism for some large corporation or friend, to the detriment of other shippers. Exhaustive investigations made by a committee of Congress in 1914 ^ show conclusively that it is widely believed by those in a position to know that some form of government aid is necessary to protect the individual from this strong or- ganization of carriers, and the analogy between railroads and ships is carried out by the uniformity with which these recom- mendations refer to the sufficiency of publicity. It will be re- membered that railroad control began first by public rates, then by rate regulation, and we are now moving rapidly toward government ownership. The analogy with shipping is striking. When the war is over, the history of prewar conditions must form the background of the intelligent settling of the questions that will arise in the reorganization of the world's carrying trade. Ocean Freight Rates The story of the combination of line carriers is not yet all told. Ocean rates must be understood. In this respect we can not understand line traffic and its rates until we understand the tramp traffic and its rates. In the tramp traffic where the single ship is operated independently on the absolutely free highway of the world, we do really find the competitive rate giving us a full-fledged example of that freedom which we would theoreti- cally expect. If freight is scarce, the ships compete for it, and down go the rates. If ships are scarce, the shippers compete for them, and up go the rates. The term " semi-piratical," as applied to the shipping business by one of its own devotees, is not entirely un- merited; for there is in the tramp traffic no shadow of that ' S. S. Huebner, op. cit., vol. 4, pp. 309-314. ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 19 shibboleth of the land, namely, a fair and reasonable rate. If ships are plenty, they are cheap, the rate goes down, down, down to the point of operation at cost, which may be said to include wages, maintenance, depreciation, overhead charge, and reason- able interest. The rates will go down until there is no money for interest, no money for depreciation, sometimes even no money for maintenance; for it seems to be well established that there have been long periods when ships have been operated at a dead loss, the only limit being the decision of the carrier to tie up his ships rather than take the existing rate. On the other hand the present war has shown again the well established fact that the carrier also knows no limit when he gets the shipper on the hip. Rates will go up, doubling, tripling, quadrupling, quintu- pling, until the limit is the absolute inability of shippers to pay. Perhaps someone asks why the tramp ship owners do not com- bine when rates get so low. The answer is that the temptation to stay out of the combination and reap the advantages rather than stay in it and pay the cost is too great for human nature, espe- cially when that human nature lives in such different and far separated breasts as those of the Japanese, Hindu, Greek, Nor- wegian, German, Englishman or American. The Parliament of man is simpler than this. Suppose the world needs 85 per cent of the existing shipping, and suppose 90 per cent of the existing shipowners agree to combine for a certain rate or tie up their ships. It should be a profitable rate, or it is scarcely worth doing. The 10 per cent of outside shippers would cut 1 per cent under it, and be as busy as they could be while the agreeing shippers would have 15 per cent of the world's ship- ping idle on their hands. The picture of an agreed upon rate sets the tramp ship owners talking in every depression; but the facts of free competition have always kept them from attaining any substantial result in the various feeble attempts at rate combination that they have attempted.^ ' See J. Russell Smith : Ocean Carrier, pp. 235-255, for discussion of theory and history of attempts at rate control. Also Fairplay, London, lebruary and June, 1914. 20 INFLUENCE OF THE GREAT WAR UPON SHIPPING Upon the whole, tramp traffic had not been particularly profit- able for the ten years before the Great War. From 1899 to 1901, the shipowners had a golden age, the period of the Boer War, when Britain, conducting a campaign G,000 miles from home, needed large cjuantities of shipping and took it, making a scarcity that sent rates soaring. The exorbitant, profits of the owners caused enormous building of new ships which came upon the sea in 1901 and 1902 at the same time that the end of the war caused the British Government to release its chartered vessels, with the result that rates fell with a crash. They stayed at a low figure for years. ^ There was one short respite when rates rose to a good figure in 1912 and 191-3, but upon the whole hope seems mostly to have run ahead of realization in the tramp traffic and overbuilding kept the rates down. The editor of one of their journals said in August, 1914: I have repeatedly shown that the shareholders in British shipping would be better off now if they had invested their money in good 4 or 5 per cent securities.^ The Influence of Tramp Rates on Line Rates It is true that line traffic and tramp traffic differ, but if the sea is full of starving tramps, line traffic can not escape the influence of their low rate. It may seem preposterous to say that great passenger steamers of the North Atlantic must give a low rate because of the possible competition of the passengerless un- known tramp that must remain tied up to the wharf at Lisbon or Calcutta, but none the less that idle tramp is an influence through- out the world. Ocean commerce is a world commerce. The tramp rate is a world rate. Line traffic is different from tramp traffic, yet it is not a world to itself. The tramp can not com- pete with the great express passenger liner. Yet the passenger liner must carry freight too. Then there are freight liners, lots of them, and the service tapers down to the point where it fuses with the tramp traffic. Much of the world's line traffic is done ' See J. Russell Smith, op. cit., pp. 235-255, for examples of unprofitable ship operation. ' F airplay, August 27, 1914, p. 371. ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 21 in vessels which are tramp today, liner tomorrow, because a line has chartered them for a voyage or a season. Thus the lines can at any time increase their service by taking on tramps, and the unprofitable or unemployed tramp is ever tending to break into the line traffic. Putting a Vessel on the Berth The practice of ship brokers in " putting a vessel on the berth," shows the constant menace of the tramp to the line. The broker announces that on a certain date a certain ship will sail from Calcutta to Liverpool. Then he busily seeks the whole port through to find traffic to load her in competition with any and all lines that may be there. Large shippers always have the possibility of loading a tramp themselves, and since the chief hold of the liners is a deferred rebate of 10 per cent it is quite possible, if their rates are too high, that it will pay the shipper to lose the 10 per cent and take advantage of a tramp vessel, or of the vessel loading at the berth. Thus we really have a world rate for shipping. The widely fluctuating tramp rates in the main run in great curves from high to low, with the line rates follow- ing in their wake. This influence has been graphically stated by the editor of the British marine journal Fairplay, in the spring of 1917: But as a matter of fact, so far as monopolies are con- cerned, the biggest combine on record, that engineered by Mr. Pierpont Morgan, was a fiasco, for not only was it not able to force high freights in order to pay dividends on the inflated capital, but for fourteen or fifteen years it could not even earn enough to provide for depreciation and interest on debentures. What happened in 1901 will always happen again — the tramp cargo boat will always dominate the situation. If there are more cargoes than ships, high freights will have to be paid. If there are more ships than cargoes, the shipowners will have to accept what is offered, or lay up their vessels. The same philosophy is clearly put in a report submitted by a New York committee of conference line representatives be- •22 INFLUENCE OF THE GREAT WAR UPON SHIPPING fore a committee of Congress in which they maintain in defense of the charge that their rates were too high, that prior to 1911, freight rates had dropped to a figure previ- ously unknown, entaiHng heavy losses on the regular lines, which had the choice of continuing their services or with- drawing from the business in which they had long been en- gaged. Competition among tramp owners produced a low level of rates, and as soon as the world's trade got ahead of the tonnage available (referring to the rise in rates of 1912) tramp steamers were put in a position where they could advance their rates beyond anything that had been experienced in recent years. It is also the contention of the conference line representatives that, in the enormous rise in ocean rates during recent years, the rates charged by the regular lines at no time rose to the level of the tramp freight market, and were less than what the regular lines could have earned if they had withdrawn their steamers from their established services and chartered or placed them in other trades. As showing the enormous rise in the charter rates of tramp steamships, not working under any agreement or conference, the following represents in part the data furnished by the New York committee. It was before the war. Illustrations. Petroleum in cases from New York to four Increase in the rate from 17c ports in Australia. per case, June, 1908, to 35c in Feb., 1913. Lumber from the Gulf to the River Plate. 95/ per standard in Nov., 1908 —125/ in Sept., 1911, and 192/6 in Nov., 1912. ■ Cotton from the Gulf to United Kingdom, 8/6 per ton d.w. of steamer in or Continent on net from charters. Nov., 1908, to 25/ in Nov., 1912. Sugar from Cuba to New York. 7c per 100 lbs. in Jan., 1908, to 17c in Nov., 1912. Time charter from Baltimore to Glasgow. 3/3 per ton of total dead weight capacity in Aug., 1908, to 8/6 in Aug., 1913. Full cargoes of grain from Baltimore to 1/3 per qr. of 480 lbs. in Sept., Rotterdam. 1908, to 3/6 in Jan., 1913. ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 23 To appreciate what these rates mean, think of ordinary busi- ness having its costs remain the same and the income increase from 100 to 280. Freight Depression of 1914 The Great War broke in a period of low rates and depression among shipowners. In February, 1914, and again in June the shipping journals, Lloyd's Weekly and F airplay, were discussing the ever present golden dream of the depressed shipowner, namely, the possibility of an agreement to raise tramp rates, and they came to the usual conclusion that it could not be done, de- spite the fact that Depression in the shipping trade has followed so swiftly on the heels of a remarkable boom that, almost before ship- owners have had time to realize it, freights have touched an unprofitable level. Steamers are being laid up at cer- tain ports in steadily increasing numbers. . . . Seventy Greek boats are laid up in the principal ports of Greece, and many Scandinavian vessels are idle at the buoys, as well as a large number of British vessels in our own ports. ... At the present time vessels of all nations are laid up, for the simplest reason that there is no need for them.^ In June a British tramp sailed in ballast from Australia to South Africa, from South Africa to Montevideo, and then, still search- ing, continued her empty wanderings to Barbadoes. In July the shipowners were preparing themselves for a period of long de- pression, and the question was, "how long would it last?"' Lloyd's Weekly, August 21, page 547, predicted that the year 1914 would go down as the blackest in shipping his- tory generally, and referred to anticipated loss of earnings and to the prospects of the steel makers shutting down their plants be- cause shipbuilders would not buy plates. The lines in the cargo ' Lloyd's Wccklw February 20, 1914, pp. 120-121. ■ Fairplay, August, 1914, p. 345. 24 INFLUENCE OF THE GREAT WAR UPON SHIPPING trade between Scotland and Canada and the United States were reducing their sailings, and similar accounts of depression were to be had from nearly all parts of the world. The Bitterness of International Competition Into this period of languid hopelessness broke the war, but it did not break upon complete international pleasantness in the world of shipping. Agreements among carriers do not always mean pleasantness. They may be, and usually are, like the treaties that end any war, for such indeed they usually are. During the summer of 1914 a bitter rate war between the Ger- man and English lines to Buenos Aires reached a crisis. For some time it had been true that every time the one built a ship the other built a ship and started a new one, until in July two German vessels had been tied up for want of traffic. The shipping situation between these two great rivals, Britain and Germany, reflected the facts of their national genius, namely individualism versus organization. The tramp ship is an indi- vidual task, a business unit. It is owned by a man, operated by a man. In this field Germany has played no important part, while English owners with their fleets of ten to thirty boats have carried much of the bulk freight of the world. In contrast to this, the line is a great organization, a cooperative enterprise, one in which governments can well and efifectively help, and one in which the German Government has helped much more than has the English Government. This means organization, in which Germany is strong, in contrast to individual liberty and initiative, in which England has led the civilized world. We can see its results in the fact that the Hamburg-American Company with seventy services was by far the widest reaching carrier upon the face of the world oceans. The German coasts were almost clear of foreign lines, yet German liners stopped at the ports of almost every other country, as witnessed by the following bitter lament of the editor of Fairplay, December 24, 1914, page 1001: ORGANIZATION OF WORLD SHIPPING BEFORE THE WAR 'lo Our enemy was fast Germanizing the world, and bid well to drive our mercantile marine off the seas, so far as profit- able trading was concerned. We certainly thought it a disgrace to this country for German liners to be leaving here for our colonies, to say nothing of the humiliation of being driven completely out of certain trades. In a thing so evenly balanced as must be the trade of the free sea, it becomes plain on a little reflection that the influence of governmental action will be prepotent whether for aid or in- jury. What will happen after the war? It will end with the nations themselves in control if not in possession of their mer- cantile marines. What will be the policy of the nations in oper- ating these fleets ? Will they promptly hand them back to private owners? Will they operate them themselves, or will they take a middle ground of direction, subsidy, or other financial sup- port? In any case a host of problems present themselves. We can not expect a chaos of unending competition and rate wars between the nationally supported steamship lines, but the Ger- man experience seems to indicate that the lines which have the most government support will in the end be able to win out over lines that lack such advantages. Certainly we shall need a care- fully thought out marine policy. Fortunately we shall have a little time to think, for the early peace period of months or years will be a period of pinching ship shortage when all the world will strive against necessity. The first strife will be against the vacuum made by the submarine. When this is filled and ships begin to hang at the buoys waiting for a call, at starvation rates, we shall then have a very real problem to face. Before that time arrives, we shall need to have formulated a policy that shall not be the policy of the landsman that America has thus far in- sisted on being. CHAPTER II The World's Shipping Industry during the War — Brief Summary with Special Emphasis on Freight Rates An End of Freedom on the Seas Then came the war, and now all is changed in this world realm, the sea. No more is it the place for individualism, for freedom to do as one pleases, to come and go, compete, combine, cut rates, make commercial war. War of blood, iron, and death has swallowed up rate war and freedom; every vestige of both is gone. Laissez faire no longer operates upon the sea. It may some day return, but today (May, 1918) no shadow of it remains. Iron rules prevail, covering the operations of the world's ships and of shipowners. Without the consent of government you may not now buy or sell a ship, nor build one. Without con- sent of government, you can not hire nor sail her, nor buy coal for her bunkers, nor take a single piece of freight. Although you may have owned the ship for twenty years, now you may not even set the rate for her services. The ships, the ship- owners, and the shippers, have become an army, and as with armies, so now it is with ships — you do as you are told. How has this change come about ? Paralysis of Trade at the Beginning of the War The war fell on a world oversupplied with shipping. Ship- owners, like everybody else, were stunned by the explosion, and the war itself; their industry had a paralysis — a quadruple paralysis. (a) Vessels arriving in British ports found the financial con- dition so disturbed by war that there was no cash with which to pay freights. Therefore owners would not release cargoes, 26 /80 1 « no 1 ibO i fso i f no fZO I/O < -• iOC /?/ TO U 'PA Kor C RAA fA 90 (^ OTABOVE ?AA/ Lom -NZO) do GR/ IN PER 7 ON J WME/ WorMAU '£ 1 Hi^6 Loy/e , 1 1 ( 70- tt 50 40 7,0 / 1 \ P- 20 /b w \/ \ "\ ^ --^ / V \J « 1 ' * 1 A / ■«--« ^^^♦^ *•* /8S3 /89. /asf/as 9 /s>or /SO !*?^'/''?J. ■s'fiaj '^'o 1 '' /S09 /S' ■ /S/3 /S/ ^/6 28 INFLUENCE OF THE GREAT WAR UPON SHIPPING and vessels lay idly at the docks. For two months this paralysis lasted. Ships here [N.Y.] can not obtain cargoes for the reason that American shippers are not convinced that they can get quick payment. ... Until the state of the financial market is improved there will continue to be hundreds of vessels lying idle at the docks. ^ (b) Meanwhile German raiders had almost closed distant seas, such as the South Pacific, the South Atlantic, and the Indian Ocean where the famous Eindcn ran her wild and destructive career. For many days the raiders reaped a harvest of British shipping. It is not surprising that on the 6th of August the British ship charter market was reported {Fair play) to be " ab- solutely dead." and on the 12th Syren and Shipping declared " Chartering has come to a complete standstill in all the trades of the world." (c) Owing to the danger of destruction by raiders, under- writers virtually refused to insure, and as insurance is one of the unwritten laws of the sea, no shipowner would send his ship, no shipper would send his freight. The consequent tie-up was almost complete, except in nearby seas where the British Navy could furnish protection. Governments rescued shippers from the insurance dilemma. Within three weeks all leading maritime countries had given national aid in the insurance market, either by direct govern- ment insurance or by subsidizing private enterprise. {d) This enabled the shipping business to resume, but the business is a speculative one, and the world's mind was unsettled - — the attention of everybody was fixed on the great drama in northern France. As there are in normal times stocks enough on hand for a short time, business languished, for no one knew whether the market was going to go up or down, whether the war would be long or short. Ocean freights accordingly de- clined even from their unprofitable July level. In the words of a London shipowner on the 25th of August: ' Lloyd's Weekly, October 2, 1914, p. 627. THE SHIPPING INDUSTRY DURING THE WAR 29 There are plenty of boats ready, but no cargo to lift. If the situation continues as it exists today, there would seem to be no alternative but for owners to lay up their ships, pending an easier tinancial position and an increase, not only in freights, but also in the volume of trade moving. And I can not myself see this improvement coming about until the war is over. One must remember that St. Petersburg. Gothenburg, Copenhagen. Danzig, Hamburg, Stettin, Emden, Antwerp, Rotterdam, and Trieste, are practically closed to trade. These are all large receiving ports, and the fact that they are all shut down means that some of the largest markets in the world are closed to shipowners. The w^hole of the Black Sea, too, is practically shut to commerce. . . . With all these ports closed, the result makes itself felt at once in the way of a surplus of tonnage for a largely di- minished volume of business. In outward business char- terers are reducing rates by shillings per day. Cardiff to Rio, for instance, dropped 3 shillings at one fell swoop. We are, as a matter of fact, getting down to a level of rates that would have been cavilled at prior to the war, and one fails to see how owners .can take up engagements at these figures when they are faced with heavy war risk charges.^ On the 7th of September the Germans began the retreat from the Marne. This retirement helped maintain the early conviction that the war would be short. October was filled with military uncertainty, but during that month the Germans dug in on the Aisne. On the I7th of September the Dutch lines again adver- tised sailings, and on the 29th of October, Fairplay reported that time charter rates had gone up a shilling a ton per month. But the two months had given the shipping world no vision of what was in store for them. About the 20th of the month Messrs. Ropner & Co., British shipowners, sent the following letter to their shareholders : Dear Sir or Madam : Possibly some of our shareholders are wondering what effect the war in which we are involved ' Lloyd's Weekly, August 28, 1914. 30 INFLUENCE OF THE GREAT WAR UPON SHIPPING is having on the shipping industry, and we think it is advisable to inform them that the position at present is deplorable.^ A little later the Royal Mail Steam Packet Company deferred dividends because of the heavy expenses, especially insurance which had more than offset increase in freight rates that tney had made. The International Mercantile Marine also decided to defer interest on bonds for the same reasons. In early November the English attempt to turn the German flank ceased before the furious attempts of the German army to reach Calais, and the resulting long drawn and terrible battle of the Yser settled the conviction that the war would be long. It was also discovered by this time that the war was a matter of artillery and materials. Manufacturing began, and a revival of trade was bound to follow, and prosperity once more came to the sea. The Revival of Trade and Shipping On the 12th of November, Fair play reported rates to be climb- ing day by day, and that ship values had doubled in a month. The British settled down to prepare for a long war. As the armies increased in size, the government requisitioned more ships to carry army supplies, and the shipping world began to realize what was involved when East European supplies were cut off from West Europe. It means increased ship business instead of reduced ship business, for it means more distant sources of supply, which makes more ship mileage. The case of Norway is an excellent example. Before the war it was calculated that 250,000 tons gross of shipping was sufficient to supply Nor- wegian needs. At that time most of her grain came from Ger- many and Russia, but by the end of 1917 the necessity of secur- ing her supplies in distant places made it necessary to use 750,000 tons of shipping instead of 250,000 tons.^ By January. 1915, the rates had risen so that Fairplay (Jan. 7, 1915), the champion I Fairplay, October 22, 1914, p. 640. ' K. F. Knudson, Glasgow Herald, December 29, 1917. THE SHIPPING INDUSTRY DURING THE WAR ^1 of the shipowner, was deriding those theorists who were talking of fixing maximum rates for shipping. The next week higher rates than ever before known were reported. In another week Fairplay remarked editorially that the scarcity of tonnage was becoming more and more serious every day, especially as the Italians were furiously bidding for ships to supply their needs. The Ship Famine and the Ship Prices The relative moderation of the then record rates of January, 1915, can, however, be seen by an examination of what followed. Thus the rate on cotton from United States to Britain, which was 25 cents a hundred pounds in July, 1914, rose to 40 cents in September, 50 cents in November, $1 in January, 1915, $2 in April, back to $1 in July, up to $3 in January, 1916, $5 in December, 1916. These figures, unusually high though they are, have now been exceeded. In January, 1918, $7 a hundred was being offered for so heavy a commodity as syrup in barrels, from North Atlantic ports. United States to London. On June 1, 1917, Lloyd's Weekly reported 400 shillings a ton on coffee from Rio Janeiro to Marseilles, and even the lowly coal, which ordi- narily goes out at almost ballast rates, was paying 125 shillings a ton from United States to Argentina. But worse was yet to come. In October, 1917,^ 600 shillings per ton were paid on a 6,000 ton cargo of rice from Burma to Cette, the French port set apart for the Swiss. It should always be remembered that the ocean rates are world rates. Thus when the interallied chartering executives authorized " a rate of 47 shillings, 6 pence, per ton per month for neutral vessels of over 10,000 tons, and not exceeding 52 shillings on vessels up to 2,000 tons, it is worthy of note that there had been six weeks before a 50 per cent rise in rates, namely from 40 cents to 60 cents a hundred pounds for the very short journey across the South China sea from the French port of Sigon t9 Hong Kong. I Fairplay, October 11, 1917. p. 606. ■ Lloyd's Weekly, February 2, 1917. 32 INFLUENCE OF THE GREAT WAR UPON SHIPPING In September, 1917/ a vessel chartered at Buenos Aires for England at £20 per ton, sublet part of the space the next week for casks of tallow at £31 per ton. In November, 1917,^ an offer of 900 shillings per ton from the Philippines to Spain failed to attract a vessel. The next month an 8,300 ton steamer was chartered to go from San Francisco to three ports in Australia and return for the sum of £100,000. enough to have more than paid the cost price of such a steamer in 1914. Most astounding of all is the well authenticated case of $1 per pound being asked and obtained on parcel freight from New York to Marseilles. The awful pressure for shipping is apparent when the per- centage of increase in the rate is noted. Ships which in 1914 were to be had for 2 shillings 6 pence per ton per month, in 1917 were bringing 47 shillings 6 pence — excellent illustrations of the extent to which extremes of competition can go when demand is keen and supply is scarce. The influence of these rates on ship prices has been equally expansive. The price of a ship naturally fluctuates with her earning power. As evidence of this a British firm in the habit of building a certain standard kind of 2,250 ton shelter deck freight vessel for sale for their own account, reports the follow- ing prices : On February 15, 1910, the company would have been only too pleased to have accepted £17,500 for a vessel of this type ; on the 1st of July, 1912, they asked £22,500; two months later, £26,750, and a month later, £27,500. On August 30, 1913, their price had dropped to £26,000. On November 3. it was £24,500, but by May, 1914, it had dropped to £21,500 and just prior to the war only £20,000 was asked. By November 3, the price had risen to £23,500 and on No- vember 25 to £26,000. On the 8th of January, 1915, they were asking £32,000 with delivery in four months, which shows an advance since the 14th of June of no less than 60 per cent.^ * Falrplay, September 6, 1917. ' Lloyd's Weekly, November 16, 1917. * Fairplay, January 14, 1915, p. 55. THE SHIPPING INDUSTRY DURING THE WAR 66 But these figures are very moderate in comparison to the later extremes of the war. In times of peace British freight ships ordinarily cost about £G to £7 per ton of dead weight freight carrying capacity, but in the spring of 1917^ a 10,000 (d.w.) steamer building in Union Iron Works, San Francisco, and about ready for delivery was reported sold for £60 per ton. As a result of this price Japanese and American owners with vessels under way for de- livery October, 1917, to March, 1918, who had been willing to sell for $200 per ton, withdrew them with the idea of securing $300 a ton when nearly ready for delivery. As speculators they won, for the ships were worth $350 per ton in the early months of 1918. The prices for old vessels are no less astonishing. In the summer of 1917, the French Government paid £475,000 for r. ship which ten years ago sold to the Japanese for £32,000. By all the rules of good shipping conduct this vessel in 1911 was ready for breaking up, yet this piece of floating junk, which sold for $160,000 in middle age ten years before brought $1,800,000, so hard pressed were the Allies. These prices arose from the enormous profits of the shipping business. Dutch shipping com- panies paid 100 per cent dividends; Danish shipping shares rose 100 points in a week, reached 1,000 on a par of 100, and made profits in a year that were greater than the capital. It is no wonder that after America entered the war the cry of " ships, ships, and yet more ships" came continuously across the sea from the leaders in Europe. Increased Demand and Low Efficiency of Shipping Many causes have combined to produce this world shipping famine. (a) First, of course, is the inconspicuous submarine making its conspicuous sinkings. This and many other causes have helped to produce the shipping scarcity. Among these secondary causes may be mentioned : ^ Fair play. May 10, p. 780. 34 INFLUENCE OF THE GREAT WAR UPON SHIPPING (b) The absolute increase of need for ships. In a short time after the war was under way, Britain was using one-half her huge fleet in the war either in the direct service of her own needs, or indirectly by handing over the vessels to her allies. (c) Closely akin to these was the necessity of longer haul. This became inevitable when the Central Powers cut Europe in two. As with the above mentioned case of Norway, which re- quired three times as much tonnage after the Baltic was closed, so the blocking of the Dardanelles cut off France and Italy from the grain supply of the Black Sea. The closing of this source affected not only the Mediterranean combatants, but also Greece, Spain, and Portugal, and even Britain herself, compelling all these people to seek their grain supplies in more distant places — South America, India, Australia and America. (d) Then after reducing the shipping that was left available for increased work, the war crowded the shipyards with war work, making it impossible to get adequate overhauling to keep the ships in order, and even delayed imperative repairs when vessels were disabled. (e) The danger of attack by the submarine made necessary long detours, thereby increasing the time at sea. (/) The management of ships by amateur hands of the war machine, according to the often bitter complaints of the British shipowners, still further reduced the efficiency of such ships as sailed. (g) Very considerable reductions in active tonnage resulted from the detention of enemy ships in neutral harbors, and the holding of ships in port for fear of destruction by submarines. At the end of 1917 half the Swedish marine was reported idle for this cause. (/i) Lastly and perhaps worst of all was the port congestion that promptly followed the revival of trade after the outbreak of the war. The attempts to increase the traffic at any par- ticular point showed us how surprisingly delicate was the balance between the trade of peace and its facilities, how limited were THE SHIPPING INDUSTRY DURING THE WAR 35 storage facilities, how constant was the flow of goods, and how low the reserves ordinarily kept. When the war chopped world trade in two, and made it necessary to supply great armies, the trade of some ports was suddenly doubled or tripled. Paralysis and congestion inevitably followed. For example, France had received much of her import from the Rhine ports of Rotterdam and Antwerp, which latter soon passed into German hands. This naturally threw her trade around to the western ports, ^ and at the same time the necessities of rapidly increasing armies brought a steady succession of ships with entirely unusual supplies to the ports of the channel and the Bay of Biscay. For the time that the French capital was at Bordeaux, nearly all cargoes for gov- ernment account went to Bordeaux, which port was in a terrible tangle. This situation seems to have resulted wherever traffic was suddenly increased. From Alexandria, Egypt, came the complaint that it took 10 to '20 days to unload a steamer. Lloyd's Weekly, May 28, 1915, reported that 2S steamers lay at anchor in the roads at Marseilles waiting for a berth and without definite information as to when they were likely to get inside a harbor. Liverpool - had in mid- April 70 vessels waiting for discharging berths, and many of the berths allotted to steamers were full of cargoes discharged from previous vessels, technically known as foul berths, and therefore practically useless for the purposes of discharge. Three weeks later the number of waiting vessels at Liverpool was 78. In January, Genoa had over 40 coal and grain laden steamers in the outer harbor.^ Yet Fair play in its issue of October 15 previously had been commenting upon the decadence of the shipping of Genoa. By the fall of 1915 it had become so crowded that for a time the unloading of coal vessels was entirely ' M. de Monzie in the French Chamber of Deputies said that before the war France imported over 18,000,000 tons of freight by land. In 1916 it had dropped to 1,000,000 while 43,000,000 tons came by sea. Fair play, September 13, 1917. "- Lloyd's Weekly. May 7, 1915. " Pairplay, January 7, 1915. 36 INFLUENCE OF THE GREAT WAR UPON SHIPPING prohibited/ Perhaps the extreme case of congestion is covered by this lament : It is monstrous to be paying 40 shippings per cent war premium for three months for the privilege of having a boat at a French port for 90 days as a warehouse. Some boats after arriving at certain French ports have been ordered to a second and even a third port and in one case to a fourth port." Lloyd's Weekly (January 14, 1916) reports that Glasgow was in a bad snarl because of increased war traffic, nearly all of which was rail borne, and port authorities were considering pooling all railway facilities by all lines as a matter of relief. The next month, February 25, Lloyd's reported that London was so over- crowded that it was rare for a vessel to get unloaded within two weeks, and that it often took longer. One of the causes of this port congestion was the actual labor shortage, because men had gone to the war, and the constructive labor shortage arising from new prosperity. The high wages of the stevedores resulted in a sense of affluence which enabled them to enlarge their in- dulgence in holidays.^ Port congestion began in France, England, and in Italy, but it extended to America also. For many months New York was congested to a point of inefficiency rivaling that of European ports, and helping to produce an appalling railway congestion. With all these disturbing elements it is easy to see why we had ship famine, starvation rates, and shipping profits that were beyond the shipowners' fondest hope. Shipbuilding What was the world's response to this, the greatest goad that ever pressed upon the desire of gain in shipowners and ship- builders? The first result was that the shipowner took his profits, ' Llovd's Weeklv, October 22, 1915, p. 676. ' Fairplay, October 29, 1914, p. 676. ' Sir Norman Hill. Secretary Liverpool Shipowners Assn., quoted in Fair- play, January 21, 1915. THE SHIPPING INDUSTRY DURING THE WAR 37 all he could get. Secondly, he rushed off to get more ships to get more profits. It is interesting to note that the Norwegian, a neutral carrier, and a professional seaman with 20 per cent of his sons making their living by shipping, with his look-outs on his high promontories, was the first to see the situation. He first arrived at the shipyard gate with his money bags. In Britain he was turned away because the first shipbuilding response in Britain was to load up all yards with war vessels. The Nor- wegian, refused in England, placed contracts for hundreds of thousands of tons of shipping in American yards, and later sold most of it to British owners at a handsome profit. When the war had gone on for a year, particularly after th«; battle of Jutland, June, 1916, England realized that her problem was not so much the naval battle as it was pressure for freight ships. Late in 1915 she began to divert her energies from war- ships to freighters. She had early placed all her shipyards under requisition to do the government's bidding, and as the need for ships became ever more pressing, she multiplied her efforts and in 1917 started in on a campaign of government owned ship- yards, building three in one district on the Severn, and thus hoped by 1918 to get her merchant ship launchings back to as great a figure as she had ever had. Every shipyard in the world possessing shipbuilding possibility was the scene of busy work. Ocean commerce, being absolutely international, found all ships equally acceptable, whether they were built in Zealand or New Zealand, England, or New England, Occident or Orient, all of which places are as a matter of fact building as fast as they can. None built ships more furiously than the Japanese while their materials held out. Later Japan had a very interesting negotiation with the United States, when the latter refused to supply steel for the Japanese shipyards with- out return of some of the shipping built. The United States shipyards booked themselves ahead with orders placed at phe- nomenal prices. American, British, and Norwegian owners en- larged their orders and shipbuilders stretched their facilities on all coasts. Ten thousand ton steel steamers were built even at 248518 38 INFLUENCE OF THE GREAT WAR UPON SHIPPING Hong Kong/ After our entrance into the war we added to the private efforts of American builders the great plan of government yards managed by the United States Shipping Board and financed by the billions of congressional appropriation ; this, too, in addi- tion to the hundreds of ships that the United States Government had contracted for in private yards. America also followed Eng- land's example and requisitioned all shipyards to do the nation's bidding. It is only France that has neglected shipbuilding, and this from necessity. She has borne the brunt of the war, and also lost her coal fields and much of her iron industry. This being the case all her metal industry has gone toward munitions rather than to shipyards. Some unfinished steamers stood al- most untouched in French yards from 191-i until the end of 1917. Norway and Denmark, despite the heavy dependence upon sea borne trade and their relatively large merchant marines, have been unable to secure from either England or the United States, the necessary raw material to run their yards to anything like full capacity. The Dutch have been peculiarly ground between the two contending groups of combatants. Submarines and home necessity kept British and American steel from going into Hol- land, and while the Germans had steel they would not part with it except under conditions that redounded to the benefit of Germany. No steel can be obtained from either Great Britain or France, and the Germans refuse to export unless they obtain certain specified goods in return and also unless the materials exported are used only as they direct. They insist on Dutch shipbuilders signing a contract, valid for five years after the war is over, stating that they will not sell any new ship without giving Germany the option of purchase, that they will not allow the ships they build to be employed, directly or indirectly, for the benefit of Germany's present enemies', and that no ship is repaired with German iron or steel by any firm on the German black list." ^ " The Hong Kong yards are now building ships in competition with the shipyards of Europe, and are building them as cheaply as the cheapest." The Economic World. February 12, 1916, p. 200; also Wall Street Journal. ^ Glasgow Herald, December 29, 1917, p. ZZ. THE SHIPPING INDUSTRY DURING THE WAR 39 Spain was more fortunately placed. She could trade. She had beds of precious hematite ore without which English steel mills could not meet the needs of war industry. With the power of embargo on this ore, Spain could get what supplies she needed for her few shipyards, which are as busy as any yards. Despite these worldwide efforts at rebuilding, it is well known that even yet (May, 1918) the total world output is less than submarine sinkings, and the problem of the tonnage supply is becoming ever more acute. The results of this ever increasing shortage of shipping supply, and the ever increasing scope of the world war, have placed upon the Entente countries as well as upon neutrals, most unimagined necessities for economic and commercial readjustments along the line of do-without. The nations are in a situation much like that of Jules Verne's ship in w^hich his globe-trotting hero crossed the Pacific on that record journey around the world in eighty days. Before reaching San Francisco the coal ran out, so they burned the furniture, the superstructure, the upper deck, and finally reached port with the vessel cut down almost to the water's edge, but still floating, still steaming, although she was consuming herself as she went. Faced by similar necessities, governments have seized upon industry with the merciless grasp of the drowning man. Ship- ping was one of the first to be subjected to national need. Government Control of Ocean Freight Rates The combination of all these factors — reduced shipping, in- creased demands for freight, decreased efficiency of existing shipping — has made possible the piratical rates which ship- owners have been able to ask and receive. Britain, living as she does upon sea borne goods, has shielded herself in part from these financial exactions by a policy of government control of shipping which has been steadily increasing from the small be- ginnings of her early requisitions to almost complete control. A week after the war started there was a royal proclamation 40 , INFLUENCE OF THE GREAT WAR UPON SHIPPING (August 7, 1914) announcing the policy of requisitioning of ships. There is of course nothing new in this. In the process of registering under a flag, virtually all nations make provisions whereby, without question, the ship goes into the service of the nation under reasonable terms of compensation at the time of national need. For a time the British Government, in the time of ship depression at the opening of the war, went into the open market and took ships as any other charterer. Then when the war settled down for a long struggle, there was established the much controverted scale of rates spoken of in bitterness as the Blue Book rates — a complicated scale of prices depending on character, equipment, size, speed, etc., of the vessels. These rates, made in October, 1914, were fair rates in the ship market as it then existed. They provided for fair income on the ship at its value at that time, or at its previous value. But as the war went on the rate of the ship free to bargain rose week by week almost without limitation, as previously stated. That left the British shipowner in the unhappy position of seeing the neu- tral ship or the unrequisitioned British ship earning, first, double the hire he was receiving for his requisitioned ship, then triple, then quadruple. Finally the static Blue Book rates became one- sixth or one-seventh of the amount the British Government itself was compelled to pay to get a neutral ship to meet some of its needs. In order to distribute this burden of mixed earnings with some degree of fairness, there was established a policy of taking a certain proportion of the shipping of a particular company, aiming to leave all owners about the same proportion of their fleets free to reap the fat harvests of the high seas. Some owners, however, complained that this distribution of requisition- ing was very unfairly handled, some people having nearly all their ships free, others having nearly all their ships taken. ^ In order to prevent undue competition of the various Allies with each other in the ship market, and in order the better to utilize the existing tonnage, there was formed an interallied chartering ' Lloyd's Weekly, about January, 1916. Review of shipping for the year 1915. THE SHIPPING INDUSTRY DURING THE WAR 41 board which put under one hand the task of securing ships for all the European Allies. The management of ships was in De- cember, 1916, brought from various hands in the War Depart- ment and the Admiralty under the hands of a new^ official, the shipping controller, Sir Joseph Maclay, an experienced ship- owner under whose administration the bitter complaints of ama- teur inefficiency have declined. The proportion of British ships under reciuisition at Blue Book rates by the government has steadily increased, until by the middle of 1917 it became 100 per cent of all ships above 500 tons. The United States, Holland, and nearly all other countries have been compelled similarly to control at least that part of the national fleet that was meeting the national needs. British Control of Shipping through Coal Supply Not only have the British taken 100 per cent of their own shipping, but by a quiet and judicious application of the primal force of might, they have succeeded in getting considerable amounts of neutral shipping as well. The only coal to be had in the maritime world of Europe and Africa is British. The shores of the Mediterranean have no coal, save Spain's, and her supply is only a fraction of the home needs. France is in a coal famine. The German, Belgian, and Russian supplies are shut off by the war. Japan is too far away to play much of a part. The pressure to move food, munitions, and raw materials, almost shut out American coal, which had had a short boom in the early months of the war; and so Britain, the dominant source of supply, has been virtually in a position to dictate what ships should get the coal that she shipped with such effort. When the Danish shipowner ran his vessel into a British coaling station in South Africa, or the Suez Canal, or England herself, there was a fine opportunity for a bargain. The British hand was strong. Why should she give coal to the neutral with his piratic rates when she so sorely needed it for herself and her allies? There 42 INFLUENCE OF THE GREAT WAR UPON SHIPPING is no good answer. Therefore many a foreign shipowner got coal only on condition of taking a cargo to Britain or hiring a proportion of his fleet to the British Government. The case is exactly analogous to the Japanese attempt to get American steel, and the American attempt to trade food for Dutch and Nor- wegian shipping. National Value of Britain's Big Merchant Marine Britain may be said to have been saved thus far by her huge and far flung fleet. Not only was she carrying her own trade, but also that of many a neutral as well. These ships have been called into service of the mother country one by one. For example, an American firm of exporting merchants operated their own ships and ran a steamship line from New York to western South America. While the vessels belonged to American capi- talists with headquarters in New York, they were registered under the British flag because it permitted them to be bought more cheaply and run more cheaply than under the American flag.^ They were technically owned by a British corporation with headquarters in London — a subsidiary of the American corporation. For many years they effectively served trade be- tween the United States and western South America, but Britain found need to use all British ships, and these were British ships, and so one by one, on due notice, the vessels were called in be- tween July, 1916, and July, 1917. * From the standpoint of profits, the American owners had staked their money on the wrong horse. They would have been millions of dollars richer had they elected Norwegian registry rather than British, because it happened to remain neutral, and they would not have been compelled to go into the open market and bid for such shipping as was available at the almost pro- hibitive rates then existing. They were unable to secure anything but slow tramp steamers unsatisfactory for the purpose, but the best to be had. The International Mercantile Marine is another company partly American with vessels under the British flag, which has lost enormous possible earnings during the period of our neutrality when vessels of America or other neutral registry were able to reap the full profits of the high sea rates while the British vessels such as those of the International Mercantile Marine were controlled by the British Government. There was enough of profit, however, left to the British liner to enable the International Mercantile Marine to make good its watered stock, of which it had small hope in an era of peace and competition. the shippixg industry during the war 4^3 The Disturbance and Limitation of International Trade Remote indeed is the habitation of the human being whose daily life has not been at some point pinched by the trade embar- rassments that have resulted partly from the limitations of pro- duction due to the war, but more because of the ship shortage. In a short time after the war started, the cessation of exports from Argentina had so disturbed employment in Buenos Aires that people stood in bread lines waiting for the doles of charity. The cessation of the purchase of cotton made for a season a low price and great depression in the southern United States. As the war went on, goods for export piled up upon the piers in almost every land, especially in distant continents to which it became ever more difficult to send the ships. Thus we now hear of nearly a million tons of sugar waiting in Java, and from two to three hundred million bushels of wheat in far away Australia hopelessly beyond the reach of hungry Europe. In the spring of 1916 even so valuable a commodity as wool waited in the New Zealand warehouses, to the embarrassment of farmer and trader, because ships were not available to carry even this commodity, worth hundreds of dollars per ton. The trade situation offered two dangers to the Allied peoples, and these made two strong reasons for rigid control of trade by government. The first of these dangers was that of strengthen- ing the enemy by indirect trade. This flourished at a lively rate for many months through neutral countries, especially Holland and Scandinavia. It was because of this that the British policy of licensing particular shipments before they could be permitted to go overseas was begun. The licensing began with coal and food, but its scope gradually widened under the two pressures — fear of supplying the enem3^ and home needs. With the decline of shipping and the impossibility of meeting all the demands of trade it became necessary for the government to say which ship- ment was necessary and must have precedence over others which could wait. Closely akin to this was the similar control of industry, d. control that involved again the application of the 44 INFLUENCE OF THE GREAT WAR UPON SHIPPING concept of greater relative necessity and therefore of priority of supply or opportunity. Should this man be permitted to build a new automobile factory? The answer must be given in terms of the relation of the need to war. If war needs automobiles, thev may be made'. If it does not need them, they can not be made. Such is the British answer. This worked around rather rapidly to the point where Britain was controlling not only im- ports and exports, but the establishment of new enterprises, and the enlargement of old enterprises. Next came the prevention of undue profiteering in industry as it had been checked in shipping, until Britain worked around to the point where the government is a large price controller and virtually the only importer. All ships are being operated as the government orders, to carry the goods that government orders, at rates the government orders. Industrial Readjustments Numerous readjustments have been made with the object of increasing the directness by which national energy shall focus on the war, and especially on shipbuilding. The war has become a struggle in which every man, woman, and child par- ticipates in some degree — a struggle in which every hour of work, every piece of material has a bearing. Shipping becomes a part of all transportation, so all transportation must be con- trolled and systematized in the interests of efficiency. Ship- building becomes a part of all manufacturing. It too must be controlled along with all its materials. To simplify the railroad's work, Britain has been districted so that certain coal mines shall supply the markets nearest them. The Ministry of Munitions has taken absolute control of the iron industries and distributes this material to meet the most pressing needs of the nation, namely, ships and munitions. In the interests of increasing shipyard efficiency, the Admiralty early established committees in each shipbuilding region to expedite building in every possible way. These committees THE SHIPPING INDUSTRY DURING THE WAR 45 consist of engineers, builders, material men, and others con- versant with the various needs of the trade. The army was combed out to bring back to industry men particularly needed at strategic points in shipyards and machine shops. In May, 1917, the shipbuilding and supply work of the Admiralty and War Office and Ministry of Shipping was coordinated by being placed under the single hand of Sir Eric Geddes.^ In the attempts to increase the labor supply women by the thousands have taken up shipbuilding work and are doing a surprising variety of operations which before had been con- sidered as the exclusive tasks of men. America Follows British Example in War Organization America has felt the same pressure that has squeezed Europe, but we have felt it much less because we have done less in the war, and because we are less dependent on trade, owing to our huge natural resources, our extensive manufactures, and the completeness of our manufacturing and agricultural industries. In spite of all these riches, we felt, even as neutrals, the ever increasing pressure of high freights, high prices, and occasional shortages, which were acute only in the two important com- modities of potash and dyestuffs. Upon our entrance into the war, however, our conditions more nearly resembled those of the European countries, and we have promptly copied many of their devices. We began with the export licensing, by which we attempted to control the shipment of goods to Germany through the neu- tral countries, especially Holland and Scandinavia. This policy took the form of almost complete prohibition of export to these regions. A spectacular episode was sixty Dutch steamships lying loaded in New York harbor for months between August, 1917, and midwinter, 1918. There they lay despite the fact that each one of them was worth thousands of dollars a day upon the high seas, to which they finally went as a result of extended negotiations; but they went under charter to the United States ' Lloyd's Weekly, May 18, 1917. 46 INFLUENCE OF THE GREAT WAR UPON SHIPPING Government to serve our coasting trade and our South Ameri- can trade. Their cargoes were eaten in America. The Norwegians had the distinguished Dr. Nansen here for months in the attempt to get food, but we wanted something in return. Nansen claimed that the American Government's con- ditions, Norwegian shipping in return for food, were too onerous, so we had practical prohibition of trade with Norway for a considerable period of time, after which they got hungry (see Chapter IV) and a bargain was reached. The American Government also copied the policy of Great Britain by requisitioning all American ships (October, 1917) above 2,500 tons dead-weight carrying capacity. In this respect we also followed the English example, particularly in the case of line vessels, by immediately handing the vessels back to the old owners to operate, but on government account, thus giving the government complete control over where they went, what they carried, and the part they would play in war and in meeting national needs. American railway congestion, and port congestion, resulting shortage of supplies of coal and many other commodities, have brought home to America some realization of the fact that the numerous independent enterprises that have resulted from our individualistic system of industry and trade are really inefficient and wasteful, as an examination of industry in war countries clearly shows. The whole of the world commerce has been a great crisscross much like what the trade in California oranges used to be during the period of individualistic independence. At that time a city like Chicago might receive fifteen cars all in one morning, and Milwaukee none; Vv'hereas the next day Milwaukee might receive ten cars and Chicago three, resulting in starving and glutting of markets and extra moving of cars to places where they were desired. All this waste of oranges and waste movement of oranges has been eliminated by putting their marketing in the hands of one association which surveys the field and sends the oranges direct to the places that want them. THE SHIPPING INDUSTRY DURING THE WAR 47 A similar simplification of national and international trade, first worked out to some degree in Germany, is a necessity which the war has been step by step forcing upon the Allied nations. Many interesting readjustments have already occurred in the United States. An illuminating example is furnished by the Tide-Water Coal Exchange operating in the coal exporting ports of New York, Philadelphia, Baltimore, Norfolk, and Cleve- land. They claim to have reduced the average lie-over of loaded coal cars in Philadelphia from about eight days to about three days, by the elimination of individual- enterprises through co- ordination that results in the simple practice of pooling. It appears that it has been the practice in Philadelphia, for example, for company A to load a 1,500 ton barge of coal of a certain grade for shipment to New England. This 1,500 tons requires 30 cars of 50 tons each. The company would have four or five cars of a certain kind of coal arriving today, a few tomorrow, a few the next day, until finally it would have 30 cars in port and would then proceed to load the barge. Mean- while company B was doing exactly the same thing, as were company C, company D, and company E. The coal exchange pools all this business. If company A has a barge of a certain kind of coal to ship, and all five companies together have enough cars of that grade of coal in port, it is dumped into that barge and the cars sent back to the mines. The next day company B's barge is loaded and the next day company C's. In each case every company gets exact credit for all the cars it ships, but the lie-over has been reduced by many days and the coal cars, yard space, and pier space are cleared for work instead of being used for congestive storage. This is a small but admirable illustration of what M. Augagneur, Ex-Minister of French Marine, said in discussing port congestion and marine transportation : Arrange for the close coordination of land and sea transport, give the Ministry of Alarine entire control of the ports, for it knows all their needs better than the Ministry of Public Works, and, finally, arrange your arrivals in such a manner as not to leave a port empty for 15 days and then have three 48 INFLUENCE OF THE GREAT WAR UPON SHIPPING boats arriving each day. Then you will see that freight rates will go down. If vessels are to discharge rapidly laborers are necessary. It is, therefore, indispensable to re- lease the dockers who have been mobilized.^ In the application of this process we have found it desirable in this country to establish war port boards that can look over the whole port rather than let each company work in its own inde- pendent way, and late in January, 1918, the congestion of the port of New York had become so bad, due to the inability to transfer goods from cars to warehouse, and from warehouse to ship that a committee of experts composed of two American shipping men and one representative of the British Admiralty was appointed to the work of coordinating the various Atlantic ports. They order ships to the places where they can be loaded most expeditiously because they find it saves time to send a vessel on to Philadelphia, Baltimore, or Norfolk, rather than let her lie for days at New York waiting for a chance for her cargo to be dug out of a hopeless mass of cars on the hundreds of miles of tracks surrounding that terminal. This is very similar to the action of the Lake Carriers Asso- ciation, November, 1917, who voted to mobilize the lake fleets and put them all in charge of one committee with power to order their movements, making the greatest possible expedition and least waste of time. It is unfortunate that the world's shipping situation could not have received early the benefit of a more thorough organization of American and Allied resources moving toward the elimination of useless motion, the reduction of eflfort on non-essential indus- tries, and the focusing of national energy on the vital point of shipping. The steps that have been taken toward this end will be explained in some detail in ensuing chapters. * Lloyd's Weekly, January 7, 1916, p. 14. CHAPTER III The Effects of the War on Marine Insurance Dependence of Trade on Marine Insurance During the first week of August, 1914, vessels of all nations, neutrals as well as belligerents, were held in port as effectively as if the fleet of Great Britain or all the submarines of Germany were lying in wait just outside the harbor limits. What had caused this virtual blockade? An answer is to be found in the failure of marine insurance facilities to meet the emergency. The vessels could not be insured. German raiders were operating in all seas appearing where least expected. The British fleet was making every effort to cut off the trade of the Central Powers. But these increased risks were not sufficiently great to prevent vessels from venturing from port providing adequate insurance on hull and cargo could be secured. But such protection was not available. The very foundations of the marine insurance business had been swept away. Underwriters faced conditions that were strange to them. What was the risk to be met? How was the amount of the premium to be deter- mined? Where was the necessary capital to meet the increased demands for insurance to be secured ? For many days there was no marine insurance market. Vessels could only be insured at excessive premiums which shippers and shipowners refused to pay. The cessation of commerce resulted. The United States, though not engaged in the European War, suffered greatly from a congestion of commodities produced in large part for the export trade. In the southern States an im- mense crop of cotton had been raised for the English and Ger- man mills. With the cutting off of all marine insurance facilities, the planters were without a market. No cotton was exported; 49 50 INFLUENCE OF THE GREAT WAR UPON SHIPPING prices fell; the cotter, producers faced ruin. To save the situa- tion appeals were finally sent to Congress. In most of the countries of Europe, the financial markets were closed with the declaration of war on Serbia by Austria. There was a rush on the part of the panic-stricken holders of securities abroad to convert their holdings into gold in the open American markets. There was the possibility of the United States being drained of its supply of gold. But comparatively little gold left the country. Insurance could not be secured, or could be secured only at such high rates that it was impossible to make shipments. On July 29, 1914, the marine insurance underwriters of New York met and advanced their rates for war risk insurance on gold from $1,250 to $5,000 for every $1,000,000 of gold in- sured.^ On the one hand the lack of marine insurance seriously injured the commerce of the United States, and on the other it perhaps prevented a financial panic. Both cases, however, show how dependent the trade of the country is upon marine insurance. Development of Marine Insurance in England Marine insurance, this all powerful aid of commerce, is, as the English put it, an ancient and honorable institution. It has existed since the very beginning of trade by water routes. In England, the marine insurance business was carried on orig- inally by men called underwriters. The capital of each under- writer was small, and the amount of his business limited. Several underwriters subscribed to cover the risk on a single vessel. During the seventeenth century sea captains and traders met at the coffee house of Lloyd's in London and to them came the underwriters for the purpose of underwriting the risks upon voyages about to be begun. Thus was founded the great as- sociation of Lloyd's, England's insurance center. Later it lost its identity as a coffee house and became purely an insurance exchange. It should be understood that Lloyd's is not an in- ' New York Journal of Commerce, July 30, 1914. THE EFFECTS OF THE WAR ON MARINE INSURANCE 51 surance company, byt a place where writers of all kinds of insurance meet. They are governed by rules drawn up for the protection of the insuring public. The growth of the large com- panies or corporations has been the latest development of the marine insurance business in England. At the present time most of the English marine insurance is carried, not by the underwriters meeting at Lloyd's, but by the large companies such as the British and Foreign, the Indemnity, or the Union. Development of Marine Insurance in the United States The merchants of the United States have had to depend upon foreign companies for marine insurance, just as they have had to depend upon foreign vessels to carry their cargoes. The small amount of marine insurance written by home companies in the United States prior to the war was carried in much the same way as in England. There were the large companies and also the private underwriters, each subscribing to only a part of the risk on a vessel. Many of the fire insurance companies were permitted by their charters to engage in the marine insurance business, but few have availed themselves of the privilege. Be- fore the war, American marine insurance was on an equality with the American merchant marine. Relation of War Risk to Ordinary Marine Insurance To understand the influence of the war upon marine insurance we must draw a distinction between ordinary marine insurance and war risk insurance. Ordinary marine insurance insures the vessel and the cargo only against the perils of the sea, fire, storm, rocks, etc. Marine war risk insures against sinking by mines, sub- marines, raiders, and sometimes against capture or against deten- tion in a belligerent or neutral port. It is the universal practice for ordinary marine insurance policies to contain clauses ex- pressly excluding war risks. A separate policy must be taken cut for such risks. 52 INFLUENCE OF THE GREAT WAR UPON SHIPPING The war has had comparatively little effect upon insurance from the perils of the sea. It is true that there has been some rise in the premiums charged, but the rise has been slight. The war has made navigation more dangerous through the changing of routes and the suppression of shore lights. Ships are being used long past the time when they should be placed in the dry dock for repairs because of the demand for shipping, the high freight rates, and the use of the docks for naval vessels or new shipping. Also many ships are being used in transoceanic trade which were built primarily for coastwise or even lake voyages. That the sea is claiming more than its usual toll is shown by the increasing number of vessels posted as missing at Lloyd's. When we speak, therefore, in the following paragraphs, of the effects of the war on marine insurance, we refer to the effects of the war on war risk insurance, a form of insurance of practi- cally no importance in times of peace, but handled during pre- vious wars by the same agencies as the ordinary marine insur- ance. Prohibitive Rates at the Beginning of the War Now let us examine more closely the direct effect of the war upon marine insurance rates. The New York Journal of Com- merce for July 31, 1914, reported that war risk insurance had reached almost panic rates in London the day before. In the week following August 1, 1914, war risk insurance rates became almost prohibitive. For voyages from England to the United States the rates advanced from 5 shillings per hundred on July 28 to 10 guineas per hundred (10.5 per cent) on August 4, and 20 guineas per hundred on August 6, an increase from -J^ of 1 per cent to 21 per cent in a little over one week, 25 to 30 per cent was charged to cover voyages through the North Sea. South American rates advanced to 10 per cenL and rates to India and the Far East were as high as 15 to 20 per cent.^ The marine insurance rates rose at Philadelphia from a normal of ' Market World and Chronicle, September 5, 1914, p. 302. THE EFFECTS OF THE WAR ON MARINE INSURANCE 5J 1 per cent to 10 per cent and even at the high rate the great majority of companies refused to transact business/ Causes for High Rates Difficulty of Estimating Risk The primary cause for such prohibitive rates was the un- certainty of the risk. The underwriters possessed no informa- tion or experience from which to determine the amount of the premiums that should be charged. They knew that vessels were being sunk and they knew that more would be sunk in the future, but they had no way of determining what percentage of the voy- ages begun would be safely completed. Insurance could no longer be governed by the laws of probability. The business became a gamble. As Lloyd's had shut down in London tem- porarily, no guidance was forthcoming from that quarter and the leading houses in New York concluded to refuse to take any more risks. ^ This situation ended after a few days when some business was accepted at very high rates. The German Commerce Raiders In addition to the difficulty of determining rates the activities of the belligerent naval forces also tended to bring about a sharp advance. It will be remembered that during the early days of the war, German sea raiders, such as the Emden, the Karlsruhe, and the Koenigsberg, worked havoc in the commercial routes. Their successes were very directly reflected by the insurance market. During September, 1914, the number of ships sunk by the Emden in the Bay of Bengal gave the war risk market a severe shock. As high as 40 guineas per hundred (about 42 per cent) was paid on boats to that section. At the same time two raiders were known to be in the South Atlantic and 50 guineas was paid for at least one boat from South America to ^ New York Journal of Commerce, August 1, 1914. 54 INFLUENCE OF THE GREAT WAR UPON SHIPPING New York.^ During the same period there was a dechning tendency in the rates on routes known to be free of raiders. In November occurred another rapid rise on certain voyages due to the increased activity of the Emden and the Karlsruhe in the Indian Ocean. A week later the insurance market became easier with the report that the Emden had been put out of action at the Cocos Islands and that the Koenigshcrg was unable to do any further harm as she had been cut off in the Rufiji Delta. A de- cline in rates followed. Again in January, 1917, the German raiders were active in the South Atlantic. Within a few days fourteen vessels were reported sunk or captured. The quoted rates to the east coast of South America, which had been from 3 to 4 per cent for bellig- erents on January 10, rose to 6 to 10 per cent on January 18." A week later, January 26, there was a drop to 5 to 8 per cent. The German Submarines The success of the German submarine has also been a cause for rise in rates. During the earlier days of the war it was a new and untried weapon, but reports of torpedoed vessels were constantly coming in. There seemed to be no method of com- bating the menace. Again underwriters were unable to de- termine just what the efifect would be on shipping and were unable to fix an equitable rate. By the last months of 1916, the submarines' success as a commerce destroyer, seemed to be established and much higher rates prevailed on voyages through the submarine zones than to other sections. There was also a growing certainty in the minds of underwriters and shipping men that Germany was about to renounce her pledges to the United States and resort to ruthless and indiscriminate destruc- tion of all vessels, neutral and belligerent. Rates again advanced. Early in December premiums from American ports to Great Britain increased from I3/2 per cent and 2 per cent to 3 per cent.^ ' Fairplay, September 24, 1914, p. 509. ' New York Journal of Commerce, January 18, 1917. ' The Economic World, December 2, 1916, p. 734. THE EFFECTS OF THE WAR ON MARINE INSURANCE 55 In February shippers had the greatest difficulty in obtaining in- surance. For a time there threatened to be as complete a block- ade of commerce as had existed in the fall of 1914. Under- writers refused to consider any rates less than 8 per cent for voyages to British and French Atlantic ports. Rates to the Mediterranean were from 2 to 5 per cent higher still. ^ In May of 1917, with the marked decrease in the reported submarine successes, the war risk insurance market became much freer. Underwriters had not become sufficiently confident of the supremacy of the Allied destroyers to quote new rates, but where the quotations showed a spread of 2 to 5 per cent, risks were usually accepted at the minimum rate or at a rate considerably below the maximum quoted. The British Admiralty's policy of secrecy in reporting the successes of the submarines probably prevented a more substantial decline in insurance rates at the time." It is impossible to secure complete quotations of rates, but the rates offered in September, 1917, will serve to show the effect of the submarine on marine insurance. During the month there was a marked falling off in the number of large British vessels sunk. For the voyage from New York to Liverpool the rate for passenger steamers was 6 per cent, cargo steamers 8 per cent, and neutrals 10 per cent; New York to the Mediter- ranean, special steamers, 8 per cent, neutrals, 15 per cent; New York to South Africa, 3 per cent. The further decline of the success of the submarine in December brought a drop in the rate on belligerent cargo steamers to the United Kingdom of 3 per cent. The British Blockade But the chaos of the marine insurance lousiness can not be attributed to Germany alone. The British blockade was also a disturbing factor. Early in the war, it became apparent that Eng- ' The Economic World, February 17, 1917, p. 242. "-Ibid., May 19, 1917, p. 710. 56 INFLUENCE OF THE GREAT WAR UPON SHIPPING i land and the Allies were determined to make the war econom- ical and financial, and that a systematic effort was to be made to cut off completely the commerce of the Central Powers. Un- derwriters accordingly realized the danger of covering risks on vessels to any but the ports of the Allies. On voyages to ports of the Central Powers it was practically impossible to secure war risk insurance. Insurance on cargo might be found, although the rate was very high, but only 80 per cent of the value of the hull could be protected. No in- surance was available against capture by the Allied Powers or against detention in a belligerent port, for the English insurance companies were ordered by the government to stop insuring vessels against capture or detention by the British Government or her allies.^ Despite the fact that cotton could be sold in Ger- many at a price three times the price on the Southern markets, little was shipped because of the absence of adequate insurance. The Uncertainty Regarding Contraband It was also early recognized that the lists of contraband or conditional contraband articles were not dependable. A cargo at the time of departure from port might be on the list of per- mitted articles, but before it reached the war zone it might be transferred to the list of contraband. Over night articles were changed from one list to the other. There was also the danger that some part of the cargo would be found to be the property of the enemy or consigned to a citizen of an enemy country. These two factors tended either to make insurance rates on vessels to neutral or German ports exorbitant or to make such insurance entirelv unobtainable. The Fluctuation of Insurance Rates Not only did the prohibitive rates halt commerce, but the rate fluctuations had the same effect. At this time it is impossible ^Market World and Chronicle, October 24, 1914, p. 523. THE EFFECTS OF THE WAR ON MARINE INSURANCE 57 to present a chart showing the changes in war risk quotations from week to week beginning with July, 1914. Such a chart would furnish information of considerable value to the enemy in determining the success of the submarine. Even if the weekly quotations could be obtained they would not serve as an accurate index to the market. There has been no standard rate, and usually the rates offered on any particular voyage have shown considerable spread. For example, a quotation of 5 per cent was given by one underwriter on a certain voyage; on the very same day and on the same voyage another underwriter quoted a rate of 10 per cent. The rate also varies with the commodity and with the character and the speed of the vessel. Even if obtainable, therefore, a chart of rate quotations would not be scientific and would not show accurately the fluctuations of rates. From the few quotations available, we can state without fear of contradiction that rates have fluctuated tremendously dur- ing the last three years artd a half. The following quotations are for voyages from the United States to Great Britain and are on belligerent merchant ships. The rates for neutrals are usually somewhat higher. Per Cent July 28, 1914 1/4 of 1 July 31, 1914 3 August 4, 1914 10^4 August 6, 1914 21 September 5, 1914 4^^ January 14, 1915 Vi oi \ July 17, 1915 1 December 2, 1916 3 January 3, 1917 6 February 2, 1917 8 March 17, 1917 8-10 September 12, 1917 7-12 October 24, 1917 5-9 November 14, 1917 4-9 December 22, 1917 4-9 January 12. 1918 4-9 February 8, 1918 4-5 March 15, 1918 3-4 April 1, 1918 4 Aoril 20, 1918 3 May 13, 1918 2V2 May 20, 1918 214 58 influence of the great war upon shipping Inadequacy of Capital of Private Companies So far reference has been made only to the ordinary marine insurance facihties in existence in times of peace, the under- writers and the large companies. However, we must not place upon them the blame for the chaotic condition existing in ma- rine insurance at the beginning of the war, the prohibitive and fluctuating rates and the resulting halting of commerce. The underwriters and the companies were endeavoring in every way to meet the emergency for which they were entirely unprepared. They could not be prepared for it. Marine insurance is ordinarily a business that can be con- ducted on a small capital. With the outbreak of the war, the insurance market was called upon to cover not only the risks arising from the perils of the sea, but also a second line many times as great — the risks arising from war. The underwriters did not possess the necessary capital. Increased premiums might fully equal the losses occurring over the period of a year, but there were more frequent calls for the payment of losses than before the war. Again, as soon as commerce was partially revived, shipping prices advanced greatly. The value of vessels advanced from 50 to 100 per cent and in some cases even more; freights advanced 500 per cent; and cargoes about 50 per cent in value. An under- writer instead of being called upon to cover the ordinary marine risk on a vessel valued at $400,000, on freights valued at $20,000, and cargo valued at $1,000,000, must furnish both marine insurance and war risk insurance on a $600,000 to $800,- 000 vessel, $120,000 freights, and a $1,500,000 cargo— two risks of $2,420,000 instead of $1,420,000, one risk of pre- war days — an increase of $1,000,000 or about TO per cent. It is natural that the underwriters were unable to handle the situation and that chaos resulted. Nor is it astonishing that the underwriters and companies advanced their rates so sharply that they were soon prohibitive. the effects of the war on marine insurance 59 The Formation of Government War Risk Bureaus Very early in the war, however, another important factor entered the insurance field. When the lack of insurance facili- ties threatened to halt all commerce for the duration of the war and when it was perceived that private capital could not meet the increased demands made upon it, the various governments were quick to act. They went into the insurance business. With- in a very few weeks after war was declared, eleven national war risk bureaus were in operation in the following countries : Bel- gium, Denmark, France, Germany, Greece, Great Britain, Italy, Japan, Norway, Sweden and the United States. Although all the bureaus were established to accomplish the same purpose, the protection of the nation's commerce, they differ in their methods of operation. All of them, however, follow closely one of the four general plans adopted by the United States, Great Britain, Japan and Norway, respec- tively.^ The United States War Risk Bureau In the United States, by an act of Congress, approved Septem- ber 2, 1914, the Bureau of War Risk Insurance was established as a bureau of the Treasury Department." Mr. William C. De Lanoy, an experienced insurance underwriter, was appointed Director of the bureau at an annual salary of $5,000. An ad- visory board of three members skilled in the practices of war risk insurance was also appointed for the purpose of assisting the bureau in fixing rates of premium and in the adjustment of claims for losses. The original act empowered the bureau under the direction of the Secretary of the Treasury to make provisions for the in- surance by the United States of American vessels, their freight and passage moneys, and their cargoes against loss or damage by risk of war, whenever it should appear to the Secretary ' Market World and Chronicle, October 24, 1914, p. 523. = Public No. 193, 63d Cong. 60 INFLUENCE OF THE GREAT WAR UPON SHIPPING that American vessels, shippers, or importers in American ves- sels were unable in any trade to secure adequate war risk insur- ance on reasonable terms. No fixed. rates were established, but it was provided that the bureau should determine the rate for each voyage according to the character of the vessel, the route taken, and the cargo carried. Disputes over the adjustment of claims were to be settled in the district court of the United States in the district in which the claimant or his agent resided. An appropriation of $5,000,000 was made from the Treasury of the United States for the purpose of paying all losses and an additional $100,000 for salaries and expenses of the bureau. The act specified that the bureau might be suspended by the President whenever the need for such insurance ceased to exist and at most was not to continue more than two years. ^ Later amendments to the act of September 2, 1914, have extended the time of operation of the act to not later than June, 1921." There were two outstanding features of the United States War Risk Insurance Bureau established by the act of September 2, 1914, and operating while the United States remained neutral. (1) Insurance was issued only on vessels flying the American flag, or only on cargo carried in American vessels. (2) The premium rate might be fixed for each voyage by the bureau, although in practice it remained almost unchanged for certain of the safer trade routes. Before the United States entered the war, the bureau refused to cover risks on any cargo that might be considered contraband by the belligerents. Follov/ing Germany's declaration of unre- stricted submarine warfare in February, 1917, and the breaking of diplomatic relations between the United States and Germany, the bureau revised its regulations. On March 31, rates were in- creased but at the same time risks on cargoes that were classed as contraband were accepted, thus recognizing the practical state of war with Germany. Following the entrance of the United States into the war, ' Public No. 193, 63d Cong. ^ Public No. 20, 65th Cong. THE EFFECTS OF THE WAR ON MARINE INSURANCE Gl an amendment to the act above outlined was passed on June 12, 1917, extending radically the scope of the Bureau of War Risk Insurance. The bureau was authorized to make provision for the reinsurance by the United States of vessels of foreign friendly flags or their cargoes, or both, when such vessels or their cargoes were insured by the government of a country at war with an enemy of the United States, and also to reinsure with such gov- ernments American vessels and their cargoes. Additional ap- propriations were granted to the bureau by this amendment, $50,000,000 for the payment of losses and $250,000 for the ex- penses of the bureau.^ Under the amendment of June 12, 1917, the bureau entered another insurance field. Realizing the heavy risk of death in- curred by officers and crews of the merchant vessels entering the submarine zone. Congress authorized the bureau to establish a Seaman's Division and the owners of American vessels were required to take out war risk insurance for the officers and crews. Within three weeks 5,446 individuals had been insured. Under this scheme provision is also made for the payment of an in- demnity for loss of limb or any other permanent disability. A second advisory board of two members skilled in the practices of accident insurance was appointed for the purpose of assisting the bureau in adjusting claims in connection with the seamen's insurance.^ At the present time the Bureau of War Risk Insurance is ad- ministering not only the marine insurance on vessels and car- goes, but also the accident and life insurance on the officers and crews of merchant ships and on the soldiers and sailors in the service of the United States. On August 19', 1917, the bureau issued certain specifications regarding the vessels upon which insurance would be placed. Ships were required to be armed, painted to reduce visibility, provided with smokeless fuel, and equipped with appliances for producing smoke clouds to escape torpedo attack. ' Public No. 20, 65th Cong. 62 INFLUENCE OF THE GREAT WAR UPON SHIPPING The British War Risk Bureau The war did not find Great Britain entirely unprepared, at least as far as war risk insurance was concerned. In 1908 the committee on a national guarantee for the war risks of shipping was appointed by the British Parliament. A lengthy investiga- tion was conducted by the committee and their report and rec- ommendations were published but no legislative action followed.'- In July, 1913, another committee was appointed, which in May, 1914, submitted to Parliament a government war risk insurance scheme which was accepted by Parliament on the Monday before war was declared." Although there was no time to work out some of the details, the British scheme of war risk insurance was put into operation during the first week of August, 1914, dealing separately with hulls and cargoes. The insurance on the hulls was worked in conjunction with mutual clubs which existed when war was de- clared. All vessels were required to be insured in one of these clubs or associations. The clubs, in turn, reinsured with the government SO per cent of their war risk on vessels, the gov- ernment receiving the same proportion of the premiums. The scheme applied only to British vessels and required owners and their captains to conform to all instructions issued by the Ad- miralty. Only cargoes carried in vessels insured by the clubs or other associations approved by the government were insured by the government office. A minimum and a maximum premium rate was recommended by the committee responsible for the scheme, but as there was not sufficient time to fix such premiums on the basis of possible risks, a flat rate was established. In this respect the British scheme differs from the scheme adopted in the United States, the latter in theory determining the rate for each voyage and the former fixing a definite flat rate for all voyages. ' Report of Committee on a National Guarantee for the War Risks of Shipping, Wyman and Sons, Limited, London, 1908. ' f airplay, January o, 1918, p. 102. THE EFFECTS OF THE WAR ON MARINE INSURANCE 63 The aims of the government War Risk Bureau were two : First, the maintenance of the British overseas trade, the ex- change of manufactures and coal for the nation's supplies of food and raw materials. Second, the concentration of the Royal Navy on its primary duty of defeating the naval strength of the enemy, by relieving it from the demands of the individual trader and shipowner for protection against individual loss. On August 19, 1917, a new plan for the insurance of hulls went into effect in Great Britain. In many cases under the first scheme, the premiums received by the clubs had not been sufficient to meet the losses and the balance had to be made good by calls on the members. Under the new plan, the entire liability is at the risk of the government, and more definite provisions are also made to determine the value of vessels lost. Risks were divided into three classes, fully requisitioned steamers, vessels under liner requisition, and freight ships. The government as- sumes responsibility for all war risks on vessels of the first class, whether total or partial, and in case of total loss payment is to be made on the " ascertained value." The government also pays claims for particular average, salvage charges, and general average in case the vessel is damaged and not totally lost.^ The same risks are covered on vessels of the second class, but in case of total loss the owner is to have the option of re- ' " The loss resulting from any of the perils above mentioned (perils of the sea, war risks, etc.) may be a partial loss and may be settled either in accordance with ' general average ' or ' particular average ' rules. The mari- time laws of nations ordinarily provide that any loss resulting from a volun- tary or deliberate sacrifice of vessel, cargo, or other property for the common safety and welfare should not be borne entirely by the particular owners of the sacrificed properties, but should be fairly prorated among all interests that are benefited by such sacrifice. This rule is known as general average. A partial loss may also be settled in accordance with the ' particular average ' rule, i. c, when the property insured is damaged by accident or is not destroyed by the master of the vessel for the purpose of saving other property, the loss must be borne entirely by the owners of the damaged property or by its insurers. A partial loss or liability may result from the payment of salvage, which is the reward granted by law to those who save life and property at sea. If a vessel in distress receives assistance from another vessel and is towed to port, the vessel giving assistance may claim salvage, and the amount legally due is payable by the owner or by the insurer of the vessel and cargo to which assistance is given." Johnson and Huebner: Principles of Ocean Transportation, p. 248. 64 INFLUENCE OF THE GREAT WAR UPON SHIPPING covering the loss on the " ascertained value " or on the amount insured under his policies which is based on the government value, as at present calculated, plus an excess value to be fixed by the committee and approved by the controller. Freight ships are to be insured against the risks of war under policies for voyages at rates to be fixed from time to time. In all three cases compensations and allowances to dependents of officers and crew up to the government scale will be paid.^ When the submarine policy of Germany threatened to cut off England from her sources of supplies, the government war risk insurance was extended to all neutrals trading with the United Kingdom. The rate was the same as the rate offered to British shipping and was several per cent below the rate enforced on the open market. It was realized that the government would prob- ably suffer heavy losses because of such low rates, but that the increased imports from neutrals thus gained would more than offset any possible loss. The'scheme of war risk insurance in operation in Great Britain has not proved entirely satisfactory. The flat rate fixed by the bureau has been too low for the dangerous trades and too high for the safer trades. As a result the safer risks have been in- sured in the open market and the dangerous risks have been left to the government. The deficit of the bureau has had to be made up by taxing the people. In October, 1917, several changes were being considered to remedy this feature. It was proposed to do away with the flat rate and to fix rates each day through a special body of experi- enced underwriters. The government was to insure all cargoes, nonrequisitioned as well as requisitioned, thus closing the free war risk market. Such a scheme was opposed by the English underwriters because of the insurance monopoly given to the government. Recently the flat rate was abandoned and premiums are now being determined according to the risk of the voyage. There ap- peared in the New York Journal of Commerce for May 24, 1918, ' The Mariner, September 15, 1917, p. 269. THE EFFECTS OF THE WAR ON MARINE INSURANCE 65 a Statement issued by the British War Risk Insurance Office re- ducing the rate on voyages between the United Kingdom and the east coast of North or Central America from GO shilHngs per hundred to 45 shilHngs and on voyages between the United Kingdom and the east coast of South America from 70 shillings per hundred to 60 shillings. The same announcement established a rate of 7 per cent on voyages from the United Kingdom direct to Greece. The Japanese War Risk Plan The plan adopted in Japan, September 12, 1914, differed radi- cally from either of the above plans. No government war risk bureau was established, but insurance was handled entirely through the usual prewar channels, the underwriters and the insurance companies. Since most of the Japanese commerce was far removed from the region of the submarine or the German raider, the need for a government war risk bureau was not felt. Up to the end of 1915 only two steamers owned in Japan had been lost by a war risk. Following is an extract from the 15th Financial and Economic Journal of Japan (1915) issued by the Japanese Government descriptive of the Japanese scheme of war risk insurance: The War Marine Insurance Indemnity Act was promul- gated on September 11, 1914, and the Ordinance No. 19 of the Department of Agriculture and Commerce on the fol- lowing day, and both were immediately put in force. According to the act above referred to, if any Japanese insurance company, or any foreign insurance company having branches in Japan, makes a war insurance contract at a premium not higher than the rate fixed by the com- petent authorities and makes good therefore any loss or damage caused by the war, the government is to grant as an indemnity to such insurance company a portion of the sum thus made good. It is provided for in Ordinance No. 19 of the Department of Agriculture and Commerce that the amount to be so granted by way of indemnities shall be 80 per cent of the sum thus made good.^ ' The Economic World, February 19, 1916, p. 258. 66 INFLUENCE OF THE GREAT WAR UPON SHIPPING In Other words, Japanese insurance companies, or foreign insurance companies with branch offices in Japan, insuring ves- sels at rates not higher than the maximum fixed by the govern- ment are indemnified by the government to the extent of SO per cent of all their losses and are permitted to retain all of their premiums. The companies carry but 20 per cent of the risk, but are paid 100 per cent of the premium. The proposal covers both Japanese hulls and cargoes and also cargoes exported to or from Japan by steamers of any nation except an enemy, be- tween points specified by the government. In January, 1915, a new arrangement was made allowing the risk on vessels leav- ing England for Japan to be covered in London without cabling to Japan, the bill of lading being endorsed to the effect that the cargo had been insured against war risk.^ The original scheme continued in force until the losses paid out for the few Japanese vessels sunk proved to be too heavy a burden on the treasury. In September, 1917, a new scheme came into operation under which the government fixed the premium, received it, and paid the loss, a government bureau taking the place of the government aided insurance underwriters and companies." The Norwegian War Risk Plan In Norway a company was formed to take 20 per cent of the war risk insurance on all goods shipped to or from Norway. The remaining 80 per cent of the war risk is assumed by the state and the assured. War risk on hulls of steamers is com- pulsory in a mutual association which has been established in Christiania. The owner is allowed to take 20 per cent of the insurance himself. A maximum and a minimum premium has been fixed.^ ' Fairplay, January 21, 1915, p. 88. = Ibid., January 3, 1918. ' Ibid., October 8, 1914, p. 581. THE EFFECTS OF THE WAR ON MARINE INSURANCE b( The Rates of the Government War Risk Bureaus In general the rates of the government war risk bureaus have been considerably under the rates charged by private companies. The market rate on voyages between the United Kingdom and the United States on August 6, 1914, was 20 guineas per hun- dred, and the British Government war risk rate on the following day was 4 guineas for the same voyage. In August, 1917, the United States War Risk Bureau increased its rates between United States ports and European and Mediterranean ports from 5 per cent to 6% per cent. At the same time the open market rate quoted in New York was 7^/^ per cent to 10 per cent to British ports, 12 per cent to Havre, and 10 to 15 per cent to Mediterranean ports. In February, 1917, the rate charged by the British Govern- ment was 3 per cent as compared with the flat rate of 10 per cent enforced on the local market. During the same month, the United States Bureau quoted a rate of 2 per cent although the prevailing market rate was 9 to 10 per cent. Effect of Government Bureaus on Private Companies The natural conclusion to draw from such low rates would be that all the business had gone to the government bureaus and that private companies had been forced to discontinue, but such has not been the case. Most of the government bureaus are so hedged in by restrictions and conditions that many vessels find it impossible to secure insurance from them. In the first place, with few exceptions, the bureaus are permitted to write insur- ance only upon vessels flying the flag of the respective countries that established them. As a neutral the United States bureau declined to underwrite the war risk on all commodities that had been held to be contraband by any of the belligerent Powers, or which were in cargoes any part of which consisted of such contraband. For that reason, insurance on cotton could not be obtained from the government War Risk Bureau even in 68 INFLUENCE OF THE GREAT WAR UPON SHIPPING American bottoms. The restrictions, as has been pointed out above, were modified when the United States became a belHger- ent, but vessel owners must still follow closely regulations re- garding equipment and coal before insurance will be granted by the bureau. The text of the law creating the War Risk Insurance Bureau also specifically provides that war risk insurance shall be issued " whenever it shall appear to the Secretary that American ves- sels, shippers or importers in American vessels, or the masters, officers, or crews of such vessels are unable in any trade to se- cure adequate war risk insurance on reasonable terms." As we have shown in an earlier paragraph, the flat rate of the British War Risk Bureau proved to be too low for dangerous voyages and too high for the safer trades, resulting in most of the insurance on safer trades being carried on the open market. In both the United States and Great Britain the value of the business done by the government bureaus has been a very small part of the marine insurance business transacted. The report for the United States War Risk Bureau issued in August, 1917, shows that from the founding of the bureau, September 2, 1914, to June 30, 1917, insurance to the amount of $623,904,598 was written and that premiums were received to the amount of $15,208,730.37.' For the year 1916 alone, the thirty-two ma- rine insurance companies reporting to the State of New York covered marine risks totaling $1,214,119,435 and received in premiums $42,137,536. The latest report of the bureau, Janu- ary 6, 1918, showed that only $1,001,537,525 in insurance had been issued up to January 1, 1918. Despite the small amount of insurance carried by the govern- ment bureaus, they have given very valuable aid to shipping. They have been successful, not because they have monopolized the marine insurance market and covered enormous risks, but because they have served as a steadying influence for the private companies and have prevented the charging of unreasonable and prohibitive rates. They came to the rescue of commerce ' The Economic World, August 4, 1917, p. 170. THE EFFECTS OF THE WAR ON MARINE INSURANCE 69 at a time when the ordinary insurance facilities were in a condi- tion of chaos. In an address in the summer of 1915, Sir Edward Hain, Chairman of the London General Shipowners Society, declared that the introduction of the government scheme for war risk insurance at the outbreak of the war had done much to prevent panic rates for insurance and had given confidence to shipowners to continue their oversea trading.^ Their steadying influence may be seen in the higher rates charged on neutral vessels in Great Britain soon after the be- ginning of the war. The government bureau was permitted to underwrite the risks only on cargoes carried in British hulls and the insurance on neutral hulls and cargoes had to be taken in the open market. Since there was no competition with the gov- ernment bureau, the underwriters were able to quote whatever rates they liked without fear of losing business. In September, 1914, cargoes in British steamers were being insured for four guineas per hundred, but cargoes in Dutch and Japanese hulls were paying private companies six and seven guineas. The Continuation of the Government Bureaus after the War The government war risk bureaus upon their establishment were regarded universally, even by the marine insurance under- writers, as highly beneficial institutions. But already their future is being viewed with suspicion, especially by the business world, now that the insurance market has adjusted itself to the changed conditions. The fear is expressed in the United States that the bureau is only a forerunner of government ownership of a business that has always been a private enterprise. The bureau is being branded as socialistic and hostile to the rights of the individual. The editor of The Economic World in the issue for April 1, 1916, opposed the continuing of the government bureau beyond the period of two years provided for by the act creating it in ' Fairplay, July 29, 1915, p. 187. 70 INFLUENCE OF THE GREAT WAR UPON SHIPPING 1914. In a later issue, after commending highly the work of the bureau and especially its extension of insurance to the officers and crews of merchant ships, the editor concludes : At the same time it is well to keep clearly before the public mind that acquiescence in this war arrangement is not to be construed to be acquiescence in the perpetuation of this great government insurance after the war is con- cluded. Insurance men and all other American citizens who hold government monopolies to be an anathema in times of peace and normal activities should keep this point continually in mind. Marine Insurance and World Trade The war has brought, and is bringing, many lessons forcibly home to the people of the United States. We are beginning to realize the fallacy of allowing our merchant marine to decline from the proud position it occupied seventy years ago to the few vessels flying the American flag at the outbreak of the war. An effort is being made to remedy the mistake and a fleet of mer- chant vessels is now leaving our shipyards which will soon re- establish the United States as a powerful commercial nation. But shipping is only a part of the foundation of international trade. Mr. Evans, president of the Continental Insurance Company and the Fidelity-Phenix Insurance Company, recently somewhat overstated the financial side. The economic proposition at the base of the foreign trade of every nation is the union of banking, shipping, and in- surance strength. In the absence of any of the three, the other two factors will be exposed to weakness that will inevitably bring waste or loss, if not failure. Great Britain has commanded the foreign trade of the world because she has financed it herself, carried it herself, and protected both its credit and its losses by insuring every possible dollar of her own trade, when possible, with her own insurance.^ The Federal Reserve Act opened the way for the banking independence of the United States- in world trade; our merchant ' Spectator, November 15, 1917, p. 206. THE EFFECTS OF THE WAR ON MARINE INSURANCE 71 marine is being reestablished; the third member of the com- mercial triad, insurance, must not be neglected. Growth of Marine Insurance in the United States Since 1914 It is true that there has been a marked growth in the insur- ance facilities of the United States since 1914. Before the war there were about 2-4 marine insurance companies operating in New York City. In October, 1917, there were 87 companies of which 53 were American. At the close of 1916, the reports of the 32 marine insurance companies reporting to the State of New York showed that during the preceding year they had issued insurance to the amount of $1,214,119,435, an increase over 1915 of 41 per cent and that the total income of the com- panies for the year was over $50,000,000, an increase over 1915 of about 40 per cent. In October, 1917, announcement was made that an American Lloyd's had been established in New York City. The Old Delmonico Building has been leased and will be remodeled as an insurance exchange. There underwriters will meet and be pre- pared to accept business offered without the many delays caused by the present decentralization of insurance facilities. The President's Proclamation, July 14, 1917, closing for the duration of the war the American branches of the German ma- rine insurance companies, opens a new field to the American companies. No doubt British competition will be keen, but the growing American companies should be able to retain the major share of the insurance in this country. A Lesson of the War War has shown the weakness of the structure of our inter- national trade built up in times of fancied security and the in- ternationalism of capital. Our commerce was paralyzed and foreign markets were closed to us because of the lack of ma- rine insurance facilities. Shipment of gold from the United 72 INFLUENCE OF THE GREAT WAR UPON SHIPPING States was effectually checked, beneficial as such restriction may have been. Such interference with our commerce will be possible just as long as we continue to depend entirely upon foreign companies for our marine insurance. Two remedies are open to the people of the United States involving two opposing economic concepts. First, we can develop a national independence of marine insurance facilities just as we are, for the moment at least, developing our shipping inde- pendence. Through government subsidies and restrictive legis- lation, probably involving higher cost, we can encourage the establishing of marine insurance companies and underwriters' associations which can be conducted profitably because of the government aid and despite the scarcity of capital and the high rate of interest prevalent in this country. Secondly, we can establish by congressional action the neces- sary machinery to create overnight, in case of war, a govern- ment war risk bureau similar to the present one. Or the present bureau can be made a permanent bureau to be put into operation only in case of a national emergency. With such a latent remedy always at hand we can, if it is less expensive, continue to depend in times of peace upon foreign companies for our marine in- surance, purchasing in the cheapest market, whether that mar- ket be English, French, or Japanese. Of the two schemes, the second is undoubtedly the safer policy to follow. Encouraging as has been the development of marine insurance facilities in the United States during the war, it is doubtful if this development can continue without substantial government aid when conditions of international competition have been restored. Laboring as we are under the handicap of high construction and operation costs of our merchant marine, it is important that we secure our insurance in the cheapest mar- kets if we expect to compete successfully with the ships of other nations. The experience of the nations at the outbreak of the present war is ample proof that national independence of insur- ance facilities is not sufficient protection against blockade of the merchant fleet. The merchant marine of Great Britain, backed THE EFFECTS OF THE WAR ON MARINE INSURANCE 16 by Lloyd's Association and the powerful British marine insur- ance companies, was as effectively blockaded during the first days of the war as was the merchant marine of the United States de- pendent upon the German and British companies. Not until the British Government War Risk Scheme, accepted by Parlia- ment a few days before, was put into operation was the blockade lifted and not until the United States followed the example of Great Britain in September, 1914, were ships of this country free to leave port. In the meantime, much valuable time had been lost while the bureaus were being established, rates deter- mined and policies prepared and printed. Dependence on foreign insurance is very different from de- pendence on foreign shipping. Insurance, under a government war risk scheme, can be created in twenty-four hours, if the plans are laid in advance; the creation of a merchant marine may re- cjuire twenty-four months or more, even if well planned in ad- vance. There appears, therefore, no greater reason to work for complete independence in marine insurance than there is in com- plete independence in bananas or money to lend. CHAPTER IV Trade Dislocations Due to War — Some Possible Readjustments Worldwide Trade Changes Afghanistan, buffer state, untouched by jealous Britain and jealous Russia, has been a closed land, one of the last refuges of unchecked barbarism. Here before the Great War a white man went, if at all, at the risk of his life. In the summer of 1915 a native of this no man's land gathered up a few mule loads of country produce and went down 160 miles to the head of the British railway to trade at the annual fair, as was his wont. The market was glutted. No buyers were there. He was tokl that the Hindus who usually bought his wares had gone over the sea to a white man's war. " Humph! " said the Mohammedan, '' I don't care, I will take my stuff over to the Russian railway." *' The Russians have gone to the war, too," he was told, " and the railroad will carry no freight." Whereat the indigene cursed all unbelievers and carried his produce back to his fastnesses where it probably still awaits the return of peace. Long indeed will be the search to find the people, even the man, whose daily life has not been changed in some respect by the trade disturbances arising from this war. The world trade of 1914 is no more. Trade has always been the football of states- men, but nothing like the disturbances of the present has occurred in the modern epoch. Several distinct factors have combined to destroy the old and make a new commercial world. Factors That Have Altered Trade (a) Rise of Munition Trade. Munitions and war supplies suddenly became one of the major demands of world commerce, rather than one of the minor 74 TRADE DISLOCATIONS DUE TO WAR 7o articles, and their fabrication suddenly took the time of millions of workers. (b) Decline of Food Production and Increase of Food Con- sumption. The putting of millions of men under arms reduced food pro- duction at once in the warring countries, increased food consump- tion and multiplied the demand for it in international trade. (c) The Stopping of Exports from Central Empires and Russia. World commerce was impoverished by losing the goods of Germany and Austria, due to the Allied blockade, and of Russia, due to the closing of the Dardanelles. {d) Declining Ship Supply. A diminishing ship supply restricted ocean transportation. This diminished ship supply was partly real, due to the destruc- tion and internment of vessels, and the cessation of building, and partly constructive, due to the necessity of transatlantic voyages replacing shorter European voyages, to the lessened efficiency of shipping under war conditions and also the actual increase of trade in supplying armies. The movement of Canadian and Australian and Siberian troops alone almost amounted to the transport of nations and their support over sea. (e) Declining Man Power. All this creation of burdens fell upon diminishing man power, and has resulted in great efforts to increase the labor supply in many countries. (/) Prevention of Exports to Central Empires. Commerce was further embarrassed by the necessity of pre- vention of trade with the enemy — a most difficult thing to do, as witness the relative failure, the innumerable orders, restrictions, foreign complications and animosities that have resulted. 76 INFLUENCE OF THE GREAT WAR UPON SHIPPING {g) Governmental Restrictions of Industry. The necessity of keeping home industries going under the re- duced conditions of labor, materials and transport has brought in its wake a train of restrictions almost as rigid as the blockade of Germany. As a result of all these causes, the nations have been compelled to take control of industry almost as definitely as they have of the life of the conscript in the army. Nations have been rationed as to the food they should eat. Industry has been rationed as to the raw material it should get. Priority orders decide what in- dustry shall get supplies and what shall be starved. Licensing boards have permitted or checked the issuance of capital, and the building of works. The national complex of railroad companies has been welded into one system in all the major warring coun- tries. Import and export trade have been put on the war basis of license or prohibition as public needs seem to demand, and, lastly, ocean shipping and the management of ocean traffic is being pooled by the Allies in a way identical to the pooling of traffic and equipment by the nationalized railway systems of the United States or England. As the war wears along into its fourth year (May, 1918), every disturbing factor is becoming more acute — war materials, food, man power, ship shortage, and the consequent necessity for more rigorous economies of labor, material, railway and ship transportation is even more apparent. Trade is being daily brought down nearer and nearer to the bare bones of naked necessity. The Paralysis of Trade Statistics can never measure the trade disturbances of this war; partly because they are incomplete, partly because some that we most desire are unavailable, and probably will not be available until after the war, and partly because mere statistics can not measure anguish. Nevertheless the charts of vessel movements even down to the end of 1916, the last year available, are very significant. A comparison of 1913 and 1916 shows that Britain received from the Argentine a million less tons of shipping, the TRADE DISLOCATIONS DUE TO WAR i i movement having shrunk from 2,000,000 to 1,000,000. The outgoing ships to Argentina fell away twice as much. From Australia 400,000 tons less of shipping arrived, while the tragedy of the closing of Russia is shown by the falling away of vessels from 3,o00,000 to less than 750,000, with departures reduced to an even greater extent. The figures of Norway and the United States show a substantial increase as a measure of the attempts to replace the old with new trades. Examination of traffic movements shows even more significant facts. Coal, upon which our age depends and for which most of the importing world has looked to Britain, shows painful de- cline in Britain's exports. Italy's supply from this source fell from nearly 10,000,000 to less than 0,000,000; Greece lost more than three-fourths of her supply; Egypt nearly as much; Argen- tina went from over 3,500,000 tons to less than 750,000. Sweden, suspected of being too friendly to Germany, got dropped from 4,500,000 to 1,000,000, but Norway, the busy supplier of Britain, was allowed coal to take back in her ore, w'ood, and pulp carrying ships. But Denmark and the Netherlands, both adja- cent to Germany, both in the zone of the submarine, show heavy decrease, which helps explain the economic disturbance of those countries. For a time the gap caused by the shortage of British coal was partly filled by American coal (see table), but the ship COAL EXPORTS OF UNITED STATES Tons, 000 Omitted 1912 1913 1914 1915 1916 1917 Italy 276 2,Z2 776 1,628 2,833 1.099 Greece 101 89 Soain 16 50 42 100 160 l?ane ■:::".■.:: :■.:■.:■. 43 16 47 50 iso Argentina 156 38 139 564 782 706 Brfzil 307 236 239 527 681 756 Chile 29 112 84 58 152 shortage has now wiped out that possibility, as evidenced by the nearly tenfold increase in the Italian supply from us between 1913 and 1910, and its heavy decline in 1917. Argentina had a somewhat similar fate, while Brazil, with coffee and manganese 78 INFLUENCE OF THE GREAT WAR UPON SHIPPING ore for return cargo, has been able to more nearly hold her American supply. The two facts of the actual blockades of war and the pro- gressive blockades of ship shortage, make it clear why so many parts of the world are in industrial paralysis. For example, Russia with imports of $365,000,000 in 1914 imported but $200,- 000,000 in 1917, and that was an increase over 1916. But even this small trade was chiefly war supplies sent in by her allies, for her export of $349,000,000 in 1914 had dropped to $40,000,000 in 1915, $53,000,000 in 1916, and but $26,000,000 in 1917. Perhaps the best known and most conspicuous example of stagnation is afforded by the Australian wheat situation, where, according to unofficial figures, 200,000,000 bushels of wheat are piled up waiting the chance for shipment, for which the ever de- clining tonnage gives small promise for many months to come. The stock of wheat exceeds by many fold all ordinary need for warehouses and all possibility of proper storage. It is said to be piled up more than 10 miles long in enclosures made by walls of sacked wheat 10 to 20 feet high and 10 to 20 feet wide. This drew mice, which have multiplied, and in spite of being fought day and night by gangs of men they have continued to multiply until it is estimated they have destroyed 40,000,000 bushels of wheat. They increased to such myriads that from crowding, a plague of soft ringworm fell upon them, which in turn was caught by the men who fought them, and became a plague among the people.^ The export of Australian coal which had gone in hundreds of thousands of tons to South America and the East Indies, is similarly stopped, with shut-down collieries and the labor unrest that arises from unemployment. New Zealand, slightly more distant, finds that the paralysis has affected a trade so valuable and so vital as wool. As early as March, 1916, the wool sales of her ports had been postponed indefinitely and arrangements were being considered to provide for cash advances to the growers similar to the means by which ' Collier's Weekly, March 2, 1918. Mark Sullivan. ^ J-- lyj vv /\K 80 INFLUENCE OF THE GREAT WAR UPON SHIPPING the Australian Government had made cash advances to the wheat growers. In Argentina, a country with a trade consisting of heavy ex- ports of wheat, corn, flax-seed, and meat, imports of coal and the great variety of manufactures needed in a modern state, the interference with trade by the war is very acutely felt. It began early. Argentina is about to feel the effects of the war very seriously. Imports are becoming beautifully less, exports are very reduced and laborers are as plentiful as leaves in Vallombrosa, with labor conspicuous mainly by its absence. Free dinners are being given, and it is very disheartening to see hundreds of strong and able men waiting listlessly to be fed. Work in the port is very scarce, and hundreds of steve- dores, lightermen, sailors, and others wander about with their hands in their pockets. Business continues at a complete standstill, and all stocks and shares are either unquotable or extremely weak.^ Within two months after the war had started 10 per cent of Buenos Aires clerks had been dismissed from their positions. By September, 1917," the vessel arrivals were 50 per month less than in normal times. Our consul reported,^ that " due princi- pally to lack of shipping space, the exports from Argentina for the first eight months of the year were considerably smaller than for the same period the previous year, except for quebracho logs, skins and hides, butter, wool, tallow, and frozen beef." January to August 1917 1916 Wheat (tons) 765,919 1,597,578 Maize 695,327 1,562,440 Linseed 61,958 495,331 Oats 231,697 573,221 Quebracho logs 75,799 74,779 Butter 5,965 4,237 Wool 95.840 82,772 Frozen beef (quarters) 3,642,516 3,304,745 \Fairplay, October 1, 1914, pp. 554-555. " U. S. Commerce Reports, November 22, 1917, p. 721. ' Ibid., October 22, 1917, p. 290. TRADE DISLOCATIONS DUE TO WAR 81 The suffering of the people is indicated by the fact that the previous winter coal from the United States had paid 80s. a ton ocean freight. A reduction of much more than half in the total coal supply shows the pinch to which industry was put. On May 20, 1918, the daily press reported the people in the interior • of Argentina burning maize in the place of coal which they could not get. From the Caribbean comes the worldwide plaint of hunger and trade stoppage. Central America can not supply the foods which we com- monly think of as necessities. They import wheat, corn and beans, and are suffering from lack of these now. I could speak of cocoanuts or of bananas, thousands of bunches which, being perishable, are thrown into the sea weekly, because there are no ships to carry them. There are natural fruits that perish by the millions of bushels and could be fed to pigs— all of which are lost through lack of organization.^ A bulky product like lumber is naturally one of the early vic- tims of declining tonnage. Months ago we sent regiments of American lumberjacks fully equipped to France and England, to produce in Europe what we could not ship across the sea. From, San Francisco came the complaint more than a year ago, of Mr. J. J. Donovan, President of the Pacific Logging Congress : Because we have few suitable ships for the foreign trade on the Pacific, many logging camps are closed, and many mills are silent. The foreign ships on which we depended, find the food and munition trade with the warring nations so remunerative that there is little space or thought of lumber, except for military purposes.' ' Cyrus F Wicker of N. Y. : Proceedings of American Academy of Politi- "■'-'Ti f.rsiictifn^mie'/eip'oJi Zw whf .he above re,narl