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 GIFT OF 
 
Ian for the Operation of the 
 
 New American Merchant 
 
 Marine 
 
 as proposed by 
 
 EDWARD N. HURLEY 
 
 > i 
 
 Chairman United States Shipping Board 
 
 WASHINGTON 
 March 27, 1919 
 
" 
 
 Address delivered by Edward N. Hurley, Chairman United States 
 Shipping Board, before the National Marine League, Commodore Hotel, 
 New York, Thursday evening, March 27, ipip. 
 
 IN THIS ADDRESS, MR. HURLEY, FOR THE FIRST TIME, GIVES AN OUTLINE 
 
 OF HIS PROPOSED PLAN FOR THE OWNERSHIP AND OPERATION OF THE 
 VESSELS BUILT FOR THE GOVERNMENT BY THE UNITED STATES SHIPPING 
 BOARD. 
 
 The first public address that I delivered as Chairman of the United 
 States Shipping Board was before the National Marine League about one 
 year ago. At that time the world war was at its lowest ebb insofar as the 
 Allies were concerned. The Cambrai battle had been fought and lost by 
 the British ; the French had been driven back, and all the indications were 
 that the submarine would continue sinking more ships than the world 
 could produce, which meant that Germany's ruthless -submarine warfare 
 would succeed in the effort to starve Great Britain, and that the world 
 itself would face the disaster of a German victory. At no time during 
 the bitter struggle was the outlook more black for the Allies. Then it was 
 that Mr. Lloyd George issued an appeal that came to us clanging like a 
 bell. It was "Ships, ships and more ships" a strident call that rang out 
 a warning to the world" that if the war was to be won we must have the 
 ships and have them quickly. 
 
 At the time of my last address before this body, the present Shipping 
 Board, which had been organized little more than half a year before, had 
 by dint of unexampled effort added 81 steel and wood ship-building yards 
 to the small nucleus we possessed at the beginning, an had expanded 
 1 8 other yards. In these new and expanded yards we were then building 
 ships on 235 launching ways. 
 
 Our Strength in Ship Production. 
 
 At the time of the signing of the armistice, we had 341 shipyards 
 practically completed and a total of 1,284 launching ways. This is more 
 than double the number of yards owned by all of the rest of the world 
 combined. 
 
 On March I, of this year, the present United States Shipping Board 
 completed the first year and a half of its existence. During those eighteen 
 months it has added to our merchant mririne a total of 619 wood and steel 
 vessels aggregating; 3,^4.0^.406, deadweight tons. 
 
 This is a world :refcftd' m construction. It needed to be. If Great 
 Britain had gone under, the war would have been ended before we could 
 have gotten into it. It was during those dark days that it was stated in 
 the House of Commons that if submarine losses continued to be sustained 
 without replacement, Great Britain would be in deadly danger within six 
 months, and ruined in nine. 
 
 Lord Northcliffe, who knew the seriousness of the situation, and 
 delivered a number of speeches in many States urging the great necessity 
 for ships, was here at that time and called on me frequently to find out 
 what progress we were making. Everyone realized that unless we could 
 build ships faster than the submarines were sinking them the war would 
 be lost, for we could not feed the Allies and our soldiers, nor supply them 
 
with munitions. And, gentlemen, it was not a question of what kind of 
 ships should be built. Any kind would do concrete, wood, steel, or 
 anything else. And it was not a question of price. It was a question of 
 getting the ships. What has been accomplished in this direction the world 
 knows, and I am not going to dwell on it extensively, but I wish to say 
 that the men I asked to join our organization, like Mr. Schwab, Mr. 
 Rosseter, Mr. Franklin, and Mr. Piez, did great work, and the workmen 
 in the yards accomplished wonders. We built up a hurried organization 
 with the biggest men we could find, and there was no thought about who 
 was going to get the credit. We knew that if we succeeded the country 
 we were serving would get the benefit, and that was incentive enough 
 for any man. 
 
 Facts About the Wooden Ships. 
 
 We have heard a great deal of criticism about the wooden ships. We 
 all know that for most of the needs of modern ocean trade wooden ships 
 are not as good as steel ships. There is no secret about that, and during 
 the war you did not hear many protests against the building of wooden 
 ships. We now have 115 wooden ships in service. We originally con- 
 tracted for 703 of these vessels. We have cancelled and suspended 214 
 contracts. We are not now equipping the hulls that are finished, with 
 engines and boilers. We are finishing off some of them as sailing vessels 
 and some as barges. In general, we are handling the matter along business 
 lines, and in this connection I would like to relate an incident that occurred 
 in England in connection with the British building wood ships. 
 
 Mr. Lloyd George insisted that the British should build wood ships 
 in Canada, in Australia, and in England, and a committee of British 
 shipping men called upon him and protested against the Government's 
 spending of money on wood ships, making the claim that they were not 
 as effective as steel ships, etc. After listening attentively to their protests, 
 Mr. Lloyd George made this statement: "Gentlemen, all you say about 
 the wood ships being inferior to steel ships is undoubtedly true, and under 
 ordinary conditions I would be governed entirely by your judgment. But 
 we are now at war, and we cannot win the war without ships, whether 
 they be wood, steel, or any other kind. If these ships will make but two 
 or three trips, build them. We must have ships." 
 
 The wooden ships we have will make many trips, and as an emergency 
 ship they have been of great service. Although they are not suited to 
 compete with fast steel liners in the trans-Atlantic trade, they will continue 
 to be of service in trades where they are suitable. The existing world 
 shortage of tonnage is sufficient guaranty of this. Insofar as seaworthi- 
 ness is concerned, I wish to point out that while we have sustained four 
 total marine losses among our wooden ships, we have sustained five among 
 our steel ships. Of these total losses, one wood ship and one steel ship 
 foundered at sea in heavy weather, so that on the score of seaworthiness 
 the honors are even. The other total losses were due to stranding or 
 collision, accidents as likely to happen to a steel ship as to a wooden ship, 
 and which have no bearing whatever on the question of seaworthiness. 
 At any rate, if this war had gone on until 1920 the wood ships might have 
 made it possible to have won the war, and then no one would have criti- 
 cized the policy of building wooden ships. 
 
 As Senator Duncan U. Fletcher, Chairman of the Senate Committee 
 on Commerce, recently told the members of the Merchant Marine Confer- 
 
 ,9343? 
 
ence, it was time to build ships out of anything that could be used for ship 
 construction, to build ships out of wood, out of concrete, out of steel, out 
 of anything that could float out of anything that could carry men over- 
 seas and keep them supplied with food and ammunition. It had to be 
 done then. And it had to be done quickly. There was no time for 
 temporizing. I will quote you a paragraph from the Senator's address. 
 He says: 
 
 Lives and Money Saved. 
 
 "You couldn't wait and say, 'Hold on until things stabilize themselves ; 
 hold on until we get to normal conditions. We will then save a few 
 thousand of Uncle Sam's money.' Millions of lives and millions of money 
 were saved by doing the very things that were done ; by hurrying up this 
 program and building ships night and day; by letting the world know 
 we had the most stupendous building plants on earth ; that we had the 
 men, we had the money, we had the material ; that we were going to carry 
 bur forces overseas, and with them their supplies ; that we had two and a 
 quarter million men over there, two million more in training here, and 
 thirteen million registered and ready to go. 
 
 "And when Germany saw that she ran up the white flag." 
 
 I want to mention here one thing that I believe had more to do with 
 arousing our country to the necessity of building ships than any other 
 one thing, and that was our campaign for volunteers. While the people 
 of the country knew of the heavy losses of tonnage from submarine 
 sinkings, they did not understand the seriousness of the situation. Our 
 people, not understanding, were not supporting us in the way they should. 
 Their thoughts were on their business and their sons, who were going into 
 the training camps and sailing for Europe. 
 
 Feeling that some step should be taken to create a spirit of enthusiasm 
 in the hearts of the mechanics and workers, as well as the people in 
 general, we introduced a plan whereby we were to raise an army of 
 250,000 patriotic workers to serve in the shipyards. We limited the time 
 for this enrollment to ten days, and I am happy to say at the end of that 
 time 285,000 men throughout the United States had volunteered to leave 
 their homes and families and report for duty at the various shipyards 
 when we notified them to do so. The effect of the enrollment of the 
 workers and the educational campaign was that within nine months we 
 had increased the number of employees in our shipyards from 45,000 to 
 380,000 ; had built 65 new shipyards ; had the entire country back of our 
 program, and in one day, the Fourth of July, launched 96 ships. 
 
 Credit Due Shipyard Workers. 
 
 This message was conveyed to General Pershing, and there is no 
 question but that it heartened him and every soldier and imbued them 
 with the knowledge that the American people Were back of the ship- 
 building program, and that the ships would be furnished to help them 
 carry on the work of aiding to win the war. I am sure that it also 
 heartened all the Allies. The men deserving of the credit for this great 
 success are the workers in the shipyards, and the enthusiastic people back 
 of them. Every newspaper, every magazine, every moving-picture thea- 
 tre, and the 4-minute men organization, consisting of 20,000 speakers, 
 were used to impress upon the people the need for the construction of 
 ships with the greatest possible speed. 
 
 4 
 
We have part of our foreign fleet built, while we are constructing 
 more. We shall have authorizations and appropriations to finish if Con- 
 gress gives us the money we ask, which I feel confident they will. We 
 shall have completed ocean-going ships, not lake or coastwise ships. I 
 am only referring to ocean-going steamers adapted to foreign trade. The 
 world war has broadened our vision so that we think nothing today of 
 distance. We are now thinking not only nationally, but internationally, 
 and we must think internationally if we are going to be a factor in the 
 world's game. 
 
 Plan of Ship Operation. 
 
 When I last addressed you, it was my privilege to outline to you 
 the American shipbuilding program. Tonight I desire to present for 
 your consideration an American ship-operating program. The opera- 
 tion of a fleet of 16,000,000 tons of ships, 70 per cent of which is owned 
 by the Government, is a problem that should be carefully considered 
 from every angle, and in presenting this plan for your best thought, 
 I feel I should say that the Government, without unnecessary delay, 
 must take a prompt and definite step in giving legislative form to this,' 
 or some other policy which will meet with the approval of the country. 
 
 While the war was on, the recital of shipbuilding achievement 
 found a quick and ready response from an enthusiastic public. There 
 is less glamour and glory in the work of evolving a policy which will 
 keep these ships under the American flag, and develop our commerce, 
 but this work touches the life of the nation almost as closely as the 
 emergency shipbuilding program. 
 
 Upon the development of our foreign commerce will depend in a 
 large measure the prosperity of all the American people, the employ- 
 ment and happiness of labor, and the respect of the nations which 
 compete with us. I am personally opposed to government owner- 
 ship, except as a last resort. During the war, it was necessary for 
 the government to build a merchant fleet. Private capital never 
 could have accomplished this colossal task, involving the creation of 
 many new shipyards, and the training of a large army of workmen. 
 
 Government ownership of this large fleet resulted automatically. 
 If we are to return to private ownership, the transition must be made 
 under such conditions as will completely safeguard the interest of the 
 public. If this fleet, built at government expense, were to be used 
 now merely for the advantage of groups of ship-operators, with suffi- 
 cient capital to purchase the ships from the Government, I would 
 unhesitatingly advocate the retention of the whole fleet by the Gov- 
 ernment. 
 
 Want No Overcapitalization. 
 
 The problem is quite as complex as the railroad problem. Its solu- 
 tion is vital to the welfare and prosperity of the nation. Private 
 ownership unquestionably offers an inducement to American energy 
 and skill, but one of the phases of unrestricted private control, which 
 caused me considerable concern, was the possibility that under such 
 control, ships would be overcapitalized as were many of the rail- 
 roads. We want the initiative and skill of American ship operators, 
 
but we want no watered stock. We want to avoid the stagnation that 
 sometimes comes from red tape and bureaucracy, but we want no 
 profiteering or exploiting. 
 
 We want the new fleet used for the benefit of the people of the 
 United States and not against their larger interest. We want it 
 used far the development of the nation's commerce, and not merely 
 for the development of the private fortunes of ship-operators. 
 
 No one will deny that our foreign trade, or the operation of 
 American ships, will decline unless there is a profit for the men who 
 invest their money. But whatever assistance the Government is 
 willing to render, should be reciprocated by those who are benefited. 
 Therefore the nation's shipping policy should certainly provide for 
 such governmental representation as will guarantee a square deal to 
 the public. 
 
 I think the whole nation is agreed that there must be no more 
 scandals of overcapitalization in any part of American industrial or 
 commercial life. The ships built by the nation should never be made 
 the basis for any stoQk-jobbing scheme. I think the nation will see 
 to it that they are not so used. 
 
 Protection for Small Operator. 
 
 If there is to be any monopoly, moreover, it must be a government 
 monopoly. If there is to be private initiative, the field must be kept 
 open to the small operator, whose opportunity to compete with the 
 large operator must be protected by the Government. The mere 
 possession of large capital must not give the larger operator an oppor- 
 tunity to drive the smaller man out of business. In the plan I am 
 ready to submit for the best thought and impartial discussion of the 
 country, I believe you will find .that the fundamental American 
 theory of encouraging competition on fair terms is amply safeguarded. 
 
 When we recognize the precautions that must be taken to safe- 
 guard the interest of the public, there is no further need for hesita- 
 tion in meeting a large problem in- a large way. 
 
 It is my hope that the people of America will view the problem 
 broadly. The men who earn their livelihood from the operation of 
 ships naturally will feel that they are chiefly concerned. The men 
 who build ships also have a very large interest in it. Our first thought, 
 however, must be of the effect of any inadequate solution upon the 
 hundred million people who compose the United States. Their 
 interest must come first. 
 
 In my judgment, any policy which does not encourage the build- 
 ing and the extensive operation of ships under the American flag 
 will not satisfy the American people. I believe that a sound policy 
 can be put into the form of legislation and that it will then form a 
 permanent foundation on which further improvements, as the need 
 for them appears, can be erected. 
 
 Ships Now Owned by Government. 
 
 The United States Government now owns 555 ocean-going steel cargo 
 ships aggregating 3,385,475 deadweight tons. In addition it has under 
 contract 1,336 similar vessels of 9,275,006 deadweight tons. If our present 
 program be carried out, there will be tinder the American flag next year 
 
 6 
 
i6,73 2 >7 deadweight tons of ocean-going steel cargo and passenger ships. 
 This fleet will be the equivalent of almost half the merchant tonnage which 
 plies the seas today under the flags of all nations combined. The Gov- 
 ernment will own about 70 per cent of it. 
 
 The economic importance of this great fleet would be difficult to over- 
 estimate. Upon its successful operation under a sound financial and 
 administrative plan by vigilant, courageous men who have the interest of 
 American industry and commerce at heart, depends more than upon any 
 other factor the future development of our overseas trades, and of the 
 domestic industries which feed it. Therefore, while the clouds of war 
 disperse and the conditions of the new era begin to unfold, I desire to 
 invite your attention to a digest of the various plans which have been 
 suggested, and to submit to you the plan which seems to me for the best 
 interest of the whole country, for the disposition of the Government's 
 ships, and for the development of the American merchant marine. 
 
 Different Plans Suggested. 
 
 The plans which have been considered range between Government 
 ownership and operation on the one hand, and unregulated private owner- 
 ship and operation on the other. In general, they fall into one or more 
 of the following classifications: ^ 
 
 1. GOVERNMENT OWNERSHIP AND OPERATION: 
 Under this plan, title to all vessels nozv owned by the Government 
 would remain in the Government, and their operation would be con- 
 ducted by Government employees and agents. The adoption of this 
 plan would necessitate the permanent establishment of a Government 
 operating force with branch offices and agencies in every port of the 
 world. Cargoes wid passengers would be booked by the Government 
 representative, and the accounts would be cast up at the central 
 operating offices in Washington. 
 
 2. GOVERNMENT OWNERSHIP AND OPERATION FOR 
 THE BENEFIT OF THE GOVERNMENT THROUGH THE 
 MEDIUM OF A PRIVATE CORPORATION: This, in effect, does 
 not differ from operation directly by the Government, except that 
 under such a plan Government operation might be more easily admin- 
 istered, and some of the inertia inherent in governmental undertakings 
 might be overcome. 
 
 3. GOVERNMENT OWNERSHIP AND PRIVATE OPER- 
 ATION FOR GOVERNMENT ACCOUNT: Under this plan the 
 Government would retain its ownership, but private companies would 
 be employed as agents on a commission basis to operate the vessels 
 for Government account. 
 
 4. GOVERNMENT OWNERSHIP AND PRIVATE OPER- 
 ATION FOR PRIVATE ACCOUNT: This would mean the reten- 
 tion of Government ownership under a leasing system by which the 
 vessels would be leased or chartered to private steamship companies. 
 After paying the charter hire to the Government, the operator would 
 keep the rest of the earnings. 
 
 5. OWNERSHIP BY A SINGLE PRIVATE CORPORA- 
 TION: Under this plan title to all vessels would be placed in one 
 large private corporation, the stock of which ivould be sold to the 
 
 7 
 
public, the Government, if it chose, guaranteeing a fixed return on 
 the stock. This would entail the centralization of the ownership and 
 operation of the ships now owned by the Government in one large 
 unit. If the Government guaranteed a fixed return on the stock, the 
 result would be that the machinery for the ownership and operation 
 of the fleet would be practically identical with that suggested in plan 
 No. "2," but with the modification that the Government would carry 
 any losses which might be incurred without receiving the benefit of 
 any profits which might be earned. 
 
 6. PRIVATE OWNERSHIP AND OPERATION: Lastly, the 
 vessels can be sold to private companies, to be operated by them 
 entirely for their own account, the Government thus relinquishing 
 all interest and control. 
 
 Arguments in Favor of Government Ownership. 
 
 The argument in favor of Government ownership and operation is 
 that this great fleet, which has been created with taxpayers' money, should 
 he used for national purposes ; that the ships have not been built to earn 
 profits as ships, but to become the servants of the nation which built them. 
 It is urged that they should be used to develop the commerce of the nation 
 as a whole, and that they should, if necessary, be placed in trade routes 
 which may temporarily prove unprofitable, but ultimately become of great 
 value to the nation as an instrument through which its foreign commerce 
 can be increased. 
 
 Private companies would not be disposed to serve the national interest 
 in this way. The life of a ship is comparatively short. Its owner must 
 make it pay today. He cannot be expected to take a loss today in order 
 to build up a commerce which will become a source of profit only after 
 the ship now engaged in that commerce has been scrapped. The great 
 need of this country is that new trade routes should be established, and 
 it is urged that Government ownership and operation should be retained 
 as a guaranty that all ships will serve the nation as a whole and not a 
 limited class of private shipowners. 
 
 A further argument in favor of public ownership and operation is 
 that in case of a national emergency such as has just been experienced, 
 the Government would be in a position immediately to convert its mer- 
 chant fleet into a military weapon. 
 
 Arguments in Favor of Private Ownership. 
 
 The chief argument in favor of private ownership and operation is 
 that a successful merchant marine depends not so much on ships, or 
 money, or Government aid, as it does on the existence of a large class of 
 alert, resourceful and energetic men engaged in the shipping business. 
 Mere mechanical efficiency of sjiip and shore plant, added to sound 
 financial backing, is not enough. The man who enters the shipping 
 business enters a battle against the wits of the world. He must have a 
 genius for shipping. Fortunately the men now engaged in the shipping 
 business in the United States are of that character. But there are not 
 enough of them. We need many more. And it is clear that the number 
 of such men can be greatly increased only, under conditions of private 
 initiative. The shipping business is a business of infinite detail and infinite 
 technique ; yet it calls for great courage and \vide-ranging imagination. 
 
 8 
 
The formalities necessarily surrounding Government operations are not 
 suited to the successful conduct of a shipping venture, requiring quick 
 decision, sudden reversals of policy, and the assuming of great hazards. 
 The successful shipping man in an emergency consults no book of rules. 
 He consults only his wits. So, it is contended, that only under private 
 operation may we expect a further increase in the number of small, inde- 
 pendent, skillful ship operators which we shall need more and more as the 
 American merchant marine expands its activity upon the seas. 
 
 Furthermore, the establishment of a merchant marine under the 
 American flag must take into account the difficulty of securing return 
 cargoes. If ships must be brought back in ballast, the business cannot be 
 profitable. In order that a round trip may be made without a considerable 
 portion of it being in ballast, it may be necessary to engage in a triangular 
 or polygon voyage. In order profitably to carry a cargo from New York 
 to Australia, it may be necessary also to carry a cargo from Australia to 
 Japan; thence a cargo to the Cape Verde Islands, with the short return 
 trip in ballast to New York. Such operations require a degree of special 
 negotiation and freedom from control to which Government operations 
 are entirely unsuited. They cannot be standardized. No rule can be laid 
 down which a Government employee could follow, for the conditions are 
 constantly shifting, and in this tramp business the competition of the 
 whole world must be met, facility with facility, and rate with rate. 
 
 Recommendations. 
 
 A careful consideration of these arguments has led me to the 
 conclusion that the ships should be sold to and operated by 
 American citizens under no restrictions other than the terms of 
 the bill of sale and the fixation of maximum freight rates, either 
 as provided in Section 18 of the Act approved September 7, 1916, 
 or as may be agreed by the Government and the operator in 
 specific instances. 
 
 The ships should be sold at a price which fairly reflects the 
 current world market for similar tonnage. 
 
 Twenty-five per cent of the purchase price of each ship should 
 be paid down, the remainder falling due and payable in graded 
 annual instalments over a period not exceeding ten years. The 
 Government should take and hold a mortgage for the unpaid 
 balance, charging interest thereon at the customary commercial 
 rate of five per cent. One-fifth of this interest, representing the 
 difference between the customary Government interest of four 
 per cent and the customary commercial rate, should be paid into 
 a Merchant Marine Development Fund to be described hereafter. 
 
 The purchaser should be required to agree to insure and keep 
 insured with an American Marine Insurance Company, his equity 
 in the vessel, and because the American marine insurance 
 market has not at present sufficient resources to underwrite all 
 the vessels the Government has to sell, the Government should 
 carry in its own fund, as at present, but for purchaser's account, 
 hull and machinery insurance covering that part of the vessel for 
 which payment has not been made. Our experience in operation 
 shows that the Government can carry this insurance for at least 
 one per cent less than the open market rate. However, it is pro- 
 posed that the open market rate be charged, and that the differ- 
 ence be paid into the Merchant Marine Development Fund. 
 
It is understood that no transfer of a vessel to foreign registry 
 should be permitted without express permission of the Govern- 
 ment. 
 
 Each purchaser who wishes to operate in the foreign trade 
 should be obliged to incorporate under Federal charter, the neces- 
 sary legislation for which should be passed by Congress without 
 delay. Such a charter should provide that no stock shall be issued 
 in excess of the money value actually paid in on vessel prop- 
 erty, and that no st6ck .can be issued or transferred to an alien. 
 
 It should also provide that one member of the Board of 
 Directors for each company shall be named by the Government. 
 This director should draw no salary, either from the steamship 
 corporation or from the Government. He should receive only the 
 customary director's fee for each meeting he attend^. 
 
 The same legislation should provide for periodical meetings 
 of these Government-named directors, in. the City of Washing- 
 ton, where they will constitute an official body which will confer 
 with and advise the Shipping Board, or other designated Govern- 
 ment agency, upon problems arising in, or questions affecting the 
 welfare of, the American Merchant Marine, including the admin- 
 istration of the Merchant Marine Development Fund. 
 
 This fund, drawn from the sources previously indicated, 
 should be used to relieve such financial difficulties as may be 
 encountered in the development of an adequate and well-balanced 
 American Merchant Marine. For instance: 
 
 It is foreseen that a number of trade routes important to the 
 immediate or future welfare of American commerce must be 
 established and developed. Some of these routes may not yield 
 steamship operating profits until their existence shall have 
 attracted an increased volume or better balance of trade. Revenue 
 derived from the carriage of mail, and possible fees for the train- 
 ing of seamen and cadet-officers, may partly compensate losses 
 incurred on these routes. Still, in cases where the Government 
 sells a ship upon condition that it be operated in a route which 
 may not prove profitable at once, it will be necessary to provide 
 for the paj'ment of defaulted interest from the Merchant Marine 
 Development Fund, in the discretion of the Shipping Board or ' 
 other Government agency, upon recommendation of the Board 
 of Government Directors, until such time as the route may begin 
 to yield profit. When the ships in the route earn their annual 
 interest rate and a profit, one-half the profit earned each year 
 should be paid into the Merchant Marine Development Fund 
 until all moneys draw from the fund on account of the vessel in 
 question shall have been replaced. The other half should go 
 annually to the steamship stockholders. 
 
 Such vessels cruising in routes which fail to prove susceptible 
 of profitable development and which do not serve any purpose of 
 the Government of the United States, may be transferred by the 
 Government to other routes. However, should the Government 
 become convinced that any vessel has failed to make expenses 
 solely or chiefly because of incapable management, it may fore- 
 close its mortgage on that vessel. 
 
 10 
 
On the basis of one billion dollars' worth of ships, the Mer- 
 chant Marine Development Fund would be fourteen million dol- 
 lars. This amount, investigation convinces me, would be more 
 than sufficient to care for all deficiencies likely to develop during 
 this period. 
 
 Until sold under the terms just stated, all vessels should re- 
 main the property of, and should be operated by, the Government 
 of the United States. 
 
 Control of Rates. 
 
 Taking up these points seriatum, I wish to enlarge and comment upon 
 them as follows : 
 
 In order to make sure that the American Merchant Marine will be 
 operated with due regard for the interests of American industry and 
 commerce, it is necessary to exercise control over the maximum freight 
 rates which may be charged in regular trade routes. 
 
 Sections 16 and 17 of the Act approved September 7, 1916, provide 
 remedies for unjust discrimination by American shipowners against any 
 American shipper or port, aricl they also forbid the collection by common 
 carriers in foreign commerce of any rate unjustly prejudicial to American 
 exporters as compared with foreign exporters. Section 18 of the same 
 act authorizes the fixation of maximum freight rates charged by common 
 carriers by water in interstate commerce. 
 
 There remains to be provided means for preventing the impartial 
 imposition of unjustly high rates upon all commerce moving into or out 
 of the United States. This is manifestly beyond the power of legislation 
 at the moment, and it is proposed to secure such control by agreement 
 inserted in the bill of sale under which the ships are released, and by 
 making such control a condition of participating in the benefit of the 
 Merchant Marine Development Fund. 
 
 The Selling Price of the Ships. 
 
 It has been recommended that the ships be sold at prices which fairly 
 reflect the world market for similar tonnage. If a higher price were 
 fixed the purchaser would not be able to compete with the ships of 
 other nations carried at a lower rate. If a lower price were fixed 
 Government property would be sacrificed, and at the same time a blow 
 would be struck the American shipbuilding industry by the low value at 
 which ships in operation would be carried on the operators' books. The 
 sale of tlje vessels at the world market price would be fair to operator 
 and builder alike. Also, it would automatically fix the write-off which 
 must be made on account of the excessive and necessary war-cost of 
 the ships. 
 
 Terms of Sale. 
 
 A substantial payment should be required upon the delivery of the 
 ship. The best interests of the Government, the operator, and the Amer- 
 ican Merchant Marine demand that this initial payment should be at least 
 25 per cent of the price of the vessel. Subsequent payment should be 
 made as follows : 
 
 ii 
 
Beginning of the first year (initial payment) 25% 
 
 " " second " 10% 
 
 " " third " 9% 
 
 " " fourth " 8% 
 
 " " fifth 8% 
 
 " " sixth " 8% 
 
 " " seventh " 8% 
 
 " " eighth " 8% 
 
 " " ninth " 8% 
 
 " " tenth " 8% 
 
 This schedule provides for the payment of 60 per cent of the purchase 
 price in the first five years, and 40 per cent during the last five years. 
 Such payments would establish the purchasing companies on a firm basis, 
 and would serve to discourage any purchaser who might contemplate 
 reaping large profits during the first two of three years, with a mental 
 reservation to retire as soon as present high freight rates decline and 
 profits cease to be abnormal. At the same time these terms are not so 
 severe as to call for any financial assistance beyond that which usually is 
 accorded reasonably well-managed commercial enterprises in this country. 
 
 It is important that all ships be sold on these terms, and on no others. 
 If we were to deviate from this principle we would place the big, powerful 
 and experienced operator in a position of such great advantages that new 
 blood and brains hardly would dare venture into the business. The 
 American Merchant Marine needs enterprising new companies, financially 
 able to begin operations only upon a small scale, but determined to grow 
 to great size and prosperity by dint of perseverance and grit. This is the 
 way new industries on shore have become mammoth in less than a gener- 
 ation, and it is largely upon the application of the same genius and methods 
 in this new field that we may safely rely to enable our inexperienced 
 people to drive their way to success upon the sea. 
 
 Insurance. 
 
 Simultaneously with the purchase of a vessel, the purchaser should 
 be required to provide hull and machinery insurance for his equity with 
 an American Marine Insurance Company. As additional payments are 
 made, the equity they represent should be insured in the same manner, 
 until a hundred per cent of the hull and machinery insurance has passed 
 into the hands of private American insurance companies. This arrange- 
 ment would achieve the double purpose of relieving the Government of 
 the insurance risks which the exigencies of war have compelled it to 
 assume, and of making possible the development of an American marine 
 insurance market capable of carrying insurance on all the vessels under 
 the American flag. The history of our Merchant Marine shows conclu- 
 sively that it is essential for American shipowners to insure their ships 
 with American marine insurance companies. An American marine insur- 
 ance market is as vital a necessity to an American Merchant Marine as 
 is American capital to the steamship companies which constitute it. 
 
 That part of the equity in each ship which is covered by the Govern- 
 ment's mortgage should continue to be insured in the Government's funds, 
 as at present. As the payments progress, however, this equity will 
 decrease, until at the end of ten years, the Government will have no more 
 need of carrying any insurance. Additional legislation will be needed to 
 
 12 
 
enable the Government to carry this insurance beyond the emergency 
 period now authorized by law. 
 
 The Merchant Marine Development Fund. 
 
 It has been indicated that this plan contemplates the setting aside of 
 certain moneys representing the difference between the customary com- 
 mercial charges for interest and insurance and the rates at which the 
 Government, in virtue of its peculiar position, is enabled to charge. In 
 the matter of interest, it has been shown that this difference would be 
 i per cent, which represents the advantage over the customary commercial 
 rate of 5 per cent which the Government can concede without loss in view 
 of the fact that 4 per cent is the rate which approximates the interest the 
 Government is accustomed to pay for money it borrows. In the matter 
 of insurance, the experience of the war period indicates that the Govern- 
 ment can safely carry vessel insurance at more than I per cent below the 
 commercial market rate. 
 
 As heretofore stated, the money derived from these two sources will 
 amount to $14,000,000 the first year. Expert shipping men have carefully 
 computed that this sum will be double the amount needed to meet any 
 contingency likely to arise. This money should be paid into the hands 
 of the Shipping Board, or other designated Government agency, as 
 trustee, to be used as may be necessary for the development of the 
 American Merchant Marine. 
 
 A good idea of the resources which this plan provides for financing 
 the development of the American Merchant Marine can be gathered from 
 the following table. It is assumed that the money will be placed in an 
 approved depository where it will draw interest at 2 per cent, compounded 
 semi-annually. Remembering that any disbursements which may be made 
 during the first few years will be returned during the last few years, it 
 will be seen that the size of the fund for the ten-year period will be 
 $83,533,170.70. 
 
 TOTAL ACCRUALS TO MERCHANT MARINE DEVELOPMENT 
 FUND DURING TEN-YEAR PERIOD 
 
 Period Deposits Interest Total 
 
 ist Year $7,500,000 $150,750.00 $7,650,750.00 
 
 2d 14,000,000 435,180.08 22,085,930.08 
 
 3d 12,100,000 687,137.19 34,873,067.27 
 
 4th 10,400,000 909,988.64 46,183,055.91 
 
 5th 8,800,000 1,105,159.42 56,088,215.33 
 
 6th r 7,200,000 1,272,093.12 64,560,308.45 
 
 7th 5,600,000 1,410,222.20 71,570,530.65 
 
 8th 4,000,000 1,518,967.67 77,089,498.32 
 
 9th 2,400,000 i,597,738.9i 81,087,237.23 
 
 loth 800,000 1,645,933.47 83,533,170.70 
 
 Total $72,800,000 $10,733,170.70 
 
 The purposes for which this fund may be drawn upon and the condi- 
 tions under which operators will be entitled to aid have already been 
 indicated. It is impossible at this time to go into greater detail, except to 
 say that in view of the peculiar character of the ship-operating business 
 
 13 
 
and the extraordinary trade conditions likely to prevail during the next 
 five years, the trustee should be allowed to use considerable discretion in 
 the administration of the Merchant Marine Development Fund. Also, it 
 is important to point out that, although new accretions to the fund will 
 diminish year by year, the amounts returned to it by the companies which 
 have weathered the stormy periods of their careers can be relied upon 
 to keep it practically intact. The only losses which need be considered 
 are such as may arise through foreclosures executed against companies 
 which, despite the aid of the fund, have failed to earn their charges. 
 
 It cannot have escaped notice that the assistance I propose to render 
 with the Merchant Marine Development Fund takes the place of the 
 Government backing for the development of new trade routes in the 
 national interest, which is the strongest argument brought forward by the 
 advocates of a Government-owned and operated Merchant Marine. Yet 
 not one cent of this fund is drawn from the public treasury. Instead, the 
 money represents profits forborne by the Government, which is not entitled 
 to earn profit while engaged in developing the industries of its people. 
 Neither can it be said that the money will be taken from the steamship 
 business, for in no case will the operators be charged more than the 
 current market rate for similar service, whether the service rendered be 
 insurance or credit. 
 
 The Government Directors. 
 
 .* 
 
 The functions of the Government Directors mentioned in connection 
 with the Federal charter under which our steamship companies should 
 operate will be of utmost importance. The provision which prohibits 
 their drawing a salary automatically insures that no great number of them 
 will be men whose interests are centered in the steamship business. Al 
 Jihe same time, the provision that the Government shall name them insures 
 that they will be men of standing, sympathetic with American interests, 
 and alive to the public-service character of the steamship business. Upon 
 these" men the American Merchant Marine will rely to bring about that 
 co-ordination of effort which will insure healthy conditions within each 
 corporation, clean business methods, and, in short, will put each operating 
 unit on its mettle, both in its own interest and in the interest of the 
 American Merchant Marine as a co-operative whole. 
 
 These Government Directors, accompanied by members of the oper- 
 ating companies' boards, should meet in Washington quarterly, or at 
 other stated periods. They should form a permanent organization and 
 establish permanent offices. These offices should be the point of con- 
 tact between the operating companies and the Shipping Board, or other 
 designated Government agency. -They should be the clearing house for 
 the operators' periodical statements, and they- should be in charge of a 
 secretary who is paid a salary from the Merchant Marine Development 
 Fund. 
 
 Immediately upon convening in Washington the Associated Directors 
 should appoint from among their membership a sufficient number of 
 committees to handle all the important problems of steamship operation. 
 There should be a committee on trade routes, a committee on freight 
 rates, a committee on finance, and a committee on organization. These 
 committees should be subordinate to an Executive Council composed of 
 five members who should remain in session after the general meeting 
 of all the Associated Directors, in order to digest the proceedings and 1 
 
 14 
 
recommendations oj the meeting and present them in proper form to the 
 Shipping Board, or other designated Government agency. 
 
 After consultation with, and upon the recommendation of, the Asso- 
 ciation of Directors, the Shipping Board, or other designated Government 
 agency, would 
 
 (a) Determine what assistance, if any, should be given from the 
 Merchant Marine Development Fund. 
 
 (b) Establish new trade routes, or modify or discontinue old ones. 
 
 (c) Determine whether or not a defaulting mortgage should be 
 foreclosed. 
 
 (d) Take any steps, or exert any influence, within its power to im- 
 prove the American Merchant Marine. 
 
 New Legislation Required. 
 
 In order to make this plan effective it will be necessary to ask Congress 
 for three statutes. One of these statutes should authorize the incorpora- 
 tion of steamship companies under Federal charter along the lines I have 
 indicated. Another statute should extend the emergency power to carry 
 hull and machinery insurance in the Shipping Board's fund so that this 
 function may continue to be performed by some designated Government 
 agency so long as the Government may continue to hold an equity in any 
 of the .vessels it now owns or has under contract. The third statute, of 
 which I shall speak at greater length, should revise the present status of 
 vessel mortgages so as to make them attractive to bankers and other 
 investors. 
 
 The security of a mortgage may be imperiled by loss or damage to 
 a vessel, or by the attachment of superior liens. Such liens can generally 
 be classed as those arising from debts and from liabilities. The most 
 important ones, resulting from debts, arise from the furnishing of repairs, 
 supplies, or other necessaries in the maintenance and operation of a vessel, 
 including pilotages, towages, port charges, crews' wages, and other con- 
 tractual obligations. Liabilities creating liens result principally from 
 collisions, strandings, salvages, general averages, cargo damages, and 
 personal injuries. Practically all such liabilities can be insured against 
 by the standard form of marine insurance policies, and by protection and 
 indemnity insurance. 
 
 If, therefore, the mortgage contains covenants and agreements to 
 compel the mortgagor to insure against such liabilities, as well as loss 
 from fire and marine peril, the security of the mortgage will only be 
 jeopardized by liens arising from contractual obligations. It is my pro- 
 posal to obtain protection against the latter by amending the existing law 
 so as to assure to anyone furnishing such repairs, supplies, other neces- 
 saries, etc., the opportunity, by exercising due diligence, of obtaining full 
 information by the existence of the mortgage, and then to provide that 
 the lien of the mortgage shall be superior to liens for repairs, supplies, and 
 other necessaries (contractual obligations), etc. 
 
 By this co-ordination of mortgage, covenants, and agreements and the 
 statutes, reasonable and adequate protection can be secured to the mort- 
 gage. I would provide for such notice by requiring that all mortgages 
 be recorded with the Collector of Customs where the mortgaged vessel 
 is registered or enrolled and that the ship's registry or enrollment have 
 endorsed upon its face the names of the mortgagor and mortgagee, the 
 place of record, and the amount secured thereby. 
 
 15 
 
Such record and endorsement would be made a condition precedent to 
 the validity of the mortgage as against all the world save the mortgagor 
 and mortgagee. If then the owner, master or agent of any vessel apply 
 for the furnishing of repairs, supplies and other necessaries, or for the 
 rendition of contractual services (except for the services of seamen) upon 
 the mortgage of- the vessel, the proposed creditor could immediately advise 
 himself of the existence of any mortgage by examining the ship's papers, 
 and could by telegraphic means communicate with the Collector of Cus- 
 toms of the home port of the vessel and ascertain the amount remaining 
 unpaid upon the mprtgage. With this information the proposed creditor 
 could determine for himself the advisability of extending the requested 
 credit. If he did so and a" foreclosure of the mortgage upon the vessel 
 should destroy his security, he would be without grounds of complaint 
 against the superiority of. the mortgage, because he would have f urnished / 
 the credit with full knowledge of the superior lien of the mortgage. 
 
 I would also vest in the United States District Court exclusive juris- 
 diction over the foreclosure of the mortgages, instead of leaving the 
 mortgagees to their present remedy in the State court. This would make 
 the practice uniform and therfeore greatly enhance the security value of 
 the mortgage by providing a speedy and simple method of foreclosure. 
 It would also avoid the inconsistencies, delays and uncertainties of State 
 laws and procedure which now exist. By and large, the enactment of a 
 statute such as I have outlined would make of a mortgage on American 
 vessel property a security fully as good as, and in some respects better! 
 than, a mortgage on vessel property sailing under any other flag on earth. 
 
 The demand for tonnage at the present time is so great that every! 
 available ship, including our wooden ships, is in service. The feeling! 
 among shipping men is that this great demand will continue for at least 
 two or three years. On account of the different variety of service for 
 which wood ships and steel ships are especially suitable, I have not 
 included the wood ships in my plan for the disposition of the steel ships. 
 
 Conclusion. 
 
 In conclusion, I have only to say that thi? ^lan is bas " upon profound 
 convictions formed after a close personal study of conditiu at home and 
 in Europe, and after careful consideration of the best information I could j 
 obtain about what is going on in other quarters of the globe. I have noti 
 permitted myself to be guided by tfte example or methods of other nations, 
 except insofar as it has seemed necessary to take cognizance of the results 
 of their acts and methods as conditions which the American Merchant 
 Marine will have to face upon the waters of the five oceans and seven 
 seas. My one thought has been to work out a plan which would be 
 American in conception and adapted to the ideals, genius, temperament 
 and business methods of the American people a plan sufficiently elastic 
 to serve the enormous extension of overseas trade we have in prospect 
 without having to undergo disorganizing changes. I have just laid the| 
 product of my labor before you. 
 
YC 25A11 
 
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