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16 SPECIAL SUPPORTING STUDY NO. 1 LABOR-MANAGEMENT ASPECTS OF AN IMPROVED U. S. MERCHANT MARINE A. THE NATIONAL PROBLEM Growing foreign competition with U. S. companies continues to present a problem of increasing importance to the economy of the United States. Along with our high standard of living has come a high cost of management and labor. Industrial activities involving relatively large managerial and labor forces—that is, "labor intensive" industries--have been most affected by such foreign competition. The relatively low cost of management and labor in economies with low standards of living, makes it possible for these economies to produce "labor intensive" goods and services at a low enough cost to undersell domestic producers in the U. S. marketplace. In order to preserve or expand those U. S. industries which cannot effectively compete against foreign enterprises in a free market, there are essentially two types of action that can be taken--subsidization or cost reduction. Subsidization may be direct or indirect. Tariffs, for example, are a type of indirect subsidization in which the "bill" is paid directly by the consumer in the form of higher prices for the goods or services involved. Direct subsidies by the Government can be provided through outright grants or payments to cover differences in acquisition costs for capital goods or labor costs (as in the maritime industry), Government con- tracts, preferential legislation, accelerated amortization schedules, and attendant tax advantages. A more constructive alternative to subsidization lies in exploiting the United States' ability to invest capital so as to increase the productivity of labor and manage- ment as, for example, through mechanization and automation. Mechanization involves the replacement of the human being as a source of energy; automation involves the replacement of the human being as a source of control. Automation, like mechanization, increases the ratio of capital expenditure to the costs of labor and management and utilizes the growing inventories of investment capital which are available in our economy. If the volume of consumption is not increased proportionately to the reduction of labor costs, mechanization and automation may result in a reduction of the requirements for labor (but not necessarily for management). On the other hand, if operating costs are not reduced, foreign competition will produce a reduction in the net requirement for U. S. labor and management. Although the economic history of the United States shows that, in the long run, advantages of mechanization and automation accrue to labor as well as to management and the consumer*, in the short run, labor is the most adversely affected. Unemployment and dislocation of labor occur before an adjustment in the work force can be made. At present there is no planned method employed for offsetting these It should be noted that the "consumer" Includes both labor and management.

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17 hardships. It is only natural, in the face of these short-run but intensely adverse effects on labor, that labor should adopt attitudes and policies which are opposed to increased mechanization and automation. It is apparent that the completion of the first industrial revolution (mechanization) and the development of the second (automation) will not be effectively accomplished by either wishful thinking or by permitting the opposing forces to engage in a conflict unregulated relative to public interest. It would seem desirable, therefore, for the Government to recognize its responsibility in this matter by the establishment of an agency to determine ways in which the inevitable transition to increasingly mechanized and automated production may be effected without undue loss to labor. Such activity might be supplemented by similar activity in state and local governments, and within 'the industries affected. The ultimate objective should be to produce governmental administrative policies and legislation which will be directed toward U. S. national economic and social objectives. These comments apply to United States industry generally, but appear to be particularly pertinent to the current maritime situation. The alternatives to a positive program in the maritime industry include continuing subsidy of serious magnitude and probable unsatisfactory side effects, or, alternatively, the loss to U. S. labor, manage- ment, and capital of a major industry with highly undesirable correlative effects on U. S. security, economy, and international position. Whether a similar or related procedure is now desirable in one or more other industries, it now appears essential in the merchant marine. Hopefully, such a program would establish a pattern that could be followed constructively elsewhere, but this prospect is not needed to underline the significance and urgency in the maritime industry. At present the Government, through the Maritime Administration and the Department of Defense, is sponsoring one phase of such a program with the active cooperation of management and labor in the port of San Francisco. This work, being conducted by the Maritime Cargo Transportation Conference of the NAS-NRC, embodies research in deter- mining the effects of increased productivity, either through increased mechanization or improved work practices, upon the work force and upon capital effectiveness. The extension of such programs within the maritime industries might well provide a pattern in which trial designs and new practices involving labor and management cooperation could be developed as an important proving ground for advances in the solution of the national problem. B. THE MARITIME PROBLEM Within the maritime industry the work force includes numerous occupations ranging from the most menial to high order supervision. Essentially, two groups may be identi- fied within the labor force--seamen and longshoremen. Management may be divided into two sub-groups--the steamship operator and the stevedore--who contract with the steam- ship operator for the loading and unloading of the ships. The stevedore is, among other things, a labor contractor for the steamship operator. In contrast to his role as an indirect employer of the longshoreman, the ship operator is the direct employer of seamen. The operator sits at the negotiation table and faces the representatives of the various seamen's organizations. The Government has not been directly involved in the exchanges during negotiation sessions between management and labor. However, since the introduction of subsidy arrangements in the U. S. maritime industry, the Government has been an unseen

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18 committee member at all negotiations involving seamen and management of subsidized operations. Approximately 75 percent of wage payment is already passed on to the Government. Present operating subsidy arrangements tend to remove incentive on the part of management to reduce operating costs; such arrangements contemplate that a substan- tial portion of increasing operating costs will be borne by the Government, without regard to the level to which these costs may rise. Such an arrangement, it would seem, inhibits a positive attitude on the part of management toward technological progress. At the negotiation table labor desires to retain work opportunity and enjoy a wage scale consistent with the general level of other industries. Management, on the other hand, is faced with increasing costs and declining productivity with their resultant increasing unit costs. Management then is motivated by a desire to reduce its unit costs of providing shipping services. C. LABOR'S STAKE Labor has gone on record as not being opposed in principle to mechanization and automation. Labor has also indicated that it expects to receive a fair share of the benefits of automation. There is, however, no unanimity of opinion as to what constitutes a "fair share" and how it shall be passed on to labor. Reductions in the cost of doing maritime business can be accomplished in two ways--either through an increase in productivity with the present work force and equip- ment, or through mechanization and automation. In the maritime industry, this simple choice is not entirely applicable. Seamen, for example, cannot improve productivity, per se; if they work harder at their jobs aboard ship, the unit cost of transportation will not be significantly reduced, nor will the number of ships which will be required to perform such services. Longshoremen, on the other hand, can reduce costs by working harder. However, a program in this direction would be unrealistic. Such a move would represent to the longshoremen a reversion to the old-time "sweatshop" conditions and a loss of gains painfully won over several decades. D. MANAGEMENT'S STAKE The reluctance to embrace automation has not been restricted solely to labor. A substantial portion of maritime management has yet to be convinced that the advantages of technological improvement outweigh the increased capital investment required, in light of the uncertainties of the future. The maritime industry has not been a substantial supporter of research and development; in comparison to other U. S. industries its proportion of gross revenue devoted to research has been small indeed. Inclination toward technological improvement by management will probably best be encouraged by providing some sort of financial incentive to institute such changes. The exact form of these incentives should be studied. Modification of existing subsidy arrangements suggest themselves as one possible device. For example, the Maritime Administration might grant higher construction subsidies for those vessels which embody automated systems. In operating differential subsidy contracts, the amount of subsidy for conventional ships might be fixed at the level required for automated ships. By such

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19 devices, the Maritime Administration might be assured that a more favorable attitude toward automation would be adopted by ship operators. E. TRANSITIONAL PROGRAM It would be premature to suggest specific means by which an effective transition to more mechanized and automated crew and cargo handling procedures might be accom- plished. However, on the basis of current experience in dealing with such problems in the Port of San Francisco, and with corresponding experience in Le Havre and Puerto Rico*, certain possible courses of action suggest themselves as being worthy of further study. 1. The development, production, and installation of advanced equipment is usually a protracted process. Wherever possible, the transition should be made grad- ually so as to take maximum advantage of natural attrition from the available work force. The maritime industry lends itself particularly well to such a procedure since advanced systems must be adopted ship-by-ship and terminal-by-terminal. In view of the high average age of longshoremen in the San Francisco Bay Area (about 53 years) and the small increases to this work force, it is possible that in some areas attrition may be more rapid than can be compensated for by mechanization and automation. This possi- bility must be considered. 2. If the rate of installation of more mechanized and automated systems cannot economically be restrained to the natural attrition rate, an accelerated retirement pro- gram can be instituted and supported by part of the subsidies withdrawn from the oper- ating phases of the shipping industry. In this way a benefit would immediately accrue to labor, and particularly to those workers who have contributed to the industry for the longest periods of time. 3. If even with accelerated retirement the attrition rate is not sufficient, it may be possible to institute a program to retrain and relocate displaced workers within or outside the industry with an eye to the possibility of upgrading the workers affected so that their earning power is increased. Wage insurance for that period of retraining and relocating should be considered as an integral part of the program. Several precedents in principle exist for such a program; for example, public housing legislation requires that persons displaced by construction of new housing projects must be provided with adequate substitute housing to compensate for that which is taken away from them. 4. Those workers who remain in the industry must receive a benefit from the increase in their productivity. This may be accomplished by such things as salary adjustment or increased fringe benefits (or shorter work periods). This listing is only meant to be suggestive and is in no way restrictive. F. ECONOMIC FEASIBILITY If the Government were to continue its current subsidy policy it would aid in the construction and operation of approximately 450 new ships over the next 20 years. The work of Pierre Bonnot, Office of Proportional Wage Studies, Paris, France, in the cases of Le Havre and Puerto Rico; the work of the Maritime Cargo Transportation Conference, NAS-NRC, in the Port of San Francisco.

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zo Most of these would be built in the next ten years. If we conservatively assume that they would be built evenly over the 20-year period, we would have 4500 years of new ship operation to be subsidized. At the current subsidy rate (also conservatively assumed) this would involve $400, 000 per ship year in operating subsidies or a total over the 20-year period of approximately two billion dollars. Funds that could be obtained from the reduction of operating subsidies are of such magnitude as to more than offset such a transitional program. For example, as an unreasonable extreme, consider the following. At present there are approximately 51, 000 employed seamen and 72, 500 longshoremen employed on both subsidized and unsubsidized operations. Even if a transitional program involved the inconceivable displacement of the entire work force at a cost of $10, 000 per man the total cost of this program would be one and one-quarter billion dollars, considerably less than the projected operational subsidy of two billion dollars. Such a transitional program has the additional advantage of reducing the need for further operating subsidies. The additional cost of construction subsidies to cover increased mechanization and auto- mation could be covered at least in part from that portion of the operational subsidies which are freed and not used in the transitional program. In addition, recapture of excess profits on the highly competitive unitized operations would further contribute to reduced net Government expenditures. This example is meant only to reveal order of magnitude, but it clearly demon- strates the economic feasibility of an extensive transitional program financed by the Government. G. NECESSARY RESEARCH A research group should be established in the Maritime Administration to study the labor-management problem outlined herein. The group should consist of competent disinterested researchers. They should be advised by a permanent advisory board appointed by the Maritime Administrator consisting of representatives of the following groups: Federal Government State and Local Governments The Labor Unions Involved Maritime Owners and Operators Consultation should also be made available by a competent scientific agency not associated with any of the above-mentioned parties. This agency should serve to review the technical adequacy of any research that is conducted, whereas the advisory board should evaluate the work in process and the results obtained in terms of its feasibility and desirability. H. RECOMMENDATIONS A program should be developed by the Maritime Administration, with the active participation of representatives of labor and management, which will be designed to encourage and support the development and installation of technological advances in both the subsidized and the unsubsidized fleets with a minimum of transitional diffi- culties to all the parties concerned. This program should provide for the continuous dissemination of information to labor and management on the role of the merchant marine in the national economy and in civil and defense mobilization. It is to be hoped

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21 that through such an information program the attitudes of both labor and management towards technological changes might be significantly improved. Specifically, the program should consider possible changes in current subsidy policies of the Maritime Administration with a view to determining ways in which incen- tives for developing and instituting technological advances may be provided to labor and management. It should also encourage and support activities by ship and terminal operators together with associated local unions in (a) research and development of advanced technological systems, (b) pilot installations, and (c) full-scale installations of such systems. The Maritime Administration should integrate such specific studies with the development of an overall program for the industry. In summary, the required changes in maritime practices will have an obvious and significant impact on every aspect of the activities of labor and management. Increased emphasis should be placed on the importance of labor-management problems in techno- logical advancement. A comprehensive study should be performed under the Maritime Administration's supervision by individuals competent in the labor-management field to develop a constructive and practical program for converting the industry from one that is heavily subsidized to one that is more self-supporting and exemplary in its programs for fairly distributing the benefits obtained through advances to all parties involved. SPECIAL SUPPORTING STUDY NO. 2 TECHNOLOGICAL POSSIBILITIES A. THE UNITIZED SHIPPING OPERATION General cargo ships designed for 20-knot sea speed and using currently available unitized cargo-handling systems can operate profitably and without subsidy in compe- tition with foreign flag ships which use conventional cargo handling systems. The designs are based on: 1. Use of a unitized system of cargo handling embodying increased mechanization and permitting automation, to reduce stevedoring costs and to allow quick turnaround of the ship 2. Increased mechanization and some automation of the ship operation, both on the bridge and in the engine room, to reduce crew 3. Cargo concentration procedures which reduce ship calls at multiple domestic and overseas ports should be adopted in conjunction with the above features. The development of unitized systems of cargo handling is now under way and such systems are being incorporated in a few new ships for the merchant marine. It is con- sidered that these new systems will fulfill the stated requirement of the military services for rapid discharge capability and that they can be adapted to handle military cargo at equally rapid rates.

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22 The basic objective of the designs and systems is to reduce port time and to revise cargo handling methods whereby manual labor by longshoremen in terminals and ships is radically reduced or eliminated. Pre-packed cargo in containers, vans, or on pallets may be moved on or off specially designed ships rapidly and with a minimum of manpower. The use of prestowed units drastically reduces terminal and ship cargo handling time and costs by eliminating the packing of the shoreside vehicle and re- stowing aboard ship, and a repetition of this process at the delivery point. Analysis of loading costs indicates that reductions of 90 to 95 percent are possible as compared with conventional methods. The port time required for cargo handling will be reduced by 75 to 85 percent. The new designs of unitized cargo ships incorporate features allowing maximum exploitation of containers or pallets or a combination thereof. Complete mechanization, while not yet attained, is feasible. The container ships use large-capacity gantry cranes to lift the units on and off the ship, placing them in final stowed position on the ship without horizontal movement. The high loading rate pallet systems use cranes and elevators to transfer the pallets from the dock to the various decks in the ship, and fork trucks to stow the units in the ship. The essential elements of both methods are: Large prestowed units Large capacity high rate handling equipment Little or no manhandling of cargo Elimination of dunnage, and a minimum requirement for cargo shoring and securing The ship required for the unitized cargo system is specially designed to suit the needs of the trade and the cargo system. The basic function of the ship is to carry the cargo efficiently and, in the design, other features may be compromised to meet this requirement. This results in a unitized cargo ship which is somewhat larger, heavier, and initially more expensive than the conventional cargo ship when both are designed to carry the same cargo (weight and cubic) at the same speed. However, fewer unitized ships are required to maintain the same service since the reduction in port time shortens the time for the complete round-trip voyage. The crew currently used on merchant ships is in excess of that required by Government regulations, and is largely governed by the requirements of the maritime unions. The ships can be safely operated with fewer crew, and minor additions in automatic equipment would permit significant reductions in manpower. Technically, a ship can be operated from a central control point in much the same manner as an air- plane, but commercially it is unnecessary to adopt this extreme. It is considered that a reduction in crew from 55 to 35 is now technologically feasible and would make a significant contribution to the economics of the shipping operation. The most effective use of the unitized system for overseas transport is obtained when the units of cargo are assembled at a minimum number of ports by a land transpor- tation system that is designed for that type of service. The ocean freight customs, conference practices, and government regulations may prevent the effective integration of the service. This sometimes has the effect of requiring ship calls at a number of ports many hours steaming time apart, whereas the cargo could be assembled quickly and cheaply by land transportation. These practices should be modified where necessary to permit economic use of the unitized cargo system.

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23 It is recognized that the adoption of the unitized system of cargo handling presents a labor problem, since the resultant automation will displace longshore labor. Based on successful results in some cases, it is considered that a carefully planned program can be developed to protect the interests of the present civilian longshore force during a changeover period. The adoption of a unitized system of cargo handling will also present problems in many countries where the passage of containers or unitized cargo through customs is prohibited. Many countries in Europe, and some elsewhere, now permit delivery direct to the consignee, so that precedents for the necessary changes exist. All cargo on all trade routes cannot be unitized. However, where studies of cargo characteristics on specific routes have been made, they have shown conclusively that • a majority of the cargo can be unitized, and that an additional substantial portion can be handled rapidly, and that with proper design the remaining small quantities of "rough" cargo can be handled expeditiously with the heavy lift equipment that may be required for the unitized system. In order to obtain a clearer picture of the possibilities of the unitized cargo ship- ping operation, a comparison of system characteristics and costs is included in Table II. For comparative purposes it is assumed that a capacity for 10, 000 tons of cargo per week is to be provided on a 3000 mile route (roughly trans-Atlantic) with equivalent services to be furnished by a conventional ship fleet and by a container ship fleet. The weekly schedule will require three conventional ships of 20-knot speed spend- ing 12. 5 days at sea and 8. 5 days in port per round trip, or two container type ships of 21-knot speed spending 12 days at sea and 2 days in port per round trip. The cost of each container ship is about one million dollars more than its conventional counterpart, and each container ship requires 700 containers on the ship, plus another set at each end of the route, or a total of 2, 100 containers costing about $4, 200, 000. However, the capital cost of the two-ship container fleet is slightly less than that of the three- ship conventional fleet. The statistics presented show that for this short haul service, cargo handling costs represent 69 percent of the total transportation costs for the conventional ship, about 36 percent for the subsidized container ship, but only 13 percent for the automated unsubsidized container ship. It should be noted that the unit transportation cost is reduced by about 45 percent using the unitized system. An estimate of revenue has been made in order to compare returns on investment in the three cases. Under the conditions assumed, the conventional ships earned less than five percent on the owner's investment and none on the Government contribution. However, the unitized ships earn a substantial return, 34. 8 percent on the subsidized operation, and 18. 3 percent on the unsubsidized but automated operation. The Govern- ment would recapture sufficient excess profits from the unitized subsidized operation to cover operating subsidies and to repay the construction differential subsidy in a reasonable time. Similar estimates have been made to show that the unitized operation is profitable at greater distances, up to 12, 000 miles round trip.

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24 TABLE II COMPARISON OF CONVENTIONAL, UNITIZED, AND AUTOMATED SHIPPING OPERATIONS Ship Type Type Operation Fleet Capacity, tons cargo per year Number ships Number crew, each ship Cost in U. S. , Millions Each ship Containers per ship Fleet Operating Costs - $1, 000/year Crew wages Crew subsistence Stores and Supplies Maintenance and Repair Fuel Port charges Insurance Subtotal Ship amortization (5%-20 years) Container amortization (f) Total per ship Fleet Cost - Millions/Year Operating Cargo handling (a) Stevedore Other cargo expense Claims Filling containers Total transportation cost Unit transportation cost, cents per ton mile Revenue at $20 per ton, in millions Profit - Millions Investment - Millions Return on investment - (percent) Conventional Subsidized 1, 000, 000 3 55 12. 3 0 36.9 125 50 45 100 385 32 92 Unitized Subsidized 1, 000,000 2 55 13.4 4.2 35.2 125 50 45 107 590 24 96 829 490 (g) 0 1,319 3.96 6. 90 (b) 1.62 (b) . 20 (b) 0 12.68 .62 13. 5 .82 18. 5 (g) 4.45 Unitized and Automated Unsubsidized 1, 000, 000 2 35 13.4 4. 2 35. 2 400 32 45 110 560 24 111 1, 037 540 (g) 535 (g) 2, 112 4. 22 1. 10 (c) 0 0 1.30 (b) 6. 62 . 33 13.5 6.88 19.7 (g) 34.8 1, 282 1, 080 715 3, 077 6. 15 .25 (d) 0 0 .65 (e) 7.05 .35 13. 5 6.45 35. 2 18. 3 (a) Based on 85% full one direction, 50% the other = 675, 000 tons per year. (b) Based on study "Maritime Transportation of Unitized Cargo" prepared by Maritime Cargo Transportation Conference, NAS-NRC, June 1959. (c) Based on one longshore gang per container crane. (d) Based on automated cranes. (e) Based on 50% cargo prestowed by shipper. (f) Based on 5% interest, 10 years, plus 4% maintenance and repair. (g) Based on 50% subsidy on ships and 25% on containers.

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25 B. HIGHER SHIP SPEEDS The highest speed used at present by cargo ships is 20 knots. The present system of subsidies may be adequate to permit profitable commercial operation of automated and unitized cargo ships at 30 knots, depending on size, range, and schedule. A limited number of these ships might be commercially feasible at 3000 to 4000 mile range carry- ing express cargo at premium rates. It should be noted that the trans-Atlantic super- liners under conference regulations charge a 25 percent premium for the fast freight service which they offer. It is technically feasible to build a 40-knot cargo ship for a 3000 to 4000 mile range. Speeds above 40 knots do not seem feasible in the near future without a sub- stantial research and development program. The 40-knot ship is not economical from a commercial standpoint, even with the usual subsidies. C. SPECIAL SHIPS FOR ROLL-ON, SMALL-HARBOR, OR OVER-THE-BEACH USE There appear to be two needs of the military services for limited war readiness that are not being met qualitatively by the merchant marine, (a) a satisfactory method of carrying and discharging wheeled and tracked vehicles, and (b) a small ship (length 450 feet, draft not over 20 feet, capacity 3000 to 5000 tons) that can be used to trans- port cargo overseas at a good speed (20 knots) and discharge rapidly (in eight hours) in small harbors and/or over beaches having slopes steeper than 1 to 15. (This ship type is not to be confused with military beaching ships--for example, the LST's which are considered to have no commercial utility. ) It is possible that the container ships being built by commercial interests could be modified for the carriage of wheeled vehicles provided this capability is given con- sideration in the design stage. Otherwise, the military services should determine the need for carrying vehicles on commercial ships by the roll-on, roll-off method and if considered essential, the Maritime Administration should make every effort to include the roll-on, roll-off capability as a national defense feature in the cargo ship replace- ment program. Also, possibly, the commercial container-type ship which is fitted with heavy- lift gantry cranes could be used to transport small preloaded barges for direct transfer of cargo to the beach. There are small (2000 cargo deadweight tons) unitized cargo ships under consid- eration for domestic service, and while the characteristics are different from those desired by the military services, the basic elements of size and capacity are similar. It appears possible that a compromise design could be made that would be commercially feasible (possibly with some national defense assistance) and would also meet military desires. D. STANDARDIZATION American shipbuilding costs could be reduced somewhat if standardization were adopted to a greater extent. Standard ship designs, while of some benefit, are not particularly recommended because of their inability to satisfy any given owner's requirements, and their tendency toward freezing the state of the art. On the other hand, standardization of such components as machinery, accommodations, and navigation equipment appears to be a feasible method of reducing costs.

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26 SPECIAL SUPPORTING STUDY NO. 3 MARITIME RESEARCH AND DEVELOPMENT PROGRAM* A. GENERAL CONSIDERATIONS Research and development activities of the Maritime Administration should be directed toward two objectives: (a) developing a self-supporting U. S. merchant marine which can compete successfully in the world market, and (b) developing a U. S. merchant marine which will be of the greatest possible use, compatible with commercially sound operations, for national defense purposes under limited war conditions. In view of the relatively high wage standard in the United States, the most promising prospect of attaining objective (a) lies in increased mechanization, or auto- mation, to reduce to a minimum the manual labor involved both in ship operation and in cargo handling. Another approach to attaining a competitive status is through reducing maintenance and maintenance personnel by using improved materials such as plastic joiner surfaces, new protective coatings, non-corrosive metals, etc. Forward-looking operators are vigorously exploring this field, but Maritime Administration research can help. A third possibility of attaining a competitive status relative to foreign merchant fleets is through higher speed, because of its tendency to attract business. However, speed is expensive, and it may be presumed that competing fleets operate at what their analyses show to be the most economical speeds. Nevertheless, Maritime Administration research should include the development of hull forms and propulsive plants suitable for higher sustained sea speeds, and a study of the economic feasibility of these higher speeds. As regards the second objective (military usefulness of the U. S. merchant marine), maritime research and development should be directed toward determining, and improving where possible, the commercial utility of the special features and designs by the military services in merchant ships. The following more detailed recommendations are in line with the preceding general considerations: Because the contents of this special study parallel in many respects the over-all research advisory responsibilities of the Maritime Research Advisory Committee, it is pertinent to repeat that the recommendations of this study, having the status of recom- mendations to the Maritime Research Advisory Committee, are subject to that Committee's review prior to inclusion in its forthcoming advisory report to the Maritime Administration.

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50 B. ECONOMIC PARTICIPATION In considering the economic participation of the U. S. merchant marine, the reference "a substantial portion of our foreign trade" has come to mean 50 percent. Yet, despite the assistance programs in effect since 1936, the U. S. merchant fleet has carried a steadily diminishing proportion of U. S. foreign trade, dropping from 18 percent in 1957 to 12 percent in 1958. In 1957, U. S. merchant ships carried 19 per- cent of our dry cargo trade but only 15-1/2 percent of our tanker trade. Passenger ships assisted by Government subsidy made the best record with 39 percent participation. These figures do not include any foreign flag ships under effective U. S. control. By statute all of our domestic trade is reserved to ships flying the U. S. flag. C. COMPOSITION OF THE U. S. MERCHANT FLEET As of July 1, 1959, there were 1013 ships (including 81 inactive) in the privately owned U. S. flag merchant fleet. Of these, 313 were subsidized. Except for the LIBERTY ships most of the cargo vessels are in the speed range of 14-16 knots. The greatest number of these are in the 10, 000 deadweight ton (DWT) class, although there is a sizable group of T-2 tankers around 16, 000 DWT. The vast majority of these ships were built in the war years 1943-45. Combination and passenger ships present a more even age distribution. Of the 1, 711 merchant ships in the reserve fleet*, the largest group is composed of LIBERTY ships. These are, however, being scrapped at a rate of approximately 100 per year. As of July 1, 1959, 129 had been sold for scrap. As a result of decisions arrived at through the .Maritime Administration-Navy Planning Group no mobilization need is seen for an additional 1000 LIBERTY ships and they will gradually be disposed of over the next ten years. Preservation of these ships has ceased except for cathodic protection of underwater hulls. There are 518 ships considered to be under effective U. S. control, though under friendly foreign flags. Of these, 295 are tankers, 135 are freighters, 81 are dry bulk carriers, and 7 are combination passenger-cargo vessels. Over 200 of these ships, mostly medium and large tankers, were built since World War II. D. SHIPBUILDING AND REPAIR FACILITIES Commercial shipyards capable of building ships of the SCHUYLER OTIS BLAND size, 477 feet in length and 66 feet in breadth, are the smallest considered in U. S. merchant marine mobilization planning. In the 26 such shipyards considered, there are 127 suitable shipbuilding ways. Seventy-eight of these ways have been allocated to the Navy and 49 to the Maritime Administration for mobilization purposes. The Maritime Administration also has four Government-owned reserve shipyards which have a total capacity of 21 shipbuilding ways, about half of which are nonexistent at this time. On the ship repair side, there are currently available a total of 304 drydocks, 115 of which are capable of handling ships In excess of 477 feet in length and 66 feet in breadth. Of the latter, 37 are U. S. Navy-owned docks. In addition approximately 250 ex-military auxiliaries are presently maintained by the Maritime Administration in the reserve fleet.

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51 E. MANPOWER As of July 1, 1959, merchant marine personnel employed aboard active ocean- going U. S. flag vessels of 1000 gross tons or over totaled approximately 51, 000 (12, 000 licensed and 39, 000 unlicensed). These figures exclude approximately 6500 officers and seamen employed under Civil Service aboard Military Sea Transportation Service ships and a seasonal peak of approximately 14, 000 merchant seamen employed on the Great Lakes. These figures represent actual jobs in the current active U. S. merchant fleet. U. S. Coast Guard records contain the names of approximately 250, 000 men holding seamen's papers of one kind or another. These are considered active seagoing men, and so it appears there are sufficient active seamen and officers available to man a merchant fleet at least twice the size of the current active fleet. The problem of obtaining deferment of merchant seamen from a selective service military draft in the event of a major conflict has been worked on but remains unresolved. While the Office of Civil and Defense Mobilization generally supports this proposal, the Selective Service is reluctant to make any exception to a rather firm policy of not exempting any occupational group. In the other major manpower requirement areas of the U. S. marine industry, longshore employment approximates 72, 000 men, nearly two-thirds of whom are in Atlantic Coast ports. Commercial shipbuilding and ship repair yards currently employ in excess of 54, 000 workers, while U. S. Naval shipyards employ in the neighborhood of 75, 000 men. F. SUBSIDY PROGRAM The Merchant Marine Act of 1936 authorized two types of subsidies by which the Government can help to maintain a strong privately owned merchant fleet and a strong shipbuilding and repair industry. The first of these is an operating-differential subsidy payable only to qualified operators engaged in foreign trade liner service on designated essential trade routes. This subsidy represents the difference between actual U. S. voyage costs in certain categories (wages, insurance, subsistence, and maintenance and repair) and comparable costs of foreign competitors. There is, however, provision for recapture by the Government of one-half of profits exceeding 10 percent. Subsidy costs after recapture for the current fiscal year are estimated at $160, 000, 000 covering about 313 ships. With increased voyages for current operators, contracts with new operators, and additional Great Lakes services, it is estimated that operating subsidy costs after recapture will reach $197, 000, 000 for fiscal year 1963, covering 450 ships. The second form of subsidy applies to ship construction. Only ships to be operated in foreign trades are eligible for construction differential subsidy, and the effect again is to equalize foreign and domestic ship-building costs. Thus the U. S. operator is placed on an equal cost basis with the foreign operator who builds his ships at lower cost in foreign yards.

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52 G. SUBSIDIZED FLEET REPLACEMENT The subsidized ships are the hard core of the replacement programs since an operator who wants to renew his subsidy contract must agree to replace his ships before they become overage. The law precludes operating subsidy for a vessel over 20 years of age, special circumstances excepted. Negotiations with most subsidized operators have produced commitments for re- placing 282 of the subsidized ships extending into the early 1970's. In these agree- ments replacement ships have been scheduled so that the 20-year age peak around 1964-1965 is nearly eliminated. The estimated cost of these 282 ships will exceed four billion dollars, with about 50 percent to be assumed by the United States as construction subsidy. In the current fiscal year, funds for the construction subsidy of 16 ships are expected to be available. The Maritime Administration is programming for 34 new ships in 1961, 34 in 1962, and 35 in 1963. On July 1 of this year, 72 merchant ships were under construction or conversion (both subsidized and unsubsidized) in U. S. yards. These contracts aggregated 770 million dollars. H. PASSENGER SHIPS Numerically there exists a small deficit in passenger transport capacity to meet military requirements, according to Maritime Administration-Navy Planning Group studies. However, there are serious qualitative deficiencies, particularly as to speed. Only 16 of the 159 ships in this category are capable of speeds of 20 knots or more. Nearly all of these were built during World War II, and will be 20 years old within the next few years. Vulnerability to submarine attack is significantly reduced at speeds of 25 knots and above, according to the Department of Defense. However, there are today only three U. S. commercial passenger ships capable of these speeds, the CONSTITUTION, INDEPENDENCE, and UNITED STATES. Construction of two new fast superliners was authorized by the Eighty-fifth Congress but funds have not yet been appropriated. I. TANKERS On July 1, 1959, the privately owned U. S. flag tanker fleet consisted of 336 ships, 275 of which were active. Approximately 70 percent were war-built vessels rapidly approaching obsolescence. The problem of the quality of our tanker fleet is compounded by the present depressed state of the tanker market. Tankers on order world-wide are at a record breaking post-war high of 775 vessels, aggregating 26. 6 million deadweight tons. There is a tremendous world-wide tanker surplus which is expected to extend beyond 1963. Eight million deadweight tons are laid up throughout the world. During such periods of surplus tonnage, the high capital and operating costs of U. S. flag tankers render them virtually noncompetitive with foreign flag tankers. There is, therefore, little economic justification for an independent tanker owner to build U. S. flag tankers at this time. A recent report of the Maritime Administration-Navy Planning Group indicates a decided deficiency in U. S. tanker tonnage for mobilization purposes. The report

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53 states, however, that currently scheduled construction will overcome this shortage by July 1962. J. COASTWISE AND INTERCOASTAL TRADES The Government took over all vessels in the coastwise-intercoastal trade during World War II and inland carriers, principally railroads, absorbed their traffic. After the war domestic operations were gradually restored with war-built ships. In the bulk trades, especially petroleum, these ships have generally proven competitive. On the other hand, rising labor costs have prevented dry cargo ships from recovering the pre- war coastwise trade. Since 1939 the deadweight tonnage in the domestic dry cargo ship fleet has declined nearly 60 percent, while tanker tonnage has increased by 35 percent. The pre-war passenger ship has practically vanished from the coastwise and intercoastal trades although two remain in service to Hawaii. Traffic figures indicate that the decline in dry cargo tonnage has occurred primarily in break-bulk trades, where rising costs, particularly in cargo handling, have largely eliminated economic advantages of ocean transport. More than half of every dollar of freight revenue received must be spent for loading and unloading ships. An important exception is to be found in ships designed for loaded freight cars, loaded trailer vans, or packaged lumber. These have effectively met the problem of cargo handling costs. The efficiency of the big-package carriers suggests that techno- logical improvement may provide solution of the problem of cargo costs in handling break-bulk dry cargo. The other primary difficulty in this trade is freight rates. The complaint of the coastwise ship operators is that inland carriers, principally railroads, are permitted to engage in discriminatory rate cutting in competition with water carriers, absorbing the rate reductions by higher rates where there is no water competition. The reestablishment and preservation of this segment of the U. S. merchant marine could prove a vital national asset by increasing the national shipping capability, and by contributing to the economic growth of the United States and a balanced transportation system. K. TRAMPS AND BULK CARRIERS The tramp ship has no fixed itinerary. It picks up cargo where it is to be found for each voyage, usually for a single shipper carrying a bulk commodity. The high U. S. standard of living that affects labor, subsistence and repair costs is the reason the U. S. tramp operator cannot compete. The cost of a U. S. crew alone exceeds the charter hire of a fully manned and provisioned foreign flag tramp in today's market. When war was declared in September 1939, the British, Norwegian and Dutch vessels which had been serving U. S. bulk foreign trade were withdrawn and the German, Italian and Danish fleets were blockaded. By 1941 the volume of foreign flag tonnage entering U. S. ports had dropped to 17 million net tons compared to nearly 33 million in 1939. This reliance on foreign flag shipping and its diversion had serious conse- quences on domestic industrial defense programs.

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54 On July 1, 1959, the tramp segment of the U. S. fleet consisted of only 88 active ships. Here, again, is the case of an important U. S. industry unable to survive against foreign competition without aid. Although a certain amount of support of tramp operations has been provided by the 50-50 cargo preference law, a satisfactory basis for Government subsidy of tramp ship operations has never been developed. L. "FLAG OF CONVENIENCE" SHIPS Considerable controversy exists with respect to the registration of U. S. -owned ships under the so-called "flags of convenience. " This situation is one of simple economics. The payment of operating-differential subsidies is limited by law to liner operations on essential trade routes. There is no similar aid available to tankers and dry bulk carriers in purely commercial foreign trade. Accordingly, U. S. importers of bulk ma- terials find it uneconomical to use U. S. flag ships because of high operating costs. To assure control of their transportation requirements, many U. S. importers of bulk com- modities have seen fit to own foreign flag ships. See Special Supporting Study No. 9 for further discussion of this matter. M. RECENT DEVELOPMENTS Four types of LIBERTY ship conversions have been accomplished, each resulting in an increase in speed from 10 knots to 15 knots or better. One conversion retained the old bow but incorporated a steam turbine installation. The others had new bows. In one, a diesel plant was substituted for the original steam reciprocating machinery; in the others, a free piston gas turbine and an open cycle gas turbine were installed. It is significant that LIBERTY ships in the reserve fleet can be upgraded if time and facilities permit. However, 1000 LIBERTY ships are earmarked for scrapping. In July 1959 the world's first nuclear powered merchant ship, the NS SAVANNAH, was launched. While not itself economically competitive, it may show what is necessary to make nuclear propulsion commercially sound. Research has shown that a cheaper, more effective nuclear plant can be developed. The Maritime Administration is prepared to apply these advances to a prototype tanker, utilizing a boiling water reactor, when funds are appropriated. A government-industry cooperative program is being considered with the government responsible for the excess in construction cost of a nuclear ship over a conventional ship. A joint Atomic Energy Commission-Maritime Administration program is developing a gas cooled reactor propulsion system. When the nuclear powered merchant ship SAVANNAH is placed in service the United States will possess a most valuable instrument of good will for use in the political-economic conflict. The prestige potentialities of this ship should be widely exploited in support of U. S. foreign policy objectives.

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55 SPECIAL SUPPORTING STUDY NO. 9 "FLAGS OF CONVENIENCE" A. BACKGROUND The term "flags of convenience" applies essentially to the registry of merchant shipping under the flags of Panama, Liberia, and Honduras (PANLIBHON). Limited United States use of selected foreign registries, including Panamanian and Honduran, was initiated prior to World War II by large corporations with whom the operation of shipping was a secondary function. The major steel corporations and large oil companies became increasingly dependent on foreign sources of raw materials. To assure the steady flow of ore and oil, they needed to expand sea transportation resources under U. S. ownership and control. Following the outbreak of World War II, and prior to its entry therein, the United States Government sanctioned the transfer of U. S. -owned merchant ships from the United States flag to Panamanian flag. This permitted our allies to receive increased aid at a time when our own Neutrality Act prohibited U. S. ships and crews from sailing into the war zone. Upon the entry of the United States into the war, U. S. -owned merchant ships under Panamanian and Honduran flags were promptly assimilated into the war effort and so employed as to best further the objectives of the United States and its allies. Following World War II, the overseas transportation of tremendous quantities of oil, ore, and other raw materials became a vast peacetime enterprise. This in turn occasioned the expansion of worldwide shipbuilding activities and the growth of large bulk carrier fleets. In the competitive expansion of world shipping greater use of selected foreign registry was made by shipowners of all nations. Liberian registry came into widespread use at this time. As of July 1959, there were approximately 25, 000, 000 deadweight tons of merchant shipping registered under PANLIBHON flags. U. S. citizens owned and controlled about 10, 000, 000 deadweight tons of this total. It is important to note that tankers, which are so vital to the success of any war effort, represented about 7, 000, 000 deadweight tons of the U. S.-owned portion of this shipping. We must regard the U. S. -owned PANLIBHON flag fleet as a significant operating reserve for mobilization purposes. These merchantmen will be required immediately in the event of war to augment the limited U. S. flag sealift capability. They are available for this purpose and are, in effect, under U. S. control. (See Section E, below. ) B. ATTACKS ON "FLAGS OF CONVENIENCE" The registry of U. S. -owned ships under "flags of convenience" has long been criticized by foreign shipping interests and certain European governments. Further,

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56 such practice has been bitterly opposed by U. S. and international maritime labor organizations. Despite international criticism of U. S. practices, many foreign shipowners have also registered ships under "flags of convenience". These include British, Danish, Greek, Italian, Norwegian and Swedish shipowners. British shipowners can also use Bermudan registry under British flag as a tool of convenience (lower taxation). 1. Western European Governments. In June 1959, at the request of the Netherlands Government, the "flags of convenience" problem was discussed between governmental representatives of the United States and nine European countries. The U. S. delegation made no commitments nor offered any encouragement in regard to European proposals for changing existing "flag of convenience" policies. However, the Europeans have not given up hope and it is expected that they will seek to resume inter- governmental discussions of this matter in the reasonably near future. 2. Maritime Labor Unions. The common objective of U. S. and international maritime labor organizations is to enforce bargaining agreements with the owners of all "flag of convenience" ships. This would enable them to exercise complete unionized control over the wages, welfare and working conditions of the crews that man these ships. Until recently it has been the position of the International Transport Workers Federation (ITF) that individual "flag of convenience" shipowners should negotiate bargaining agreements with the maritime labor unions of the countries in which the crews were hired. However, this position was changed radically at the January 1959 conference of the ITF in London. At that time a decision was made by the ITF to require shipowners to hire crews under collective bargaining agreements concluded through affiliated unions of the country in which actual control of the shipping operation is vested. The above decision opened the way for U. S. maritime labor unions to intensify their campaign against "flags of convenience". U. S. shipping interests are informed that labor's campaign will be launched without delay. They expect that concerted strikes will be made against selected ship- ping subsidiaries of major oil companies and selected operators of seagoing ore carriers. They expect that strikes by U. S. maritime labor unions will be backed by global boycott actions on the part of affiliated foreign unions. C. U. S. SHIPOWNERS' POSITION U. S. owners of tankers and bulk carriers refer to the flags of Panama, Liberia, and Honduras as "flags of necessity" rather than "flags of convenience". They state that they have been forced, by economic necessity, to register their ships under these flags and man them with foreign crews in order to compete in international trade with low-cost foreign shipping. These owners contend that they cannot operate under U. S. wage scales without governmental subsidy. Rather than place their ships under U. S. flag without subsidy, these operators allege that denied "flags of convenience" their only practical reaction would be to sell their ships to foreign shipping interests. Some owners are in an especially tenuous position due to "split operations"--a portion of their shipping is registered under U. S. flag and a portion under PANLIBHON flags. They fear that maritime labor unions will harrass their U. S. flag shipping in order to gain concessions in regard to their "flag of convenience" shipping.

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57 D. LEGAL ASPECTS In December 1958, at the time of the four-day world-wide boycott against "flags of convenience", several shipowners filed petitions in the Federal Courts of New York and Philadelphia requesting injunctions against the American maritime unions. The petitions alleged that the boycott had been instituted by the U. S. maritime unions in collaboration with certain foreign maritime unions and certain foreign shipowners. The petition for a temporary injunction was denied on the grounds that there was evidence of a "labor dispute" which, under the Morris-LaGuardia Act, precludes the use of in- junctive relief. Further court action and the question of the jurisdiction of the National Labor Relations Board (NLRB) in this case was, at the time of this writing, still held in abeyance, pending the outcome of a NLRB hearing involving offshore operations (between Havana and New Orleans) of a Liberian flag vessel of the West India Fruit and Steamship Company. E. EFFECTIVE U. S. CONTROL For purposes of indisputable control, it would be preferable that all U. S. -owned merchant shipping be documented under U. S. flag. Such an ideal situation does not exist. At the same time, U. S. flag merchant tonnage is not adequate to meet our total wartime needs. This is particularly true with tankers, as about half of the U. S. -owned tanker tonnage is registered under foreign flags. In the event of war it will be necessary to augment U. S. flag shipping. The Maritime Administration and the Navy Department have determined jointly that it will be practicable to bring a portion of the U. S. -owned foreign-flag shipping under direct U. S. control in the event of a national emergency. This effective U. S. control con- cept is a matter of expediency, rather than choice, and applies essentially to designated shipping under the "flags of convenience". Determinations regarding effective control are not founded on governmental treaties. Assurances that specific ships will revert to U. S. control are given by the U. S. owners of the ships, not by the country of registry. Former U. S. flag vessels that were transferred to PANLIBHON registry are under effective control as a result of stipulations in the transfer contract approvals granted by the Maritime Administration. Less formal agreements apply to foreign-built shipping. U. S. owners can register foreign-built shipping under any friendly flag of their choice, or transfer from one flag to another at will. In the case of foreign-built PANLIBHON-flag ships, the Maritime Administration normally negotiates agreements with the U. S. parent companies that the ships will be made available to the United States in the event of a national emergency. Ships' crews must also be considered in making plans for implementation of effective control. The crews of ships under PANLIBHON flags are all nationals of countries friendly to the United States. The majority are nationals of NATO countries. On the outbreak of an emergency, ships would be routed to selected points for proper screening of personnel--and replacement where appropriate. Dependent upon individual ship locations on the outbreak of an emergency, it is possible that some of the foreign crews may defect and deliver a few PANLIBHON ships into enemy hands. In the event of a NATO war it is also possible that some European crews may ignore the orders of U. S. shipowners and deliver ships to ports of the countries from which they were employed. In the latter case, such ships would still support the common NATO effort and their employment would be governed by NATO pooling and allocation procedures.

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58 1. Soundness of Effective Control under PANLIBHON Flags. The absence of operational control restrictions in the existing maritime laws of PANLIBHON governments permits the exercise of effective U. S. control without restraint. Additionally, the ocean shipping requirements of these small, friendly countries are limited and they would be unlikely to requisition ships for their own use in the event of war. Other factors that contribute to the soundness of our effective U. S. control concept are: (a) The natural bond of U. S. ownership and allegiance is augmented by written agreements between the shipowners and the U. S. Government. (b) The small PANLIBHON countries possess limited capabilities to both operate and maintain sizable merchant fleets. Ships under their flags usually ply the world's trade routes and have rare occasion to put into ports of their registries. (c) PANLIBHON countries possess negligible capability to intercept, seize, or protect shipping on the high seas. Consequently, these nations are not in a position to expropriate U. S. property afloat or to dispute U. S. assumption of control over selected shipping. (d) The United States possesses a definite and sizable capability to protect shipping at sea. Thus, the United States has both the power and the intent, in event of a national emergency, to consummate agreements with individual shipowners in respect to designated shipping registered under PANLIBHON flags. (e) Further, during any national emergency declared by proclamation of the President, Section 902 of the Merchant Marine Act of 1936 empowers the Federal Maritime Board to requisition or purchase any vessel owned by citizens of the United States. U. S. rights under Section 902 are stipulated in all Maritime Administration approvals of transfer to PANLIBHON flags. (f) It appears logical to assume that U. S. citizen-owned ships registered under PANLIBHON flags, for which effective U. S. control agreements exist, would, in the event of a national emergency, gravitate towards a United States protective umbrella for self-preservation. To refuse would probably lead to considerable difficulty in the procurement of war risk insurance. (g) Additionally, the Ship Warrants Act, when enacted, will further in- crease the problems of possible non-conformist shipping. Under this Act, any vessel without a warrant would have no access to turnaround support services or repairs at any U. S. shore facilities. 2. Registry under NATO Flags (Other than United States). U. S. -owned ships are registered under nine NATO flags--Belgian, British, Canadian, Danish, Dutch, French, German, Italian and Norwegian. Such registries represent "flags of convenience" for practical and economical purposes. However, none of these ships is under effective U. S. control. No agreements exist for making this shipping available to the U. S. Government in the event of an emergency. 3. Implications of NATO Maritime Posture. With regard to exercising effective U. S. control, considerations applicable to PANLIBHON countries would not apply to the registry of shipping under the flags of other NATO nations for the following reasons: (a) Most NATO countries are recognized as traditional maritime nations. They have the means and facilities to both operate and maintain a large number of merchant ships.

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59 (b) Their maritime laws incorporate rigid restrictions with respect to ownership, manning and operational control of ships that fly their flags. They possess some degree of capability to protect or seize shipping on the high seas. (c) NATO nations in general have committed their merchant shipping to a common pool in the event of a NATO war. (See Special Supporting Study No. 4 for further discussion. ) Without appropriate bilateral agreements to the contrary, approved NATO policy would preclude our taking control of such U. S. -owned ships as may be under NATO flags. (d) It is of utmost significance in this connection that the United States must be prepared for emergencies other than a NATO war. F. TRENDS Already there is evidence that the maritime labor campaign is reducing the registry of ships under Liberian flag. Leading British ship brokers have reported that new Liberian flag tanker registrations lagged behind those of Britain, Norway, the United States, Japan, Greece, and the Netherlands during the first six months of 1959. This was attributed in part to transfers of ships originally destined for Liberian and Panamanian registry to British and Greek registry. Whether any ships owned by U. S. companies or affiliates were involved was not reported. Nevertheless, it is indicative of a trend. * U. S. owners of PANLIBHON shipping are becoming increasingly alarmed over the pressures exerted against "flags of convenience. " A number of them have publicly announced that unless the United States Government, at highest levels, intervenes in this matter they will have no alternative but to transfer their fleets from PANLIBHON registries to registries under foreign traditional maritime flags, presumably those of Western Europe. Of related interest is the fact that PANLIBHON governments keenly resent the disparaging remarks that have been made about their stature in maritime trade. Con- sequently, the "flags of convenience" controversy poses additional problems with respect to international good will. G. CONCLUSIONS AND RECOMMENDATIONS 1. Should continued opposition on the part of foreign shipping interests, foreign governments and U. S. and international maritime labor organizations render the registry and operation of U. S. -owned ships under "flags of convenience" untenable, we would be faced with the problem of determining what steps to take to ensure the continued availability of these ships for national defense. It is probable that we would have to adopt one, or a combination of two alternatives: (a) To allow the U. S. -owned "flag of convenience" fleet to migrate to the traditional maritime flags of Western Europe. This would be detrimental to the U. S. national defense posture, as we would have to depend upon uncontrolled foreign merchant shipping to meet a significant portion of our emergency sea transportation needs. It is unlikely that fully satisfactory intergovernmental agreements could be concluded to assure that this shipping would revert to U. S. control in the event of a national emergency.

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60 (b) To expand governmental subsidy programs to support the operation under U. S. flag of all U. S. -owned and controlled merchant shipping that is engaged in competitive foreign trade. This would embrace "flag of convenience" shipping, the existing subsidized segment of the U. S. flag merchant fleet, the numerous U. S. flag ships whose applications for subsidy are pending, and probably others. Such course of action would prove to be a most costly undertaking and there is no likely prospect that the Government will adopt such a program. 2. Pending resolution of management-labor problems, the continued operations under "flags of convenience" of those U. S. -owned and controlled merchant ships that are presently so registered, represent a practical and at present the only economical means of sustaining an important segment of the U. S. -owned merchant marine. At present there is no satisfactory alternative. 3. Undisturbed operation of these ships under PANLIBHON registry seems to require the issuance of a court ruling that would prevent U. S. unions from boycotting and organizing PANLIBHON ships. The Government should bring to the attention of the courts its national security interests in maintaining effective control over these ships. If the court ruling is not favorable, the Government should seek by every possible means to show the extent of its interest in retention of the "flag of convenience" fleet and in preventing its transfer to the flags of other maritime nations.