held; findings and awards made, stated, served, and enforced; and the number and compensation of any necessary assistants shall be determined and the compensation of such employees shall be paid, all in the same manner and to the same extent as provided with reference to the National Railroad Adjustment Board by section 3 of title I of the Railway Labor Act. The powers and duties prescribed and established by the provisions of section 3 of title I of the said Act with reference to the National Railroad Adjustment Board and the several divisions thereof are hereby conferred upon and shall be exercised and performed in like manner and to the same extent by the National Maritime Adjustment Board with respect to maritime employers and their employees. From and after the organization of the National Maritime Adjustment Board, if any board of adjustment established by any maritime employer or maritime employers and any class or classes of its or their employees is not satisfactory to either party thereto, the said party, upon ninety days' notice to the other party, may elect to come under the jurisdiction of the National Maritime Adjustment Board.

"SEC. 1006. If a dispute between a maritime employer or employers and its or their employees is not adjusted under the provisions of this title, and if in the judgment of the Mediation Board such failure to adjust the dispute shall threaten substanially to interrupt the flow of domestic and foreign water-borne commerce to the detriment of the public interest or to derprive any section of the country of an essential water-borne transportation service, the Mediation Board shall immediately notify the United States Maritime Commission of such failure to adjust the dispute. The Maritime Commission may thereupon, in its discretion, create a board to investigate and report respecting such dispute. Such board shall be composed of such number of persons as to the Maritime Commission may seem desirable: Provided, however, That no member appointed shall be pecuniarily or otherwise interested in any organization of employees or any maritime employer. The compensation of the members of any such board shall be fixed by the Maritime Commission. Such board shall be created separately in each instance and it shall investigate promptly the facts as to the dispute and make a report thereon to the Maritime Commission within thirty days from the date of its creation.

"There is hereby authorized to be appropriated such sums as may be necessary for the expenses of such board, including the compensation and the necessary traveling expenses and expenses actually incurred for subsistence, of the members of the board. All expenditures of the board shall be allowed and paid by the Maritime Commission on the presentation of itemized vouchers therefor approved by the chairman of such board.

"After the creation of such board and for thirty days after such board has made its report to the Maritime Commission, no change, except by agreement of the parties, shall be made by the parties to the controversy in the conditions out of which the dispute arose.

"SEC. 1007. Except as provided in this title with respect to maritime employers and their employees, nothing herein shall be construed to repeal or amend any provision of the National Labor Relations Act or to restrict the powers and duties conferred upon the National Labor Relations Board by said Act.

"SEC. 1008. If any provision of this title or application thereof to any person or circumstance is held invalid, the remainder of the title and the application of such provisions to other persons or circumstances shall not be affected thereby.

"SEC. 1009. There is hereby authorized to be appropriated such sums as may be necessary for expenditure by the Mediation Board in carrying out the provisions of this title."

The CHAIRMAN. This bill was written to carry out the recommendations of the Maritime Commission. After the experience of this Commission, it was found that certain changes seemed desirable, from the original act. So we are here to consider the proposed amendments.

Mr. Kennedy, we welcome you. This is your first appearance before our committee in an official way, and we are very happy to have you and your colleagues here.

Mr. KENNEDY. Thank you, sir.

The CHAIRMAN. And we shall be pleased if you will proceed in your own way. I assume, of course, that you would like to go forward without interruption until you have made your original statement. Am I right?

Mr. KENNEDY. I should like very much to do so, sir.

The CHAIRMAN. All right, then; please proceed.

STATEMENT OF JOSEPH P. KENNEDY, CHAIRMAN OF THE UNITED STATES MARITIME COMMISSION

Mr. KENNEDY. Mr. Chairman and members of the committee, I am glad to appear here this morning to discuss with the committees the provisions of Senate bill 3078. But before going into the provisions of the proposed bill, some general observations on the subject of shipping legislation should be made.

The shipping legislation of the United States would fill a library. The American colonies began to enact shipping laws almost as soon as they were established. The adoption of the Federal Constitution is said to have been inspired largely by the necessity for concerted action on the part of the separate States for the protection of their commerce. The first statute passed by the First Congress of the United States was the Tariff Act of July 4 1789, which contained discriminatory provisions in behalf of American vessels. From the adoption of the Federal Constitution in 1789 to 1830 no less than 50 legislative acts affecting ocean shipping were passed. We have been grinding out additional legislation ever since.

It is only with extreme reluctance that I come before these committees with any suggestions for expanding the enormous volume of material already submitted to the Congress with regard to the American merchant marine.

Legislation affecting the American merchant marine of today may be said to have begun with the Panama Canal Act of August 24, 1912, which admitted to American registry, for operation in foreign trade, vessels not over 5 years old. On August 18, 1914, this act was amended to admit foreign-built vessels regardless of age.

The unfortunate conditions brought about by the World War, when many foreign vessels were withdrawn from our trade resulted in the Shipping Act of September 7, 1916. This act created the United States Shipping Board and gave it authority to form corporations for the acquisition and operation of merchant vessels with a capital stock not to exceed $50,000,000.

The United States entered the war before the objectives of the 1916 act could be accomplished. Emergency legislation was enacted to extend the authority of the Shipping Board and its subsidiary, the Emergency Fleet Corporation, which was incorporated under the act and under whose supervision was constructed the wartime fleet of merchant vessels. On October 6, 1917, Congress passed an act admitting foreign vessels to our coastwise trade for the duration of the war and for 120 days thereafter.

The first important shipping legislation after the war was that of June 5, 1920, which authorized the Shipping Board to establish and maintain domestic-flag services in the foreign trade of the United States. This act also created a revolving construction loan fund of 32437-37-pt. 1-3

$125,000,000 and contained certain provisions for the admission of foreign-built vessels to the coastwise trade.

The policy of the 1920 act was reaffirmed in the Merchant Marine Act of May 22, 1928, which increased the construction loan fund to $250,000,000 and established rates of payment for the carriage of mails, based on the size and speed of vessels and the length of their outward voyages. This pay was, of course, merely a disguised subsidy. It was designed in each instance to overcome the higher cost of constructing vessels in American yards and operating them under the American flag.

Members of these committees, and of the Congress, are familiar with the unfortunate story of the 1928 act. A total of $176,000,000 was paid out under the various mail contracts. In addition, construction loans were granted at rates of interest ranging down to one-eighth of 1 percent. It should be admitted that these expenditures preserved the so-called mail-contract lines during an abnormal period when many of them would otherwise have been forced into bankruptcy. It must also be admitted, however, that the act failed to achieve its principal objective-the development of an orderly replacement program for the war-built vessels constituting the bulk of our foreign-going fleet.

Recognizing the weaknesses of the 1928 act, and the necessity for a new approach to the problem, Congress passed, on June 29, 1936, the Merchant Marine Act of 1936. The act took effect on October 26, 1936, 30 days after the appointment of the Maritime Commission. The Commission was set up on a temporary basis, with three members, and so functioned until April 16, 1937, when the present Commission took office.

The act, therefore, has been in actual operation for less than 8 months. It may be said that we have not had sufficient experience with the act to determine whether or not it is workable in its. present form. This view is, as a matter of fact, held by one member of the Commission. The other Commissioners, however, feel that the experience of the past 8 months indicates the necessity for changes in certain details if the objectives of the act are to be attained.

In suggesting modification of the 1936 act, the Commission does not wish to be placed in the role of a petitioner. Nor can the Commission promise to solve the shipping problem if the changes here suggested are made. The Commission is merely indicating alterations which, in its opinion, would make the aims of the act more likely of attainment. Only experience can demonstrate whether or not revised legislation will enable us to achieve the objectives which the Congress had in mind.

In an effort to determine the seriousness of the industry's ailments, and to evolve a possible remedy, the Commission recently made an exhaustive study of the shipping problem. The conclusions have been referred to these committees and I assume will be part of the record. The survey painted a rather bleak outlook for the future of our vessels in foreign trade. It disclosed subsidized shipping as a very sick industry.

The subsidized merchant marine consists, at the moment, of 155 vessels, aggregating 1,011,000 gross tons. These vessels are spread over 17 lines. In addition, applications for subsidies may be filed

for 24 additional vessels of 277,000 gross tons. It is with these 179 vessels that the Merchant Marine Act is primarily concerned.

The financial condition of the subsidized lines is, generally speaking, depressing. While some of the lines appear to be in good shape, the condition of others is dubious. Some apparently have little chance of survival. The Commission has just denied the application of the Baltimore Mail Line for a permanent subsidy to replace the temporary subsidy now being paid.

The outstanding weakness of American shipping, in all categories, is its high degree of obsolescence. This is especially true of the subsidized fleet, 85 percent of which will become 20 years old within the next 5 years. The majority of vessels in this fleet were built during the war period. They will obsolesce practically as a unit. Someone must replace these vessels. With the amendments contained in this bill, we hope to enable the private operators to carry a substantial portion of this burden. The only alternative is construction for Government account. The greatest stumbling block to private construction at this time is the hesitancy of private capital with regard to shipping.

Before going into the proposed amendments, I desire to discuss briefly reasons why the United States needs a merchant marine. The principal reasons, of course, are commerce and defense. Were the world organized on a basis of perpetual peace, we might be justified in entrusting our goods to those who could carry them at the lowest rates. Unfortunately the world is not at peace, and a merchant marine of some proportions is a necessary precaution against the disruption of our trade through the withdrawal of foreign carriers. The Commission's survey found little to substantiate the claim that American vessels reduce rates or prevent discrimination. The surrey did find, however, that American vessels in a trade tend to improve the service given to our goods, and that, in the final analysis, we have no other insurance against a repetition of the situation confronting us in the early part of the World War.

It must also be pointed out that the United States is maintaining, as a defense measure, one of the largest navies in existence. That Navy would be greatly handicapped without a plentiful supply of efficient, modern merchant vessels.

The policy of the United States with regard to shipping should be, we believe, to maintain the smallest merchant fleet consonant with the needs of commerce and defense. We are now carrying about 35 percent of the cargo entering and leaving our shores. Subsidized vessels carry slightly less than half of this cargo, or 16.6 percent. It would not seem to be the part of wisdom to entrust to foreign vessels any more of our goods than they now carry.

These general facts were recognized by Congress in 1936 and were written into the Merchant Marine Act, 1936, which states, in section 101 [reading]:

It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (a) sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and import foreign commerce of the United States and to provide shipping service on all routes essential for maintaining the flow of such domestic and foreign water-borne commerce at all times, (b) capable of serving as a naval and military auxiliary in time of war or national emergency, (c) owned and operated under the United States flag by citizens

of the United States insofar as may be practicable, and (d) composed of the best equipped, safest, and most suitable types of vessels constructed in the United States and manned with a trained and efficient citizen personnel.

* *

The Commission is in thorough accord with this declaration of policy. It has been forced to conclude, however, that these objectives are more likely to be achieved if certain changes are made in the present law.

The amendments recommended do not alter the basic philosophy of the act. The Commission is suggesting only such changes as are believed to be necessary to accomplish the purposes for which the act was passed. A few of the proposed amendments contained in the bill, S. 3078, are of major importance. It is these amendments which I shall undertake to discuss first.

The present law indicates that the Congress desired to preserve private ownership "insofar as practicable." The act also recognizes that the cost to the taxpayer is not to be regarded as a gratuity, but as an investment by the Government to assure the flow of its domestic and foreign water-borne commerce and the immediate availability to the Nation of an auxiliary fleet in time of trouble. However, without a successful program of ship construction, we cannot hope to have an adequate merchant marine. Of fundamental importance, therefore, is the suggestion of the Commission that the requirement of a down payment of 25 percent of the domestic construction cost be changed to 25 percent of the foreign cost. This modification is necessary if we are to get any building. Practically none of the companies is in a financial condition to meet the present requirement. Unless the down payment is reduced, there is little likelihood that the private operators will be able to build the vessels necessary for the replacement of the subsidized fleet.

The philosophy of the Merchant Marine Act, 1936, is to place American steamship operators upon a parity with their foreign competitors. In this respect the act operates unrealistically. Foreign operators can obtain new vessels in foreign yards with down payments of not more than 25 percent of the construction cost; in many cases the initial payment required is not more than 10 percent. Therefore the American flag operator, at the very beginning, is placed under a handicap not suffered by his foreign competitor, and which, in almost every case, he is unable to meet.

The requirement of an initial payment of 25 percent of the cost of the vessel to the operator is more nearly in line with the usual commercial practice with respect to purchases of both rail and truck transportation equipment.

I have no hesitancy in asserting to these committees that if any substantial portion of the subsidized fleet is to be replaced under private ownership, the requirements of the law with respect to the down payment will have to be changed.

The amendments to title VI of the act relate, for the most part, to financial provisions of the law. They are designed to improve the condition of the subsidized lines and to encourage the investment of private funds in the steamship business. Every reasonable effort should be made to attract private capital-not only the capital of those who are under some pressure to protect investments already made in shipping, but also new capital from the public. Unless we