Address to Congress on Assistance to the Merchant Marine

Members of the Congress:

When addressing the Congress last December I reported to you the failure of the Executive to carry out the intent of certain features of the merchant marine act of 1920, notably the provision for the notice of cancellation of all commercial treaties which hindered our grant of discriminating duties on imports brought to our shores in American ships. There was no doubt about the high purpose of Congress to apply this proven practice to the upbuilding of our merchant marine. It had proven most effective in the earlier days of American shipping; it had, at various times, demonstrated its effectiveness in the upbuilding of commercial shipping for other nations.

The success of the earlier practice for this republic came at a time when we had few treaties, when our commerce was little developed Its supersedure by reciprocity in shipping regulations, and the adoption of other methods of upbuilding merchant marines, through various forms of Government aid, and the century of negotiation of commercial treaties, all combined to-develop a situation which should lead to endless embarrassment if we denounced our treaties. We should not only be quite alone in supporting a policy long since superseded through the growing intimacy of international relationships, but we should invite the disturbance of those cordial commercial relations which are the first requisite to the expansion of our commerce abroad.

Contemplating the readiness of Congress to grant a decreased duty on imports brought to our shores in American bottoms, and facing the embarrassments incident to readjustment of all treaty arrangements, it seemed desirable to find a way of applying suitable aid to our shipping, which the Congress clearly intended, and at the same time avoid the embarrassment of our trade relationships abroad.

The recommendation of to-day is based wholly on this commendable intent of Congress. This proposed aid of the Government to its merchant marine is to have its chief source in the duties collected on imports. Instead of applying the discriminating duty to the specific cargo, and thus encouraging only the inbound shipment, I propose that we shall collect all import duties, without discrimination as between American and foreign bottoms, and apply the heretofore proposed reduction to create a fund for the Government's aid to our merchant marine. By such a program we shall encourage not alone the carrying of inbound cargoes subject to our tariffs but we shall strengthen American ships in the carrying of that greater inbound tonnage on which no duties are levied, and, more important than these, we shall equip our merchant marine to serve our outbound commerce, which is the measure of our eminence in foreign trade.

It is interesting to note, in connection with the heretofore proposed plan of discriminating tariffs on imports, carried to our shores in American bottoms, that the total value of all dutiable imports for 1920, in all vessels, was $1,985,865,000, while the cargoes admitted free of duty, on which no discrimination was possible, were valued at $3,115,958,000. The actual tonnage comparison is even more significant from the viewpoint of cargo carrying, because the dutiable cargoes measured, in round numbers, 10,000,000 tons, and the nondurable cargoes were 25,000,000 tons. The larger employment, by two and a half times, was in nondutiable shipments.

Continued trade must be reciprocal. We can not long maintain sales where we do not buy. In the promotion of these exchanges we should have; as much concern for the promotion of sales as for the facilitation of our purchases. There is not a record in all history of long-maintained eminence in export trade, except as the exporting nations developed their own carrying capacity.

No story of national development is more fascinating or so full of romance as that of developing capacity for the exchanges of commerce. Expanding civilization may be traced oven the avenues of exchanging cargoes. No matter how materialistic it may sound nations have developed for themselves and have influenced the world almost precisely as they have promoted their commerce. We need not refer to the armed conflicts which have been incident thereto. When commerce has been destroyed fading glories have attended.

It will avail nothing to attempt even the briefest resume of our own efforts to reestablish that American importance in commerce carrying on the high seas which was recorded in the earlier days of the Republic. The aspiration is nation wide. The conflict between two schools of political thought heretofore has defeated all efforts to employ the governmental aid which other nations found advantageous while we held aloof, and the terms "subsidy" and "subvention" were made more or less hateful to the American public. But the nation-wide desire to restore our merchant marine has outlived all defeats and every costly failure.

Eight years ago the aspiration found expression in a movement to have the Government sponsor an enterprise in which individual genius seemingly had failed. It would be difficult correctly to appraise the policy, because the World War put an end to all normal activities. Before we were involved our shipyards were suddenly turned to feverish and costly activities by the call of the Allied Powers for shipping, without which they could not hope to survive. American energies were applied to construction for others, as we had never dreamed of doing for ourselves. When we were later engaged we trebled and quadrupled the output on our own account. Allied resources were called upon to build to meet the destruction by submarine warfare, and ships were so essential that material for them was given priority over arms and munitions. There was the call for ships, and ships, and yet more ships, and we enlarged old yards and established new ones without counting the cost. We builded madly, extravagantly, impracticality, and yet miraculously, but we met a pressing need and performed a great service.

A people indifferent to the vital necessity of a merchant marine to the national defense, ungrudgingly expended at five times the cost of normal construction and appropriated billions where millions had been denied before. We acquired vast tonnage. Some of it, much of it, is suited to the peace service of expanded commerce. Some of it, much of it, may be charged to the errors and extravagances of war-time anxiety and haste. The war program, and that completion of contracts which followed because such a course seemed best to those then charged with responsibility, gave us something more than 12,900,000 gross tonnage, not counting the folly of the wood construction, at a total outlay of approximately three and one-half billions of dollars.

We thus became possessed of the vehicles of a great merchant marine. Not all of it was practical for use in the transoceanic trades; little of it was built for the speed which gives the coveted class to outstanding service. But here was vast, tonnage for cargo service; and the Government, in the exceptional call of commerce which immediately followed the war, sought the establishment of shipping lines in every direction calculated to enhance our foreign trade and further cement our friendly relations.

The movement lacked in most cases that inherent essential to success which is found in individual initiative. It was rather a Government experiment, where lines were established in high hope and little assurance, because the Public Treasury was to bear the burden. There was the mere suggestion of private enterprise, inasmuch as allocations and charters were made under which private management was to share in profits and private interests were paid to make the experiment, though the Government was to bear all the losses. I forbear the detailed recital. The misadventure was so unfortunate that when the present administration came into responsibility the losses were approximately $16,000,000 a month, and to the cost of failure was added the humiliation of ships libeled in foreign ports.

In spite of all the later losses in operation, however, it is quite beyond question that our abundance of American tonnage was mainly responsible for our ability to share in the good fortunes of world trade during the two years immediately following the war. In all probability the losses we have sustained in our shipping activities were fully compensated to the American people in the saving of ocean freights in that period.

To-day we are possessed of vast tonnage, large and very costly experience, and the conviction of failure. It is fair to say that a mistaken policy was made more difficult by the unparalleled slump in shipping which came late in 1920 and prevailed throughout the year so recently closed. It was the inevitable reflex of the readjustments which follow a great war, and there were heavy losses in operations which had to be met by long-established and heretofore successful shipping lines, and ships built at top war costs took the slump in prices below the normal levels of peace.

But we have our ships, the second largest tonnage in the world, End we have the aspiration, aye, let me say, the determination, to establish a merchant marine commensurate with our commercial importance. Our problem is to turn the ships and our experience and aspirations into the effective development of an ocean-going shipping service without which there can be no assurance of maintained commercial eminence, without which any future conflict at arms will send us building again, wildly and extravagantly, when the proper concern for this necessary agency of commerce in peace will be our guaranty of defense in case that peace is disturbed.

Out of the story of the making of great merchant marines and out of our own experience we ought to find the practical solution. Happily we are less provincial than we once were, happily we have come to know how inseparable are our varied interests. Nobody pretends any longer that shipping is a matter of concern only to the ports involved. Commerce on the seas is quite as vital to the great interior as it is to our coast territory, east, south, or west. Shipping is no more a sectional interest than is agriculture or manufacturing. No one of them can be prospered alone.

We have had a new manifestation of this broadened vision in the enthusiasm of the great Middle West for the proposed Great Lakes- St. Lawrence waterway, by which it is intended to connect the Great Lakes ports with the marts of the world. There is far-seeing vision in the proposal, and this great and commendable enterprise, deserving your favorable consideration, is inseparable from a great merchant marine.

What, then, is our problem? I bring to you the suggestions which have resulted from a comprehensive study which are recommended to me by every member of the United States Shipping Board. It is a program of direct and indirect aid to shipping to be conducted by private enterprise. It is proposed to apply generally the benefits which it was designed to derive from discriminating duties to all ships engaged in foreign commerce, with such limitation on remuneration as will challenge every charge of promoting special interests at public cost.

In lieu of discriminating duties on imports brought to us in American bottoms it is proposed to take 10 per cent of all duties collected on imports brought to us in American or foreign bottoms, and create therefrom a merchant marine fund. To this fund shall be added the tonnage charges, taxes and fees imposed on vessels entering the ports of continental United States, also such sums as are payable to American vessels by the Post Office Department for the transportation by water of foreign mails, parcel posts excepted.

Out of this fund shall be paid the direct aid in the development and maintenance of an American merchant marine. The compensation shall be based on one-half of I cent for each gross ton of any vessel, regardless of speed, for each 100 miles traveled. When the speed is 13 knots or over, but less than 14, two-tenths of a cent on each gross ton shall be added; for 14 knots, three-tenths of a cent; for 15 knots, four-tenths of a cent; for 16 knots, five-tenths; for 17 knots, seven-tenths; for 18 knots, nine-tenths; for 19 knots, eleven-tenths; for 20 knots, thirteen-tenths shall be added to the basic rate. For 23 knots the maximum is reached at 2.6 cents for each gross ton per 100 miles traveled.

I will not attempt the details of requirements, or limitations, save to say that all vessels thus remunerated shall carry the United States mails, except parcel post, free of cost, and that all such remuneration must end whenever the owner of any vessel or vessels shall have derived a net operating income in excess of 10 per cent per annum upon his actual investment, and thereafter the owner shall pay 50 per cent of such excess earnings to the merchant marine fund, until the full amount of subsidy previously received is returned to its source. In other words, it is proposed to encourage the shipping in foreign trade until the enterprise may earn 10 per cent on actual investment, whereupon the direct aid extended is to cease and the amount advanced is to be returned out of a division with the Government of profits in excess of that 10 per cent. The provision makes impossible the enrichment of any special interest at public expense, puts an end to the Government assumption of all losses, and leaves to private enterprise the prospective profits of successful management.

The cost of such a program probably will reach fifteen millions the first year, estimated on the largest possibilities of the present fleet. With larger reimbursement to high-speed vessels and the enlargement of the merchant marine to a capacity comparable with our commerce the total outlay may reach the limits of thirty millions, but it is confidently believed that the scale may in due time thereafter be turned, until the larger reimbursements are restored to the Treasury. Even if we accept the extreme possibility—that we shall expend the maximum and no return will ever be made, which is to confess our inability to establish an American merchant marine—the expenditure would be vastly preferable to the present unfortunate situation, with our dependence on our competitors for the delivery of our products. Moreover, the cost for the entire year would be little more than the deficit heretofore encountered in two months during the experiment of the Government sponsoring the lines and guaranteeing the cost of their operation.

The proposed plan will supersede all postal subventions, postal compensations, and extra compensations, excepting parcel-post freights, all of which combined are fast growing to approximately five millions annually. It will ultimately take the Government out of a business which has been, and is now, excessively costly and wasteful and involving a loss in excess of the highest subsidy proposed. It will bring to shipping again that individual initiative which is the very soul of successful enterprise. It should enable the Government to liquidate its vast fleet to the highest possible advantage.

The making of a successful American merchant marine, which must face the stiffest possible competition by the fleets of the maritime nations, requires something more than the direct aid to which I have alluded. The direct aid proposed, even though it ultimately runs to $30,000,000 annually, is insufficient alone to offset the advantages of competing fleets. There are more than wage costs, and working conditions and the higher costs of rationing, which no considerable American sentiment will consent to have lowered to competing standards.

The men who sail the seas under our flag must be permitted to stand erect in the fullness of American opportunity. There is the higher cost of construction, the larger investment, the higher cost of insurance outlay, even though the rate is the same. There are higher interest charges. Our problems in shipping are very much the same as are those of our industries ashore, and we should be as zealous in promoting the one as we are in protecting the other. We may and must aid indirectly as well as directly.

We need a favoring spirit, an awakened American pride, and an avowed American determination that we shall become, in the main, the carriers of our own commerce, in spite of all competition and all discouragements. With direct and indirect aid, I bring to you a definite program. Those who oppose it ought, in all fairness, to propose an acceptable alternative. There can be no dispute about the end at which we are aiming.

Of the indirect aids there are many, practically all without draft upon the public treasury, and yet all highly helpful in promoting American shipping.

It is a simple thing—seemingly it ought not require the action of Congress—-but American officials traveling on Government missions at Government expense ought to travel on American ships, assuming that they afford suitable accommodations. If they do not afford the requisite accommodation on the main routes of world travel, the argument that we should upbuild is strongly emphasized.

I think we should discontinue, so far as practical, the transport services in the Army and Navy, and make our merchant and passenger ships the agents of service in peace as well as war.

We should make insurance available at no greater cost than is afforded the ships under competing flags, and we can and will make effective the spirit of section 28 of the Jones Act of 1920, providing for preferential rail and steamship rates on through shipments on American vessels. American railways must be brought into cooperation with American steamship lines. It is not in accord with either security or sound business practice to have our railways furthering the interests of foreign shipping lines, when the concord of American activities makes for common American good fortune.

Contemplating the competition to be met, there ought to be an amendment to the interstate commerce act which will permit railway systems to own and operate steamship lines engaged, in other than coastwise trade. There is measureless advantage in the longer shipments where rail and water transportation are coordinated, not alone in the service but in the solicitation of cargoes which ever attends an expanding commerce.

We may further extend our long-established protection to our coastwise trade, which is quite in harmony with the policy of most maritime Powers. There is authority now to include the Philippines in our coastwise trade, and we need only the establishment of proper facilities to justify the inclusion of our commerce with the islands in our coastwise provisions. The freedom of our continental markets is well worth such a favoring policy to American ships, whenever the facilities are suited to meet all requirements.

Other indirect aids will be found in the requirement that immigration shall join wherever it is found to be practical in aiding the merchant marine of our flag under which citizenship is to be sought, and in the establishment of the merchant-marine naval reserve. The remission of a proportion of income taxes is wholly compatible when the shipping enterprise is of direct Government concern, provided that such remission is applied to the cost of new ship construction.

Congress has already provided for a loan fund to encourage construction. It might well be made applicable to some special requirements in reconditioning.

It is also worth our consideration that, in view of suspended naval construction, the continued building of merchant ships is the one guaranty of a maintained shipbuilding industry, without which no nation may hope to hold a high place in the world of commerce or be assured of adequate defense.

A very effective indirect aid, a substitute for a discriminating duty which shall inure to the benefit of the American shipper will be found in the proposed deduction on incomes, amounting to five per centum of the freight paid on cargoes carried in American bottoms. The benefits can have no geographical restrictions, and it offers its advantages to American exporters as well as those who engage in import trade.

Our existing ships should be sold at prices prevailing in the world market. I am not unmindful of the hesitancy to sacrifice the values to current price levels. We constructed at the top cost of war when necessity impelled, when the building resources of many nations were drawn upon to the limit to meet a great emergency. If there had come no depression, a return to approximate normal cost would have been inevitable. But the great slump in shipping has sent tonnage prices to the other extreme, not for America alone, but throughout the world.

If we held our ships to await the recovery we should only make more difficult our response to beckoning opportunity. One of the outstanding barriers to general readjustment is the tendency to await more favorable price conditions. In the widest view, the nation will ultimately profit by selling now. We may end our losses in an enterprise for which we are not equipped, and which no other Government has successfully undertaken, and the low prices at which we must sell to-day will make a lower actual investment with which we deal in promoting permanent service.

If I were not deeply concerned with the upbuilding of our merchant marine, I should nevertheless strongly urge Congress to facilitate the disposal of the vast tonnage acquired or constructed in the great war emergency. The experiment we have made has been very costly. Much has been learned, to be sure, but the outstanding lesson is that the Government can not profitably manage our merchant shipping. The most fortunate changes in the personnel of management would still leave us struggling with a policy fundamentally wrong and practically impossible.

Having failed at such enormous cost, I bring you the proposal which contemplates the return to individual initiative and private enterprise, aided to a conservative success, wherein we are safeguarded against the promotion of private greed, and do not discourage the hope of profitable investment, which underlies all successful endeavor.

We have voiced our concern for the good fortunes of agriculture, and it is right that we should. We have long proclaimed our interest in manufacturing, which is thoroughly sound, and helped to make us what we are. In the evolution of railway transportation we have revealed the vital relationship of our rail transportation to both agriculture and commerce. We have been expending for many years large sums for deepened channels and better harbors and improved inland waterways, and much of it has found abundant return in enlarged commerce. But we have ignored our merchant marine. The World War revealed our weakness, our unpreparedness for defense in war, our unreadiness for self-reliance in peace.

It would seem as though transpiring events were combining to admonish us not to fail now to reassert ourselves. In the romantic days of wooden hulls and whitened sails and the sturdiest men of the sea we outsailed the world, and carried our own cargoes, revealed our flag to the marts of the world.

Up to the World War we were a debtor nation. Our obligations were held largely by the maritime Powers. Apart from the advantages in carrying our commerce, they sought our shipments for the balances due to them. There is a different condition now. They are concerned with shipments to us, but not so interested in our shipments to them. It is our high purpose to continue our exchanges, both buying and selling, but we shall be surer of our selling, notably our foodstuffs, if we maintain facilities for their transportation.

Contemporaneous with the awakening, we have the proposal to carry our ocean-going facilities to the great "unsalted seas," which shall place the farms of the upper Mississippi Valley on a market way to the marts of the Old World. We should fail to adjust our vision to the possibilities if we halted in making for American eminence on the ocean highways now awaiting our return.

We have recently joined the great naval Powers in a program which not only puts an end to costly competition in naval armament and reduces the naval forces of the world, but adds to the confidence in maintained peace. The relativity of strength among the Powers would be wholly one of disappointing theory, if ours is to be a merchant marine inadequate for the future. I do not care to stress it as a means of defense. The war and our enforced outlay have already stressed that point.

The merchant marine is universally recognized as the second line of naval defense. It is indispensable in the time of great national emergency. It is commendable to upbuild and maintain, because it is the highest agency of peace and amity, and bears no threat and in7 cites no suspicion. And yet it is a supreme assurance, without which we should be unmindful of our safety and unheeding of our need to continued growth and maintained influence.

I am thinking of the merchant marine of peace. Commerce is inseparable from progress and attainment. Commerce and its handmaidens have wrought the greater intimacy among nations, which calls for understandings and guaranties of peace. However we work it out, whatever our adjustments are to promote international trade, it is inevitable that the hundred millions here, outstanding in genius and unrivaled in industry and incalculable in their resources, must be conspicuous in the world's exchanges. We can not hope to compete unless we carry, and our concord and our influence are sure to be measured by that unfailing standard which is found in a nation's merchant marine.