SALE OF PACIFIC COAST LINES BY THE UNITED STATES SHIPPING BOARD FRIDAY, FEBRUARY 3, 1928 UNITED STATES SENATE, The committee met, pursuant to the call of the chairman, at 10.30 o'clock a. m., in the room of the committee in the Capitol, Senator Wesley L. Jones presiding. Present: Senators Jones (chairman), McNary, Willis, Sackett, La Follette, Fletcher, Ransdell, Stephens, Harris, Copeland, Hawes, and Tyson. The CHAIRMAN. The committee has met this morning to consider Senate Resolution 116. I assume that everybody is familiar with it, but we will have it printed in the record at this point. (The resolution referred to is here printed in full, as follows:) [S. Res. 116, Seventieth Congress, First Session] RESOLUTION Whereas the United States Shipping Board has heretofore established under the directions of the merchant marine act three lines of cargo services from American Pacific ports to ports in the Orient, one operating out of California, one out of Oregon, and one out of Washington; and Whereas these established lines have been built up during the past four years at an aggregate expense of over $4,000,000, exclusive of the cost of the vessels employed in such services, to where said lines are now practically self-sustaining; and Whereas the Shipping Board has determined to sell said three lines contemporaneously for private operation, under specifications and conditions which will make it impossible for any person or group of persons primarily interested in any one line as an individual unit, to purchase and permanently maintain said line; and Whereas under said specifications as prepared and advertised, the bidding will be confined to persons or groups of persons desiring to acquire and maintain all three lines as a composite unit, thereby destroying the integrity of the lines as heretofore established; and Whereas no intending purchaser can safely bid for a line as an individual unit without having entered into a combination with intending purchasers of other lines, and Whereas the specifications published by the Shipping Board will necessarily exclude from competitive bidding persons entitled to become purchasers and will confine the bidding to persons and groups who have arranged monopolistic control of cargo shipping on the Pacific, all of which will result in inadequate prices for said services and in depriving the separate communities primarily interested in each line from becoming the owner and operator of that line, thereby preventing such individual communities from building up their trade and manufactures dependent upon oriental shipping; and Whereas the sale of the lines under specifications as now advertised will inevitably result in a monopoly of shipping between American ports and the Orient: Now therefore be it 1 Resolved, That the United States Shipping Board is requested and directed to proceed no further with the proposed sale of the three cargo services between American and oriental ports under the conditions and specifications now advertised for the reception of bids on February 10, 1928, and that such advertisement be withdrawn and canceled, and further that new specifications be prepared after full opportunity of interested persons to be heard, which will enable any community primarily interested in any of the three lines to submit bids with such guarantees of protection as will enable such purchaser to maintain the line, and that such specifications of sale shall conform in all respects to the provisions of the merchant marine act. The CHAIRMAN. I think it would be well for me to read the protest made by the mayor of Tacoma on behalf of the committee or association of people that he represents, with reference to the sale of these lines. Mayor Tennent was here and intended to be at the hearings in person. He was called home by a telegram, however, and was unable to remain, so that I will read his protest. [Reading:] To the Honorable Members of the United States Shipping Board: A group composed of more than 40 citizens of the State of Washington, financially responsible and having the support of every industrial community, primarily interested in the line of cargo vessels heretofore operated under the name of the American-Oriental Mail Line, being desirous of purchasing the service between Puget Sound ports and the Orient, submit to your honorable board the request for modification of the specifications and conditions set forth in the pending invitation for bids. The pending specifications exclude this group from the opportunity to buy the line. The desire of purchasing this line was initiated at a reception given in honor of Commissioners Teller and Myers, on September 15, last, by prominent business men at the Tacoma Hotel. These commissioners had viewed the municipal port facilities at Tacoma and the docks and terminals privately operated. At the luncheon which followed, both these commissioners declared that the municipal terminals with their equipment of loading and unloading facilities, constructed at a cost of over $3,000,000, are the most modern and efficient in the United States; that the cargo line operating out of Puget Sound had been built up at Government expense of approximately $1,000,000, to where it is now selfsustaining; that the law gave preference in the sale of services established by the Government, to local communities primarily interested; that it is the practice of the board to sell services with guaranties protecting each service sold from competition of Government operation and from competition of other services by vessels sold by the Government; that each service purchased would not be subject to the competition within its own local territory, securing to the purchaser of the ability to maintain and operate the service purchased without the danger of being broken down and bankrupted in the interest of other services; that it is the policy of the law to preserve the individual integrity of each service established in order that the purchaser may maintain such service for the benefit of the community primarily interested. Assurance was given by these two commissioners that in formulating specifications the preference right of the community to purchase provided by the merchant marine act would be respected. Following this meeting an underwriting group with firm commitments of ample capital was formed and is in position and anxious to purchase the line. The plan of this underwriting group is to form a corporation with stockholders representative of the producing industries of the State of Washington whose primary object is to maintain the line in the interest of shippers and industries of the State and to encourage the manufacture of products originating in the Orient and the Philippines. This is the first time a potential purchaser has presented to your board an application for acquisition of a line by a group of citizens of a community whose primary interest is in the public welfare, prospective profits from the purchase and operation of the ships being subordinate. Relying upon the assurances of the two Pacific coast representatives on your board, and the former practice of the board, and the resolution of your board in November ordering the sale of this and the two other lines operating out of American Pacific ports, with restricted service thereby protecting each line from competition by the purchasers of the other lines to be contemporaneously sold, arrangements were definitely completed for submitting a bid. The Pacific coast papers of December 28 and 29 gave us the first information that the former policy of the board and the policy outlined in the resolution passed in November was about to be reversed and that permission was to be given to purchasers of any one or a combination of any two of the lines to be sold to divert their ships, thereby opening up each port to full and practically unrestricted competition. This action could not be viewed in any other light than a device in the interest of persons or combinations of persons seeking a common control of all three lines to the exclusion of a prospective purchaser desiring to acquire and operate one of the lines as an independent service, thereby excluding from the bidding, our group constituted to acquire the Puget Sound line. Thereupon the Merchants Exchange of Seattle, an association of independent dealers in grain and grain products, authorized its president to send to the chairman of the Shipping Board the following telegram: T. V. O'CONNOR, SEATTLE, WASH., January 2, 1928. Washington, D. C.: Merchants Exchange of Seattle is vitally interested in oriental transportation of grain products from Puget Sound. The action of your board early in December resulted in an association of local State of Washington capital for financing a company to purchase and operate the Puget Sound oriental cargo ships you are proposing to sell. Your recent action as stated in press allowing diversion of the California and Portland ships into Puget Sound for the purpose of taking and delivering cargo is viewed with apprehension and will probably result in withdrawal of these interests from competitive bidding. We ask you to at least postpone further definite action in way of final specifications until we have an opportunity to examine the tentative specifications and to present to you such modifications as our interests will require. This is a matter of great importance to the entire State of Washington whose production and export of grain should be afforded every opportunity to reach the markets of world and especially the Orient. Any monopoly of transportation to Orient will be a serious impediment to the welfare of entire Northwest. An immediate reply will be appreciated, and if the board is willing to accord this association the courtesy of a hearing we will send a representative to Washington without delay. Please place this telegram before the board at its meeting on Tuesday. Further, please understand that we are without full information; confined solely to what has been published in papers. Your local office is unable to give us any information covering the proposed specifications. H. P. CHAPMAN, President Seattle Merchants Exchange. This telegram, received at Washington on January 2, was not placed before the borard for consideration at its meeting on January 4. On January 4 at 5 p. m., after the adjournment of the meeting at which the present specifications were adopted, the following telegram was filed in the Western Union office at Washington and received at Seattle the following morning. H. G. CHAPMAN, President Seattle Merchants Exchange, Reference your wire December 30 respecting sale West Coast lines, this matter will be given consideration by the board. T. V. O'CONNOR, Chairman. On January 2 the following telegram was sent to Hon. Jefferson Myers, who has repeatedly given assurance that the State of Oregon interests would not be given any preference over those of the State of Washington: Hon. JEFFERSON MYERS, Washington, D. C.: TACOMA, WASH., January 2, 1928. According to press reports, board is proposing to modify specifications for sale of oriental cargo ships in such a way that independent producers of lumber cargo seeking a market in Orient will be seriously handicapped because they can not run the risk of becoming purchasers of the ships operating out of Puget Sound under contract to maintain a minimum service and at same time Columbia River and California ships be allowed to come in to Puget Sound on their way to Orient and pick up cargoes. Apparently a more serious phase will be the opportunity of California and Oregon ships to compete for Puget Sound cargo from the Orient. This line should be protected from competition of the other two lines. Apparently the frame-up is in the interest of California operators designed to eliminate Puget Sound purchasers. Not having before us full details we may be mistaken in respect to what is proposed, but in any event we should have an opportunity to be fully heard before a definite conclusion is arrived at. Assuring you that we are vitally interested and propose to back our trade interests if we can do so with substantial investment we request postponement of definite action until tentative plans have been studied and you have had an opportunity to hear and to consider our interests. Please place this telegram before the board. E. G. GRIGGS, President Douglas Fir Export Co. The following telegram, authorized by the Tacoma Chamber of Commerce, was sent to Hon. Jefferson Myers by J. F. Hickey, president of the chamber: TACOMA, WASH., January 2, 1928. Hon. JEFFERSON MYERS, United States Shipping Board, Washington, D. C.: When you were our guest at a luncheon in Tacoma last September you assured us that you would afford Tacoma every reasonable opportunity to purchase the Puget Sound oriental cargo ships. The announcement of board early in December of conditions of sale was apparently satisfactory to investors in this community willing to financially back a purchase of these ships in interest of all Puget Sound industries to end that these ships might not fall under the control of California and other interests. It is of greatest importance to Puget Sound ship interests that these cargo ships should be preserved as independent carriers free of any monopolistic control and especially free of California domination. The recent action of board apparently made by you reversing earlier order convinces us that you do not understand situation, otherwise you would not have favored clause allowing a diversion of California ships into Puget Sound service, thereby enabling them to kill the Puget Sound line at their discretion. Further as the papers report Tacoma is not mentioned as an alternative port from which these ships may be operated. The clause relating to minimum service should include Tacoma with Seattle or at least be in the alternative. Believing that you intend to be fair and reasonable and not partial to Portland interests cooperating with California, we are appealing to you now to secure a postponement of final action on invitation for bids until we are able to be represented before the board and present our case. Specifications as ordered by the board at its last meeting will effectually eliminate from bidding a strong association of Puget Sound interests whose chief object is to preserve in hands of an independent public service corporation the operation of these ships. If you proceed along line of those specifications without waiting on us to be heard, we can interpret your action in no other light than an intention to exclude real community interests from becoming shipowners and to place Pacific shipping in hands of a monopolistic combination of ship operators. We do not believe that you would knowingly support any scheme which will exclude legitimate Puget Sound investors. Please place this telegram before the board. J. F. HICKEY. The minutes do not show that the telegrams sent to Commissioner Myers were read to the board or called to its attention. These two telegrams were not answered. In view of the situation the group of underwriters proposing and desirous to purchase the Puget Sound line, in the interest of the State of Washington, employed counsel and experts in Pacific coast shipping and directed M. G. Tennent, one of the underwriters and mayor of Tacoma, to proceed immediately to Washington, there to examine the specifications authorized by the board and to determine whether the specifications as adopted exclude this group of proposed purchasers from the opportunity of submitting a bid, and if so to take such action as in their judgment is necessary to protect the interests of the State. This group has been advised by counsel employed, after examination of the specifications for the sale of the three lines, and by practical operators acquainted with the movement of vessels on the Pacific, that it is not safe to submit a bid for the Puget Sound line and that it is not safe to purchase that line under the conditions of sale as now published. No purchaser of an individual line can afford to undertake to maintain such individual line on schedule, in view of the ability afforded by the specifications to either one or both of the other two lines to enter its field of trade and make its losses so heavy that bankruptcy will result or to avoid bankruptcy such line will be compelled to sell to its competitors, thereby consummating the evident effect of the existing specifications bringing about a monopoly of Pacific Ocean shipping. The uppermost question for your board to determine now is whether you will offer the three lines for sale under the existing specifications which affords to a combination of bidders for all the lines to be thereafter under common control or whether you will change the specifications so that individual services heretofore established by the Government at the expense of more than $4,000,000 shall be sold and maintained as separate units, with guaranty of protection from intrusion. We have been reliably informed that citizens primarily interested in the California line, and citizens primarily interested in the Oregon line, will, if the right of deviation is eliminated and guarantee of protection given, present to your board, bids for the respective lines in which such primary interests exist. You need have no fear of not receiving adequate bids if on reconsideration you proceed as the merchant marine act directs to give the opportunity to each individual community to purchase its own service without facing.the peril of being eaten up by a combination to establish a monopoly. It has been stated by individual members of your board, that the provision allowing deviation of vessels, is deprived of its teeth by the provision that a minimum service shall be maintained. That provision does not afford protection. The service out of California ports carries 21 vessels. The minimum service requiring 48 round voyages is capable of being economically performed by the from 12 to 15 vessels, thereby enabling the owner of the California line to use 6 of the ships purchased, free to go wherever they choose, to and from any port on the Pacific. This line will have at its dosposal, without purchasing additional ships, which it has the privilege to do, a fleet of at least five free ships with which to absorb cargo of the Puget Sound line which is compelled to operate on schedule with a mimimum number of 24 sailings which makes deviation impossible. It will readily be seen that no person or group, in the face of such potential competition, can afford to buy the Puget Sound line without being a party to an arrangement for control of the California line. Furthermore, the ships of the Central or Oregon Line can make their minimum sailings with lay-over, in ample time to deviate into Washington ports. Some of its ships might deviate into Puget Sound with incoming cargo and some of its ships into California ports with incoming cargo. Or if it be desired, all of its ships might, with profit, be deviated into the territory of either the northern or southern service. The right of deviation provided by the present specifications, are peculiarly favorable to the Oregon Line. This line represents the local interests and supports commercial prestige directly antagonistic to the ports of Puget Sound. Under the specifications the Columbia River will have a commercial prestige artificailly created by an administrative arm of the United States, to the great prejudice of the State of Washington. Our sole purpose in making this application is to secure a revision of the specifications under which these lines are to be sold to the end that the group of citizens represented by this application may not be excluded from becoming purchasers, by the imminent danger of the investment being wiped out through the ability of competing interests to profit at their expense. We submit that sales shall take place under specifications giving each local community the opportunity to purchase the lines in which it is primarily interested and operate the same in preference to a combination desiring to purchase and operate under a common control which will be in plain language, a monopoly created contrary to law by an administrative branch of the Government. We believe that the present specifications were adopted by the board without consideration of the interests of each local community and without consideration of the fact that if sales shall take place under the existing specifications, a monopoly of the Pacific Ocean carrying trade will inevitably result. We do not wish to postpone or obstruct the sale. We favor private ownership and control of these lines. In this we are in accord with the administration policy. We ask only that the law shall be observed so that such private ownership and control of shipping may be in accordance with the merchant marine act and not in the interest of any particular port or group of ports and particularly not in the |