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624 One of the terms which surrounded the early sales of shipping board tonnac' was an initial payment of 25 per cent; this was reduced to 10 per cent with provision for a longer period of de- THE MARINE REVIEW ferred payments. Early purchasers of tonnage now argue that they should be given consideration in the form of a reduction of the tonnage price and an extension of their term of payment. December, 1920 Apparently, the shipping board con- tines to allocate tonnage because con- ditions are such that it does not find ready sale for its tonnage, rather than seeking to remove the obstacles to sales. Find Ship Allocation Policy a é ALLOCATIONS 1. Respcnsibility of Companies _ (a) Favoritism in allocations and as- signments, embraces the character of hoats, trade routes, etc. The allegation has been made in times past that favor- itism has been made by the. shipping board in the allocation or assignment of its tonnage for operation or manage- ment. Instances of such favoritism can he shown where political influence or influence through officials of the board themselves, resulted in the assignment and allocation of tonnage to companies with which the officials were or had been associated. While some companies which did not have the standing, or the financial responsibility, to insure safe and proper management and operation of shipping board boats, were able to get all the tonnage they applied fer, other companies, with a long history of successful ship operation and with finan- cial responsibility beyond question, were unable to secure the tonnage for which they had applied. Controlling, as it does, the trade routes and the character of boats, the board is able to restrict applicants for allocated tonnage, and managers and/or operators of board ton- nage to conditions which make or ruin the success of the manager and/or op- erator of shipping beard boats. It has been charged on more than one occasion that, while 'shoestring companies" with insufficient financial backing, and insuf- ficient experience in management, are able to get all the tonnage they request, which tonnage they, in many cases, are operating at .a loss, reputable, experi-. enced operators do not: get tonnage al- located to them, or if they do secure tonnage, it is, in many cases, ships-of an undesirable type, and they are re- stricted to trade routes which are un- profitable, being given no ships in the trades which are sufficiently profitable to carry the burden of loss on opera- tion of undesirable types of boats, or boats in undesirable trades. Offered a Temptation (b) Earnings or losses; interlocking ownerships in ship chandlery, repair, water, towing, stevedoring, forwarding companies, and taking of additional per- centages, creating losses which the hoard has to absorb, all -- enter into the question of desirable or unde- sirable management or operation. The condition brought about by the mana- 'gers' and operators' agreements, under which the board absorbs all losses, but shares with the manager and/or operator any net profits, is such as to give rise to interlocking ownerships and _ con- tracts. The net résults, however, are bad, primarily because such a condition tends to tempt the manager and/or operator who has insufficient capital and experi- ence to get into the ship supply or ser- How Burdens Are Put- on Operators 3 beer eLy, due to lax- ity in delermining the two all- wuportant points of responsibility and experience with reference io the fitness of atplicants to manage or operate shipting board tonnage, some conipames which have not - shown profits m the management aid operation of shipping board tonnage have been able to secure the best type of boats and to operate in the most profitable trade routes, and yet show losses on the opera- tion. Naturally, the burden of in- efficient operation by inexperienced agents has to be passed on to the experienced aperators to bear, being reflected in various ways, among which is the high percentage of gross earnings reserved by the shitping board to cover cost of ubkect, depreciation, and refair-- From report to congressional conm- mittec. vice business and take his profits there- from, knowing that the actual opera- tion of the ships will show a loss, about which he has no worry, inasmuch as these losses are absorbed by the ship- ping board. This very condition places the legitimate operator who depends solely upon the profits derived from the actual carrying of cargoes in competi- tion with practices which are bound to result in losses for the board; thus the legitimate operator is forced to adopt similar methods of interlockin g ownerships and contracts, or else he is doomed to financial failure in the opera- tion of board tonnage. Gc) Bases of allocations theoretically are correct, in that the shipping board, through its division of assignments and allocations, is supposed to determine the financial responsibility as well as the experience of the applicant for assigned or allocated tonnage. Unfortunately, however, owing to a lack of a credit bureau, the board does not determine in many cases these two important points with regard to applicants for tonnage. (d) Investigation of companies or ap- plicants for assigned or allocated ton- nage seems to be more or less haphaz- ard with the board. Ordinarily, aside from the work of the department of in- vestigation, the method of ascertaining the financial responsibility of applicants for tonnage is to seek. reports by the commercial reporting companies such as Dun or Bradstreet. This avenue of. in- formation became useless in the case of newly organized companies, many of which sprung up, and neither did this avenue of information assist the divi- sion of assignment and allocation in de- termining the experience of the appli- cant for tonnage. This division has no organization or method for determining what managers and/or operators are in- dulging in interlocking ownerships or contracts. (e) Remedy--The remedy for these conditions, obviously, lies in a properly organized credit department, together with a properly functioning department of investigation. 2. Terms and Contracts. (a). Earnings--The earnings derived from the operation of assigned and allo- cated tonnage ordinarily should be far above the expenses. Theoretically, the shipping board is showing a profit on earnings even with the handicaps which have been described. An actual account- ing, however, of revenues and disburse- ments, it is believed, will show this . theory to be upset. Whereas one mana- 'ger and/or operator may show a profit on the earnings of tonnage operated by him, and whereas one operator may de- rive a good profit from his division cf net profits with the shipping board on such tonnage, the net result to the board can not be considered as in that light, because the board is operating many hundreds of thousands of tons, through many agents, and the profits shown by one manager and/or operator may be, and in fact are, swallowed up