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628 THE MARINE REVIEW 2. Rates. (a) Competition--The question of rates, of course, is a fundamental one in the success or failure of the Ameri- can merchant marine. Naturally, foreign competitors took advantage of the situ- ation by cutting rates. The shipping board thus faced the alternative of also reducing its rates, in a rate war which would have cost millions, or in with- drawing its tonnage and creating a shortage of tonnage, automatically in- creasing rates through the law of sup- ply and demand. The latter course was adopted after rates had suffered a 50 per cent decrease. Upon the withdrawal of its tonnage, which, of course, was a source of seri- ous loss to the shipping board in ren- dering inactive its ships, the rates slowly rose to a somewhat higher' level, and by the cautious introduction of its ton- nage back into operation, the shipping board was enabled, to some extent, to re-enter the field without further seri- ously disturbing the rates, which now seem to be temporarily stabilized at their present level. Apparently the foreign competitor, by means of keeping in touch with the amount of tonnage the shipping board was puttng into operation, was able to 'cut rates 25 to 50 cents a ton and avail himself not only of the greater amount of tonnage, but also to take advantage of the slowly increasing rates. The lack of scientific business practice in the shipping board, plus the inertia of the board organizaton, made it impossible for these conditions to be met as promptly under shipping board practice as they could and would have been met under private practice. The net result of this condition was that the shipping board not only suffered the losses inci- dent to tying up its tonnage for a time, but it failed to reap any marked bene- fits upon the re-introduction of its ton- nage into operation, because it did not meet the strategy of the foreign com- petitor. It is asserted by many that the shipping board is in great need of a competent traffic bureau. (b) Supply and demand of tonnage. --Rates can be manipulated by taking advantage of the supply of and demand for tonnage, and it is seriously to be questioned whether or not this offers the ultimate solution of the problem, so long as the foreign competitor stays Bad Business Practice Causes Mistakes HE great majofity of these losses come not through crim- inal practice but through bad busi- ness practice. Yet the losses are just as great and just as serious as though they were the result of criminal practice; even more so, since they cannot be investigated and stopped as easily as criminal practices could be handled.--From report to congressional committee. a few cents under the rate and gets a large portion of the tonnage. There are many who assert that it would have been better for the shipping board to have met squarely a rate war and to have paid the losses incident. thereto all at once, rather than to have deferred such losses from day to day and to have paid them in installments by tying up its ships. Others assert this was not the proper plan, but that some of the tonnage should have been retired tem- porarily and other tonnage allowed to operate at the prevailing rates. Others assert that the coastwise trade should have been developed with shipping board tonnage to make up for deficiencies in December, 1920 the transoceanic trade. Whichever solu- tion may be the proper one, it seems to be established that the shipping board has not met the condition. (c) Rate bureau--The shipping board maintains a bureau which is stipposed to function as a traffic bureau, but ap- parently does not do so. 3. Trade routes. (a) Development of trade routes,-- Under old practice in the shipping board, development of trade routes was sought by the arbitrary assignment to certain operators of tonnage which was to be used only in certain trade. Certain routes were laid out to be developed, and there was no departure from the rule that the tonnage allocated to this trade must continue in that trade. This resulted, in many instances, in operators being unable to make any profit be- cause they had tonnage allocated entirely to trade routes which, being in early stages of development, were naturally unprofitable. No provision was to divide the burden of developing such trade routes among several operators, allowing them also to participate in profitable trades, in order to balance by profits on profitable routes the losses due to development of unprofitable routes. It was this condition which re- sulted in the drastic change under man- aging and operating agreement No. 3, which caused the shipping board to swing to the other extreme and allow managers and/or operators too much discretion in the selection of trade routes for the tonnage they operated. Lack of balance as to net earnings of the several routes is one of the serious handicaps to the proper development of the American merchant marine. (b) Coastwise routes--For some rea- son but a small percentage of shipping board tonnage has been allocated to coastwise trade. Heavy Money Losses Met in Supplies 1. Service. (a) The service of purchase and sup- ply under managers and_ operators' agreements 1-2-3 and (contemplated) 4 is left almost entirely in the hands of masters, chief engineers and stewards. Under one of these agreements the shipping board is supposed to furnish the service, yet, as a normal part of operations, the managing and/or operat- ing agent should perform this service. In the agreements there is nothing laid down as to how this service shall be rendered, as to what basis of prices shalt be secured, or as to whiat shall be done if lowest wholesale prices are not secured. The result is, conservative- ly estimated, an overcharge on the mil- lions of dollars worth of supplies pur- chased and being purchased for ship- ping board ships, amounting to 40 to 50 per cent. This service of purchase really should be performed by United States shipping board with a properly organized staff of purchasing agents. Otherwise, proper provision should be inade in the managing and operating agreements to require the manager and/ or operator to perform the service of purchase and supply under some system which will insure United States ship- ping board the lowest wholesale prices, a proper quality of goods, proper in- spection, inventory and rationing. This phase of operation, one of the big sources of expense, is, under present practice, nobody's concern, and every- body's business, so to speak. (b) Wholesale rates, instead of the rates secured by United States Shipping Board under present practice, should be the rule. Many wholesale firms in the various ports would participate in ship- ping board business if they did not have to pay gratuities to secure it. It is not uncommon for ship chandlers sup- plying shipping board ships, under pres- ent practice, to carry less than $25,000 in stock, yet handle half a million dol- lars' worth of orders annually, They secure orders from managing and/or made al Rt he OR tg ey Be i aS Aaa ae aM nl i Heed a)