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Palmer Tells Some Plain Truths Continued Government Operation Will Ultimately Cost $40,000,000 a Year—Same Service Could Be Maintained by $15,000,000 a Year Aid to Private Operators N JUNE 26, before the na- O tional foreign trade conven- tion held in Seattle, President Palmer of the Emergency Fleet Corp. delivered a dispassionate, calm, rea- soned and logical account of his stewardship in office and suggested a program for the government-owned fleet. He said in substance and in part: After looking over the entire situa- tion upon taking charge I shortly came to the conclusion that the main trouble with the government-owned merchant marine was that it was suf- fering from too much easy money in- stead of getting down to real busi- ness and trying to come somewhere near living within its income, it was depending unduly upon the national treasury. Therefore, it seemed best to reduce the appropriation covering operating losses from forty-two mil- lion dollars to thirty million for the present fiscal year, while doing: the same amount of business as_ last year, and to cut it again to twenty- four million for the fiscal year be- ginning next month. We are plan- ning a further cut to eighteen mil- lion dollars for the following fiscal year, and we will continue this policy of reducing operating losses with im- provement of services while the coun- try at large is endeavoring to arrive at some constructive policy in the matter of the merchant marine as a whole. Operating Costs Reduced A little more than a year ago we were operating about 320 cargo ves- sels at a loss of more than $25,000 per voyage. During the first 10 months of the present fiscal year, beginning July, 1924, the average loss was reduced to about $20,000, and at the end of this period it had fallen below $17,000. We regard the improvement already made as merely a beginning. After a careful analy- sis of all the factors in the case, we feel that the loss per voyage of the government-owned cargo fleet can be reduced to about $8500. This, how- ever, does not include interest and depreciation charges, which must be included if proper comparison is to be made with private operating re- sults, and these two items would in- crease the prospective voyage loss to about $13,500.. There is, however, the question of replacements that has to be consid- ered in any plan of continued govern- ment operation. What would a re- placement program cost the govern- ment? Taking an active fleet of 300 cargo vessels as a basis of our con- sideration, and assuming that a few of the lines comprising, say, 50 ves- sels, will be disposed of to private interests, there would remain about 250 vessels to be replaced, in due time, by the government. We have a conversion program under way by which about 50 steamers of the laid- up fleet will be reconditioned within the next three or four years, with diesel motors, electric auxiliaries and modernized equipment throughout. These motorships will be substantially new vessels and the conversion pro- gram may, therefore, be regarded practically as a partial replacement program; thus the number of steam- ers to be replaced would be reduced to 200 and the average replacement would be about 20 vessels per year when the replacement program is fully under way. Their cost prob- ably would average about $1,000,000 each. Therefore, the total cost would average about $20,000,000 per year for new construction for the cargo fleet alone. As for passenger liners and com- bination passenger and cargo vessels of which we are operating a total of 15, the replacement cost would range from $5,000,000 to $15,000,000 per vessel, and would average prob- ably $10,000,000 a year. With the improved administration and higher efficiency toward which we are working, the operating loss of this fleet may be reduced to about $10,000,000. Therefore, the prospec- tive cost of continued government maintenance of a fleet of about the present size is about $40,000,000 a year. Aid to Private Operators Our study of 1200 voyages to all parts of the world in a 12-month period indicates that, if under the best practicable operating conditions the fleet corporation losses (including interest and depreciation) were $138,- 500 per voyage, the average private American owner of this tonnage could reduce that loss to about $4500. Fur- ther the same fleet on similar serv- ices, if operated under British con- ditions, would about break even. In 255 other words, the differential between the operating results of government- owned and privately owned vessels is estimated to be about $9000 per voyage; while the differential between operating results of private American and British vessels, operated with equal efficiency, is believed to be about $4500. In exceptional cases ex- clusive financial and industrial con- nections here and abroad may change this amount considerably. This last figure, $4500, may be taken as an approximate measure of the amount of government aid that would be required to place Ameri- can vessels on a competitive foot- ing with British vessels. For a cargo fleet of the size of that oper- ated by the fleet corporation, about 2,500,000 deadweight tons, this aid would amount to about $5,000,000 a year, and extending this to include all American cargo vessels in foreign trade, the total might amount to $7,- 500,000. Passenger and mail liners are usually aided by means of mail subventions, or. subsidized on the basis of naval defense requirements. Probably such aid would need to be somewhere between $5,000,000 and $10,000,000 a year, or say $7,500,000. Thus it would appear that the total amount of government aid necessary to put the American merchant ma- rine in foreign trade on a competi- tive footing would be about $15,- 000,000 a year. To summarize, our country faces three alternatives in respect to the merchant marine in foreign trade: first, continued government operation costing ultimately around $40,000,000 a@ year; second, government aid to private shipping amounting to about $15,000,000 a year; or third, the gradual but certain disappearance of our flag from the international trade routes, and a return to our prewar condition when less than 10 per cent of our foreign commerce was carried in American vessels. Encourage Private Ownership A private owner has numerous ad- vantages over a government operator of shipping, not only in his ability to keep his expenses low but also in getting more cargo and_ revenue. Then there is another very important. distinction to be made between pri- vate and government-owned lines. The private organization, from its