p74  Chapter Five

At Last: An Adequate Policy

The Necessity for Action

One of the chief difficulties of the American merchant marine," declared the United States Maritime Commission in 1937, "has been our lack of a stable policy." These were words which the country had reason to ponder. Its existing merchant marine had for the most part been built as a great wartime unit, 1917‑21. Even the best of it was necessarily becoming obsolete as a unit. The country would have to replace a good proportion of its vessels within a very few years, or be left without a merchant navy at all.

The happy-go‑lucky era of the nineteenth century was gone forever. In ocean affairs the United States now occupied a position which made government intervention, planning, and spending absolutely imperative. As the richest nation, the greatest exporting nation, and, next to Great Britain, the greatest importing nation, the United States simply could not leave its commerce in the hands of other countries — to be restricted or cut off, perhaps, in a new crisis. As one of the two greatest naval powers, the republic simply could not leave its supply of merchant auxiliaries in time of war to chance. The First World War had taught it both those lessons. Once most citizens had shuddered at the word "ship subsidies," and most shipping men at the phrase "government interference." That time was now past.

 p75  Government aid to shipping, instituted in the First World War, had never been and obviously could not be withdrawn. All the other great maritime nations subsidized their shipping. Great Britain aided the Peninsular & Oriental Steamship Company, which in 1937 owned 339 vessels of 2,175,000 gross tons; the Cunard Line, with 76 vessels of 875,000 gross tons; and other services. Germany subsidized the Hamburg-American Line, which that year had 247 vessels of 715,000 gross tons, and the North German Lloyd with 229 ships of 547,000 tons. Japan subsidized several great lines, one rapidly approaching a million gross tons. While a considerable diversity of opinion existed regarding the precise difference between American and foreign operating costs, no disagreement was possible on one fact — our costs were higher. If national aid were withdrawn, some of our most vital shipping services would collapse.

In its efforts to devise a fruitful policy, the government after the war took one fumbling step after another. We have mentioned the Jones Merchant Marine Act of 1920. This could not be called inspired. To aid American shipping companies, the government exempted them from the excess profits tax up to a certain amount. To encourage shipbuilding, it provided for revolving loans on new ships of not more than $25,000,000 a year for the next five years. Another benefit was attempted: the law authorized preferential tariffs on goods imported in American bottoms, but the Administration opposed this principle, and repudiated it. Trade with American dependencies was restricted to American ships, and generous mail contract payments were provided. But because it was not well considered, and because of the worldwide shipping depression, the act failed to help our languishing merchant marine.

Congress made a new effort in 1928 with the Jones-White Bill. This, liberalizing the old law, increased the mail subsidies; doubled  p76 the revolving fund for loans to build new ships; and authorized the sale of the remaining government vessels at such low rates that buyers could obtain ships at one‑tenth of cost. The new mail subsidies went as high as $12 a nautical mile for ships making 24 knots — this being in addition to high poundage earnings on mail. But the law went into effect on the eve of the great world depression beginning in 1929, and in the face of this howling gale it accomplished almost nothing. Our merchant marine remained at a standstill.

But in spite of inadequate government support and adverse economic conditions, five vessels were built in this period which were noteworthy additions to America's trade fleet. In 1927 and 1928 the International Mercantile Marine Company built three big liners, the California, Virginia, and Pennsylvania, for its intracoastal service, the Panama Pacific Line. They were the first commercial vessels to have turbo-electric propulsion. The United States Lines, then a part of the I. M. M. group, followed these in 1932 and 1933 with the Washington and Manhattan, largest liners yet built in the United States and the first to be built for the North Atlantic trade in 35 years.

The Turbo-Electric Liner, California, Built in 1927

The Cabin Liner, Washington, Launched by the U. S. Lines in 1932

 p77  By the middle thirties the time had come for a fresh attempt. Not a few observers, looking back over the previous twenty years, felt deeply disheartened. In the period 1917‑37, the government had spent upon merchant shipping slightly more than $3,800,000,000. While by far the largest part of this was a war expenditure, to be forgotten when peace came, large sums had also gone to assist private shipbuilders and ship operators. And what did the government have to show for its outlay? The Maritime Commission, with Joseph P. Kennedy as head, made an emphatic statement on this subject.

"In looking at these figures," it declared, "one is forced to the conclusion that much of the expenditure has been in vain. All of the operating losses of the Shipping Board, plus nearly $176,000,000 in mail contract payments, have failed to achieve the purpose we have in mind — a modern, efficient fleet, capable of reproducing itself in the foreign trade of the United States." It was true that the main shipping lines had been preserved. But the nation had only the form, not the substance, of a good merchant  p78 marine. "We have come today to the end of our once magnificent armada. Of the 2,500 vessels launched in the mightiest shipbuilding program of history but a few aging specimens remain. Soon these remaining few will be incapable of further service. Then, unless some means of replacing these vessels can be found, the great endeavor of the United States at sea, so far as the subsidized lines are concerned, will be at an end."

There could, however, be no turning back; for, if nothing else, the grim international situation would have forbidden all thought of that. The years after Hitler's emergence to power in 1933 found the political outlook of the world steadily growing blacker. Japan had begun her career of conquest in China; Mussolini was soon attacking Ethiopia; the Nazis were preparing to engulf Austria and Czechoslovakia. With the aggressors on the march, a new world war was almost certain — and the United States would need a strong merchant fleet more urgently than it had in 1914. Fortunately, President Franklin D. Roosevelt, keenly conscious of the international perils, comprehended the importance of a broad maritime establishment. Some of his Yankee ancestors had played a large part in our merchant shipping history, he himself loved sailing vessels and was an avid student of naval history, and he had been Assistant Secretary of the Navy under Wilson. His First World War experience had taught him the indispensable value of a strong merchant fleet.

The Roosevelt Administration ordered studies made; it prompted the appropriate agencies, including the Shipping Board and Commerce Department, to plan a feasible national policy; and it rallied intelligent friends of merchant marine in Congress to its ideas. The result was the Merchant Marine Act of 1936, which at last placed a really strong foundation under our maritime ambitions. It was the frankest, most expert, and most realistic approach  p79 to the problem of supplying the nation with adequate cargo and passenger facilities yet made.

Opening a New Road

The new law vested in a Maritime Commission of five members the duties and functions of the old Shipping Board, and laid down the broad outlines of a shipping policy. It directed the Commission (of which the first head was Joseph P. Kennedy, and the second was Rear-Admiral — later Vice-Admiral — Emory S. Land, U. S. Navy, Retired) to study and put into effect a far‑reaching plan for replacing our fast-decaying marine with modern ships of the most economical types. This shipbuilding program was to be adapted to the needs of national defense. Admiral Land, with the able naval assistants, Admiral Howard L. Vickery and Edward Macauley, could be counted upon to see to that. The Commission was to give assistance to ship operators in meeting foreign competition on a fair level of equality, and to aid them in maintaining effective services on essential routes. Finally, it was to take steps to see that American ships were in overwhelming degree manned by American citizens; for only such crews could be dependable in time of war.

One of the early acts of the Maritime Commission was to publish an Economic Survey of the American Merchant Marine (November 10, 1937), which in eighty-five pages gave Congress and the country a highly intelligent analysis of the situation, and proposed a set of solutions for the main problems. As emergency steps, the Commission dealt at once with the troubles of the Munson Line, our chief ocean carrier to Brazil, Uruguay, and Argentina, and the Dollar Line, our leading trans-Pacific service. It took over the Munson vessels, and it helped the Dollar Company to reorganize and to improve and expand its fleet. It terminated the  p80 old mail contract subsidies, as the law directed; and on the basis of a mass of patiently collected statistics and other information, it formulated a new set of fundamental principles for giving healthy vigor to ship construction, and prosperity and system to ship operation.

For the first time a really efficient scheme of assistance to shipbuilders was devised. It was provided that any American citizen, or any company three-fourths of whose stockholders were Americans, could apply to the Maritime Commission for aid in having a new vessel constructed in an American yard. On condition that this ship be used in a service which the Commission defined as essential to our foreign trade, the Commission would pay the difference between the home cost of the vessel (as ascertained by competitive bidding) and the estimated cost if it had been built abroad. This "construction differential subsidy" was not to exceed one‑half the cost of the ship. Since the Commission let the shipbuilding contract, all of the subsidy payment went to the shipyard, the engine works, and the various outfitters of the craft, with their employees. Not a cent went directly to the ship operator, who merely got his vessel at the figure which he would have paid a British, Dutch, or German firm for it.

But the ship operators, under the Maritime Commission's new plan, did receive other benefits. A buyer had to pay only a quarter of the purchase price in cash, the remainder being due in equal annual instalments which might be stretched over twenty years (the lifetime of an ordinary ship) with interest at three and a half per cent. Since the Commission was anxious to rid the merchant navy of wasteful junk, operators were encouraged to turn in obsolete ships at a fair appraisal, using them as part of the down payment on new construction. And this aid was only the beginning. To meet disparities in costs of upkeep and management,  p81 an "operating differential subsidy" was provided. Obviously, if Americans in large numbers were to be attracted to the merchant marine, they must be given as good living quarters, food, pay, and working hours as men ashore, and this alone would mean enhanced costs in our marine.

Upon agreeing with the Maritime Commission, therefore, to place his vessel on a route specified as essential, and to maintain a specified service — a fixed schedule of sailings and a certain aggregate of voyages — the owner of a ship was to be entitled to the differential subsidy. This was designed to place him on an equal footing with foreign competitors; not to give him an unfair advantage over them. All ship operators were to keep their books on principles laid down by the Commission, and to submit their accounts for frequent inspection. The Commission has always included experts on traffic rates and general business conditions. It was, therefore, able to determine, as nearly as the intricacy of the problem and the economic fluctuations of the troubled time permitted, just the proper differential for each route and ship. Payments were to be made voyage by voyage, audits were to be constant, and revisions of pay schedules were to be frequent.

The plan of the Commission provided, also, that cooperating shipping lines would manage their business prudently, restrict themselves to conservative dividends, and avoid wasting their profits in years of exceptional prosperity. If the subsidized work of any year ended in a profit of more than ten per cent, the shipowner must place the excess in a reserve fund to meet losses in poor years, or to pay for new ships. If profits exceeded an average of ten per cent over a whole decade, half of the built‑up reserves were to be paid back to the Maritime Commission — up to the amount of the whole subsidy. In short, the Commission wished to keep the shipping business more stable than in previous years.

 p82  The general scheme of differential subsidies was, as time proved, essentially sound. Much broader than the old plan of mail contract subsidies, it was far more fruitful, while it was fairer to the government, to shipbuilders and shipowners, and to foreign competitors, than the old method of giving aid by fits and starts. The seamen were by no means forgotten. The Act of 1936 provided that the Maritime Commission should determine minimum wage scales and minimum requirements for working conditions aboard subsidized vessels. The Commission promptly made a study of ships' forecastles, and insisted on a drastic remodeling of quarters on old craft, while the design of new vessels made the best provision for the comfort of the crews that the world had yet seen.

Defense Goals and Trade Goals

The plan of the Commission, broadly laid down in its Economic Survey of 1937 and later worked out in detail, was in part borrowed from other nations, but in much larger part was original. Its principles commanded general approval. But just what were the goals which the Commission set itself? How large a merchant marine did it believe the United States needed, and where and how did it wish this fleet to be active?

The primary purpose of the new merchant fleet, as the Act of 1936 indicated, was to strengthen our national defense. In its Survey, the Commission stated that if war began with a major power, the United States would need at the outset a minimum of a thousand merchant ships of all types, aggregating about 6,000,000 gross tons. But antiquated, badly built, creeping tubs would not do. This basic fleet of a thousand vessels should be modern, fast, and built with an eye to war uses. Some ships could be convertible into aircraft carriers. They should be capable of supporting flight  p83 decks •600 feet long and •60 feet wide, and of making 20 knots or better. Some ships would be usable as auxiliary cruisers. They would have a speed of at least 20 knots and preferably much more, while they should possess a wide cruising radius. Still other ships should be convertible into troop transports; they should be built to carry a minimum of 2,000 men with their equipment, and to make at least 16.5 knots. Other vessels would be needed as hospital ships and tenders. A huge tanker fleet — for any maximum effort, at least 300 tankers — would be indispensable. And, of course, cargo carriers would be needed more acutely than ever.

The secondary purpose of the new fleet was to guarantee that, whatever new political convulsions racked the planet, our international trade needs would be met. Without a merchant marine under our own control, continuous delivery of essential imports and exports could not be assured. Without them, American farmers, manufacturers, and merchants would again be subjected to exorbitant freight rates. Without them, American goods would not be safe from discriminatory action on the part of foreign shipowners.

After scanning in detail the movement of every item entering into our foreign trade, some two thousand commodities in all, the Maritime Commission decided that the world had twenty trading areas, each of which needed a special American service. These ranged from familiar routes — "From North Atlantic ports to the west coast of South America" — to less frequently mentioned lines — "From Atlantic coast ports to India via Suez." A close organization of the services would be needed. Tramp ships, as we have seen, were rapidly disappearing from the world's commerce, and the United States had practically none anyhow. A highly systematized traffic, operating on fixed schedules, was taking their place. We had to see that our ports had regular sailings to all essential areas. Some  p84 observers suggested that the United States ought to give special emphasis to those non‑industrial regions, such as West Africa, which had little or no shipping. But the Commission decided that the American flag should fly in all quarters of the globe. "Shipping must be viewed as an integrated unit," it declared, "the effectiveness of which would be seriously impaired by gaps in the coverage of essential trade routes."

To a considerable extent the special requirements of defense and of commerce in ship design clashed with one another. The high speed and extra bulkheads needed in vessels with war service in view, to name only two items, added to the costs of operation. Some kinds of auxiliary ships needed for armed service were hardly useful in peacetime at all. This consideration emphasized the necessity of granting subsidies to the dual-purpose marine. In drawing up its plans the Commission insisted upon practical, common-sense types of merchant vessels, without any frills. Other nations were building passenger-cargo vessels remarkable for size, speed, and luxury. But the Commission determined that the United States should not launch vessels extremely large and fast, or inordinately luxurious.

For this purpose the Commission and its technical staff, aided by experts drawn from the Commerce Department, Navy Department, and American Bureau of Shipping, worked out careful ship designs. The principal shipbuilders of the country lent their assistance. Plans were prepared for three basic types of freighters, each plain, substantial, and generally serviceable: the C1, C2, and C3. They differed in size and speed, but they all embodied new features making for efficiency, safety, and comfort. Propulsion could be furnished either by steam engines or Diesel motors. The Commission's staff took special pains to reduce the fire hazard to a minimum. Electrical sounding devices and the gyro-compass were  p86 utilized. Special public attention was given to the standardized C2 design: a ship of 13,900 tons displacement, •435 feet long and 63 feet in breadth, with a cruising radius of 13,000 miles.

(p85)

Three Freighters Designed and Built Under the Maritime Commission Program of 1937: C1 (top); C2 (middle); (C3 (lower)

At last the United States had formulated a sensible, expert, and thoroughly hopeful policy. Under the energetic and sagacious guidance of Admiral Land, it promised to give the shipyards and shipping lines of the country a basis for prosperous and steadily expanding activity. How badly it was needed might be inferred from the fact that in 1937 the country had only twenty‑six yards, with 106 ways. The Act of 1936 and the policies of the Maritime Commission, of course, wrought no immediate revolution. But they seemed likely to make the United States reasonably independent of other nations, after a few years, for the carriage of its vital commerce. They seemed certain to give the country a nucleus of swift, modern, well-built ships to serve as auxiliaries in any war, and hold the gap until another tremendous shipbuilding program could be improvised.

All this was done in the very nick of time. In 1938 the world trembled on the edge of another general war. In 1939 it went over the edge.

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