ica, 2,945,174 tons; between Europe and Canada, 2,412,390 tons; between Europe and the United States 1,767,972 tons; between the east coast of the United States and the west coast of South America, 1,523,660 tons; between Europe and Australasia, 935,424 tons; between the United States and the Hawaiian Islands, 479,054 tons; and between the United States and Australasia, 430,044 tons.

Panama Canal revenues from tolls and from postal and miscellaneous receipts, but exclusive of profits derived from business operations, totaled for the year $23,420,936; expenses totaled $8,901,430, resulting in a net income of $14,519,506. From business operations, Panama Canal revenues amounted to $15,988,932 as compared with expenses of $14,967,716, resulting in a net revenue of $1,021,216. The combined net revenues from all Panama Canal operations thus amounted to $15,540,722, which is a return to the United States of 2.86 percent as interest on its capital investment in the Canal and its auxiliary works. This net revenue is $2,636,381 less than the preceding year, due to a decrease in the amount of tolls collected and to increased costs of operation caused principally by the elimination of the temporary deductions from salaries and wages under the Economy Act, and to an increased force made necessary by the establishment of the 40-hour week in a number of the units in the organization.

Panama Railroad Co. revenues received from the operation of the railroad, docks, coaling plants, commissaries, etc., on the Isthmus and from the operation of the steamship line running between New York and the Isthmus, totaled $12,345,021.27; expenses totaled $11,768,884.02, resulting in net revenue of $576,137.25. Adding to this miscellaneous profit and loss items resulting from interest exchange, etc., the net revenue received from all Panama Railroad Co. activities for the year totaled $1,010,157.55. Dividends declared by the railroad for the year and credited to the United States amounted to $700,000.

Canal tolls legislation. The present system of measurement of vessels for the collection of tolls, having no justification in equity among the several types of ships, may be considered as a form of subsidy to certain types at the expense of other types. Such an indirect subsidy to certain types of American vessels is unsound and in addition is necessarily shared by similar types of foreign vessels. For many years the Panama Canal has sought legislation to accomplish certain well-defined results, beneficial not only to shipping interests but to the United States, the objects being: (1) To reestablish in the present law the system originally intended by the Congress which through certain technicalities has become ineffective-a system patterned after that in general use for ship canals which had operated successfully over a period of many years and which is designed to avoid the very inequalities which the Panama Canal is now experiencing; (2) to abolish the unsatisfactory, unfair, dual system of measurement whereby tolls charges are based on one tonnage and the limiting factor on another different and smaller tonnage subject to manipulation; (3) to regain control over the tolls charged and to stop further an apparently endless reduction in tolls paid.

During the second session of the Seventy-third Congress the remedial legislation desired was passed by the House of Representatives but Congress adjourned before the bill was reached on the Senate calendar. During the first session of the Seventy-fourth Congress, hearings have been held by the House Committee on Interstate and Foreign Commerce and joint hearings by the Senate Committee on Interoceanic Canals and a subcommittee of the Committee on Commerce. The identical bills, Senate bill 2288 and House bill 5292, have been favorably reported to the Senate and to the House but have not been brought to a vote.

Meanwhile, new ship-building programs are being rapidly pushed to completion, and foreign nations by taking advantage of the present rules are depriving the Panama Canal of income properly earned. Any desired change in income should be effected by a change in the rate per ton ordered by the President within the limits prescribed by Congress, rather than by arbitrary changes in the measurement of vessels. It is urgently recommended that the bills to provide for the measurement of vessels using the Panama Canal and for other purposes, now before the Senate and the House, be enacted into law.

INLAND WATERWAYS CORPORATION

The Inland Waterways Corporation was created by act of Congress in 1924 for the purpose of rehabilitating water commerce on certain of our interior streams. It operates the Federal Barge Line on the Mississippi, Missouri, and Warrior Rivers.

Its mission is to demonstrate the feasibility of carrying on river traffic to the mutual benefit of producers, shippers, and consumers. The policy of Congress with respect to inland water transportation was stated in the Transportation Act of 1920 to be "to promote, encourage, and develop water transportation, service, and facilities in connection with the commerce of the United States, and to foster and preserve in full vigor both rail and water transportation." At the time this declaration of policy was made other forms of transportation that have developed so astonishingly in recent years were not considered of more than local significance. It would seem that in the light of recent developments the Congress should restate its policy, with specific reference to rail, water, motor, air, and pipe-line transportation, respectively. All forms of transportation should be encouraged and developed, with the primary view of rendering public service at reasonably compensatory rates. At present some of these forms of transportation are destructively competitive, rather than cooperative. Federal regulation to curb cutthroat competition and to promote the public benefit by means of a "live and let live" policy would appear to be desirable.

In order that there might be no misunderstanding of the nature of the operations of the Inland Waterways Corporation in relation to private operation of water transportation on our rivers, I announced during the year that the corporation was governed by the following policy:

That the corporation was organized for the purpose of demonstrating through a Government-owned transportation system, the economy and feasibility of inland water transportation; that carrying on the operation of this system until such demonstration is completed and the business can be advantageously turned over to private capital and private enterprise is paramount; but that meanwhile every reasonable measure will be taken to promote and encourage private operation of common-carrier barge service on the rivers upon which the Corporation operates.

During the recent depression the Inland Waterways Corporation, in common with other transportation agencies, suffered considerable losses due to a reduction in tonnage carried and to obsolescence of equipment. With a view to eliminating or reducing such losses, I gave a great deal of personal attention to the affairs of the corporation during the past fiscal year. I made a personal inspection of all of the facilities of the corporation along the streams on which it operates. I also had a business survey of the corporation made by an agency outside of the Government, and an audit of the fiscal affairs conducted by a firm of certified accountants.

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Revision of organization.-My inspection of facilities disclosed that the corporation possesses a fine fleet of barges and towboats, with suitable terminals, and that it is rendering excellent service at reasonable rates. It seemed to me that the overhead was too high and the volume of freight too low. Accordingly I directed that the organization be revised with a view to reducing overhead, increasing the volume of freight moved, and increasing the revenue per ton-mile. It is with considerable satisfaction that I note that progress has been made toward these objectives. The annual budget of the corporation was reduced by approximately half a millon dollars and at the same time an increase in freight volume and in net earnings was effected. While in the calendar year 1934 the corporation had an operating deficit of $896,958.67, of which $625,998.78 was depreciation, the balance, $270,969.89, being charged against its reserve fund, there accrued from January 1 to June 30, 1935, a net increase in the reserve fund of the corporation of $475,110. The reserve fund on June 30 totaled $2,886,143. By September 20, 1935, this fund had grown to $3,314,317, which indicates, all things considered, a healthy business condition.

The survey of the corporation, which was directed by Dr. Marshall E. Dimock, associate professor of public administration of the University of Chicago, was of great assistance in improving the organization. The survey confirmed my own investigations and conclusions as to the economies of water transportation and the advantage to the public of continuing to make it available at reasonable rates.

Last January a simplified organization was formed. Later the bylaws were amended to provide for a board of managers in addition to the advisory board. These two boards are composed of persons interested in inland water transportation, who serve without compensation, and who render valuable advice and assistance in the management of the corporation.

Toward the close of the fiscal year a thorough and independent audit of the accounts of the corporation was completed by Haskins & Sells, certified public accountants. They found the accounting records had been kept in accordance with the rules prescribed by the Interstate Commerce Commission. The accountants checked balance sheets and related statements and verified items of cash and securities. They found that the valuation of property and equipment conformed to appraisals made by the American Appraisal Co.

River improvements.-The operations of the corporation are dependent to a considerable extent on the navigability of the streams on which its vessels ply. The river improvements which have recently been made on the Mississippi and the Missouri have been of distinct advantage to the corporation as well as to the operators of private craft. The completion of a dependable channel made it possible last June to extend the operations on the Missouri River from St. Louis to Kansas City. Since that time regular and dependable service on this section of the Missouri River has been maintained by the corporation. I am confident that this service will redound to the great advantage of producers and shippers in the Missouri Valley.

The river improvement work now being rapidly advanced on the upper Mississippi and on the Missouri will make possible the

further extension of the service of the corporation. I am firmly of the opinion that the navigation improvements now being made will result in a notable increase in the utilization of our island waterway facilities, a long neglected natural resource, thus bringing the advantage of cheaper transportation to the vast interior of our continent, from the Rockies to the Appalachians, and from the Lakes to the Gulf. This should serve to bring industry to the midst of agriculture, where availability of raw materials combined with dependable water transportation should enhance substantially the prosperity of this region. Industrial development and agricultural prosperity are alike dependent upon ready accessibility to markets through cheap transportation. Modern barges and towboats of large capacity are again demonstrating the inherent economy of water haulage. Barge traffic, being limited to the streams, competes with railroads to only a limited extent, and the two might well supplement each other.

Respectfully,

(Sgd.) GEO. H. DERN, Secretary of War.