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General STEESE. I have not the figures on that, sir, but we have to, in considering the tolls question for our coastwise shipping, keep the tolls low enough that on bulk commodities, at least, the ships can afford to use the Canal in competition with the transcontinental railroads. They should not be low enough to give the ships a substantial subsidy, because that would be unfair to the business structure as a whole.

When it comes to foreign shipping, Europe to China or Australia, it is a pretty close thing between the Panama Canal and the Suez Canal, and we also do not dare put our tolls high enough to drive the business to the Suez Canal. The Suez Canal handles something like the same amount of traffic as the Panama Canal. The world's commerce is fairly evenly divided between the two canals. At least I am talking, of course, of prewar. I do not know the situation today. Our tolls last year on the Panama Canal were about $20,000,000. They have come about 80 percent back to the prewar $26,000,000, or approximately 75 percent, and, of course, ships are getting back into service all the time, so within a time we should be back to prewar volume and then go ahead from there, but the costs of operation have so greatly increased that the prewar tolls won't be enough if we are going to stick to the principle of earning something on the investment. Mr. MEADE. Do they have the same tolls for intercoastal ships as for ships going through the Canal in foreign trade?

General STEESE. Yes. That is our agreement with England, that all ships of all nations shall be treated alike, so that I might say this about those tolls. The present law permits a maximum of $1, within the discretion of the President, but we have only been getting 90cents, and that is 90 cents per ton on Panama Canal measurement. That is, a ship pays 90 cents a ton for her total commercial carrying capacity. If she has 5 tons on board and is a 10,000-ton ship, she pays for 10,000 tons, so naturally the ships go through fully loaded. If she comes back in ballast, they give her a 25-percent discount. But under that Panama Canal measurement, which is 200 cubic feet to the ton, actually about 1% tons of actual cargo, deadweight cargo, go through for 90 cents, so that the actual charge per ton of actual cargo is 65 cents, or something like that.

Mr. MEADE. General, when would they consider a ship traveling in ballast, and when would they consider it partially full?

General STEESE. If it is partially full she is full so far as the Panama Canal is concerned. If she has any cargo on which she is earning tariff, she pays the full rate. If she is to go in ballast she has to be absolutely empty of any cargo on which freight is being paid.

The exception to that is that if we take her through the Canal, if she stops for repairs and we have to take her through the Canal to get to the big drydock shop to do repairs, you handle her free for that. That is part of the service, and we do a tremendous amount of repair work to all types of ships.

The American Navy, the Colombian Navy, and the Panamanian Navy go through free under the treaty. All other war vessels go through on a displacement basis at 50 percent.

Mr. MEADE. When you say there is a tremendous amount of repair work done, who does that?

General STEESE. The Panama Canal, of course, has various divisions. They maintain and operate the locks and maintain a pilot

service and tug service, and so on. In addition to that we have big shops for which there are no appropriated funds. The shops have to charge the ships such rates as will pay their costs. A ship will come in there with a bent propeller or a broken-down engine, or merely want to get refueled, or new commissary supplies. We provide all of that at a price.

Mr. MEADE. Is that done by the Army or by civilians?

General STEESE. Oh, no; it is done by the Panama Canal. The Panama Canal is a business organization. It has a mechanical division which operates the drydocks and shops, and does all of these repairs. Through its subsidiary, the Panama Railroad Company, it runs a lot of commissaries. If these ships want food supplies, they buy them from the Panama Railroad Company commissary, which is an adjunct of the Canal.

The whole thing is under the Governor. The municipal engineering division, for instance, operates the waterworks and sells water to Panama, sells water to the Army, sells water to the Navy, and sells water to the Panama Canal. In other words, if the mechanical division uses any water down in the shops, it has to pay the municipal engineering division for it. In my house I had to pay a monthly water rent, and the municipal engineering division must charge such rates as it will reimburse itself, as there are no appropriated funds. Each of these business enterprises must be self-supporting, but it is all Panama Canal, all under the Governor.

The electrical division has tremendous power plants, both hydro electric and Diesel, and they sell power and light and telephones to everybody. In my house I had to pay the electrical division for my telephone. I had to pay them for the electricity I used in my electric range. I had to pay them for my electric lights. I had to pay them for all those charges, the aggregate of which pays the cost of producing and distributing those utilities.

Mr. MEADE. Must each division or subdivision be supported in its own right, or can they transfer accounts? For example, if the hotels that are run by the Panama Canal lose money, can they get the necessary losses made up by revenues from the Panama Railroad?

General STEESE. There you come to an accounting proposition. We have two hotels down there. One of them is losing a little money and the other is making money. But it is a part of that Panama Railroad commissary division, and if there is a deficit in one part the over-all must meet the expenses. I do not know whether I have

answered your question exactly.

Mr. MEADE. I think that has answered it.

General STEESE. The electrical division has to make all its money out of sales of power. It raises the rates every now and then to make it up. They cannot take it out of the water revenues. They are totally separate. And the commissaries have to support themselves on their own business, but that does not mean that every store has to make a profit.

Mr. MEADE. Within a division there can be some accounting system to take care of losses in individual instances, but so far as each division is concerned, as water supply, as ship repairs, as hotel operation or commissary operation, each one of those must stand on its own feet. General STEESE. Yes. They are independent as regards each other. They all join up at the top level with the Governor.

Mr. DREWRY. General, how do you establish the rates on ship repair, for instance? That is more or less an international business. The rest of it would be in the interest of administration and an American proposition, but on ship repair, any ship, foreign or American, that comes through can go in there. Would the rates be commercial rates generally, or would it be on a sort of cost-plus whatever profit you feel should be shown?

General STEESE. I might say, in the first place, if the rates are too high a ship won't go there. It will go to Newport News or somewhere else. So you are not unlimited in what you can charge. But a ship comes in there and wants a propeller pulled out, straightened, or brazed, or whatever it may need, and put back. They will give him a preliminary estimate on that, but they will not guarantee to do it at that. When you tear the thing down you sometimes find undisclosed or unsuspected additional work that has to be done. They try to give as accurate an estimate as they can, after which the ship can make up its mind as to whether they will do it.

You have a cost accounting within the mechanical division. The labor is a direct charge; all the materials that are used are a direct charge; and then they have a surcharge to cover the miscellaneous facilities-heat, light, floor space, and what not. It is a surcharge of 20 percent to 40 percent.

Well, now, from time to time you get increases in pay. That adds to your labor cost. Every year it is costing us more to buy the steel plates, boiler tubes, all the miscellaneous stuff that goes into a ship, and there comes a time when your overhead, your surcharge, won't make it. Then you have to boost your surcharge. But you try to boost all the directly definable costs first. You try to keep your surcharge as low as possible, because there is always an argument about the surcharge.

There is the pay roll. You cannot argue about a pay roll, and you cannot argue about so many pounds of brass or so many pounds of iron ingots or whatever was used in trying to make the repairs.

Mr. MEADE. I am not so interested in whether the rates are too high as to whether they are too low in something which seems to me to be direct competition with commercial repairing, such as NorfolkNewport News.

General STEESE. They try in general to pay all of their out-ofpocket expenses plus a little interest on the invested buildings and machines and so on that are employed in that work, and, as a matter of fact, the commissaries turn in a profit to the Treasury every year, and the shops and other utilities turn in-well, before the war it was running a little over a million dollars for all these business activities, which was a fair rate of interest on the investment in buildings and so on. That is a matter, of course, that is more or less discretionary. You have to set it at a figure that will be reasonably fair to all concerned. Mr. THOMPSON. I suppose they have to have these facilities. General STEESE. You could not get along without them.

Mr. THOMPSON. Since they have them, naturally they would have to permit the transients to use them from time to time. I do not think, though, they will have any bearing on our toll problem.

Mr. FUGATE. General, in your observation of that over-all situation down there, do you have in mind any particular operation that is in

need of revision in order to make its contribution to the service as a recommendation of policy?

General STEESE. The whole thing is a gradual development, and they are studying the reorganization of a number of items down there since the war is over. They are overhauling all their methods, and so on, with a view of instituting improvements where possible. All this light and power and food supplies and ship chandlery and shop repairs, the operation of the Panama Railroad for freight and passenger carrying, and the operation of the docks, is all part of the picture.

Mr. FUGATE. I understand that, but as part of the whole is there any particular part of it, in your view, that needs revision? I suppose you recognize the fact that the President thinks there should be an increase of tolls.

General STEESE. Yes, sir.

Mr. FUGATE. Looking at it from that view, is there some weakness about the operation that might be corrected that would help to lower the cost of operation, or do you think the thing as a whole is sound?

General STEESE. I think the entire picture is essentially sound, yes. In fact, we think the Panama Canal is just a magnificent institution, but what you have in mind is something that the management itself is studying all the time. They get experts down from time to time, and sometimes their suggestions are very helpful and sometimes they are nonsense, of course. All these things are in a state of flux. Just as we have to resist the prices as prices go up, right now we are under a retrenchment policy to let go a great many employees, so that they have been able to settle down to a postwar basis. It is not normal by any means, but it is getting better every year, and when we can let somebody go we try to let him go.

Every time we get an increase in wages, certain of our employees are in the classified service, and their wages are based on Washington plus a differential for foreign service. All our craftsmen are based on navy yard rates plus a differential. School teachers and police and fire we based on District of Columbia operations plus a differential, and we have a permanent Wage Board reviewing those things periodically. Different categories will come in and ask for an increase in wages based on some increase in the Boston Navy Yard, or on some increase in the public schools in Washington here, and so on. That has been studied and reviewed. I was on that Wage Board for quite a while. We hold hearings, bring in some people who present their wishes and their arguments; we have our Washington office here verify the situation in the States here. We take, I think, four or six navy yards on both the Pacific coast and the Atlantic coast, and average their rates in determining our own craftsmen, and there is a constant worry about things of that kind all the time.

A great deal of an executive's time is taken on those matters of general policy and rates, and so on, quite aside from running the job. So I cannot answer your question.

Mr. FUGATE. I was looking at it from the standpoint of the executive. We have a business. We find that certain things are going to be required because we are not making a sufficient margin of profit. Then we begin to analyze it to see what is wrong about it. I think that is our assignment in this particular job.

Mr. THOMPSON. I think so.


Mr. FUGATE. And I am asking you if you, with your lifelong contacts and participation, could lay your hand on some phase of it which you think could be remedied to the end that the whole operation would be more successful.

General STEESE. Well, of course, I spent 6 years during the war just doing that very thing. I mean, I was on several wage boards. I was on several international Army-Navy-Panama Canal-Republic of Panama joint boards, and we were constantly trying to make adjustments. Our prices had to have some reasonable relation with prices in Panama.

Of course, right there there is a conflict. The Panama merchants. would like for us to abolish our commissaries and buy all our merchandise in Panama, but that is an utterly hopeless thing to do. We sell only to our own people and to the Army and Navy. The Panamanians are always attempting to smuggle into the commissaries or smuggle stuff out. Some employees get fired every now and then for buying stuff and turning it over to Panamanians.

(Discussion was continued off the record.)

Mr. FUGATE. Let me ask you, are the transit rates being charged now considered by maritime nations to be equitable?

General STEESE. They are about the same as the Suez Canal rates. Mr. FUGATE. About the same?

General STEESE. About the same, yes. Oh, yes; the steamship companies, of course, will come into these hearings and protest any increase, but in their own hearts they know they are going to get an increase. The service is being rendered, and the costs of the service are readily obtainable. It is all in public records. The Governor's annual report shows all the figures, and that, with the appendixes, will lead you right to the individual vouchers, if you wish.

Mr. MEADE. General, I have heard the statement made somewhere that, for example, the hospital at the Panama Canal was being supported by toll funds from the Panama Canal, and that a great deal of money was being spent by the hospital each year in studies of tropical medicine and things like that, and in training doctors, and that was all charged against the tolls of the Panama Canal. Would you care to make any comment on that?

General STEESE. The health department has its separate appropriation from the United States Treasury for the sanitation. There is a lot of sanitary work done down there that is chargeable to the canal operations. But the hospitals get fees from the employees. For instance, if a wife goes up to that hospital and has a baby, the employee pays for that out of his own salary at a rate fixed by the hospital.

The hospital takes care of a great many Army and Navy patients, particularly the Army. And that is, of course, a source of revenue. Just where they divide the line between services that must be paid for and services like mosquito control and yellow fever control and quarantine, and so on, that are a part of the cost of any civic government, I cannot tell you offhand. But there is an appropriation from Congress for sanitation, and also the health department turns back some profits at the end of the year.

They are supposed to make their services pay for themselves, but they cannot charge fees against the employees to pay for all the spreading oil around the swamps that are a general health measure,

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