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I wanted to ask you a question that is going to have to be considered as we go along, and you have not touched on it. As a purely commercial enterprise, when do you think the Panama Canal will have reached the saturation point beyond which it can not take care of the vessels within reasonable bounds as they approach the entrance and want to go through?

Mr. BAILEY. Mr. Chairman, I have inquired of a number of shipping lines that utilize the Canal, and they see no reason why the Canal cannot take care of all the traffic in the foreseeable future. As I understand it, the average transits are now running about 19 per day, and as I understand it, on a survey which was made by the Governor, under the worst conditions, at a time when they were repairing the locks themselves, the estimated capacity was 38. A good deal, of course, will depend upon the restoration of our intercoastal shipping, but even that would not begin to tax the capacity of the Canal, and it is our belief that many things may be done to offset some of the delays that are now occurring, and that the capacity of the Canal can be well increased beyond where it stands today by operational methods and by some improvements such as radar and fog-dispelling apparatus, and things of that character. We do not see, and I have found no one in the shipping industry who feels, that in the foreseeable future of 25 to 30 or 40 years the Canal will not have the ability to transit the ships that will probably be offered with reasonable dispatch.

Mr. THOMPSON. Your basis for establishing tolls would take into consideration present operation. I assume that it would also take into consideration obsolescence, or reserves for depreciation, the ordinary business figures that you see in balance sheets, reserve for replacements, and so on.

Mr. BAILEY. Quite correct. We think there should be a reserve against all the expendable parts of the Canal, which is what I believe is being done at present. They set up a reserve for the renewing of expendable parts. You cannot expend the ditch itself. I understand a proper reserve is being set up against those, and that is a businesslike way of operating, and all the costs of operation and maintenance and the maintenance of reserves to renew these parts when they require renewal are a part of the operation as we see it, Mr. Chairman.

Mr. THOMPSON. You can see the reason for the first question I asked you about the foreseeable saturation point. If the commercial transits are going to pay the cost from here on out, and if there is going to have to be a very large expenditure within the next 10 or 15 years for enlargement, for speed-up, or anything of that nature, your reserve for the future would have to be a great deal larger than right


Mr. BAILEY. We find no one in the industry who anticipates anything of that character.

Mr. THOMPSON. You told us that about half of the present transits are American shipments.

Mr. BAILEY. That is correct, sir.

Mr. THOMPSON. Is that a constant figure? Is that about the way it ought to run? Is that the normal basis we should use in our figures? Mr. BAILEY. I understand it is. Mr. Ford researched that. Mr. Ford tells me that before the war the American percentage was down around 35 to 40 percent. It is now running 50 percent.

Mr. THOMPSON. Of course, when you get coastwise shipping Mr. BAILEY. We would have still a larger percent, and the benefit, if any, would be larger to the American-flag ship.

Mr. THOMPSON. Mr. Miller, have you any questons?

Mr. MILLER. Just a couple of brief ones.

Following up what the chairman said, you say that there is nobody in the industry that sees a saturation point in the foreseeable future. Have you had occasion to talk to the people in the Canal Zone with regard to that? My recollection was that about the first of the year they were claiming that the information they had was that the saturation point would be reached about 1960.

Is there any explanation for the extreme difference of opinion between your people and the people who are running the Canal that there seems to be?

Mr. BAILEY. Well, there was a report gotten out, I believe, by a transportation expert of one of the universities, and he computed a curve that would bring him to a point in 1960 where there would be a congestion, or an anticipated congestion, but those figures were made some years ago and they have not borne out his anticipations to date. In other words, he is 50 percent lower than he thought he would be in 1949-50.

Mr. MILLER. In other words, you think that since those predictions were made the situation has disproven, or tended to disprove, his figures. Have the officials of the services and so on retreated from their position so far as you know in the last few months?

Mr. BAILEY. That I do not know. I have not heard of that. I have talked to the companies that use the Canal, and it is their view that we have nothing to worry about in the foreseeable future. Maybe 25 years from now we will have to start thinking about what we are going to do.

Mr. MILLER. The other thing I wanted to ask you is along an entirely different phase of your testimony. I follow your reasoning very clearly, and as the chairman says, we do not always agree, but we at least see your statement-that there is somewhere that proper weight might be put for defense purposes, and another weight put for the commercial aspects of the Canal. But I cannot quite follow your reasoning about cemeteries and public parks and other public functions. Have we, in other words, any excuse whatever to be in the Canal Zone unless it is to provide commercial and military transit there? And, if that is the case, can we begin talking about cemeteries or public health or anything else? Aren't they an essential thing if we are going to be there, and have we any other reason to be there at all?

Mr. BAILEY. Take post offices, Mr. Miller. Every community furnishes the post office and the airport.

Mr. MILLER. But would you not charge all of that up to the community, if a community is a post, a station there to accomplish one thing only? We have no business in Panama except to run that Canal.

Mr. BAILEY. That is quite correct, but usually the local community out of its taxes and so forth takes care of these strictly civic functions. However, the items you mention are not very large. They are not controlling in this instance. It just seems to us that they did not belong.

Mr. MILLER. We could not expect to have the force or the crew, or whatever you want to call it, running the Canal, and not have them supplied with those postal facilities and schools and public parks.

Mr. BAILEY. No; I guess that is true of many communities around the United States, though, Mr. Miller.

Mr. MILLER. Well, the communities of the United States are part of our domestic responsibility, but this is an overseas post, whether it is civilian or service. Still, the only excuse that I can see for it is that we are running a canal.

Mr. BAILEY. That's right.

Mr. MILLER. Of course, I am beginning to argue on that.

Mr. BAILEY. You are quite right in many respects. As I say, it isn't important. They are not important items.

Mr. THOMPSON. If we can get everything else straightened out, we very likely can take care of that.

Mr. Fugate?

Mr. FUGATE. I have been concerned quite a great deal with the system of accounting. As I understand it, any project that is set up by the Government is set up and there is no effort made to reduce that. You continue that indefinitely. And following the line of reasoning that you have offered here, if this committee should see fit to recommend that no interest charges be made on the capitalization, that we operate strictly within receipts and expenditures, balancing one against the other, if at any future time we should have to make changes in the Canal what would be your idea of financing that?

Mr. BAILEY. Well, Mr. Fugate, I would say this: We would have to go back to the motive. If it is necessary to increase the capacity of the Canal for commercial purposes, it would be a different thing.

Mr. FUGATE. Assuming that you repaired or increased its transiting ability or capacity for the purpose of commercial shipping

Mr. BAILEY. Then I think you would have to give consideration to that at the time, although it was our feeling that the commercial interests are taking more than their share of it on the basis of just ignoring the interest.

It is interesting, now-I just jotted down here this morning the total investment in the Canal, as well as we can make it out. The last figure we saw, the total amount capitalized was $516,000,000. The amount of interest that has been paid is $273,000,000, and the amount of interest that was capitalized was $128,000,000. And free transit to Government ships had been provided up to a year ago or a year and a half ago of $64,000,000. We add that and we find that the Government has had returned to it, if we want to ignore the interest part, $465,000,000.

Mr. FUGATE. You are speaking of the capitalization of interest as the lack of receipts to take care of the interest?

Mr. BAILEY. No, sir; this was interest during the construction period, as it appears to us from the accounts. $128,000,000 was interest during the construction period, before the operation began, and that was capitalized. If this is going to be an interest-bearing project, then that is the proper way to do it. Our contention is it should not be an interest-bearing project. On the other canals and waterways and harbors and so forth not only is the construction cost all borne, but the operation is all borne, the maintenance is all borne,

no tolls are charged, and it would seem to us that in a project like Panama we make a distinction because it is different from some of the others, but it has a national-defense characteristic that none of the other projects has, or certainly not to the same extent.

We have to find a basis, and that a basis that we simply do not charge interest on the Government money. The Government makes the contribution of the funds necessary for it and the tolls take care of the operation of it. That is one way of dividing it. Maybe it is a meat-ax way of doing it. For lack of a better formula we suggested that as a proper division, and as the statesmen who were responsible for the Canal in its early days, they were laid more stress, apparently, from all we could read about their statements, on the national-defense features than they did on the commercial features of it.


Mr. THOMPSON. Any other questions? [None.]

Thank you very much, Mr. Bailey. I will appreciate it if some more your people are available. We might like to call you back.

all, you do represent the bulk of the people at interest.

Mr. BAILEY. You are very kind, and I will be available.


Mr. THOMPSON. Representing the coastwise interests we have our old colleague, a very distinguished member of this committee, Capt. Willis Bradley. Captain, just suit yourself about where you sit.


Captain BRADLEY. My name is Willis W. Bradley. I am assistant to the president, Pacific Coast Steamship Co., having offices at 274 Madison Avenue, New York.'

I appreciate your kind invitation to appear before this subcommittee and hope that I can give you some worth-while suggestions.

I shall not attempt to go into figures as I know that would only waste your time. You have others who will appear before you with a wealth of statistics; therefore, my comments will be in the line of general observations, reached after many years of experience in several walks of life, unless questions by the committee should indicate a desire for greater detail.

During the Eightieth Congress, while serving as a member of this Committee on the Merchant Marine and Fisheries, I made adverse comments on the floor of the House concerning an increase in tolls for the Panama Canal and, later, appeared in opposition to such an increase before a subcommittee of the Senate. I also participated in requests to the President that contemplated increases be deferred. until the Congress had an opportunity to investigate the need therefor. The President granted these requests, thus making it practicable to hold the investigation in which this subcommittee is now engaged.

I believe the committee should first give consideration to the main purpose of the Panama Canal at the time of its construction. We are prone to lose sight of that purpose when we debate just how much should be charged against merchant shipping for transit from ocean to ocean. Mr. Chairman, the basic purpose of the Canal, when it was constructed, was to enhance the national defense of the United States. The movement of commercial cargoes, while highly desireable, was quite secondary in the minds of the American people. I recall well the arguments pro and con about the necessity for a canal. I

served in the Navy during the period of canal construction, at the time of its opening, and for a quarter of a century after it was cleared of obstruction caused by slides and upheavals. First and foremost, the Canal has been an adjunct to the National Defense Establishment. The voyage of the battleship Oregon from the Pacific to the Atlantic during the Spanish-American War exemplified what the American people were determined to correct, that is, inability to make naval forces on one coast quickly available on the other.

The Panama Canal made it possible for naval forces to transit the Isthmus quickly and easily. It also made it possible for merchant ships to do the same thing, thereby cutting many thousands of miles from a coast to coast voyage, or eliminating the costly operations involved in transshipment via the Tehuantepec Railway. These things were all to the good. But then we arrive at a condition quite foreign to usual American practices. We find a substantial part of the costs of this national defense facility being placed as a burden on the merchant shipping of the world-largely on that of the United States. Instead of permitting water-borne commerce to utilize this waterway at a very minimum of expense, and thereby reducing the cost of goods to the ultimate consumers, we have taken the attitude that tolls shluld be all the traffic will bear, in order that the United States Treasury may be reimbursed for Canal expenditures to the greatest extent practicable. The result of this policy has been to shift an undue porton of Canal costs to the people of the Western States, particularly to those of the Pacific coast, thus obliging the western economy to pay more than its share of the expense of this national defense facility.

I grant that individuals, corporations, and other entities should pay for benefits received, but I maintain that such payments should be in accord with patterns set in circumstances reasonably comparable. Let us look at a few cases which seem comparable to me.

Consider the canal and locks at Sault St. Marie-the Soo Canalconnecting Lake Superior with Lake Huron. This canal serves a most useful purpose for both industry and national defense. It is so thoroughly justified that the Canadians have constructed a similar canal nearby. While it is an expensive facility, both for construction and operation, we make no charges for the passage of either American or Canadian vessels. The Soo Canal is just a part of our system of waterways, open to all legtimate traffic without tolls.

Then consider the entrance to San Francisco Bay. For years, heavy ships, such as battleships or deep-draft liners, could not cross the bar but must use the fairly dangerous Bonita Channel close in to the rocky headlands north of the Golden Gate. Eventually, the Federal Government dredged a wide deep channel through the bar so the largest ships can now make the passage with complete safety. This channel cost a lot of money but it is available without cost to the vessels of the world.

Now think of the Cape Cod Canal which eliminates the necessity of making passage outside, around Cape Cod. This canal also cost a lot of money, but the Government doesn't ask shipping to pay to go through. Not at all. Rather, it is free to all comers, regardless of flag or destination.

Yet at Panama we ask commercial carriers not only to pay for the costs of operating the Canal, and for a thousand-and-one services ex

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