$400,000 per year. Add to this the increased cost owing to the N.R.A., our operating costs will be increased about $868,000 per year, which will make it impossible for us to pay the mortgages now held by the United States Shipping Board, unless freight rates are increased, which cannot be done unless the railroads increase their freight rates.

Yours truly,

EDGAR F. LUCKENBACH, President.

Mr. EWERS. I would like, Mr. Lea, for Mr. Luckenbach, to put in the total amount of the increased cost that would result from this legislation.

Mr. LEA. Yes; he may submit that for the record, if he desires to. Mr. EwERS. Yes.

Mr. LEA. Who is the next witness?

Mr. EWERS. Mr. McCarthy.

STATEMENT OF A. J. M'CARTHY, NEW YORK, VICE PRESIDENT AMERICAN LINES STEAMSHIP CO.

Mr. McCARTHY. Mr. Chairman, and gentlemen of the committee: We are not in the same position that Mr. Luckenbach is. We only operate three steamships in the intercoastal trade; they are combination passenger and cargo vessels. We do, however, pay very heavy tolls. Our Canal tolls for the three steamships which we operate amounted to approximately $625,000 a year, on the three ships. If this bill were enacted it would increase the tolls 50 percent over what we are paying today; that is on account of the type of ships that we are operating. Our tolls under the bill would be increased approximately $297,000 a year, or about $100,000 a ship, roughly.

Now, we are having the same difficulty that everybody else is in the intercoastal trade; we are having a very hard time making a living today under present conditions, and conditions which have obtained since 1929. We had very serious obligations to meet with the Government. We built these three steamships: the first one came out in 1927; the next one came out in 1928, and the next one in 1929, at a cost of approximately $21,000,000 for the three ships. We still have obligations to the Government that we have got to meet.

In the case of the first steamship, we borrowed from the construction loan fund 50 percent of the cost of the ship; and in the next two steamships we borrowed 75 percent. The law was changed.

We have recently made an arrangement with the Department of Commerce in order to meet the obligation, and in making those arrangements they were naturally based on the present operating cost. We did not look for any such drastic change in the law which would involve our paying anything like $297,000 a year in additional Canal tolls.

If this bill were enacted into law it would be absolutely impossible for us to meet our obligations to the Government.

Mr. LEA. Will you explain to the committee why this law would cause such a large increase in charges to the ships you operate?

Mr. MCCARTHY. Due to the type of ships that we are operating, Mr. Chairman. They are very large passenger carriers and have large cargo capacity. Under the United States rules of measurement, the United States net tonnage of the steamship no. 1 is ap

proximately 9,800 tons, whereas under the Panama Canal rules of measurement it is approximately 18,000 tons.

Mr. LEA. What would be the difference in the measurement that would account for that?

Mr. MCCARTHY. It is the system of admeasurement under the Panama Canal rules as against the United States rules.

Mr. LEA. Will you give me those figures again, the difference which you just indicated?

Mr. McCARTHY. Nine thousand eight hundred tons net under the United States rules, and approximately 18,000 under the Panama Canal rules.

Mr. LEA. Would there be a difference in the hull deck charges; would there be a difference in the hull deck tonnage space under those two rules?

Mr. McCARTHY. Under the United States rules certain space is exempt, whereas under the Panama Canal rules of measurement that space is not exempt.

Mr. LEA. What space do you refer to, cargo or passenger?

Mr. MCCARTHY. Certain passenger space is eliminated and also shelter-deck space. I think perhaps some of your specialists here could take care of those answers better than I could.

Mr. LEA. That is on the superstructure, of course?

Mr. MCCARTHY. Yes.

Mr. LEA. But on the main hull decks are there any material differences that you know of?

Mr. MCCARTHY. I could not name them, but I think there are quite a few differences; perhaps Mr. Sill could name them. At any rate, it practically doubles the charge.

Mr. LEA. There is a very important difference there. I thought it would be desirable to have that cleared up.

Mr. MCCARTHY. I think Mr. Sill can explain that.

Mr. LEA. Mr. Sill, would you explain that to us now?

Mr. SILL. Mr. Chairman, I have been warned not to get into a technical discussion, but it seems all of the questions asked me involve the technical side of the rules.

Under the Panama Canal rules all covered and enclosed spaces on the vessel are included in the gross tonnage. And then deductions are made for spaces necessary for the navigation of the vessel, the housing of officers and crew, the space for water ballast, and space for propelling power machinery, with a liberal allowance for the storage of fuel.

The remainder is listed as net tonnage under the Panama Canal rules. And that is the tonnage that Mr. McCarthy refers to as being the Panama Canal tonnage.

Under the United States rules of measurement the passenger cabins situated above the first deck, which is not a deck to the hull, are exempt from measurement. The cabin is defined as a place where a person sleeps, but it extends to and includes the adjoining rooms which may be used for the accommodation of passengers.

Mr. LEA. And I suppose you also would include the library room which would be subject to that rule?

Mr. SILL. Bar room, gymnasium, dining salon, and music rooms, with the proviso that there is in the same group, at least, a room where the person can sleep.

On the type of vessel of which Mr. McCarthy speaks there were about three tiers of passenger cabins which would come under this exemption under the United States rules.

Recently by constructing so-called "tonnage openings" in the upper deck, the topmost full-length deck, on these vessels they have secured exemption on a small portion of the space below. Under the rules the deck to the hull represents the uppermost full-length deck extending from the stem to the stern, no space below which is exempt from measurement. By the exemption of this small portion of the space below the uppermost full-length deck on these vessels the company has secured exemption of an additional tier of passenger cabins.

Mr. LEA. By tiers you mean what is called the deck?

Mr. SILL. Yes. In addition to that, the double-bottom tanks, which are used for fuel oil or fresh water for domestic purposes, or for any other purposes except boiler feed, are included under the Panama Canal rules, whereas they are not included in the tonnage under the United States rules of measurement.

The propelling power, as deducted under the Panama Canal rules of measurement, consists of the total engine-room and boiler-room space, with an allowance of 75 percent of that space for fuel, making a total deduction of 175 percent of the engine room as measured for the propelling-power deduction.

Under the United States rules of measurement, if the size of the engine room falls within the limits of 13 percent and 20 percent of the gross tonnage of the vessel, an allowance of 32 percent of the gross tonnage of the vessel is allowed for propelling power.

So these items all taken together make up the difference in tonnage under the United States rules of measurement and under the Panama Canal rules in the type of vessels of which Mr. McCarthy spoke.

Mr. LEA. I did not understand what you said as to the three different percentages you mentioned.

Mr. SILL. You have the gross tonnage of the vessel under the United States rules of measurement.

Mr. LEA. That is on the capacity basis?

Mr. SILL. No; under the United States rules which define what shall be included in the gross tonnage.

Mr. LEA. I see.

Mr. SILL. As just stated, this does not include the passenger cabins and it does not include the double bottoms.

Now, we measure the engine room and the boiler room and the shaft alley, and if that quantity in tonnage of 100 cubic feet falls within the two limits, 13 percent gross tonnage of the vessel and 20 percent of the gross tonnage of the vessel-in other words, if this tonnage for engine room happens to be 17 percent of the gross tonnage of the vessel-then under the United States rules of measurement the propelling power deducted for the vessel is 32 percent of the gross tonnage of the vessel.

Mr. LEA. What is it under the Panama Canal rules?

Mr. SILL. Under the Panama Canal rules you have the space of the engine room, the boiler room, plus the shaft alley, and add to that 75 percent of the space, and that gives the propelling-power deducHowever, if the actual bunker space of the vessel exceeds the

tion.

75-percent allowance, the vessel owner may elect to take the actual bunker space. He can choose whichever will be the more favorable

to the ship.

Mr. WOLVERTON. Mr. Chairman, this rule of measurement seems to be somewhat similar to Einstein's theory of relativity.

Mr. LEA. Mr. Sill, is the substantial difference in the ships referred to by Mr. McCarthy mainly due to the superstructure or is the difference mainly due to the difference in the hull decks?

Mr. SILL. The superstructure. The hulls are substantially the same except for the double-bottom tanks.

Mr. MCCARTHY. I think I have nothing more, Mr. Chairman, except to strongly urge upon you gentlemen to report that this law be not changed. We feel very strongly that under the admeasurement and the system of payment of tolls is now based upon a more equitable basis in order not to place any hardship upon any particular type of ship. It is only the general cargo, the combination cargo and passenger ship that is going to bear the burden. The vessels that are going to benefit by it are the tankers and the bulk-carrying cargo vessels. And we feel that under present conditions they are not in any more position to require aid, at least, when it does not cost any more to put a ship through the Panama Canal which pays $3,000 in tolls than it does to put one through which pays $12,000, because it is just the same operation exactly. It takes exactly the same length of time, and we feel that we are now contributing very largely to the operation of the Canal which, as has already been stated, was built for military purposes and was not built for commercial

purposes.

We feel that there should be a larger proportion of the operating expenses of the Canal charged off every year to military needs, military purposes, national defense, and that the commercial vessel should not be expected to pay the total operating costs. At the present time we are paying for the operating costs for every battleship that goes through the Canal; the commercial interests have to bear the expense of that operation, and they are still not only paying the cost of operation but a fair return of the Government investment in the Canal.

Mr. LEA. Mr. McCarthy, are the ships you operate all alike?

Mr. McCARTHY. Yes; we have two sister ships, and one 13 feet less in length than the other.

Mr. LEA. What tonnage are the two larger ones?

Mr. McCARTHY. Well, the net tonnage for the Pennsylvania is 9,703 United States net tonnage; under the Panama Canal rules, 18,194.

The Virginia is 9,781 under the United States net tonnage rules, and the Panama Canal rules, 17,636 tons.

The California is 9,511, United States net tonnage, and 17,565 Panama Canal net.

Now, of course, we pay under the United States net tonnage on the basis of $1.25, and under the net Panama Canal rules we would be required to pay $1, Panama Canal net, which would increase approximately our cost $5,800 to $6,000 each time we go through the Canal. We can show you just what the increase would be. That is an increase of 50 percent.

Mr. LEA. What proportion of your return does the passenger traffic represent in the business, in the intercoastal trade? Is it just incidental to your cargo business?

Mr. MCCARTHY. No; our steamships have accommodations for 800 passengers. During the year 1927, when the first one came out, and 1928 and 1929 our steamships were going full, practically full force both ways at that time we were carrying around 700 to 800 passengers, in 1927, 1928, and 1929, whereas we are now carrying about 300. That shows where the traffic has gone.

Mr. LEA. How does your cargo compare with what it was in 1929 and 1928?

Mr. MCCARTHY. It is less; considerably less. You take the ships that have a cargo capacity of approximately 9,000 tons deadweight probably are running today about 60 percent capacity, and our operating cost, as Mr. Luckenbach has said, through the N.R.A. and the various codes that have been adopted, have increased. I made up some figures. Mr. Luckenbach was unable to furnish them to you at this time and I will be glad to tell you that our operating costs are 20 percent higher than they were before the N.R.A. went into existence. Fuel oil, repairs, supplies, foodstuffs, and everything that go into the shipping business.

Mr. WOLFENDEN. Have you increased your rates?

Mr. MCCARTHY. No; we have reduced our rates trying to induce more business. When we are carrying only about 300 passengers, with a capacity of 800, we have reduced rates to try to induce more business in travel. And, of course, what we have done has resulted in a benefit to the railroads. We started in, when we first started the service, with the idea of getting people to go out one way and back the other; that is, one way by boat and back by rail. And we made a combination round-trip rate to try to induce greater travel. Sometimes they would go out by rail and come back by water, and sometimes out by water and back by rail.

This operation of the passenger vessels through the Panama Canal, the railroads will tell you, have done more to stimulate travel to California as against European trips than anyone thinks. First the railroads had the idea that it would hurt their business. As a matter of fact, it has helped their business, in that it has created travel, and thus we have the cooperating working agreement with the railroads to go out one way by water and one way by rail. So it is very beneficial from the passenger point of view with the railroads to have the passenger steamships in the trade.

Mr. LEA. The real hardship that you are suffering now is on account of the drastic cut in cargo and passenger traffic?

Mr. McCARTHY. The cargo and passenger carrying decrease, on account of the depression, naturally, and our increased operating costs. And, of course, we did not expect the Government to put on another burden in the way of increased tolls.

Mr. LEA. I presume none of these general cargo-carrying ships go through the Canal in ballast?

Mr. MCCARTHY. No. The only vessels that will get any benefit of any ballast rate are the tankers and bulk carriers. That is why their tolls are reduced by the new arrangement.

Mr. PETTENGILL. Do you operate in the foreign trade also?