Increase Federal support to sustain expanded U.S.-flag fleet operation: Extend operation subsidies to all U.S.-flag ships--liners and buik carriers in foreign trade, except proprietary carriers. The cost parity principle would be retained but a more flexible system of administra tion with less Government involvement in management decisions woul be introduced. The subsidy is anticipated to cover about 490 ships it 1979 and 560 ships by 1986. To the extent that ship operators are unable to purchase vessels at world prices under expanded construction pro grams in U.S. yards they would be permitted to purchase foreignbuilt vessels and register them under U.S. flag to be manned by US. crews. These vessels would be eligible for both operating subsidy and cargo preference privileges.

Provide promotional incentives to expand waterborne domesti trades. Domestic ship operators, including Great Lakes, would be permitted to purchase ships at world market prices-U.S. or foreign. shipyards-under a licensing procedure, involving public hearings to protect the competitive operation of vessels which represent unamortized investments that were constructed or substantially converted at U.S. prices. Such ships would be admitted on a trade-bytrade basis without freedom of changing trades. For example, permission to operate world-market price ships in the Hawaiian trad would not give operators the privilege of extending such operations to coast wise or other noncontiguous trades.

Retain cargo preference as established in existing law. Cargo preference would be retained but rate differential would gradually dis appear as new and more efficient bulk carriers are brought into trade New bulk carriers could carry commercial cargoes on return tr and would receive appropriate operating subsidies. Most consolidi tion of cargo preference administration under the Department of Transportation is being considered. A declining portion of preference cargoes would be reserved for older ships dependent upon this carriage until they are phased out and new tonnage is available.

Guarantee availability of ships for defense needs. Agreements wi be executed with ship operators to assure ship availability keyed to particular levels of defense activity. On a selective basis vessels in t national defense reserve fleet would be renovated and upgradedcost of $60 million per year-to provide "surge capability" for pes emergency needs. Defense experience clearly demonstates that ma tenance of the reserve fleet in the manner proposed can be a least-cort approach to support emergency requirements.

Promote nuclear-powered merchant marine. Research would be extended in the technology and economies of advanced nuclear s looking to the possible construction of one or more vessels and the continued operation of the Savannah.

Expand maritime research and development program. Maritime research support in shipbuilding, ship operations, port developmen and other maritime areas would be increased to the level of $25 millo annually as part of the Department of Transportation resear

program.

Transfer Maritime Administration to Department of Transports tion. Maritime-related transportation programs would be transferr to the Department of Transportation thus assuring that ocean sh

ing receives similar promotional support as presently provided to other - transportation modes in top policy councils of the executive branch of the Government. The Maritime Subsidy Board would be reconstituted to exercise greater degree of independence than presently afforded in Maritime Administration.

The proposed program approximately doubles the level of Federal support to U.S. merchant marine for period 1969-73 which means earmarking approximately $3 billion for maritime programs during that period. Domestic shipbuilding jobs supported by subsidy would build up to level of 20,000 annually by 1972 as opposed to a present level of 10,500 under projected present program levels. The industry would be placed in stronger competitive position in our foreign trade.

Both Government and industry will benefit from higher ship construction levels in U.S. shipyards, expanded U.S.-flag fleet, and assured and stable employment levels. Combined, these will improve substantially the economic position of the industry and promote U.S. prestige abroad through a more efficient and diversified U.S. merchant marine, with improved economic strength to compete in the carriage of our foreign commerce.

I firmly believe that this is the best possible maritime program. The reason I believe this is, that it achieves all of the major objectives which any maritime program must achieve. First, the opportunity for American shipowners to purchase their ships at world market prices, without restraint imposed by the need for Government appropriations. Second, an operating subsidy system that would have built-in incentives toward more productive, competitive, and efficient operations; and with less Government involvement in industry management decisions.

Third, rationalization of the cargo preference system to minimize costs while retaining routing preference.

Fourth, availability of active commercial shipping for use by the Department of Defense in situations of less than full-scale emergencies, where use of requisitioning authority is not desirable.

Such a long-range program would permit a magnitude and a stability of effort that would bring about great savings in American ship construction. Under a block construction program, the cost of the 10th ship of an order is roughly 80 percent of the first ship.

But we do not want to so overstimulate the capacity of American shipyards that at the end of our replacement program-when we have added the comparable tonnage of approximately 600 vessels which the American fleet requires-we would see a depression in the ship construction industry. We can avoid that if we permit a reasonable amount of ship construction abroad.

There has been a lot of fear raised about all construction going abroad once the door has been opened to any foreign construction. This argument deliberately distorts what I have said to every member of the industry.

First of all we would permit construction abroad only to an extent related to, but less than, subsidy funds for U.S. construction for a given period. Second, I would consider the establishment of a ratio which would tie the overall volumes of foreign construction to U.S. construction. Such a relationship would obviously limit the total volume of foreign construction.

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It is clear that American ship operators would, provided shipyard subsidy dollars are available, prefer to buy ships here in the United States where they can be much more closely involved in construction planning and scheduling and where the ease of repairs or refitting is obvious.

The disagreement that arose over this proposed maritime program centered on only three elements: the projected level of constructionwhether to try and build 25 or 30 ships a year, 50 ships or some other escalation; the provision for construction of some U.S. ships in foreign shipyards; and the administration disposition of the Mariti Administration. This last, while the least important of the three is sues, engenders arguments which are basic to the whole maritine problem and any solution to it.

An example of limited foreign building which I am proposing combined with building 30 ships per year in U.S. shipyards for at least 5 years. Foreign shipbuilding versus U.S. shipbuilding on a ratio of 2.5 to 1. During first 4 months of each year contract for a "unit" of 10 ships to be constructed in the U.S. shipyards-and thenauthorize up to four ships to be constructed in foreign yards-repeat same during the second and third 4 months' period during each of 5 years.

I regard the maritime industry as a vital, but not exclusive element in this Nation's transportation system. The progression of transporta tion and transportation policy in this country, which logically led to the creation of the new Department last year, has been toward integration and interrelation of the various modes. The overwhelming tendency in the transport of goods in the world today is away from single mode shipment-the transport of raw material through the manufacturing process to product in the hands of the consumer involves all modes.

Planning, research, and involvement of Government funds must consider this interrelationship and must be influenced by it. The fact that the U.S. maritime industry is the weakest link in this chain demands that waterborne transportation be part of the overall effortnot isolated and separated from it.

The "containerization revolution" is the best example of what I am talking about. This revolution is characterized by the sound concept of our transportation services operating as a total system. A random reading of current news items that are daily reported on activities of the transportation service industry clearly portrays the trend towards inte gration of all transport modes whether by ship, rail, air, truck, or barge, and the benefits of improved and efficient service to the American shipper which result from this approach.

The promotional responsibilities of Federal programs make it incumbent that parallel support at the Government level be carried out in harmony with this approach by industry.

Allow me to recite briefly for you a number of items from the trans portation pages of our major news media. These quotes taken at random span approximately 1 month.

Journal of Commerce, June 30, 1967: An expert of the South Car lina Farm Bureau Marketing Association stated that

As everyone knows who ships perishables for sale on the foreign markets steed in delivery is vital. It has become a split second business with us because if the

trucks miss the ships our fruit shippers are in trouble. . . . Now the container has just about solved all the problems. . . . Many of the early problems such as handling procedures, coordination and timing of shipments have been overcome.

He is pretty optimistic.

Journal of Commerce, June 29, 1967:

The Pacific Coast-European Conference-a shipping group linking ports here (San Francisco) with Europe by way of the Panama Canal-are now moving to counter a serious trade threat from transcontinental railroads moving containers cross country to ships on the East Coast. In recent weeks Holland American Line has tendered space from Europe to Houston, with the movement of containerized cargo onward to California by rail.

Equally disconcerting is the growth in overland rail shipments of fresh fruit from the Pacific Northwest or citrus from the Southwest, with the movements generally going to Halifax for loading on ships to the Continent. The use of refrigerated containers and 2-day faster rail routing has begun to lure significant portions of Northwest apples' and pears' trade away from the longer voyage through the Panama Canal. At least three member lines have told the Conference they are holding up their own container system developments to determine the nature of future intermodal shipping and the ultimate effects on regular berth line operations.

The News American, June 26, 1967:

Railroads to get Panama Traffic-Containerized cargo from Europe to the Pacific Coast-even to the Far East-will be landed at Atlantic Coast ports and carried by unit train across the US rather than through the Panama Canal by ship. According to a prediction by a study, "Containerization: The Key to Low-Cost Transportation," prepared for the British Transport Docks Board to McKinsey & Company, Inc.

According to the Journal of Commerce:

One non-vessel operator already has announced a London to Yokohama services via US overland by rail rather than through the Suez Canal. Transit time is 24 days against 44 days via Suez Canal.

New York Times, June 25, 1967:

Administrative and possibly legislative changes are necessary before consolidation and door-to-door delivery of containers moving in international trade become a meaningful reality in the United States. Container Transport International, Inc., has filed an application with the ICC for authority to become a freight forwarder and engage in consolidating at several inland points. Steamship companies and conferences are trying to solve a number of problems in the container field. Among these are how far steamship lines should go toward becoming active over-the-road truck operators.

Journal of Commerce, June 21, 1967:

Five steamship conferences have asked the Federal Maritime Commission to limit the agreements proposed by two groups of foreign freight forwarders in the New York area. The freight forwarders would like to set up an international container conference and an intermodal container conference to let them "cooperatively engage in consolidating, unitizing and transportation shipments in the export and import commerce of the United States."

My own conclusion is that there are no unique and specialized problems of ocean shipping which require independent and specialized handling at the Government level. On the contrary, the problems of ocean shipping dramatically portray the need for viewing ocean transportation services as an integral part of the total transportation picture. The attempt to turn back the clock by immunizing the ocean

shipping industry from the progress that is being experienced in exploiting the best characteristics of each mode to the benefit of ali is a retrogression which will be looked upon with great dismay by the users of such services.

The emphasis on development, research, and promotion is required to stimulate the changes in transportation which are necessary to meet the increasing demands of our economy for safe, efficient, and responsive service. All modes and all functions of transport are equally important in this development of an effective transportation system to meet the Nation's needs. Efficiency in transportation is dependent upon cooperation among the different modes, and upon the different modes being developed in relation to each other and being operated under common policies. Cooperation in this kind of integration cannot be fully realized by the Department of Transportation if such an essential element as the Maritime Administration's function are excluded from the Department.

It is a governmental fact of life that an independent agency, such as the one envisaged here for the Maritime Administration, cannot compete successfully with the Cabinet level departments in the essential budgeting and appropriations process. If the Maritime Admintration is removed from that level of consideration, it is entirely logical to reason that there will be less chance and not more of proper Federal dollar involvement in the maritime industry. That is a pros pect that none of the proponents of these bills want.

It has been said on many an occasion that a Maritime Administra tion would be lost in the Department of Transportation. We have lost a letter or two and occassionally lose track of an Assistant Secretary, but we haven't yet lost an administration. As a matter of fact, there has been press speculation that it is far more likely that the Department of Transportation will be lost in the FAA Building.

Another argument which has been advanced in congressional testimony is that the maritime industry was doing just fine until it was administratively pigeonholed in the Department of Commerce in 19 and that ever since its troubles stemmed from decisions made in the paneled office on the fifth floor at the corner of 15th and E Streets NW. Here, I think the historical perspective is a bit off-maritime troubles or successes were due more to the tenor of the times and not to the bureaucratic roof over their heads. I would also note that as far bak as 1887, Frederick Engels in a preface to one of Karl Marx' essays cited the U.S. maritime industry as the perfect example of why cape talism would die.

An independent Maritime Administration is not the answer to the industry's problems. A separate chapter in the Government Organization Manual is not going to be any magic elixir for the maritime industry. I believe that the industry has probably been hobbled by overprotection, by too much Government involvenient in management de cisions, and by lack of proper incentives and competition. You don' cure a cripple by trading in his crutches for a wheelchair. It is not reasonable to suppose that the primary step toward getting the mari time industry back on its feet is to make the Maritime Administration an independent agency.

I believe that the program which I outlined in my congressions! testimony last May is a sound beginning for the maritime industry