Foreign Relations of the United States Diplomatic Papers, 1934, General, the British Commonwealth, Volume I

588.C1/¼

Mr. Charles S. Haight ¹⁶ to the Assistant Secretary of State (Sayre)

New York, March 2, 1934.
[Received March 3.]

My Dear Mr. Sayre: During our conference on the General Shipping Code, which was held at Mr. Weaver’s¹⁷ office on February 19th, you stated that the right way to handle the present shipping emergency appeared to you to be by an international agreement, and at our further discussion on February 20th you suggested that I write giving you my views regarding such an agreement. I am sending you this letter in compliance with that suggestion.

1. Present shipping conditions

(a) World tonnage. I am attaching hereto, marked Schedule A,¹⁸ a tabulation showing the tonnage of the leading commercial nations and the total tonnage of the world, for the various years stated. As you will see, the total tonnage in 1920 was 57,314,065 gross tons; in 1929—68,074,312; in 1931 (the highest point) 70,131,040; and in 1933—67,920,185.

(b) World trade. Schedule B, also attached, gives the foreign water-borne commerce of the United States from 1866 to 1933. From this you will see that the value of our water-borne exports and imports reached the highest point in 1920 and then amounted to $11,874,997,809. In 1929 the figure was $8,170,834,328., and in 1933 $2,291,883,026.

I have not available, at the moment, the water-borne figures for world trade in general, but the total world trade and the share of the United States therein are shown in Schedule C. Taking the exports only, to avoid duplication, (since the exports of one nation must, necessarily, be the imports of another), the total for 102 countries in 1929 was $33,165,000,000. The same figure in 1932 was $12,183,000,000.

The obvious fact is that, while American water-borne foreign commerce (both export and import) has dropped in four years over 70%, and while world exports have dropped, from 1929 to 1932, over 60%, the tonnage of the world (as proved by Schedule A) stands at almost exactly the same figure in 1933 that it did in 1929.

(c) Idle tonnage. Under such circumstances, obviously the ships which continue to run must find it difficult to secure cargoes and many ships must be laid up. Schedule D shows the idle tonnage of the world for the years 1930–33, inclusive, which reached a total of 14,115,000 gross tons in 1932. Schedule E shows the employment of American merchant vessels and the American tonnage laid up, as of September 30th, 1933. The total tonnage employed in our overseas foreign trade (both private and government-owned), on that date, was 289 ships of 1,960,080 gross tons, while the laid-up vessels numbered 550 to 2,854,000 gross tons.

(d) No early revival possible. I do not think that anyone can expect a quick revival in international trade. High tariffs, quotas, exchange restrictions and other trade barriers, as well as a general loss in purchasing power, have been responsible for the serious conditions now confronting us, and those causes obviously cannot be removed for many months, and perhaps for several years, to come. It is to be hoped that the increase in the movement of ocean cargoes which has occurred during the last year will continue, but, in the ordinary course of events, we cannot hope for any substantial increase in freight rates until all of the surplus idle tonnage which is capable of operation has been absorbed. Obviously, just as fast as the business offered makes it possible for an owner to operate his ship at a loss which is less than the lay-up cost, that ship will be added to the active tonnage, thus acting as a sure prevention of any substantial increase in freight rates before all of the idle tonnage is in operation.

2. The problem presented and the possible remedy

There appear to be only two alternatives offered in the present emergency: (1) to let matters drift indefinitely and wait until (through bankruptcy of steamship owners and the scrapping of surplus tonnage) the supply of ships has been reduced to equal the demand; or (2) to take some action which will remove the surplus tonnage from the freight market, until trade revives. If such action is to be taken, it must, I think, be on the lines of your suggestion, i. e., an international agreement. The surplus tonnage is to be found in every country and, unless all countries join, it is obvious that the problem cannot be solved.

The question which you have put to me is whether such an international agreement would be possible. My answer is that it will not be possible unless the United States is prepared to take the initiative and lead the way. If, on the other hand, the United States is prepared to take the lead, I think that such an agreement would be possible.

As you probably know, this subject has been under discussion for the past two years and has been studied both by the International Chamber of Commerce and by the British Chamber of Shipping. The Maritime Association of the Port of New York also appointed a special committee (of which I am a member) to study the problem, and the general discussion, both here and abroad, has been helpful. I have also made inquiries on my own account from the persons in several countries who appeared to me to be best qualified to express an opinion, and my conclusion is that, in the countries where subsidies exist and where government control is therefore a real factor, it would be possible, under government guidance, to handle the situation so far as the ships flying those particular flags are concerned.

United States, Italy, France and Germany. To be more specific, most of the steamship owners of these four countries are, today, definitely dependent upon government support and they can, therefore, be brought under government control. Under such control, it seems to me that the way could be found to require the shipowners of these nations to join in any reasonable plan, internationally arrived at, for the tying-up of that proportion of the world’s tonnage which cannot possibly find employment, and keeping it tied up while the emergency lasts.

Norway, Sweden, Denmark and Holland. There is also good reason to believe that these countries, which are without the control afforded by subsidies, would join in an international plan for the lay-up of surplus tonnage. Since I saw you, I have had the advantage of discussing this problem with Lord Essendon, who, as you undoubtedly know, is, today, the most active and successful operator of British tonnage. As Chairman of Furness, Withy & Company, of the White Star Line and of that portion of the Royal Mail fleet which is engaged in trade between the U. K. and South America, he is responsible for the operation of about 1,600,000 tons of ships. His influence in the solution of shipping problems in Great Britain would, I think, be greater than that of any other single man, and he has long favored some international lay-up agreement. Lord Essendon has told me that, not long ago, representatives of the Steamship Owners’ Organizations of Norway, Sweden, Denmark and Holland came to London to see him, when it was first proposed that Great Britain grant a subsidy to British owners for the purpose of saving them from ruin during the present difficult period. The owners of these four countries stated that they were prepared to urge their governments to join in any reasonable international agreement for the rationalization of ocean tonnage. I understand that all four of these governments have been approached by their owners, or will be so approached in the near future, and that it is expected that they will then make official representations to the British government.

Lord Essendon is of the opinion that such an approach from governments which do not themselves grant a subsidy, will not have very much weight with the British Foreign Office or the Board of Trade, but he feels that, if the United States should take the initiative in an effort to work out an international agreement, the British government would give the subject very serious consideration and probably would follow the American lead. Heretofore, the British owners have been divided among themselves as to whether it would be worth while to attempt an international agreement. The majority, headed by Lord Essendon, have been in favor of such an attempt, but the minority has been too large to indicate success. In Lord Essendon’s opinion, however, that situation might well be changed if the United States should favor the plan and take the lead.

If the answers to my personal inquiries have been reliable, it would then seem possible to secure the co-operation of the United States, Great Britain, Italy, France, Germany, Norway, Sweden, Denmark and Holland, and, in that event, I should think that it ought to be possible to persuade the other commercial nations to join in the movement.

3. The general principles underlying the agreement

Assuming that the United States should decide to take the lead in the solution of this problem, I think that it would be desirable, in the first instance, to agree upon certain general principles to be adhered to, and those principles should, I think, include the following:

(a) The United States should, I believe, abandon all ideas of discrimination, such as are found in Sections 28 and 34 of the Merchant Marine Act, 1920, and were also put forward in the Cruise Bill and the Fighting Ship Bill,¹⁹ offered two years ago. In other words, I think that we should adhere definitely to the principle of freedom of the seas for which the United States has contended ever since our Colonial days.

(b) I also believe that it would be wise for the United States to act upon the theory that we, alone, are responsible for the high cost of shipbuilding in American yards, and for the high cost of ship operation under the American flag. The first is due to our high tariff policy and the second to the La Follette Act²⁰ and other similar legislation. We cannot blame the foreigners for these natural consequences of our own legislation and we must, I think, offset them ourselves by the payment, out of our own funds, of an equalizing subsidy. I would also call a subsidy by its real name and not resort to the subterfuge of so-called “mail contracts”.

(c) Obviously, the basic purpose of the agreement would be the general benefit of all owners of all flags, without any attempt to secure a special advantage for any one.

(d) Of course, the owners of idle ships would have to be compensated out of the increased earnings of the ships which are in operation. I shall not go into details on this point except to say that such a plan has been adopted, of course on a small scale, and appears to have worked out satisfactorily, in the lay-up and pooling agreements entered into by the owners of tankers and of whale factory ships.

(e) It might simplify the situation if, at least at the start, the international agreement were confined to cargo tonnage and if passenger vessels, refrigerator vessels and tankers were omitted. The owners of such special tonnage can much more easily make their own agreements and arrange for their own protection, although, of course, passengerrate wars do occur and are generally disturbing.

(f) Of course, nothing in the nature of a boom should be allowed to take place, i.e., the tonnage in operation should not be reduced unduly and as soon as the movement of cargo increases more ships should be released, so as to keep the market adequately supplied at all times and at reasonable rates.

(g) I think that the proposed lay-up agreements should, in the first instance, be discussed between the governments rather than between the shipowners of the different nations, leaving it to each government to undertake to bring its own owners within the terms of the agreement.

4. The negotiator

If the United States should take the initiative, it seems to me that it would be wise if we were represented by someone who is not, even remotely, identified with any steamship line nor with the steamship business. Personally, I hope that it will be possible for you to handle the matter yourself. You will be free from suspicion and no one will have any just cause for worry lest you attempt to secure an advantage for some particular owner, and you can make it abundantly clear that you have no bias in favor of American flag ships. The importance of having the right man open the negotiations seems to me very real and, as already suggested, I would open them directly with the foreign governments.

5. Conferences

In actually working out an international agreement in each country, I think that full advantage should be taken of Conferences which are now in existence. It is through those Conferences that the decision should be arrived at as to how many ships are needed to handle, economically, the trade which exists today, and it is also, I believe, through those Conferences that unreasonable price-cutting must be stopped.

6. Differentials

The obvious difficulty, if the problem in each country is handled through the Conferences, will be to find some formula under which all owners can be brought into the Conferences on fair terms which will give to each class of owner a reasonable differential. Any attempt to drive tramp owners out of international trade seems to me to be illadvised and doomed to failure, but it should be possible to so distribute the existing business that the slow cargo boats will be given their fair share of the bulk cargoes and allowed to charge appropriate rates. The present non-Conference liners also will have to be dealt with fairly, but it does not seem to me unreasonable that they should also be required to deal fairly with other carriers engaged in the same trade.

7. Preliminary steps

Before the United States officially embarks upon the enterprise, I believe that it would be wise to ascertain, by an informal approach, what the attitude of the governments named above is likely to be. I am also sure that the precaution should be taken to ascertain that any such international agreement, if arrived at, would be ratified promptly by the Senate, i. e., if the agreement takes the form of an international treaty. I need hardly remind you that many of the treaties which have been signed by duly authorized representatives of the United States never have been ratified. If an international shipping agreement should merely produce another unratified treaty, it would be most unfortunate from every standpoint.

8. Speed

My final suggestion would be that a start in the direction of an international agreement should be made very soon. Steamship owners, the world over, are in a critical position today. It will do no one any good if their distress results in world-wide government ownership or international competition in the matter of government subsidies.

I hope that I shall not appear to you to be presumptuous in having answered your question at such length. I have really only been thinking out loud, but upon a subject which has given me much concern ever since the collapse of the world’s foreign trade. Had you wished it, I should have been glad to come to Washington to discuss the matter with you, personally, but two or three emergency matters have come up which force me to go to the other side for a few weeks and I am sailing on March 7th.

Very sincerely yours,

Charles S. Haight

P. S. Since dictating the above, I have learned that Lord Essendon has devised a complete lay-up agreement for international adoption and that, in his opinion, his plan will work without any necessity for keeping complicated accounts and paying the owners of laid-up tonnage out of the earnings of the ships which are in operation. According to my understanding, under his plan, everybody is allowed to operate a portion of the time and the benefits of the agreement are shared in that way.

If you should be interested, my secretary can secure a copy of Lord Essendon’s plan and place it at your disposal.

CSH

16. Member of the New York legal firm of Haight, Smith, Griffin & Deming, representing the tramp shipping interests of Denmark, Finland, Holland, Belgium, Norway, Sweden, Great Britain, and Greece, the American Association of Tramp Operators in Canadian and West Indies Trades, and the Association of Ship Brokers and Agents of New York.
17. Joseph B. Weaver, Deputy Administrator of the National Recovery Administration.
18. Schedules not printed.
19. S. 3501 and S. 3502, Congressional Record, vol. 75, p. 3354.
20. La Follette Seamen’s Act, approved March 4, 1915; 38 Stat. 1164.