Foreign Relations of the United States Diplomatic Papers, 1934, The Far East, Volume III

894.8591/6

Report by the Vice Consul at Kobe (McClintock)³⁶

[Kobe, December 4, 1934.]

Supplement

The Strategical Value of Japan’s New Merchant Fleet

Since the preparation of the voluntary report entitled The Strategical Value of Japan’s New Merchant Fleet, of August 14, 1934,³⁷ there have taken place certain developments which make necessary some modification of that study. In addition, new information worthy of record has come to light on the subject.

Change in Subsidized Construction Program.

The report of August 14, 1934 gave a précis of the program of the Okada Cabinet for the laying down during the next five years of 500,000 gross tons of swift merchant vessels, stimulated by a subsidy of ¥48.00 per ton, on a building schedule of 100,000 gross tons per year for five years. It was stated that “at this date …³⁸ the approval of the Diet to the draft bill is an almost foregone conclusion”.

Although this 500,000 ton building program had been sponsored by both the Saito and Okada Governments and had behind it the strong support of the Navy, the powerful shipowners and the great dockyards of Japan, it was quashed by the Ministry of Finance on the ground that the necessary funds simply could not be found for its execution. The Ministry of Navy was fighting a hard battle to get its own cherished appropriation passed by the budgetary authorities; the shipowners had already profited from the acquisition of a construction bounty of ten and a half million yen for the 1932 program; and the interest of the public was more in relief for farmers and famine sufferers than for further aid to an already flourishing shipping industry. Consequently, the 500,000 [ton] construction project fell through.

This does not necessarily imply that the plan has been placed permanently on the shelf. It is quite possible that, in a year when a combination of unequalled demands upon the national budget is not presented to an harassed Minister of Finance, the shipping lines, dockyards and naval authorities will again press for the 500,000 ton, ¥24,000,000 program.

For the next fiscal year, however, subsidized construction for the merchant marine, as outlined in the draft budget, will be limited to 50,000 gross tons, or one half the yearly tonnage quota contemplated in the scheme which was rejected. Furthermore, the Ministry of Finance has reduced the amount of subsidy paid to ¥26.00 per gross ton, plus ¥4.00 for “special provisions”, or a total of ¥30.00. The meaning of the term “special provisions” will be discussed more fully below. In return for this almost negligible bounty, shipowners are expected to scrap ton for ton of obsolete vessels for each new ship built.

Reduced to these terms, the ship construction bounty for the fiscal year 1935–36 is not sufficient, per se, to induce the building of merchant vessels of strategical value. While unit costs of ship construction have steadily increased, the amount of subsidy to be paid has been reduced not quite by half. A fast diesel cargo ship of 7,000 gross tons cost ¥250 per ton to build when the Ship Improvement Law of 1932 was adopted; the rate rose with increasing construction to ¥300 and is now in the vicinity of ¥350. Meanwhile the construction bounty is lowered from a maximum of ¥54.00 per ton to ¥30.00. It is not a sufficient inducement to cause the laying down of fast new ships.

This does not mean, however, that fast new ships will not be built. They would have been built in any event, bounty or no bounty. The only difference is that the three new liners projected by Nippon Yusen Kaisha for the European run and certain new units for Osaka Shosen Kaisha will be built under terms of the subsidy, so long as it is to be had for the asking. Smaller lines, less able to defray costs of new construction, will not be in a position to benefit by the 1935–36 program.

In summary, therefore, it may be said that during fiscal 1935–1936 there will be laid down 50,000 gross tons of new merchant ships in Japan, earning a public bounty of ¥1,500,000, provided, of course, that the Imperial Diet passes the budget as drafted.

The writer expects Nippon Yusen Kaisha to obtain the most of this appropriation. This gigantic line has long wanted to replace the obsolete “H” liners on its European run by up-to-date tonnage. It now has two 18 knot motor liners, each of 12,000 gross tons, the Terukuni Maru and Yasukwni Maru, which have proved admirable in that trade. It plans to lay down three similar liners. Whether the new ships will be diesel-driven or not has not yet been decided, although Lloyd’s Surveyor for the Far East has made the sensible suggestion that they be powered by geared turbines, with high pressure steam and superheat; a suggestion well in accord with the lines of strategy which have not been followed in the last construction program, laying down motorships in a country without indigenous supplies of oil.

The writer expects to see at least one and possibly two new liners for Nippon Yusen Kaisha built under terms of the 1935–36 subsidy. They will be built with the “special provisions” demanded by the Japanese Navy, consisting of requisite speed (not less than 18 knots), cruising radius, deep tank capacity, and gun placements. In other words, they will be like other Nippon Yusen Kaisha mail liners, recently commissioned. It is doubtless known to American naval authorities that Chichibu Maru, Tatsuta Maru and Asama Maru, all of 17,000 gross tons; Terukuni Maru and Yasuhuni Maru, of 12,000 gross tons; Heian Maru, Hiye Maru and Hikawa Maru of 11,622 gross tons were constructed with specially strengthened decks and gun placements. Nippon Yusen Kaisha receives well over half of the total subsidy paid each year by the Government for contract services and in return obliges the Navy by the installation of “special provisions”, as well as by a tacit understanding that its fleet is subject to call in the event of a national emergency.

Osaka Shosen Kaisha, as the only other line (with the possible exception of Mitsui Bussan Kaisha) in a financial position to lay down new bottoms with such slight assistance in the form of bounty, may possibly construct one or two liners for its South American service to the East Coast. This will depend, however, upon the fate of the emigrant trade to Brazil, which is threatened with practical extinction, owing to the new Brazilian constitutional limitation on the admission of alien colonists. Osaka Shosen Kaisha is likewise planning to replace obsolete liner tonnage on its lucrative Dairen line.

Since the companies in a position to build under the terms of this exiguous subsidy are interested only in deep water ships and liner tonnage, the 50,000 gross tons to be laid down between March, 1935 and March, 1936 will be of high strategical value. The writer would predict that whatever units are laid down will have a speed of at least 18 knots, combined with large cruising radius, cargo capacity and accommodation for passengers or troops. Both emigrant ships and liners for the run to Europe could be converted into transports instantaneously. The nature of the trades served demands large deep tank capacity.

In summary, therefore, it appears at this writing that the following points are clear:

1. The ambitious program for the construction of 500,000 gross tons of new ships has been temporarily abandoned, owing to the impossibility of finding the necessary appropriations.

2. A substitute construction program has been budgeted by the Ministry of Finance, by which 50,000 gross tons will be laid down in the next fiscal year, in return for a small bounty of ¥30.00 per ton.

3. In spite of this negligible assistance, Nippon Yusen Kaisha and Osaka Shosen Kaisha will probably take advantage of the terms offered; not because it is a bargain, but because they want new tonnage. By the nature of the trades they serve and the obligations both owe for service subsidies and naval favor, they will build fast liners of great strategical value.

Subsidy for “Special Provisions”.

It was indicated above that the reduced construction bounty program envisages the payment of ¥4.00 per gross ton for the incorporation of “special provisions” in the ships to be laid down under subsidy terms, as part of the total bounty of ¥30.00 per ton.

There has come to light certain information concerning this subsidy for “special provisions” which, although possibly already known to American naval authorities, may still be of interest. The source of this information is a prominent ship broker and ship owner of Kobe. His opinions have been correlated with the views of Lloyd’s Principal Surveyor for the Far East. Both gentlemen gave this information on terms of absolute confidence.

It has been a matter of common knowledge that the magnificent express cargo vessels laid down under the terms of the Ship Improvement Act of 1932 were built after collaboration with the Japanese naval authorities as to their potential strategical function. It was not known to the writer, at least, that the Imperial Navy paid most of the shipowners building this new tonnage a special subsidy of ¥5.00 per gross ton for the incorporation in the new vessels of certain “special provisions”, including requirements as to maximum speed, cruising radius, deep tank capacity and gun mountings.

On the assumption that all the lines which built new vessels under subsidy accepted the extra inducement of the Navy in the form of this bounty of ¥5.00 per gross ton, the account of this extra subsidy, not indicated in the report of August 14th, stands as follows:

[The statistical table of thirty-one ships is not printed.]

The consulate’s informant, however, states that Mitsui Bussan Kaisha and Kokusai Kisen Kaisha did not accept the extra bounty from the Navy. He thought their decison was based on the asserted fact that the subsidy offered was not sufficient to defray the additional expense involved in incorporating in the ships the special provisions demanded by the naval authorities. However, Lloyd’s Principal Surveyor for the Far East has objected with reason to this view, pointing out that the subsidy of approximately ¥35,000 per ship was more than ample to cover the additional cost of gun placements. The vessels of both M. B. K. and Kokusai should more than satisfy naval requirements in other respects, as they are capable of speeds of from 18 to 19½ knots and have ample deep tank capacity.

The writer is of the opinion, confirmed by conversations with the chief of the foreign freight lines of Mitsui Bussan Kaisha, that M. B. K., at least, refused the Navy’s bounty as conforming to its heretofore established principle of avoiding committments to the Navy in return for the acceptance of subsidies. This is beyond any doubt the reason why M. B. K. has consistently fought shy of seeking service subsidies, pointing out that Nippon Yusen and Osaka Shosen have assumed obligations in return for subsidy which are disproportionate to value received. A contract subsidy with the Japanese Government involves submission to the control of the Ministry of Communications, with respect to freight rates, as well as to control by the naval authorities.

Kokusai Kisen Kaisha has also apparently been lukewarm in receiving favors which imply large obligations to the Navy, although considering the line’s start in life and its very large indebtedness to public funds for its existence, such reluctance may seem surprising.

The writer therefore thinks it advisable to take a conservative view and assume that neither Mitsui Bussan Kaisha or Kokusai Kisen Kaisha have accepted the special bounty of ¥5.00 per ton from the Navy. At the same time emphasis must be placed on the fact that the six 18½ knot M. B. K. freighters and the seven equally swift Kokusai ships meet all the requirements of “special provisions” with respect to speed and capacity, save for gun placements.

A Rengo report from New York dated November 7, 1934 quoted a New, York Times despatch which cited Rear Admiral H. I. Cone as stating, in a general account of Japan’s new merchant fleet, that the M. B. K. freighter Azumasan Maru was fitted with gun mountings. The writer is strongly inclined to doubt if the new M. B. K. ships are so fitted. From the evidence adduced above and from a personal inspection of the Amagisan Maru, an identical sister of Azumasan Maru, he would base his opinion. One fact is certain, and that is that Amagisan Maru had no gun mountings.

It is not easy in Japan closely to inspect vessels of high strategical importance, even though they are currently devoted to uses of commerce. The writer has, however, been aboard certain units of the new Nippon Yusen Kaisha fleet of six 18 knot freighters of 7,300 gross tons, and can state with certainty that each ship has two gun placements, located immediately aft and above the forward well deck, on either side of the central superstructure, commanding an arc of approximately 165 degrees. There are no mountings in the after part of these vessels. The deep tank capacity of the new N.Y.K. express freighters is 1,340 tons of 40 cubic feet. The Consulate’s source of information previously cited corroborates this information as to gun mountings.

There is equally no doubt but that the three huge express tankers of Iino Shoji Kaisha have specially strengthened decks and gun placements. It is perhaps worthwhile to supplement the writer’s comment in the report of August 14th, concerning the “relations of peculiar intimacy” which Iino Shoji Kaisha has with the Japanese Navy by stating that the firm was originally founded by a group of former naval officers. The influence of the Navy is likewise to be found in the fact that Iino Shoji was the first Japanese shipping company to bring out tankers of extraordinary capacity and speed. Fujisan Maru was the first of these remarkable tank ships; built by Harima Dockyard near Kobe. The two later vessels, Toa Maru and Kyokuto Maru, were built by Kawasaki Dockyard with a subsidy from the Government of ¥54 per gross ton, plus ¥5.00 a ton from the Navy. They trade exclusively for naval account, carrying fuel oil and crude to Tokuyama on the Inland Sea. It is understood that Fujisan Maru and Toa Maru are now in the run to California.

Incidentally, contrary to the Rengo report quoting Rear Admiral Cone, the tankers of Iino Shoji were built according to Lloyd’s specifications.

In summary, therefore, the following may be said:

1. It would not be extravagant to assume that all the Japanese lines building vessels as part of the 1932 Ship Improvement Program, with the exception of Mitsui Bussan Kaisha and Kokusai Kisen Kaisha, received an extra bounty from the Navy of ¥5.00 per gross ton, in return for assuming obligations in the form of “special provisions” as regards speed, radius, capacity and gun mountings. The total of extra subsidy thus granted, deducting the amount which was assumed to have been paid Mitsui and Kokusai, was ¥705,050. The writer has definite assurance that Nippon Yusen Kaisha and Osaka Shosen Kaisha have given a willing ear to the advice of the Imperial Navy in the construction of all new ships, whether under terms of bounty or not.

2. The question of the precise amount of this extra bounty from the Navy is not material. The important point was that developed in the basic report under reference, which is that the new ships laid down are unsurpassed, by virtue of extreme speed and carrying capacity, in their strategical value, both as active units of fleet train or as maintained of a line of communication in time of war.

3. The question of gun mountings is not so important as would seem from newspaper accounts. All the ships laid down in the United States under the terms of the Jones–White Act³⁹ had gun placements and occasioned no surprise. It should not be astounding that a similar Japanese building project should incorporate similar features. As for the location of gun mountings in commercial vessels: any boss stevedore in an American port could confirm the presence or absence of such mountings. Since all these new ships are in the American trade, this factor can easily be determined with accuracy in the United States.

In conclusion, it may be said that two modifications need to be made in the report of August 14, 1934:

1. The projected subsidized construction program of 100,000 gross tons a year for the next five years has been so truncated as to be scarcely recognizable. At the same time, 50,000 gross tons of new ships will be laid down in the next fiscal year. It has been shown, by reference to the needs of the only companies in a financial position to build, that whatever ships are laid down as part of the new program will be liners of high strategical value.

2. The Ship Improvement Program of 1932, which brought into being 200,000 gross tons of the fastest cargo vessels in the world, was assisted toward the realization of its strategical function by a special subsidy of ¥5.00 per ton from the Japanese Navy.

36. Approved by the Consul at Kobe; copy transmitted to the Department December 5; received December 28.
37. Ante, p. 235.
38. Omission indicated in the original.
39. Approved May 22, 1928; 45 Stat. 689.