393.1115/278: Telegram
The Secretary of State to the Consul General at Shanghai (Gauss)
281. Your No. 554, August 25, 4 p.m.80 The diversion of the Dollar Line passenger ships to Shanghai, under the instructions of the Commander in Chief and yourself and the present order to the Shanghai Dollar Manager that all Dollar Line vessels east and west bound shall touch at Shanghai, is raising many complications and may involve very large costs to our Government.
When the first three Dollar vessels were diverted, under your and the Admiral’s instructions, to Shanghai the question immediately arose here of war risk insurance on the vessels. The Maritime Commission, which has practically 100 percent mortgage on Dollar Line vessels, found it necessary to insist upon war risk insurance. This insurance at prevailing rates would have amounted to about $250,000 a vessel for each voyage which included a call at Shanghai. The Department was able to arrange that, as these vessels are practically government-owned, the Maritime Commission will waive the necessity for war risk insurance for each Dollar Line vessel calling at Shanghai, the Government as practically owner assuming all risks as in case naval vessels.
As was to be expected, the question of war risk insurance on cargo east and west bound has arisen. The present rate under rules of Marine Underwriters Association is 3 percent. Head offices of Dollar [Page 288] Line state that, if our Government does not assume costs of this war risk cargo insurance for every east and west bound Dollar Line sailing with call at Shanghai at our request, the Line will lose all cargo to ships of other flags not calling Shanghai and which therefore are not under necessity of covering cargo with this special insurance.
The Department is therefore faced with the necessity of either assuming for the Dollar Line the cost of this insurance on the cargo of every vessel calling at our request at Shanghai or of facing an ultimate claim from the Dollar Line for loss of freight which claim would probably be in excess of the cost of insurance.
You will appreciate that the cost of this insurance alone could very rapidly consume the whole of the fund which Congress has made available for the evacuation and relief of Americans.
The Department is now faced with the immediate question of making a decision on this point in reference to the President Garfield due to sail from San Francisco on August 28. As no further delay in decision is possible, the Department is informing the Dollar Line that for the present it does not desire that the President Garfield call at Shanghai on this voyage to Manila. In this way the necessity for placing war risk insurance on the cargo now is eliminated. If by the time the Garfield reaches Japan the situation at Shanghai is such that it appears imperative that the Garfield call there, the Department can reconsider the matter and it or you can request the Dollar Line to have Garfield put in at Shanghai in which case the Department would have to assume the cost of the war risk insurance on the cargo which would then have to be placed.
This same question of cargo insurance will arise in the immediate future with respect to Dollar Line sailings from Manila as the prescriptions of the Marine Underwriters Association becoming effective early this week will apply there as well.
A solution of the question of war risk insurance on cargo might be for the Dollar ships to anchor near the mouth of the Whangpoo River at sufficient distance out to avoid the necessity of taking war risk insurance on cargo, and to arrange for American nationals withdrawing from Shanghai to proceed from Shanghai to the anchorage on naval vessels. The question of practicability and safety of transferring from naval vessel to Dollar passenger ship arises, and your observations after consulting with the Commander in Chief on this point are requested.
Should this not be practicable, another possible way of avoiding necessity for war risk insurance on cargo and other possible claims by Dollar Line would be for American citizens to be evacuated from Shanghai to Hongkong or Kobe in United States naval vessels. War [Page 289] risk insurance is not at present involved in case of calls by Dollar vessels at Japanese ports or Hongkong.
It is appreciated that all necessary steps, including diversion Dollar Line ships, must be taken for the evacuation of our nationals when emergency demands it, but Department believes you should know that the diversion of these ships, even under present instructions merely to call at Shanghai outlined in your No. 554, involves present and ultimate considerable expenditures which it may be possible to avoid.
Please discuss this whole situation urgently with Commander in Chief and inform Department by priority radio of your and his views and suggestions.
The contents of this telegram have been communicated to Admiral Leahy, who concurs.
- Not printed.↩