The Story of the American Merchant Marine

by John Randolph Spears

In any consideration of a revival of the American merchant marine, it is necessary to view candidly the conditions which our ships must face. Emphasis is laid upon the need of candor, because in such discussions of the matter as have been had in periodicals, and before committees of Congress, the plainest facts of history have been frequently misstated, and, at times, deliberately misrepresented. If one-half the ingenuity and energy that have been used in arguing for the subsidy policy had been expended in evolving a revolution-making type of ship, we should have had, long since, a merchant marine worthy of the flag. Further than that, while an appeal to sentiment is justified, the matter ought to be viewed first as a cold matter of business.

Is the deep-water carrying trade worth the attention of American capitalists? It is a curious fact that in the hearings before the committees of Congress that have investigated the state of our shipping since the Civil War, not one word has been said about the dividends paid by the ocean carriers of the world. The reports of the committees assume that there is great profit in such shipping. One adroit advocate of the subsidy system says "the European steamship combinations ... now derive an income of about $200,000,000 a year from their control of our carrying trade" (Atlantic Monthly, October, 1909), leaving the reader to suppose that that great sum is divided as net profits.

As a matter of fact, the International Mercantile Marine Company, one of the larger corporations thus engaged (it is largely in the hands of American capitalists, too), has paid no dividends as yet (1909), and even its bonds sell below par. When the Cunard Company wished to build two ships to excel the swiftest of the German liners, it was unable to do so until the British government loaned it the necessary capital under conditions that amounted to a gift of the total cost of the ships. According to the Financial Times (London), dated Wednesday, April 14, 1909, the highest dividend paid by this most highly favored of all the British subsidized lines during the last fourteen years (1895-1908) was 8 per cent, which was distributed in 1900. The average distribution for the fourteen years has been 3.17 per cent a year. In 1895, instead of making a profit, the company lost £40,000. In 1904 there was a loss of £66,700. In 1908, while operating the two splendid and thoroughly well-advertised record breakers which it had received as a free gift from the British government (the Mauretania and Lusitania), it made the enormous loss of £249,800. A letter from the company to the writer admits that these figures are correct.

Said James A. Patton, then one of the foremost grain exporters of the United States, in a hearing before the Merchant Marine Commission of Congress in 1904 (Sen. Rep. 2755, 58 Cong. 3 sess. p. 714):—

"The ocean freight market has been so low during the past two years that at times the ship agents have offered to transport grain to Liverpool and London for nothing, to take it as ballast. Recently we have shipped corn from Boston to London at a price less than that ... less than nothing, owing to duties the port dues in London, which absorbed more than the freight rate received."

The conditions described by Mr. Patton are out of the ordinary, of course, but conditions which have kept the dividends of the well-subsidized Cunard Company under 3 per cent have prevailed for thirteen years. The company was able to earn the 8 per cent dividend in 1900 only because the war with the Boers created an extraordinary demand for ships to be used as transports, and these having been taken from the general carrying-trade freight rates rose to an abnormal point. Leaving out the abnormal dividend of 1900, the average distribution has been but 2.8 per cent.

The ocean carrying-trade is performed by two distinct classes of services; the line traffic, like that of the Cunard Company, and the independent cargo carrier or tramp service. The tramp will go anywhere and at any time for a charter price. The income received by the tramps is as uncertain as that of a prospector in the mining region. In spite of the ease with which the demand for tonnage is telegraphed around the world the tramps accumulate on this or that coast in numbers far beyond all needs of the trade, and rates drop to a point where many of them are glad to get away in ballast. At such a time, however, a lucky (perhaps a far-seeing) owner has a ship at a port barren of tonnage, and receives for a cargo that must go quickly a price that pays half the cost of the ship. It is the lucky stroke that keeps the seafaring people hoping against hope, just as the prospector remembers how Creede, of Colorado, made a million out of the Amethyst.

Then consider the effect of the tides in the business world upon the carrying-trade. After the war with the Boers the freight rates went to pieces. Owners ceased building new tonnage. The ship-builders, to keep their forces together, offered to construct the best of modern vessels at cost of construction. Thereupon new capital came into the trade, and some men of experience also placed orders. In this way an excess of tonnage was kept afloat. Meantime much old tonnage in the progressive countries like England and Germany was placed on the market at forced sale, and these ships were bought by continental owners who patched them up ("cheap repairs for the cheap ones"), and sent them, with cheap crews, looking for cargoes. It must be kept in mind that Chinese owners, who can hire stokers at $6 a month, are competing in the world's traffic, as well as owners who have to pay $40 a month for the same kind of work. Where the Chinese owner can make money, and the owner of the best of modern freighters can live, and even make a lucky stroke, now and then, the owner of the average tramp keeps her running because the losses while she is in commission are less than when she is laid up in ordinary. The tramp traffic is precisely like mining in that the luck of the few keeps the many trying. Moreover the trend of business has been, for some time, away from tramps and into regular line ships, and that is a fact worth serious consideration.

The average profit of the lines of steamers is well set forth in the statement of the Cunard Company, unless, indeed, that statement is more favorable than the average facts warrant. The Hamburg-American Line dividends during the past fourteen years have averaged 5¾ per cent per annum, and it is likely that but one other ship-owning corporation has done as well on deep water. It is a world's traffic even for a line that plies between New York and Liverpool only. The price that a Swedish tramp will accept for wheat in the River Plate, and the rate which the Japanese will accept on the coast of China, both affect the North German Lloyd at Bremen. A few lines, especially those having special trades, make good dividends. The United Fruit Company's ships are among the exceptions because of the peculiarities of the business. But every ship-owner knows that on the average there is no great part of the world's work that pays smaller dividends than carrying cargoes across deep water.

The people of the United States, before taxing themselves to add to the congestion upon the high seas, should ask themselves whether success, when attained, will be worth the cost. Would a sensible American farmer, able to earn $3 a day grafting orchards, work overtime in order to compete with a foreign ditch digger receiving $1.50?