became one of concern mainly to the two governments. The government, moreover, has interested itself in rate matters in all trades through the medium of the Shipping Board.

The function of the South African Shipping Board has been to investigate and report-upon matters relating to ocean transportationto the Department of Railways and Harbors, but this board has no authority to act in other than an advisory capacity. Within the Department of Railways and Harbors there is a division of shipping which has full power to charter and operate vessels for transporting essential exports and imports. This division now operates four ships owned by the South African Government and has four more under charter.

So far as freight rates to South Africa are concerned the South African Government has no power to fix freight rates other than on Government owned or operated vessels or when rates are so low as to bring merchandise transported under them within the terms of the freight dumping-duties regulations. These latter are primarily for the protection of local industry and not a normal control of freight rates. Such dumping duties apply only when the rate quoted by ocean carriers is below that recommended by the Shipping Board as a reasonable charge and are administered through the Ministry of Commerce and Industries by the Board of Trade and Industries-illustrating the protective character of the duties imposed, rather than freight-rate control.

The vast majority of ships in the South African oversea trade are owned in other countries and are normally operated under conference agreements fixing freight rates. As long as such rates are not so low as to permit of the application of dumping duties an unlikely situation in wartime there is no authority in being for the South African Government to regulate these rates, and no attempt has been made to do so since the beginning of the war.

The only exception to this statement may be found in rates of freight on Government owned or chartered ships. The shipping section of the Department of Railways and Harbors stated that the Department operated vessels only, as a rule, when sufficient tonnage was not available; that it did not operate them for a profit; and that it employed them in services regarded as essential for the national wellbeing, principally between South Africa and Portuguese East Africa, the latter service being for the carriage of merchandise destined to the Rhodesias, British possessions.

Rates on South African Government-owned ships have always been lower than those charged by private carriers and are still below them. They have been advanced over pre-war levels, however, to meet higher operating costs, particularly chartering costs, resulting from scarcity of tonnage. At this time, January 1940, steel is urgently required, and it can best be obtained from Australia. South African Government-operated ships are engaged in this trade, carrying steel at 68 shillings per ton, a slight advance over the pre-war freight rate, as against a rate of 63 shillings per ton plus 50 percent, quoted by neutral carriers. But it must be emphasized that this disparity in rates follows what has been the normal trend of South African Government shipping rates—namely, to operate at cost in essential national services and is not a new development in control of freight rates.

UNION OF SOVIET SOCIALIST REPUBLICS

All facilities for maritime transport so far as the Soviet Union is concerned are in the hands of the Government and are under the administration of the People's Commissariat for Water Transport.

To the extent that Soviet vessels are not available, it is necessary, of course, to obtain foreign vessels in the world market. Details as to the terms upon which these vessels are obtained are not available.

UNITED KINGDOM

A profound change occurred in the United Kingdom shortly after the outbreak of war in 1939. Whereas rate making previously had been left altogether to the shipping companies, the Government, under the exigencies of war, assumed a direct and active interest in the matter. It formed a Ministry of Shipping to coordinate all the activities of the merchant fleet under one head. Plans for such an organization had been made before the war within the Board of Trade, where there had been a steady expansion of the department concerned with shipping. The new Ministry, as a separate entity, took over the organization which had been formed within the board. Its activities in relation to ocean freight rates are dealt with in the following sections of this chapter.

GOVERNMENT ADOPTS DEFENSE MEASURES

In pursuance of the Emergency Powers (Defense) Act, 1939, the Government, in August of that year, issued the Defense Regulations Applicable to Ships and Navigation. Parts III and IV of these regulations provided, inter alia, for the "Control of trade" and the "Requisitioning of ships." Under part III, relating to the control of trade, the Board of Trade and later its successor, the Ministry of Shipping, was authorized to require British ships to procure licenses before proceeding to sea; also, to impose limitations with respect to "the hiring of the ship and the terms upon which cargoes or passengers may be carried in the ships."

MINISTRY OF SHIPPING FIXES TRAMP RATES

At the outbreak of the war the Government established a licensing system for all voyages and requested the shipping industry to limit the rise in freights, resulting from the sudden increase in the demand for shipping, to a level that would no more than compensate shipowners for the increase in operating costs. Soon afterward, however, the Government fixed the freight rates in the principal tramp markets and requested the liner companies to correlate their rates with the controlled tramp rates, on the basis of only covering the increase in operating costs. In view of the need to avoid any "profiteering," the tramp rates were fixed at a level much below that of the open market rates available to neutral shipowners, and they soon proved insufficient to cover the rapidly increasing costs of operation. Therefore, in response to representations from the tramp shipping industry, the Government increased the controlled rates as from November 1, 1939, by about 30 percent and increased the allowance already granted for delays in convoy from 3 pence to 4 pence per gross ton.

9

'Annual Report, Chamber of Shipping, 1939-40.

SHIP-OPERATING COSTS RISE SHARPLY

The Chamber of Shipping in its Annual Report for 1939-40 stated that the first effect of the war had been to produce a rapid increase in all running costs. An inquiry by the industry in connection with rates of hire for requisitioned vessels had established the following average figures of daily running costs for a deep-sea tramp steamer of about 9,000 deadweight tons: April 1939, £35 per day; September 1939, £48 per day; January 1940, £51 10s. per day. For motorships, running costs were about £3 per day more.

For deep-sea liners, the average running cost per day in January 1940 showed an increase of about 25 percent as compared with prewar. In both cases, full account had not been taken in the above figures of a further increase of 25 percent in the cost of marine insurance, which would be incurred as policies fell due for renewal. Nor had account been taken of a further increase in wages and war-risk bonus for officers and crews, which in the case of deep-sea tramps was equivalent to an addition of £2 10s. per day to the running costs and which was scheduled to come into operation on March 1, 1940.

SHIP LICENSING GIVES WAY TO SHIP REQUISITIONING

At the outset, the Government undertook a system of licensing British ships for particular voyages but soon afterward resorted to requisitioning them, at rates of hire agreed upon with the shipowners. With respect to this, a criticism of the Ministry of Shipping was voiced in Parliament in March 1940, because the rates allowed neutral shipowners were higher than those allowed British shipowners. Sir Arthur Salter, Parliamentary Secretary to the Minister of Shipping, in defense of the Government's determination to requisition shipping, emphasized that it was no longer possible under wartime conditions to decide cargoes or destinations by simply asking which load or voyage would pay best. The Government, he said, by its control of oversea supplies, war production, and foreign exchange had scrapped the working of the ordinary economic competitive system. The new situation required Government control over both cargoes and shipping movements. Requisitioning was preferable to licensing, as it enabled the Government to decide more directly and positively what the ship was to do, what cargo she was to carry, and on what route she was to go. Such shortage of ships as existed resulted mainly from slower navigation requirements under convoy, the taking over of vessels by the Admiralty, and the shrinkage in available neutral tonnage all occurring at a time of increased demand for ships to bring in Britain's war requirements.

Sir Arthur Salter went on to say that requisitioning did not take the ships away from their owners and hand them, as had been alleged, to incompetent civil servants to direct. The ships remained under the management of their owners, who were to provide and pay the crew, obtain the stores, and in general manage the ships. What requisitioning did was to change the negative system of control under licensingwhere the Ministry had only power to say "No" to a contemplated voyage—to a positive system which enabled the Ministry to plan ahead after considering the whole program of imports in relation to the ships available.

The criticism by members of the House of the Government's policy of paying higher rates of hire to neutral shipowners than to British

shipowners was based mainly upon the contention that the latter were being put in the position of not being able to build up replacement reserves, at a time when neutral shipowners were accumulating such reserves, largely from the British Treasury. For example, Mr. Shinwell, of the Labor Party, quoted a general chartering arrangement of 16 shillings per ton deadweight, which he claimed had been made by the Ministry with the Greek, Norwegian, and Swedish Governments, as against a rate of 4 shillings 6 pence per ton deadweight paid, up to March 1940, for British ships. Mr. Maxwell Fyfe, of the Conservative Party, stated that, in the River Plate trade, the gross earnings of a neutral ship, counting four trips to the year, amounted to about £145,000, whereas a similar British ship under the convoy system could make but three and one-third voyages per annum and, with the Ministry's control of hiring rates, was able to earn only £46,000.

RATES OF HIRE FOR NEUTRAL SHIPS EXCEED THOSE FOR BRITISH SHIPS

Sir John Gilmour, Minister of Shipping, in defending the Government's charter policy, stated that the Ministry considered its contracts with neutral shipowners to be of mutual advantage and that, while the rates were higher than those paid to British shipping, this was inevitable, for, when chartering neutral tonnage, the Ministry was competing in an international market. He went on to say that rates contemplated for British owners would be fixed with the object of fairly covering owners' costs and making provision for depreciation and a reasonable return on capital. The rates, however, would not include provision for meeting losses or for building up reserves apart from the normal allowance for depreciation.

As regards ships lost by war, the principle of the scheme was to allow the owner unconditional payment in cash equal to the amount for which the ship was insured against total loss before the war. In addition, such further sum would be granted as an independent tribunal might have approved from time to time, before the loss, as representing a proper current value for the purpose of the scheme. This additional sum, however, would be held in a trust account and could be drawn upon by the owner only when he signed a contract for the replacement of a lost ship not later than 5 to 7 years after the end of the war.

In reference to the criticisms of the Government's refusal to include in the terms of hire for British owners a sum for replacement, Sir John confined himself to stating that, while a comprehensive rebuilding of Britain's mercantile marine would be required, no one could foresee what the actual conditions after the war might be and therefore those problems must be faced when they arose.

Sir Arthur Salter was more explicit in his defense of the Government's refusal to permit a contingent rebuilding charge in the freight rates granted British shipowners. He said:

While, of course, the Government does realize the vital importance of the postwar position, still that is a problem that will have to be faced by whatever Government and Parliament is here by the end of the war. It can to some extent be prepared for now, but I suggest that it cannot be met by paying rates a long way in excess of what are required to provide for normal depreciation and to give reasonable remuneration, in order that shipowners may be able to form reserves adequate to meet all possible competition after the war.

What would be the consequences of following such a policy? Whatever may be the solution of the problem it cannot be found on these lines. Enormously inflated values of ships would follow, and there would be not only a repetition of,

but even an increase in, the scandals that arose in the last war. It is a problem that can be partly dealt with by building now to the utmost of our capacity and in other ways, but I do not think it is possible completely to solve it until we are more clearly in sight of the end of the war and know the conditions under which the war will end.

GOVERNMENT AND SHIPOWNERS AGREE ON RATES FOR REQUISITIONED SHIPS

The Minister of Shipping, on April 30, 1940, stated in Parliament that an agreement had been reached with the representatives of the deep-sea tramp owners under which a scale of rates of hire had been fixed, based on 6 shillings per deadweight ton per month for steam vessels of 8,000 deadweight tons and more, as from March 1 last. The corresponding rate for the previous period since the beginning of requisitioning was to be 5 shillings 7 pence. In each case an additional 1 shilling per ton was to be paid for motor vessels.

For deep-sea liners the rates of hire consisted of two parts: (1) Basic rates for passenger liners (which are divided into three classes for this purpose) and for cargo liners to cover average running costs, etc., and (2) an allowance for depreciation and profit.

Subject to suitable modification (to be agreed upon) to meet cases where the control of ships had changed hands, this allowance was to be at the rate of 10 percent per annum on the first cost of a ship if built in 1922 or later, or on the amount, immediately before the war, of its war-risk-insurance valuation for total loss if built before 1922. This percentage was to allow 5 percent for return on capital after providing 5 percent for depreciation.

Additional payments were provided for refrigerated cargo space in liners also in respect of certain expenses which could not suitably be included in the general rates. The cost of war-risk insurance was to

be borne by the Government.

The rates were to be reviewed from time to time in order that account might be taken of alterations in the level of costs and the effect of the rates on the financial position of the owners concerned.

DETAILS OF RATES

The following is a detailed statement of the rates as circulated to shipowners:

For deep-sea liners requisitioned under the terms of the Liner Requisition Scheme the rate will consist of two parts: (1) A basic rate to cover running costs, etc.; (2) an allowance for depreciation and return on capital.

The basic rates are as follows:

(a) For passenger liners having speeds of 18 knots and over, with white crews, 12s. 10d. per gross ton per month up to February 29, 1940, and 13s. 7d. thereafter; (b) For passenger liners having speeds below 18 knots, for ships with white crews, 11s. 3d. per gross ton per month up to February 29, 1940, and 12s. Od. thereafter; for other ships in this class, 10s. 2d. per gross ton per month up to February 29, 1940, and 10s. 5d. thereafter;

(c) For cargo liners, 7s. 6d. per gross ton per month up to February 29, 1940, with an additional 6d. thereafter for ships with white crews and 3d. for other ships.

Subject to suitable_modification (to be agreed upon) to meet cases where the control of ships has changed hands, an allowance for depreciation and for return on capital will be made at the rate of 10 percent per annum on the first cost of a ship if built in 1922 or later, or, if built before 1922, on the amount, immediately before the war, of its war-risk-insurance valuation for total loss. This percentage will allow 5 percent for return on capital after providing 5 percent for depre

ciation.

The rates for deep-sea tramps operating under charter conditions which leave the owners responsible for the manning and maintenance of the ships have been