I bring out these facts to show the importance of line traffic and that the rates by the several lines, whatever they are, will be the rates which control most of the traffic. It will not be the independent ship that will be the rate-controlling factor in the intercostal trade. Fourth. The contention that, unless coast wise shipping is relieved of Panama tolls, there will be insufficient supply of American ships and that this cond tion will bring about the admission of foreign-built ships to our domestic trade, need not be given great weight. If the canal brings about a large demand for coast wise transportation facilities, it will be profitable for American capital to invest in ships to provide those facilities. If there should prove to be a permanent scarcity of American ships to handle the coast-to-coast traffic, it is probable that the Congress can and will devise methods of aiding American shipping without closing American shipyards to the detriment of our Navy, which I think would result in the admission of foreign-built ships to our coast-to-coast trade.

The CHAIRMAN. You say it would impair our naval strength?

Prof. JOHNSON. I think that if our shipyards did not have the coastwise shipbuilding as a monopoly they would not be able to build ships in competition with foreign-built ships for that trade, and we should soon find our seaboard shipyards in a much depressed condition, which would be a serious matter for our naval future.

The CHAIRMAN. In what way? Will you please elaborate on that, Professor?

Prof. JOHNSON. Every power of the first rank in naval affairs should have, and I think I may say must have, the ability to build its own naval fleet. Dependence upon foreign-built naval vessels is precarious and as a naval power with great responsibility for the protection of our own commerce and for carrying out our obligations as a world power, we need, as a matter of naval policy, to see that we have in existence good shipyards capable of putting out naval vessels that will meet the requirements of the time. If we want cheap transportation between two seaboards of the United States the way to get it is to admit foreign-built ships to that trade. If we want to maintain our shipyards for naval reasons, it is necessary, it seems to me, to pay a higher cost of transportation between the two seaboards and keep foreign ships out of the coast-to-coast trade.

The CHAIRMAN. As a military necessity?

Prof. JOHNSON. As a nilitary necessity. I feel that we need to carry this extra transportation burden.

Senator SIMMONS. Professor, I understand you to say that you have no sort of doubt that there will be provided ample coastwise ships owned by Americans to accommodate the needs of the intercoastal traffic after the canal is opened?

Prof. JOHNSON. I have no doubt that the ships will be built for the trade. I think Prof. S. S. Huebner testified yesterday and the report which he prepared shows that there is a combination of the leading coastwise lines. But the report shows the existence of a relatively large fleet, and the figures which I have presented in my report show that this fleet is increasing in a healthy way. The growth during the decade ending in 1911 was 38 per cent in the documented tonnage on the Atlantic and Pacific seaboards. During the 10 years ending in 1912 the increase was 234 per cent, and during the 10 years ending 1913

22 per cent in the documented tonnage on the Atlantic and Pacific seaboards.

Senator PAGE. What do you estimate the increased percentage would be in the next 10 years?

Prof. JOHNSON. I would estimate that it would probably be larger than it has been in the past 10 years, because of the influence of the canal.

Senator PAGE. Would it not be several times as large?

Prof. JOHNSON. I would not say several times as large, Senator, but I would say it would certainly be larger in all probability.

Senator PAGE. But do you not think it would be 100 per cent larger in the next 10 years?

Prof. JOHNSON. That would be a prediction which I would prefer you to make rather than make myself. But my point is this, if I may answer your question a little bit more specifically. The coastwise steamship business is a profitable business to-day. The opening of the canal will cut the cost of transportation between the two seaboards fully one-third. It will reduce the cost from $3 to $3.50 a cargo ton in the cost of transportation between the two seaboards. What the rates will be will be a matter of agreement amongst the steamship companies, subject, I think, perhaps, to Federal regulation; but anyway the cost will be much reduced, and unless the rates are correspondingly decreased the profits will be larger in the future than they have been in the past. I think it would not be an unsafe prediction to say that the profits of the steamship companies will tend to rise with the reduction of the cost of service between the two seaboards. If so, we may look forward without anxiety to the construction of ships to meet the trade requirements.

The CHAIRMAN. Do you know whether any ships have been constructed since the passage of the Panama Canal act in August, 1912, intended for the canal or coastwise trade, particularly the canal trade?

Prof. JOHNSON. I have not compiled any figures on that. I have seen the statements of the Commissioner of Navigation to the effect that several ships were building. I am told by Lloyd's representative in this country, under whose supervision most of the deep-sea ships are built, that last year some 30 ships were being built, many of which he said were for the canal trade.

The CHAIRMAN. Do you know whether they were built for the railroads or independent shipowners?

Prof. JOHNSON. I do not know the ownership of those ships. But from a paper which the Commissioner of Navigation published in the Journal of Commerce a year ago last January, and from the statements made to me by Lloyd's surveyor general for the United States and Canada, and from my general knowledge I feel confident that a considerable tonnage is now being built for the canal.

Of course we know what the American-Hawaiian Steamship Co. has done during the last five years in anticipation of the opening of the canal. Grace & Co. have been building ships at Philadelphia which are assumed to be for the canal trade, and I think if we were to go into it we would probably develop a considerable number of vessels which different lines are constructing with the purpose of using them through the canal.

The CHAIRMAN. You may resume.

Senator PAGE. Just one word before you do so.

Prof. JOHNSON. May I complete this summary of argument? Senator SIMMONS. Before you leave that point you were just discussing with the chairman in reference to whether there would be provided ample transportation facilities to accommodate the coastal commerce after the canal has been completed, the Panama Canal act prohibits railroad-controlled ships from going through the canal. It also prohibits railroad control of ships at all, unless the permission of the Interstate Commerce Commission is first secured. Now, if the ships that are now engaged in the coastwise trade, about 365 of them, I believe, if that part of those ships that are controlled by the railroads or controlled by trusts and for that reason come under the prohibition of the canal act-if the railroads are required to part with them by reason of the dissolution, or by reason of this prohibition against going through the canal, or by reason of the general prohibition against their operating these ships at all, would they not, if they are suitable to the coastwise trade, if they can be profitably employed in the coastwise trade-would they not likely fall into hands which would use them for that purpose? In other words, would they not just as likely if the railroads were forced to part with their control, and they went into private ownership-would they not just as likely enter into this coastwise trade as they are to enter into it in the hands of the railroads if the railroads were not prohibited from using them for that purpose?

Prof. JOHNSON. If the law compels the railroad companies which control ships to part with their ownership, to sell the ships, in all probability those ships will be purchased with reference to the coastto-coast trade, because that is the protected trade. No foreign vessels can engage in that trade in competition with the American-owned ship. It is a profitable trade now, and presumably will be more profitable in the future. If the law is enforced, as I assume it will be, and the railroads are obliged to part with the vessels which they now own, presumably corporations will be formed that will purchase those vessels to operate them in the coastwise trade.

Senator SIMMONS. That answers my question.

Prof. JOHNSON. My summary of the arguments against free tolls for the coastwise shipowners concludes with No. 5, as follows:

Fifth. It is earnestly argued by those who favor relieving American shipping of Panama tolls that the policy should be adopted in order to give further aid to the American merchant marine. When subjected to analysis this argument losses force. Our shipping employed in the foreign trade needs assistance, but our coastwise marine has a monopoly of the coastwise trade and does not need further aid. I have perhaps given adequate reasons for that last assertion. I will not go into the argument of it.

Senator SIMMONS. In that connection you said that the opening of the canal would reduce the cost of transportation from coast to coast, I think, about $3 a ton-from $3.50 to $3 a ton?

Prof. JOHNSON. Yes, sir.

Senator SIMMONS. After the canal is opened then if the vessels engaged in that trade should maintain the present rates of transportation they would make $3 a ton more than they are now making.? Prof. JOHNSON. Yes, sir.

Senator SIMMONS. Upon the basis of the estimate?

Prof. JOHNSON. Yes; the opening of the canal saves the cost of the transfer of freight across the Isthmus.

Senator SIMMONS. The difference is $3, though, if they had to pay the tolls, as I understand you, of $1.20 ?

Prof. JOHNSON. Per vessel ton.

Senator SIMMONS. They would still have $1.80 a ton more profit than they now have upon the same rate?

Prof. JOHNSON. They would have more than that, Senator.
Senator SIMMONS. At least that?

Prof. JOHNSON. Let me make that point a little plainer than it apparently is.

Senator SIMMONS. Yes; I should like to have you develop that. Prof. JOHNSON. There is often much confusion regarding tonnage. In 1900 I made a very exhaustive study of the relation of tonnage of freight carried and tonnage of shipping used in the carriage of that freight, and I found that on the average in the world's trade generally a ship had 13 tons of cargo aboard for each 100 cubic feet net capacity-that is, for each net ton. Through the canal, ships will be operated over a route of 5,000 miles in length between two traffic areas supplying relatively large tonnages. The average lading of a vessel through the canal can hardly be less than 2 tons of freight per vessel ton, so the tolls which the President has fixed for the present at $1.20 per vessel ton means probably on the average something like 60 cents for a cargo ton, or 3 cents per hundredweight.

Senator SIMMONS. Sixty cents a ton, as we speak of it?

Prof. JOHNSON. Yes; 60 cents per freight ton or 3 cents per hundredweight. It will run from 2 to 4 cents, depending on the character of the cargo, per hundredweight. That is what the toll will really be. That 60 cents per cargo ton of tolls is to be compared with the present cost of $3 and $3.50 per freight ton for the transfer of cargo for vessels from one ocean to the other across the Isthmus. Senator SIMMONS. And therefore, upon the present basis of rates, if they were maintained after the canal is opened they could pay the toll of 60 cents a ton and have an additional profit over their present profit of $2.40 a ton?

Prof. JOHNSON. At least that; yes.

The CHAIRMAN. Is that based upon the assumption that the consumer will never derive any benefit from low rates?

Prof. JOHNSON. Upon the assumption that the present rates are continued. I did not make the assumption, sir.

The CHAIRMAN. You think Senator Simmons made the assumption? Prof. JOHNSON. Yes, sir.

The CHAIRMAN. Do you think it is a safe assumption or a prudent. or economical one?

Prof. JOHNSON. I would think that the freight rates in the future would be somewhat less than at the present time.

The CHAIRMAN. Will not competition reduce them?

Prof. JOHNSON. I have no doubt that competition will somewhat reduce the rates, and I am sure public opinion would force it if competition did not.

Senator SIMMONS. But they could reduce it $2.40 a ton and make the same profit they are making now?

Prof. JOHNSON. On an average, yes, roughly speaking.

Senator PAGE. Is there the slightest reason to believe that the present rates between the Atlantic and Pacific coasts would be maintained after the Panama Canal is opened?

Prof. JOHNSON. I can not answer that question by yes or no. Probably the rates will be less as the result of the opening of the canal. But it does not necessarily follow; it is not necessarily going to happen. Rates between the two seaboards, as I say, will be, as far as four-fifths to nine-tenths of the traffic is concerned, the rates of the steamship lines the regularly established steamship lines. They are going to make their rates in cooperation with each other, and they are going to make their rates presumably as the American-Hawaiian Steamship Co. now makes its rates, at such a differential under the rail rates as is necessary in order to secure the traffic to fill the ships. If it should occur that the profits in the coastwise business bring into the trade a large volume of shipping, the rates will tend to be kept thereby lower than they otherwise would, because in order to fill the larger volume of ships the rates will have to be made correspondingly more attractive. It is one of those economic propositions which one can not reason about with absolute certainty.

Senator PAGE. But, as a rule, the laws of competition will prevail there as in other lines of business, will they not?"

Prof. JOHNSON. The law of competition has numerous exceptions in the coast wise-line traffic, according to Prof. Huebner's report. 1 do not look forward to competition-controlled rates in the usual sense of the term between the two seaboards. The opening of the Panama Canal is not of itself going to reduce the rates between the two seaboards. Congress will have something to do in addition, in my judgment.

Senator PAGE. One more word on the line I was trying to bring out when I asked you the question before. That is this: You estimate the increase of tonnage in our coastwise business through the canal as 30, 40, or 50 per cent in the next 10 years?

Prof. JOHNSON. One hundred per cent in the next 10 years.
Senator PAGE. I suggested 100 per cent, and you said not.

Prof. JOHNSON. I beg your pardon. Did you not say "tonnage,"

now?

Senator PAGE. Yes.

Prof. JOHNSON. I estimated a doubling of the tonnage in the canal through the first 10 years of the coastwise trade.

Senator PAGE. I had in mind as one item the transportation of lumber from Oregon and Washington to the lumber-depleted regions. of the East. It seems to me as though that tonnage might be increased five or ten fold.

Prof. JOHNSON. It will be increased many fold in the next 10 years, because that traffic does not practically move at all now. There will be several elements of traffic brought into existence by the opening of the canal. Undoubtedly a very conspicuous instance of that will be the Chilean ore, which, of course, is not coastwise traffic, but a traffic which will move in large tonnage through the canal.

The CHAIRMAN. Relating to this last inquiry of Senator Page and your answer to it, did I understand you to say that the mere opening of the canal itself will not result in the reduction of transportation rates between the two coasts?