costs are more favorable for the Panama Canal than for the Suez Canal. Senator THOMAS. What is the price of coal at Valparaiso? It Prof. JOHNSON. The coal is not considered good steaming coal. is used because it is practically the only west coast of South America coal. Senator THOMAS. What is the price of it? Prof. JOHNSON. I think it is between $5 and $6. I have not the facts just in mind. Senator THOMAS. Vessels going by the Panama Canal route for the Australian and New Zealand traffic would have to coal at points. between the canal and the point of destination, would they not? Putting it another way, it is the intention of the Government, is it not, to establish a coaling station at Tahiti? Prof. JOHNSON. I do not know whether it is the intention of the Government. I do not know whether it is to be a Government station or a private station. Senator THOMAS. I will not state it as a Government enterprise, but there necessarily will be a coaling station somewhere? Prof. JOHNSON. I think there will be a coaling station at Tahiti. Senator THOMAS. Can coal be laid down there at a low price? Prof. JOHNSON. Coal at Tahiti will be expensive, probably $8 or $9 a ton at least. Senator THOMAS. Do you think it can be laid down there at so small a price? Prof. JOHNSON. Yes; I think so. The price of coal at the Isthmus will not be over $5, necessarily. Yes; I think coal at Tahiti can be sold commercially for $8.50 or $9 a ton. Senator THOMAS. With reference to the Pacific coast of South American trade, the Magellan route will be used in preference to the canal route by the vessels of other nations, will it not, to the extent to which the cost would determine; that is to say, if they can make that route more cheaply than by the canal, they will prefer it? The canal must offer a special inducement. Is it not true that vessels from Great Britain with their bunkers full can at present go to Valparaiso without recoaling? Prof. JOHNSON. You know, Senator, that the heavy traffic movement is from Europe to South America, and the coal which has to be taken out to the east coast of South America, as there is none locally there, becomes very expensive when put down on the west coast. Senator THOMAS. But I was speaking about the west coast for the reason that that is the traffic that will be affected. Prof. JOHNSON. When you get to the west coast the question a shipowner has to decide is whether he will use the poor grade of coronel coal at a relatively low price or the thoroughly good British coal at present later it will be American coal-at a very much higher price. What he does is to coal clear out to Valparaiso from Europe or to the United States. He takes enough coronel coal to get back to Senator THOMAS. To Rio Janeiro or to the Argentine. Prof. JOHNSON. Yes, to the Argentine, where he takes on only enough to get to St. Thomas, and then coals again. That is the normal practice. When the canal is opened the price of coal at Cristobal will be low. It is costing the United States Government now $4.09 for coal at the end of ship's tackle at the Isthmus. Coal can be sold commercially by the United States without loss; that is, so as to cover all cost and overhead charges, at this end of the canal, for $5 a ton unless the price of coal should appreciably advance over present prices. That means that vessels bound through the canal to points either south or north will coal as fully as they can at the canal. Vessels going down the west coast of South America as far as Valparaiso will probably take on coal enough at the Isthmus to bring them back, or at least enough to bring them part way back, so they will need to supplement only with the west coast coal. Senator THOMAS. But, Professor, may vessels sailing from Liverpool without recoaling reach Valparaiso, then by taking the other route, will they not save the tolls at the Panama Canal? Prof. JOHNSON. They will take the Panama route for two reasons. In the first place, no vessel wants to use its space for coal instead of for cargo; and, secondly, the natural commercial approach to the west coast of South America is from the north-is from the Isthmus instead of from the south. It is a full thousand miles up the west coast of South America from the Straits of Magellan to any commercial port. In fact, it is about 1,200 miles, as I remember, to Valparaiso. That is That is a long, unprofitable stretch which vessels will not care to travel, whereas a vessel that proceeds down the west coast from the Isthmus and back again passes cargo-producing ports every few hundred miles. Senator THOMAS. This cheapening of coal will be also applicable to coal at Valparaiso and Callao, will it not? Prof. JOHNSON. After the canal is opened, unquestionably British and American coal that has passed through the canal will supply the stations down the west coast of South America. Senator THOMAS. And if that coal is cheap-the difference between the Magellan route in cost and the canal route is the difference of tolls-very naturally the steamers will follow the cheap line and the old line, will they not? Prof. JOHNSON. The cheaper line will be the Panama route. Senator THOMAS. I am assuming that the other is the cheaper to the extent of the difference of the tolls-I am assuming that in my question. Prof. JOHNSON. I think your assumption is incorrect. Senator THOMAS. It may be. Prof. JOHNSON. For reasons which I have elaborated at some length in the chapter upon coal in the Report upon Traffic and Tolls. The vessel from the standpoint of fuel expenses will much prefer to go to Valparaiso and to come back by way of Panama. Coming back the reason will be even stronger than on the way out. Senator THOMAS. If we have cheap coal from Alaska, which is probable-good steaming coal-when you consider the various points of traffic along the Asiatic and Japanese coasts, would it not be more than likely that the present route through the Suez Canal would be preferable to the route through the Panama Canal, in view of those trade conditions and of the facility to get cheap coal from Alaska on the Pacific coast? Prof. JOHNSON. I do not quite follow you. I would assume that the cheapening of coal by the opening of the Alaska mines would tend to hold the traffic to the American route. Senator THOMAS. I will put it another way. Traffic now from Europe to Seattle and Tacoma, Portland, and similar points, is very largely through the Suez Canal, is it not? Prof. JOHNSON. Oh, no; not very largely. Senator THOMAS. It is considerably, is it not? Prof. JOHNSON. I think the amount is almost insignificant. There was one line that ran from our northwestern ports through the Suez Canal to Europe and back. I think that line has been suspended. Senator THOMAS. How do those lines now reach San Francisco and Seattle, the Pacific coast boats, by way of the Straits of Magellan? Prof. JOHNSON. You are not speaking of the lines now, are you? Senator THOMAS. I am speaking of the ocean traffic, the over-seas traffic, between Europe and the Pacific coast of the United States. Prof. JOHNSON. The traffic from Europe out to Puget Sound goes by way of the Straits of Magellan, most all of it. Senator THOMAS. Most all by way of the Straits of Magellan? Senator THOMAS. Is that due to the price of coal at all? Does that affect it? Prof. JOHNSON. It is due to the relative distances. Senator THOMAS. What is the approximate difference in the length of the trip, say, from Liverpool to Seattle by way of Cape Horn, as contrasted with the distance by way of the Suez Canal? Prof. JOHNSON. I suppose the difference would be 2,000 or 3,000 miles. But of course, you understand, Senator, that vessels going out to Puget Sound usually go somewhere else on the way. Senator THOMAS. Yes; I am assuming that in my examination. But, assuming also that coal in the course of the near future will be very much cheaper by the opening up of the supplies in Alaska, in consequence of which the vessels can fill their bunkers there, would not the attraction of the intervening Asiatic ports between the Pacific seaports and the Suez Canal tend to drive the traffic in that direction if it can be conducted cheaper than through the Suez Canal with tolls? Prof. JOHNSON. I think not. The Pacific coast of Asia is commercially related to Europe by way of Suez. The Pacific coast of America is commercially related to Europe by way of Panama, and the trade of those two sides of the Pacific with Europe will be handled by the two routes, and not in the manner that your question suggests. (Thereupon, at 5.30 o'clock p. m.. the committee adjourned until to-morrow, Wednesday, April 15, 1914, at 10.30 o'clock a. m.) (The following formal statement was prepared by Prof. Johnson in advance of the hearing and is appended, by consent of the committee, to Prof. Johnson's oral statement.) The exemption of the owners of coastwise ships from the payment of Panama Canal tolls raises questions of domestic policy and of international obligations. In deciding what policy shall be adopted, both economic and legal questions must needs be con sidered. As a domestic policy, toll examption is mainly an economic question, while in its international aspects the exemption of the coastwise shipowners from Panama tolls involves legal and economic considerations. The statement I shall make will be confined to the economic phases of the question under consideration, and will first discuss toll exemption as a domestic policy. I. As a question of domestic concern, toll exemption must needs be considered with reference to (1) The revenues which the United States will derive from canal tolls. (2) Whether the general public or the corporations and individuals who own the coastwise ships will profit from toll exemption. In considering this second question it will be necessary to analyze the effects which toll exemption might be expected to have upon the freight rates charged by the coastwise carriers and by the railroad lines connecting the eastern and western sections of the United States. EFFECT OF TOLL EXEMPTION UPON CANAL REVENUES. In considering the effect of exempting the coastwise shipowners from toll payments it is possibly well to bear in mind that the charges that have been fixed by the President for the use of the canal-$1.20 for each 100 cubic feet of the earning capacity of vessels with a reduction of 40 per cent in the rate for vessels without passengers or cargo are not the highest rates that might have been imposed without restricting traffic, nor are the rates such that higher charges would have lessened the revenues from the canal. The tolls are neither all the traffic would bear, nor have they been fixed with a view to securing maximum possible revenues. It is obvious that with a given rate of tolls the canal revenues will be larger if all vessels using the canal are charged tolls, and will be smaller if any class of vessels, as the American coastwise shipping, is exempted from the charges. It is likewise self-evident that if it be desired to secure an income of a definite amount, as, for example, revenues that will cover outlays for operation, maintenance, interest, and amortization-revenues that will make the canal commercially selfsupporting the rate of tolls must be increased proprotionately with any reduction of the tonnage resulting from the exemption of any class or classes of shipping from the payment of the charges. These statements are, of course, mere truisms. There will be nothing new or unusual about the Panama Canal finances. If the canal does not support itself, the taxpayers must support it. The amount required to meet the current expenses and capital costs of the canal can be derived only from the tolls paid by those who use the waterway or from the taxes paid by the public who own the canal; and, as regards the income from tolls, the sum received must be affected both by the rate of charges and by the share of the tonnage that is subject to or exempted from the charges. It is estimated that $19,250,000 will be required annually to make the canal commercially self-supporting. This total is made up of $3,500,000 for operating and maintenance expenses, $500,000 for sanitation and zone government, $250,000 which is the annuity payable to Panama under the treaty of 1903, $11,250,000 to pay 3 per cent on the $375,000,000 invested in the canal, and $3,750,000 for an amortization fund of 1 per cent per annum upon the cost of the canal. It has been ascertained by a detailed study of the traffic that might advantageously use the Panama Canal and of the rate at which that commerce is increasing that, during the first year or two of the canal's operation, that is, in 1915, the ships passing through the canal will have an aggregate net tonnage of about 10,500,000 tons. Of this initial tonnage about 1,000,000 net tons will consist of shipping employed in the trade between the two seaboards of the United States. The evidence as to the past rate of growth of the world's commerce justifies the estimate that by the end of the first decade, that is, in 1925, the total net tonnage of the shipping passing through the canal annually will be about 17,000,000 tons, of which at least 2,000,000 tons will be contributed by the coastwise shipping. The shipping using the Panama Canal may conveniently be subdivided into three classes: That engaged in the coastwise commerce between the two seaboards of the United States, American shipping employed in carrying the foreign commerce of the United States, and foreign shipping carrying the commerce of the United States and foreign countries. The probable volume of each of these three classes of shipping during the first year or two of the canal's operation and during 1920 and 1925 is shown by Table 1. TABLE I.-Classification of estimated net tonnage of shipping using the Panama Canal in 1915, 1920, and 1925. The gross revenue that might be secured from the Panama Canal if tolls of $1.20 per net ton were levied upon all merchant vessels is shown by the following table. The table also indicates what share of the total receipts would be secured from American coastwise shipping if those vessels were not exempted from the payment of tolls: TABLE II.-Classification of estimated revenue of the Panama Canal at a toll of $1.20 per net ton. It is thus possible that about $12,600,000 per annum might be secured from tolls during the first two or three years of the canal's operation, if all vessels, American and foreign, were required to pay the tolls fixed by the President in his proclamation of November 13, 1912. If the Panama Canal act stands unamended and the coastwise shipping is exempted from tolls, the initial receipts from the canal will probably amount to less than $10,500,000 per annum. The total traffic in 1925 will presumably amount to about 17,000,000 net tons; but in all probability the rate of tolls will, by that time, have been reduced to $1 per net ton upon merchant vessels. It will not be wise to charge higher tolls at Panama than are levied at Suez. The tolls at Suez are now $1.20 per net ton, and they have been reduced four times during the past decade. It is probable that the prophecy of De Lesseps will be realized and that the Suez tolls will, within a few years, be brought to 5 francs, about $1 per ton. There is thus a possible aggregate revenue of $17,000,000 per annum in 1925, obtainable from canal tolls, if all ships are required to pay the dues. The exemption of the coastwise shipping will reduce the revenue in 1925 to about $15,000,000 a year, or to less than the estimated annual outlay for operation, zone sanitation and government, the Panama annuity and the interest on the amount invested in the canal. The revenues would yield no surplus for betterments, and nothing for the amortization of the $375,000,000 or more which the people of the United States will have paid for the canal. These calculations indicate clearly that the United States will need to collect tolls from the owners of the ships engaged in the American coastwise trade in order to secure revenue large enough to meet the canal's current expenses and its capital charges. The United States can be justified in relieving the coastwise carriers from the payment of tolls, and thus in reducing the canal revenues by $18,000,000 or $20,000,000 during the first decade of the operation of the waterway, only upon the condition that the general public rather than the owners of the coastwise vessels, will profit from the loss of revenue to the Government. Who will gain by toll exemption, the coastwise carriers or the general public? Will the general public or the coastwise shipowners profit from toll exemption? |