GENERAL ARTICLES

We Shouldn’t Own Ships

A reply to Frederick William Wallace’s article on Government Merchant Marine

O. F. MacKENZIE June 1 1933
GENERAL ARTICLES

We Shouldn’t Own Ships

A reply to Frederick William Wallace’s article on Government Merchant Marine

O. F. MacKENZIE June 1 1933

We Shouldn’t Own Ships

A reply to Frederick William Wallace’s article on Government Merchant Marine

O. F. MacKENZIE

I HAVE for many years read everything that I have seen in print from the pen of that doughty writer of sea stories, Frederick William Wallace, so naturally I turned with interest to his article eulogizing the Canadian Government Merchant Marine in the April 1 issue of Maclean’s. It is with reluctance that I venture to lock horns with Mr. Wallace, but his article gives such a distorted picture of the real situation, his reasoning is so fallacious, and his statements of fact so shall I be generous and say—erroneous, that I cannot allow his statements to go unchallenged.

There must necessarily be many readers who have a very superficial knowledge of mercantile marine matters, and it is to these people that Mr. Wallace’s article is designed to appeal.

We all know that shipping incurred huge losses through the ravages of submarines during the war; also that a large percentage of available shipping was commandeered for the transport of troops and supplies; consequently, whatever justification there was for the Canadian Government embarking on a policy of having ships built to be owned by the State in 1918, the emergency ceased to exist with the signing of the Armistice and the policy should have been abandoned.

At that time the ships contracted for— none of which had been launched —could have been sold for at least cost and probably at a profit. This was the policy carried out by the British Government, which saved the British Treasury an immense sum. We find, however, that a contractors’ “racket” was on. Nice juicy contracts for ships were procured from the Federal Government, and when contractors did not have facilities available, they enlisted the aid of the Government to confiscate them by expropriation proceedings. For example, the Halifax Graving Dock Company was expropriated on behalf of «the Halifax Shipyards and later unloaded on the British Empire Steel Corporation. The Halifax Drydock Company was financed largely by British capital, and expropriation was strenuously opposed by the owners. Small wonder that British capital looks askance at Canadian investments when even the aid of the Government had been enlisted to trim them. Contracts continued to be placed until the depression of 1920 fortunately called a halt: whereas Mr. Wallace gives the impression that these ships were all contracted for prior to the Armistice. In the meantime. the ships, as they were turned out. were being operated haphazardly for the most part on already established trade routes, thus adding to the difficulties of private shipowners, who were then going through the problems of readjusting their high operating costs to lowered revenues concomitant with rapidly falling commodity prices.

The Route to Australia

TAKING UP the contention that new trade routes were opened up. there is not one new route in existence today. Time and again defenders of the Canadian National Steamships have sought to give the impression that the Australian and New Zealand sendee was an entirely new route, inaugurated by the Government. May 1 remind you that a British company, the New Zealand Shipping Company, maintained a service to the Antipodes from before the war until a few years ago, when they were forced to retire by the competition of (ïovemment ships. The other innumerable sendees mentioned by Mr. Wallace, except the West India sendee, can all be dismissed as they have been discarded. Only the debt created by these services remains for the taxpayers to contemplate.

Had the thousands of tons of wheat, pulp, automobiles, lumber, etc., enumerated by Mr. Wallace not been carried by the Government ships they would have been transported by private companies, as there has been a surplus of shipping for the past decade or longer. I would suggest that visitors to Halifax ascend to the roof of one of the hotels or the Bank of Nova Scotia building and gaze southeastward at the array of rusting junk moored in the Eastern Passage, several miles away. There he will see this evidence of millions of our money filched from the taxpayers' pockets to create a Roman holiday for a few contractors. Newspapers report that eight ships of this lleet were recently sold for $120,000 —about one-tenth of the cost of any one of them.

Taking up next the question of paying in New York funds for transporting Canadian freight, while it may be true that on the North Atlantic route in 1920 the North Atlantic

Conference established uniform rates in New York funds on transatlantic shipping, the writer has been exporting goods from Halifax to British and foreign countries for nineteen years and I have never been asked by any private steamship company operating out of Halifax to pay other than Canadian currency to West Indian, European or South American ports. Today, one can ship pickled fish from Halifax via Furness Withy lines to New York for transhipment on American steamships, including all transfer charges at New York, at a much lower rate in Canadian currency than the Government ships charge for direct sailings from Halifax to the same West India ports. It is rather far-fetched to conclude that we have to thank the Canadian Government Merchant Marine for not having to pay New York funds today.

The West Indies Service

LET US NOW pass on to the West Indies service, so _ highly praised by Mr. Wallace. Let us diligently consider this service and see if it is of real benefit to the commerce served, or if we would be better off w ithout it. Let us weigh carefully the fallacious arguments advanced, the comparisons given with previous services, and the figures used in this propaganda.

I will first take up the Eastern service to the Windward and Leeward Islands and to Demerara. This service was inaugurated in 1891 by a private Halifax company and successfully carried on with the assistance of a small subsidy until 1913, when the contract was given to the Royal Mail Steam Packet Company. The terms of the contract were to provide a fortnightly service from Saint John, N.B., and Halifax, N.S. The first sailing of the Royal Mail Steam Packet Company was on November 1. 1913. The contract was for five years, with a subsidy of $13,102.56 per voyage or a maximum of $340,666.66 per year. Upon the expiration of the contract in 1918, it was renewed for a further period of five years. If for any reason a trip was not made, the subsidy was deducted, yet Mr. Wallace blandly states: “The subsidy paid by the Canadian Government was $550,000 annually.” Just a little stretching of facts by sixty per cent, to persuade taxpayers that the present service costs little more than previous subsidies.

Let me also remark here that the West Indian colonies all pay a greatly increased subsidy to this service today. The first service of the Royal Mail Steam Packet Company was provided by the steamers Cobequid. Caraquel. Chignecto and Chaudière. The Cobequid was lost on her first trip and replaced by the Chaleur, and these boats carried on during the life of the contract except during the time that the Admiralty commandeered two of these ships. Then the service was reduced to one sailing every four weeks and the subsidy paid dropped to $170.333.33 per year. The Caraquel was lost about ten years ago, and naturally, having only a year’s contract, was not replaced by another passenger ship. The company, however, with their idea of service to shippers, placed the Teriot, a freighter, on the route, so that a fortnightly service was maintained to the end: the Teriot being the only steamer without passenger accommodations.

A wordmow about the ships. Judged by present standards they were inadequate, but at the time they were placed on the route they were entirely satisfactory and a vacation on one of the Royal Mail Steam Packet boats was just as much a pleasure then as on one of the Lady boats at this time. Passengers were satisfied, and freights were carried at very reasonable rates. It became a saying on the Halifax waterfront that you could set your watch by the Royal Mail boats passing down the harbor on their sailing dates. Relations between shippers and company were most cordial, and it was with dismay that local exporters heard it intimated that the Government might not renew the subsidy to a private company.

Before the expiration of the contract in 1923 the Royal Mail Steam Packet Company endeavored to arrange a new contract with the Government to provide new. modem ships to replace the boats placed on the service before the war. At first there was every reason to believe the company would obtain a new contract, but later it became apparent

that the Government was toying with the idea of pursuing still further its costly policy of State-owned ships, and after considerable delay the Government finally announced that new ships for this service would be built in England and operated by the Canadian Government Merchant Marine. Meanwhile, the Royal Mail Steam Packet Company, at the request of the Government, carried on the contract from year to year and latterly from month to month, until the final sailing of the Chaleur in May, 1927.

It is pertinent to recall, that at the time when the delegates from the West Indies met the representatives of the Canadian Government and concluded the West Indian trade agreement in 1924, a representative of the Royal Mail Steam Packet Company asked permission to be present at the meetings, especially those having to do with steamship services. Ile was refused permission, while representatives of the Canadian National Steamships were asked to be present. The latter carried on an active lobby during the conference.

I submit that there was every reason to believe that a private company would have placed modern boats on this route for a subsidy far less than the cost to the Canadian taxpayer through Government boats has been; and I further submit that with a private line the primary products of the Maritime producer would be carried at far less cost to him than what he pays today.

The reasons are obvious. There is three times as much tonnage on the route as is necessary. The Lady boats have been supplemented with Government freighters on the same route—the so-called vagabond freighters, and they are well named. With insufficient traffic, they inevitably lose money; and our farmers and fishermen, who today receive for their products about one-half of pre-war prices, find it difficult to understand or believe the exporter when the latter tells him that one reason for low prices is that freight rates to market are double what they were before the war.

Business Lost to England

OUR PRINCIPAL competitor in fish, Newfoundland, cut loose from this organization and put on boats to the West Indies at less than two-thirds of what we were asked to pay. Today, a cask of fish is shipped from Liverpool. England, to Demerara for ten shillings, roughly $2, whereas the Canadian Government boats charge $3.60 from Halifax. In sterling, the cost to the West Indian buyer during the past year varied from twenty shillings down to a minimum of seventeen shillings per cask. Naturally, the business has been lost to England. In the meantime, the producer blames the men with whom he comes in contact—the exporters. The politician, to divert attention from his own disastrous mistakes, creates a smoke screen. The farmer is told, “Oh, we will make a stabilization fund work for you.” and the shore fishermen who for generations have salted and cured their fish for export markets, are told. “The beam trawler should be abolished and your troubles would be over.” That quack remedy is about as efficacious for ninetyfive per cent of our genuine shore fishermen as would be the removal of one’s appendix to cure a sore throat.

I have no doubt that Mr. Wallace received good value for whatever fare he paid for his holiday trip, but it is far more important that our products reach our markets at a cost that will allow more than starvation prices to the producer than that luxurious boats should be provided at small expense for holiday seekers. It is true, as Mr. Wallace says, that more Canadians have visited the West Indies than ever before, simply because more people could afford to travel; but I venture to say that in the past ten years far more Canadians visited the West Indies through United States ports and on foreign ships than ever before, so that cannot be attributed to the Canadian Government ships. Moreover, the Lady boats on the Jamaica service call at Boston, both to embark and land Upper Canadian passengers. a privilege denied the Royal Mail Steam Packet Co.

A few words about the Jamaica service. For more than forty years, the firm of Pickford and Black carried on a freight service to Jamaica and Cuba, maintaining at all times the most friendly relations with shippers and providing ships that would carry the products of our farms and fisheries at a minimum cost. For example, a pre-war rate on a barrel of pickled fish was 2 3, roughly 54c. The last ten

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years a determined effort has been made by the Government service to get this business. Several months ago Pick ford and Black, who retain fully ninety-seven per cent of the local fish trade on this route, notified the Canadian Government officials that they were withdrawing from conference on rates. Shortly thereafter, rates on pickled fish were reduced from $1.50 to $1.25 per barrel to help out the local exporters who were suffering from severe losses and the diminished purchasing power of their customers. Remember that the Canadian Government ships were not enjoying this trade, yet they immediately made a further cut to $1 per barrel, and at the same time maintained rates on the similar Eastern route at $1.65 per barrel. Note that Pick ford and Black do not maintain a service on the Eastern route. Was it the idea of the creators of the Merchant Marine to drive private firms out of business, taxing private business to the limit to pay for the Government service? It is just about as sporting as it would be to put a handcuffed man in the ring to fight.

Discrimination Against Canadian Exporters

IN REGARD to the contention that this I service has succeeded in building up a valuable export trade, I can state positively that there is a smaller quantity of Maritime products going to the West Indies today than at any time in the past twenty-five years. I contend that the sacrifice of Maritime interests in the trade treaties, coincident with these expensive boats, is the direct cause of this condition.

Bear with me a moment while I explain. In the original West Indies agreement, negotiated about twenty years ago. we had preferential duties, those on fish being lower than those enjoyed by our only important competitor in this territory. When the present West Indies treaty was negotiated in 1924 it wras generally understood that the Jamaican delegates came to Ottawa prepared to give Canada substantial concessions on fish, but to their amazement they were told that nothing was requested for our products that was not to be extended to our competitors.

So much for the tariff end of the treaty. Now for the steamship end. I have endeavored to show the attitude of this Government-owned service toward a private company, and I have explained how the service is loaded with surplus tonnage resulting in unnecessarily high freights, but

are the dice still further loaded against our fishermen? Here are the facts:

The Royal Mail Steam Packet Company in 1914 carried flour to Barbados for 47!fie. per bag: today the Canadian Government ships charge 50c.. an advance of five per cent. In 1914 the Royal Mail Steam Packet Company carried a barrel of pickled fish for 85c. and a cask of dry fish for $1.92; today the Canadian Government ships charge $1.65 and $3.60 respectively, five per cent higher on flour and ninety per cent higher, or almost double, on fish.

Another instance of unfair discrimination against Canadian exporters by this service happened less than a year ago. The Canadian National Steamships were charging $3.75 per cask on dry fish from Halifax to Porto Rico, and at the same time accepted freight from Saint John’s, Newfoundland, to Porto Rico via Halifax at $2.75 per cask. This means they paid the freight from Saint John’s to Halifax, amounting to about $1, leaving a balance of about $1.75 per cask from Halifax to Porto Rico on Newfoundland cargo, and at the same time charged Canadians $3.75 per cask. Indignant protest was made by Halifax exporters when this matter was discovered and the rate was readjusted; but even today the Canadian Government service charges a lower freight for Newfoundland exports from Halifax than they charge Canadians on the same route. No doubt this is what Mr. Wallace calls, “building up a valuable trade in our own exports.”

Let the genuine shore fishermen forget this Government and political smoke screen of beam trawlers, concentrate on the real issue, and assist the exporter by every means in their power to correct this discrimination of rates. I commend this to the attention of every shore fishermen’s union in Eastern Canada. This may seem an irrelevant matter, but Mr. Wallace has endeavored to prove that Government-owned ships have aided our foreign trade. I must, therefore, point out the blighting effect which this sink-hole for the taxpayers' money has had on one of our most important Maritime industries.

A Monstrous Tax Burden

MR. WALLACE next resorts to an ingenious accounting method to prove that these ships are not being operated at large deficits. He states that against the deficits must be considered the $21,(X)0,000 spent for supplies, $13,000,000 for officers’

and crews . $12,000,000 for stevedores, etc., and other items totalling $62,809,000. exceeding the total deficit by $757,800. Shades of Ivar Kreuger! Sixty-two million dollars are lost, but as the money is spent in Canada it is not lost. What kind of reasoning is that? One million dollars is paid for a steamer in 1920, and it is sold for $25,000 in 1933, but that is not a loss! Money at six per cent interest doubles itself in twelve years, so if the ship was sold for its cost price in 1933, the loss in interest alone would be equal to $1,000,000. not mentioning any cost for repairs, etc. Any private steamship company would have, paid wages, drvdocking charges, etc., for its supplies in Canada; and. in addition, dockage rates to our harbor commissions. It would pay for advertising on railway menus and timetables, for the telegrams sent on the Government-owned telegraph system, and for railway transportation of their representatives. Furthermore, if the boats were owned in Canada by a private company, taxes would also have to be paid. All the above items should be charged against the Canadian National Steamships, to get the real cost to the taxpayer.

Mr. Wallace gives the total deficit as $62,000,000, consisting roughly of $31,000,000 interest on the capital cost, depreciation $19,000,000, and operating deficit of S12,000,000. Let us turn to page four of the 1931 annual report of the Canadian Government Merchant Marine, Limited. Here we find:

Capital loss on 37 vessels disposed of .................... $31,164,464.00

were revalued ............... 42,224.595.00

reserve .......... 8,044,639.00

on boats retained ............ 31,029,725.41

Interest on capital cœt on boat disposed of and cancelled by

government to steamship co. 12,229,04-2.46

$124,692,465.87

It is therefore evident, on the statement of no less an authority than the chairman of the company himself, that the cost of this white elephant to the Canadian taxpayer up to the end of 1931 totalled the huge sum of almost $125,000,000, and Mr. Wallace, with evident enjoyment, says, “Wave that figure before Mr. Canadian Citizen and hear him yelp.” I think the time has come when the taxpayer is ready to do more than “yelp” to put an end to this monstrosity.

As to the argument that a substantial

share of the cost should be written off, taxpayers are becoming familiar with that plea put forward on behalf of the parent octopus, the Canadian National Railways. How nice that would be! You contract a debt of a billion or so through Government ownership, then when it becomes obvious that the structure is unsound, you write off on the dear old public. You start in again with moderate charges at the same old game, and when it reaches a billion you lop it off again, and so on ad infinitum.

There are many principles involved in the abuses committed by governments in business. Governments do not have to consider profits or losses, and can disregard expense or interest or depreciation by means of its sovereign reliance on taxation, plus its use of tax-free government property. These abuses drive private business that is forced to compete with them very quickly to ruin.

This article is written without political bias. The Conservative party is perhaps the greater sinner as they initiated both the railways and steamships, but the Liberal party when in power strove to perpetuate both and does not seem at all penitent or alive to the menace of them. Anyone who has observed government contracts knows that where there is a patronage list there is no efficiency. People on such lists who supply these government steamships and railways will hurl invectives at any suggestion that we cast off this incubus. Change of government means change of patronage.

There is another aspect of this service of vital interest to all taxpayers, and that is free passes. It would be interesting if some independent Member of the House could elicit information on just how many free passes and reduced fares have been issued to politicians and their friends who like to holiday under tropical skies at the expense of the Canadian people.

Let me say in conclusion that I am not financially interested in any steamship or any company owning steamships, or in the Canadian Pacific Railway. I am only one of the millions of Canadian taxpayers interested in our mounting load of taxation, also vitally interested in getting the products of our farms and fisheries to their natural markets at a minimum cost, thus permitting something more than starvation prices to the producer. I am also interested in British fair play to Canadian citizens. The Canadian National Steamships, tentacle of the Canadian National Railways, like its parent octopus, has had more than a fair trial. Let us end it.