BRITISH SHIPPING LINES IN PACIFIC

Dominion, Volume 30, Issue 63, 8 December 1936, Page 13

BRITISH SHIPPING LINES IN PACIFIC

Meeting the American Competition | PROPOSED SERVICES Report of Imperial Committee "Ships slightly superior to the present Matson vessels and nothing inferior will win back passengers to the British line,” states the Imperial Shipping Committee, whose report on the possibilities of a British passenger and cargo service between western Canada and Australia and New Zealand was released by the Minister of Marine, Hon. P. Fraser, yesterday. The committee adds . that the alternatives are either to provide such a service or to drop out of the fast passenger and cargo shipping trade on these routes. The report was released simultaneously in Great Britain, Canada, Australia, and New Zealand, it having been presented to the Prime Ministers of the four countries concerned on October 16 and forwarded to the Dominions by air mail. Scope of Report. The committee was asked to supply a report:— (a) As to. the traffic possibilities of a British passenger and cargo service between Western Canada and Aus-tralia-New Zealand; (b) Whether the service proposed would be appropriate, in view of the traffic possibilities and of any other shipping facilities available; and, if not, what kind of service would be, appropriate; / . (c) As to the probable financial results of such a service, taking into account the financial results of the working of the existing British services between (1) San Francisco and Aus-tralia-New Zealand, and (2) Vancouver and Australia-New Zealand; and (d) Whether such a service would have any ill-effects on other British shipping interests. The proposed service would be operated by two new ships, carrying approximately 350-375 first-class passengers, 250 cabin-class passengers, and 150-175 third-class passengers. The ships would be comparable with the existing Matson Line vessels, and capable of operating at a speed of 21 knots. Each ship would sail once a month on a schedule based somewhat on the following From Vancouver and Victoria to San Francisco, Honolulu, Suva, Auckland, Sydney, and Melbourne; and returning to and via the same ports, excluding San Francisco north-bound. Competition in Pacific. The report, after a preliminary section identifying the companies to be referred to, proceeds to sketch the history of the Union Steam Ship Company and the C.-A. Line in their Pacific trade, and the Matson competition that developed from 1931. The Mariposa and the Monterey were built with United States Government assistance' at a cost of 16,250,000 dollars and entered the trans-Pacific service in 1932. A preliminary memorandum by the C.-A. Line showed that they proposed to build two ships of the present Matson type, but clearly their doing so is conditional on their receiving material aid from Governments. Part C of the report analyses in greater detail tbe assistance received by the Matson Line from the United States Government. For construction of the Mariposa the company received from the United States Shipping Board 5,850,000 dollars at 2 per cent., and for the Monterey 5,827,000 dollars at less than 1 per cent. The aggregate of these cheap loans represented nearly three-quarters of the cost of the ships. Two million dollars of the first loan and 900,000 dollars of the second loan have been repaid. For operation, for the years 1928 to 1932, •‘mail payments” averaged nearly 800,000 dollars a year, of which 175,000 dollars would have been payable on the American poundage rate. For 1932-35, with the new ships, the company received an average of 1,000,000 dollars a year, against 135,000 dollars a year payable on poundage rate. American Profits. The company’s strength in spheres . other than shipping—in hotels, sugar, oil, and real estate —is noted, showing that the company averaged over 2,000.000 dollars in profits in the years 1926-1933, in which period approximately 77 per cent, of its net earnings were from these sources other than steamship business. The company has this year invested 500,000 dollars in Pan American Airways, Limited. Existing mail contracts cease by virtue of a 1936 Act on June 30, 1937, after which a new basis of assistance to neutralise the higher costs of building and operating American ships is to be fixed. The traffic possibilities between Western Canada and Australia-New Zealand were discussed in part D. Passenger traffic has been (19251935) twice as important as cargo in the C.-A. receipts, and it is mainly on an increase in passengers that expectations for improvement are based. The total through passengers by the C.-A., Union (San Francisco), and Matson Lines were:—l9l3, 8000; 192024 (average), 10,000; 1925-29 (average), ,12,000; 1930, 10,000; 1931, 5000; 1932, 4500; 1933, 5000; 1934, 7000; 1935, 9500; 1936, 10,500 (estimated on six months' figures). The inter-port C.-A. traffic yields more passage money than the through traffic; but the figures measure the effect of the depression, and the recovery from 1933. Looking to the Future. Comparing 1935 with 1931, the C.-A.’s share in the total throughpassenger traffic fell from three-fifths to one-fifth; and "there seems no reason to suppose that under present conditions this position will be substantially altered. Looking to the future—and twenty years is generally assumed to be the 'life of a ship of the type proposed—the report asks what increase will be required to enable four ships of the present Matson type, that is, the Mariposa, the Monterey, and the two proposed new C.-A. ships of like type, to obtain traffic equal to that carried by the Matson ships in 1935 (55 per cent, of their “berth-mile” capacity). The answer is that the “passenger-miles” must be increased from the 1935 figure of 120,000,000 to 154,000,000, an increase of 28 per cent. Calculations here are based on the assumption that the Union Line between Wellington and San Francisco will be discontinued, and that the new Awatea will not diminish the Auck-land-Sydney traffic of the C.-A. Line On these assumptions, and, perhaps more important, atece a twenty-year

period is in view, ‘'assuming no great setback in world economic conditions,” the required increase is concluded to be “not unlikely.” Modest Increase. In cargo freights only a modest increase is anticipated. It is noted that southward cargoes are three _ times northward cargoes. Air carriage of mails and passengers is considered, with the conclusion that serious competition is unlikely to. emerge within at any rate the next ten or twelve years, and that thereafter in the twenty-year period ahead there is likely to be full scope for both shipping and air services. Part E considers whether the ships proposed by the C-A Line are appropriate. The answer is yes. Ships slightly superior to the present Matson ships, and nothing inferior, will win back passengers to the British line. To date, Matson has won “not by cutting rates, but by superiority of amenities and speed. ... The alternatives are either to provide such a service or to drop out of the fast passenger and cargo shipping trade between the M est Coast of North America and Australia and New Zealand.” The cost of each ship is placed at £1,250,000. Financial results of the service contemplated—obviously the kernel of the problem—are considered in part F. The year 1934-35 is taken as a starting point. Then, the C-A and Union Lines, i.e., the Vancouver and the San Francisco services, showed losses of £Bl,OOO sterling and £52,000 sterling respectively, without charging depreciation, but also, before crediting mail receipts. Mail payments (including a subsidy element, except from Australia, which paid on a poundage basis only) were in 1934-35: —

To Union Line. To C-A Line. From New Zealand : From Canada : £23,000 New Zea- 200,000 dollars, land currency. New Zealand: £lB,OOO N.Z. Fiji: £5OOO F. Australia: £3378 A. Gross operating loss of the two British lines was thus reduced from £133,000 sterling to about £50.000. The C-A Company’s estimates for the future, looking to the twenty years ahead, were that through-passenger traffic might treble, but that inter-port traffic and freight revenue are likely to show no substantial increase. The committee’s review of the company’s estimate does not seriously modify it, and, allowing for estimated expenditure, the conclusion is that the annual operating deficit without mail receipts may be put down at £30,000, a sum probably more than covered by payments for carriage of mails. A significant sentence in this part of the report is that “average fares on the new ships would no doubt be higher than those obtained at present.” Cost of the Ships. Capital charges are discussed. The construction cost, as noted already, is estimated at about £2,500,000 sterling, and the life of the two ships at twenty years. The rate of interest on the capital is, of course, the crucial point; this will depend on the manner in which the capital is raised; on this “policy” point the committee expresses no opinion, but contents itself by saying that it assumes the capital to be raised by way of loan and repaid in 20 equal annual instalments each of £125,000 sterling. The committee also adds that a rate of 24 per cent., which postulates a first-class security, is probably the minimum rate of interest which can be considered. The maximum rate cannot be indicated: according to present outlook, the service cannot be self-supporting, and in such circumstances, in the absence of special arrangements, the capital could not be raised on the market at any reasonable figure. A table in the report based on purely hypothetical interest rates shows annual deficits as under, assuming an operating deficit of £30,000 apart from

The diminution from the first to the tenth and twentieth years is due to repayment of capital with consequent saving in interest; purely an arithmetical calculation, and in no way relating to possible changes in the ships’ earnings or expenses. Dealing with the question whether the proposed new C.A. services would have any ill-effects on other British shipping interests, the committee accepts the views of the Chamber of Shipping of the United Kingdom and the Liverpool Steam Ship Owners’ Association, and concludes that serious repercussions are not to be anticipated. Principal Conclusions. The principal conclusions of the committee are as follows: — . 1. Any useful answer under the first two heads of the order of reference must, in some degree, involve the idea of a speculative venture, since a superior service might quite likely call forth traffic on a scale not at present visible, whereas a more modest endeavour would not in the opinion of the committee, materially alter the present position. This view is based on the following considerations: —

(a) The terminal lands of the suggested route, British Columbia and California on the one hand, and New Zealand and Australia on the other, are generally similar both in natural products and stage of development, and the intermediate ports in Hawaii and Fiji are on islands small in extent; in these circumstances the relatively small populations do not constitute bases for a great passenger traffic originating from the coastal lands and i_slands of the Pacific Ocean, nor with the exceptions of the trade between Hawaii and San Francisco—closed to non-Amerlcan vessels —and of the export of lumber —carried in “tramp” vessels from British Columbia to Australia —for a great trade in staple products.

(b) The route is, however, of more than “Pacific ” importance; it is, both for business men and tourists, an alternative link in the system of round-the-world communications, and it is an alternative to Atlantic and Oriental cruising for tourists drawn from the vast populations of Europe and the ■east of North America. Being an alternative its attractiveness depends on fares, speeds and amenities. (c) The Matson Line, based on considerable Government subsidies and on th® closed traffic from the United States to Hawaii, has exploited the more distant sources of traffic. It has done so not by cutting fares but by supplying super speeds and luxury. A standard has thijs been set up exceeding the economic requirements and resources of the British shorelands as at present developed. But the Matson service has been established

now for four years, and no service on lower standards of speed and amenity can compete with it on anything like equal terms even for traffic of local Pacific origin. 2. For a service, of the character under consideration the passenger traffic is likely always to be of greater Importance than the carriage of cargo. (a) An increase in the total passenger traffic, “through” and “local,” hitherto carried by the six vessels of the three lines —Canadian-Australasian, Union Royal Mail, and Matson —to the extent of rather less than one-third as measured in passenger-miles, would suffice to occupy the accommodation of four ships, two British and two American. to the extent that the two Matson ships were occupied in 1935. Having regard to the attractiveness of the two new ships and to the widespread organisations and agencies in America, Australia and Europe, of the Canadian Pacific Railway, the Union Steam Ship Company, and the Peninsular and Oriental Steam Navigation Company, an increase to this, extent or somewhat more, assuming no great setback in world economic conditions, would not seem to be unattainable, although it might take a few years in process of growth. In arriving at this conclusion the committee has not overlooked the possible developments of air transport. (b) The accopimodation for cargo on the proposed two ships, although considerably larger than that on the existing two ships, is relatively limited, and there should be no difficulty in securing a reasonable amount of cargo on their southward voyage from Vancouver. On the northward voyage there would, no doubt, for a long time to come, be a deficiency. Financial Results, 3. In regard to the third head of the order of reference, the committee anticipates that with such vessels as are contemplated, and assuming a certain increase in traffic, there need not be a large, if indeed any, loss on operating. The committee is not in a position to state definitely the loss which must be expected on account of capital charges, but the order of total loss on various assumptions as to the rate of interest has been indicated earlier in the report. 4. In regard to the fourth head of the order of reference, the committee consulted the president of the Chamber of Shipping of the United Kingdom and the chairman of the Liverpool Steam Ship Owners’ Association, each of whom had discussed the matter with a number of his members, and their general view is that, whatever the objections still strongly held to the maintenance of uneconomic shipping lines, no serious damage to other British shipping interests need be anticipated from a service such as is proposed, provided the conditions they indicated in their evidence before the committee are fulfilled. Personnel of Committee. The members of the committee were the Rt. Hon. Sir H. J. Mac Kinder, P.O. (chairman), Sir Frederick W. Leith Ross (United Kingdom), the Hon. Vincent Massey (Canada), the Rt. Hon. S. M. Bruce (Australia), Mr. W. J. Jordan (New Zealand), Mr. E. F. Horn (South Africa), Mr. J. W. Dulanty (Irish Free State), Sir Frioz Khan Noon (India), Mr. S. M. LaniganO’Keefe (Southern Rhodesia), Sir John E. Shuckburg (Colonies and Protectorates). Mr. W. L. Hichen. Sir Kenneth Lee. Mr. D. T. Lewis, the Hon. Alexander Shaw, Mr. T. Harrison Hughes (representatives of shipping and commerce), and Sir Francis ,C. Shelmerdine (representing civil aviation.

mail revenue:— Kate o£ interest. Deficit. p.c. J st year. 10th year. 20th year. 21 217,500 216,250 158,125 5 2S0,000 217.500 161,250 74 342,500 248,750 164,375