Chapter 6 SHIPPING AND THE WAR

The following Chapter was published during the War, and fairly describes the attitude taken by shipowners towards the War, and the great work they successfully performed.

1.-Now and After

It is unfortunate that no adequate statement has been forthcoming setting before the public the important services shipowners are performing for the country, and the serious position of the shipping industry. Even in the House of Commons the voice of the shipowner has never been effectively raised.

It is no exaggeration to say that the shipping interest of Great Britain has sacrificed more than any other leading industry-and the country does not realise the serious difficulties which are in front of shipowners if they are to "carry on" after the war and maintain our maritime position. Indeed, so far from the true position of the shipowner being realised, there appears to be a general impression that he has made undue profits out of the war, and is still in a privileged position, and is gathering in exceptional riches.

It will scarcely be disputed that the material prosperity of the country depends upon the existence of a great mercantile marine, and that our shipping industry is vital to the existence of the nation. In times of peace we depend upon it to feed and clothe our people, and to bring us the necessary raw products, the manufacturing of which gives employment to our industrial population. We are apt to forget that we live upon an island, and with the exception of coal and iron, we depend almost entirely upon our shipping to supply the wants of our forty-five millions of people and to maintain our industries.

Were it not for our merchant ships the present war could not have been carried on. It would, ere now, have been lost, and the people of this country would be in the grip of famine. Nor have our shipowners merely supplied our commercial wants; our merchant ships have been turned into armed cruisers, patrol ships, hospital ships, and transports, and have thus rendered the most effective assistance in the conduct of the war.

Anyone who realises these facts will see how important it is that our shipping interest should be supported, so that it may be in a position to resume its activities; and that its individuality should not be crushed and extinguished by Government control and bureaucracy. As a proof of the successful enterprise of our shipowners in the twenty years prior to the war, our tonnage increased from 8,653,543 tons to 19,145,140 tons, and we owned 43 per cent. of the world's shipping.

SS. "Olympic," 1911

It may be well to deal at once with the allegation that shipowners have made excessive profits. There is no doubt that during the first two years of the war ships earned large freights, not, however, due to what is commonly called "profiteering," but simply because the Government hesitated to check the imports of merchandise of a bulky character. After the Government had taken up the tonnage necessary for their transport purposes, what remained was not sufficient to convey the produce pressing for shipment. If imports had been regulated as they are now, the pressure for freight room would have been reduced and freights kept within moderate limits.

The urgent need for checking imports of a bulky character was, I know, urged upon the Government by shipowners who foresaw the scramble for freight space, but the Government failed to respond to these representations. Their hands were very full, the tonnage problem was a new and difficult one, opening up many embarrassing questions, viz., as to what imports should be checked, the effect of this upon our manufacturers, and what would be the result of checking trade in one direction, in causing its dislocation in another, and the consequent disturbance of our foreign exchanges. All these and others were points upon which we had little or no experience to guide us, and the position was aggravated by the loss of tonnage due to the ravages of the submarine.

Taking a calm view of the retrospect, and the gigantic and unique task with which the Government has been faced, they have accomplished their work with fewer blunders than might have been expected. After all, freights have not bulked largely in the increased cost of produce; a freight of ￡10 per ton is only 1d per pound. If we are to find the true cause of our high cost of living we must look at the inflation and consequent depreciation of our currency, the high rate of wages, and increased spending power of our working classes, and the indifferent harvests of last year in all parts of the world.

The high freights earned by our shipping in 1914, 1915, and part of 1916 naturally caused the value of shipping to rapidly advance. Very few new merchant ships were being constructed; ships were being destroyed, and shipowners possessing established lines were forced to buy to maintain their services, and thus the value of secondhand steamers advanced to two, three, and even four times their pre-war values. Many holders, especially of tramp steamers, sold out and realised great fortunes, and these unexpected and unprecedented profits unfortunately escaped taxation, on the ground that they represented a return of capital; and it is these profits that have appeared unduly large in the public eye.

The shipowners who remained in business, and this comprised the great majority, were deprived of 80 per cent. of all their profits above their pre-war datum, and afterwards this tax on their excess profits was relinquished, and the Government requisitioned all tonnage on what are known as Blue Book rates-which on the basis of the present value of shipping yield only a poor return.

It is difficult to understand why the Government should have placed shipping on a basis of taxation differing from all other industries-it is the industry which beyond all others is essential to the conduct of the war, and which is exceptionally subject to depreciation. The Chancellor of the Exchequer (The Right Hon. A. Bonar Law) was undoubtedly carried away by his own amateur experience as a shipowner, and thought there was no limit to the extent he might filch away the shipowner's earnings, little recking that if the shipowner is unable to put on one side a reserve to replace the tonnage he loses, he is forced to go out of the trade; and also utterly disregarding the rapid headway being made by neutral countries, who are profiting by the high freights and using their profits to greatly extend their mercantile fleets.

In estimating the financial results of our shipowning industry during the early period of the war, allowance must be made for the increased cost of working a steamer. Coals, wages, insurance, port charges, and cost of repairs, and upkeep were all very high; indeed, it may be said that the nett results to the shipowner of the high freights which prevailed in 1915 and 1916 were not very excessive when all these things are considered, for in addition to the increased cost of working, there was heavy depreciation to provide for, the shipowner suffered a complete dislocation of his trade, and in many cases lost his entire fleet, the creation of long years of toil, and with this his means of making a livelihood.

2.-Difficulties of Restoration

We have considered the position of shipping as the paramount industry of the country-its great services in the conduct of the war, and what it is suffering in consequence of the diffusion of fairy tales of the excessive profits made by shipowners. We can now turn our attention to the extraordinary difficulties which stand in the way of the restoration of the shipping industry, which are fraught with considerable peril to the future of our Empire.

Shipping may be divided into two classes, both of which are of national importance. The liners, which comprise fixed services of passenger and cargo ships. These services must be maintained, and new tonnage built at whatever cost to replace lost ships. The other class is our cargo ships. Many of these conduct regular services; others are what are known as "tramps," and go where the best freights offer. It is the owners of the tramp steamers who have realised large profits by selling their ships. The Government in their shipping policy have entirely failed to discriminate between these classes, not recognising that the liner services involve a complete and costly system of organisation both at home and abroad, which, once dislocated, is difficult to restore. The urgency for additional cargo ships prevents the building of liners, and there must be a considerable shortage of this description of vessel when the war ends.

Probably the cause which has been most detrimental and disastrous to shipping was the obstinacy of the Admiralty in declining to recognise the urgent necessity for building more merchant ships. They filled all the yards with Admiralty work, and when the violence of the submarine attack aroused the nation to a sense of the danger before it, and the cry went up throughout the land "Ships, ships, and still more ships," the Government then-only then-responded, and decided that further merchant ships must be built at once. There was great delay in giving effect to their decision to build "standard" ships-plans had to be submitted and obtain the approval of so many officials that many months elapsed before the keel of the first standard ship was laid, and in the meanwhile the losses through the submarine attack continued.

The destruction of tonnage by submarine attack in 1917 assumed very serious proportions, but latterly the number of vessels sunk has been gradually reduced, and we have the recent assurance of the Secretary to the Admiralty that our methods of dealing with submarines have improved, and that we are now achieving considerable success in destroying them. The following statement gives the position to-day in gross tonnage:-

1917.

U.K. World.

Sunk 4,009,537 6,623,623

Built 1,163,474 2,937,785

Nett loss 2,846,063 3,685,838

January-March, 1918.

Sunk 687,576 1,123,510

Built 320,280 864,607

Nett loss 367,296 258,903

The nett loss of British tonnage of 367,296 tons during the first three months of 1918 was still very serious, but we were told that we were making distinct progress in our rate of shipbuilding, and the following returns seem to bear this out.

The United Kingdom monthly output of new ships from May, 1917, was in tons:-

May 69,773

June 109,847

July 83,073

August 102,060

September 63,150

October 148,309

November 158,826

December 112,486

January 58,568

February 100,038

March 161,674

April 111,533

In the year ended April, 1917, new U.K. ships totalled 749,314 tons, and for the year ended April, 1918, 1,279,337 tons.

The growing scarcity of shipping, the urgent need of providing tonnage for the food supplies, not only for this country, but also for our Allies, forced the Government to consider in what way they could make the most economical use of the tonnage available. The position was rendered more acute by the entry of America into the war, and the adoption of the "convoy" system as a protection against submarine attack.

There were two policies open for adoption by the Government. One was to marshal and organise shipowners, and place in their hands the provision of the necessary tonnage, thus securing the co-operation and assistance of trained specialists. The other policy was to "control" the trade, requisition the whole of our shipping, and to work it themselves. They unfortunately adopted the latter policy, and by so doing they not only lost the individual enterprise and supervision of the trained shipowners, but practically placed shipowners out of business, and this at a time when "neutrals," who continue to benefit by the high freights, are making rapid strides as shipowners.

The shipping control, under the able direction of Sir Alexander Maclay, is doing its work on the whole better than might have been expected-thanks to the voluntary assistance of many of our younger shipowners. Under the control, the shipowner is paid at rates laid down in the Blue Book, and without going into figures it may be roughly stated that on the pre-war values of steamers these rates leave him 6 per cent. or 7 per cent. on his capital, and 6 per cent. for depreciation, but on to-day's values the return upon his capital is very poor. A steamer now costs to build at least three times its pre-war cost. Therefore, it is obvious a provision of 15 per cent. for interest and depreciation on pre-war cost is only 5 per cent. on to-day's values. This affords no inducement to enterprise, and it is not surprising that many shipowners have gone out of business.

The Government control has taken ships out of the long voyage trades and placed them in the Atlantic trade, where they are required as transports and for the conveyance of food. This policy, which was perhaps inevitable, may involve far-reaching consequences. The long voyage trades have been built up by shipowners at a heavy cost, and are also the creation of generations. These services involve costly adjuncts in the shape of docks, piers, barges, repairing shops, branch steamers, and through traffic arrangements. It may be said all this will be recovered after the war; but this loses sight of the difficulty of regaining a trade once its associations and connections are severed; and also of the probable competition of America and neutral countries. Certainly, the Blue Book rates give no compensation for such a disturbance.

The Government are making huge profits out of shipping, but what becomes of these profits we have been unable to discover; they do not appear in any returns we have seen. But the time has arrived when the "Blue Book" rates require to be revised-this, in view of the heavy cost of the repairs which will be necessary when the war is over, and the necessity of placing the shipowner in a position to replace his tonnage at the enhanced prices which will prevail.

3.-Problems to Come with Peace

We can now proceed to consider what will be the position of shipping after the war. This involves much clear thinking, and the discussion of several questions upon which no definite statement can be at present made.

We start with a tonnage deficit as compared with 1914 of approximately 3,000,000 tons. The output of new tonnage at present falls short of our losses; last quarter to the extent of 367,296 tons. This is serious, but we are gradually overtaking it. We built last quarter 320,280 tons, and other countries did still better, turning out 864,607 tons, and it would appear as if we might now claim with some confidence that while the curve of the destruction by submarines is decreasing, the curve of the output of tonnage is increasing, and we may reasonably hope that at the end of the year our gains and losses of tonnage will balance. This will leave us still to make good the losses by submarine prior to this year. We have also to keep in mind that our shipbuilding yards are still much occupied with Admiralty work and with the repair of ships damaged by submarine attack.

After the war the Government will have to demobilise, and the repatriation of armies comprising 5,000,000 men, with their munitions and impedimenta, can scarcely occupy less than two years, and will engage probably one-third of our available tonnage.

Europe will be very short of raw materials of every kind; the importation of them will be very urgent, and food will also be short for some time.

With the heavy weight of taxation which we shall have to bear, an increased output of manufactures will be necessary if the prosperity of the country is to be restored. This will not be possible without an abundant supply of raw materials.

The repatriation of our armies and the urgent need for raw produce would indicate that the Government will retain their control of shipping for some time after the war.

The British and American Governments are building standard and wooden merchant ships, but they will not last long, and will have to be replaced by more substantial and suitable vessels.

The prospect before shipowners, therefore, is that there will be a prolonged period of Government control and of high freights, which will greatly benefit neutral shipowners. And the serious question arises, how is the British merchant service to be built up again? The position is one full of difficulty. Prices of new ships will probably rule very high, and the Blue Book rates afford no encouragement to build. In America, France, and Germany the difficulty will probably be solved by the granting of subventions; but in this country we have a profound distrust of subventions, as they are invariably associated with Government control, which has always been destructive of enterprise.

Nothing could be more unfortunate than the prolongation of the shipping control one day longer than is necessary. It is undoubtedly paralysing the industry, and any attempt, such as has been fore-shadowed, to nationalise shipping would be most disastrous. How could a State department administer the shipping industry of this country in competition with foreign private enterprise?

The national control of our shipping and other leading industries may be expedient in the present war crisis, but it has taught us that the nationalisation of any industry penalises it with so many restrictions, and surrounds it with so many unnecessary difficulties that it is foredoomed to failure, and would inflict infinite damage to the prosperity of the country.

Advances of money by the Government at a low rate of interest would no doubt be an encouragement-and those shipowners who can afford to be bold and accept the position will probably be rewarded; but to go on building ships at the very high prices may be beyond the prudent reach of the average private shipowner. This rather points to the creation of large companies.

In shipowning, as in every other department of industrial life, "scale" may be the dominant factor, and the shipowning companies who, during the war, have been able to lay by large reserves, will find themselves in a position of great advantage. In view of the necessity for strengthening the hands of shipowners and enabling them to carry on in the difficult times before them, the Government is making a mistake in not giving more encouragement to shipowners.

Experience teaches us that shipowners may be trusted to quickly adopt every modern means to work their ships economically, and to adapt them to the trades they serve; but do our port authorities equally recognise their duties to provide the most up-to-date methods and machinery for the handling of our cargoes? We may economise in the working of our ships at sea, but if on their arrival in port they have to wait for berths to discharge and load, and if these operations are hampered by the lack of mechanical appliances or labour, the shipowners' exertions are in vain. Nor does the difficulty end here: docks lose their value and attractiveness if the cost of moving cargoes from the ship's side to the warehouse, or to the manufacturing districts, forms a heavy addition to the freight. In Liverpool we have, unfortunately, the costly, cumbrous, and old-fashioned system of cartage still prevailing. There is a lack of good road approaches to the docks and railway termini-a wholly inadequate means of conducting the cross-river traffic. Our trade has out-grown our railway communications with the interior, and our railways continue, as they have always done, to strangle our trade by their excessive charges, and thus to deprive our port of the advantage of its unique geographical position. We want cheap and abundant water, and cheap electrical energy to extend our local manufacturing industries. All these things point to a quickening of Dock Board methods, but still more to the awakening of the City Council to its responsible duties as the custodians of a great seaport, and the urgent necessity that they should do their part in its restoration and development, and make it ready to do its share in the revival of trade after the war.

Our City Fathers cannot rest content with carrying out what Disraeli, in one of his ironical moods, called "a policy of sewage." We want a wider outlook, and a more generous appreciation of the fact that Liverpool depends upon her commerce. Every expenditure which the city has made in the past upon its development has resulted not only in its growth and prosperity, but in the well-being of her people.

The British mercantile marine has for long been the envy of neighbouring nations, who are watching the opportunity to seize the business which our ships have been compelled to abandon. We have lost a large proportion of our tonnage, and what is left is taken out of the control of the shipowner. The situation constitutes a serious national danger, and we may some day awake to the fact that we have lost beyond recovery the industry which is above and beyond all others, the great national asset, and shall rue the day when our Chancellor of the Exchequer became interested in four small vessels and drew conclusions from his experience which are not supported by the wider and more expert knowledge of the shipowner.

Such is the present position of shipping and its future outlook-

A considerable reduction in the available tonnage.

Government control for a lengthened period.

High freights and high cost of new ships.

The probability of a great increase in American and neutral shipping.

We cannot leave the subject without indicating that everything may be greatly changed by the attitude of labour. If the present "ca-canny" and "down tool" policies are to continue it is difficult to see how we can recover our prosperity. Labour will have to realise that it has its value, and that the receipt of wages carries with it the obligation to give an honest day's work. And equally employers will have to recognise that labour must have a fuller share of the fruits of their labour and better conditions of life. Strikes will not settle these matters; they only serve to intensify distrust and ill-feeling. We must hope that our men returning from the front will have a wider outlook and altered views of life, and that employers will also generously recognise the changed conditions. We trust also that the Whitley report may be quickly followed by the establishment of Industrial Councils, and that these Councils will be able to promote confidence and good feeling and remove the friction and distrust which has too long existed between capital and labour. Meanwhile a propaganda might be started to instruct our people in those elementary principles of economic science which govern their labour, and about which so much ignorance unhappily prevails.