Popular Science Monthly/Volume 86/April 1915/The Free Port: An Agency for the Development of American Commerce

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IN the discussion of conditions necessary to the rehabilitation of the American merchant marine and the promotion of American overseas commerce, one very important factor has been neglected; and that is the necessity of cargoes, not only for incoming ships, but for outgoing ones as well. This is absolutely essential to a profitable merchant marine service. It can only come into existence upon a commercial basis.

Present economic conditions provide outgoing cargoes of raw materials, food stuffs and certain manufactured products. This comprises the bulk of our export trade. For the most part it is directly consigned to the ultimate buyer. There is but little direct over-seas trade to South America, to Africa, to the Orient, for these countries desire mixed rather than simple cargoes. We buy largely from these countries, but our purchases come to us through European ports. This increases transportation costs, and supports foreign ship-owners. These conditions spring partly from our high protective tariff, partly from the fact that America has few foreign banking connections, and partly from the general nature of our industry.

I believe that our merchant marine would come to life again if it were possible to speedily and surely find outgoing cargoes from American ports. This is a sine qua non to the establishment of direct routes with other parts of the world. The modification of the registration laws will not solve this problem, for this will not furnish cargoes. That can only be achieved through the creation of conditions under which the wealth of the world will come to America for sorting, re-assembling and re-shipment, as is now the case in Great Britain, Germany, and in some of the ports of the continent as well.

The carrying trade of the world is now performed by those countries that have substantially free trade. They are England, the free ports of Germany, Belgium, Holland and Denmark. The bulk of the carrying trade is done by Great Britain and the German ports on the North Sea. Great Britain is substantially a free trade country. It is this fact that makes her the clearing-house of the world. Goods are brought to her ports from America, the continent of Europe, from Asia, the Indies, Africa, South America, and the islands of the seas, where they are re-assembled for distribution again to the places of ultimate purchase. For fifty years England has been mistress of the seas for the very simple reason that ships could come to her ports without the payment of customs taxes; they could there discharge their cargoes and find other cargoes awaiting them without delay. There were no obstacles, obstructions or tariff barriers of any kind to interfere with traffic. It is this that has built up Great Britain during the last fifty years. Her ports were counters, market-places, clearing houses for the making of a million transactions and the distribution of the most diversified products of every clime.

It is a recognized fact that water transportation will go hundreds of miles to escape tariff barriers. The protective tariff killed the Spanish trade; it destroyed the rich and prosperous cities of the Netherlands. The abolition of the Corn Laws by England opened up her ports when the ports of all the rest of the world were closed, and brought to her shores the carrying trade which had previously been distributed among many nations.

The free cities of Germany, Hamburg, Bremen and Luebeck, had enjoyed free trade for generations. Their wealth and power sprang from their over-seas commerce. And when they entered the German Empire, provision was made for the partial retention of these conditions by the building of free ports within the harbor. Copenhagen and Hong Kong have done substantially the same thing, while Antwerp—another great shipping point—enjoys substantially free trade.

And America can not hope to compete with these free-trade countries, she can not hope to be a clearing-house, or to have ready at hand cargoes for outgoing ships until natural conditions enable this country to compete with Great Britain and the continental ports which have substantially free trade. And these conditions can be secured without modification of our tariff laws by the extension of the warehousing system which now prevails, and the establishment of a series of free ports similar to those in Germany. I would suggest that congress provide three such ports upon the Atlantic sea-board; one on the Gulf of Mexico; one on the Panama Canal; and one or two upon the Pacific coast. These ports might be opened in cooperation with various cities which would agree to build and equip the harbors so that the clearance of goods would be facilitated; or the government itself might provide such ports, to be maintained by low harbor charges. Cooperation with the cities would stimulate them to acquire their own docks and harbors. which for the most part are under the control of private interests. Into these free ports of entry ships could come from all over the world, just as they now go to Liverpool, London, Bristol and Hull. Here their cargoes could be placed in warehouses not dissimilar from our present bonded warehouses, without the payment of customs duties. Here they might remain for an indefinite period. In other cases ships could break their cargoes, transship a portion of them to another vessel, or add to their existing cargoes before they continued their voyage. Or a cargo could be discharged and another assembled cargo from various parts of the world could be loaded for some other destination. The free port would become not unlike the Bush Terminal, New York, not unlike the ordinary railroad freight station in which miscellaneous consignments of goods are collected preliminary to shipment to their destination in bulk.

A short description of the free port of Hamburg indicates the operation of this system. The free port consists of a large number of basins, many of them cut into the land, with quays jutting out into the river. Upon these quays are railroad tracks with cranes for the easy transfer of freight into the near-by sheds. In the larger outside basins are many mooring posts which provide anchorage for vessels transshipping cargoes in the stream. A number of warehouses are operated by the port authorities as a part of the free port. Goods are stored in these warehouses for re-export or for ultimate consignment into Germany or other countries of Europe.

The free port is considered by the customs department as foreign territory. It is surrounded by a customs line, guarded by customs officials. The line is designated by high iron palings along the land side; and along the river is a floating palisade guarded at either end by customs officials. At the land and water entrances of the free port are customs booths at which duty is paid on goods when they enter the harbor.

All of the harbor pilots are ex officio customs inspectors. Under their guidance ships pass to their berths in the free port unmolested by customs officials. There are no declarations of dutiable goods to be made; no customs officials are taken aboard with the delays attendant upon their presence. When a ship is cargoed ready for sea, a customs pilot takes her to the mouth of the river. There is less hindrance to the free movement of the ship within the free port than in England.

The free port contains a number of industries incident to the care and feeding of employees, shipyards for repairs, and other industries relating to the outfitting and provisioning of ships. Big river barges of from 600 to 800 tons capacity move from ship to ship for the transshipment of freight.

The free port is in the hands of public authorities, although it is partially privately operated by the warehousing company which has erected warehouses upon public lands.

A number of means have been devised to facilitate the care and handling of goods. Goods to be imported pay duty on the spot; or the importer may have a running account against a deposit made by him in the form of government bonds. Provision is also made so that goods may be shipped with a customs certificate to the inland consignee, who pays the duty on delivery. Similar procedure is provided for goods forwarded in transit through Germany to other countries.

By reason of the free port, as well as the industrial development of Germany, Hamburg has become the second seaport in the world. It does more business than London, or Liverpool, and is a close second to New York. The total foreign commerce of the port is just short of $2,000,000,000. It exceeds that of London by $100,000,000 and far exceeds Liverpool in imports.

Students of the commercial ascendency of Germany are in substantial harmony as to the great value of the free port as an agency in the country's development. Mr. Edwin J. Clapp in his treatise on the Free Port of Hamburg says:

The first advantage of the free port is in facilitating re-exportation; indeed the importance of the re-exportation trade is large and, above all else, led to its creation. In the free port foreign merchants can maintain sample or consignment stocks. Bonded warehouses do not offer the same opportunity for unhindered movement of merchandise within a port. Everything must be done under the control of customs men. In Hamburg there is no need of counting and verifying pieces when a re-exportation is made. A bonded warehouse can not offer the same facilities for various manipulations necessary to prepare the goods for the consumer, such as cutting wines and mixing coffees.

Perhaps, the chief advantage of the free port lies in the facilities it offers for the rapid frictionless discharge of ships with dutiable goods, whether destined for re-exportation or shipment inland.

The free port of Hamburg lets the Hamburg merchants store their goods duty free, and offers them complete freedom of manipulation for re-exporting them or for sending them inland, as the market dictates.

Many other advantages in addition to the re-establishment of American shipping and an American merchant marine will follow from the opening of free ports. Among these advantages are the following:

1. It will link the United States with South America, Asia and Africa by trade connections which will tend to the promotion of friendly relations to the commercial advantage of each and will supply an easier outlet for American goods, which now have to go in bulk to England or Germany for transshipment to other countries, or do not find an outlet at all.

2. A second gain lies in the bringing of great quantities of goods to our shores for importation or export, as trade needs demand. To these ports American manufacturers or buyers in need of foreign supplies can go and secure them at American ports rather than in foreign countries. In these ports merchants can exhibit samples; they can mix, grade and alter commodities for domestic or export use; and can otherwise meet the trade conditions of different countries. Growing out of this will be a stimulus to exporting business. Firms can hold goods for an indefinite period without the payment of customs taxes, often equal to the cost of the article itself.

3. Such ports will upbuild our banking and financial relations with other countries. It will shift to America an increasing share of international exchange. It will make America what, by reason of its size and natural resources it should be, the clearing-house as well as the financial reservoir of the world.

This is an opportune time for the development of the free port, even though only one or two experiments are made. A large part of the shipping of the world has been driven from the seas. English, German and Belgian bottoms are in danger of capture. Old trade routes and commercial connections have been destroyed.

In addition the opening of the Panama Canal will still further dislocate trade routes, just as did the opening of the Suez Canal. It places New York, New Orleans and San Francisco in a far different relation from that which they previously occupied.

The recently inaugurated Federal Reserve Bill makes possible the development of branch banks and the working out of international credit, which will go hand in hand with the upbuilding of over-seas traffic and the merchandise and consignment business that exists in countries where free trade prevails.

Finally, America is the natural country to be the counter or clearing-house of the world. Our seacoasts face every other continent. This country is the greatest of all reservoirs of raw material and food supplies. It has unlimited iron, coal, copper and other mineral resources. In the iron and steel business and in other industries that are easy to standardize we are in position to compete with the world. But these advantages are of limited value to us so long as means of cheap and expeditious transportation are denied, or so long as it is necessary for our products to pass through foreign hands. And these conditions, the upbuilding of our marine, the development of our foreign trade, the extension of international financing depend upon means of clearing away the obstacles which now place America at a disadvantage in comparison with the free ports of Great Britain and Germany, which are the present clearing-houses of the world.