American War Supplies

By George Wellington Porter

The subjoined article appraising the stimulation given to the war industries of the United States by the European conflict appeared originally in The New York Times of July 18.

WITHIN the last ten months contracts for war supplies estimated to exceed $1,000,000,000 have been placed in the United States.

When war was declared last August this country was suffering from acute industrial depression; many factories shut down, others operating on short time, and labor without employment. After the paralyzing effect of the news that war was declared had worn away, business men here realized the great opportunity about to be afforded them of furnishing war supplies which must soon be in demand. Their expectations were soon fulfilled, as almost immediately most of the Governments sent commissions to the United States. Some had orders to buy, while others were authorized to get prices and submit samples.

It was not long until mills and factories were being operated to capacity, turning out boots and shoes, blankets, sweaters, socks, underwear, &c. The manufacturers of these articles were merely required to secure additional help in order to increase their plants' production.

The situation was different in relation to filling orders for arms and ammunition. At first, as was natural, this business was placed with concerns engaged in the manufacture of these commodities. Shortly they were swamped with orders, and to be able to fill them plants were enlarged, new equipment added, and additional help employed.

More and more orders came pouring in, and, as the arms and munition houses were by this time up to and some over capacity, acceptance by them of further business was impossible. Here, then, was the opportunity for the manufacturers of rails, rivets, electrical and agricultural machinery, locomotives, &c., to secure their share of this enormous business being offered. The manner in which they arose to the occasion is striking testimony of the great resourcefulness, efficiency, ingenuity, and adaptability of the American manufacturer.

The question of labor was of minor importance, due primarily to the fact that many thousands of men were without employment and anxious to secure work, and secondarily for the reason that skilled labor was not an essential factor. Most of the work is done by machinery and in a short period of time a mechanic of ordinary intelligence will become proficient in running a machine. The necessary trained labor could be secured without difficulty. Numbers of highly trained employes at Government arsenals are now with private arms and ammunition concerns. The labor problem therefore was negligible. However, three serious difficulties had yet to be overcome by the manufacturers wishing to engage in this new line of business—the securing of new machinery, raw materials, and capital.

The larger concerns had machinery and apparatus on hand suitable to most of the work, but much new machinery was needed, especially for the manufacture of rifles, and needed in a hurry. Time is the essence of these war supplies contracts, and, as many manufacturers agreed to make early deliveries, it was up to them to secure this new machinery and have it installed without delay; otherwise they could not manufacture and make deliveries as agreed to.

In this event they would suffer the penalty for non-fulfillment, as stipulated in the bond given by them to the purchaser at the time of signing the contract. These bonds are known as "fulfillment bonds" and are issued by responsible surety companies, usually to the amount of 5 per cent. of the total contract price, on behalf of the vendors, guaranteeing their deliveries and fulfillment of the contract.

In the earlier stages of this war supply business the question of his ability to secure raw materials with which to manufacture arms and ammunition or picric acid—this latter being used to manufacture higher explosives—was of no great concern to the manufacturer taking an order; but as orders came pouring in from abroad for ever larger amounts of supplies it was clearly evident that the demand for raw materials would shortly equal, if not exceed, the supply thereof. This condition was soon brought about, and today is one to be most seriously reckoned with by the manufacturer before accepting a contract.

Some of the materials needed with which to manufacture the supplies are mild carbon steel for the barrels, bayonets, bolt, and locks; well-seasoned ash or maple, straight-grained, for the stocks; brass, iron, powder, antimony, benzol or phenol, sulphuric acid, nitric acid, and caustic soda, &c. Of these various materials the most difficult to secure are those used in the manufacture of picric acid.

Today it is almost impossible to secure phenol, certainly in any considerable quantities, and it is almost as difficult to secure sulphuric acid and nitric acid. Germany has been the source of supply in the past for picric acid. Before the war it sold around 35 cents to 40 cents per pound, dry basis; recently it has sold at over $2 per pound for spot, that is immediate delivery, and is quoted at from $1.25 to $1.60 per pound for early future deliveries.

Antimony is becoming so scarce, never having been produced in any great quantity in this country, that in the new contracts being submitted for shrapnel shell it is stipulated that some other hardening ingredients may be substituted in the bullets, either totally or partly replacing the antimony.

Brass is essential to the manufacture of cartridges. The term "brass" is commonly understood to mean an alloy of copper and zinc.

Up to a short time ago electrolytic copper was selling at 20½ cents a pound, lead at 7 cents a pound, commercial zinc at 29½ cents a pound. Zinc ore, from which spelter is obtained, reached the price of $112 a ton. American spelter was nearly $500 a ton, compared with $110 a ton before the war. Spelter was almost unobtainable. In England the situation was acute, the metal there being quoted only nominally at around $550 a ton for immediate delivery.

Within the last few days prices have dropped materially, but how long they will remain at these lower levels it is impossible to predict. If the war continues for any length of time the demand for all these metals is certainly bound to increase, and this will automatically again send up prices.

The world's production of spelter in 1913 (the latest authentic figures obtainable) was 1,093,635 short tons. Of this the United States produced 346,676 tons, or 31.7 per cent.; Germany, 312,075 tons, or 28.6 per cent.; Belgium, 217,928 tons, or 19.9 per cent.; France and Spain, 78,289 tons; and Great Britain, 65,197 tons. The world's production of spelter in 1913 exceeded that of 1912 by 25,590 tons, or 2.2 per cent. The greatest increase was contributed by Germany, which exceeded its production of 1912 by 4.4 per cent. The United States made a gain of 2.3 per cent. The excess of the world's production over consumption in 1913 was only 27,316 tons.

As can be seen from the above figures, Germany has control of practically one-half, possibly now over one-half, of the world's production of spelter. Her position with respect to iron and coal is equally strong, the United States not included. In 1913 Germany's production of pig iron was 19,000 tons; Great Britain, 10,500 tons; France, 5,225 tons; Russia, 4,475 tons; Austria and Belgium, over 2,000 tons each; Italy, negligible. She has captured a large proportion of the coal resources of France as well. Her strength is her own plus that of conquered territory.

Before a contract for war supplies is let, more particularly with reference to contracts for arms and ammunition, the manufacturer is requested to "qualify." This means he must show his ability to "make good" on the contract he wishes to secure. If he is now or has been in the past successfully engaged in the manufacture of the particular article in question, this is usually sufficient; if it is out of his regular line, then he must prove to the satisfaction of the War Department or the purchasing agent, as the case may be, that he has the technical knowledge necessary for its production. In either event he must have an efficient organization, suitable plants, with proper equipment and men to operate same; also the necessary raw materials in hand or under option to purchase.

In most instances the manufacturer taking these war orders has been obliged to enlarge his plants, add new machinery and purchase raw materials so as to be able to handle the business. This meant the expenditure of large amounts of money on his part.

He did not have to depend, however, upon his own normal financial resources, as the contracts carry a substantial cash payment in advance, usually 25 per cent. of the total contract price. This advance payment is deposited in some New York bank simultaneously with the manufacturer's depositing a surety bond guaranteeing his deliveries, and upon the manufacturer executing an additional surety bond guaranteeing his responsibility he could draw down all or any part of the cash advance he might wish to use for his immediate needs.

Before issuing these bonds the surety companies make rigid examination as to the ability of the manufacturer to fulfill his contract. The commission charged for issuing these bonds is from 2½ to 5 per cent. on the amount involved. The demand for bonds has been so great during the last six months that it has taxed to the limit the combined resources of all the surety companies in the country.

The remaining part of the contract price is usually guaranteed by bankers' irrevocable letters of credit or deposits made with New York banks, to be drawn against as the goods are delivered, f.o.b. the factory—that is, free on board the cars—or f.a.s. the seaboard—that is, free alongside ship—as the terms may provide.

Banks here are beginning to purchase bank acceptances or bank-accepted bills of exchange, and in this manner payment is also being made to American manufacturers for goods sold to the Allies. For example, when a purchasing agent in Paris places an order for ammunition here he makes arrangements whereby the manufacturer will be authorized to draw on a New York banking institution at a stipulated maturity, and after acceptance of his drafts by such banking institution he could then negotiate these time drafts with his own banker—thus making them, less the discount, equivalent to cash—through whom they could be rediscounted by the Federal Reserve banks. These bank-accepted bills are discounted at a nominal rate of interest.

Before the war we were a debtor nation; today we are rapidly becoming, if we have not already become, a creditor nation. A year ago we were selling abroad only about as much goods as we were buying; now the balance of trade is greatly in our favor, due to the enormous export of foodstuffs and war supplies of all kinds. Monthly our exports are exceeding our imports by many millions of dollars. This indicates that foreign nations are going into debt to us.

At the time of writing this article foreign exchange was quoted as follows: London exchange, sterling, 4.76½; Paris exchange, franc, 5.45¾. By paying down $4.76½ in New York you can get £1 in London, which on a par gold basis is equivalent to $4.86 in London. By paying down 94½ cents in New York you can get the equivalent to 100 cents in Paris.

We now come to another interesting phase of this war supply business, namely, how some persons thought these war orders could be secured and how they are actually being placed. Almost immediately after the declaration of war, most of the belligerent Governments dispatched "commissions" to the United States. Some had orders to buy, and others were authorized to get prices and submit samples. In an incredibly short period of time it became generally known that foreign Governments were shopping and buying in our markets. The knowledge of this fact brought about a condition unique in our business life.

Men in all walks of life, from porters, barbers, clerks in offices, to doctors, lawyers, real estate agents, merchants, Wall Street brokers and bankers, seemed suddenly imbued with the idea of securing or bringing about the placing of a war order. Self-appointed agents, middlemen and brokers sprang up over night like mushrooms, each and every one claiming he had an order or could get an order for war supplies; or, as the case might be, he personally knew some manufacturer, or he knew a friend who had a friend who knew a manufacturer, who in turn wished to secure a contract. An official in one of our large steel companies told me some weeks ago that among others who had called at his company's offices, asking prices on shrapnel, was an undertaker.

In most instances the lack of salesmanship experience, to say nothing of any knowledge of the business and how the particular articles are manufactured, was of no consequence to the self-appointed agent in his mad desire for business.

The lobbies of our New York hotels were filled with horsemen and would-be horsemen, some months ago, almost every State being represented as far west as California; also with manufacturers and manufacturers' agents, all eager to secure a "war contract," be it for horses, shrapnel, rifles, picric acid, guncotton, toluol, cartridges, boots, shoes, sweaters, blankets, machinery and materials, &c. The very atmosphere of Manhattan Island seems impregnated with "war contractitis." We breathe it, we think it, we see it, we talk it, on our way downtown, at our offices and places of business, at our clubs, on our way home at night, in our homes, and I have been told that some have even slept it, the disease taking the shape of a nightmare.

The day of the broker, if indeed he ever had one in this business, is passed. The original commissioners have been withdrawn, or those who have been kept here are now acting as inspectors and have been replaced by purchasing agents. The firm of J.P. Morgan & Co. has been acting as purchasing agent for the English Government for some months past, is now acting in like capacity for the French Government, and has also done considerable buying for the Russian Government.

In order properly to handle this vast volume of business, a separate department was created, known as the Export Department. Connected with this department are experts in all lines—men who are thoroughly familiar with the various Governments' requirements, who know what prices should be paid, who are in close touch with each market, and who understand fully the materials they are buying.

There are a few more concerns, among which are one or two banks, trust companies, and Wall Street houses, which also have formed separate organizations for the purpose of purchasing war supplies for the Allies. As all these concerns are in close touch with the manufacturers and will only deal directly with them, the brokers and middlemen have very little, if any, chance of doing business.