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 20-1/2 cents
a pound, lead at 7 cents a pound, commercial zinc at 29-1/2 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 2-1/2 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, 4.76-1/2; Paris exchange, franc,
5.45-3/4. By paying down $4.76-1/2 in New York you can get L1 in
London, which on a par gold basis is equivalent to $4.86 in London. By
paying down 94-1/2 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.
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