EXPORTS OF FINNISH MERCHANT VESSELS TO THE USSR 1956-57

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00935A000400310002-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 9, 2016
• Document Release Date: April 18, 2001
• Sequence Number: 2
• Publication Date: July 12, 1957
• Content Type: IM

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INTELLIGENCE MEMORANDUM
EXPORTS OF FINNISH MERCHANT VESSELS TO THE USSR
1956-57
CIA/RR IM-454
12 July 1957
WARNING
THIS MATERIAL CONTAINS INFORMATION AFFECTING THE
NATIONAL DEFENSE OF THE UNITED STATES WITHIN THE
MEANING OF THE ESPIONAGE LAWS, TITLE 18, USC, SECS.
793 AND 79b, THE TRANSMISSION OR REVELATION OF
WHICH IN ANY MANNER TO AN UNAUTHORIZED PERSON IS
PROHIBITED BY LAW.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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CONTENTS
Page
Summary . . . . . . . . . . . . . . . . . . . . . . .
1. Introduction . . . . . . . . . . . . . . . . 2
2. Exports During 1956 . . . . . . . . . . . . . . . 2
3. Exports During 1957 . . . . . . . . . . . . . . . 3
4. Finnish Losses . . . . . . . . . . . . . . . . . 3
5. Dependence of Finland on the TISSR . . . . . . . . 4
Appendixes
Appendix A. Statistical Tables . . . . . . . . . . . 7
Appendix B. Source References . . . . . . . . . . . 13
Tables
1. Exports of Merchant Vessels by Finland to the
USSR, 1956 . . . . . . . . . . . . . . . . . . 8
2. Exports of Merchant Vessels by Finland to the
USSR, 1957 . . . . . . . . . . . . . . . . . . . 10
3. Labor Force of Shipbuilding Facilities in Finland,
1956 ...................... 12
Chart
Following Page
Finland: Estimated Value of Exports of Merchant
Vessels to the USSR, 1956-57 . . . . . . . 4
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CIA/RR IM-454 S-E-C-R-E-T
(ORR Project 35.1794)
EXPORTS OF FINNISH MERCHANT VESSELS TO THE USSR*
1956-27
Finland is exporting merchant vessels to the USSR for a price that
is not only less than the cost of producing the vessels in the USSR but
also perhaps less than the cost of producing the vessels in Finland.
Finland has been placed in this position partly by the system of repara-
tions after World War II under which Finland expanded its shipbuilding
industry in order to produce merchant vessels to be exported as repara-
tions for the USSR. Because the shipbuilding industry of Finland had
expanded considerably during the period of reparations, Finland had to
continue exporting merchant vessels after this period or to cut produc-
tion drastically. Such a cut would have resulted in a disturbance to
the Finnish economy. Finland was unable to sell its merchant vessels
to the Free World and so continued to export them to the USSR. There
are now indications, however, that Finland is becoming somewhat less
dependent on the USSR as a market for its merchant vessels.
The USSR manifests the bargaining power of its position by setting
the prices of Finnish vessels without providing for increases in cost of
materials and labor during the period of production. The Finnish govern-
ment itself has paid for most of these. increases in cost. In addition,
the Bank of Finland has advanced interest-free loans to Finnish ship-
building companies when the USSR has delayed in accepting vessels.
The estimated data on exports of merchant vessels by Finland to the
USSR during 1956-57 show the advantages obtained by the USSR in its
purchases of these vessels from Finland. It is estimated that during
1956 Finland exported to the USSR merchant vessels valued at 337 million
rubles (1955 Us $54 million)** but that the USSR paid Finland only 211
million current rubles ($34 million) for these vessels, or 63 percent
*
The
estimates and conclusions contained
in this memorandum represent
the
best
judgment of ORR as of 1 June 1957.
**
The
value in rubles of merchant vessels throughout this memorandum was
computed on the basis of the estimated cost of producing these vessels
in the USSR at the ruble values used in setting up the Fifth Five Year
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of what it would have cost the USSR to produce the vessels. It is esti-
mated that during 1957 Finland will export to the USSR merchant vessels
valued at 29C million rubles ($46 million) and that the USSR is to pay
Finland only 166 million current rubles ($26 million) for these vessels,
or 57 percent of what it would cost the USSR to produce the vessels.
1. Introduction.
There has been continued speculation as to why the USSR, in recent
years, has been buying so many merchant vessels from Finland and other
countries, in both the Free World and the Sino-Soviet Bloc, when the
Soviet 'merchant shipbuilding industry apparently is operating at only
about 50 percent of capacity on a one-shift basis. Comparative costs
of merchant vessels may provide an answer to this question. Finland is
an example of a country from which the USSR obtains vessels at prices
less than the estimated Soviet cost of building similar vessels.
2. Exports During 1956.
.During 1956, Finland exported to the USSR merchant vessels having
an estimated value of 337 million rubles ($54 million). The types of
vessels exported to the USSR during 1956 are shown in Table l.* In
terms of Soviet cost, maritime vessels accounted for 45 percent of the
value of all merchant vessels exported by Finland to the USSR, inland
vessels for 36 percent, and fishing vessels for the remaining 19 per-
cent. The payment made by the USSR to Finland for these vessels was
211 million current rubles ($34 million), / or 63 percent of the esti-
mated cost of producing these vessels in the USSR. The value of merchant
Plan (1951-55), unless otherwise stated. 1- (For serially numbered source
references, see Appendix B.) With a probability of 95 percent, the range
of error for Soviet cost of production is estimated to be plus or minus
15 percent and that for US cost plus or minus 10 percent. Although the
cost of heavy goods has declined since 1951, the cost of shipbuilding
probably has been reduced only about 10 percent and therefore would not
modify the conclusions contained in this memorandum. For the purposes of
this memorandum, the 1951-55 Plan rubles are assumed to equal current
rubles. The value in dollars of merchant vessels throughout this memo-
randum was computed on the basis of the. cost of producing these vessels in
the US during 1955, according to prices used in source
* Appendix A, p. 8, below.
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vessels exported by Finland to the USSR during 1956-57 is shown in the
accompanying chart.*
3. Exports During 1957.
The estimate of exports of merchant vessels by Finland to the USSR
during 1957 is 290 million rubles ($1t6 million), which is 14 percent less
than the estimate for 1956. The types of vessels to be sent to the USSR
during 1957 are shown in Table 2.** Measured in Soviet cost, 53 percent
of these vessels will be maritime vessels, 30 percent inland vessels, and
the remaining 17 percent fishing vessels. It is reported that during
1957 the USSR will pay-166 million current rubles ($26 million) for these
vessels. 4 This cost is 57 percent of the estimated cost of producing
similar vessels in the USSR.
4. Finnish Losses.
The precise cost of producing merchant vessels for the USSR in Fin-
land during 1956?-57 is not known, but the cost to Finland generally is
thought to be at least as high as the cost of building similar vessels
would be to the USSR.*-** The similarity in cost would indicate that the
Finnish shipyards, which are devoted primarily to producing vessels for
export to the USSR, are operating at a loss; and analysis of these ex-
ports has revealed such a loss.
Soviet bargaining power has its basis in the manner in which repara-
tions were collected from Finland after World War II. Reparations were
paid in exports of merchandise to the USSR. Finnish industry became
specialized in production of goods, such as merchant vessels, which the
USSR wanted as reparations. j When the payment of reparations ceased,
Finland was dependent on Soviet markets. Finland was not able to find
enough buyers in the Free World to sustain its expanded shipbuilding in-
dustry, primarily because Finnish cost of production is higher than that
of the major shipbuilding countries of the world. The unfavorable Soviet
trade offers, therefore, very often are accepted instead of the alterna-
tive, a reorientation of Finnish industry with accompanying economic dis-
location.
Following p. 4. For supporting data, see Tables 1 and 2, Appendix A,
p. 8 and p. 10, respectively, below.
Appendix A, p. 10, below.
* Information from the US Maritime Administration,based on attache dis-
patches, suggests that the cost of producing Finnish merchant vessels is
about equal to that of the US, where the cost is known to be the highest
of any important shipbuilding country in the world. Information on cost
in the Soviet shipbuilding industry suggests no reason to suppose that
Soviet cost is any higher than that of the US but rather that Soviet cost
may even be lower mostly because of the lower cost of labor. Therefore,
Finnish cost is at least equal to Soviet cost.
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One of the manifestations of Soviet bargaining power is an insis-
tence on fixing a final price in advance without any provision for
escalation in the event that increased cost of production results at
the time of final delivery in a higher cost than anticipated. 6/ (In
trading with other countries of the Free World the USSR provides for
escalation.) The Finnish government in the past has assumed the bur-
den of escalation of cost and has paid up to 75 percent of increases
in cost during the period of production for merchant vessels. if Pay-
ments under this policy have been declining since 1952, when they were
378 million current finnmarks (current $1.6 million). 8 The appropri-
ation for 1955 was 100 million current finnmarks (current $435;000), a
sum which is reported to be more than adequate to cover rising cost. 9,J
To cope with a situation in which vessels are not paid for until
they have been delivered, the Bank of Finland has advanced interest-
free loans to the Finnish companies involved.. Before making a payment
on the delivery of a vessel, the USSR insists that the vessel satisfy
all Soviet specifications. The rigorous adherence to the specifications
which the USSR demands often results in added cost and added delays
before the Finnish companies are paid for their vessels. 10
It has been reported that financial difficulties caused by deliveries
of vessels to the USSR brought about a reorganization in 1955 of ship-
yards owned by the Finnish government. This reorganization was an
effort to minimize or to avoid losses.?11 The deficit in the opera-
tions of the 2 government-owned shipyards, at Turku and at Helsinki,
was 671 million current finnmarks (current $2.9 million) in 1954. 12
A list of Finnish shipyards, with the number of workers in each ship-
yard included as an indication of the relative size of the shipyard,
is shown in Table 3.* The cost of the Soviet practices in recent years,
however, is small compared with the burden that the USSR placed on the
shipbuilding industry of Finland during the period of reparations after
World War II. 13/
5. Dependence of Finland. on the USSR.
During 1956, Finnish production of merchant vessels became signifi-
cantly less dependent on orders from the Soviet Bloc. At the end of
1955, production of merchant vessels for the USSR constituted 85 to 90
percent of the then current contracts of the Finnish shipbuilding indus-
try. In January 1957, however, 43 percent of production by the largest
* Appendix A, p. 12, below.
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SECRET FINLAND
ESTIMATED VALUE OF EXPORTS
OF MERCHANT VESSELS TO THE USSR
1956-57
Millions of 1951-55 rubles (planning prices)
(54) *
956
*Millions of 1955 US dollars (cost of producing these vessels in the US)
SECRET
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Finnish shipyard, owned by the Wartsila Concern, was for the USSR,
whereas the remainder was for the Free World and domestic use. 14
The activities of this shipyard may be indicative of a changing trend
during the past year, although other shipyards are still heavily
engaged in orders for the Soviet account.
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Exports of Merchant Vessels by Finland.to the USSR
1956
Number
of
Light Ship
Tons b
l
Total
Light Ship
Tons
Value (Thousand
Rubles per
Light Ship Ton)
Total Value
(Million Rubles) c
Vessels
per Vesse
Type of Vessel
l
200 DWT?/
3
1
1,770
1,770
5.8
10
1
,
Cargo steam vesse
l
,
100 DWT
3
3
1,770
5,310
5.8
3
2
,
Cargo motor vesse
Cargo motor vessel,
,
8,500 DWT
1
2
3,900
1
440
3,900
2,880
5.8
5.5
3
16
000 DWT
4
Tanker
,
7
6
16
,
,
1
100
2
2,100
.
Icebreaker
,
5
6
53
J
16
588
9,408
.
^
800 hp e
Tugboat
8
4
5
,
Floating crane
5
200
1,000
.
6
goo
5,400
4.G
22
000 DWT
Barge 2
5
3
98
,
Barge 1,000 DWT
74
380
28,120
.
800 hp
Trawler
4
545
2,180
14.0
0
14
31
32
,
Seal catcher
15
150
2,250
.
318
64
337
1
128
,
a. 15
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APPENDIX A
STATISTICAL TABLES
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Exports of Merchant Vessels by Finland to the USSR
1956
(Continued)
b. Light ship displacement is the weight (in metric tons) of the vessel complete, ready for service in every
respect, including permanent ballast and liquids in the machinery at operating levels but excluding the crew and
their effects and any items of consumable or variable load such as stores, fuel, and cargo.
c. -The value in rubles of merchant vessels throughout this table was.computed on the basis of the estimated cost
of producing these vessels in the USSR at the ruble values used in setting up the Fifth Five Year Plan (1951-55),
unless otherwise stated. 16 With a probability of 95 percent, the range of error for Soviet cost of production
is estimated to be plus or minus 15 percent and that for US cost plus or minus 10 percent. Although cost of
heavy goods has declined since 1951, cost of shipbuilding probably has been reduced only about 10 percent and
therefore would not modify the conclusions contained in this memorandum. The 1951-55 Plan rubles, therefore, are
assumed to equal current rubles.
d. Deadweight tons. The deadweight tonnage of a vessel is the carrying capacity (in tons of 2,2+0 pounds) of
the vessel. It includes the crew and their effects and all items of consumable or variable load such as stores,
fuel, and cargo. The deadweight tonnage is the difference in tons between full load displacement and light ship
displacement.
e. Horsepower.
f. Equal to 1955 US $54 million. This value was computed on the basis of the cost of producing merchant vessels
in the US during 1955, according to prices used in 17/.
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Table 2
Exports of Merchant Vessels by Finland to the USSR
1957
Type of Vessel
Number
of
vessels J
Light Ship
Tons L
per Vessel
Total
Light Ship
Tons
Value (Thousand
Rubles per
Light Ship T
n)
Total Value
(Milli
R
bl
) J
o
on
u
es
Maritime
Cargo motor vessel, 8,500 DWT 1
3,900
3,900
5.8
23
Cargo motor vessel, 3,100 DWT 3
1,770
5,310
5.8
31
Tugboat,
1,700 hp J
3
750
2,250
5.6
13
Tugboat,
800 hp
12
588
7,056
5.6
40
Tugboat,
400 hp
4
264
1,056
5.6
6
Floating
drydock, 3,000 DWT
5
2,400
12,000
3.5
42
Barge, 1
,000 DWT
6o
380
22,800
3.5
8o
Barge, 2
,000 DWT
2
goo
1,800
4.0
7
Fishing
Trawler, 800 hp
3
545
1,635
14.0
23
Seal catcher
12
150
1.800
t4.o
25
105
59,607
290 f /
'
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Exports of Merchant Vessels by Finland to the USSR
1957
(Continued)
b. Light ship displacement is the weight (in metric tons) of the vessel complete, ready for service in every
respect, including permanent ballast and liquids in the machinery at operating levels but excluding the crew and
their effects and any items of consumable or variable load such as stores, fuel, and cargo:
c. The value in rubles of merchant vessels throughout this table was computed on the basis of the estimated cost
of producing these vessels in the USSR at the ruble values used in setting up the Fifth Five Year Plan (1951-55),
unless otherwise stated. / With a probability of 95 percent, the range of error for Soviet cost of production
is estimated to be plus or minus 15 percent and that for US cost plus or minus 10 percent. Although cost of heavy
goods has declined since 1951, cost of shipbuilding probably has been reduced only about 10 percent and therefore
would not modify the conclusions contained in this memorandum. The 1951-55 Plan rubles, therefore, are assumed to
equal current rubles.
d. Deadweight tons. The deadweight tonnage of a vessel is the carrying capacity (in tons of 2,240 pounds) of the
vessel. It includes the crew and their effects and all items of consumable or variable load such as stores, fuel,
and cargo. The deadweight tonnage is the difference in tons between full load displacement and light ship displace-
ment.
e. Horsepower.
f. Equal to 1955 US $4+6 million. This value was computed on the basis of the cost of producing merchant vessels
in the US during 1955, according to prices used in source 20/.
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Table 3
Labor Force of Shipbuilding Facilities in Finland
1956
Facility
Owner
Location
Number
of Workers
Percent
Crichton=Vulcan Shipyard
Wartsila Concern
Turku
3,000
33
Sandvikens Shipyard
Wartsila Concern
Helsinki
i,060
12
Valmet Shipyard
_!
Helsinki
600
7
Rauma Shipyard and Engineering Shops
Rauma Repola Company
Rauma
950
10
Valmet Shipyard
b
Turku
1,000
11
Valkon Shipyard
Rauma Repola Company
Loviisa
500
5
Oy Laivateollisuus Ab Shipyard
Ship Industry Company
Turku
960
10
Vaasa Engineering Shops
Wartsila Concern
Vaasa
100
1
Miscellaneous facilities
1,000 -C/
11
9,170
100
a. 21
b. Owned by the government.
c. Estimated.
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APPENDIX B
SOURCE REFERENCES
Evaluations, following the classification entry and designated
"Eval.," have the following significance:
Source of Information
Information
Doc. - Documentary
1 - Confirmed by other sources
A - Completely reliable
2 - Probably true
B - Usually reliable
3 - Possibly true
C - Fairly reliable
4 - Doubtful
D - Not usually reliable
5 - Probably false
E - Not reliable
6 - Cannot be judged
F - Cannot be judged
"Documentary" refers to original documents of foreign governments
and organizations; copies or translations of such documents by a staff
officer; or information extracted from such documents by a staff officer,
all of which may carry the field evaluation "Documentary."
Evaluations not otherwise designated are those appearing on the
cited document; those designated "RR" are by the author of this memor-
andum. No "RR" evaluation is given when the author agrees with the
evaluation on the cited document.
1. CIA. CIA/RR IM-1I 8, Estimates of Costs in Rubles of Building
Various Types of Merchant Ships in the USSR, 28 Feb 57. S.
2. CIA. ORR Project 35-1743, Merchant Shipbuilding in the USSR
(to be published). S.
3. State, Helsinki. Dsp 230, 10 Jan 57. OFF USE. Eval. RR 2.
4. Ibid.
5. CIA. CIA/RR IM-424 , Implications of Finnish Trade with the Sino-
Soviet Bloc, 2 Apr 56. S.
6. State, Helsinki. Dsp 270, 4 Feb 57. OFF USE. Eval. RR 2.
7. Ibid., dsp 28a, 4 Jan 55. OFF USE. Eval RR 2.
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8. Ibid.
9. Ibid.
10. State, Helsinki. Dsp 270, 4 Feb 57. OFF USE. Eval. RR 2.
11. Army, Helsinki. R-241-55, 14 Jun 55. Eval. RR 2.
12. Navy. ONI-99--55, 18 May 55. Eval. C-3.
13. State, Helsinki. Dsp 288, 4 Jan 55. OFF USE. Eval. RR 2.
14. Ibid., dsp 230, 10 Jan 57. OFF USE. Eval. RR 2..
15. Ibid.
16. CIA. CIA/RR IM-448 (1, above).
17. CIA. ORR Project 35.1743 (2, above).
18. State, Helsinki. Dsp 230, 10 Jan 57. OFF USE. Eval. RR 2.
19. CIA. CIA/RR IM-448 (1, above).
20. CIA. ORR Project 35.1743 (2, above).
21. Navy. ONI-29-56, 6 Feb 56. Eval. B-3.
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