THE RATE SYSTEM OF THE CENTRAL PACIFIC
City and Country in California
For more than forty years the Southern Pacific interests sought with
varying success to modify the intensity of water competition by
agreement with or by purchase of competing lines. During all this
period the existence of alternative water routes was probably the
principal influence determining the relative adjustment of rates
between different towns upon the Pacific Coast. In deciding upon the
rates which they should charge, the Southern Pacific interests had
other factors to consider, however, besides the presence of water
competition—factors which can be understood only after a careful study
of local conditions in the Far West.
The state of California is characteristically a country of great
distances, occupied by a relatively sparse and unequally distributed
population. Its industry is primarily agricultural and mining. Although
some manufactures have developed since 1870, such as foundries,
woolen and sugar mills, glass, paper, cordage, powder, tobacco, tin,
and hardware manufacturing concerns, yet even today the absence of
adequate supplies of good coal, the smallness of the local market,
and the distance from the great centers of population in the East
hold manufactures within narrow limits. As explained in the previous
chapter, the state is best fitted to produce and export products of the
soil, and raw materials such as grain, fruit, wool, hides, and later
wines, lumber, and oil. To this list should also be added salmon.
In such an economy, the cities of California play the part of
distributing agencies rather than that of centers of industry. Such
was the first function of Stockton, Sacramento, Los Angeles, and
indeed of San Francisco itself, and the work of distribution still
remains these cities’ principal means of support. Originally the chief
profit of the northern towns came from supplying the mining population
of the Sierras with supplies brought by sea from Europe or from the
Atlantic Coast of the United States. The nature of California imports
has somewhat changed since the early days; a larger commerce with the
Orient and with the west coast of South America has developed, and a
large part of the freight handled on the Pacific Coast now comes in by
rail. This has multiplied the number of distributing points, and has to
some degree built up the interior of the state. The character of the
cities has not, however, changed and they remain as before—trading and
consuming rather than producing centers.
Conflict of Interest
It follows from this division of labor between town and country on
the Pacific Coast, and from the rivalry of different cities in the
distribution of finished goods, that striking divergencies in point of
view have arisen, both between individual cities, and also between the
city communities as a whole and the farming and manufacturing interests
of the state. These differences have received free expression in the
discussion of railroad rates. Inasmuch as the articles distributed by
the towns are in large part imported goods, the cities as a group have
demanded low westbound carload rates from eastern sources of supply.
The larger centers of population, however, have opposed low rates on
small consignments, because that tends to deprive them of a rehandling
profit by promoting direct relations between the consumer and the
eastern wholesale house. As compared with the cities, on the other
hand, the farming interests have been relatively indifferent to the
level of westbound rates, so long as they have enjoyed low eastbound
rates on the product of the farm and field; while the struggling
manufacturers have resisted low rates westbound, because these have
exposed them to the competition of eastern factories. The interests of
the consumer have not until quite recent years been represented.
No Settled Rate Policy
Owing to these persistent conflicts between various classes of
shippers, public opinion in California has not been easily enlisted
as a whole in support of any concrete proposals for the readjustment
of railroad rates, although complaints from all sections have been
numerous. There has been, on the contrary, a persistent series of
appeals to the railroad, now to favor one set of interests, now to
favor another—appeals which, when granted, often have resulted in
gross discrimination, and which, when refused, have swelled the tide
of protest against the transportation lines. The serious side of this
situation in California is that the conflict of interest between buyers
of transportation has exposed the railroad to temptations which it has
had neither will nor ability to withstand. Where there is constant
demand for favors there is likely to be discrimination unless the
person or institution to which demand is made is fortified by a clear
view of public policy and a sense of morality more than ordinarily
acute.
It is no secret that the Southern Pacific has had neither the one nor
the other of these qualifications. For its part, it has acknowledged
no duties other than those generally incumbent upon private business.
It has insisted upon complete freedom to follow its own advantage. In
a speech to the men in the railroad shops at Sacramento in September,
1873, Stanford explained his position by asking: “Does Governor
Booth sell at the same per cent of profit his sugar, pork, beans,
bacon, lard, candles, soap, spice, coffee, whiskey, brandy, and other
articles? So with the mechanic, the manufacturer, the farmer, and
others. The market price governs. A farmer takes two and one-half cents
for his grain as justly and as cheerfully as one and one-half cents,
the cost of producing being the same.”[359] “The Southern Pacific,”
said Mr. William B. Curtis, of that company, in 1894, in the same
strain, “sells transportation precisely as a merchant disposes of
his wares, adjusting its tariff to conform to the situation with the
object in view of inducing the largest amount of transportation at fair
rates.”[360]
This announced willingness to differentiate led in the course of time
to the greatest variety of railroad rates in California, some rates
being low, some high, some public, some secret. Generally speaking,
indeed, rates were low where competition was present, and high where it
was absent. The big man was favored over the little man, the shipper
with an alternative route over the shipper confined to one railroad
line. Some of the details of this interesting system will now be
presented.
Separate Rate Classifications
In discussing the adjustment of local charges in California, attention
will be first directed to the absolute level of local railroad rates.
Separate mention must be made of the local classifications and of the
local rates.
As late as 1877, each of the principal railroads in California had its
own classification. These were far from being the same. Baled hops
moved at one and one-half times first-class on the Central Pacific.
On the Southern Pacific compressed hops took third-class. On the
California Pacific pressed hops took double first-class. Liquors took
one and one-half times first-class on the Central Pacific (in jars,
owner’s risk); second-class on the Southern Pacific (in glass, packed,
owner’s risk); double first-class on the California Pacific (in jars
or glass); first-class on the North Pacific Coast (in glass, packed,
owner’s risk); and double first-class on the San Francisco and North
Pacific (in glass or demijohns, owner’s risk). Window glass took
first-class on the Central Pacific, one and one-half times first-class
on the California Pacific, and fourth-class on the Southern Pacific
if not over three feet long. Boiler flues moved first-class on the
Central Pacific, third-class on the North Pacific Coast, and fourth-or
fifth-class according as made of copper or brass, or of iron, on the
Southern Pacific.[361]
Generally speaking, however, the classifications were much less
elaborate than they later became. A committee of the California
Senate observed in 1893 that the theory of the local classification
of the Southern Pacific was to simplify so far as possible. Hence
that classification started out with the announcement, in effect,
that all articles not named specifically therein would be charged for
at merchandise rates. It then continued to indicate the exceptions,
enumerating articles that were light, bulky, of excessive value, liable
to damage, etc., proceeding in this way along the same lines as the
Western classification.[362]
When the Santa Fé later built into southern California it brought
in the Western classification, tariffs, rules, and conditions that
governed its lines elsewhere, and applied the Southern Pacific
schedules of merchandise rates to this classification. Since, however,
the Southern Pacific had only one merchandise class, the Santa Fé
applied the same rates to each of the first four classes of the
Western classification in California. The result of this adjustment
of tariff to the Western classification was to produce practically
the same revenue as would have resulted from the local classification
and merchandise rates of the Southern Pacific Company. In 1893 the
Southern Pacific itself substituted the Western classification for the
one which it had been using.[363]
Local Rates
Under the law the maximum rate which any California railroad could
charge for the transportation of freight, was 15 cents per ton per
mile. In spite of the statement of Mr. Stanford to the contrary,[364]
the evidence is to the effect that this maximum was generally applied
on short-haul local business as late as 1877 and perhaps afterwards.
In some cases, the published rate was even greater than the maximum,
though a note to the schedule provided that when the calculated rate
exceeded the legal maximum, the latter would apply. The rates on the
Central Pacific main line in 1866 were almost exactly 15 cents per ton
per mile.
The report of the California Board of Transportation Commissioners in
1877 showed that generally throughout the state first-class rates for
short hauls ranged from 14 to 30 cents per ton per mile. For the 10
miles from Lathrop to Stockton the tariff charge was $1.60 per ton,
and for the 6 miles from Pleasanton to Livermore, the rate was $1.
The charge from Roseville Junction to Truckee, 102 miles, was $15.20.
When river competition entered in, rates were markedly reduced. The
charge from San Francisco to Stockton, 92 miles, was $3.20 per ton, or
3½ cents per ton per mile; that from San Francisco to Sacramento, 140
miles, was $3.60, or 2⅗ cents per ton per mile. On the other hand, the
rates of the California Pacific were somewhat higher than those of the
other lines, except at competitive points.[365]
In later years the charges of the Southern Pacific naturally declined.
Yet the rate on brick from San Francisco to Soledad in 1892 was 5½
cents per ton per mile on a haul of 143 miles, and that to San Miguel,
64 miles farther on, was almost 5 cents per ton per mile.[366] The
average receipts per ton per mile upon the Southern Pacific system
were 2.04 cents per ton per mile for all freight as late as 1885, in
spite of the large quantity of long distance through traffic. Plainly
the average receipts on local business were much greater. There seems
little doubt but that the local rates in California were always
distinctly higher than in the eastern states, although they have been
lowered in recent years. The reason was in the main the relatively
slight density of traffic upon all except the trunk routes, as well as
the higher cost of coal, and the successful control of competition to
which the Southern Pacific attained.
Rate Discrimination
Turning now from the absolute level of local rates to the question of
the relations which those rates bore to each other, we come to the
question of discrimination in California. Railroad discrimination may
be personal, in which case it involves the quoting of different rates
to different persons for the same or a similar service, or it may be
local, as in instances where the interests of competing localities
are concerned. Either kind of discrimination is of profound social
importance, for, after all, it must be remembered that the significant
question for the producing and distributing interests of a state is
not how much they pay for transportation, but whether this amount,
be it much or little, is less than is paid by their competitors. The
remainder of the present chapter will be devoted to the discussion
of personal discrimination; in the next chapter the topic of local
discrimination will be considered.
The policy of granting special concessions in rates to special shippers
was one which the Southern Pacific followed freely whenever it seemed
likely to increase the profits of the company. There was never any
disposition to apologize for this—it was known to be the practice
of other roads as well, and the Southern Pacific accepted the system
as a matter of course. The methods employed were various. One method
was that of granting passes. Mr. Stubbs explained that passes were
commonly issued in cases where shippers came to the Central Pacific
and represented that they were offered transportation by the company’s
competitors over such competitors’ lines. “They were our patrons,” said
Mr. Stubbs, “shipping our way, and I may say that wherever we were
satisfied that the statement was true, we generally met the case by
giving a pass!”[367]
Sudden Tariff Changes
In addition to granting passes, the Southern Pacific discriminated
by changing open rates suddenly for the benefit of persons fortunate
enough to be advised in advance. Mr. Stanford once explained that
individual items in the company’s tariff were changed whenever by so
doing the company could encourage business in any direction.[368]
Indeed, a tariff would scarcely be in force ten days before the
necessity for changes would be apparent.[369]
How this might work was shown in 1892, when complaint was made of
discrimination in favor of the Standard Oil Company. It was then
alleged that the Central Pacific was lowering oil rates from $1.25 per
hundred pounds to 82½ or 90 cents, when the Standard Oil desired to
make shipments from eastern refining points to the Pacific Coast, the
rates being subsequently raised when the shipments had been completed.
A letter to the vice-president of the Standard Oil Company, bearing
upon an episode of this sort, written under date of December 4, 1888,
got into the public press, and seems to establish the fact that
transactions of this nature were going on. The letter follows and is
self-explanatory.[370]
SAN FRANCISCO, December 4, 1888
W. H. TILFORD, Vice-President, Standard Oil Company,
26 Broadway, New York
DEAR SIR:
I herewith hand you copy of a letter I have just received from Mr.
Sproule, Assistant General Freight Agent of the Southern Pacific
Company, this city. This letter I interpret to mean the 90-cent rate
is for us to stock up from time to time, and that the $1.25 rate will
be in effect whenever we may desire. This $1.25 rate is what Mr.
Sproule refers to in the latter portion of his letter, as my offer of
90 cents to Mr. Stubbs was on condition that he has the rate of $1.25
put into effect when we might ask him. This letter also reads as if
the 90-cent rate and the $1 rate was to be put in effect January 1st.
No doubt Mr. Stubbs was unaware that we were stocked up at the present
rate of 82½.
The Transcontinental Association adjourned at Chicago yesterday, and
I understand that Mr. Stubbs is now on his way home. I will see him
on his arrival here, and if Chairman Leeds of the Transcontinental
Association has been notified to put the 90-cent rate in effect
January 1st I will have the same corrected by wire and the $1.25
rate put in. As soon as Mr. Stubbs reaches home I will telegraph you
whether it is intended that the 90-cent rate should be put in effect
January 1st or the $1.25.
Yours truly,
E. A. TILFORD
Relations with Standard Oil
The fact that relations between the Southern Pacific and the Standard
Oil Company were very close during the late eighties and early
nineties is well established, not only by the correspondence just
referred to, but also by other available evidence. In June, 1892,
to cite a small but interesting episode, the Union Pacific issued a
circular applying a rate of 78½ cents per hundred pounds on oil from
Colorado points to the Pacific Coast. This rate had been in effect
some years before, previous to the organization of the Western Traffic
Association, under a rule which made Missouri River commodity rates a
maximum on business originating west of the 97th meridian. The rule
in question had never been withdrawn, although it developed that the
Southern Pacific had forgotten it, and believed that a rate of $1.60
applied.
At this time the independent firm of Whittier, Fuller and Company
was endeavoring to find a market for the products of its Colorado
plant upon the Pacific Coast. In order to head off this anticipated
competition, the Standard Oil representative in San Francisco took the
matter up with the general traffic manager of the Southern Pacific, Mr.
Gray. The latter at once wired to Mr. Munroe of the Union Pacific as
follows:
SAN FRANCISCO, June 10, 1892
J. A. MUNROE,
Omaha, Nebraska
It is reported you are antagonizing Standard Oil Company in Colorado.
I hope you will do nothing to affect our joint relation with that
company with regard to Pacific Coast business. Have you observed the
large tonnage you have lately been handling for them? I think it is so
great you should be careful how you jeopardize your own interest in
this direction.
R. GRAY
Under pressure from the Standard Oil, the Southern Pacific followed up
this telegram by refusing to prorate on any basis lower than $1.60. As
a result the objectionable circular was withdrawn.[371]
Rate Rebates
A third method of granting concessions to shippers whom the Central
Pacific desired to favor, was that of the rebate. Rebates were usually
granted in exchange for an undertaking by the shipper to send all
his freight over the lines of the railroads by which the rebate was
paid. Mr. Stubbs once explained to the United States Pacific Railway
Commission that the granting of rebates was a regular practice, not
only of the Central Pacific, but of all its connecting lines. He
explained the mechanism of the operation as follows:
Suppose that you were a merchant, and I should go to you to make a
contract for the rail lines—because all the lines were parties to
it between New York and San Francisco. It was not a Central Pacific
affair. You understand that all the lines between San Francisco and
New York, probably embracing all the roads in the East, shared in
this reduced rate that was given to the merchant in consideration of
his exclusive patronage—I should go to you and make a contract, and
should say that it is impossible for us, in billing, to bill this to
you at the net rates. We will bill it at the full rates, and when
you receive your goods at the depot you pay the full rates, and we
will refund to you the difference between the agreed rate under the
contract and the rates which you have paid. Of course that is an
overcharge. We overcharged those goods above the price that you had
previously agreed to pay for the transportation of them.[372]
In the single year of 1884 the Central Pacific paid out $1,060,275.92
as refunds in behalf of itself and its connections.
Extent of Practice
Evidence showing how radically published rates were reduced by the
practice of rebating is to be found in the following testimony by G.
W. Luce, now freight traffic manager of the Southern Pacific, and long
connected with the traffic department of that company. Speaking before
the Interstate Commerce Commission of the period about 1887, Mr. Luce
said:
Just prior to that time I had in mind, there had been a very severe
war in rates. I do not know whether that was the reason for the
creation of this Commission or not, but the struggle had been very
disastrous; two or three lines, I think, were very much crippled,
going into the hands of receivers; and just before the act was passed,
effective in April, 1887, I think, the lines got together and said,
“Here, let us stop this foolishness; let us have some standard of
rates and see what we can do on that basis. I believe the rates were
made 50 per cent of the old tariff rate that had been used for two
or three years. I presume the carriers thought that it would not be
judicious to put their rates right up to standard 100 per cent, so
they decided on a 50 per cent tariff.”
THE CHAIRMAN. You mean 50 per cent more than the published rate, or 50
per cent of the published rate?
MR. LUCE. Of the published rate....
THE CHAIRMAN. That means your published rates, which your line had
published up to that time in the eighties, were probably about twice
that much?
MR. LUCE. Yes, sir.
THE CHAIRMAN. And yet that was an effort to bring together a stability
of rates, and to get more out of the traffic than you had been getting
during this war, I suppose?
MR. LUCE. Yes, sir.
THE CHAIRMAN. So that, as a matter of fact, prior to that, you had not
been getting even as much as ... the 50 per cent basis?
MR. LUCE. No, sir.
THE CHAIRMAN. It was a general departure from the so-called published
rates of more than 50 per cent?
MR. LUCE. Oh, yes.[373]
Concrete Instances
The practice of quoting a lower rate to one person than to another
in order to secure a specific shipment, or in consideration of an
agreement for exclusive patronage of the railroad which granted the
rebate, was clearly a case of personal discrimination. A concrete
case which is illustrative of the general policy with which we are
concerned was brought to public notice in California in the year 1886,
when the Central Pacific was charged with rebating large sums to two
favored shippers named Friedlander and Reed. It appeared in fact that
the railroad had paid $6,000 at one time to Friedlander for rent of a
wharf at Vallejo, and 25 cents a ton on a shipment to a certain Mr.
Reed at Knight’s, on business destined to Vallejo. These payments were
explained by the company as follows:
The Friedlander wharf vouchers were explained by showing that, in
consideration of the rental of said wharf, Friedlander agreed to, and
did, send the whole of his immense grain purchases on the Sacramento
River, and at other competing points on the California Pacific, by
rail instead of by steamer and sail; and when one remembers the
enormous quantities of wheat and barley purchased by him, the “grain
king of California,” there is no doubt that the contract was a source
of much profit to the company. The Reed voucher for 25 cents per ton
for loading wheat from his warehouse at Knight’s Landing, was fully
explained by Reed himself. He had a warehouse at that point on the
bank of the river, and water craft would take his grain at the same
rate charged by the railroad company, loading and unloading the same
at their own expense, while the railroad company required the shipper
to do the loading. When asked to patronize the railroad, Reed told Mr.
Towne, general manager, that he could have the grain carried by water
at the same price that the Southern Pacific demanded, and that the
steamers and schooners would do the loading without charge. In order to
secure the business, Mr. Towne told Reed that if he would ship by rail,
the company would allow him 25 cents per ton for loading, thus securing
business for the road that would have been otherwise lost.
“Special” Contract System
In all probability the Reed and Friedlander cases were but two of a
great many instances of similar favors granted to large shippers, and
to shippers strategically placed on water lines in California. This
is certainly implied in the testimony of Mr. Stubbs before the United
States Pacific Railway Commission. Moreover, there is good independent
evidence to the same effect in the available data concerning the
“seasonal” or “special” contract system which became notorious in
California in the late seventies and early eighties. The outlines of
this last-named arrangement were as follows:
As early as May, 1878, the Central Pacific Railroad offered to
guarantee a maximum rate of $2 per hundred pounds upon all grease wool,
eastbound, moving over its lines from San Francisco to New York. In
consideration of this guaranty it required shippers to undertake to
ship all wool which they sent to destinations east of the meridian
of Omaha by way of the Central Pacific and such connecting lines as
the Central Pacific Railroad Company might elect. In case of failure
to live up to the agreement, the shipper bound himself to pay an
additional rate of 75 cents per hundred pounds upon all shipments made
or which might have been made by rail during the time of the contract.
Before this arrangement was insisted on, shippers were accustomed to
forward their finer wools by rail at the $2 rate, but to send their
low-grade wool by sea at a rate of 50 cents per hundred pounds.[374]
The system of special rates and exclusive contracts was not at first
applied to westbound freight, nor to general merchandise, whether
moving east or west. Late in July, 1878, however, notice was given
of advances in westbound merchandise rates which in many instances
amounted to as much as 100 per cent, and at the same time a tender was
made of rates below the published tariff to shippers who entered into
special contracts with the railroad for exclusive handling of their
freight. The Central Pacific management placed the responsibility
for the rate advance upon the Union Pacific, and gave publicity to
a telegram of protest signed by Mr. Stanford.[375] There is reason
to believe, nevertheless, that the Central Pacific management was
cognizant of the matter from the first, and it is certain that Mr.
Stubbs, general traffic manager of the Central Pacific, warmly defended
the system.
Terms of Contract
Under the special contract plan, the railroad company agreed to
charge not more than certain specified rates on articles named in the
agreement shipped from New York, Pittsburgh, Cincinnati, and Chicago,
and other points taking the same rates to the Pacific Coast. Rates
on freight not specifically provided for were not to exceed those
published in the general tariff. In case rival railroads cut rates,
or in case competition by the Pacific Mail should become active, the
shipper was to be protected. That is to say, it was declared to be the
intent and purpose of the agreement to guarantee to the contracting
merchant rates which should be as low as those charged and collected
upon the same articles, between the same points, by any other all-rail
route which might compete for the traffic of California at any time
during the term of the contract.
The carrier also agreed that in the event of active competition with
the Pacific Mail for the traffic between New York and San Francisco,
the rates charged by rail during the period of competition should not
exceed those current on Pacific Mail vessels by more than certain named
amounts, ranging from 50 cents on goods taken at rates not exceeding
$3.50, to $3 on goods taken at rates exceeding $6. This guaranty was
not to be enforced at times when the rates of the Pacific Mail were
subject to the control of the railroads.
In consideration of these assurances the shipper agreed to forward “by
way of the railroads owned or operated by the contracting carriers
and such other connecting railroads as might be designated from time
to time, all goods, wares, and merchandise handled by the merchants
entering into the agreement which might or should be purchased in or
obtained from any point in the United States or Canada east of the
meridian of Omaha, during the term of this contract, for sale or use on
the Pacific Coast.”[376]
Rates under System
It appears that at the beginning the same rates were quoted to all
shippers signing the contract. That is to say, two rate sheets were
published, one known as the “white list,” and the other as the “pink
list.” The white list contained the open, or public rate; the pink
list contained the contract rate. Contracts were made with individual
shippers that if they would give to the railroad line all of their
traffic for a year to the exclusion of ocean carriers, they would have
a rebate down to the figure fixed in the pink list. Somewhat later,
however, jobbers on the Pacific Coast were individually dealt with, and
the rates began to vary.
Mr. Stubbs says in describing this phase of the matter:
We tramped the streets here for a couple of months, explaining our
ideas to the principal importers. By some we were met with cordiality
and approval. Others were a little indifferent. Where a merchant liked
the scheme, we would sit down with him, and, by examining his bills of
lading by Cape Horn and his insurance policies, we would get an idea
of the quantity he would ship by the several routes and the cost to
him by the use of the several routes. We would then aim to make the
rate so that upon the whole it would average about the same. We would
average the rate while he was using the three routes.
Still later the railroads returned to the one-rate policy. To arrive
at this rate they adopted a plan of “harmonization”; they averaged
the rates upon various commodities which had been charged to various
shippers and made a new schedule of rates, from which they varied as
emergency might require or expediency advise, by the current method of
rebating.[377]
Administration of Contracts
The railroad company reserved from the beginning the option of
way-billing the goods and collecting freights according to the printed
rates, agreeing to return the difference on presentation of vouchers to
the general freight agent of the Central Pacific at San Francisco after
the lapse of a reasonable time for auditing and adjusting the bills.
The carrier also always insisted on the privilege of examining the
shipper’s books in case it suspected a violation of the agreement. In
some respects, the wording and administration of the contracts became
more stringent in the later years. J. T. Doyle, a well-informed San
Francisco attorney, asserts that at the beginning merchants were merely
forbidden to import goods otherwise than by rail. Following this the
prohibition was extended to the handling or buying of goods imported
by sea by other parties. Finally the boycott reached to the offending
importers themselves, and firms signing the contracts were bound not
to sell or deliver goods to anyone who was in the habit of importing
otherwise than by rail.[378]
Probably there was some difference in the treatment of different
shippers in these matters. Mr. Hawley, a large importer of hardware,
told a committee of the California legislature in 1884 that he was at
liberty to buy a great many things “to sort up with,” even goods sent
via the Horn. On the other hand, there were a good many cancellations
of contracts for alleged violations, and shippers lived in continual
apprehension.
Taken as a whole, the special contract system was an exchange of a
rebate by the railroad for an agreement for exclusive patronage on the
part of the shipper. Prior to 1878, bulky, low-grade articles moving
between the Atlantic and the Pacific coasts usually went by sea. Rates
were lower and saving in time not important. High-grade goods and
freight requiring quick transportation went by rail. It was the idea of
the railroad that if compelled to choose, Pacific Coast business men
would prefer to import all their freight by rail rather than to bring
it all in by water, and that this would substantially increase railroad
revenues even though incidental concessions in rates had to be made.
Objections to Contract Plan
This special contract plan was objectionable to shippers for three
reasons. In the first place, it seemed likely to increase the rates
which they would have to pay. Although the railroad undertook at the
inception of the scheme to meet existing rates by water, at least to
such an extent that the total expense to shippers who made special
contracts with the railroads would not be increased, it needed no great
prescience to foresee that the exclusion of water carriers from the
business of the Pacific Coast would sooner or later bring about an
increase in transcontinental rates. When special contracts were offered
to merchants in Stockton, Los Angeles, Marysville, and Sacramento, San
Francisco importers made the additional complaint that their natural
advantages as residents in a seaport town were neutralized.
In the second place, the administration of the plan required a
supervision over the business of individual dealers which was
extremely distasteful. It was asserted that the railroads placed men
on the wharves to take the marks of goods brought in by sea, that
they followed up the drays to see where the goods went, and that they
inspected the books of merchants to make sure that importers who had
signed contracts had no dealings with firms who still patronized the
shipping lines. Nor was this a casual abuse, but a necessary feature in
the plan.
Again, the system lent itself to discrimination. Mr. Stubbs insisted
that contract rates were open to all shippers, large or small, who
would sign the necessary papers, but it was not denied that the first
arrangements were made with large dealers only,[379] nor that during
at least one period the whole scheme involved the abandonment of a
published and open tariff in favor of a system of bargains in which
each shipper’s rate was individually and secretly determined. Under
such a plan it was inconceivable that discrimination should not develop.
Ostensibly the offer of a special contract was one which shippers were
free to accept or to reject as they saw fit. Practically, this was not
so. If A took a contract and B did not, the latter’s ability to compete
was seriously impaired. For B had to import some things by rail in any
case, while the fact that less business in the aggregate reached the
Pacific Coast by sea reduced the shipping facilities which B otherwise
would have had at his command.[380]
Transcontinental Traffic Stimulated
Special contracts seem to have been a distinct success from the
point of view of the western carriers. When they were introduced the
percentage of transcontinental freight carried by the rail lines was
small, probably not over 25 per cent of the whole. At the end of six
years under the new system this percentage had risen to between 60 and
75 per cent.[381] The change was certainly not entirely due to the
policy of special contracts, but part of the change may be attributed
to the plan.
The policy was nevertheless given up in 1884 owing to the refusal of
the eastern trunk lines to take any further part in it. According to
Mr. Stubbs, the eastern companies believed that the advantage of the
system hardly paid them for the confusion in their accounts incident
to this method of conducting business. Moreover, there was legitimate
apprehension lest the contracts provoke antagonistic legislation
at Washington. Mr. Stubbs tried to argue the question, but without
success.[382]