THE TRAFFIC ASSOCIATION OF CALIFORNIA
Discontent
The discussion of the transcontinental rate structure leads naturally
to a consideration of a very serious controversy in which the Southern
Pacific became engaged in 1891. This controversy arose as the result
of an attempt by certain merchants of San Francisco to secure lower
distributive rates in the interior California valleys. The official
statement of the shippers’ side of the case in this lively conflict of
the nineties has been compiled and published.[414] No similar statement
of the position of the railroad has come out, but the important facts
are pretty well on record.
There is no question that the political and commercial policies of the
Southern Pacific had by 1890 engendered restlessness and discontent
among the commercial classes on the Pacific Coast. It was believed that
railroad rates from the East were high. It was thought that use of the
water lines had been limited by the special contract system while that
was in force, and that water competition had been affected subsequently
by arrangements between the transcontinental lines and the Pacific Mail
Steamship Company. The work of the State Railroad Commission had proved
disappointing. In short, the situation was such that it needed only
the pressure of the business depression of 1890 to 1897 to stir men to
vigorous action.
Coastwise Trade via Foreign Port
The episode which is to be described began with an attempt on the
part of certain San Francisco merchants to use British clippers for
the importation of freight from New York, in spite of the fact that
the right to engage in coastwise traffic was limited by statute to
ships flying the American flag. It appears that in 1891 a consignment
of nails was shipped from New York in a Belgian vessel to Antwerp,
consigned to a commercial house there. At Antwerp the merchandise
was discharged and landed, and from that city it was then shipped
on a British vessel to Redondo, California, where it was entered at
the customs house as a manufacture of the United States, entitled as
an American product to free entry under American law. Nor was this
the only case of the sort. In all, sixteen shipments were sent to
California via European ports between October 16, 1891, and May 28,
1892.
The obvious intent of the whole transaction was to evade the statute
governing the movements of merchandise by water between United States
ports, in order to effect a saving in freight estimated to amount
to $4 a ton. In spite of the somewhat transparent nature of the
business, the District Court of the United States for the Southern
District of California and the Circuit Court of Appeals both held
that the operation had been legally accomplished. According to these
courts the law forbade a method, not a result, and unless goods were
transported from one port of the United States to another port in a
vessel belonging in whole or in part to foreign subjects, no penalty
was incurred.[415]
It may be doubted if the roundabout route followed by the nails, here
the subject of litigation, would ever have afforded a noticeable relief
to importers on the Pacific Coast. Whatever chance existed was removed,
however, by an amendment to the statutes in 1893, specifically
forbidding transportation from one port of the United States to another
port of the United States via any foreign port except in an American
vessel.[416] This ended the first phase of the revived competition of
1891.
Organization of Association
The same month which saw the entrance of the 250 kegs of nails into
the port of Redondo, saw also the establishment of the so-called
Traffic Association in San Francisco. The Traffic Association was
originally conceived as an organization of merchants of San Francisco
for mutual protection, and for overcoming by united effort an alleged
unjust discrimination against the business interests of the city.
In fact the name first proposed for the new body was “Merchants’
Traffic Association,” and it was intended that the executive committee
should be composed of eighteen members of the mercantile community.
These details were, however, changed,[417] the words “merchant” and
“mercantile community” were left out, and when the association was
finally organized on October 30, 1891, the constitution and by-laws
provided merely for the admittance of merchants, manufacturers,
producers, and others interested in and favorable to its objects.
Railroad employees or persons holding free passes over railroads
were the only classes debarred. Subsequently an attempt was made to
interest parties outside of San Francisco, but without large success.
Characteristically the Traffic Association began and remained an
association of San Francisco shippers for their own protection,
particularly in the matter of transportation rates. Fifteen out of
nineteen members of the first executive committee were representatives
of San Francisco firms, and 97 per cent of the membership did business
in that town. The first president was Mr. Stetson, of Holbrook,
Merrill, and Stetson, and from first to last the overwhelming
proportion of the association funds came from San Francisco.
The government of the Traffic Association was placed in the hands of an
executive committee from which were to be selected the usual executive
officers. All power was to be vested in the committee; that is to say,
the executive committee was to have, in general, entire control and
management of the affairs of the association, and in particular was to
appoint a manager and other employees, who were to be relied on for the
active work. By a special section the committee reserved the right to
route all freight of members, should emergency require it and provided
that the action was approved by at least ten members of the committee.
Membership fees ranged from $60 to $150 per annum, payable quarterly
in advance. Moreover, the constitution provided that any unusual work
undertaken for the benefit of any particular line of trade, which
entailed any unusual expenditure, should be charged pro rata to the
firms or corporations most directly affected, and in accordance with
the benefits derived. No membership was to be for a shorter period than
two years.[418]
Functions
Inasmuch as some controversy later occurred with respect to the proper
purposes of the Traffic Association of California, it is necessary
to be explicit regarding the functions which, at the beginning, it
was expected that the association would perform. According to the
statements of its promoters, the association was not formed to fight
the Southern Pacific or any other individual railroad company. The
assertion was repeatedly made, on the contrary, that the intent was,
by organization, merely to enable the shippers of California to deal
collectively with the railroads, instead of one by one as heretofore,
and so to secure a presentation of the shippers’ point of view which
would carry weight by reason of the united sentiment behind it. In
this way the shippers’ bargaining power would be improved without
giving legitimate cause for offense to parties upon the other side, and
without exposing individual complainants to retaliation.
In the invitation to the mass meeting which took up the question of
organization on the 17th of October in San Francisco, it was explained
that merchants, producers, and shippers could accomplish nothing at
that time because they were disorganized. By opposing a solid front to
the railroad combine, it was said, a good deal could be accomplished.
Further, it was declared that the railroad would not resist such a
movement. J. B. Stetson, chairman of the mass meeting, stated:
Our object ... is to organize a Freight Bureau or Traffic Association
or whatever it may be termed, whose purpose shall be for mutual
protection and extension of the interests of San Francisco; for
overcoming, by united effort, discriminations and inequalities against
the interests of San Francisco; for representation in conferences upon
matters of importance to the shipping public to and with railroad or
transportation companies. Associations similar to the one we propose
forming here are in existence in all the eastern cities, and great
benefits have accrued from them, and will not fail to prove successful
here. We do not meet here for the purpose of waging warfare or
encouraging antagonisms between the shipping public and the railroads,
or any transportation lines. We believe that the same theory would
govern them as would govern ourselves as business men in the redress
of any grievance of our customers. We believe that by united action
we can present to the railroad and transportation companies views in
reference to freights, classifications, etc., that will cause them
to make changes that will be beneficial both to ourselves and to
them.... I cannot too earnestly advise prudence and caution in the
outset, for if this association is started properly, great good will
come from it and [it will] prove of lasting benefit to the commercial
community.[419]
First Meeting
The first public announcement that a traffic association was in process
of organization was made late in September, 1891, at which time
merchants were asked to pledge themselves to send representatives to
a mass meeting of merchants, producers, and manufacturers to be held
on October 17 in San Francisco.[420] This mass meeting occurred as
planned. There were speeches, discussion, and amendment of proposed
resolutions, and the final indorsement of a plan for joint action.
That is to say, it was declared to be the sense of those present that
an organization be formed, that the management of it be entrusted to
an executive committee and to the usual officers, and that revenue be
derived from dues. Most of the program was cut and dried. Among the
incidental but interesting features of the meeting, however, was an
address by a gentleman from Fresno calling for the construction of
another competing railroad, and the presentation of a communication
from San Diego, suggesting that the Santa Fé be induced to extend its
line to San Diego, and that provision be then made for connection by
sea between that city and San Francisco.[421]
The net result of the meeting of October 17 was to reveal an interest
in the plan for a shippers’ organization which encouraged the promoters
to go ahead, while at the same time the meeting provided the machinery
which made further progress possible. From now on, matters moved
rapidly. The executive committee was appointed, and its membership was
made public on October 23;[422] on October 30 a complete constitution
and set of by-laws was adopted by the association, and on November 2 a
general call for members was issued.[423]
Interior Towns
It was in securing members that the Traffic Association met with
its first check—a check which consisted in the general refusal of
residents of the country districts and of the interior towns to join
with San Francisco in its fight against the railroads. It has already
been pointed out that 97 per cent of the members of the association did
business in San Francisco, and the check came in spite of a deliberate
and persistent attempt by the Traffic Association to conciliate the
interior. It was partly with the idea of gaining support from outside
of San Francisco, for instance, that the mass meeting of October 17
changed the name of the association from that of “Merchants’ Traffic
Association of San Francisco and the State of California” to the
simpler “Traffic Association of California.” Another concession was
the appointment of four outside members to the controlling executive
committee—a proportion far exceeding either the relative outside
membership or the funds contributed from that source. Still other
attempts to gain support were made through meetings held in Fresno and
San José at which the advantages of the Traffic Association idea were
presented.[424]
Dissension
There appears, however, to have been some difference of opinion within
the Traffic Association itself with regard to the best policy to be
pursued toward the interior. The fundamental complaint of San Francisco
was that her distributing territory was being curtailed. Isidor Jacobs
said quite frankly that San Francisco jobbers believed at the time when
the Traffic Association was formed that the jobbing interests of the
city were in a bad way. It was claimed, and with reason, he said, that
San Francisco had natural advantages, and that in recognition of these
advantages railroad rates from eastern points to San Francisco should
be sufficiently less than to interior points, to enable San Francisco
jobbers to control the distribution even of eastern goods as far as
many Nevada points on the east, and as far as Tucson, Arizona, on the
south.[425]
Ideas the same as those expressed by Mr. Jacobs appeared in a petition
made public in December, 1892, and signed by over 150 firms in
San Francisco, and in an address published at the same time which
purported to be signed by 75 per cent of the membership of the Traffic
Association.[426]
Nor were there lacking specific complaints to the same general effect.
A San Francisco merchant explained that he had a carload rate of
$1.75 per hundredweight on goods which he imported from Chicago to
San Francisco. The rate on a hundredweight of the same commodity from
Chicago to Fresno was $2. The local rate from San Francisco to Fresno
was nearly half the rate per hundredweight from Chicago to Fresno,
being in fact 90 cents per hundredweight. The addition of the 90 cents
to the carload rate of $1.75 made it evident how small a chance he had
to do a jobbing trade with the interior in these goods.[427] Another
San Francisco dealer, a grocer by trade, was reported as saying that
he had been compelled to give up his grocery business because his
customers could buy directly from the East more cheaply than he could
supply them. The same man asserted that his customers could save a cent
and a half per pound on tobacco by dealing direct with Chicago.[428]
It was unfortunate that dissension arose within the Traffic Association
on so fundamental a point of policy as the proper attitude that should
be taken toward interior towns, for the effect was, in spite of the
best efforts of the men in control of association affairs, to deprive
that body of the support of the interior. Moreover, opportunity was
given to newspapers friendly to the railroads to attack the whole
project as a selfish attempt on the part of San Francisco to improve
her distributing position. The leading paper which took advantage of
this opportunity was the _Sacramento Union_. This journal for a number
of months denounced San Francisco as a city of hucksters, seeking a
monopoly of the jobbing and wholesale trade of the Pacific Coast, not
in the interest of the consumer, but in order to widen the margin
between the cost of goods in which they dealt and the price at which
these goods could be sold on the market. The charge was not fair, but
the attitude of Mr. Jacobs and his friends embarrassed the Traffic
Association in denying it.
Traffic Manager
In spite of the unwillingness of the state as a whole to join in a
campaign which appeared to be designed primarily in the interests
of San Francisco, the promoters of the new movement proceeded
systematically with their plans. On November 18, 1891, the executive
committee appointed a subcommittee to select a traffic manager for
the association. Much depended on the choice, and the committee was
fortunate in the man whom it secured, Joseph S. Leeds, of Ohio. Mr.
Leeds was an individual of marked ability, with a valuable railroad
experience behind him. He had been telegraph operator, station agent,
assistant general freight agent, general freight agent, and traffic
manager on various eastern railroad systems, and at one time had held
the position of chairman of the Transcontinental Association. He had
been removed from his post of traffic manager of the Missouri Pacific
some time before on a charge of rate-cutting, and might reasonably be
believed to cherish some animosity toward the railroads which had once
employed him. It may be added, as a fact of some importance to the
future of the Traffic Association, that Mr. Leeds possessed qualities
of energy and aggressiveness which unfitted him for a temporizing or
conciliatory rôle. Under his leadership the association promptly became
a fighting organization, and remained such until its demise. Mr. Leeds
arrived in San Francisco on November 21, 1891, and at once entered upon
his duties.[429]
Policy
For some weeks after Mr. Leeds’ arrival, the policy which the Traffic
Association should pursue remained unsettled. It will be recalled that
the promoters of the association had originally contemplated a policy
of harmonious co-operation with the railroad. This implied negotiation
and exchange of views between shippers and railroad. Mr. Leeds,
however, seems soon to have lost faith in such a method of procedure,
if indeed he ever possessed faith to lose. He once remarked that no one
ever got anything from a railroad just by asking for it. Moreover, the
refusal of the executive committee of the association to push demands
for preferential treatment of San Francisco as compared with other
cities, removed from the field of negotiation a matter which called for
readjustment of rates only, without reduction of railroad revenues,
upon which San Francisco and the Southern Pacific might possibly have
agreed, and left only demands which the railroad was likely to fight
with all its strength. Whatever the reason, no friendly approach to the
Southern Pacific seems to have been made.
The apparent methods of bringing pressure to bear upon the rail
carriers, on the assumption that the plan of friendly negotiation
was to be abandoned, were three: the first was that of appeal to
the Railroad Commission of the state and ultimately to the state
legislature; the second was the encouragement of water competition;
and the third was the construction, or assistance in the construction,
of a competing railroad, if not across the continent, yet at least to
a junction with one of the existing roads, such as the Santa Fé or
the Union Pacific. It must be admitted that no one of these resources
looked particularly promising in 1891, but together they exhausted the
field. To appeal to the Interstate Commerce Commission was not thought
of, and in view of the limited authority and brief experience of that
body it is not probable that an appeal would have produced important
results.
“Merchants’ Shipping Association”
In December, 1891, the report of the Nicaragua Canal Commission to the
federal legislature gave the Traffic Association opportunity to collect
signatures to a petition, and generally to indorse the project for the
construction of an Isthmian canal. The first circular emanating from
Mr. Leeds’ office, however, was dated January 6, 1892, and called the
attention of shippers to a reduction in rates from San Francisco to
Puget Sound points. This was followed later in the same month by a
circular which attracted some attention, and which pointed out that
shippers of freight had the legal right to designate the route over
which their property should move from point of shipment to destination.
It was recommended that all members of the Traffic Association route
their freight in every case where they were the owners of the property
at point of shipment. Meanwhile, a force of clerks was set to work,
and elaborate data relating to railroad expenses and railroad rates in
California and elsewhere were compiled.
The first aggressive step of the new association was taken early in
1892, when the executive committee directed the attention of members to
the possibilities of water competition. This was done after a meeting
of the executive committee in March, at which the committee voted that
a line of clipper ships should be established between New York and San
Francisco, and referred the preparation of plans for such a line to the
president and manager of the association.[430]
In response to the proposal of the Traffic Association, nine of the
larger jobbing firms in San Francisco formed in May, 1892, a so-called
“Merchants’ Shipping Association.” It was the purpose of the new body
to finance a line of clipper ships as proposed, and to cause it to be
operated in free competition with the existing lines of William Dimond
and Company, and Sutton and Beebe, concerns which, it was believed,
were conducted in the interests of the Southern Pacific. This was too
ambitious an undertaking for the Traffic Association to underwrite with
its slender revenues of about $25,000 a year.
Three months later, in August, the membership of the Shipping
Association was largely increased, and a guaranty fund of from $85,000
to $100,000 was subscribed. At this time most of the leading wholesale
firms of San Francisco joined. The Traffic Association lent its full
moral support to the enterprise, and was reported to have contributed
$10,000 to the guaranty fund just mentioned. Actual operation of the
ships was entrusted to J. W. Grace and Company as agents. While the
exact arrangements between the Shipping Association and these agents
have never been made public, the merchants appear to have undertaken
to meet all deficits, and to supply at least two-thirds of the
freight. According to statements made at the time, Grace and Company
were expected to find freight in the open market up to one-third of
the capacity of their boats. Practical details of operation were left
entirely in the agents’ hands.[431]
Effect of Competition
Some hint of the attitude of the older transportation companies toward
this new rivalry may be found in a circular issued by the Traffic
Association under date of June 22, 1892. This circular, after referring
to the new Grace line, and after speaking also of the Atlantic and
Pacific Steamship Company, and of a new clipper line established by
Balfour, Guthrie and Company, continues as follows:
It has already been given out by the old lines that these new
competitors in the field will be short-lived, and that shippers
who desert the old lines at this time will be remembered when the
competitors are out of the way.
For your information we desire to state that the new lines have been
thoroughly investigated by the Committee and we are satisfied as to
the reliability and stability of the enterprise, and that with our
support they are here to stay and deserving of our patronage.[432]
In spite of the attempts of the older companies to crush the new
adventure at its inception, the clipper ships thus established in
1892 with the support of the Traffic Association maintained an active
competition with the railroad and older sailing lines over a period
of more than a year. Short as this period was, there is no question
that the effect upon water rates between San Francisco and New York
was tremendous. The former rates of the Sutton and Beebe and of the
William Dimond and Company lines had been about $15 a ton. The rates
charged by all lines during the summer of 1892 were from $3.50 to $6 a
ton, a figure certainly below the cost of operation.[433]
This reduction in rates, and the facility which merchants in San
Francisco enjoyed in securing through bills of lading by sea and rail
from San Francisco to points on the Missouri River by way of Cape Horn
and New York, enabled shippers to reach the interior Mississippi Valley
at a rate and with a convenience superior to that obtainable by rail.
According to the _San Francisco Bulletin_, indeed, it was $2.15 a ton
cheaper to send California canned goods from San Francisco to Kansas
City by sea and rail than to ship them by rail direct. On westbound
freight the results were the same. The rate on canned meats from Kansas
City to New York was $9.40 per ton. The rate from New York to San
Francisco by sea, after adding interest and insurance, did not exceed
$15 per ton, making a total of about $25, which was $10 less per ton
than the direct rail rate from Kansas City to San Francisco.[434]
On heavy iron products the figures were quite as striking. The
all-rail rate on a number of such products was $24 from Pittsburgh to
San Francisco. From Pittsburgh to New York the rail rate on the same
articles was $3 a ton. Adding to this $6 per ton for the clipper rate
from New York to San Francisco, $1.25 per ton for insurance, and $2.50
per ton for interest, the total became $12.75, or $10.25 per ton less
than the all-rail rate.[435]
No wonder that the business of the water lines increased, and that
railroad rates materially declined. Thus the rail rate on canned goods
out of San Francisco, which had been $1 per hundred pounds, was
reduced to 75 cents to Chicago and to 50 cents to New York. The rate on
beans fell from $1.10 to 75 and 50 cents to the same destinations. On
wine, brandy, borax, and wool, rail rates declined from 25 to 35 per
cent.[436]
So far as the quantity of freight moving by water was concerned, it was
estimated in August, 1892, that 42,000 tons of freight were on the way
by sea to San Francisco from New York, and that 15,300 tons more were
on the way via Cape Horn from Philadelphia. Twenty-four vessels were at
sea or loading, bound from the Atlantic to the Pacific coast.[437]
Discontinuance of Pacific Mail Subsidy
The work which fell to Mr. Leeds and to his associates upon the
Traffic Association clipper ship committee in this struggle between
the rail and the water lines, was largely that of propaganda. This
meant interviews with shippers to impress upon them the importance of
the contest which was being waged against the railroads and against
the Southern Pacific in particular. It meant also the soliciting of
subscriptions to the clipper ship guaranty fund. Mr. Leeds threw
himself vigorously into the fight, and as the movement progressed he
allowed his satisfaction to appear. He wrote the Merchants’ Shipping
Association in August, 1892:
I venture the prediction that if this movement is placed upon a
permanent footing the Pacific Mail subsidy which has been assessed
against the commerce of the coast for many years will be discontinued
... I predict that this will, if properly supported, prove the
beginning of the end of commercial oppression for this city and this
State. The doctrine of helping yourselves by every means you can
command, holding fast to that which you have and reaching out for
more, will prove the deliverance of San Francisco.[438]
It was doubtless a considerable satisfaction to Mr. Leeds and to
members of the Traffic Association that the water competition so
vigorously inaugurated by the Merchants’ Shipping Association was
increased late in 1892 by the formation of an independent steamship
line known as the North American Navigation Company. The foundation
of this new company was not directly due to the Traffic Association,
although the Association gave it what support it could. It was
rather the result of the discontinuance of the railroad subsidy to
the Pacific Mail, which actually took place in 1892, as Mr. Leeds
anticipated, and to the consequent separation of the Pacific Mail
and the Panama Railroad Company—a separation which assured to an
independent steamship line upon the Pacific Ocean equal or even
preferential treatment at the Isthmus of Panama. This meant that San
Francisco shippers were no longer restricted to clipper ships and to
the Cape Horn route, but could promote a shorter and speedier line with
reasonable hope of success.
In the year 1892 the transcontinental railroads determined to dissolve
the transcontinental railroad association. The reasons alleged were
the withdrawal of the Northern Pacific Railroad from the association,
and the announcement by the Canadian Pacific of reduced rates to take
effect September 10. The dissolution of the association meant the
termination of the subsidy which the railroads had been paying to
the Pacific Mail, and notice of cancellation was promptly given. The
Pacific Mail was then paying to the Panama Railroad $55,000 per month,
an amount that was more than 70 per cent of the sum which it received
from the association. In spite of the termination of its own relations
with the transcontinental railroads, the Pacific Mail offered to
continue the payment of a subsidy to the Panama Railroad, but the two
companies proved unable to agree on terms. Mr. Stubbs later explained
the break as follows:
When the contract between the Panama Railroad Company and the Pacific
Mail Company expired, they found it impossible to agree on terms for
continuing the business. The transcontinental railroad companies had
quarreled, and freight rates were demoralized. The Panama Railroad
insisted on the former basis of traffic, and the Pacific Mail refused
to go ahead on that understanding. Then there was some bad management,
and the two companies began to throw mud. The trouble got into the
courts, and finally it was called to the attention of Congress. The
Panama road and the Pacific Mail consequently found themselves to be
bitter enemies, and it didn’t seem that they could agree.[439]
Independent Steamship Line
Now it appears that a San Francisco shipping firm, the Johnson-Locke
Mercantile Company, which was participating in the anti-railroad fight
in 1891 and 1892 to the extent of operating a line of steamships around
the Horn, noticed telegraphic advices in the San Francisco newspapers
announcing the termination of relations between the Pacific Mail and
the Panama Railroad. Describing the episode, Mr. Johnson later said:
I felt this was our opportunity, and immediately wired General
Newton, of the Panama Railroad, suggesting that, in view of their
determination to throw open the Isthmus and put on a line of their
own steamers from New York to Colon, I thought we could secure the
co-operation of the merchants of San Francisco, in this movement;
that we had some steamers we were running between San Francisco and
New York via Cape Horn, and asking, in the event of our organizing a
company here, if they would join this company in maintaining a through
line from San Francisco to New York.[440]
At this time the Panama Railroad was under the control of the official
liquidator of the French Panama Canal Company. The railroad had
already decided to operate a line of steamships between New York and
Colon, and it accepted readily Mr. Johnson’s offer from the West. Yet
Johnson himself lacked capital—as his own statement admits. To raise
the necessary capital a new company—the North American Navigation
Company—was at once organized, and subscriptions were solicited from
San Francisco business men. Not all those approached were enthusiastic.
Some merchants were afraid of antagonizing the Southern Pacific, some
had an interest in it. James G. Fair said: “I am holding some millions
of dollars in Southern Pacific bonds. Do you want me to put my eggs in
a basket, get on a fence and chuck stones at it?”[441]
On the other hand, the promoters of the new company were able to
make a strong plea based on the unsatisfactory conditions of water
transportation in previous years. For the first time in fifteen years
San Francisco shippers had a remedy in their own hands.
With the successful operation of this company, San Francisco need fear
no excessive prohibitory rates from the Transcontinental or similar
associations; the relief in transportation will be immediate and
ample, which, together with sailing ships via Cape Horn, solves the
immediate question of cheap transportation, freedom from excessive
freights, and makes our city again the distributing point, instead of
an isolated terminus of a long haul by rail.[442]
The Raising of Funds
The original intention was to raise a fund of $100,000, and it appears
that the Panama Railroad agreed to enter into a contract with the
North American Navigation Company providing that sum were subscribed.
When $80,000 had been promised, however, the promoters solicited the
aid of the recently formed Traffic Association, and upon its advice
increased their capital to the sum of $200,000. As is frequently the
case, in such campaigns no subscriptions were binding until the whole
amount should have been subscribed. Before this point was reached
the promoters nevertheless concluded their contract with the Panama
Railroad. Perhaps they were over-optimistic, perhaps they felt that the
chance of making such a contract should not be allowed to pass—at any
rate they signed the contract and thereby agreed to dispatch steamers
from San Francisco on fixed dates to connect with the rail line at the
Isthmus. The text of the contract was not divulged, but the public was
informed that it was to go into effect March 8, 1893, and that it gave
to the North American Navigation Company the exclusive right of through
billing between New York and San Francisco by way of the Isthmus of
Panama.[443]
When the time came to dispatch the first vessel called for under this
contract, the Navigation Company found itself in the uncomfortable
position of a concern with important responsibilities and no money with
which to meet them. Not a dollar of the capital stock had been paid
in, and only $160,000 had been subscribed. Under these circumstances
certain of the individuals most interested personally guaranteed the
charter hire of the first boat, and the same was done for the second,
and for the third, at intervals of twenty days. Before the time arrived
for the departure of the fourth vessel, the entire $200,000 asked for
had been pledged. By December, 1893, this fund was exhausted, and
$100,000 more was raised—not without difficulty, and with some feeling
of discouragement on the part of the promoters.[444] The additional
subscription made possible the continuance of the service approximately
till the 1st of May, 1894, or for a total period of a little over a
year. There is some evidence that the managers of the company desired
a still further extension, but if an attempt of this sort was made, it
met with no success.
During the life of the North American Navigation Company five
steamships were chartered: the St. Paul, Mexico, Keweenaw, Progreso,
and Saturn. The “St. Paul” and the “Mexico” were small boats, with a
net tonnage, respectively, of about 700 and 1,350 tons dead weight. The
net tonnage of the “Keweenaw” was reported to be 2,004 tons, that of
the “Progreso” and “Saturn” somewhat less.[445] Some passengers were
carried by the line, but not many. The Pacific Mail also operated five
vessels with capacity carrying from 2,000 to 2,500 tons. These were all
small craft as compared with steamers of the present day. The original
program, as has been said, called for a twenty-day interval between
sailings, and the total estimated time consumed in shipment from San
Francisco to New York was put at thirty-two days. It could scarcely
have been expected that these ships could accommodate any large portion
of the business of the Pacific Coast, nor indeed was there much chance
for them to earn any considerable profit on the business which they
did carry. The fact that so large a guaranty fund was insisted upon by
the Panama Railroad before any exclusive through billing arrangement
would be made, is evidence that a deficit was expected. As a matter of
fact the total fund of $300,000 was used up before the fifteen months
contemplated in the original agreement had entirely expired.
Drop in Railroad Rates
The principal purpose of the North American Navigation Company was,
beyond question, to compel a reduction in transcontinental rates by
rail and water by demonstrating that the business men of San Francisco
could establish an independent connection of their own. This accounts
for the enthusiasm with which the project was greeted in the community
at large. The Navigation Company was looked upon as a kind of St.
George tilting against the dragon of monopoly. The newspapers printed
columns of description with pictures of the boats chartered by the new
line, the promoters gave out interviews, and crowds gathered at the
wharves to see the vessels leave. And it was by pointing to the rate
reductions accomplished that the company subsequently justified itself.
Mr. Leeds, manager of the Traffic Association, estimated that the
84,000 tons which he thought the new steamship line would handle, added
to what the clipper ships were carrying, would leave about 250,000 tons
for the railroads to transport from coast to coast. On this he expected
to see a decline in rates of not less than 20 per cent. More exactly,
he calculated that the saving to shippers due directly to the operation
of the North American Navigation Company would amount to $660,000;
that due to clipper ship competition would total $1,110,000; and that
secured through a decline in railroad rates would be $1,248,000; or a
total of $3,018,000.[446] Captain Merry, president of the Navigation
Company, declared when all was over that a saving of $3,500,000 had
been made on Pacific Coast products shipped east during the life of the
company, in addition to the saving of perhaps $1,500,000 on westbound
freight.[447]
Undoubtedly the operations of the Navigation Company intensified
the rate war started by the clipper ships, and the reductions in
transcontinental charges were considerable. According to Mr. Leeds the
cuts on eastbound transcontinental freight, all-rail, on representative
articles, by January, 1894, were as follows:[448]
REDUCTIONS IN TRANSCONTINENTAL RAIL RATES TO JANUARY, 1894
Old Rate per New Rate per Reduction
Article 100 pounds 100 pounds per cent
Beans $1.10 $ .50 55
Canned goods 1.00 .50 50
Barley .90 .30 66⅔
Dried fruits, raisins, and
prunes (in boxes) 1.40 1.00 28
Wine 1.50 .37½ 80
Mustard seed 1.10 .30 73
Wool, in grease 1.50 .75 50
Wool, scoured 2.50 .75 70
Uncertain Benefit
On westbound freight it was estimated that the reductions amounted to
at least 50 per cent. These estimates, however, do not distinguish
between the results produced by the Navigation Company and those which
were the consequence of the operation of the clipper ships—perhaps no
separate estimate is possible or important. On the basis of the rates
charged, the railroad admitted that it was losing money, at least so
far as eastbound freight was concerned. It maintained, however, that it
continued to make a profit on its westbound freight and on its local
traffic.[449] There was no question that the steamships and the Panama
Railroad lost money, although they declared stoutly that they would
meet any cuts which the railroads might make.[450]
Whether the shippers benefited by the general demoralization in rates
which occurred during the war is uncertain, as it always is under such
circumstances. They certainly lost the $300,000 which they put into the
North American Navigation Company, besides the guaranty fund subscribed
by the Merchants’ Shipping Association. Moreover, they suffered
from the competition of eastern jobbers during the hostilities, a
competition which the railroads encouraged by reducing the differences
between carload and less than carload rates, by the extension of the
privilege of shipping in mixed carloads, and by reduction in westbound
rates. On the other hand, they gained directly through lower rates, and
indirectly by the demonstration that, to some extent at least, their
access to eastern markets was not subject to railroad control.
New Transcontinental Tariff
The North American Navigation Company operated only a little over a
year, as has been said. Its vessels, however, were taken over by the
Panama Railroad, and competition continued until the end of the year
1895. Not long after that, it seems, negotiations between the shippers
and the railroads began. Representatives of the transcontinental lines
upon the coast were instructed to mollify Pacific Coast shippers so far
as possible, and the shippers in their turn seem to have been anxious
to meet this advance. In 1897 a communication was addressed to the
railways by the jobbing interests upon the Pacific Coast, stating in
substance that rates ought to be readjusted in the interests of the
coast jobbers; that more rigid inspection rules should be enforced
preventing their competitors in the Middle West from obtaining
fraudulent rates; and intimating that if this was done they would not
object to an advance in rates and would find it to their interest to
place shipments largely with the railroads.
For the purpose of effecting some arrangement, a meeting of
representatives of the transcontinental lines was held at Del Monte in
the fall of that year. Representatives of the Pacific Coast jobbers and
also of the jobbers of the Middle West were present. Both parties were
heard separately and much discussion was had but no definite conclusion
reached. The conference adjourned to meet at Milwaukee the following
spring. The final result was a new transcontinental tariff effective
June 25, 1898, which seems to have given reasonable satisfaction until
attacked by representatives of the intermountain towns.[451]