THE MORGAN TRUST
Speaking generally, the transatlantic shipping business may be said to
consist of three great branches, viz. the cargo, the steerage, and the
cabin business. The pool agreements that were concluded between the
interested companies covered only the cargo business and the steerage
traffic. The condition which alone makes it possible for the owners to
work the shipping business on remunerative lines is that all needless
waste of material must be strictly banned. The great advantage which was
secured by concluding the pool agreement was that it satisfied this
condition during the more than twenty years of its existence, to the
mutual profit of the associated lines. Each company knew that the
addition of new steamers to its fleet would only pay if part of a
carefully considered plan, and if, in course of time, such an increase
of tonnage would give it a claim to an increase of the percentage of
traffic allotted to its services.
Much less satisfactory was the state of things with regard to the third
branch of the shipping business, viz. the cabin traffic. A regular
"cabin pool," with a _pro rata_ distribution of the traffic, was never
established, although the idea had frequently been discussed. All that
was achieved was an agreement as to the fares charged by each company
which were to be graded according to the quality of the boats it
employed in its services. Owing to the absence of any more far-reaching
understandings, and to the competition between the various
companies--each of which was constantly trying to outdo its competitors
as regards the speed and comfort of its boats, in order to attract to
its own services as many passengers as possible--the number of
first-class boats increased out of all proportion to the actual
requirements, and frequent and regular services were maintained by each
line throughout the year. There was hardly a day on which first-class
steamers did not enter upon voyages across the Atlantic from either
side, and the result was that the boats were fully booked during the
season only, i.e. in the spring and early part of summer on their
East-bound, and in the latter part of summer and in the autumn on their
Westbound, voyages. During the remaining months a number of berths were
empty, and the fares obtainable were correspondingly unprofitable.
Ballin, in 1902, estimated the unnecessary expenditure to which the
companies were put in any single year owing to this unbusinesslike state
of affairs at not less then 50 million marks. The desire to do away with
conditions such as these by extending the pool agreement so as to
develop it into a community-of-interest agreement of comprehensive scope
was one of the two principal reasons leading to the formation of the
Morgan Trust. The other reason was the wish to bring about a system of
co-operation between the European and the American interests.
This desire was prompted by the recognition of the cardinal importance
to the transatlantic shipping companies of the economic conditions
ruling in the United States. The cargo business depended very largely on
the importation of European goods into the United States, and on the
exportation of American agricultural produce to Europe which varied from
season to season according to the size of the crop and to the consuming
capacity of Europe. The steerage business, of course, relied in the main
on the capacity of the United States for absorbing European immigrants,
which capacity, though fluctuating, was practically unlimited. The
degree of prosperity of the cabin business, however, was determined by
the number of people who travelled from the States to Europe, either on
business, or on pleasure, or to recuperate their health at some European
watering-place, at the Riviera, etc. Social customs and the attractions
which the Paris houses of fashion exercised on the American ladies also
formed a considerable factor which had to be relied on for a prosperous
season. In the transatlantic shipping business, in fact, America is
pre-eminently the giving, and Europe the receiving, partner. Thus it was
natural to realize the advisability of entering into direct relations
with American business men.
To the Packetfahrt, and especially to Ballin, credit is due for having
attempted before anybody else to give practical shape to this idea. His
efforts in this direction date far back to the early years of his
business career. We possess evidence of this in the form of a letter
which he wrote in 1891 to Mr. B. N. Baker, who was at the head of one of
the few big American shipping companies, the Atlantic Transport Company,
the headquarters of which were at Baltimore, and which ran its services
chiefly to Great Britain. Mr. Baker was a personal friend of Ballin's.
The letter was written after some direct discussions had taken place
between the two men, and its contents were as follows:--
"I replied a few days ago officially to your valued favour of the
4th ult. to the effect that in consonance with your expressed
suggestion one of the Directors will proceed to New York in
September with a view to conferring with you about the matter at
issue.
"Having in the meantime made it a point to go more fully into your
communication, I find that the opinions which I have been able to
form on your propositions meet your expressed views to a much
larger extent than you will probably have supposed. I have not yet
had an opportunity of talking the matter over with my colleagues,
and I therefore do not know how far they will be prepared to fall
in with my views. But in order to enable me to frame and bring
forward my ideas more forcibly here, I think it useful to write to
you this strictly confidential letter, requesting you to inform
me--if feasible by cable--what you think of the following project:
"(1) You take charge of our New York Agency for the freight, and
also for the passage business, etc.
"(2) You engage those of our officials now attached to our New York
branch whom we may desire to retain in the business.
"(3) You take over half of our Baltimore Line in the manner that
each party provides two suitable steamers fitted for the transport
of emigrants. To this end I propose you should purchase at their
cost price the two steamers which are in course of construction in
Hamburg at present for our Baltimore Line (320 feet length, 40 feet
beam, 27 feet moulded, steerage 8 feet, carrying 3,500 tons on 22
feet and about 450 steeragers, guaranteed to steam 11 knots, ready
in October this year), and we to provide two similar steamers for
this service. The earnings to be divided under a pool system.
"(4) Your concern takes up one million dollars of our shares with
the obligation not to sell them so long as you control our American
business. I may remark that just at present our shares are
obtainable cheaply in consequence of the general depression
prevailing in the European money market, and further, owing to the
fact that only a small dividend is expected on account of the very
poor return freight ruling from North America. I think you would be
able to take the shares out of the market at an average of about 7
per cent. above par. We have paid in the last years since we
concluded the pool with the Union Line, viz. in 1886 4 per cent.,
1887 6 per cent., 1888 8-1/2 per cent., 1889 11 per cent., 1890 8
per cent. in the way of dividends, and during this time we wrote
off for depreciation and added to the reserve funds about 60 per
cent.
"The position of our Company is an excellent one, our fleet
consisting of modern ships (average age only about five years), and
the book values of them being very low.
"I should be obliged to you for thinking the matter over and
informing me--if possible by cable--if you would be prepared to
enter into negotiations on this basis. I myself start from the
assumption that it might be good policy for our Company to obtain
in the States a centre of interest and a position similar to that
held by the Red Star Line and the Inman Lines in view of their
connexion with the Pennsylvania Railroad, etc. It further strikes
me that if this project is brought into effect one of your concern
should become a member of our Board. I should thank you to return
me this letter which, as I think it right expressly to point out to
you, contains only what are purely my individual ideas."
It may be assumed that the writing of this letter was prompted not only
by the Packetfahrt's desire to strengthen its position in the United
States, but also by its wish to obtain a foothold in Great Britain. This
would enable it to exercise greater pressure on the competing British
lines, which--indirectly, at least--still did a considerable portion of
the Continental business. Ballin's suggestion did not lead to any
practical result at the time, but was taken up again eight years later,
in 1899, on the advice of Mr. (now Lord) Pirrie, of Messrs. Harland and
Wolff, of Belfast. Important interests, partly of a financial character,
linked his firm to British transatlantic shipping; and his special
reason for taking up Ballin's proposal was to prevent an alliance
between Mr. Baker's Atlantic Transport Company and the British Leyland
Line, a scheme which was pushed forward from another quarter. He induced
Mr. Baker to come to Europe so that the matter might be discussed
directly. The attractiveness of the idea to Ballin was still further
enhanced by the circumstance that the Atlantic Transport Line also
controlled the National Line which maintained a service between New
York and London, and was, indeed, the decisive factor on the New
York-London route. Ballin, accordingly, after obtaining permission from
the Board of Trustees, went to London, where he met Mr. Baker and Mr.
Pirrie.
It soon became clear, however, that the Board of Trustees did not wish
to sanction such far-reaching changes. When Ballin cabled the details of
the scheme to Hamburg, it was seen that 25 million marks--half the
amount in shares of the Packetfahrt--would be needed to carry it
through. Thus the discussions had to be broken off; but the attitude
which the Board had taken up was very much resented by Ballin.
Subsequent negotiations which were entered into in the early part of
1900 in Hamburg at the suggestion of Mr. Baker also failed to secure
agreement, and shortly afterwards the American company was bought up by
the Leyland Line.
At the same time a movement was being set on foot in the United States
which aimed at a strengthening of the American mercantile marine by
means of Government subsidies. This circumstance suggested to Mr. Baker
the possibility of setting up an American shipping concern consisting of
the combined Leyland and Atlantic Transport Company lines together with
the British White Star Line, which was to profit by the expected
legislation concerning shipping subsidies. Neither the latter idea,
however, nor Mr. Baker's project assumed practical shape; but the
Atlantic Transport-Leyland concern was enlarged by the addition of a
number of other British lines, viz. the National Line, the
Wilson-Furness-Leyland Line, and the West Indian and Pacific Line, all
of which were managed by the owner of the Leyland Line, Mr. Ellerman,
the well-known British shipping man of German descent. The tonnage
represented by these combined interests amounted to half a million tons,
and the new combine was looked upon as an undesirable competitor, by
both the Packetfahrt and the British lines. The dissatisfaction felt by
the latter showed itself, among other things, in their refusal to come
to any mutual understanding regarding the passenger business. In the
end, Mr. Baker himself was so little pleased with the way things turned
out in practice that he severed his connexion with the other lines
shortly afterwards, and once more the question became urgent whether it
would be advisable for the Packetfahrt--either alone, or in conjunction
with the White Star Line and the firm of Messrs. Harland and Wolff--to
purchase the Atlantic Transport Line.
That was the time when Mr. Pierpont Morgan's endeavours to create the
combine, which has since then become known as the Morgan Trust, first
attracted public attention. Ballin's notes give an exhaustive
description of the course of the negotiations which lasted nearly
eighteen months and were entered into in order to take precautions
against the danger threatening from America, whilst at the same time
they aimed at some understanding with Mr. Morgan, because the
opportunity thus presented of setting up an all-embracing organization
promoting the interests of all the transatlantic steamship concerns
seemed too good to be lost. Ballin's notes for August, 1901, contain the
following entry:
"The grave economic depression from which Germany is suffering is
assuming a more dangerous character every day. It is now spreading to
other countries as well, and only the United States seem to have escaped
so far. In addition to our other misfortunes, there is the
unsatisfactory maize-crop in the States which, together with the other
factors, has demoralized the whole freight business within an
incredibly short space of time. For a concern of the huge size of our
own such a situation is fraught with the greatest danger, and our
position is made still worse by another circumstance. In the States, a
country whose natural resources are wellnigh inexhaustible, and whose
enterprising population has immensely increased its wealth, the creation
of trusts is an event of everyday occurrence. The banker, Pierpont
Morgan--a man of whom it is said that he combines the possession of an
enormous fortune with an intelligence which is simply astounding--has
already created the Steel Trust, the biggest combination the world has
ever seen, and he has now set about to lay the foundations for an
American mercantile marine."
A short report on the position then existing which Ballin made for
Prince Henckell-Donnersmarck, who had himself called into being some big
industrial combinations, is of interest even now, although the situation
has entirely changed. But if we want to understand the position as it
then was we must try to appreciate the views held at that time, and this
the report helps us to do. Ballin had been referred to Prince
Henckell-Donnersmarck by the Kaiser, who had a high opinion of the
latter's business abilities, and who had watched with lively interest
the American shipping projects from the start, because he anticipated
that they would produce an adverse effect on the future development of
the German shipping companies. The report is given below:--
"In 1830 about 90 per cent. of the United States sea-borne trade
was still carried by vessels flying the American flag. By 1862 this
percentage had gone down to 50 per cent., and it has shown a
constant decrease ever since. In 1880 it had dwindled down to 16
per cent., and in 1890 to as low a figure as 9 per cent. During
recent years this falling off, which is a corollary of the customs
policy pursued by the United States, has given rise to a number of
legislative measures intended to promote the interests of American
shipping by the granting of Government subsidies. No practical
steps of importance, however, have been taken so far; all that has
been done is that subsidies have been granted to run a North
Atlantic mail service maintained by means of four steamers, but no
success worth mentioning has been achieved until now.
"Quite recently the well-known American banker, Mr. J. Pierpont
Morgan, conjointly with some other big American capitalists, has
taken an interest in the plan. The following facts have become
known so far in connexion with his efforts:
"Morgan has acquired the Leyland Line, of Liverpool, which,
according to the latest register, owns a fleet of 54 vessels,
totalling 155,489 gross register tons. This purchase includes the
West India and Pacific Line, which was absorbed into the Leyland
Line as recently as a twelvemonth ago. The Mediterranean service
formerly carried on by the Leyland Line has not been acquired by
Morgan. He has, however, added the Atlantic Transport Company.
Morgan's evident intention is to form a big American shipping
trust, and I have received absolutely reliable information to the
effect that the American Line and the Red Star Line are also going
to join the combine. The shares of the two last-named lines are
already for the most part in American hands, and both companies are
being managed from New York. Both lines together own 23 steamers
representing 86,811 tons.
"A correct estimate of the size of the undertaking can only be
formed if the steamers now building for the various companies, and
those that have been added to their fleets since the publication of
the register from which the above figures are taken, are also taken
into account. These vessels represent a total tonnage of about
200,000 tons, so that the new American concern would possess a
fleet representing 430,000 gross register tons. The corresponding
figures for the Hamburg-Amerika Linie and for the Lloyd, including
steamers building, are 650,000 and 600,000 tons respectively.
"The proper method of rightly appreciating the importance of the
American coalition is to restrict the comparison, as far as the two
German companies are concerned, to the amount of tonnage which they
employ in their services to and from United States ports. If this
is borne in mind, we arrive at the following figures: German
lines--390,000 G.R.T.; American concern--about 430,000 G.R.T. These
figures show that, as regards the amount of tonnage employed, the
Morgan Trust is superior to the two German companies on the North
Atlantic route. It can also challenge comparison with the regular
British lines--grand total, 438,566 G.R.T.
"In all the steps he has taken, Morgan, no doubt, has been guided
by his confidence in his ability to enforce the passing of a
Subsidy Act by Congress in favour of his undertaking. So long as he
does not succeed in these efforts of his he will, of course, be
obliged to operate the lines of which he has secured control under
foreign flags. Up to the present only four steamers of the American
Line, viz. the _New York_, _Philadelphia_, _St. Louis_, and _St.
Paul_, are flying the United States flag, whereas the remaining
vessels of the American Line, and those of the Leyland, the West
India and Pacific, the American Transport, the National, and the
Furness-Boston lines, are sailing under the British, and those of
the Red Star Line under the Belgian flag.
"The organization which Mr. Morgan either has created, or is
creating, is not in itself a danger to the two German shipping
companies; neither can it be said that the Government
subsidies--provided they do not exceed an amount that is justified
by the conditions actually existing--are in themselves detrimental
to the German interests. The real danger, however, threatens from
the amalgamation of the American railway interests with those of
American shipping.
"It is no secret that Morgan is pursuing his far-reaching plans as
the head of a syndicate which comprises a number of the most
important and most enterprising business men in the United States,
and that the railway interests are particularly well represented in
it. Morgan himself, during his stay in London a few months ago,
stated to some British shipping men that, according to his
estimates, nearly 70 per cent. of the goods which are shipped to
Europe from the North Atlantic ports are carried to the latter by
the railroads on Through Bills of Lading, and that their further
transport is entrusted to foreign shipping companies. He and his
friends, Morgan added, did not see any reason why the railroad
companies should leave it to foreign-owned companies to carry those
American goods across the Atlantic. It would be much more logical
to bring about an amalgamation of the American railroad and
shipping interests for the purpose of securing the whole profits
for American capital.
"This projected combination of the railroad and sea-borne traffic
is, as I have pointed out, a great source of danger to the foreign
shipping companies, as it will expose them to the possibility of
finding their supplies from the United States _hinterland_ cut off.
This latter traffic is indispensable to the remunerative working of
our North American services, and it is quite likely that Morgan's
statement that they amount to about 70 per cent. of the total
sea-borne traffic is essentially correct."
The negotiations which Ballin carried on in this connexion are described
as follows in his notes:--
"When I was in London in July (1901), I had an opportunity of
discussing this American business with Mr. Pirrie. Pirrie had
already informed me some time ago that he would like to talk to me
on this subject, but he had never indicated until then that Morgan
had actually instructed him to discuss matters with me. A second
meeting took place at which Ismay (the chairman of the White Star
Line) was present in addition to Pirrie and myself, and it was
agreed that Pirrie should go to New York and find out from Morgan
himself what were his plans regarding the White Star Line and the
Hamburg-Amerika Linie.
"Shortly after Pirrie's return from the States I went to London to
talk things over with him. He had already sent me a wire to say
that he had also asked Mr. Wilding to take part in our meeting; and
this circumstance induced me to call on Mr. Wilding when I passed
through Southampton _en route_ for London. What he told me filled
me with as much concern as surprise. He informed me that the
syndicate intended to acquire the White Star Line, but that, owing
to my relations with the Kaiser, the acquisition of the
Hamburg-Amerika Linie was not contemplated. Morgan, he further told
me, was willing to work on the most friendly terms with us, as far
as this could be done without endangering the interests of the
syndicate; but the fact was that the biggest American railroad
companies had already approached the syndicate, and that they had
offered terms of co-operation which were practically identical with
a combination between themselves and the syndicate.
"In the course of the discussions then proceeding between Pirrie,
Wilding, and myself the situation changed to our advantage, and I
was successful in seeing my own proposals accepted, the essence of
which was that, on the one hand, our independence should be
respected, that the nationality of our company should not be
interfered with, and that no American members should be added to
our Board of Trustees; whilst, on the other hand, a fairly close
contact was to be established between the two concerns, and
competition between them was to be eliminated."
The draft agreement, which was discussed at these meetings in London
(and which was considerably altered later on), provided that it should
run for ten years, and that a mutual interchange of shares between the
two concerns should be effected, the amount of shares thus exchanged to
represent a value of 20 million marks (equivalent to 25 per cent. of the
joint-stock capital of the Hamburg-Amerika Linie). Mutual participation
was provided for in case of any future increase in the capital of either
company; but the American concern was prohibited from purchasing any
additional shares of the Hamburg-Amerika Linie. The voting rights for
the Hamburg shares should be assigned to Ballin for life, and those for
the American shares to Morgan on the same terms. Instead of actually
parting with its shares, the Hamburg company was to have the option of
paying their equivalent in steamers. The agreement emphasized that,
whilst recognizing the desirability of as far-reaching a financial
participation as possible, Ballin did not believe that, with due regard
to German public opinion and to the wishes of the Imperial Government,
he was justified in recommending an interchange of shares exceeding the
amount agreed upon. The American concern was prohibited from calling at
any German ports, and the Hamburg company agreed not to run any services
to such European ports as were served by the other party. A pool
agreement covering the cabin business was entered into; and with respect
to the steerage and cargo business it was agreed that the existing
understandings should be maintained until they expired, and that
afterwards a special understanding should be concluded between both
contracting parties.
Immediately after Ballin's return to Hamburg the Board of Trustees
unanimously expressed its agreement in principle with the proposals.
"For my own part," Ballin says in his notes on these matters, "I
declared that I could only regard the practical execution of these
proposals as possible if they receive the unequivocal assent of the
Kaiser and of the Imperial Chancellor. Next evening I was surprised to
receive two telegrams, one from the Lord Chamberlain's office, and one
from the Kaiser, commanding my presence on the following day for dinner
at the Hubertusstock hunting lodge of the Kaiser, where I was invited to
stay until the afternoon of the second day following. I left for Berlin
on the same evening, October 16th (1901); and, together with the
Chancellor, I continued my journey the following day to Eberswalde. At
that town a special carriage conveyed us to Hubertusstock, where we
arrived after a two-hours' drive, and where I was privileged to spend
two unforgettable days in most intimate intercourse with the Kaiser. The
Chancellor had previously informed me that the Kaiser did not like the
terms of the agreement, because Metternich had told him that the
Americans would have the right to acquire 20 million marks' worth of our
shares. During an after-dinner walk with the Kaiser, on which we were
accompanied by the Chancellor and the Kaiser's A.D.C., Captain v.
Grumme, I explained the whole proposals in detail. I pointed out to the
Kaiser that whereas the British lines engaged in the North Atlantic
business were simply absorbed by the trust, the proposed agreement would
leave the independence of the German lines intact. This made the Kaiser
inquire what was to become of the North German Lloyd, and I had to
promise that I would see to it that the Lloyd would not be exposed to
any immediate danger arising out of our agreement, and that it would be
given an opportunity of becoming a partner to it as well. The Kaiser
then wanted to see the actual text of the agreement as drafted in
London. When I produced it from my pocket we entered the room adjacent
to the entrance of the lodge, which happened to be the small bedroom of
Captain v. Grumme; and there a meeting, which lasted several hours, was
held, the Kaiser reading out aloud every article of the agreement, and
discussing every single item. The Kaiser himself was sitting on Captain
v. Grumme's bed; the Chancellor and myself occupied the only two chairs
available in the room, the Captain comfortably seating himself on a
table. The outcome of the proceedings was that the Kaiser declared
himself completely satisfied with the proposals, only commissioning me,
as I have explained, to look after the interests of the North German
Lloyd.
"On the afternoon of the following day, after lunch, the Chancellor and
I returned to Berlin, this giving me a chance of discussing with the
former--as I had previously done with the Kaiser--every question of
importance. On October 18th I arrived back in Hamburg."
The negotiations with the North German Lloyd which Ballin had undertaken
to enter upon proved to be very difficult, the Director General of that
company, Dr. Wiegand, not sharing Ballin's views with respect to the
American danger and the significance of the American combination. After
Ballin, however, had explained the proposals in detail, the Lloyd people
altered their previously held opinion, and in the subsequent London
discussions, which were resumed in November, the President of the Lloyd,
Mr. Plate, also took part. Nevertheless, it was found impossible to
agree definitely there and then, and a further discussion between the
two directors general took place at Potsdam on November 13th, both of
them having been invited to dinner by the Kaiser, who was sitting
between the two gentlemen at the table. Ballin's suggestion that he and
Dr. Wiegand should proceed to New York in order to ascertain whether the
shipping companies and the American railroads had actually entered into
a combination, was heartily seconded by the Kaiser, and was agreed to by
Dr. Wiegand. The Lloyd people, however, were still afraid that the
proposed understanding would jeopardize the independence of the German
lines; but Ballin, by giving detailed explanations of the points
connected with the financial provisions, succeeded in removing these
fears, and the Board of Trustees of the Lloyd expressed themselves
satisfied with these explanations. They insisted upon the omission of
the clauses dealing with the financial participation, but agreed to the
proposals in every other respect.
The arrangements for such mutual exchange of shares were thereupon
dropped in the final drafting of the agreement, and were replaced by a
mutual participation in the distribution of dividends, the American
concern guaranteeing the German lines a dividend of 6 per cent., and
only claiming a share in a dividend exceeding that figure. This change
owed its origin to a proposal put forward by Mr. v. Hansemann, the
Director of the Disconto-Gesellschaft, who had taken an active interest
in the development of the whole matter.
In the course of the negotiations the Lloyd made a further proposal by
which it was intended to safeguard the German national character of the
two great shipping companies. It was suggested that a
corporation--somewhat similar to the Preussische Seehandlung--should be
set up by the Imperial Government with the assistance of some privately
owned capital. This corporation should purchase such a part of the
shares of each company as would defeat any attempts at destroying their
national character. Ballin, however, to whom any kind of Government
interference in shipping matters was anathema, would have nothing to do
with this plan, and thus it fell through.
Ballin thereupon having informed the Kaiser in Kiel on board the
battleship _Kaiser Wilhelm II_ regarding the progress of the
negotiations, a further meeting with the Lloyd people took place early
in December, which led to a complete agreement among the two German
companies as to the final proposals to be submitted to the American
group; and shortly afterwards, at a meeting held at Cologne, agreement
was also secured with Mr. Pirrie. The final discussions took place in
New York early in February, Ballin and Mr. Tietgens, the chairman of the
Board of Directors, acting on behalf of the Hamburg-Amerika Linie, and
President Plate and Dr. Wiegand on that of the Lloyd. Meanwhile,
Morgan's negotiations with the White Star Line and other British
companies had also led to a successful termination. Concerning the New
York meetings we find an interesting entry in Ballin's diary:
"In the afternoon of February 13th, 1902, Messrs. Griscom, Widener,
Wilding, and Battle, and two sons of Mr. Griscom met us in
conference. Various suggestions were put forward in the course of
the proceedings which necessitated further deliberations in private
between ourselves and the Bremen gentlemen, and it was agreed to
convene a second general meeting at the private office of Mr.
Griscom on the 15th floor of the Empire Building. This meeting was
held in the forenoon of the following day, and a complete agreement
was arrived at concerning the more important of the questions that
were still open. I took up the position that the combine would only
be able to make the utmost possible use of its power if we
succeeded in securing control of the Cunard and Holland American
Lines. I was glad to find that Mr. Morgan shared my view. He
authorized me to negotiate on his behalf with Director Van den
Toorn, the representative of the Holland American Line, and after a
series of meetings a preliminary agreement was reached giving
Morgan the option of purchasing 51 per cent. of the shares of the
Holland American Line. Morgan undertook to negotiate with the
Cunard Line through the intermediary of some British friends. It
has been settled that, if the control of the two companies in
question is secured to the combine, one half of it should be
exercised by the American group, and the other half should be
divided between the Lloyd and ourselves. This arrangement will
assure the German lines of a far-reaching influence on the future
development of affairs.
"On the following Thursday the agreements, which were meanwhile
ready in print, were signed. We addressed a joint telegram to the
Kaiser, informing him of the definite conclusion of the agreement,
to which he sent me an exceedingly gracious reply. The Kaiser's
telegram was dispatched from Hubertusstock, and its text was as
follows:
"'Ballin, Director General of the Hamburg-Amerika Linie, New York.
Have received your joint message with sincere satisfaction. Am
especially pleased that it reached me in the same place where the
outlines gained form and substance in October last. You must be
grateful to St. Hubertus. He seems to know something about shipping
as well. In recognition of your untiring efforts and of the success
of your labours I confer upon you the Second Class of my Order of
the Red Eagle with the Crown. Remember me to Henry.--WILHELM I.R.'
"Morgan gave a dinner in our honour at his private residence which
abounds in treasures of art of all descriptions, and the other
gentlemen also entertained us with lavish hospitality. Tietgens and
I returned the compliment by giving a dinner at the Holland House
which was of special interest because it was attended not only by
the partners of Morgan, but also by Mr. Jacob Schiff, of Messrs.
Kuhn, Loeb & Co., who had been Morgan's opponents in the conflict
concerning the Northern Pacific. During the following week the
Lloyd provided a big dinner on board the _Kronprinz Wilhelm_ for
about 200 invited guests.
"Prince Henry of Prussia was one of the passengers of the
_Kronprinz Wilhelm_ which, owing to the inclemency of the weather,
arrived in New York one day behind her scheduled time. On the day
of her arrival--Sunday, February 23rd--I had dinner on board the
_Hohenzollern_. We also took part in a number of other celebrations
in honour of the Prince. Especially memorable and of extraordinary
sumptuousness was the lunch at which Mr. Morgan presided, and at
which one hundred captains of industry--leading American business
men from all parts of the States--were present. On the evening of
the same day the press dinner took place which 1,200 newspaper men
had arranged in honour of the Prince. Mr. Schiff introduced me to
Mr. Harriman, the chairman of the Union Pacific, with whom I
entered into discussions concerning our participation in the San
Francisco-Far East business."
At the request of the American group the publication of the agreement
was delayed for some time, because it was thought desirable to wait for
the final issue of the Congress debates on the Subsidies Bill. A report
which Ballin, after some further discussion with Morgan and his London
friends had taken place, made for the German Embassy in London,
describes the situation as it appeared in April, 1902. It runs as
follows:
"(1) Acquisition of the joint control of the Cunard Line by the two
German companies and the American syndicate. On this subject
discussions have taken place with Lord Inverclyde, the chairman of
the Cunard Line. Neither Lord Inverclyde nor any of the other
representatives of British shipping interests objected in any way
to the proposed transaction for reasons connected with the national
interest. He said, indeed, that he thought the syndicate should not
content itself with purchasing 51 per cent. of the shares, but that
it should rather absorb the whole company instead. The purchase
price he named appeared to me somewhat excessive; but he has
already hinted that he would be prepared to recommend to his
company to accept a lower offer, and it is most likely that the
negotiations will lead to a successful issue, unless the British
Government should pull itself together at the eleventh hour.
"(2) Public announcement of the formation of the Combine. Whereas
until quite recently the American gentlemen maintained that it
would be advisable to wait for the conclusion of the negotiations
going on at Washington with respect to the proposed subsidy
legislation, Mr. Morgan now shares my view that it is not desirable
to do so any longer, but that it would be wiser to proceed without
any regard to the intentions of Washington. The combine,
therefore--unless unexpected obstacles should intervene--will make
its public appearance within a few weeks.
"(3) The British Admiralty. An agreement exists between the British
Admiralty and the White Star Line conceding to the former the right
of pre-emption of the three express steamers _Oceanic, Teutonic,_
and _Majestic._ This agreement also provides that the White Star
Line, against an annual subsidy from the Government, must place
these boats at the disposal of the Admiralty in case of war. The
First Lord has now asked Mr. Ismay whether there is any truth in
the report that he wants to sell the White Star Line; and when he
was told that such was the case, he declared that, this being so,
he would be compelled to exercise his right of pre-emption.
"It would be extremely awkward in the interests of the combine if
the three vessels had to be placed at the service of the Admiralty,
especially as it is probable that they would be employed in
competition with the combine. Therefore a compromise has been
effected in such a form that Mr. Morgan is to take over the
agreement on behalf of the combine for the three years it has still
to run. This means that the steamers will continue to fly the
British flag for the present, and that they must be placed at the
disposition of the Admiralty in case of war. The Admiralty
suggested an extension of the terms of the agreement for a further
period of three years; but it was content to withdraw its
suggestion when Mr. Morgan declined to accept it. The agreement
does not cover any of the other boats of the line which are the
biggest cargo steamers flying the Union Jack, and consequently no
obligations have been incurred with respect to these.
"(4) Text of the public announcement. A memorandum is in course of
preparation fixing the text of the announcement by which the public
is to be made acquainted with the formation of the combine. In
compliance with the wishes emanating from prominent British
quarters, the whole transaction will be represented in the light of
a big Anglo-American 'community of interest' agreement; and the
fact that it virtually cedes to the United States the control of
the North Atlantic shipping business will be kept in the
background, as far as it is possible to do so."
The first semi-official announcement dealing with the combine was
published on April 19th by the British Press, and at an Extraordinary
General Meeting of the Hamburg-Amerika Linie on May 28th, the public was
given some carefully prepared information about the German-American
agreement. At that meeting Dr. Diederich Hahn, the well-known chairman
of the _Bund der Landwirte_ (Agrarian League), rose, to everybody's
surprise, to inquire if it was the case that the national interests, and
especially the agricultural interests of Germany, would be adversely
affected by the agreement. The ensuing discussion showed Ballin at his
best. He allayed Dr. Hahn's fears lest the American influence in the
combination would be so strong as to eliminate the German influence
altogether by convincing him that the whole agreement was built up on a
basis of parity, and that the German interests would not be jeopardized
in any way. The argument that the close connexion established between
the trust and the American railroad companies would lead to Germany
being flooded with American agricultural produce he parried by pointing
out that the interests of the American railroads did not so much require
an increased volume of exports, but rather of imports, because a great
disproportion existed between their eastbound and their westbound
traffic, the former by far exceeding the latter, so that a further
increase in the amount of goods carried from the western part of the
country to the Atlantic seaports would only make matters worse from the
point of remunerative working of their lines.
What Ballin thought of the system of Government subsidies in aid of
shipping matters is concisely expressed by his remarks in a speech which
he made on the occasion of the trial trip of the s.s. _Blücher_, when he
said: "If it were announced to me to-day that the Government subsidies
had been stolen overnight, I should heave a sigh of relief, only
thinking what a pity it was that it had not been done long ago."
In Great Britain the news that some big British shipping companies had
been purchased by the American concern caused a great deal of public
excitement. In Ballin's diary we find the following entry under date of
June 5th:
"In England, in consequence of the national excitement, a very
awkward situation has arisen. Sir Alfred Jones and Sir Christopher
Furness know how to make use of this excitement as an opportunity
for shouldering the British nation with the burden which the
excessive tonnage owned by their companies represents to them in
these days of depression. King Edward has also evinced an
exceedingly keen interest in these matters of late, which goes to
show that what makes people in England feel most uncomfortable is
not the passing of the various shipping companies into American
hands, but the fact that the German companies have done so well
over the deal. Mr. Morgan has had an interview with some of the
British Cabinet ministers at which he declared his readiness to
give the Government additional facilities as regards the supply of
auxiliary cruisers. We are hopeful that such concessions will take
the wind out of the sails of those who wish to create a
counter-combination subsidized by grants-in-aid from the
Government."
An outcome of the German-American arrangements was that Morgan and his
friends were invited by the Kaiser to take part in the festivities
connected with the Kiel Week. The American gentlemen were treated with
marked attention by the Kaiser, and extended their visit so as to
include Hamburg and Berlin as well.
At a conference of the transatlantic lines held in December, 1902, at
Cologne, Ballin put forward once more his suggestion that a cabin pool
should be established. The proposal, however, fell through owing to the
opposition from the Cunard Line.
The depression in the freight business which had set in in 1901, and
which was still very pronounced towards the close of 1902, seriously
affected the prospects of the transatlantic shipping companies,
especially those combined in the Morgan Trust, who were the owners of a
huge amount of tonnage used in the cargo business, and whose sphere of
action was restricted to the North Atlantic route. "Experience now
shows," Ballin wrote in his notes, "that we were doing the right thing
when we entered into the alliance with the Trust. If we had not done
this, the latter would doubtless have tried to invade the German market
in order to keep its many idle ships going."
Meanwhile the Cunard Line had concluded an agreement with the British
Government by which the Government bound itself to advance to the
company the funds for the building of its two mammoth express liners,
the _Mauretania_ and the _Lusitania_, while at the same time granting it
a subsidy sufficient to provide for the payment of the interest on and
for the redemption of the loan advanced by the Government for the
building of the vessels.
Further difficulties seemed to be ahead owing to the aggressive measures
proposed by the Canadian Pacific Company, which was already advertising
a service from Antwerp to Canada. To ward off the danger threatening
from this quarter, Ballin proceeded to New York to take up negotiations
with Sir Thomas Shaughnessy, the president of the Canadian Pacific. He
went there on behalf of all the Continental shipping companies
concerned, and the results he arrived at were so satisfactory to both
parties that Ballin corresponded henceforth on terms of close personal
friendship with Sir Thomas, who was one of the leading experts on
railway matters anywhere. These friendly relations were very helpful to
Ballin afterwards when he was engaged in difficult negotiations with
other representatives of Sir Thomas's company, and never failed to
ensure a successful understanding being arrived at.
On the occasion of this trip to America Ballin had some interesting--or,
as he puts it, "rather exciting"--discussions with Morgan and his
friends. He severely criticized the management of the affairs of the
Trust, and tried to make Morgan understand that nothing short of a
radical improvement--i.e. a change of the leading personages--would put
matters right. "Morgan," he writes, "finds it impossible to get the
right men to take their places, and he held out to me the most alluring
prospects if I myself should feel inclined to go to New York as
president of the Trust, even if only for a year or two; but I refused
his offer, chiefly on account of my relations with the Kaiser."
Ballin's suggestions, nevertheless, led to a change in the management of
the Trust. This was decided upon at meetings held in London, where
Ballin stayed for a time on his way back to Hamburg. Mr. Pirrie also
took part in these meetings.
In the meantime the relations between the Cunard Line and the other
transatlantic shipping companies had become very critical. The Hungarian
Government, for some time past, had shown a desire to derive a greater
benefit from the considerable emigrant traffic of the country--a desire
which was shared by important private quarters as well. The idea was to
divert the stream of emigrants to Fiume--instead of allowing them to
cross the national frontiers uncontrolled--and to carry them from that
port to the United States by direct steamers. Ballin had repeatedly
urged that the lines which were working together under the pool
agreement should fall in with these wishes of the Hungarian Government;
but his proposals were not acted upon, mainly owing to the opposition of
the North German Lloyd, which company carried the biggest share of the
Hungarian emigrants.
To the great surprise of the pool lines it was announced in the early
part of 1904 that the Hungarian Government was about to conclude an
agreement with the Cunard Line--the only big transatlantic shipping
company which had remained outside the Trust--by which it was provided
that the Cunard Line was to run fortnightly services from Fiume, and by
which the Hungarian Government was to bind itself to prevent--by means
of closing the frontiers or any other suitable methods--emigrants from
choosing any other routes leading out of the country. Such an agreement
would deprive the pool lines of the whole of their Hungarian emigrant
business. Discussions between Ballin and the representatives of the
Cunard Line only elicited the statement on the part of the latter that
it had no power any longer to retrace its steps. An episode which took
place in the course of these discussions is of special interest now, as
it enables us to understand why the amalgamation of the Cunard Line with
the Morgan Trust never took place.
Ballin asked Lord Inverclyde why the attitude of the Cunard Line had
been so aggressive throughout. The reply was that the Morgan Trust, and
not the Cunard Line, was the aggressor, because Morgan's aim was to
crush it. When Ballin interposed that this had never been intended by
the Trust--that the Trust, indeed, had attempted to include the Cunard
Line within the combination, that Lord Inverclyde himself had also made
a proposal towards that end, and that the project had only come to grief
on account of the strong feeling of British public opinion against
it--Lord Inverclyde answered that, far from this being the case, the
Trust had never replied to his proposal, and that he had not even
received an acknowledgment of his last letter.
In a letter to Mr. Boas, the general representative of his company in
New York, in which he described the general situation, Ballin stated
that the statement of Lord Inverclyde was indeed quite correct.
The Hungarian situation became still more complicated after the receipt
of some information that reached Ballin from Vienna to the effect that
the Austrian Government intended to imitate the example set by the
Hungarian Government by running a service from Trieste. After prolonged
discussions the Austrian Government also undertook not to grant an
emigration licence to the Cunard Line so long as the struggle between
the two competing concerns was not settled.
Thereupon this struggle of the pool lines--both the Continental and the
British ones--against the Cunard Line was started in real earnest, not
only for the British but also for the Scandinavian and the Fiume
business. After some time negotiations for an agreement were opened in
London in July on the initiative and with the assistance of Mr. Balfour,
who was then President of the Board of Trade. These, however, led to no
result, and a basis for a compromise was not found until August, 1904,
when renewed negotiations took place at Frankfort-On-Main. A definite
understanding was reached towards the close of the same year, and then
at last this struggle, which was really one of the indirect consequences
of the establishment of the Morgan Trust, came to an end.
Looked upon from a purely business point of view, the Morgan Trust--or,
to call it by its real name, the "International Mercantile Marine
Company," which in pool slang, was simply spoken of as the "Immco
Lines"--was doubtless a failure. Only the World War, yielding, as it
did, formerly unheard-of profits to the shipping business of the neutral
and the Allied countries, brought about a financial improvement, but it
is still too early to predict whether this improvement will be
permanent. The reasons why the undertaking was bound to be
unremunerative before the outbreak of the war are not far to seek, and
include the initial failure of its promoters to secure the adhesion of
the Cunard Line--a failure which, as is shown by Ballin's notes, was to
a large extent due to the hesitating policy of the Hamburg company. To
make business as remunerative as possible was the very object for which
the Trust was formed, but the more economical working which was the
means to reach this end could not be realized while such an essential
factor as the Cunard Line not only remained an outsider, but even became
a formidable competitor.
It can hardly be doubted that the adhesion of the Cunard Line to the
Morgan Trust--or, in other words, the formation of a combine including
all the important transatlantic lines without exception--would have
brought about such a development of the pool idea as would have led to a
much closer linking-up of the financial interests of the individual
partners than could be achieved under a pool agreement. Under such a
"community of interest" agreement, every inducement to needless
competition could be eliminated, and replaced by a system of mutual
participation in the net profits of each line. This was the ideal at
which Ballin, taught by many years of experience, was aiming.
Over and over again the pool lines had an opportunity of finding out
that it paid them better to come to a friendly understanding, even if it
entailed a small sacrifice, than to put up a fight against a new
competitor. Sometimes, indeed, an understanding was made desirable owing
to political considerations. However, the number of participants
ultimately grew so large that Ballin sarcastically remarked: "Sooner or
later the pool will have to learn how to get along without us," and he
never again abandoned his plan of having it replaced by closely-knit
community of interest agreements which would be worked under a
centralized management, and therefore produce much better results. In
other branches of his activities--e.g. in his agreements with the other
Hamburg companies and in the one with the Booth Line, which was engaged
in the service to Northern Brazil, he succeeded in developing the
existing understandings into actual community of interest agreements,
and it seems that these have given all-round satisfaction. The
negotiations between himself and the North German Lloyd shortly before
the outbreak of the war were carried on with the same object.
Throughout the endless vicissitudes in the history of the pool the
formation of the Morgan Trust decidedly stands out as the most
interesting and most dramatic episode. At the present time the position
of the German steamship companies in those days seems even more imposing
than it appeared to the contemporary observer. To-day we can hardly
imagine that some big British lines should, one after the other, be
offered for purchase first to some German, and then to the American
concerns. Such a thing was only possible because at that time British
shipping enterprise was more interested in the employment of tramp
steamers than in the working of regular services, the shipowners
believing that greater profits could be obtained by the former method.
The result was a noticeable lack of leading men fully qualified to speak
with authority on questions relating to the regular business, whereas in
Germany such men were not wanting. The transatlantic business
threatened, in fact, to become more and more the prerogative of the
German-American combination. To-day, of course, it is no longer possible
to say with certainty whether the Cunard Line could have been induced to
join that combination, if the right moment had not been missed. The
great danger with which British shipping was threatened at that time,
and the great success which the German lines achieved, not only stirred
British public opinion to its depths, but also acted as a powerful
stimulus on the shipping firms themselves. This caused a pronounced
revival of regular line shipping, which went so far that tramp shipping
became less and less important, and which ultimately led to a
concentration of the former within the framework of a few large
organizations which exercise a correspondingly strong influence on
present-day British shipping in general. These organizations differ from
the big German companies by the circumstance that they represent close
financial amalgamations and that they have not, like the German
companies, grown up slowly and step for step with the expanding volume
of transatlantic traffic.