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

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]