The term “pool” may be defined in a variety of ways, but, generally speaking, the root idea underlying its meaning is always the same, both in its application to business and to betting. A pool, in brief, is a combination of a number of business concerns for their own mutual interests, all partners having previously agreed upon certain principles as to the distribution of the common profits. In other words, it is a community of interests concluded upon the basis of dividing the profits realized in a certain ratio. I have been unable to discover when and where this kind of combination was first used in actual practice. Before the transatlantic steamship companies did so, the big trunk lines of the United States railway system are said to have used it in connexion with the westbound emigrant traffic, and possibly for other purposes also.

When Ballin wrote his memorandum of February 5th, 1886, the steamship lines must already have been familiar with the meaning of the term, for the memorandum refers to it as something well known. Ballin begins by stating that the “Conference of the Northern European Lines” might be looked upon as having ceased to exist, seeing that two parties were represented on it whose claims were diametrically opposed to each other. Whereas the North German Lloyd insisted on the right to lower its rates, the Red Star Line claimed that these rates should be raised, so that it might obtain a better differential rate for itself. A reconciliation of these mutually contradictory views, the memorandum went on to say, appeared to be impossible, unless all parties agreed upon an understanding which would radically alter the relations then existing between their respective interests; and a way leading out of the impasse would be found by adopting the pooling system proposed by the representative of the Red Star Line. If we take the number of steeragers carried to New York from 1881 to 1885 by the six lines concerned as a basis, the respective percentages of the total traffic are as follows:

It was, however, justly pointed out at a meeting of the Conference that the amount of tonnage must also be taken into account in laying down the principles which were to govern the distribution of the profits. The average figures of such tonnage employed by the six lines during the same period were:

The average of both sets of percentage figures worked out as follows:

“It would be necessary,” the memorandum continued, “to calculate each Company’s share annually on the basis of the average figures obtained for the five years immediately preceding, so that, for instance, the calculation for 1887 would be based on the figures for the five years from 1882 to 1886; that for 1888 on those for the period from 1883 to 1887, and so on. Uniform passage rates and uniform rates of commission would have to be agreed upon. To those lines which, like the North German Lloyd, maintained a service which was run by fast steamers exclusively, would have to be conceded the right to charge in their separate accounts passage money up to 10 marks in excess of the normal rates, seeing that their expenses were heavier than those of the other lines. Those Companies, however, claiming differential rates below the general ones agreed upon would have to make up the difference themselves, which was not to exceed the amount of 30 marks—i.e. they would have to contribute to the common pool a sum equal to the general rate without deduction.”

The two cardinal principles lying at the root of this proposal were (1) the assigning to each line of a definite percentage of the total traffic on the basis of the average figures ascertained for a definite period of time, and (2) the possibility of further grading these percentages by taking into account the amount of tonnage which each line placed at the disposal of the joint undertaking. This latter provision—which was known during the early stages of the movement as the tonnage clause—was intended to prevent any single line from stagnation, and to give scope to the spirit of enterprise.

The tonnage clause was not maintained for the whole time during which the pool agreement was in force. It was afterwards abolished at the instance of the North German Lloyd. This event led, in the long run, to the last big crisis which the pool had to pass through by the notice of withdrawal given by the Hamburg-Amerika Linie. When this Company proposed to considerably enlarge its steerage accommodation through the addition to its service of the three big boats of the Imperator class, it demanded a corresponding increase of its percentage figure, and, when this claim fell through owing to the opposition of the North German Lloyd, it gave formal notice of its withdrawal from the pool. Precautions taken to counteract this led to negotiations which had to be discontinued when the war broke out. Nevertheless, the pool, which was first proposed in 1886, and which came into existence in 1892, did a great deal of good. More than once, however, the agreement ceased to be effective for a time, and this was especially the case on the occasion of the struggle with the Cunard Line which followed upon the establishment of the Morgan Trust in 1903.

The secretary of the pool was Heinrich Peters, the former head of the passenger department of the Lloyd. The choice of Mr. Peters is probably not unconnected with the fact that it was he who, at a moment when the negotiations for establishing a pool had reached a critical stage, appeared on the scene with a clearly-defined proposal, so that he, with justice, has been described as “the father of the pool.” Shortly before his death in the summer of 1921 Mr. Peters wrote to me concerning his proposal and the circumstances of its adoption:—

“The history of the events leading up to the creation of the ‘North Atlantic Steamship Lines Association,’” he wrote in his letter, “was not without complications. So much so that after the Conference at Cologne, at which it had been found impossible to come to an understanding, I went to bed feeling very worried about the future. Shortly afterwards—I don’t know whether I was half awake or dreaming—the outline of the plan which was afterwards adopted stood out clearly before my mind’s eye, its main features being that each line should be granted a fixed percentage of the traffic on the basis of ‘Moore’s Statistics’ (reports issued periodically and showing the number of passengers landed in New York at regular intervals), and that the principle of compensation should be applied to adjust differences. When I was fully awake I found this plan so obviously right that, in order not to let it slip my memory, I jotted down a note concerning it on my bedside table. Next morning, when Ballin, Reuchlin (of the Holland American Line), Strasser (of the Red Star Line), and myself met again in the smoking-room of the Hotel du Nord, I told them of my inspiration, and my plan was looked upon by them with so much favour that Ballin said to me: ‘Well now, Peters, you have discovered the philosopher’s stone.’ We then left, previously agreeing amongst ourselves that we would think the matter over at our leisure, and that we should refrain from taking any steps leading to a conflict, at least for the time being. On my return to Bremen I went straight to Lohmann (who was director general of the Lloyd at that time), but he immediately threw a wet blanket over my enthusiasm. His objection was that such an agreement would interfere with the progressive development of the Lloyd. A few days later a meeting of the Board of Trustees was held at which I entered into the details of my proposal; but I am sorry to say that my oratorical gifts were not sufficient to defend it against the objections that were raised, nor to prevent its rejection. I can hardly imagine what the representatives of the other lines must have felt on hearing that it was the Lloyd itself which refused to accept the proposal which had been put forward by its own delegate, although the share allotted to it was very generous. Thus the struggle went on for another eighteen months, and it was not until January, 1892, that the principal lines concerned definitely concluded a pool agreement closely resembling the draft agreement I had originally proposed.

“The North Atlantic Steamship Lines Association was originally intended to remain in existence for the period of five years; but as it was recognized by all parties that it was necessarily a step in the dark, people had become so doubtful as to the wisdom of what they had done that a clause was added to the effect that it could be cancelled after the first six months provided a fortnight’s notice was given by any partner to it. Nevertheless, the agreement successfully weathered a severe crisis during the very first year of its existence, when the disastrous cholera epidemic paralysed the Hamburg trade and shipping.”

That this account is correct is confirmed by the minutes of the Cologne meeting of February 6th, 1890.

The British lines definitely declined in March, 1892, to join the pool. Thus the plan finally agreed upon in 1892 was subscribed to by the Continental lines alone, with the exception of the French line. In contrast with previous proposals, the eastbound traffic was also to be parcelled out by the lines forming the pool.

This so-called North Atlantic Steamship Lines Association, the backbone of the later and greater pool, was built up on the following percentages:

These percentages were subject to the effect of the tonnage clause by which it was provided that 50 per cent. of the tonnage (expressed in gross registered tons) which any line should possess at any time in excess of that possessed in 1890 should entitle such line to an increase of its percentage.

It has already been stated that Mr. Heinrich Peters was appointed secretary of the pool. He, in compliance with the provision that the secretariat should be domiciled at a “neutral” place, chose the small university town of Jena for his residence. Thus this town, so famous in the literary annals of Germany, became, for more than twenty years, the centre of an international organization with which few, if any, other places could vie in importance, especially since the four lines which had just concluded the original pool were joined, in course of time, by the British lines, the French line, the Austrian line, and some Scandinavian and Russian lines as well. Later on a special pool was set up for the Mediterranean business which, in addition to the German, British, and Austro-Hungarian lines, also comprised the French Mediterranean, the Italian, and the Greek lines, as well as one Spanish line. The business of all these lines was centred at Jena.

Of considerable importance to the smooth working of the pool was the court of arbitration attached to its organization. On account of the prominent position occupied by the German companies, German law was agreed to as binding for the decisions, and since at the time when the pool was founded, Germany did not possess a uniform Code of Civil Law for all parts of the Empire, the law ruling at Cologne was recognized to be applicable to such purposes. Cologne was the city at which the establishment of the pool was decided upon, and there all the important meetings that became necessary in course of time were held. The chairman of the Cologne Association of Solicitors was nominated president of the arbitration court, but later on this office devolved on President Hansen, a member of the Supreme Court for the Hanseatic cities, who filled his post for a long term of years—surely a proof of the confidence and esteem with which he was honoured by all parties concerned. Numerous awards issued by him, and still more numerous resolutions adopted at the many conferences, have supplemented the original pool agreement, thus forming the nucleus of a real code of legislation affecting all matters dealing with the pool in which a large number of capable men drawn from the legal profession and from the world of business have collaborated.

The knowledge of these regulations gradually developed into a science of its own, and each line had to possess one or more specialists who were experts in these questions among the members of its staff. I am sure they will unanimously agree that Albert Ballin surpassed them all in his knowledge of the intricate details. His wonderful memory enabled him, after a lapse of more than twenty years, to recall every phase in the history of the pool, so that he acquired an unrivalled mastery in the conduct of pool conferences. This is abundantly borne out by the fact that in 1908, when negotiations were started in London for the establishment of a general pool—i.e. one comprising the whole of Northern Europe, including Great Britain—Ballin, at the proposal of the British lines, was selected chairman of the conference which, after several critical phases had been passed through, led to a complete success and an all-round understanding.

In 1892 the normal development of business was greatly handicapped by the terrible epidemic of cholera then raging in Hamburg. For a time the United States completely closed her doors to all emigrants from the Continent, and it was not until the following year that conditions became normal again. Nevertheless Ballin, in order to extend the various understandings between the Northern European lines, took an important step, even before the close of 1892, by falling back upon a measure which he had already once employed in 1886. His object was to make the British lines more favourably inclined towards an understanding, and to this end he attacked them once more in the Scandinavian business. The actual occasion which led to the conflict was that the British lines, owing to differences of opinion among themselves, had given notice of withdrawal from the Hamburg agreement and from the Hamburg clearing house. This gave the Packetfahrt a free hand against its British competitors, and enabled it to carry as many as 2,500 Scandinavian passengers via Hamburg in 1892. The position of the Packetfahrt during the ensuing rate war was considerably improved by the agreement which it had concluded with the Hamburg agents of the British lines, who, although their principals had declared their withdrawal from the pool, undertook to maintain the rate which had been jointly agreed upon by both parties.

Some time had to elapse before this move had its desired effect on the British lines. Early in 1894 they declared themselves ready to come to an understanding with the Continental lines on condition that they were granted 7 per cent. of the Continental traffic (in 1891 they had been offered 14 per cent.), and that the Packetfahrt was to discontinue its Scandia Line.

This general readiness of the British companies, however, did not preclude the hostility of some of their number against any such agreement, and so the proposal fell through. The proposed understanding came to grief owing to the refusal of the Cunard Line to join a Continental pool at the very moment when the negotiations with the British lines had, after a great deal of trouble, led to a preliminary understanding with them. A letter which Ballin received from an English friend in January, 1894, shows how difficult it was to make the British come round to the idea of a pool. In this letter it was said that the time was not ripe then for successfully persuading the British lines to join any pool or any other form of understanding which would necessitate agreement on a large number of details. All that could be expected to be done at the time, the writer continued, was a rate agreement of the simplest possible kind, and he thought that if such an understanding were agreed to and loyally carried out, that would be an important step forward towards arriving at a general agreement of much wider scope.

To such vague agreements, however, the Continental lines objected on principle, and the opposition of the Cunard Line made it impossible to agree upon anything more definite. Thus the struggle was chiefly waged against this line. The Continental lines were assisted by the American Line, which had sailings from British ports, and with the management of which Ballin had been on very friendly terms ever since the time when he, as the owner of the firm of Morris and Co., had worked for it. After the conflict had been going on for several months, it terminated with a victory of the Continental lines. Thus the road was at last clear for an attempt to make the whole North Atlantic business pay.

The first step in that direction was the conclusion, in 1896, of an agreement concerning the cabin business. The Packetfahrt’s annual report for that year states that the results obtained through the carrying of cabin passengers could only be described as exceedingly unfavourable, considering that the huge working expenses connected with that kind of business had to be taken into account. Nevertheless, this traffic, which had reached a total of more than 200,000 passengers during the preceding year, could be made a source of great profit to the companies if they could be persuaded to act in unison. The agreement then concluded was at first restricted to the fixing of the rates on a uniform scale.

Both these agreements—the one dealing with the steerage and the one dealing with the cabin business—were concluded, in 1895, for three years in the first instance. In May, 1898, discussions were opened in London, at which Ballin presided, with a view to extending the period of their duration, and these proceedings, after a time, led to a successful conclusion, but in June, Ballin again presiding, the desired understanding was reached. A few weeks later an agreement concerning the second cabin rates was also arrived at, and towards the close of the year negotiations were started with a view to the extension of the steerage agreement. In 1899 the pool was extended to run for a further period of five years, under percentages:

To the Packetfahrt these new percentages meant a step forward, although the omission of the tonnage clause was a decided hindrance to its further progress.

The next important event in the development of the relations between the transatlantic lines was the establishment of the so-called Morgan Trust and the conclusion of a “community of interest” agreement between it and the German lines.