TRAFFIC AGREEMENTS BETWEEN STEAMSHIP LINES AND AMERICAN RAILROADS

BY RUFUS HARDY,

Member of Congress from Texas and Member of the Committee on the Merchant Marine and Fisheries.

I am writing this article as a member of the Committee on the Merchant Marine and Fisheries, basing it on the investigation of shipping combinations under house resolution 587. Other articles published in this volume show, I feel, conclusively that, as to all trans-oceanic trade between the United States and foreign nations, all the important steamship lines are bound together and work under agreements, verbal or written, by which they not only keep down competition among themselves but effectually prevent any competition worth the name from the outside. It is well to note also that the masters of this trans-oceanic trade look with indifferent eye upon questions of national advantage or disadvantage, and upon the building up or tearing down of the commerce or merchant marine of any special nation. Transportation today is business. It will buy its ships where it can buy them cheapest, and fly the flag that pays the best.

The committee's investigation proved that the great ship lines, whether English, German, or French, adjust their freight rates, their routes of travel, and every other matter of importance in their management and operation absolutely and solely upon considerations of profit and loss to their business, and just precisely in the same way as if some impersonal, denationalized, and cold intelligence were in control. The committee found no shadow of favoritism toward or discrimination against any nationality,—no national friendship or enmity. These corporations were in perfect combination. They sit above the dividing lines of all the nations and in a realm of supernationalism rule all the seas for the sole benefit of business, their business. They nail whatever flag to their ship mast it best pays them in dollars and cents to nail there, and the ship sails whatever route and to whatever port or ports it may with most profit, and, in whatever port or under whatever flag the ship may be,

ali nationalities fare alike on board. When studied carefully it is easily understood why this should be so. Patriotism is a virtue much vaunted and paraded, and really very potent in politics, but it weighs little in corporate or individual business rivalry. The merchant buys where he can buy cheapest and sells where he can sell highest. The farmer does the same. Even in little towns the advertisement "patronize your home merchant" rarely ever induces us to pay ten cents for something we can buy for nine cents elsewhere.

On the open sea all transportation is for sale to all buyers, and in its beginning was governed by the laws of competition, just as all other business is in the beginning. Discrimination and special favors are a part of the law of competition, i.e., they grow out of competition. The only business reason for a discrimination in favor of one person or place, as against another, is a calculated benefit to the party making the discrimination. With the lessening of competition, there is a lessening of discrimination. Where there is no competition, or possibility of competition, there is no discrimination. Monopoly or perfect combination simply so conducts its business as to reap the greatest benefit for itself. Overseas transportation after a long period of evolution and growth has, by virtue of the law of survival of the fittest and because of combinations prompted by self-interest, reached the stage of practically no competition.

I shall not now ask whether that condition is better or worse for the commerce of the world than the condition of uncontrolled, unregulated, unrestricted competition. The one is simply the inevitable end of the other. But no uncontrolled monopoly has ever been, or ever will be, either moderate or just. It seems, therefore, that in the future, especially in big business, whether we are to have competition or monopoly, there must be a certain degree of regulation, restriction and control, the degree of such regulation, restriction and control being dependent upon the nature, character and magnitude of the business concerned.

There is one other general observation which I believe the evidence bears out and that is that the only discrimination now practiced in trans-oceanic transportation, continues solely because it is deemed necessary to keep down possible competition, or to add strength to existing combination.

Precisely the same motive self-interest-that brought about

the condition I have indicated in our foreign trade has acted on our coastwise and inland ship lines, and in the main with the same resultant monopoly or combination, and destruction of competition. The tendency of monopoly and combination is to reach out, to extend and enlarge itself. A business once having secured a monopoly in its own strong-hold naturally reaches out to grasp kindred or allied lines of business. The same tendency to combination that has been operating in our foreign and domestic water transportation has been operating in our railway transportation. In the latter its effects were sooner observed, and we have for a long time been trying to regulate and control it by law. Our success has not been great, but we have at least made a beginning. We have not even made a beginning in the regulation or control of combination or monopoly in water transportation. Whenever and wherever rail and water lines have come in contact or within the sphere of each other's interest there has been on the part of both that tendency to reach out, to which I have referred, a tendency to consolidate and combine the railway and ship line and unify their interests to the monopolization of the carrying business both by land and water.

It must be borne in mind that our railroads were restrained in many ways by law while the ship lines were not. The methods of obtaining the end sought, to wit, transportation monopoly or control, therefore had to be warily chosen. Direct agreements for rebates or discriminations, or pooling, or division of territory, or exclusive working arrangements, and all agreements expressly looking to the crushing of competition, were dangerous to the railroads. Nevertheless, ship lines and railroads have entered into exclusive or preferential traffic agreements. Thirty-two such agreements were brought to the notice of the committee. These agreements have brought about such an alliance between vast railway systems and important steamship lines, joined together by conferences, as would effectually prevent the establishment of any important independent ship line, and very injuriously effect any independent railway. Apparently, ship lines entering New York have only passenger agreements with the railroads; but that is sufficient for their purpose since in their

1 For a detailed discussion of these agreements see chap. 9 on "Traffic Agreement between American Railroads and Foreign Steamship Lines," pages 239-280 of the Report on Steamship Agreements and Affiliations in the American Foreign and Domestic Trade.

case the combined passenger and cargo type of steamers used by the great ship lines, because of their superabundance of cargo space, enables them to dominate the freight rate situation. Oddly enough, the very much smaller port of Galveston seems to be without agreements as to freight between her ship lines and railways. This I take it is for the same reason that exists at New York, since conference lines that enter New York have so much cargo space that they must send many ships practically empty to Galveston for return cargoes. New Orleans possibly for the same reason as Galveston seems to be in the same category. At practically all the other ports on the Atlantic, Gulf, and Pacific coasts, there are freight traffic agreements between the railways and the conference ship lines.

These agreements first gave exclusive privileges, but on account of our rate regulations and certain decisions of the Interstate Commerce Commission they were generally modified so as to state that the railroads and ship lines give only "preferential" treatment to each other. As a fair sample of such agreements I give the outline of one dated May 13, 1912, between the Munson Steamship Line and the Mobile and Ohio and Southern Railway companies relating to the service between Mobile and South American ports. All the exclusive provisions of the original agreement with their modifications are herewith presented side by side. By this and by similar agreements, varying to meet the conditions of the ports and the traffic involved, a very large proportion of our entire export and import trade is parcelled out and controlled.

TRAFFIC AGREEMENT BETWEEN THE MUNSON STEAMSHIP LINE AND THE MOBILE AND OHIO AND SOUTHERN RAILWAY COMPANIES

EXCLUSIVE PROVISIONS IN THE CON-
TRACT OF MAY 13, 1912.

(a) "The railroad companies agree to work exclusively with the steamship line in all matters of water transportation in territories outlined in Article I hereof." (Article II.)

MODIFICATION OF THESE PROVISIONS
ON OCTOBER 15, 1912.

This provision was continued in full in the modified contract, except that it was prefaced with the words: "that so far as it lawfully may, or unless compelled by legislative enactment, or order of the Commission, or judicial decree to do otherwise" the railroad companies agree, etc.

Traffic Agreement-Continued.