Appendix — United States v. Union Pacific R. Co.

APPENDIX

CONTENTS

The so-called Portland Route......-+-sseerrersseeree

Differential argument of Mr. Stubbs......--+eeeeres

Portland as a common-point....-----+-sresrrrrrretts

Willamette Valley business.......--+--+crrrereetrnt’

Closing of Roseville Gateway..-.---++++rrrrrrrerere®

Asiatic business through Portland.....---++++++++++**

Eastern Oregon and Washington, Idaho and Montana.

Local business between San Francisco and Portland...

Northern Pacific stock purchase as an aspect of the

Burlington struggle....--..+seeererr errs st tt

Mr. Kahn’s testimony......----e+ssereerecsrttssteee

Santa Fe stock purchase.....----+s+eeersessesesree®

Phoenix and Easterm.....----c.e+-+ sesecsesessreee”

Joint Construction of the San Pedro line....-.--++-+--

4

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THE SO-CALLED PORTLAND ROUTE.

Much of the testimony for the complainant in this

case was first delivered before the Interstate Commerce

Commission, and afterwards read into this record by

complainant, the defendants consenting, as will appear

by the numerous stipulations scattered through the

transcript. One of the witnesses examined by com-

plainant before the Interstate Commerce Commission

vas Mr. J. M. Hannaford, Vice-President in charge of

iraflic of the Northern Pacific (p. 4811), whose testi-

mony was left out by complainant in the presentation

of its case. The defendants, availing themselves of the

stipulation, read that testimony as part of their case.

Mr. Hannaford tells of the Northern Pacific’s failure

to make a route to San Francisco through Puget Sound

and the Pacific Ocean, and fully bears out Mr. Stubbs

as to the contrasted and distinguishing features of the

Sunset Route. He was asked concerning the circum-

stances that he had a water haul at the western end of

his line while the Sunset had it on the eastern end

(p. 4821):

“CQ. You have the water haul at the western end,

and the other people have the water haul on the east-

ern end?

“A. Well, yes, but the advantages of the Southern

Pacific Sunset Route on San Francisco business are

very great. There is the water competition, they can

iake their business in New York, gather it up from

the various producing points in New England and

New Jersey and adjacent to New York, take it

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PANE TS HIE

2

into their warehouses in New York, and _ put

it all on to one steamer, and have it all reach

New Orleans or Galveston at one time. I have un-

derstood—it may be good service—but I have under-

stood it was lack of facilities that forced them to

take that business right off that very day and send it

up to San Francisco in special trains, but unfortunately

the all-rail routes cannot equal that service on 6,000

tons of freight that is ready to go on the same day.

This whole 6,000 tons on the Sunset Route gets there

at one time. If it was not for that service all under

one control, I should feel quite like opening the line

that you mentioned from Buffalo to the Puget Sound,

to the water and down to San Francisco, but I cannot

do it because I have got to depend on a lot of lines

between Buffalo and St. Paul to do that same service

that they do with their boat direct to New Orleans.

“(), It is because of the superiority of the route and

the superiority of the service that there is not active

competition between the Northern Pacific and the Sun-

set, for San I‘rancisco business ?

“A. We cannot equal that service.

“CQ. How long since you have tried?

“A. Oh, off and on for twenty years. Every time

that the boat service on the Pacific has been a little

better, we thought we could get in and do some of it,

but we have failed almost every time. We do some

business down there, enough so that we are mentioned

in the expenses of weighing, and so torth, but not very

much.”

3

The reference by Mr. Stubbs to the frequent sailings

of the Sunset ships as being importantly related to the

jocal, non-competitive traffic of the Sunset line—local

and non-competitive, in the sense that the Union Pacific

does not reach the territory even as a connecting line

of the Southern Pacific,—is borne out by the testimony

and detail of Mr. Spence. He points out that the Sunset

is engaged in traffic between the Atlantic Seaboard

territory and Mississippi, the east coast of Central

America, Louisiana, Arkansas, Texas, Oklahoma, Mex-

ico, New Mexico and Arizona; that the Union Pacific

has never engaged in any of this traffic to or from any

of these territories, and could not; that while 37.31

per cent of the Sunset tonnage for the fiscal year end-

ing June 30, 1898, was represented by the California

Lusiness, and for the fiscal year ending June 30, 1900,

34.79 per cent—regarding both directions, to and from

—(pp. 3996, 3997), the tonnage attributable to these

various territories which the Union Pacific does not

cerve—to and from—was 60.21 per cent for the fiscal

year ending June 30, 1898, and 60.46 per cent for the

fiscal year ending June 30, 1900 (p. 3990).

“Q, What effect has this large percentage of business

to the southern and southwestern territory, that you

have mentioned, distributed by the Sunset Route, had

upon the number and frequency of the sailings of the

ships ?

“A The volume of the traffic to and from the south-

western territory described, is what has enabled

the Sunset line to maintain sufficiently frequent sailings

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4

between New York and the Gulf to remain an impor-

tant factor in the California business.

“Q. In respect to California business, including busi-

ness to Los Angeles and interior points, not avail-

able to the Portland Route, but excluding all that busi-

ness [meaning this southwestern territory business],

to what extent would the California business of itse/f,

without regard to this southern and southwestern busi-

ness have been able to sustain the sailings of the Mor-

gan line?

“A. The California business would not have sup-

ported more than one-third of the steamship service

that is in operation between New York and the Gulf

—our steamship service.”

Mr. J. A. Munroe has been connected with the

Traffic Department of the Union Pacific since 1882, as

Assistant General Freight Agent, General Freight

Agent, Assistant General Traffic Manager and Freight

Traffic Manager (p. 4037). He testifies concerning

the so-called Portland Route. “The Union Pacific of-

ficers,” he says,—‘“‘and they changed quite frequently

about those years as you may know—considered very

carefully the question of opening the Portland gateway,

so-called, for the handling of San Francisco traffic ; and

the conclusion always reached was that it would be an

unprofitable route for the Union Pacific, hence it was

not opened.

“Q. What were the objections to the route?

5

“A. A serious objection, first, was the length of the

line: Portland is substantially the same distance from

Omaha as San Francisco is. The sailings from Port-

land south, one in about every five days, enabled con-

tinuous service only when by happenstance (sic) the

train might make direct connection with the ship. On

the great bulk of the freight, there would be a several

days’ delay at Portland. The service south from Port-

land would have to be also added. And the combina-

tion, we felt, would virtually drive away rather than

increase our takings. Furthermore, we recognized that

San Francisco business was practically all that would

be available to that route. We were not unmindful

of the fact that water did extend to Sacramento. But

when we went by water to Sacramento our service

was longer than to San Francisco, and we were com-

peting with a correspondingly shorter rail service. As

to Stockton, we never considered very much that the

business justified anything of that kind. So all of our

conclusions were that it was a San Francisco proposi-

tion practically, pure and simple. And even after we

should get to San Francisco, we would be handicapped

to the extent of delays in moving the freight from the

pier to warehouses, especially when the same were

located upon rails of the Southern Pacific and served

directly by that company. The Southern Pacific was

the only connection we had for our California business

at that time; and the value of our California business

was very much greater on other than San Francisco

than on San Francisco proper business. We also bore

in mind that we had quite a movement of perishable

freight that under no circumstances could be success-

AERO ART SERRE We EAE AERIS AEN ¥

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POLI PONT

6

fully handled via Portland. Then we also tried to view

the matter from the standpoint of the Southern Pacific

as well as ourselves, and we felt that any move we

might make along those lines would be regarded as a

hostile one by the Southern Pacific, and that they would

naturally retaliate, and that they were in a position to

do this very successfully, and could and would, we

believed, make the experiment a very costly one for

the Union Pacific. ‘Those were the reasons which ap-

pealed to us then, and which would today; that the

service via Portland, being necessarily inferior, the

competitors of the Union Pacific, notably those operat-

ing via Kansas City and Albuquerque (the Santa Fe

System), those in territory nearer to us (notably the

C., B. & Q. and the D. & R. G.), via Ogden and

Southern Pacific, would be able to also profit by our

experiment. So it was a knife that would cut both

ways.

“Q. A great deal has been suggested in this case to

the effect that the possession of this boat line from

Portland to San Francisco was a great big club which

could be used to enforce more favorable terms from

the Southern Pacific. I would like your judgment as

to the effectiveness of that club?

“A. There might be that view taken of it. But the

fact of the matter is, as far as divisions, joint, as be-

tween the Southern TPacific and Union Pacific, they

were on a basis as originally established when the

roads were opened in 1869; and we never felt that

they were unjustly excessive as far as the Southern

7

Pacific was concerned, and we saw no necessity of

swinging a club, when there was no injustice to be

removed, and we were satisfied to have the divisions

remain as they were. We did not have any differences.

Furthermore, it was a club which, if swung, would

come right back and prove a boomerang with us and

cost us more than it was worth.

“Q. Please explain how it would prove a boomerang

and how it would cost you more than it was worth?

“A. In the first place, we could not open that route

without probably a change of rates. We were satis-

fied we could not do any business on anything but a

differential basis. We were satisfied that a differen-

tial basis would be unprofitable; that any basis we

might seek to put in via Portland would be duplicated

by our competitors through Ogden, and that simply

would be the means, as it were, of committing suicide

with our own revenue; and we recognized that we were

trying to use a tool that was not sharp enough to do

the business—that we were handicapped geographi-

cally, and that there was nothing we could do via that

round-about broken-service gateway that would really

prove a money-making proposition to our company.

“Q. If the Union Pacific had attempted to use that

sort of a club, what sort of a club could the Southern

Pacific have used in return?

“A Their influence with their patrons, both con-

signors and consignees, to deflect from Union Pacific

rails, more especially to the D. & R. G. and connec-

LASER ARTES

SDI

8

tions, business which without their effort would prob-

ably move via Union Pacific rails.

“(. To what extent could traffic have been deflected

to the Rio Grande by the Southern Pacific, in the event

of hostilities such as we have assumed?

“A. Very largely.

“Q. To what extent would it have affected the reve-

nues of the Union Pacific?

“A. In my judgment it would have diminished the

revenues of the Union Pacific far beyond any profit, if

they had realized via Portland to San Francisco their

most sanguine expectations in the taking of San Fran-

cisco traffic’’ (pp. 4039-4041).

This “great big club” (7) or “stick” figured in a

somewhat interesting passage-at-arms between Mr.

Munroe and his cross-examiner, in which, although

the “stick’” was supplemented by a razor, happily no

blood was spilt. Mr. Munroe is asked:

“(). It was something of a weapon, however; in

fact you say it was a strong weapon?

“A. Why, it was a weapon in the same sense that a

razor in your hand would enable you to suicide if you

wished to do so.

“Q. Is that the only way in which a—

“A. In my judgment, that is the only way in which

the weapon would have been effective. It would have

killed us.

9

“Q. Wouldn't it have injured the Southern Pacific

at the same time? If I take a razor and kill myself,

i+ doesn’t hurt you, except as you are a friend of mine

and do not like to see me do it?

“A You must not ask me before vou do it, then.

“Q. That is it exactly, that is what I wanted to

develop.

“A I was the fellow that was holding the razor”

(p. 4083).

Mr. Munroe was also asked: “State whether or not

during the time that you were connected with the Traffic

Departments of these allied lines, the Union Pacific,

Oregon Short Line and Oregon Railroad & Navigation

Company,—business for San Francisco was ever routed

or handled via Portland and the boat line from Port-

land to San Francisco, that is, from points on the

Union Pacific and east thereof?

“A. Practically not. Once in a while a shipment

moved that way, but it was so spasmodic as to justify

a negative answer to your question” (Pp. 4039).

Mr. G. W. Luce, General Freight Agent of the South-

ern Pacific Company, of long and varied experience as

a traffic man, was General Agent of the Union Pacific

Freight Department at San Francisco from September

1, 1891, until November 20, 1894 (Pp. 4543). He tes-

tifles :

“Q. You say that at the time you were the agent of

the Union Pacific at San Francisco, the steamers were

plying between Portland and San Francisco?

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10

“Q. During that time was the route by the way of

the Union Pacific to Portland, and thence to San Fran-

Cisco by steamship, operated as a transcontinental

route?

“A. Not at any time.

“Q. Did you ever attempt as Freight Agent of the

Union Pacific to work any business that way?

“A. Not at all, no, sir.

“Q. So far as the Union Pacific transcontinental

business from San Francisco was concerned, how did

that business go and how did you work it?

“A. Always via Ogden in connection with the South-

ern Pacific Company.

“Q. Did you ever know of any shipments, while

you were the agent of the Union Pacific at San Fran-

cisco, to go by that route—the ocean and Portland and

the Union Pacific?

“A. No, sir, I did not.

“Q. What was the situation jn respect to that same

route in the years 1900 and Igo1?

“A. Precisely the same.

“Q. And since 1900 and 1901, how has the business

moved—the Union Pacific business ?

11

“A. Always through Ogden by the Southern Pacific

Company.

“Q. And the eastbound business, how did that move?

“A. The Southern Pacific through Ogden and the

Union Pacific.

“(). Some of that business moved, did it not, also

D. & R. G., and about what percentage did the busi-

ness divide in 1900 and 1901?

“A. I should say 70 and 30—7o per cent to the

Union Pacific and about 30 per cent to the Denver &

Rio Grande.

“Q. Since 1901 how has the business divided at

Ogden between the Union Pacific and D. & R. G.?

“A. You mean recently?

“O. Yes.

“A. 90 per cent to the Union Pacific and about 10

per cent to the Denver & Rio Grande.”

Mr. B. Campbell, like Mr. Hannaford, one of the

witnesses called by complainant at the hearing before

the Interstate Commerce Commission, but whose testi-

mony there given was read into this case by the defen-

dants, had been General Freight Agent and Traffic

Manager of the Oregon Railroad & Navigation Com-

pany for 15 years, and, at the time he testified, was

Vice-President of the Great Northern in charge of

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traffic (pp. 4832-3). He was asked concerning this

Portland Route:

“Q. What is the result via that line, Mr. Camp-

bell?

“A. Nothing, our eastern business; I don’t know

that we handle even any Montana business that way.

I guess they are practically—I guess the business is

practically ni/ via that route” (p. 4853).

And again:

“Q. Do you know whether that line made up of the

Union Pacific and the Oregon Short Line and the

O. R. & N. to Portland, and thence via boats to San

Francisco, ever competed at any time prior to 1901?

“A. They did not.

“Q. Competed for business with the Southern Pa-

cific for California points?

“A. It did not.

“Q. Why, Mr. Campbell?

“A. It was an impracticable route at even rates, and

the Union Pacific, to open such a route, would stand to

lose more from diversion of business that the Southern

Pacific or Central Pacific could make to its competitors,

than it would gain by opening the Portland Route.

“Q. If you were in charge of the traffic of the Union

Pacific and the Oregon Short Line and the O. R. &

13

N., and were working in the interest of these lines

alone, without any regard to the interest of the South-

ern Pacific lines, how would you work that business ?

“A. Tf I was in charge of all?

“Q). If you were in charge of the traffic of the Union

Pacific and the O. R. & N. and Oregon Short Line, and

without any interest at all in the Southern Pacific

Company?

“A T would work it by way of Ogden.

“Q. You would consider it to the interest of your

lines to manage it that way, wouldn’t you?

“A. Yes.

“Q. Would it be practically suicidal from the rail-

road standpoint to try to work that business by way

of Portland?

“A [ should think so, yes, sir.

“Q. It has always been worked by way of Ogden

ever since you have known those lines, hasn’t it?

“A. Yes” (p. 4854).

Mr. Campbell does not appear to have thought much

of the “stick” argument, and his views as to the con-

trasted advantages of the Sunset rail and water route

are in line with those of Mr. Hannaford and the other

witnesses (pp. 4860-4861; 4861-2; 4863-4).

ete ERATE

14

Mr. Fred F. Connors, a witness for complainant, was

General Agent of the Oregon Railroad & Navigation

Company at San Francisco, from July, 1894, until Feb-

ruary, 1898. He is no longer in the railroad service

(pp. 2899-2900). From November, 1892, to July 27,

1894, he represented the Chicago, Milwaukee & St.

Paul at San Francisco. During this time the Iowa

lines, the Northern lines, the Missouri Pacific, Denver

& Rio Grande, and Texas & Pacific had representatives

here. He was asked:

“©. Which of these lines east of the Rocky Moun-

tains, we will say, like the St. Paul, the Northwestern,

the Burlington, the Rock Island, were actively working

freight by way of Ogden?

“A. All of them.

“Q. You worked all that you could by way of the

Union Pacific and Southern Pacific, didn’t you, Mr.

Connor ?

“A. Yes, sir, that is the on/y outlet that I had, you

know” (p. 3931).

Again:

“Q. The fact is that the Chicago, Milwaukee & St.

Paul, the Chicago & Northwestern, the Union Pacific,

the Burlington, the Rock Island, the Missouri Pacific

and the Denver & Rio Grande were all actively work-

ing during that time for Pacific Coast business by way

of Ogden, weren't they?

“A. Yes, sir.

“Q. Everything that they controlled for California

naturally passed over the Southern Pacific by way of

Ogden, didn’t it?

“A. That was their open [only?] gateway” (p.

2033).

Again:

“Q. With all of these lines working for the South-

ern Pacific by way of Ogden, there wasn’t very much

occasion for the Southern Pacific to be working it that

way, Mr. Connor?

“A. I don’t know.

“Q. You were all doing all you could to get business

that way, weren’t you?

“A. We were all working for our own line.

“Q. Yes, but incidentally for the Southern Pacific ?

“A. Incidentally we had to give it to the Southern

Pacific; we couldn’t get around that” (p. 2934).

Mr. Robert G. Graham, for the last six or seven years

in the roofing-slate business at Oakland, California.

who had been Freight Solicitor for the Southern Pa-

cific and afterwards for the Rio Grande—chiefly in San

Francisco—on being called as a witness by complain-

ant, testified:

PLIES AF ERB GED

16

“Q. You understood that whatever business the

Union Pacific solicitors secured for California passed

over the Southern Pacific to San Francisco, didn’t you?

“A. Yes” (p. 2963).

Mr. H. W. Adams, Traffic Manager for the Pioneer

Fruit Co., at Sacramento, California,—one of complain-

ant’s witnesses

had been Commercial Agent for the

Rock Island at San Francisco for a number of years,—

since 1891, until he became Traffic Manager of this

Fruit Company about a year before he was called as

« witness (p. 2963). He was asked:

“(). Have you ever made any comparison, based on

accurate data, as to service, time and other concomit-

ants of railroad traffic between the boat line, New York

to New Orleans, thence to California, and the rail line

Union Pacific to Portland and boat line down to San

Francisco ?

“A. No, sir, I have never made any.

“(). Now, let me ask you this question: Suppose

there was a rail line from Chicago to San Francisco.

Let us take as direct a rail line as we can get—the

Northwestern from Chicago to Omaha, the Union Pa

cific from Omaha to Ogden, and the Southern Pacitic

irom Ogden to San Francisco. You are very familiar

with that route?

“A. Yes, sir.

“(). Now suppose there was another route, the route

that Mr. Severance speaks of: The Northwestern,

17

again, to Omaha, the Union Pacific from Omaha to

Ogden, and the Union Pacific from Ogden to Portland

with a boat line down to San Francisco; and suppose

those two lines were competing for San Francisco busi-

ness, and that was all the business they had to keep

them alive; how long do you think that roundabout

road by Portland and the water would last against the

all-rail line?

“A. If they were dependent upon my business they

wouldn't last.

“Q. You never heard of any business moving from

California to points east of the Missouri River by way

of the Union Pacific and Portland and the boat line

irom San Francisco to Portland, did you, Mr. Adams?

“A. I don't recall ever having heard of any.

“(Q. During all the time you were engaged in work-

ing this transcontinental business you never knew any

to move that way, did you?

“A. I don’t recall any.”

Mr. Lovetr: “I have asked every witness on the

stand so far, I believe, that question—”

Mr. SEVERANCE (interrupting): “We have found

some.”

Mr. Loverr: “—but never found one who knew of

it except one witness at Portland, and it turned out

finally that the amount he knew to move that way was

SRNR |

18

on account of cars that they could not bring through

the snow sheds and tunnels on the Southern Pacific.”

Mr. SEVERANCE: “It was on account of the inefficient

(7) line that the Southern Pacific maintained over

there” (pp. 2971-2).

Mr. A. D. Shepard, called for complainant, is the

General Manager of the Pacific Improvement Co. of

San Francisco. He had been Local Freight Agent,

Assistant General Freight Agent and General Freight

Agent of the Southern Pacific Company, in California,

from 1874 to 190! (p. 3039). He testifies:

“QO. With reference to this boat line of the Union

Pacific by way of Portland, isn’t it true that during

your whole connection with the Southern Pacific, you

never knew of the Union Pacific to attempt to work

California business from the east by Portland and the

boat line? .

“A. I never heard of an instance of the Union Pa-

cific trying to handle transcontinental freight by Port-

land. It may be possible some shipments came that

way, but [ was not very familiar with that route [al-

though he had been in the freight service from 1874

to 1901], and I never looked upon it and never so con-

sidered it as a transcontinental factor.

“QO. Why not?

“A. Because it was an out-oi-the-way route, it was

an unnatural route” (p. 3047).

19

Charles Clifford of San Francisco, also a witness for

complainant, had formerly been in the Traffic Depart-

ment of the Union Pacific—at Omaha and Council

Bluffs up to 1892, in the local office, then in the Gen-

eral Freight Office at Omaha; afterwards, General

Agent for the Union Pacific at Cincinnati, and, next,

for a time, General Agent of the Union Pacific at San

Francisco (pp. 2980, 2984). As to the competitive

business between the east and California, he was asked:

“Q. Could any of this competitive business reach its

final destination, assuming that the Union Pacific got

a share of the haul, without passing over the Southern

Pacific ?

“A. No.”

Further:

“Q. Were you ever instructed to solicit business by

that route? [Portland Route].

“A. No, we had no rates or divisions that way.

“Q. How many years did your service in this com-

petitive territory cover?

“A. Here in San Francisco?

“Q. Both in San Francisco and in Cincinnati, and

the General Office at Omaha?

“A. About 25 years.

“Q. During these 25 years, do you know of any

business solicited by the Union Pacific from this ter-

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20

ritory north and south of the Ohio River that went

by the circuitous route, Portland, trans-shipped at Port-

land to boat, and taken by the boats to San Francisco?

“A. Not by the O. R. & N. boats, no.

“Q. Do you know of any through business in this

territory that went that way, so far as you were con-

cerned ?

“A. Except an occasional car that was iis-routed, I

presume.”

Mr. SEVERANCE: “What is that?”

“A. An occasional mis-routed car.

“Q. Can you tell me why it was that none of this

freight from this territory, during all these years, ever

went by that rail and water route, via Portland and

the ocean?

“A. Well, it was not a natural route.

“Q. Do you consider it a practicable railroad route?

“A. No, I do not” (pp. 2989-2990).

The testimony might be multiplied tediously, in-

definitely.

DIFFERENTIAL ARGUMENT OF MR. STUBBS.

The Canadian Pacific, as Mr. Stubbs showed in his

argument against the differential, had a line from

Minneapolis, in the United States, into Canada, and

through and across the Canadian territory to Vancou-

21

ver on the Pacific Coast. The Great Northern, the

Northern Pacific, and the Union Pacific had their

lines to the Pacific Coast—the Great Northern and the

Northern Pacific from Minneapolis, with their coast

terminals at Seattle and Tacoma respectively, and the

Union Pacific from Omaha with its coast terminal at

Portland. ‘The difference in distance, as between any

two of the lines, Canadian and American, was not sig-

nificant. ‘The connecting lines from the Atlantic sea-

board and the interior, east of Minneapolis, were open

as well to the Canadian Pacific as to these American

lines (argument of Mr. Stubbs, pp. 2124-2125). The

same disadvantages of broken service, which impaired

the efficiency of the Canadian line for California busi-

ness, affected the American lines as well. If special dis-

ability was alleged by the Canadian line, in the event

that it should take New England business by way of

Montreal instead of Minneapolis, could it plead that

disability, as ground for a differential, when the same

connections, from New England to Minneapolis,

availed of by the American lines, were equally at its

disposal. “Tf it elects to use that line,” said Mr. Stubbs,

in speaking of this Montreal gateway, “and if it can

establish that it suffers disability by using that line

east of Minneapolis, does it not create the disability ;

and, if it creates the disability, can it come to the

Northern Pacific and Great Northern and ask them to

compensate it for a disability of its own creation by a

money advantage?” (p. 2124). The position of the

Canadian line was not persuasive, and Mr. Stubbs was

quick to see it. The transcontinental rate to San Fran-

cisco was fixed by the direct line which really did the

SPERM ENS g

22

business, by the Union Pacific-Southern Pacific line

through Ogden. This was the standard rate. The

Northern Pacific, in 1888, had been conceded the right

to a differential, “but it long ago fell into disuse: the

Northern Pacific found it would not work, for imme-

diately upon the suggestion of the proposition, the

Oregon Railway and Navigation Company came in and

wanted the same advantage. Since then the Great

Northern has been completed. Give the Northern

Pacific a differential, and can you withhold it from the

Great Northern? Give it to the Great Northern and

Northern Pacific, and how can you withhold it from

the Oregon Short Line and Union Pacific?” (argument

of Mr. Stubbs, p. 2130). And Mr. Stubbs goes on to

inquire, what would the all-rail lines do—what would

become of this differential? The rate would be cut

all the way down the line, he says. “Let the rate be

cut on the Great Northern, and it goes down to the

Gulf of California.” And again: “An attempt to in-

troduce differentials among American lines will result

in no difference at all in rates. All-rail lines and mixed

rail and water lines will all be upon exactly the same

footing” (argument of Mr. Stubbs, pp. 2130-2131).

And upon an equality of rates, it was conceded by the

Canadian Pacific, indeed, it was insisted as a reason

for the differential, that it would be out of the busi-

ness. “If like physical features,” argued Mr. Stubbs,

“are found to subsist with one or more of the Ameri-

can lines in the same or approximately the same de-

gree, then in respect to them the Canadian line is under

no disadvantage compared with the American line or

lines possessing substantially the same physical fea-

23

tures and is not entitled to a differential under their

rates. If it is not entitled to a differential against some

of the American lines, it is not entitled to a differ-

ential against any of them—for this is the submission

in this case: Is the Canadian line entitled to a dif-

ferential under the rates of the other lines? Not under

the rates of one or some of the other lines, but against

all of them. The other lines, the American lines, stand

as a unit, as opposed to the claim of the Canadian line”

(p. 2121).

It was the inferiority of the Canadian line in serving

transcontinental business to San Francisco, its inability,

not its ability, to compete with the standard line under

normal circumstances of competition, its avowed in-

efficiency in the comparison, upon which the Canadian

’acific pivoted the claim for a differential which Mr.

Stubbs was attacking. It was making a virtue of its

own weakness. In establishing its own Incapacity for

normal competition with the Standard line, the Union

Pacific-Southern Pacific through Ogden, it was estab-

lishing, and Mr. Stubbs so argued, the parallel in-

capacity, as well of the Union Pacific’s Portland line

as of the lines through Seattle and ‘Tacoma of the

Great Northern and the Northern Pacific. “It simply

avers,” said Mr. Stubbs in his argument, “that it

presents certain physical characteristics which, when

contrasted with the physical characteristics of the

American lines, are objectionable to the shippers; that

if these objectionable physical features are not in some

way counterbalanced, it cannot participate in the sub-

ject traffic’ (p. 2119). And again: ‘The Canadian

24+

line sets forth, as we have said, certain physical char-

acteristics alleged to subsist with its line, which it

denominates as disadvantages or disabilities, to coun-

terbalance which it clainis the right to an artificial

advantage over the American lines in the shape of a

differential” (p. 2120). These same disadvantages

and disabilities Mr. Stubbs showed to be inherent in

the American rail and water lines, of which the Union

Pacific by way of Portland and the Ocean, was a

case in point. And when Mr. Stubbs, in forcing his

contention that if the Canadian line should have a

differential, so, too, should these American lines, made

the point that these lines had “elected to work upon

an equality as to rate with the all-rail lines, regardless

of the result upon the volume of tonnage open to their

competition” (p. 2128), he was not putting upon the

effectiveness of the American lines a transcontinental

complexion. If those lines, he argued, did not exist

merely on paper, if they worked business effectively

«gainst the all-rail lines, this was for a local reason,

on local business, and not because of transcontinental

considerations. ‘These American mixed rail and water

lines,” said he, “do not exist merely on paper, they

are open and in daily use for both freight and pas-

sengers, they are efiectively worked against the all-

rail lines for San Francisco trade with Oregon, Wash-

ington, Idaho, Utah and Montana” (2128). And

this local business to these local destinations, as will

appear in the sequel, has no relative importance, and,

in the large, the Southern Pacific engaged in it as a

connecting line of the Union Pacific through the sub-

sidiary companies—the Oregon Railroad & Navigation

25

Company and the Oregon Short Line. The thing pos-

tulated, the primary datum, the point of departure in

this whole controversy, was the inadequacy of the Can-

adian Pacific, and, by consequence, of American lines

similarly circumstanced, like the Union Pacific through

Portland, to stand up against the Union Pacific-South-

ern Pacific line through Ogden under normal competi-

tive conditions. ‘The whole argument,” said Mr.

Stubbs, “and all the statements made were based upon

the fact that there could be made any number of

broken lines, meaning by that part water and by rail,

that would be just as much entitled to a differential as

the Canadian Pacific, the result of which would have

been chaos—there would have been no rates at all”

(p. 2025).

Now, Mr. Stubbs had argued, as against any differ-

ential to the Canadian line, that if the Sunset line could

operate a rail and water service without a differential,

why not the Canadian? And an expression that fell

trom him in his argument has been caught at—: “All

I should ask would be that my backers should put up

the money as they did in the case of the Sunset line”

(p. 2015). But “the essential difference in the con-

trolling conditions between the two classes of service,”

as time has revealed it, and as the testimony of Mr.

Hannaford, already quoted. brings it out, was the

thing that told. “But I want the backers to put up the

money,” said Mr, Stubbs, “and I do not guarantee that

it would be a profitable investment. There is the nub

of the whole thing. That is, an investment that any

reasonable man would make. They are better off with-

26

out the business than attempting to get it under such

conditions” (p. 2039). Mr. Stubbs goes on to testify:

“T think it very likely—in fact, I know it to be true—

that when I made this argument I did not understand

the conditions as well as I understand them now and

did very soon afterward, especially after I became more

intimately associated with conditions up in the north-

west which followed my taking service with the Union

Pacific, as well as with the Southern Pacific. I think

the whole trend of this argument goes to show that

all of us, every oflicer of a trans-continental line, from

the outset, borrowed of their fears more than their

judgment, in dealing with the Canadian line. We did

not understand—we did not know how inefficient such

a line would be. We never ought to have allowed them

to use the differential against us. If we had known

as much as we did at the time this arbitration came

up and the still more that we know now, the Canadian

Pacific would never have had a differential there. We

would not have permitted it. Now, there is a very

different set of conditions as between the use of a

steamship line on the Pacific in connection with rail

lines for this so-called trans-continental business, and

the use of a steamship line on the Atlantic. In the

first place, there is practically but the one port, and

that is San Francisco—practically speaking. San

Diego doesn’t amount to much as a tonnage producer.

There is no other port which is a large producer of

tonnage on the California coast but San Francisco.

San Francisco's whole trade with the United States is

inland, that is, back towards the east; is in the ter-

ritory that is served en route by the railroads that

tae:

¢ -_—

‘

reach San Francisco. The Canadian Pacific line or any

ede cite |

other line which attempted to use part rail and part

water, the water line being on the Pacific coast, could

only reach San Francisco, and when it has got its

freight there, except for that which was used in the

City of San Francisco, all the rest would have to be dis-

tributed back into the interior and up the local roads

—a very great handicap, a handicap not only in the

rates around but also in the time used.

“Q. And the distribution would be through its

rivals?

“A. And the distribution would be through its rivals,

and all its business would be revealed to its rivals.

While on the part of the Sunset Route, it serves the

port of New York, which in tonnage production of

course is many times greater than that of the city of

San Francisco. Its steamships had, in addition to the

San Francisco trade, for their cargo all of New Or-

leans, Louisiana, Galveston, ‘Texas, Oklahoma, part of

Mississippi, some of Colorado, even some of Utah, all

of western Texas, all of Arizona and New Mexico,

and the whole State of California, from its southern

boundary up to San Francisco, as contributors to its

cargoes. At New York it could fill a vessel three times

a week—never less than twice a week. It did not have

to depend on San Francisco business alone for cargo

ior that vessel; it did not have to depend upon Cali-

fornia business alone for that cargo; it did not have to

depend upon the territorial business in addition to Cali-

fornia business alone: but it had, as I have described

>

28

Louisiana, Texas, and the tonnage of other states.

The Texas tonnage itself has always been equal to that

of California, so far as the amount that is moved out

of New York is concerned. For that reason the line

was enabled to put high class boats on, and a number

of boats, and sail always twice or three times a week,

with full cargoes. Then at the opening of the Sunset

Route, the rail line, after you pass Houston, it was very

light in tonnage; there was very little delay in the

movement of trains. When the vessel arrived at New

Orleans, or at Algiers, rather, the cargo was taken out;

that which was for the territories and California was

loaded into cars solid, and that was usually a train-

load, never less than ten cars, and sometimes as high

as forty, and those cars were put in a through train,

and it moved as a through train, without the ordinary

delays, and went into San Francisco or to Los Angeles

solid, besides having the opportunity to distribute on

its way up to San Francisco at all points in Southern

California along the line of the road and in the San

Joaquin valley. That made it possible to have a steam-

ship service on the Atlantic and a rail service that

could not be duplicated by the use of an all-rail line

to Seattle or to Tacoma or to Portland or to Vancou-

ver, with a steamship line running from those ports

to San Francisco. In the first place, they would have

nothing but San Francisco business that they could

possibly compete for at any reasonable rate, and they

would gather their business up in such a way, and the

arrivals at the port of departure would be so broken

that it would be almost impossible for them to have

full cargoes. A steamer would sail with a half cargo

29

and less than halt cargo, and the delays incident to

the rail transit would be, as it would have to move in

its regular trains, such that—well, it would make it an

impossible route as compared with the Sunset Route”

(pp. 2026-2027 ).

Again, Mr. Stubbs is asked the question (p. 2019).

“Q. Has anything transpired since this argument

was made in 1808, tending to show whether those lines

could today do as much San Francisco business as the

Sunset line, or whether they could do the San Fran-

cisco business positively, and if so, what? To make

the question more explicit, isn’t it true that after the

differential was denied the Canadian Pacific by this

arbitration, the Canadian Pacific practically withdrew

irom the business, and that neither the Canadian

Pacific nor the Northern Pacific, nor the Great North-

ern have ever engaged to any considerable extent in

business from the territory east of the Missouri River,

between the Missouri River and San Francisco; and

isn’t that a pretty strong circumstance that they could

not do it profitably ?

“A. Well, it is true that without a differential the

Canadian Pacific has done practically no business. It

is also true that neither the Great Northern nor the

Northern Pacific nor any other line, mixed rail and

water, via the Northern Pacific coast ports, including

Portland, has done much, if any, business. At the time

I made this statement, that fact had not been developed.

I suppose at the time I made this statement that every

traffic man present thought some business could be done

oOo

by the use of the mixed rail and water lines, having

in mind what had been done via the Gulf ports, but

none of them (as I did not) appreciated then as we all

do now the essential difference in the controlling con

ditions between the two classes of service.”

PORTLAND AS A COMMON POINT.

Portland was the only point of convergence of thc

Union Pacitic and Southern Pacific, apart from the

meeting point at Ogden. It was Mr. 1B. Campbell,

speaking of the Sunset line of the Southern Pacific

from a Portland standpoint, who said (p. 4850), “my

recollection 1s that we usually class the Sunset and

Gulf route as a 3 to 4 per cent route.” It was possi

ble for the ships to take business from the seaboard

to New Orleans, for the lines from the interior south,

to take business to New Orleans, and possible for that

business to go by the Sunset line through Texas, Nev,

1

Mexico and California, thence to be lifted over the

Siskivou Mountains into Oregon, and taken north

ward to Portland, as against the direet Union [’s

cific route by way of Granger and the Short Line.

For the fiscal vear ending June 20, 1X98, the wes

bound seaboard tonnage to Portland was o1.62 or

less than 1 2-3 per cent of the Southern Pacific reve

nue—not general revenue, but so much only as was

earned on westbound seaboard tonnage:and from Port

land to the seaboard, by the same route, the eastbound

tonnage was 00.84 or 84 hundredths of 1 per cent: for

the fiscal vear ending June 30, 1900, the tonnave west

hound trom Portland was 00.73, less than 1 per cent,

31

and the eastbound tonnage was 01.32, less than 1 1-3

per cent (pp. 4027-8; 4609).

lor the fiscal year ending June 30, 100, the tonnage,

both eastbound and westbound, between Portland and

points in "Missouri River common points territory”

and “points east thereof’,—thus embracing both in-

terior and seaboard—via the Sunset line thre ugh New

Orleans and EF] Paso, was 3,139.1 tons, with revenue

thereon to the Southern Pacific of $56,159.44, or nine

hundredths of one per cent of its operating revenue

(p. 4575). For the same fiscal year, eastbound and

westbound, between the same territories, via the Union

Pacific line through Granger, the tonnage was 32,605.47

tons, with revenue thereon to the Union Pacific of

$591,890.50, or 1.51 per cent of its operating revenue

(p. 4570). Of the tonnage to the Southern Pacific,

3.130.1 in all, 3.040.2 tons are attributable to the sea-

hoard business, 84.1 tons to Cincinnati, Detroit and

common points territory, 2 tons to Chicago and com-

mon points territory, nothing whatever to Mississippi

River and common points territory or Missouri River

and common points territory. Of the Southern Pacific

revenue $56,150.44, in all, $54,487.79 is attributable to

the seaboard business, $1,417.63 to the Cincinnati and

Detroit territory, $192 to the Pittsburg and Buffalo

territory, and $62.02 to the Chicago territory (p.

4575). Of the Union Pacific tonnage, 32,605.47, in all,

§,792.65 tons are attributable to the seaboard business,

8,971.30 tons to the Chicago territory, 3,847.09 to the

Pittsburg and Buffalo territory, 3,041.85 to the Cin-

cinnati and Detroit territory, 4,818.64 to the Missouri

vy)

Om

River territory, and 2,133.04 to the Mississippi River

territory. Of the Union Pacific revenue, $591,8yo.50

in all, $185,499.49 is attributable to the seaboard busi-

ness, $148,382.74 to the Chicago territory, $88,965.43

to the Missouri River territory, $60,137.81 to the

Mississippi River territory, $55,447.85 to the Cincin-

nati-Detroit territory, $53,457.18 to the Pittsburg-

Buffalo territory (p. 4570).

The Southern Pacific had two connecting lines at

Ogden, the Union Pacific and the Rio Grande. lor

ihe fiscal year ending June 30, 1900, the tonnage, in

both directions, between Portland “and Missouri River

and common points territory” and “points east

thereof” by the Southern Pacific through Ogden and

the Rio Grande, was 2,732 tons, with revenue to the

Southern Pacific of $20,726.57 being two-hundredths

of one per cent of its total tonnage and three-hun-

dredths of one per cent of its operating revenue (p.

3093). The Union Pacific tonnage and revenue via

Granger have just been given. Again, for the Union

Pacific, on business from Portland, principally lumber,

to Utah common points, Colorado common points, and

points East thereof, the calculation not resting on the

fiscal year 1900, as in the Southern Pacific tonnage and

revenue statement just given, but on the months of

July, September and November, 1900, and January,

March and April, 1901—the tonnage was 13,708 tons,

and the revenue, $110,335.25. These figures should be

doubled to get an expression for twelve months (p.

3959). The percentage of the total Union Pacific ton-

nage is thirty-four hundredths of one per cent; of the

33

operating revenue, fifty-one hundredths of one per cent.

sasing on the same six months—to be doubled, as

noted, for a year—the Southern Pacific tonnage, for

like business, in connection with the Rio Grande is,

for the six months, 1,428 tons, and the revenue,

$10,080.79>—two hundredths of one per cent of its

total tonnage, and three hundredths of one per cent of

its operating revenue (p. 3939). The Union Pacific

with the Short Line was the natural line, the “short”

line for this business, as against the Siskiyou-Roseville

route or the route from Portland over the Siskiyou in-

to California and then over the Sierras to Ogden, to

a connection with the Rio Grande, as a glance at the

Kruttschnitt profiles (Defendant's Exhibit 111, pp.

4041-2) will indicate.

Two special statements were submitted in respect to

the Portland business. The first is a corrected state-

ment of the business, eastbound and westbound, be-

tween Portland and points on and east of the Missouri

River, for the year ending June 30, 1900, in respect to

the movement in which the Rio Grande participated

(pp. 4577-8). The percentage of the Southern Pacific

tonnage is unchanged, two hundredths of one per cent

of the total tonnage: the percentage of operating rev-

enue is four hundredths of one per cent, or a difference,

by the corrected statement, of one one-hundredth of

one per cent. The second is a statement of hops and

wool to the Missouri River and east from Portland,

for the year ending June 30, 1900, in which the Rio

Grande, also the Sunset, participated. The Union

Pacific tonnage was 1,290 tons, revenue, $6,978.12; the

34

Southern Pacific tonnage, in connection with the Rio

Grande, was 303 tons, revenue, $3,062.79; and by the

the Sunset

Sunset Route, 128 tons, with a revenue

haul being for the entire distance—of $4,456.50. The

Union Pacific tonnage represented eighteen thou-

sandths of one per cent of its total tonnage, and the

Southern Pacific tonnage, by both routes, four thou-

sandths of one per cent of its total tonnage. The Union

Pacific revenue was eighteen thousandths of one per

cent, the Southern Pacific revenue twelve thousandths

of one per cent, of the operating revenue (pp. 3964;

4580).

This Southern Pacific route, in connection with the

Rio Grande to Ogden, is over the Siskiyou at the

Oregon-California boundary, then down through Cali-

fornia to a place called Roseville just above Sacra-

mento, on the Ogden line between Sacramento and

Ogden—thence from Roseville over the Sierra Nevada

Mountains through California and Nevada to Ogden,

Utah; hence, the expression, “Roseville gateway” is

sometimes used. There was no appreciable movement

between Portland and Ogden via Roseville; the freight

between those two points, possibly with some stray

exceptions, naturally went over the Union Pacific as

local traffic (pp. 3958; 4492).

WILLAMETTE VALLEY BUSINESS.

The Willamette Valley extends south from Portland,

and is served throughout its length, as it was at the

time of the stock purchase, by the rails of the Southern

Pacific Company. ‘The Oregon Railroad & Navigation

35

Company had two or three small river boats on the

Willamette River that served river points, say, for

fifty or sixty miles south of Portland, below which

_point the river was so shoal that navigation was inter-

rupted even for such little craft. In the years 1899,

1900 and 1901, the Navigation Company operated two

such boats concurrently, sometimes three. One boat,

the “Ruth,” was 175 tons, the “Modoc” 160 tons, the

“TImore” 200 tons, the “Gypsy,” which sank July 11,

1900, 75 tons; the draft of these boats was from 4

to 5 feet loaded, except as to the “Gypsy,” that, of

course, being less. Oregon City, New Era, Salem,

Independence, Albany and Corvallis, were points

served both by the boats and by the Southern Pacific.

There were some other points, served by the boats,

but not by the Southern Pacific, from which the traffic

might have been hauled, probably would be, to the

Southern Pacific if the boats had not been there.

These points, however, have been dealt with as com-

mion points in the figures which have been compiled,

and they might just as well be mentioned: Butteville,

Cane Landing, Champooz, Gearin Landing, Harris

Landing, Newburg, Reeds Landing, Wilsonville,

Wheatland. They are river landings (p. 4485).

Of the common points proper: Independence, Al-

bany and Corvallis, are respectively 76, 80 and 97 miles

south of Portland. Oregon City is 15 miles south of

Portland, New Era, 21 miles and Salem, 57 miles.

Harrisburg is a point 110 miles south of Portland by

rail, but the boats have not gone to Harrisburg since

1806 (p. 4485). “At times, the river is so shoal that

36

the boats are not able to get above Salem; in fact,

they do not get above Salem only during the winter

and spring months, or, say from the 1st of November,

and sometimes the 15th of November, to the Ist of

June, sometimes the 1st of July ’(p. 4486). These

boats handle some local business to and from Portland

(p. 4486). During 1899, 1900 and I9goI, a company

called the Oregon City Transportation Company, also

had a boat service on the river. For the fiscal year

ending June 30, 1900, this boat service of the Oregon

Railroad & Navigation Company shows a deficit of

$6,008.43; for the fiscal year 1901, the deficit was $15,-

465.37; for 1902, $26,413.02; for 1903, $30,221.87; for

1904, $37,062.05. Since 1904, the boats have been

operated only between Portland and Oregon City, 12

miles. The regular service during 1899, 1900 and 1901

had been two boats, sometimes a third; the little

“Gypsy” was used when the water was very low on the

upper river (pp. 4486-7). Ninety per cent of the hop

crop of the Willamette Valley was local to the South-

ern Pacific rails. The river boats carried practically

no wool (p. 4486).

Taking first the Southern Pacific tonnage and reve-

nue by the Sunset Route to the Willamette Valley—

excluding Portland, which has been already accounted

for—-a statement has been prepared, with the utmost

detail, giving the eastern points of origin separately

specified, and segregating the Willamette Valley points

station by station. For the fiscal year ending June

30, 1900, the Southern Pacific tonnage, Sunset Route,

to the Willamette points—those served by boats and

37

those not served by boat, including every point and

river landing served by the Navigation Company’s

river boats and heretofore particularly mentioned—was

199.22 tons, with revenue of $6,151.32. Of this ton-

nage, 196.4 tons came from the seaboard, 1.9 tons from

the Cincinnati-Detroit territory, six-tenths of a ton from

Pittsburg and Buffalo territory, and three-tenths of a

ton from Chicago territory. Of this revenue, $6,091.36

came from the seaboard business, $37.19 from Cin-

cinnati and Detroit territory, $13.45 from the Pittsburg

and buffalo territory, and $9.32 from the Chicago

territory (p. 4586). Of the total revenue, $3,872.02

was from points served by the river boats, including

ull those particularly mentioned, and $2,279.30 from

points strictly local to the Southern Pacific. The

detail, for the Valley, has been compiled territory by

territory, and station by station (pp. 4587-8): most

of it is like a study in infinitesimals.

Similarly, a statement has been prepared for the

Southern Pacific tonnage and revenue from the Valley

to the eastern territories. For the fiscal year ending

June 30, 1900, the Southern Pacific tonnage, Sunset

Route, from the Valley points, was 3,984 tons, with

revenue of $92,739. Of this tonnage, 3,792.2 tons went

to the seaboard, 151.9 tons to Cincinnati and Detroit

territory, 39.9 tons to Pittsburg and Buffalo territory.

Of the total tonnage, 2,526.5 tons was strictly local to

the Southern Pacific from points not served by the

river boats—only 1,457.5 tons from points served by

the boats. Of this revenue, $88,747.78 came from busi-

ness to the seaboard, $3,226.46 from business to Cin-

38

cinnati and Detroit territory, and $765.36 from busi-

ness to Pittsburg and Buffalo territory. Of the total

revenue, $34,007.76 was from points served by the

river boats, while $57,771.84 was from points strictly

local to the Southern Pacific (p. 4587). ‘The detail has

been compiled with particularity (pp. 4589-4501). Evi-

dently, the Willamette Valley traffic, in relation to the

Sunset Route, to and from, is not significant in the

case.

With like particularity, the Southern [Pacific traffic

to and from the Valley points, by way of Ogden and

the Rio Grande, has been compiled. lor the fiscal

year ending June 30, 1900, the Southern Pacific ton-

nage to the Valley points was 398.1 tons, with revenue

of $6,015.15; 192 tons of this went to points local to

the Southern Pacific, not served by the boats: of the

revenue, $2,839.46 was from the business to these local

points (p. 4895). The detail is set forth station by

station (pp. 4896-7). For the same fiscal year, the

Southern Pacific tonnage from the Valley points to

the east was 1,291.6 tons, with revenue of $13,569.97;

656.4 tons came from points not served by the boats;

$7,383.87 of revenue was from these points (p. 4893)

The detail is given station by station (pp. 4803-4).

A showing, with like detail, is made for the Union

Pacific business, via Granger and the Short line, to

end from the Valley points. lor the fiscal vear ending

June 30, 1900, the Union Pacific tonnage fo the Valley

points was 797.92 tons, of which 216.90 tons came from

the seaboard, 332.49 from Chicago territory, and 90.22

from the Missouri River territory, 80.85 from Cincin-

39

uati and Detroit territory, 50.01 from Mississippi River

territory, and 27.15 from Pittsburg and Buffalo terri-

tory. The total revenue was $25,123.56, of which

210,773.06 came from the Chicago territory, $6,528.20

irom the seaboard, $2,944.29 from the Missouri River

territory, $2,121.53 from Cincinnati and Detroit terri-

tory, $1,758.45 from the Mississippi River territory,

and $997.03 from the Pittsburg-Buffalo territory. Of

the total tonnage, 283.84 tons had destination at South-

ern Pacific points not served by the river boats, as to

which the Southern Pacific was a connecting line; and

the revenue on the tonnage to these points was more

than one-third of the total revenue, namely, $8,893.36

(p. 4884). The detail is given, territory by territory

and station by station (pp. 4885-4890). It reads like

an exhibit de minimis.

The showing of business from the Valley points by

the Union Pacific Short Line route is smaller vet. For

the fiscal year ending June 30, 1900, the Union Pacific

tonnage from the Valley points was 454.52 tons, of

which 237.03 tons went to the seaboard, 168.57 to Chi-

cago territory, 21.96 to Missouri River territory, 10.73.

to Mississippi River territory, 9.02 to Buffalo and

Pittsburg territory, and 7.21 to Cincinnati and Detroit

territory. The total revenue was $7,923.88, of which

$3,338.51 came from the Chicago territory, $3,264.91

from the seaboard, $045.14 from the Missouri River

territory, $292.75 from the Mississippi River territory,

£200.94 from Buffalo and Pittsburg territory, $181.63

from Cincinnati and Detroit territory. Of the total

tonnage, however, 126.61 tons originated at points on

40

the Southern Pacific lines not served by the boats, and

on this tonnage the Union Pacific revenue was $2,-

136.83 (p. 4891). The detail is compiled, station by

station (pp. 4891-2).

As the Southern Pacific and Union Pacific were con-

necting lines at Ogden, it is of some interest to note

the statement for the Oregon business south of Port-

land and north of Ashland—Ashlind being just north

of the California-Oregon line—moving over these con-

necting lines. This statement was found in the Gen-

eral Freight Agent’s office, and is for the calendar year

1900. The westbound Oregon tonnage was 2,485 tons,

Union Pacific revenue thereon, $28,008.79; the east-

bound tonnage, 4,813 tons, Union Pacific revenue, $27,-

221.50:—total tonnage, 7,298 tons; total Union Pacific

revenue, $55,320.29. It may be safely assumed that

the Portland proper traffic and the Willamette Valley

traffic, to and from the east, will not rule this case.

CLOSING OF THE ROSEVILLE GATEWAY.

A word or two here may not be out of place as to

something which should not be confused with any com-

petitive features of the Willamette Valley, actual or

alleged—the closing of the “Roseville Gateway” and

the opening of the “Portland Gateway” to the Valley

business. Roseville, it will be remembered, is a point

in California, just north of Sacramento, the junction

point of the Southern Pacific ine from the Willamette

Valley south, through California, and the Ogden line

between Sacramento and Ogden. ‘The line from the

Valley south over the Siskiyous into California to

41

Roseville and the line from Roseville to Utah—Ogden,

or rather Granger—may be conceived as two sides of

a triangle; the third side would be the Short Line from

Granger to Portland. ‘The line of least resistance, the

natural line of movement and the better line for the

public, from Valley points, out and in, would be the

Short Line, and it would be the less expensive of opera-

tion. The comparison is graphically shown by the

Kruttschnitt profiles, Defendants’ Exhibit 111 (p.

4141). As Mr. Kruttschnitt explains, “it is impossible

to compare two routes varying in grades and curva-

tures, unless, so to speak, they are reduced to a com-

mon denominator, which is the resistance of pushing

the load over a straight and level track. In overcom-

ing a foot of grade, the same work is done as in haul-

ing the load over 344 feet of straight and level track;

and in pushing the load through a curve of a little more

than a mile in radius, or what is known as a I-degree

curve, is equivalent to hauling the load on a level over

7.2 feet of track” (p. 4141).

He continues: “The route from Portland to Granger

via Roseville and Ogden has a total rise and fall of

40,304 feet, total degrees of curvature, 86,019, actual

distance in miles, 1,487.3, total equated distance in

miles, 6,164. The route from Portland to Granger via

Huntington and McCammon (Short Line, or third side

of the triangle) has a total rise and fall of 31,040 feet,

35,705 degrees of curvature, actual mileage of 945.3,

and equated mileage of 3.493” (p. 4141).

He gives the excess against the Roseville route:

“The first line described has an excess of 19,324 feet

42

of rise and fall, 30,313 degrees of curvature, 542 miles

of actual distance, and 2,671 miles of equated distance

against it.”

He gives the comparative data of the Short Line

with the Roseville line to Ogden instead of Granger:

“On the route from Portland to Ogden via the South-

ern Pacific lines, the total rise and fall is 36,020 feet,

total degrees of curvature, 80,547, actual distance, 1,-

341.2, equated distance, 5,552 miles. From Portland

to Ogden via Huntington and McCammon, total rise

and fall, 19,376 feet, 32,334 degrees of curvature, 865.2

miles actual distance, 3,203 miles equated distance. Line

No. 3,—from Portland to Ogden via the Southern

Pacific Company’s lines—has an excess—of rise and

fall of 16,644 feet, 48,213 degrees of curvature, 476

miles actual, and 2,340 miles equated” (p. 4142).

He adds: “What I have given so far has been the

relative resistance, the physical resistance to traffic

going over these two routes. The grades on the South-

ern Pacific line are very much heavier, the rate of

grade, than on the other, and the expenses of moving

the freight are not given on the diagram, but for an

understanding of it, should perhaps be added. The

cost of moving a ton of freight from Portland to

Ogden, via the O. R. & N. and O. S. L. lines, or via

Huntington, would be $2.69 a ton; Portland to Ogden

via the Southern Pacific lines. $5.53; from Portland to

Granger via Huntington and Montpelier, $2.75 a ton;

and from Portland to Granger via the Southern Pacific

and Ogden, $5.94 a ton” (p. 4142).

43

Now, in further illustration, Mr. Miller, Traffic

Manager of the Oregon Railroad & Navigation Com-

pany, and in its freight serv ice in various capacities

since 1886 (p. 4484), testifies concerning the approxi-

mate carload movement from eastern points to Port-

land: “In 1808, the movement via Ogden and Roseville

was 298 cars, while the total movement via all lines

to Portland was 4214 cars; Southern Pacific percent-

age via Ogden and Roseville, 7 per cent. In 1&&o, the

movement was 251 cars via Ogden and Roseville, and

4,400 cars via all lines; Southern Pacific percentage via

Ogden and Roseville, 6 per cent; in 1900 the movement

via Ogden and Roseville was 265 cars; via all lines,

4,400; Southern Pacific percentage, 6 per cent.”

Further, and bearing upon Portland as the natural

Valley gateway in distinction from Roseville, he testi-

fies :

“(. How is Portland related to the Willamette Val-

ley as a point of distribution?

“A. The largest part of the merchandise consumed

in the Willamette Valley is distributed from Portland.

“OQ. How are the credits and banking of the Valley

points related to Portland?

“A. Their business is done chiefly if not entirely

with the financial institutions of Portland” (p. 4403).

Agam:

“QO. Are the difficulties and length of haul by the

Roseville route complicated with any other difficulty

44

in respect to the hauling of empties north to points

of origin ?

“A. Yes, sir. The preponderance of Willamette Val-

ley tonnage is outbound” (p. 4404).

The Willamette Valley, he says, does not stop with

the tew river points served by the river boats; 9o

per cent of its hop erep is shipped out over the South-

ern Pacihie rails; the rough lumber from the Valley

goes principally to California—some of it to San Fran-

cisco and bay points; the outbound tonnage of the

Valley predominates over the inbound (pp. 4494-3).

The result was that more cars were needed for the

outbound business, and this necessitated the hauling

by the Southern Pacific Company of empties into the

Valley, for which its supply point would be San Fran-

cisco and Sacramento, a 7o0o-mile haul for empties

(p. 405). The shipper of clear lumber from the Val-

ley looks to Utah, Colorado, Kansas, Nebraska and

beyond for his market, and he is better served in

respect to car supply from Portland than from Sacra

mento or San lrancisco, and empties from these points,

hauled north to supply the out-going tonnage of the

Willamette Valley could be loaded in California to

advantage (p. 4495).

In ror, the through rate from the Valley via Rose-

ville and Ogden was taken out. Of course, the ship-

per could still move on the sum of the locals—the local

from the Valley via Roseville to Ogden, plus the local

between Ogden and Omaha; just as a shipment, as a

physically possible movement, could go from Omaha

45

to Oeden on the Union Pacific local, and from Ooden

to San Francisco on the Southern Pacific local, if the

Southern Pacific had taken ont the through joint tariff

with the Union Pacific, and made the Denver & Rio

Grande its exclusive connection for the through rating.

But the sum of the locals would have closed the Ogden

eateway to the Union Pacific; and so ¥ was that the

Roseville gateway was closed, in 1901, and the Port-

land gateway opened.

+ a |

It must not be understood, however, that the Port-

land gateway, prior to 1900 and tgot, had been closed

generally. Through rates had been in effect from the

Valley, between the Southern Pacific and the Union

Pacific, via Portland, on all traffic except eastbound

lumber (p. 4405). The Union Pacific, or more pre-

cisely the Oregon Railroad & Navigation Company,

distributed lumber from points on its own rails; in

closing the Portland gateway to Southern Pacific lum-

ber, eastbound from the Valley, it was looking to its

own territory. The Northern Pacific, which meets the

Southern Pacific at Portland, also had through rating

with the Southern Pacific on Valley traffic prior to

1900, with the same exception as to lumber; and the

Northern Pacific distributed lumber from its own rails

(p. 4497). Mr. Miller testifies:

“QO. In sending business originating at Southern

Pacific points in Oregon through the Portland gateway

instead of the Roseville gate, tor eastern destination,

what was the effect of that arrangement, so far as

the shipper was concerned, in reference to the advan-

tages of route?

46

“A. It was to the shipper’s material advantage.

“Q. Had you been requested by shippers in the Val-

ley to open the Portland gateway to lumber, prior to

1gO1 ?

“A. The Southern Pacific had” (p. 4496).

Mr. George Tl. Kelly, of the Booth-Kelly Lumber

Company in the Willamette Valley, was called as a

Witness by complainant. It should be remembered

that the Southern Pacific rate from the Valley to Cali-

fornia points was and is a local rate; also that the

California gateway to the south of Mojave, also the

El Paso geteway, have always been open on through

rating te the east (p. 4496); though no lumber busi-

ness seems tc move that way beyond El Paso (p.

44906). Mr. Nelly testifies:

“(). Is there any other trattic that is affected by this

change aside from that of these two States you have

mentioned [Colorado and Utah] through the Portland

gateway?

“A. No. You see, before the Harriman people got

the Union Pacific, we shipped everything into south-

ern Utah, Colorado, California, Arizona and New

Mexico.

“QO. That was your sole market ?

“A. That was our sole market; and after the con-

solidation [joint line through Portland gateway] of the

lines, why we began to ship east then and go clear to

the seaboard.

47

“Q. And you mean by that you made up what you

lost in the California and Arizona markets by creating

a new market east?

“A. Yes, very much more in quantity of output.

Our output is very much more than it was then, and

some years it is a very much better market. We pre-

fer the California market to any other, but still our

shipments to the east have increased. In 1903, we

shipped about 30 per cent of our cut east; 1904, 30

per cent; in 1905, 40 per cent; and in 1906, 60 per cent

went east via Portland.

CoMMISSIONER LANE: You have not been embar-

rassed then by the changes efiected in 1901?

Witness: No, while we have in a measure lost some

territory, we have gained more territory.

CoMMISSIONER LANE: Your field is widened ?

Witness: The field is widened, but we don’t consider

the market probably quite so good. The best of lumber

going to California is $2.00 a thousand higher now

than lumber going east: so a man would prefer to sell

in California” (p. 440).

It will be recalled, from Mr. Miller's testimony,

that it was the rough lumber not the best lumber which

found its principal market in California. It was over

an advance in the rate of this rough lumber that Mr.

Kelly and other shippers got into the litigation with

the Southern Pacific Company, known as the IVillamette

Lumber Case, in which as we understand the opinion

48

of the Commission, the advanced rate was regarded as

reasonable enough in itself, but the advance was held

by the Commission to be precluded by certain con-

siderations of estoppel. When that litigation came to

this Court, the carriers were sustained (5S. F.€6, ¥,

!. C. C., 219 U. S. 433). But to continue with Mr.

Kelly:

“Q. Explain that. How do you mean that the bes

is $2.00 higher ?

“A. Well, the market is better down there, and the

supply is—the California market is better.

“Q. You mean by that, that taking the rate and th:

market value of lumber both into consideration 2

“A. Your lumber brings you $2.00 a thousand more

now—under present conditions in California than it

does if you ship east.

COMMISSIONER LANE: That was not so up to two

vears ago.

Witness: Only in places. San Francisco is usually

the lowest lumber market there is on the Coast: that

is a kind of a dumping ground for everybody: but the

last year it has been about one of the best markets,

and, of course, the price of lumber in interior Cali-

fornia is fixed by the price of lumber at Bay points, and

that made a good market all over the State” (p. 441).

Mr. Kelly gave his testimony before Commissioner

Lane at Portland in January, 1907. San Francisco

had been ravaged and desolated by the fire of April,

49

1906. The demand for lumber in San Francisco, and

the bearing of Mr. Kelly’s suggestion as to “present

conditions” in California and his j inability to charge the

San Trancisco people and to get more money for his

“best” lumber, can be easily understood. He also

testifies that “about 35,000,000 [ fee 7 is the increase in

cur annual output since 1900: that, of his old output

0 25,009,000 feet about 8o per cent went to California,

of which 20 per cent was company material for the

Seuthern Pacific Company (p. 441 )

The establishment of joint rates through Portland

for the Southern Pacific Valley points is not, of course,

é phase of competition. Those Valley points were

not competitive between the Southern Pacific and the

Union Pacific. They were local to the Southern Pacific,

not reached by its connections. If the influence of the

Union Pacific in the Southern Pacific directorate was

exerted to the making of a better route for the public,

ena through tariff between connecting lines, it is not

perceived that the public has any cause of complaint.

Nor is any stockholder of the Southern Pacific com-

plaining, nor is this a stockholder’s suit. But if it

were, the Southern Pacific revenue on the haul from

Ogden through Roseville, before that gateway was

closed, was 58 per cent of the rate: after the closing

of the gateway, the Southern Pacific receiv ed, for the

short haul south of Portland 40 per cent of the west

of the Missouri proportion of the through rate, except

on lumber, a low grade commodity, on which the rate

to Utah was $8 a ton, to the Missouri River $10 a ton,

to Chicago $11; out of which the lines west of the

5 ais

50

Missouri River earned Sg—and the Southern Pacitic’s

proportion for the short haul was 25 per cent (pp.

4496, 4497, 4498). It is not surprising, bearing in mind

Mr. Kruttschnitt’s figures as to the comparative cost

of transportation by Roseville and by Portland, that

no Southern Pacific stockholder has been heard to

complain.

ASIATIC BUSINESS THROUGH PORTLAND.

Some Asiatic business moved through the port of

Portland and eastward over the Union Pacific, a mere

incident to the local traffic, out-bound to the Orient—

wheat and flour local to the Navigation Company's

rails—and inconsiderable in amount. The wheat of

eastern Oregon and Washington, if there had been no

ship service out of Portland to China and = Japan,

would have been hauled by the Northern Pacific, from

points common to it with the Oregon Railroad &

Navigation Company, to the Puget Sound ports, where

boats were available. The Navigation Company would

have lost the traffic. Or if the point of origin was

iocal to the Navigation Company, it would have been

short hauled to the nearest junction with the Northern

Pacific, which would have taken the long haul to Puget

Sound. If that wheat had been milled into flour at

interior points, the same thing would have happened:

and acain, if there had been no water line out of

Portland, the Portland mills would have had to shut

down—certainly to the extent of flour for the Orient.

It was to take care of this business that the Union

Pacific made a line to the Orient at all. It was, as

Mr. Campbell savs, ‘solely for the purpose of atiord

51

ing an outlet at Portland for the products, agriculturat

products, produced along the line of the O. R. & N.

as against the competition of the Northern Pacific.

bringing those products into Puget Sound, where they

could tind an outlet’: “wheat and wheat products—

flour” (p. 4851: pp. 3014-18). The first connection

made by the Navigation Company was with Frank

Upton’s line, as far back as 1885 (p. 4850). The

Navigation Company had no ownership in the line.

“Frank Upton quit,” “because there was no money in

the business.” Next came the Samuels line in 1887 or

8k. “They quit for the same reason: and Dodwell

following them quit for the same reason: and after

that the O. R. & N. organized its own c mpany, the

Portland & Asiatic. This, too, was unprofitable, losing

money every year, up to the time that Mr. Campbell

left the O. R.& N” (p. 4850). The Navigation Com-

pany neither chartered nor owned the boats of these

various lines, had no interest in the profits, made no

cuaranty against the losses—it was simply a case of a

connecting rail and steamship line under separate

management for through rating and interchange (p.

4851). The Portland & Asiatic was organized in 1900;

it chartered the vessels: the first sailing was in Igor

(p. 3014). It was organized by the O. R. & N. “he-

cause it could not arrange with others satisfactorily

to maintain a line there.” The O. R. & N. did make

a guarantee for a time to the Samuels line on flour:

“it had to pay the amount of the guarantee” (p. 4852).

The Portland & Asiatic, simply a chartering corpora-

iton, has always been operated at a loss, except during

the year of the Japanese-Russian War (pp. 1718-

52

1720). The sailings through Portland of the Upton,

Samuels and Dodwell lines and of the Portland &

Asiatic were monthly, while through San Francisco

they were not less than every nine days and as often

through Puget Sound—sometimes oftener (pp. 4852,

3916). The wheat and flour traffic had the first call

on the Portland ships; “they handled practically no

business from the east” (p. 4852); “that is one reason

why it is impossible to successfully use, with the fleet

that we have, the Portland gateway advantageously

for any movement of what we call transcontinental

traffic” (p. 3916). The Oriental business through

Portland was such business as the ships picked up in

Asiatic ports for the return trip, if they were not to

come in ballast. Ninety per cent of their business

went west, IO per cent east, as Mr. Campbell esti-

mates it (p. 4852). .

The Union Pacific did its principal Oriental busi-

ness, and preferentially, through the port of San

Francisco, as the connecting line of the Southern

Pacific through Ogden. The tonnage moved almost

wholly through San Francisco by these connecting

lines (p. 3916). The relation was not simply through

Ogden; they were partners, so to speak, in the trans-

Pacific part of the carriage. The Occidental & Ori-

ental Steamship Company was organized for this

business by the Union Pacific and Southern Pacific,

“each interest representing one-half interest in that

organization” (p. 3917). It was not until the latter

part of 1900, as we have seen, that the Southern Pa-

cific acquired 51 per cent of Pacific Mail stock. The

Bef

-Q

oo

Occidental & Oriental and the Pacific Mail engaged

in the business “‘co-operatively” (p. 3917). “The Pa-

cific Mail agencies in the Orient and at San Irrancisco

also act as agents for the O. & O. St camship Com-

pany; their sailing schedules were made jointly in

proportion to the number of ships each had in the line”

(p. 3917). The situation was, that “the Pacific Mail

Steamship Company, the O. & O. Company, and the

rail line out of San Francisco and through Oeden to

the Missouri River were a thre uch line from the Orient

to the Overland destination.” It was a mere corollary,

that prior to and including the year 1901, the Union

Pacific always worked “the port of San Francisco pref-

erentially for Asiatic business” (p. 3917).

The Sunset line has never figured importantly in the

Oriental traffic. Except for the year of the Japanese

War, the principal carriers of that traffic to and from

the seaboard were the steamship lines through the

Isthmus of Suez (p. 4003). For the fiscal year ending

June 30, 1900, on business to China and Japan, the

tonnage was about thirty-nine one-hundredths of one

per cent of the westbound tonnage of the Morgan line,

and the earnings about thirty-two one thousandths

of one per cent of the total revenue of the S uthern

Pacific Company (pp. 4005, 1360). For the same fiscal

year the tonnage from China and Japan was seven

tons, earning $208.33 (p. 4883): we will not attempt

to express this in percentages.

lor the fiscal year ending June 30, 1901, the Orien-

tal traffic from the Missouri River and east. by way of

San Francisco and the Pacific Ocean came largely—as

bas

ot

might be expected in view of the Suez route—from

the interior, almost all of it, from Chicago territory

and Pittsburg and Buffalo territory (p. 45604). The

compiled statement shows territory by territory, and,

for the extended amounts, goes upon the datum of fact

(pp. 4504, 4546), that the Chicago, Milwaukee & St.

Paul and the Chicago & Northwestern companies car-

ried 70 per cent of the total. The tonnage represented

twenty-one hundredths of one per cent of Union Pacitic

tonnage for that fiscal year, and nineteen hundredths

of one per cent of operating revenue; twelve hun-

dredths of one per cent of Southern Pacific ton-

nage, and nine hundredths of one per cent of operatine

revenue (p. 4505). In the opposite direction—from

the Orient to the several eastern territories, by the

Southern Pacific and Union Pacific through Ogden,

most of the tonnage found destination in Chicavo ter-

ritory, some in seabord territory (p. 4506). The ton-

nave represented twelve hundredths of one per cent of

Union Pacific tonnage and twenty hundredihs of one

per cent of operating revenue; seven hundredths of

one per cent of Southern Pacific tonnage, ten hun

dredths of one per cent of operatinge revenue (p.

4500).

Turning to Portland, for the fiscal vear ending June

30, 1901, from the Orient to eastern territories, via

Portland and the Union l’acific, trafic and revenue are

shown in similar detailed statements (p. 4558). Be-

tween one-fourth and one-third of the business left the

Union Pacific rails at the Northern Pacific and Great

Northern junctions, Wallula and Spokane. The ton

55

nage represented eight one-hundredths of one per cent

of the Union Pacific tonnage and twelve one-hun-

dredths of one per cent of operating revenue. In the

opposite direction, from these various territories to the

Orient, via Portland, the tonnage represented three

thousandths of one per cent of Union Pacific tonnage

and two thousandths of one per cent of operating rev-

enue (pp. 4557-8). It may be surmised that Asiatic

trafie was not vividly present to the mind of the Union

Pacific in the stock purchase.

EASTERN OREGON AND WASHINGTON, IDAHO AND

MONTANA.

*

The Southern Pacific did some small business,

through connection with the Northern Pacific, Naviga-

tion Company and Short Line, into Eastern Oregon

and \WWashington, Idaho and Montana. ‘This business

was not mentioned in the original bill; it did not get

into the bill until July 24, 1900, by an amendment.

The Navigation Company had boat service from San

Francisco to Portland, and, at the the time of the stock

purchase, its rails could take the business to some

points in eastern Oregon and Washington and north-

ern Idaho, and in connection with the Northern Pacific

to some points in western or northwestern Montana.

The Northern Pacific also had boat service from San

Francisco to Tacoma, with its rails to Washington,

Idaho and Montana points. Southern Idaho and south-

ern Montana points were local to the Oregon Short

Line, which also reached north into Montana to Butte

and Silver Bow, and, by connection, still farther north

to Garrison. The Southern Pacific, in respect to any

56

of this business, was dependent on its connections. But

neither the Northern Pacific nor the Navigation Cony.

pany was dependent on the Southern Pacific. [ach

company had its own service, boat and rail, through

Portland and Puget Sound, a cheaper service to eastern

Oregon, Washington and Idaho than the all-rail service

over the Southern Pacific and its connecting lines

through Portland (p. 4547). ‘The Northern Pacific, to

points ulterior to the Navigation Company’s rails, and

not served by the Short Line, into Idaho and Montana,

was essential, both to Southern Pacific and Navigation

Company ; in that view, they were simply its connecting

lines on the through business. The business to the

points in question would be largely distributed, not

from San Francisco, but from Portland, Seattle and

Tacoma, which enjoyed the Pacific Coast terminal rate

in common with San Francisco, and were nearer to

the points of consumption; indeed, Spokane would job

into the same territory (p. 4548). The Northern Pa-

cific rails went farther into this territory than those of

the Navigation Company, but pro tanto, the relation

between the Navigation Company and the Southern

Pacific was that of preferred connection, vielding to the

Southern Pacific a better division of the through rate

(p. 4547). For the calendar year 1900, Southern Pa-

cific tonnage, in connection with the Northern Pacific

was two hundredths of one per cent of the Southern

Pacific tonnage, and the earnings two hundredths of

one per cent of operating revenue (p. 4581); in con-

nection with the Navigation Company, and for the year

ending June 30, 1400, the Union Pacific tonnage was

one hundredth of one per cent of Union Pacific ton-

57

nage, the earnings four hundredths of one per cent of

operating revenue, while the Southern Pacific tonnage

was one one-hundredth of one per cent of Southern

Pacific tonnage, and the earnings one one-hundredth of

one per cent of operating revenue (pp. 4581, 4899).

While the steamship service of the Union Pacific, with-

out reference to the rails bevond—having in mind its

mixed service to these northwestern points—for the

year ending June 30, 1490, represented in tons, carried

twenty-three hundredths of one per cent of Union Pa-

cific tonnage and in earnings ten hundredths of one per

cent of operating revenue; the Southern lacific service,

in connection with the Northern Pacific, represented, as

just noted, two hundredths of one per cent of Southern

Pacific tonnage and two hundredths of one per cent of

operating revenue.

The Southern Pacific business from San Francisco to

Montana went principally via Ogden and over the

Short Line as a connecting line. This simply means

that the Union Pacific and Southern Pacific on this

business were connecting lines, just as they were con-

necting lines through Ogden on the California business

(pp. 2039, 4548, 3085, 3089, 3128). Tor the year end-

ing June 30, 1900, Union Pacifie tonnage, on this

connecting business was four hundredths of one per

cent of tons carried, and the earnines eight hundredths

of one per cent of operating revenue: the Southern

Pacific tonnage percentage was three hundredths of

ene per cent, and of operating revenue seven hun-

dredths of one per cent (p. 4901).

bee

“at AUNER SBS Shee Tar aS torts Sisk

58

Some reference is made in the record to some wool

business, as between the Short Line and Southern

Pacific, but it is not of moment enough to discuss (pp.

4613, 4614, 4615, 4626, 4627, 4085).

LAND.

There remains the local business between San Fran-

cisco and Portland, including river points south of

Portland. The Navigation Company, as has been

pointed out, had two or three small river boats south

of Portland, and a couple of steamers between Port-

land and San Francisco. The Southern Pacific had its

rail line between San Francisco and Portland, passing

through the Willamette Valley. If this local business

between San Francisco and Portland had any sub-

stantial relation to the main issue here, a decree deal-

ing with the Union Pacific interest in the steamers,

would dispose of the matter. That stock once parted

with, the alleged suppression of competition—funda-

mental questions of law apart—would go out of the

case. But this matter has only an incidental and re-

mote relation to the case; it has no bearing whatever

on the main transaction; there was something else

besides local business between San Francisco and Port-

land, that lay behind the investment of forty millions

of dollars in Southern Pacific stock. The local origin,

character and distribution of this business has already

been noted (pp. 4487-8). The boats had competition

on the ocean highway with steam schooners, plying

between Portland and San Francisco, and with steam

schooners between Puget Sound and San Francisco—

59

carrying substantially the same character of freight

(p. 4490). The history of the steamers, as given in

figures, does not present the investment attractively;

doubtless the Union Pacific would not repine at seeing

them go. For the fiscal year ending June 30, 1899,

there was a deficit of $3,872.87; with gross earnings

of $359,393.06; June 30, 1900, a surplus of $59,629.60,

with gross earnings of $447,690.68; June 30, 1901,

a surplus of $20,233.44, with gross earnings of $457,-

575.17; and with a ratio of operating expenses to gross

PA Aa eats ee Mn On PR UE AEN aay a wemsvonaceng

earnings, not including taxes of 101 per cent for 1899,

86 per cent for 1900, and 95 per cent for 1901. The

tonnage of these steamers, northbound and _ south-

bound, for the year ending June 30, 1899, was 85,738

tons ; 1900, 86,136 tons; 1901, 76,700 tons. To make a

comparison with the tonnage and earnings of the rail

RAR ORAS NOTIN Ma Ree rasp

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lines of the Navigation Company alone, apart from the

Union Pacific System, the figures are: 1899, 1,375,737

tons, earnings, $6,258,282.23: 1900, 1,506,265 tons,

earnings, $6,683,114.85; 1901, 1,843,833 tons, earnings

$7,542,954.75 (pp. 4488-9). The figures for the car-

load movement by rail between San Francisco and

Portland during these three years, 1899, 1900 and

1901, are not available; but that movement, for those

ihree years, was substantially the same as it was in

1898 (p. 4489); and for that year the carload move-

ment from San Francisco to Portland was only 144

:

cars, the movement southbound was substantially the

same, the freight was taken on way trains, and of the

144 cars, 36 consisted of sugar for delivery in ware-

houses on Southern Pacific tracks in Portland, and 84

consisted of tin cans in bulk, not practicable of car-

60

riage by ocean steamer, and deliverable on Southern

Pacific tracks in East Portland (p. 4489). Then years

later, for the year 1908, the carload movement from

San Francisco to Portland was 640 cars, but of these

289 cars represented abnormal shipments of scrap iron

out of the ruins of the San Francisco fire (pp. 4480-

4490).

The rail line, in the early go’s, did make some effort

to compete against the steamers. ‘‘We tried very

hard,” says Mr. Stubbs, “in the early 9o’s, after the

opening of the Shasta Route, we tried it out, did a

great many foolish things, and we had to learn by

experience. Yes, sir, we tried very hard to get it and

we demonstrated to our satisfaction that it was impos-

sible for us to do it” (p. 3976).

He says further: “that the advantages of the boat

line over the rail line were such that the rail line could

not overcome them; and, moreover, that the competi-

tion between the several carriers on the sea route for

that business made it not only undesirable, but intensi-

fed that undesirableness of the business” (p. 3976).

He says again: “That some little jags of business

would move that way, yes, sir, there is no doubt about

it.” And further:

“When any man would come down and put it on

our platform, of course, we wouid take it. What I

mean is, that there was no competition for that freight.

We had no active solicitation. In other words, we

practically, in our parlance, went out of that business;

and we went out of it not willingly any more than we

x

61

would go out of any other business that was profitable”

(p. 3977).

Mr. Connor representing the steamers at San Fran-

cisco in the times when, as Mr. Stubbs says, the rail-

road “did a great many foolish things,” testified: “My

recollection is that the railroads got very little freight

during that time, or during any time prior to this rate

war.”

“(. How was it after that, after the settlement,

after the differential was established ?

“A. I could not say; | do not know.

“Q. You don’t know how it was divided?

“A. The only way I had of knowing at the time was

the information my solicitors gave me as to the quan-

tity of freight going to the Southern Pacific freight

sheds by watching the marks and ways of hauling and

one thing or another. We had no records except what

we could pick up in that manner” (p. 2901). The dif-

ferential he mentions, after the rate war was over, was

six cents on less than carloads, and three cents per

hundred on carloads, in favor of the water line (p.

2901 ).

Again:

“Q. Judge Lovett asks whether you stated what re-

port you received from your solicitors about the way

freight was moving to Portland by the Shasta Route?

ESHA

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“A. They would report occasionally a carload of

wine assembling in the Southern Pacific freight sheds,

or a cargo of canned goods” (p. 2902). This is what

Mr. Stubbs calls “some little jags of business.”

Mr. Stubbs was asked:

“QO. Now I will ask you a question whether the

operation of freight trains between San Francisco and

Portland, and conversely, prior to 1901, and since this

foolish rate war which you have spoken of,—freight

and passengers—whether the operation of the freight

train by the rail carrier between San Francisco and

Portland made any substantial impression, as a matter

of fact, upon the freight business of the steamship

companies ?

“A. It has not” (p. 3985).

Mr. G. W. Luce was General Agent of the Union

Pacific Freight Department at San Francisco from

September, 1891, until November, 1894 (p. 4543).

Since that time he has been in the freight service of

the Southern Pacific in California (p. 4543). He testi-

fies that the train between San Francisco and Portland

was a way train handling freight for Sacramento, Lin-

coln, Wheatland, Marysville, Oroville, Durham, Nel-

son, Chico, Red Bluff, up to Dunsmuir and beyond—

these being points in the Sacramento Valley, California

—handling way freight also for Oregon points like

Ashland and Grants Pass, up to the Willamette Valley,

and through the Valley to Portland. Speaking of the

\Villamette Valley traffic, he savs: “It would undouht-

edly place that traffic with this other traffic I have men-

63

tioned, and would handle it in that train up as far as

Dunsmuir. I do not think they would have sufficient

in any train to run a train beyond there without gath-

ering together trains of three or four days, and then

possibly they could run a way train from there toward

Portland” (p. 4544).

He was asxed:

“Q. Then the train would move along from place to

place from San Francisco until it finally reached Port-

land?

“A. Yes, sir.

“Q. About how much time did that train take?

“A. That train would make at the present time 6 or

7 days from San Francisco to Portland.

“Q. Do you know anything about the time the train

took, say, in 1900?

“A. We never considered therail line traffic in

those days. The service was, I should say, 6, 7 or 8

days.

“Q. I am speaking now, say, of the years 1900 and

1901: What would the service be, about how many

days?

“A. I should say about 7 or 8 days.

“Q. During the time that vou represented the Union

Pacific as its agent in San Francisco, to what extent

was the Southern Pacific Company a factor in the

64

taking of freight business, San Francisco and Port-

land?

“A. We never considered the Southern Pacific in-

terested in that traffic whatever.

“Q. What do you mean by that?

“A. That they didn’t engage in it, they didn't

handle the business, didn’t seek it. The ocean lines

generally handled that business between San Francisco

and Portland” (pp. 4544-5).

As to the passenger business: “Each line has its

characteristics, and, as a practical matter, there is no

substantial competition between these lines. We pay

no more attention today, and have not for years, to

what the steamship lines do in passenger matters, than

if there was no steamship line there. The steamship

lines, according to my information, my observation,

pay no more attention to what we do. That was not

true in the beginning, we didn’t know as much as we

know today. We did a great many foolish things.

That whole passenger war, there was no possible ex-

cuse for it, unless it might be argued that it was good

as an advertisement for the Shasta Line; no possible

excuse for it. If we had known as much then as we

know now, it would not have occurred. That is the

idea I am trying to convey to you. You might take

the boats off, or you might take our rail line off, and

so far as the increase or decrease of the traffic to

either one or the other is concerned, I do not think

it would be noticeable” (Mr. Stubbs, p. 3978).

65

Mr. Stubbs says further: “You might just as well

say that our steamship line between New York and

New Orleans competed with the all-rail route. It is

entirely tourist travel, and there is practically no com-

petition in the sense that we use the word” (p. 3979).

In one year, says Mr. Stubbs, the Southern Pacific

spent $100,000 in advertising the scenic route between

San Francisco and Portland (p. 3980); and, in con-

trast to the creeping way train on freight, described

by Mr. Luce, Mr. Stubbs testifies to three through

passenger trains a day from San Francisco to Port-

land, loaded with people (p. 3979).

Mr. Stubbs further testifies:

“Passing to the passenger business between San

Francisco and Portland, I will ask you the question

whether vou would have advertised the Shasta Route

and expended these large amounts of money in giving

publicity to that method of carriage for passengers—

if you would not have done those very things if the

O. R. & N. Company’s steam boats had never turned

a wheel between Portland and San Francisco?

“A. We certainly would have done it just as the

D. & R. G. did it for its scenic route.

“(). In other words, as you said, you were creating

traffic for the line?

“A. That is exactly what we did” (p. 3985).

Mr. C. S. Fee, Passenger Traffic Manager of the

Southern Pacific Company, testified that very little

through transcontinental business seeks the ocean line,

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and further: “My own judgment was that the busi-

ness which might seek the ocean route, the longer time,

had reasons of its own, and that it would go that way

almost regardless of the rate. In the summer season,

it is a somewhat pleasant journey for some people.

Our business was large and satisfactory, and we never

in any way recognized the ocean line.” He speaks of

the through passenger trains between San Francisco

and Portland, three trains each way a day, with run-

ning time from 27 to 36 hours (p. 4692). While the

steamship line “did a considerable business for steam-

ship lines,” Mr. McCormick says that its passenger

traffic was very inconsiderable in volume as compared

vith the rail passenger traffic, and that when he was

Passenger Traffic Manager of the Southern Pacific

Company, from 1899 to 1904, he conducted the rail

business, “with no relation whatever to the steamship

company” (pp. 4680, 4681).

The steamship freight tonnage between San Fran-

cisco and Portland for the year ending June 30, 1901,

was 76,700 tons, earning $217,050.55. This repre-

sented ninety-three hundredths of one per cent of Union

Pacific tonnage for that year, and one-half of one per

cent for operating revenue (p. 3954). No estimate was

possible for the Southern Pacific tonnage by rail, be-

cause of the destruction of the records in the San

Francisco fire. Mr. Stubbs made an estimate, mani-

festly an over-estimate, which, applied to Southern

Pacific tonnage and operating revenue for the same

fiscal year, would reduce to percentages considerably

less than these small fractions for the Union Pacific.

67

His estimate gives the Southern Pacific 25,879 tons,

and earnings of $110,691.80. This tonnage, for 1901,

was assumed to be equal to the average movement for

the years ending June 30, 1907 and 1908, which will

be remembered as the crest of the wave; and the rate

per ton applied was $4.20, that being the average rate

for the years last mentioned. As he says, “this show-

ing is at best only a guess, but the guessing is an

over-estimate rather than an under-estimate” (p.

3953).

“The steamship service,” as Mr. Stubbs puts it,

“between San Francisco and Portland is better than

the rail service, with this single exception—that the rail

service is daily while the steamship service is probably

only once in five days. The points of delivery and tak-

ing at San Francisco and Portland favor the steamship

line. In the early opening of the Shasta Route, we had

some ambition to load our trains northbound, and made

some attempts to get the business, but found that we

absolutely could not take the business as against the

steamship line, but besides this is the fact that there

were outside competition with the O. R. & N., other

steamship lines and steam schooners, that made the

rates not only unremunerative, but they were unstable;

so, after several attempts to join in that business, we

quit. And that was before this merger, so-called.

“Q. That was betore the year 1901?

“A. Yes” (p. 3955).

Indeed the testimony and showing just rehearsed

likens the situation to that which was presented to the

ca |

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68

court by the facts and testimony in the case of /Ilinois

Trust Company against St. Louis & Iron Mountain

Railway (75 N. E., p. 565).

There was no business to speak of, served by the two

river boats below Portland, except some paper from a

shipper who had a mill at Oregon City, 15 miles south

of Portland (pp. 485, 3955). For the year ending June

30, 1901, the total tonnage, including the paper mill,

was only 37,066 tons, with earnings of $120,291.39 (p.

4569). Because of the destruction of the records, only

an estimate could be made for the Southern Pacific, for

the same year. The monthly tonnage and revenue

attributed by the estimate to the Southern Pacific were

2120 tons and $12,196.50 (Cf., p. 4591). “My best

judgment,” says Mr. Stubbs, “is that that estimate

is overstated, that it represents a taking by the rail

lines more than the actual if we were able to get the

actual. The difference in the rate is derived by taking

the average difference. On less than carloads, the

difference in the rates by sea, by the O. R. & N.

steamer, and by rail, ‘s $1.20 per ton; on carloads it is

60 cents per ton. I have added the two together and

divided them equally, giving me the result of go cents,

which in my judgment is against us” (pp. 3955-6).

These paper mills “are on the west side of the river,

and away from the reach of the railroad. They are

served directly by boats. And we have never been able

to take anv of that business, in fact have not attempted

to do it for many years—local to the steamship line”

(p. 3955).

69

Mr. Stubbs’ attention (p. 3975) was called to the

testimony of Captain Graham who has some boats on

the river. Graham said that his boats did not care for

the paper mill traffic, did not seek it—“not enough

revenue in it” (p. 3975). This paper, he says, is des-

tined “mostly” to San Francisco (p. 3975). He

further says that the paper mill “sends some of it

across the river in their own boat, over to Pulp, and

that goes down on the Southern Pacific” (p. 3976).

Mr. Stubbs remarked that he stood fully on what he

had said (p. 3976). Graham did not throw any light

on the quantity of paper represented by “some of it

across the river in their own boat.” But he says fur-

ther that the Navigation Company still runs one river

boat, the “Ruth” to the Oregon City locks, to the paper

mills, handling supplies to the mill “and the output

irom the mill.”

“Q. Do they handle it all?

“A. Yes, sir, they take all the output, we handle a

little of the supplies in.

“Q. You didn’t participate in the output at all?

“A. No, sir” (p. 3985).

Graham is speaking of the time before the stock pur-

chase. He further says:

“Q. Does the Southern Pacific reach this paper

mill ?

“A. No, sir.

“Q. How far are they from it?

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70

“A. Right across the river. The paper mills are in

the locks and they are inaccessible even to a team.

“(Q. The prudent man can only come in by boat?

“A. Yes, sir” (p. 3986). And Mr. Stubbs says that

is also his understanding of the situation (p. 3986).

Graham had said that the paper went “mostly” to

San Francisco. Some of it, presumably, could have

gone to some way point between Oregon City and San

Francisco, some interior point in Oregon or California,

local to the Southern Pacific rails. In that event,

“some” of it might have been taken “by a /ittle boat

across the river to a small station, and sent south by

the Southern Pacific.” This would not affect the show-

ing as to San Francisco. Complainant’s counsel put

this question to Mr. Miller:

“C). As to the movement of traffic from Oregon City

to San Francisco, speaking of paper; some of that

paper is brought down to Portland and sent down by

boat, and some of it taken by a little boat across the

river to a small station, and sent south by the South-

ern Pacific rail lines, isn’t that true?

“A. Yes.

“(C). IT want you to straighten that out because Mr.

Stubbs said none of it moved by rail.

“A. Well, Mr. Stubbs referred to the San Fran-

cisco paper, I take it, which is true” (p. 4535).

Now, then, attributing the San Francisco paper to

the O. R. & N. locally, the tonnage, Union Pacific, be-

71

tween the river and San Francisco, in both directions,

represented eight one-hundredths of one per cent of

Union Pacific tonnage, and ten one-hundredths of one

per cent of operating revenue (p. 4509).

It will be remembered, that in stating the fractions

ior Colorado and Utah, the point of relation was not

the Southern Pacific tonnage and revenue generally,

but only so much thereof as was attributable to the

Morgan line takings. The relation, however, to the

general tonnage and revenue of the Southern Pacific,

also the Union Pacific, has been worked out (pp. 3969,

4599, 4600). Owing to the destruction of records,

figures for Union Pacific traffic for 1900 were not

evailable, and therefore, to that extent, the figures for

October, 1906, and April, 1907, were taken from state-

ments made at the request of complainant, and intro-

duced as complainant’s Exhibits 120-C and 120-D (p.

3969). The Utah business represents 712 one-thou-

sandths of one per cent of Union Pacific operating

revenue; the Colorado business 245 one-thousandths

of one per cent; and for the Southern Pacific, the Colo-

rado business 316 one-thousandths of one per cent, the

Utah business 39 one-thousandths of one per cent (p.

3971).

NORTHERN PACIFIC STOCK PURCHASE AS AN ASPECT

OF THE BURLINGTON STRUGGLE.

Mr. Jacob H. Schiff, one of the reorganizers and di-

rectors of the Union Pacific, a member of its Executive

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Committee, was asked by counsel for complainant the

question (Record, p. 1101):

“Q. What was the purpose of the Union Pacific or

the Oregon Short Line in acquiring the majority of

the stock of the Northern Pacific?

“A. I think that is a question which Mr. Harriman

is better able to answer than I, but as far as I can

answer it I will say its purpose was to continue, if

possible, the status quo as far as the Burlington and

Quincy was concerned—to keep it independent.

“Q. That is, to get a half interest in the control of

the C., B. & Q.?

“A. There was nothing clearly thought or said about

it. I think the Union Pa: ‘fic managers felt that if they

controlled the Northern Pacific—which they had no

desire to control because it was the Northern Pacific—

but if they did control the Northern Pacific, which at

that time, together with the Great Northern, had ac-

complished the purchase of the Burlington & Quincy,

they might still be in a position to enforce independent

management of the Burlington & Quincy.

“Q. And that was the purpose? It was for the pur-

pose of controlling the action of the Burlington that

you—and by ‘you’ I mean the Union Pacific interests

—sought to take over the control, of the Northern

Pacific ?

“A. By no means the action of the Burlington—it

was rather to compel the action of the Great Northern

and Northern Pacific—or rather the Northern Pacific

—which had bought the Burlington jointly with the

73

Great Northern—and to leave the Burlington & Quincy

in its status quo.

“Q. What do you mean by the status quo?

“A. Leave it independent.

“Q. What interest did the Union Pacific have in

what was done with the Burlington?

“A. While it was to some extent a sharp rival, it

was always able to get along with it, but the managers

of the Union Pacific did not know, with two new inter-

ests coming into that territory, what might become of

the Burlington and what havoc might be played with

existing competitive conditions, which were entirely

satisfactory.

“Q. That is, you did not want new competitors to

come into the Union Pacific territory? You did not

want the Northern lines to come down there as com-

petitors in the Union Pacific territory ?

“A. That was not the case as far as I understand

it; I do not believe, as far as I can remember, that

anything was considered or thought about it at that

time, except that existing conditions should not be

changed. As you are aware, the thing worked out dif-

ferently, and it is rather difficult to say now what

would have been the result if the Union Pacific had

carried out its purpose in forcing the status quo to be

maintained.

“Q. Now, Mr. Schiff, you say that the status quo

meant that the Burlington, while a sharp rival, was

one that you could get along with in the Union Pacific

territory—that is what you said a moment ago, isn’t it?

“A. Yes.

“(). And it was to prevent any different or other

rivalry, was it not, that you desired to prevent the

Northern lines getting control of the Burlington?

“A. By no means.

“(C). What did you want then, what were you afraid

of?

“A. We were not afraid of anything, but we knew

we were satisfied with the status quo, and we wanted

to have that maintained. We were not theorizing, we

did not know what was beyond. We only knew what

existed and we wanted to hold on to that.

“Q. You wanted to hold on to the situation that then

existed?

“A. Yes. .

“Q. This friendly rivalry with the Burlington?

“1

In the same examination, Mr. Schiff testified to an

interview between Mr. Harriman and Mr. Hill in

which Mr. Harriman expressed for the Union Pacific

its desire to have an interest in the Burlington pur-

chase, and Mr. Hill, as Mr. Schiff remembered it, de-

clined the suggestion. “I cannot exactly remember,”

says Mr. Schiff (Record, p. 1100), “whether it was a

formal request. I know such was the desire, in order

to keep the Burlington & Quincy independent, that the

Union Pacific interests, if the purchase was made by

the two Northern companies, should have an interest

in it.” Again, he says (Record, pp. 1099, 1100):

75

“As far as I can remember—this is a matter of

seven or eight years ago—but as far as I can remem-

ber, there were either one or two discussions between

Mr. Harriman and Mr. Hill, and I believe I was present

at least at one of them, in which the general aspect of

the situation was discussed, and in which Mr. Harri-

man objected to the Burlington & Quincy passing into

the hands of the Northern Pacific and Great Northern,

and insisted that it should be kept independent. He

said that the Union Pacific was perfectly satisfied with

the position of the Burlington & Quincy as it existed,

and he thought it was inadvisable that it should be

attached to the two Northern corporations, or either

of them.”

He was further examined by counsel for complain-

ant (p. 1100):

“Q. You do not remember the exact conversation,

I suppose, so many years ago?

“A. No, that is eight years ago.

“Q. And was the desire expressed that that interest

be an equal interest with the others, that is, one-third

to each of the three companies?

‘A. That I cannot remember.

“(. All you remember is, that it was the desire to

have some interest in the purchase?

“A. Yes.

“Q. What ground of objection did Mr. Harriman

urge on behalf of the Union Pacific, or from its stand-

point, to the Northern lines acquiring the Burlington?

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“A. As far as I can remember, he thought existing

conditions should not be disturbed.

“Q. But if it was to be purchased, that the Union

Pacific interests should share in the purchase?

“A. Should have an interest, yes.

“(). Do you remember about when that conversation

was, Mr. Schiff?

“A. As far as I can remember, it was in the spring

of 1901, but I cannot remember exactly whether it was

in April or May.

“Q. A little earlier, wasn’t it?

“A. It was in the spring of the year.

“Q. What did Mr. Hill respond to that suggestion ?

“A. As far as I can remember, it was declined.”

Mr. Harriman and Mr. Schiff, then, were acting for

the Union Pacific. But who was it that Mr. Hill was

representing? He was the President of the Great

Northern. But the Northern Pacific had a half in-

terest with the Great Northern in the Burlington pur-

chase, and Mr. Hill represented both and declined

for both.

On cross-examination by counsel for the Union

Pacific, Mr. Schiff testified (p. 1107):

“Q. At the time of the conversations with Mr. Hill,

about which you were interrogated, the Burlington

owned a line extending from Chicago to Omaha, where

it connected with the Union Pacific, did it not?

“A. It did.

“(C). And also a line as far westwardly as Denver,

where it connected with the Union Pacific again?

77

“A. It did, as far as that.

“CQ. Then it connected with the Union Pacific at

other points in Nebraska and Colorado and Wyoming,

did it not?

“A. It did.

“(). Wasn't it a system that originated a great deal

of traffic, Mr. Schiff ?

“A. As far as I know, it was.

“(), One of the effects of the control of the Burling-

ton by the Northern Pacific and Great Northern,

would have been to divert to those lines as against the

Union Pacific line—or the tendency would have been

to divert to those lines as against the Union Pacific

line—such traffic as originated on the Burlington lines

for the Pacific Coast, would it not?

“A. IT have no doubt that would have been possible.”

MR. KAHN’S TESTIMONY.

Mr. Otto H. Kahn, a member with Mr. Schiff of the

banking house of Kuhn, Loeb & Co., also one of the

reorganizers of the Union Pacific, a member of its

Board and of the Executive Committee, goes fully into

the relation and attitude of the Union Pacific towards

the Burlington purchase. He speaks of the issue by

the Union Pacific of $100,000,000 in convertible bonds

by resolution of the Union Pacific Board of February

20, 1901 (Record, p. 4712).

$40,000,000 of these bonds had special reference to

the purchase of the Southern Pacific stock, and were

offered to the stockholders for subscription. The re-

RAIDEN HY PE

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78

maining $60,000,000 were not offered to the stock-

holders, but were bought directly by Kuhn, Loeb &

Co. (Record, p. 4712). Mr. Kahn says (Record, p.

4713) that he had ‘“‘a large part in discussing and de-

termining upon that issue, and I know exactly what

was in our minds in concluding that the issue should

be made $100,000,000, although at that time only $40,-

000,000 were needed to pay for Southern Pacific stock,

and I am quite willing to disclose it, if I may.”

He continues (p. 4714):

“The authorized issue was made $100,000,000, not-

withstanding the fact that for immediate purposes

only $40,000,000 were required. There were a number

of reasons for making that issue $100,000,000. The

first reason, the general reason, which was particularly

a reason inherent in Mr. Harriman’s manner of con-

ducting the financial affairs of the company, was that

he invariably asked for authority for a larger issue

of securities than were immediately needed. That was

so in the case of the Oregon Short Line Participating

Bonds, where $82,000,000 were authorized and only

$31,000,000 were immediately needed; in the case of

the Oregon Short Line Refunding 4’s, where $100,-

000,000 were authorized and only $4,000,000 were im-

mediately needed. In the case of the Southern Pacific

preferred stock there were $100,000,000 authorized and

only $40,000,000 immediately needed. And it has been

similarly done very frequently in the case of other

railroads, such as the Norfolk & Western, the Pennsyl-

vania, the Atchison, all of whom, as a measure of con-

venience and as a measure of precaution, when going

re De

pk

79

to their stockholders and asking for authorit, cor a

new issue, ask for a great deal more than was im-

mediately needed. That was the first reason. The

second was that at that time there were reports—very

definite reports—that the Hill interests were going to

acquire the Burlington. Mr. Harriman was quite clear

in his mind, and so were we all quite clear in our minds,

that if the Burlington were acquired by interests an-

tagonistic to the Union Pacific, one of two things would

happen: the Union Pacific would go and ask for repre-

sentation in that purchase, so as to leave the existing

situation as between the Burlington and the Union

Pacific undisturbed. If it got it, well and good. If it

did not get it, it would fight—it would protect itself

as best it could against what it considered a danger.

And for that purpose money was required to face a

situation which, in Mr. Harriman’s mind, it was quite

clear, would lead to one of two things: either he would

be given a share in the Burlington, in which case he

would need money to pay for his share; or he would

not be given a share in the Burlington, in which case

he would fight, and for fighting he would not know

in exactly what way and where the fight would take

place, how he would use his money, but he knew

he would use his money for attack and defense, and

when a man prepares for such a fight, what he needs

is brains and courage and money. Mr. Harriman did

not need to provide himself with brains and courage,

for he always had those at his disposal, but he did need

to provide himself with money in anticipation of a pos-

sible use for it, in a situation created not by his own

volition, but created by others, and which he felt

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80

threatened and endangered the interest of the Union

Pacific and must be guarded against.

“Q. Let me ask you at this point whether any steps

had been taken or overtures made, on the part of the

Union Pacific, or Mr. Harriman, representing the

Union Pacific, towards the acquisition of any stock-

holding in the Burlington, in 1900?

“A. Yes, in 1900, for the first time Mr. Harriman

conferred with us as to the great importance of main-

taining the existing relations—existing relations of

competition and existing relations of feeding, I might

say—between the Burlington and Union Pacific, and as

to the danger of the Union Pacific if a hostile interest

acquired control of the Burlington. The Burlington in

many ways was a very valuable business customer to

the Union Pacific; in some ways it was a competitor,

but in many important ways it gave business to the

Union Pacific. Mr. Harriman and we felt that that re-

lationship should be continued. The Burlington, whilst

an active competitor, was a fair competitor, with con-

servative management, and we had been able for many

years to get along with it and live with it as active

competitors, but as fair competitors. Mr. Harriman

and we received information that the people who were

then in active control of the Burlington, mainly New

England people, were thinking of retiring from the

active management. Mr. Harriman, with our knowl-

edge, entered into negotiations with them for the pur-

chase of their holdings, which, if I remember rightly,

amounted to something like 10 or 15 per cent of the

81

total of the Burlington stock. They asked too high a

price to suit Mr. Harriman, and nothing came of his

negotiations at the time. But the subject of preserving

the Burlington, independent, as it then was, was a

matter of anxious thought and of anxious consideration

as early as the beginning of 1900.

“Q. When you say the beginning of 1900, do you

point to that as the time when these early negotia-

tions, the acquisition of an interest in the Burlington,

were contemplated and made?

“A. They were made and continued throughout

1900.

“Q. Beginning how early?

“A. I could not remember the exact dates, but they

took place, off and on, from the beginning of 1900

until Mr. Harriman left—I think for Alaska: anyway,

he was away from New York for quite a time.

“Q. During that year 1900 and prior thereto what

had been the attitude of the Union Pacific toward the

management (which I may have mentioned descrip-

tively as the New England management) of the Bur-

lington, and what were the relations of the Union Pa-

cific toward that management ?

“A. The Burlington in some respects was comtpeti-

tive with the Union Pacific and in other respects it

was a feeder to the Union Pacific. The relations, so

far as they were competitive, were actively competi-

tive, but they were fairly competitive.

“Q. And what were the relations in point of feel-

ing between Mr. Harriman and the New England

SOTA NEE INS BOS Seo

82

management of the Burlington—I mean in respect to

good feeling?

“A. Mr. Harriman had great respect and liking for

the management of the Burlington, for Mr. Perkins,

of Boston, and the other gentlemen who for years had

managed the Burlington. He understood them and he

felt that they understood him. In the competition be-

tween them there was a spirit of ‘live and let live.’

“QO. In respect to the contemplated acquisition of 10.

or 15 per cent of the Burlington stock, to which you

have referred, was there any intent or purpose in the

contemplation of that transaction or im its possible

consummation, to extinguish the competitive factor of

the Burlington?

“A. None whatever, and it could not have been

done, of course, with the amount of holdings which

were then contemplated; but it was in Mr. Harriman’s

mind and in our minds to have an interest sufficiently

large to preserve the independence of the Burlington

from outside control and to preserve the status quo

which had existed for many years.

“Q. Now, those negotiations having failed, will you

state what led up to the purchase of Northern Pacific

stock in 1901 by the Union Pacific?

“A. Yes. Towards the end of 1900 and early in

1901, reports came to us that Mr. Hill and his friends

were negotiating for the control of the Burlington and

were willing to pay the price which Mr. Harriman

had declined to pay, and were willing to pay it for all

of the stock. To express it mildly, the relations then

existing between Mr. Hill and Mr. Harriman were

ba eel

83

not exactly friendly. Mr. Harriman was a newcomer;

he was a very aggressive man; he had, naturally, in

the course of his rapid rise and the course of his fight

for the greater power and the greater recognition of

the Union Pacific, to run up against the susceptibili-

thes of many people, and the feelings between him and

Mr. Hill were, I should say, of mutual suspicion. Later

on, Lam happy to say, these men came to know each

other better, and to appreciate and admire and respect

each other, but at that time the feeling was anything

but friendly. Mr. Harriman felt that, with Mr. Hill

the controlling factor in the Burlington, the situation

would be changed very much, to the detriment of the

Union Pacific. He knew that there was competition

between the Union Pacific and the ‘Burlington; he

might have preferred if there had not been any at all,

but he knew that could not be, and he preferred to

‘bear the ills he had rather than fly to others that he

knew not of, especially when the dispenser of those

‘ills’ was a man at that time so little friendly to him

as Mr. Hill. And it was perfectly clear that that

could not be permitted to happen—that control of the

Burlington by Mr. Hill and his interests; that de-

fection of the Burlington’s entire relations from the

Union Pacific to the Northern Pacific, and the conse-

quent shutting out of the Union Pacific from that im-

mediate territory, could not be permitted without the

Most strenuous kind of effort on the part of the Union

Pacific to prevent it. In March, 1901, if I remember

the date rightly, the acquisition by the Northern Pa-

cific and Great Northern of the Burlington was def-

initely announced. Prior to that time there had been

84

repeated approaches made by the Union Pacific 1n-

terests to obtain from the new owners of Burlington

some kind of recognition in the way of binding ar-

rangements which would protect the Union Pacific

against the dangers which it foresaw from hostile con-

trol of the Burlington. Those approaches and efforts

on the part of the Union Pacific finally came down

to a. request for a third of a half interest in that pur-

chase, so that the Union Pacific interests could be in

a position to watch and see that their interests were

not sacrificed, and this request on the part of the

Union Pacific was finally, flatly and definitely refused,

and they were told that no kind of participation in

the purchase could be given to them. Thereupon the

Union Pacific interests served notice that they consid-

ered that a hostile act, and that they would have to take

such measures as seemed to them best to protect their

interests. I would like to mention in this connection,

as bearing upon the connection which you have asked

me as to the purpose of that $100,000,000 issue, that

when that $100,000,000 was authorized, in the last

cays of January or the first days of February; we

had not the remotest idea that we were going to buy

the Northern Pacific. If we had had that idea it is

natural that, having some experience in financial mat-

ters, we would have made that issue sufficiently large

to take care of the amount which would be required

to acquire control of the Northern Pacific. In other

words, if it then had been in our minds to acquire a

majority of Northern Pacific stock, as we afterwards

did under compulsion, we should have made that issue

$125,000,000 instead of $100,000,000 because acqui-

85

sition of a majority of the Northern Pacific called not

tor $60,000,000 but for $85,000,000, and if it had

been in our minds to do what we later on did do with

the use of those convertible bonds, we would have

made the issue sufficiently large to cover our needs

and not sufficiently small to fall short by $25,000,000

of covering our needs. The first time that the acquisi-

tion of the Northern Pacific was ever mentioned be-

tween the Union Pacific interests was late in Febru-

ary, 1901, after the aquisition of the Burlington had

come to our knowledge as a definite’ fact and after

our efforts to obtain a peaceable solution of the situa-

tion thereby created had failed. 1 remember the date

so distinctly because after the carrying through of

the Southern Pacific negotiations, I went to Hot

Springs, about the middle of February, 1901, and

towards the end of February, 1901, I received a letter

from my partner, Mr. Jacob Schiff, telling me that

he had exhausted all efforts to bring about the recog-

nition of the legitimate claims of the Union Pacific

to be considered in the purchase of the Burlington,

or to be allotted a share in that purchase either for

itself or for interests allied with it, and that therefore

there was nothing to do but to bring about by in-

direction that which we had failed to bring about

directly; that is, protection of the Union Pacific as

far as the disruption of its relation to the Burlington

was concerned, and that protection as far as he could

see could only be brought about by our purchasing a

control of the Northern Pacific, which owned one-

half of the Burlington stock. Prior to that the idea

of buying Northern Pacific had never been in our

ee

86

minds and had never been mentioned between us, and

the purchasing of Northern Pacific was the direct con-

sequence of the purchase by the Northern Pacific of

the Burlington, and otherwise would never have taken

place.

“Q. Then, as I understand you, Mr. Kahn, the pur-

chase of Northern Pacific stock as such would not

have been entered upon if the Great Northern and the

Northern Pacific had not absorbed the Burlington ?

“A. It never came into our minds until the Great

Northern and Northern Pacific absorbed the Burling-

ton, and it was a consequence of their doing so.

“Q. In that transaction will you state what your

attitude was in relation to the purchase of Northern

Pacific stock, as to whether it was an affirmative or

negative attitude, offensive or defensive?

“A. Our attitude was a purely defensive one, with

the purpose of maintaining the status quo in the re-

lations of the Burlington and the Union Pacific.

“(). Was there any relation or connection between

the Southern Pacific stock purchase and your attitude

and transactions in respect to the Burlington or the

Northern Pacific ?

“A. None whatever. At the time we bought the

Southern Pacific, as I have already stated, the idea of

acquiring Northern Pacific was in no way in the minds

of any of us, and we should not have acquired North-

ern Pacific unless and until the Hill interests acquired

the Burlington, and thereby vitally, as it then seemed,

interfered with the relations that had for many years

existed between the Burlington and the Union Pacific.

87

“Q. Was there any intent or purpose in any of these

transactions to monopolize commerce or to restrain or

prevent competition between carriers?

“A. None whatsoever” (pp. 4714-4719).

Touching the kind of competition, as it was appre-

hended or suspected by the Union Pacific, that the Hill

interests would wage through the Burlington, in con-

trast with the competitive relations that for years had

existed between the Burlington and the Union Pacific,

Mr. Kahn testified on cross-examination (p. 4744):

“Q. Now, you speak of the continuance of the com-

petition between the lines. Were you afraid that some-

body might get control of the Burlington and eliminate

competition between the Union Pacific and the Bur-

lington—did that frighten you?

“A. That would have been a pipe dream. ‘That

would not have been anything which reasonable men

would expect to accomplish.

“Q. You did not expect any outsider would do that,

did you?

“A. No.

“Q. Now, you say the competition existing was fair

competition; what do you mean by that?

“A. It is very hard to define words unless you have

a Webster dictionary right by your side. Fair com-

petition is, I think, a term which is very generally

understood, without my defining it any further. I do

not believe I could add anything to the general under-

standing of the term ‘fair competition.’ It means no

cut-throat competition, no underhanded methods, it

88

means active but fair; I could not define it any better

than that.”

Again, on cross-examination, Mr. Kahn says (p.

4745):

“In our thoughts was the menace or the danger to

the existing relationship between the Union Pacific

and the Burlington, who had been competitors for

many years, but who trusted each other, who con-

sidered each other fair—who obtained, so far as the

Union Pacific is concerned, a good deal of business

from the other. The thought in the minds of the

Union Pacific people when they wanted an interest in

the Burlington, was to have some kind of a voice in

it; was to maintain that status—not to have anybody

come in there and disturb a relationship which had been

satisfactory for many years to the two properties and

to the shippers.”

In 1900, as Mr. Kahn points out (pp. 4715-4716),

before the Hill intervention, the Burlington people

then in charge—mainly New England people, were

thinking of retiring from the active management. The

Union Pacific entered into negotiations for their hold-

ings, something between 10 and 15 per cent of the

stock. The asking price was too high, and nothing

came of it. On cross-examination, Mr. Kahn says

(pp. 4748-9): “I said, as far as I remember, it was

from 16 to I5 per cent; and 10 to 15 per cent would

have been ample in the case of the situation as it ex-

isted before; through Mr. Hill’s entrance into the

89

situation, the compact and formidable holding of Bur-

lington stock was concentrated in one hand. ‘There-

fore, the situation changed radically when Mr. Hill

came in. The thing that we were after was not a

third but a half. When half was refused, we went as

low as a third—what we were after was a full half.”

Then the cross-examining counsel—whose inquiries

once in a great while have a slight suggestion of the

ad captandum, puts this question:

“Q. That is to say, you wanted to have an absolute

veto on any extension or enlargement of the competi-

tion between the Union Pacific and the Burlington?

“A. We had not the slightest objection to an en-

largement of the competition, or to anything which

was proper for the Burlington. We simply did not

want the Burlington to be dominated exclusively by

interests which were antagonistic to the Union Pacific,

naturally and necessarily so, and which would, and

doubtless did (although I have not followed it up) in-

terfere with the relationship that hitherto had existed

between the Burlington and the Union Pacific” (p.

4749).

So much, then, and possibly at undue length of quo-

tation in a brief, for the testimony of Mr. Kahn as

to the Northern Pacific stock and the Burlington pur-

chase—a very able and frank witness, as the cross-

examiner gracefully allowed (p. 4748).

ies

LAETOLI RP

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Bettas cep eons: erp ete ote

90

SANTA FE STOCK PURCHASE.

Mr. Kahn testified (p. 4721):

“Q. It appears in the record that in 1906 the Union

Pacific acquired $10,000,000 of Atchison stock. Was

that common or preferred ?

“A. That was preferred, and it was acquired at the

end of July, 1906.

“(Q. From what source, if you know, was the amount

of that investment derived?

“A. We sold it to the Union Pacific.

“Q. Can you state from what source the Union Pa-

cific derived the funds that were invested in that

stock ?

“A. Yes. The Union Pacific had on hand, as is

generally known, a very large amount of Northern

Pacific and Great Northern. The price of Northern

Pacific and Great Northern had gone at that time to

something like $320 for Great Northern and some-

thing like $250 or more for Northern Pacific, and the

Union Pacific felt that at these extraordinary high

prices, which made the interest on the investment bare-

ly 3 per cent, it would be very wise for them to sell,

take their profit, and reinvest in other ways. Shall

I proceed ?

“Q. Yes.

“A. They could have reinvested—and the matter

was fully discussed—in several ways. They could

lave kept the enormous amount of money which they

realized from sales of Great Northern and Northern

Pacific—they could have kept that enormous amount

91

of money in the bank, where they would have had from

2 to 2! per cent on it, or they could have loaned it

out on collateral loans. It would have meant that

there would have been a fund at the disposal of the

Union Pacific, in cash, of from $100,000,000 to $150,-

000,000; and we all felt that, if that were done, there

would be, with the feeling which then existed against

Mr. Harriman and those associated with him, a gen-

eral outcry that the Union Pacific was trying to get

control not only of all the railroads in the land, but

of the money market too, and that it was manipulating

the money market with that enormous cash fund at its

disposal. Therefore, the idea of leaving that money

wuninvested was discarded. The next alternative was

for the Union Pacific to buy investment bonds with

proceeds of the sales from Great Northern and North-

ern Lacific. That would have given them an interest

return of barely 4 per cent, and a somewhat inactive

investment. Or the Union Pacific could have used

part of that great cash fund to call in some of its bonds

which could have been called, but the policy of calling

in bonds was one which did not recommend itself to

the judgment of Mr. Harriman or of his executive

committee, for reasons of principle which would take

too long to go into here. So there was the only alter-

native left for the investment of that enormous fund—

of buying high-class stocks, bringing from 4% to 5

per cent, and having at the same time the collateral

advantage of giving to the Union Pacific some kind

of a voice—simply as the voice of a considerable stock-

holder—in the councils of those principal lines from

which the Union Pacific through its connection de-

ERS FARO EG Seen ee

ENE NS ART ey

& FGA IAAI NAS et

92

rived a great deal of valuable traffic, and that was the

policy which was finally decided upon, and that was

the policy which explained the purchase of the Atchi-

son preferred stock and of most of the other purchases

in 1906.”

In 1904 (p. 4760) Mr. Harriman, Mr. Frick, Mr.

Rogers, also Mr. Schiff and Mr. Kahn, were among

the purchasers of $30,000,000 of the common stock of

the Santa Fe. This was “a purely personal invest-

ment” (p. 4722). “Our purpose,” says Mr. Schiff,

“was to invest in Atchison stock because we considered

it very low in price; and it may have been said, even

if I do remember it now, that it would be an ad-

vantage if friendlier relations than existed could be

obtained in consequence. That may have been stated,

even if I do not remember it, it may still be a fact

that that might have been stated” (pp. 1106-7). Mr.

Harriman had previously testified to an interview with

Mr. Morawetz and Mr. Ripley of the Santa Fe, touch-

ing the representation of the $30,000,000 of common

stock on the Santa Fe board. “It was in substance,”

explains Mr. Harriman, “that we were to try to estab-

lish a better relationship between all the railroads, in

the line that we should deal more frankly with each

other, more publicly and more frankly, and not operate

our lines for the purpose of destroying each other,

but for the purpose of helping each other, and for

developing the territory served by each, and to that

extent I even went so far with Mr. Morawetz as to

tell him as far as the Southern Pacific was concerned,

I would be willing to even put him on the executive

93

committee of the Southern Pacific so that he might

know what our intentions were, if he chose to” (p.

756).

Mr. Frick and Mr. Rogers went on the Santa Fe or

Atchison board. “The effect of that has been,” con-

tinued Mr. Harriman, “‘so they tell me, that they have

acquired two of the best directors that they have ever

had. So far as my knowledge of the Atchison is con-

cerned, through the information that has been con-

veyed to me by either of those men, it has been practi-

cally nil, in fact, so much so, that when they had con-

cluded in the Board of Directors to issue $98,000,000

of convertible bonds, and to obtain the consent of the

stockholders to increasing the stock, I did not know

anything about it until it was announced in the news-

papers” (p. 756).

“We were entitled,” says Mr. Schiff, “to two direc-

tors, and we wanted them without resorting to cumu-

lative voting” (p. 1105). And further: “We wanted

to have two of our own representatives put on; it is

but usual and natural that large stockholders should

want to be represented on the board of managers” (p.

1106).

Mr. Kahn testifies (p. 4722) : ““That stockholding, as

far as the $30,000,000 of common stock goes, was a

purely personal investment on the part of ourselves and

some friends, and it was made because we considered

Atchison stock at the prices at which we bought it a

very attractive investment, and when we had enough

profit on it we sold it out.”

OR RELL TERS ence

94

On cross-examination, Mr. Kahn testified (pp. 4760-

4762):

“QO. Now, Mr. Kahn, you bought that stock, and

shortly after buying it made an application to the Santa

Fe for membership on the board, didn’t you—you and

your associates ?

“A. Yes; we were entitled under the law to two

directors, and having a large interest in that property,

we did not see any reason why we should not avail

ourselves of our legal privilege of having two direc-

tors.”

He is asked:

“©. You desired to have Mr. Harriman go on the

board and on the executive committee of the Santa Fe,

didn’t you?

“A. Not that I know of. He may have so desired,

because he may have thought that he could do good

to both properties. We never requested it. We never

thought it should be done.

“Q. You agreed with Morawetz about that?

“A. We agreed with Mr. Morawetz about that.

“Q. You did desire, however, to have two gentlemen

who were members of the Union Pacific Board put

on the Santa Fe Board?

“A. We desired to have two gentlemen in whom we

had every confidence, whose ability and wisdom had

been thoroughly tested and who were thoroughly sat-

isfactory to both sides, to go on the Atchison Board—

at the same time, the fact that they were directors of

the Union Pacific we did not consider a detriment.”

95

Further:

“Q. You felt confidence enough in the Atchison

management so that you were willing to put your

money into the stock of that road?

“A. Yes.

“Q. So it was not for the purpose of procuring any

change that you thought ought to be made in the

methods of administration, that you wanted the Union

Pacific directors made directors of the Santa Fe, was

it?

“A. No, we were simply representing an investment

of $30,000,000, and we thought we were entitled to

have our own men on the board.”

Then this question is put, with just an inflection of

the ad captandum:

“Q. You did not go around and suggest that those

Union Pacific directors resign from the Santa Fe

Board when you sold out your interest?

“A. No. The Atchison people knew that we had

sold our stock. It was up to the Atchison people, and

not to us.”

Then we have this question:

“Q. Isn’t it a fact that after landing your two di-

rectors you sold your stock, and the directors stayed

there until Mr. Rogers died. and the other director is

still there and his time is not vet up?

“A. We sold our stock in 1906, which was after the

landing (as you so prettily express it) of our directors.

I think it was about a year and a half after the ‘land-

ing’ of our directors that we sold our stock. We in-

tL |

96

formed the Atchison people that the stock had been

sold and the slightest intimation on their part to men

of the standing of Mr. Frick and Mr. Rogers that their

presence was no longer welcome in their councils would

have been sufficient for them to resign immediately.”

The $30,000,000 of Santa Fe “had been sold before

the $10,000,000 of Atchison preferred were purchased

by the Union Pacific,” says Mr. Kahn (p. 4722).

“Q. Has the Union Pacific parted with its owner-

ship in the $10,000,000 of Atchison preferred or any

part of it?

“A. It sold its $10,000,000 of Atchison preferred

last year” (p. 4722).

PHOENIX & EASTERN.

The Phoenix & Eastern had been incorporated as a

railroad between Phoenix and Benson, two points in

Arizona Territory. It was projected by Mr. Frank

Murphy, who turned it over to the Santa Fe. The

Santa Fe management was not in favor of constructing

the line as an original proposition, as it would be no

part of their through line by Ashfork, Arizona, involv-

ing the detour by way of Phoenix, over an intermediate

branch, the Santa Fe, Prescott & Phoenix, to the main

line at Ashfork, and the local business, if any at all,

was unattractive, “merely prospects.’”’ When it ap-

peared that Murphy was going ahead with the line,

the Santa Fe bought it from him, but arranged to build

only to an intermediate point, Dudleyville, some 90

miles of line, not being disposed to go to Benson, about

go miles more, because Mr. Ripley, the President, “did

37

not think it would pay to do so” (Mr. Morawetz, pp.

1133-4). Inthe adjustment of the joint line in North-

ern California, just mentioned, the Santa Fe had in-

sisted on a parity of interest with the Southern Pacific,

as against whose larger contributed mileage the Santa

Fe had about 50 miles of line, main and branches (p.

1134). “We made great Sacrifices to have that done,”

says Mr. Harriman, speaking of the joint ownership,

in place of “a traffic or trackage alliance” (p. 761).

In the negotiations, Mr. Morawetz says that Mr. Har-

riman objected to the construction of the Phoenix &

Eastern, “because he considered that an invasion of

territory properly tributary to the Southern Pacific.

System” (p. 1134). And on cross-examination, Mr.

Morawetz testified (p. 1147):

“Q. So that the real reason why Mr. Harriman de-

sired to get that line into their hands was, to prevent

possible future competition through a line that you

might run down to Benson ?

“A. I think that is true.

“Q. And you accommodated him in that regard?

“A. No, sir.

“Q. Getting for it what you thought was a sufficient

equivalent in another direction ?

“A. No, sir. T would have sold that line, independ-

ently for cost and interest, because. according to my

best advices, it would not pay for years to come, if

at all, and if we ever wanted to build a line through

there to Deming, we could build it without having

lost in the meantime interest on the investment.” By

the expression, “through there to Deming,” Mr. Mora-

eee |

93

wetz is referring to Dudleyville (Map p. 1048), not to

3enson, which is a point not on the Santa Fe, but on

the main line of the Southern Pacific. So far as a

line to Benson was concerned, there was traflic; “but

the mineral trafic—there was traffic between the local

points and the Kast, which could not be properly served

by the Atchison lines, but which naturally fell into

the system of the Southern Pacific, or of the E1 Paso

& Southwestern, which was equally near. So far as

the Atchison was concerned, it was simply a question

of a short local haul.

“Q. Of a short local haul, to deliver over to another

line to the East, wasn’t it?

“A. Yes.

“Q. If you had built on to Benson?

“A. Yes” (p. 1145).

But the “line through to Deming” is the low grade

transcontinental line for the Santa Fe, which Mr.

Murphy had in vision (p. 1024), and the suggestion ts,

shat the Southern Pacific, by purchasing the Phoenix

& Eastern, thereby arrested its extension beyond Dud-

ieyville, to Deming on the main line of the Santa Fe,

at which point the Santa Fe constructed line would

have carried it to Belen in Northern New Mexico, and

thence to Texico, near the New Mexico-Texas inter-

ctate line, the Belen Cut-Off, so-called, and beyond.

The extension of this “low grade line” west of Phoe-

nix and towards California, is assumed to rest in con

struction between Wickenburg, a point north of Phoe-

nix on this branch line to Ashfork—and Bengal, on

the Santa Fe main line near its entrance into Southern

99

California. The Santa Fe had built about 50 miles

between these points, from Wickenburg to a place

called Parker on the Colorado River: for reasons ex-

plained by Mr. Morawetz, “irrespective of the con-

struction of a low grade line to Deming” (p. 1138).

The Santa Fe was “more than willing” to let the Phoe-

nix & Eastern go to the Southern Pacific, “because

the Atchison Company had no money at that time for

the construction of the proposed line in Northern Cali-

fornia, which would have cost appri ximately $12,000,-

000, and it had no money for the construction of new

mileage in Arizona. The project of building a low

¢rade line up the Gila Canyon to Deming was not con-

templated by us ever as a project to be immediately

carried out, or to be carried out within any specific

time. I was never convinced that it would pay us to

Imaild that line; it would have cost approximately $10,-

000,000 to build a low grade line between Phoenix and

Deming, and it would have cost a million or two mil-

lions more for the carriage of any heavy amount of

business. "This low grade line, even after the comple-

tion of the proposed cut-off between Wickenburg and

Bengal, would have been about 160 miles longer than

the present line between Belen and Bengal, and about

175 miles longer than the present line between Albu-

querque and Bengal. It would have obviated only

the objectionable grades on about 369 miles of our

present line.” And again: “The construction of this

ine (referring to the cut-off, Belen to Texico) had

absolutely nothing whatever to do with the proposed

or contemplated construction of the cut-off, of the so-

called low grade line, between Phoenix and Deming.

Se ee ata |

100

This Belen cut-off was undertaken before the so-called

low grade line between Phoenix and Deming was ever

thought of” (Morawetz, p. 1135).

Indeed, as Mr. Morawetz points out, “the idea of a

line up to Gila Canyon was first brought up at the time

of the controversy with the Southern Pacific on ac-

count of our building into what they called their ter-

ritory” (p. 1142). And as to the Phoenix & Eastern

mileage, “there was no thought of selling it out until

the controversy arose with the Southern Pacific Com-

pany” (Morawetz, p. 1147).

The Phoenix & Eastern contracts are in the record

and foreclose any question as to competition (pp. 974-

1014). They include the sale of the go miles to the

Southern Pacific (p. 974). They include also the joint

use of the proposed transcontinental line, with track-

age rights to the Santa Fe between Phoenix and

Deming (p. 980); and with trackage rights, on the

other hand, to the Southern Pacific between Phoenix

and its junction with the Santa Fe at Mojave, Cali-

fornia. Mr. Murphy testifies on cross-examination

(p. 1040):

“(), These agreements for trackage, made in con-

rection with the sale of the Phoenix & Eastern stock,

reserve the right of the Atchison system for a through

jine, and probably as good a through line as you

would have built by way of Phoenix to Deming, do

they not?

“A. I think they do.

101

“Q. And also provide for 2 through short line for

the Southern Pacific from Mojave to El Paso?

“A. I think they do—if it is ever built.

“Q. The Atchison has the right, under the terms of

the agreement, to acquire the line extending from

Phoenix to the connection with the Southern Pacific

Railroad east of Phoenix, has it not?

“A. Yes, sir, I think so.

The Southern Pacific has expended over a million

dollars in construction on the Gila Canyon route (p.

4939).

The story of the contest, legal and even physical,

between the Southern Pacific on the one side and the

Murphy or Santa Fe people on the other, in respect to

the Gila Canyon, is told by Mr. Ives, General Counsel

and Director of the Arizona lines of the Southern

Pacific (p. 4918). This litigation was pending in the

Supreme Court of the United States when the South-

ern Pacific acquired the road of the Phoenix & Eastern

(p. 4923). This testimony (pp. 4926-7, 4928, 4932),

also the cross-examination of Mr. Murphy (pp. 5078-

5081 )—go very much to modify, if not to impeach al-

together, Mr. Murphy's assumption or implication of a

iow grade transcontinental line by way of Deming as

having been a matter of first intention.

Except, possibly, as to a matter de minimis, the

Southern Pacific line, Phoenix to Mesa. as against the

Phoenix & Eastern line between those points, a dis-

tance of 10 or 12 miles, perhaps 17, a stone’s throw (p.

4939), there was no question of actual competition.

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102

The Santa te would not have built to Benson as

already shown; and it was not until the controversy

with the Southern Pacific that the Deming-Belen line

was thought of. It was, as 1 line to Benson, that the

Phoenix & Eastern was incorporated, but, “in Decem-

ber, 1903, the grading force of the Phoenix & Eastern

having at that time reached a point between Florence

and a place called Kelvin, on the south side of the

Gila River, about 2 miles west of Kelvin, commenced

to throw a bridge across the Gila River, from the South

to the North side, departing from its right of way”

(p. 4921). It was when the Santa Fe turned its back

on Benson, and headed for the Gila Canyon, essential

to the contemplated line of the Southern Pacific, that

the collision, legal and physical, ensued. The Southern

Pacific Company did not buy the Phoenix & Eastern

tor the handspan between Phoenix and Mesa; the ques-

tion of “possible future competition” is covered by the

agreement for the joint line and trackage rights.

JOINT CONSTRUCTION OF THE SAN PEDRO LINE.

Judge Kelly, who was General Solicitor of the Union

Pacific from the reorganization of 18908 until the end

of 1904 (p. 4763), and who had been General Solicitor

for the Receivers of the Union Pacific, and the other

corporation, predecessor of the present Oregon Short

Line Railroad Company, then known as the Oregon

Short Line and Utah Northern Railway Company (p.

4763), gives an account by history and document, of

the San Pedro transaction. The Oregon Short Line &

Ctah Northern Railway Company was a consolidated

corporation, organized July 27th, 1889, whose underly-

bal

103

ing companies are named, with their termini, by Judge

Kelly (p. 4764). One of these underlying companies,

the Utah Central Railway Company, owned a line south

through Utah from Ogden through Milford, to Frisco,

the line from Milford to Frisco being a short branch,

with authority to extend the main line from Milford

to the Utah-Nevada State line (p. 4764). The Nevada-

Pacific Railway Company, another underlying com-

pany, and a Nevada corporation, was authorized to

build from the Nevada State line southwesterly across

the State of Nevada to the California line (pp. 4763-4).

On November Ist, 1889, the Board of Directors of the

Oregon Short Line & Utah Northern took up the pro-

posed extension of the railroad from this point, Mil-

ford, in southwestern Utah, to Barstow, a point in Cali-

fornia, on the Santa Ie Line and authorized the presi-

dent to take steps for construction from Milford to a

point in southeastern Nevada, about 40 miles from the

Nevada-Utah line, named Caliente, and thence by a

branch, north and west to Pioche, Nevada. Milford

with its branch to Frisco, and Caliente with its branch

to Pioche, are shown in the map (p. to14). On De-

cember 21st, 1889, corporate action was had for this

extension of the line from Milford, Utah, to Pioche,

Nevada, by way of Caliente (p. 4766).

On March roth, 1890, the increase of the Short Line

capital stock from $24,785,039.33 to $27,000,000, made

with a view to this proposed extension, was approved

as required by law. Uvada is an intermediate point

between Milford and Caliente. It lies, as the name

would indicate, at the Utah-Nevada boundary line.

a Ne CS re |

104

At this same meeting of March 1oth, 1890, the Board

of Directors of the Short Line approved surveys Nos.

2g and 30, for the 40 miles between Uvada and Cal-

iente, and directed the necessary filing (pp. 4766-7).

On March 28th survey No. 35 for 20 miles, and No.

36 for 10.41 miles covering the line from Caliente to

Pioche, were approved. This made a total of 70.41

miles from Uvada to Pioche. That mileage was

actually graded. It become the subject of hostilities

in the sequel, between the reorganized Short Line and

the projected San Pedro, in which the Short Line pre-

vailed.

Up to this time, then, we find the Short Line, as

early as 1890, with a constructed and operated south

line in Utah from Ogden to Milford, and with a sur-

veyed line, which was actually graded, from Uvada,

south to Caliente, Nevada, thence spurring north and

west to Pioche. The surveys and filings between Mil-

iord and Nevada were duly made, and need not be

particularized.

On May 24th, 1890, the Short Line appropriated

$2,803,400 for the construction of the line from Mil-

ford to Pioche (p. 4767).

On September 25th, 1890, the Short Line approved

surveys Nos. 64-61 inclusive, in 20-mile sections, from

Caliente to a point within 14.42 miles of the California

State line looking in a general southwesterly direc-

tion; and on November sth, 1890, the survey of the

final mileage, 14.42 miles was approved. All of these

105

adopted lines were approved by the Department of the

Interior (p. 4708).

In 1890, the Short Line commenced construction at

Milford, graded the line as a road-bed, practically com-

plete, from Milford to Caliente, and constructed the

grade very largely from Caliente to Pioche and was

engaged in this work until October 14th, 1890, when

the Short Line and the Union Pacific went into the

bankruptcy, that led to the subsequent reorganization,

end under those circumstances the Short Line sus-

pended operations. It had spent in this construction

work $979,647.24; and of that amount, $675,264.13 had

been applied on the grade from Uvada to Caliente and

Pioche. A few miles of track had been laid beyond

Milford but when construction stopped, the rails were

taken out (p. 4769). The indebtedness, receivership,

and foreclosures of the bankrupt railroad will be found

in detail in Judge Kelly's testimony (pp. 4769-4774).

The present Oregon Short Line Railroad Company,

organized under the laws of Utah on February Ist,

!&97, became the purchaser of the properties of the

original Oregon Short Line & Utah Northern by Spe-

cial Master’s Deed dated February 23, 1897 (p. 4775).

On August 16th, 1898, the present Short Line made

an agreement with McCune and others for the organi-

zation of the Utah & Pacific Railroad Company, re-

serving to the Short Line the right to purchase the

stocks, securities and properties of the proposed com-

pany on specified terms (p. 4781). That company was

accordingly incorporated for the purpose of building a

road from Milford to the Utah-Nevada Line (p. 4775).

spats ier nemag

106

The definite location adopted by this company was

coincident with the approved line of the original Short

Line Company from Milford to Uvada.

In May, 1900, the Short Line took first mortgage

bonds of the Utah & Pacific to the amount of $279,000,

and in April, 1901, took the remainder of the issue;

and on April 9th, 1901, took over the capital stock

amounting to $825,000, and thereafter was in the pos-

session and operation of the properties (p. 4781).

In 1896, the Utah & California Railroad Company

was organized under the laws of Utah, having power

to build a railroad only within the State of Utah. It

subsequently passed into the control of the original

San Pedro people, who used it, as will appear, in their

con

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