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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_0553%3A08

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1912
- **Citation:** 226 U.S. 61

## Text

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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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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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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“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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66

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

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2 ON RE DELON INL ENE ILL LL ITIL. LPT PELE NL EMILE OSE LOI LHS TF

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?

ms

m eco & 5 a on PERS SRT EAR BEIT REEL SP ELE BERN RN
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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

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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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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 relation

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_0553%3A08. Public record. Not legal advice.