Effect of river competition on rates.-Mr. Bryant states that the freight rates on the Mississippi River are much lower than the railway rates, in part because of the slowness and risks of river transportation. He asserts also that when the river is low, so that transportation is more difficult, the rail rates are raised. Mr. Markham says that the river competition practically fixes the rates for railroads between all the important river points. Moreover, according to this witness, the influence of Mississippi River traffic affects rail rates from and to points far distant from the river. Chicago, for example, insists upon having rail rates to Southern points which will enable it to compete with St. Louis in the distribution of goods, while other smaller towns insist that the railroads reaching them shall make rates to enable them to compete with Chicago. A similar chain of influences extends through the South and secures to points far distant from the river a reduction of rates. This subject is discussed in another light in connection with the long and short haul discriminations in the Southern States.1

THE ANTHRACITE-COAL SITUATION.

During 1900 and 1901 there were movements among some of the railroads chiefly concerned in the anthracite-coal traffic toward the establishment of a community of interest. A subcommission of the Industrial Commission took the testimony of a number of officers of the railroads and of coal operators in New York during February, 1901, and two or three other witnesses were afterwards heard before the commission at Washington. See also testimony on this subject in the Mining Volume. (Vol. XII, Digest.)

Relation of railroads to anthracite-coal industry.—The railroads reaching the anthracitecoal fields are the Pennsylvania, the Lehigh Valley, the Reading, the Central Railroad of New Jersey, the Delaware, Lackawanna and Western, the Delaware and Hudson, he Erie, and the New York, Ontario and Western. A very large proportion of the oa. produced is transported by these railroads to New York and other tide-water points, apparently not more than 19 or 20 per cent being used in Western and Southern markets.2

Each of the railroads named controls one or more coal-producing companies. In the case of the Reading, the Lehigh Valley, and several of the other railroads, these coal companies are, according to the witnesses representing these interests, virtually identical with the railroads, being organized separately chiefly because of the legal restrictions which prevent railroads from operating coal mines. The accounts of these railroad coal companies are, however, kept entirely distinct from those of the railroads, and they pay the regular freight rates to the railroads. The coal companies controlled by the railroads also buy large quantities of coal from so-called “individual,” or smaller, operators.3

The proportion of the coal produced by the railroad companies has apparently been until recently about two-thirds, the output of individual operators being variously stated by witnesses at from 30 to 34 per cent. Recent purchases, by the railroads, of the mines of independent operators have reduced this percentage materially. The secretary of the Anthracite Coal Operators' Association says that at present the output belonging to independent producers is probably about 29 per cent, but other witnesses put it at a lower proportion. It appears also that these railroad coal companies hold a very considerable proportion of the undeveloped or reserve coal lands, so that in the future, as present mines are exhausted, their control of the actual output will presumably be greater. It is maintained that the reason why the railroads bought

1 Page XVI.

2 McLeod, p. 562.

4

3 Saward, p. 508; Harris, pp. 597, 600; Greene, pp. 471, 474; McLeod, p. 561; Stearns, p. 579. 4 Fleming, p. 535.

up coal lands was the desire to make their transportation business permanent. The operations of individual concerns with small capital were likely to be irregular, while traffic might be diverted from one railroad to another so long as the mines were independently owned. The proportion of coal produced by independent operators and by the railroad companies, respectively, varies considerably in the case of the different railroads. On the Reading, for example, only about 1,000,000 tons out of 8,000,000 or 9,000,000 tons hauled yearly is produced by independent operators. The proportion of the independent operators is largest in the case of the Lehigh Valley Railroad, which in 1900 mined only 2,922,000 tons out of 7,675,000 tons carried.2

Establishment of community of interest.—It appears probable from the statements of witnesses summarized below that the practice has long prevailed among the anthracite-coal railroads of acting more or less in harmony as regards the division of the traffic and the fixing of prices of coal. Apparently it was partly in view of the difficulty of maintaining effective agreements and thorough harmony in the past that the recent movement toward community of interest or ownership has taken place. Witnesses representing financial interests, independent operators, and officers of the railroads concerned all agree that there has been established a certain degree of community of interest, affecting more especially the Reading, Lehigh Valley, Jersey Central, Delaware, Lackawanna and Western, and Erie railroads. These railroads carried in 1900 about 72 per cent of the entire anthracite shipments. The precise nature of the combination is not made clear, but it seems to have been brought about chiefly by the purchase or interchange of stocks by a few large capitalists, which gives them a powerful influence in the management of all the roads named. J. P. Morgan & Co. have been especially instrumental in this movement. Various men are directors in several of the railroads at the same time. The object is admitted to be to bring about a consideration of the mutual interests of the roads. It is denied that there is any absolute combination or consolidation between these railroads, except to the extent that the Reading Company has recently bought a controlling interest in the Central Railroad of New Jersey, and that the Erie controls the Susquehanna and Western and the Erie and Western, minor roads not reaching to tide water.3

There is a difference of opinion among witnesses as to the extent to which the other leading coal roads besides those last named are being brought under the community of interest. It is suggested by two or three witnesses that steps are being taken to control the Delaware and Hudson, or that it is already more or less in harmony. One witness thinks that the Pennsylvania Railroad also is in general sympathy with the combination, although others assert that there is no community of ownership. The New York, Ontario and Western Railroad is quite generally considered to be independent, and it has about 3 per cent of the anthracite tonnage. Coxe Bros. & Co. produce about 3 per cent of the anthracite output. This company controls a railroad of its own and ships its coal in its own trains over the Lehigh Valley Railroad to tide water. Mr. Stearns, president of the company, holds that it is entirely independent.5

4

It is maintained by several witnesses that the leading anthracite coal roads are not merely tending to come together under a community of interest, but are attempting to absorb a large proportion of the production of coal. It is pointed out that about 3 years ago the independent operators, with a view to securing a lower cost of transportation, proposed the construction of a railroad to tide water. Some of the roads,

1 Haddock, pp. 521, 522, 531; Stearns, pp. 579, 580, 587, 588; Saward, pp. 508, 509; Greene, p. 468; Harris, p. 600; Childs, p. 503.

2 McLeod, p. 563; Harris, p. 600.

3 Woodlock, pp. 451-455; Haddock, p. 526; Stearns, pp. 588, 589; Walter, pp. 545, 546; Harris, pp. 598, 599; McLeod, p. 571; Saward, p. 513.

4 Woodlock, pp. 451-455; Harris, pp. 598, 599, 608; Childs, pp. 502, 504.

5 Stearns, p. 589.

through the Temple Iron Company, bought up many of the mines which had pledged tonnage to this railroad and forced the abandonment of the enterprise. Afterwards another road was planned by the operators following the Delaware and Hudson Canal to Kingston. The Pennsylvania Coal Company, one of the largest of the independent producers of coal, which itself owned a local railroad, known as the Erie and Wyoming Valley, was a prominent factor in this enterprise. The Erie Railroad has recently bought up the Pennsylvania Coal Company and its affiliated railroad, paying therefor $32,000,000. This purchase blocked the construction of the proposed line to Kingston. The New York, Ontario and Western has also recently bought up a very considerable amount of coal production. The manager of this railroad says that it was forced to do this in order to assure the permanence of its tonnage. It merely followed the example of other leading railroads. It is, however, stated, even by one or two independent operators, that the operators who sold out were not forced to do so by discrimination or otherwise, but that, being offered a high price, they preferred to sell rather than to run the risks of independent business. It is claimed, however, by these witnesses and others that the motive of the railroad companies was to prevent a diversion of their tonnage as well as to check the disturbing influence of independent operators in the sale of coal.1

Relation of railroads to independent operators—Percentage contracts and freight rates.It appears that a very large proportion of the independent anthracite operators have for several years past sold their coal under contracts to the subsidiary coal companies of the railroads, receiving therefor a certain percentage of the tide-water prices. The proportion of the operators who accepted the system differs on different railroads, but on the average, according to statements of witnesses, much more than half dispose of their coal in this way.

Under the contracts in force up to the spring of 1901, in the case of the domestic sizes and larger sizes of anthracite coal, the operator received 60 per cent of the tidewater prices, while the railroad coal company received 40 per cent, out of which to pay the freight to the railroad and to cover the selling expenses. In the case of the smaller sorts of coal, where the price is much lower, the percentage received by the operators was less. Several witnesses, mostly representing railroad companies assert that the operators are generally well satisfied with this system, especially because of the saving in selling expenses and responsibility, and that it was considered a concession to them at the time it was adopted, as compared with the existing freight rates.2

At the time of the investigation of the Industrial Commission, in 1901, a new contract was being proposed by which the operators should receive 65 per cent of the tide-water price of the larger sizes of coal. It is stated that the motive of the railroads in making this concession was to prevent the operators from constructing an independent railroad, and also to secure more effective control of the business, especially by virtue of the fact that the new contracts, at least in most instances, provide that the entire future output of the operators shall be sold to the railroad coal companies.3

In April, 1901, this new contract had not yet been put into force, but the general opinion of all the witnesses was that a large majority of the operators would agree to it. The secretary of the Anthracite Coal Operators' Association, as well as representatives of the railroads, stated that the operators were generally well satisfied with the proposed terms. One or two witnesses thought that the railroad companies

1 Woodlock, pp. 451-453; Haddock, pp. 521, 522; Stearns, pp. 588, 589; Harris, pp. 603, 604; Thomas, pp. 552, 553; McLeod, pp. 572, 573; Childs, pp. 479, 480.

2 Saward, p. 509; Stearns, pp. 577-580; Childs, pp. 496-498; McLeod, pp. 562, 563; Fleming, p. 536; Walter, p. 533; Haddock, p. 522; Woodlock, p. 454.

3 The form of contract submitted by officers of two of the railroad companies contains a provision that the operator shall sell all coal hereafter mined from mines now open, or hereafter to be opened, on the land covered by the contract.