railroad. I was very much inclined to this view myself, and I believe that that is the view of Mr. Wallace; but further investigation satisfied me that it would be exceedingly unwise, with an established line, if we could make the line pay expenses, to abandon an instrumentality that would enable us to control the rates of freight from the United States to Panama. Speaking of this very question, the subcommittee of the Interstate Commerce Committee of the House of Representatives, which investigated the affairs of the Panama Railroad Company in the 58th Congress, strongly recommended the continuance and even extension of the shipping line of the railroad company. I append this report, marked "Exhibit 16." I became convinced that it would be impossible for us, unless we maintained this line, to escape the result of a combination as to rates among the steamship lines; and in addition it is, of course, a very great convenience to have the control of our own line in the carriage of employees and in the transportation of our machinery, construction material, and supplies. I consented, therefore, to the purchase by the Canal Commission of the two steamships, the Mexico and the Havana, for $650,000 each, in order to improve the line and make it as useful to us as it ought to be to us in respect to the construction of the canal. These steamships were offered to us at first at $750,000 each. Mr. Farnham was sent to Europe for the purpose of finding out what steamers were available there for sale. After he had made his report and had shown what steamships could be purchased, and the prices, it was found that, with the advantage of carrying the American flag, the purchase of the Mexico and the Havana from the Ward Line was really the most advantageous. The purchase was made by Mr. Shonts, through Mr. Vernon H. Brown, of the Cunard Line. Another question which has been mooted with respect to the railroad is that of rates. The fact in respect to the rates on the railroad is that we have lowered them as much as we feel justified in doing at present, with the present equipment of the railroad and the inability to do the business as economically as we hope to do it. We can not afford to make our charges below what it costs us to run the railroad, and the fixed annual charge of more than $5,000 a mile which we have to pay as a subsidy, of course, increases the rate of freight which we must charge them. Mr. Wallace thinks that we ought to make a flat rate of $2 a ton across the Isthmus for everything. He once suggested this to me, and it was very attractive in its simplicity and resemblance to canal tolls on ship tonnage, but one difficulty is that the cost of conveying the freight is $3.06 a ton, as the traffic manager of the road advises me, which would make a loss to us in running the railroad of $1.06 a ton. Instead of that, our average charge is about $3.69 a ton, which does not make an unreasonable profit. We have reduced the freight rate from New York to Panama on most goods 333 per cent or more. We are not much more than paying expenses with our shipping line. The through rates are divided, 45 per cent to the railroad and 55 per cent to the steamship. Two other steamship lines run from New York to Colon, the Royal Mail Line and the Atlas Line, and a line from New Orleans to Colon, all of which connect with us. From all of these lines the railroad accepts the same pro rata proportion, 45 per cent, and thus makes no discrimination and attempts no monopoly. When we reduced the rates from New York to Panama, the lines from Europe to Colon had to reduce their rates. We reduced the local passenger fares from 8 and 10 cents a mile, first class, to 5 cents, and from 44 and 5 cents to 3 cents a mile for second-class passengers. The local rates of freight on the Isthmus have also been reduced about the same percentage. I append the correspondence with Mr. Walker, the traffic manager of the railroad, and his reply to a letter of criticism forwarded to this office, as Exhibit No. 17. I shall not attempt to describe the congestion in freight which occurred upon the railroad in the spring of 1904, and which was aggravated greatly in the summer of that year by the quarantine which was imposed for yellow fever and for bubonic plague. It has been made the subject of rather acrimonious discussion between Mr. Schwerin on the one hand and Mr. Shonts on the other, and I do not care to take part in it. At my suggestion two weeks ago Mr. Shonts went to the Isthmus with Mr. Schwerin, the agent of the Pacific Mail, there to confer with Mr. Stevens and to see whether their differences could not be so adjusted as to prevent the continuance of complaints that have been made by the agent of the railroad against the Pacific Mail and by the agent of the Pacific Mail against the conduct of the railroad company for many years. I am glad to submit a telegram which I received a day or two ago from Mr. Shonts, which shows that thorough work has been done in cleaning up the congestion and in making the road operate as it should. The telegram is as follows: Have just completed a personal investigation of the Panama Railroad and terminals. I find that there is not only no congestion, but that every dock is absolutely clean; that all business offered is handled promptly, and with the additional equipment now arriving a larger business can be taken care of without in any way interfering with the canal work. The organization is ample and has every feature of the work in hand. I am very hopeful that we may be able to still more reduce the rates on the Isthmus, both local and through rates, so that we may benefit the people of the Isthmus, and also those who wish to patronize this method of transportation from New York to San Francisco. On April 24, 1905, in a letter to Mr. James J. Hooker, of Cincinnati, which was published, I expressed the attitude of the Administration with respect to the rates made across the Isthmus. That letter is as follows: APRIL 24, 1905. MY DEAR MR. HOOKER: I am in receipt of your letter of April 21, and have read it with interest. The policy of the Government in managing the Panama Railroad is to charge such rates as will pay, for the carriage of the goods across the Isthmus, a reasonable return on the investment of the Government, and nothing more. It will permit no discrimination against or in favor of any of the connecting steamship lines. It may be that this policy will affect the transcontinental rates as to those classes of freight that can stand the Isthmus trip favorably for the shipper. However, Mr. Wallace, our chief engineer, and a railway manager of experience, thinks that the proposed changes will not have much influence on transcontinental rates, because he thinks that but a small proportion of that which goes to make up transcontinental freight can be carried by the Isthmus. The long trip, and the fact that the merchandise carried is to be a considerable period in the Tropics, exclude the possibility of carrying many kinds. The Panama Railroad Company owns three steamships, which ply between New York and Colon. We shall make the rate upon these ships as low as possible, consistent with paying a reasonable compensation for the carriage and the investment. We shall run them merely for the purpose of preventing a combination to raise the rates for the delivery of material for the construction of the canal from the United States to the Isthmus. The Government is not running and does not expect to run a line between New York and San Francisco or between San Francisco and New York; hence the relation of its policy to transcontinental rates is only indirect. The policy of the Panama Railroad Company heretofore, in view of its ownership of the three ships and the docks at Colon, and its resulting ability to exclude from the New York and Colon business any other steamship line, has been to monopolize the trade between New York and Panama on the one side, while its arrangement for exclusive through billing between New York and San Francisco with the Pacific Mail Steamship Company produced a monopoly for the Pacific Mail trade on the other side between Panama and San Francisco on the north and a monopoly for the Chilean and Pacific Steamship companies from Panama to the south. So far as the action of the Panama Railroad Company can break up these monpolies, it is being taken. The Government's acquisition of the railway lines was not primarily for the purpose of affecting railway or ocean rates, transcontinental or otherwise. It was for the purpose of acquiring an instrument with which to construct the canal--an instrument absolutely indispensable to the accomplishment of our purpose within a reasonable time. The incident that we must hold the railroad under a franchise requiring us to do a commercial business is what imposes upon us the obligation to do what we can to make just rates and prevent discrimination, and this we shall do. If this ameliorates conditions, we shall be very glad. If it does not, it will not be in our power to do more. The effect of changes in rates and trade conditions is so elusive that it is hardly safe to make a prediction as to the result. One should study the local conditions which prevail at Panama and at the many ports between San Francisco, in Mexico and Central America, and should estimate the exact operation of our coastwise laws, which prevents the intervention of foreign shipping in the trade via the Isthmus between San Francisco and New York, before expressing an opinion as to the effect of the Government's operation of the Panama Railroad upon the trade between our east and west coast. An attempt has been made heretofore to establish an American line competing with the Pacific Mail between San Francisco and Panama, with the assistance of the Panama Railroad Company. It proved to be a disastrous failure, and was therefore followed by a renewal of the discriminating contract which is to terminate in July next. It is possible that the time is now ripe for the establishment of American competition with the Pacific Mail between San Francisco and Panama. Certainly the Government, in operating the Panama Railroad, will do nothing to hinder it. Nevertheless, it is possible that the position of advantage that the Pacific Mail has with respect to Mexican and Central American trade, and its ownership of a dock at Colon, may enable it to establish lines on both sides which will do all the through business and fix the rates without enjoying any discrimination in its favor by the Panama Railroad. If so, the Government could not prevent this, except by running a line from Panama to San Francisco for the purpose, which it can not do. Mr. Shonts could hardly have been correctly reported in the interview you send me, because he fully agrees with the policy of the Government, as I have outlined it above. Should you have any criticisms to make upon it, my dear Mr. Hooker, I should be glad to hear from you. Very sincerely, yours, Mr. JAMES J. HOOKER, Chairman Executive Committee, The Receivers and Shippers' Association Company of Cincinnati, Union Trust Building, Cincinnati, Ohio. WM. H. TAFT. After writing this letter I sent Mr. Bristow, the former Assistant Postmaster-General, to New York, New Orleans, San Francisco, and to the ports of Central and South America and to the Isthmus, for the purpose of investigating the question of rates and the management of the steamship company and the railroad. His report is at the service of the committee, and probably, although long, ought to be embraced in your record. I hand it here with to your secretary. Šome suggestion has been made that the question of the effect upon the cost of transportation over the eastern and the western seaboard by transcontinental lines plays a part in our rates on the Isthmus. I beg to say that this is altogether contrary to the fact so far as the Commission, the Panama Railroad Company, and the Administration are concerned. The intimation is that we have drawn our executive officers, Mr. Shonts, Mr. Stevens, Mr. Ross, and Mr. Benson from railroads, and that some of them have been connected with the transcontinental railroads. We did not consider when they were appointed what roads they had been connected with. What we were anxious to do was to secure the best men, and while doubtless they were loyal to the roads they left while they were in their service, there is not the slightest reason to suspect that any one of them has any bias whatever which would lead him in his official capacity to oppose any traffic policy of the Panama Railroad Company which might affect injuriously in a competitive way transcontinental lines. I am informed-I do not know how correctly-that the rates to San Francisco via the Isthmus are now about 30 per cent less than the transcontinental rates. If we find that we can, without running the railroad and the steamship lines at a loss, reduce these rates, we shall do so. I hope that nothing will be done to merge the corporate entity of the railroad company into that of the Government or the Commission. Under the present arrangement, it is just as easy to have close supervision over the management of the railroad as if it were nominally operated by the Commission, and the corporate form secures the utmost convenience and elasticity of control. I am in receipt of a letter from Senator Allison suggesting the wisdom of the purchase by the Government of the bonds owed by the Panama Railroad Company, which are a lien on the company's property, and the interest on which constitutes a fixed charge, on the ground that it would be a saving of interest for the Government to redeem them now. The interest is 4 per cent on the mortgage bonds. The following is a table of the fixed charges of the company: The company's fixed charges at the present time are $501,290 per annum, made up as follows: Interest on $2,251,000 first mortgage 44 per cent bonds outstanding $101, 290 150,000 Annual rental or subsidy to Republic of Colombia under contract of concession and represented by annual drawings of subsidy bonds and payment of interest $225,000 Annual rental or subsidy to the United States as successor to 25,000 250,000 501, 290 These fixed charges will be reduced each year to the extent of the amount of interest on the number of outstanding 43 per cent first mortgage bonds that are annually purchased by the trustees or drawn for redemption by the regular sinking fund appropriation of $150,000; the maximum annual reduction would be $6,345, i. e., interest of $45 each on 141 bonds. This statement needs a little explanation. In the 4 per cent mortgage there is a provision requiring the redemption of about $150,000 of bonds a year, constituting in effect a compulsory sinking fund provision. There is in the mortgage provision a right to take up any of the bonds or all of them on the first of any April or October upon three months' notice at a premium of 5 per cent. I believe it would be wise and profitable to take up the outstanding bonds at this premium, and I recommend to this committee and the Appropriations Committee that it be done. With respect to the subsidy it should be explained that under the original concession to the Panama railroad it agreed to pay an annual rental charge for the franchise and privileges conferred on it by the Colombian Government of $250,000 a year. Twenty-five thousand dollars of this per year was assigned to the Department of Panama. Two hundred and twenty-five thousand dollars was reserved to the Government of Colombia, and the Government of Colombia desiring to realize in advance upon this subsidy induced the railroad company to issue what were called subsidy bonds, paying 6 per cent interest, which were so arranged that the amount of interest paid on them, together with the principal, would be equal to the payment of the subsidy down to 1908, and would effect the cancellation of a certain number of bonds a year, to be drawn by lot, so that all of the bonds would be cancelled by 1908. When this is done the subsidy under the agreement with Panama will become due to the United States, as indeed the $25,000 a year which was assigned to the Department of Panama has already become due to the United States and has been paid over. After 1908, therefore, the whole subsidy will be due to the United States. I am not sure that the subsidy bonds could be purchased. Possibly they could be, but they are not many in number now, and as they are to be retired at any rate in 1908 it is perhaps not worth while to attempt to purchase them. The amount of these bonds outstanding is $533,000. THE RELATIONS OF WILLIAM NELSON CROMWELL TO THE GOVERNMENT'S CONSTRUCTION OF THE CANAL AND THE ASSISTANCE WHICH HE HAS RENDERED. Upon coming into relation with Panama Canal matters I found Mr. Cromwell acting as general counsel and director of the Panama Railroad Company. He was also counsel for the Republic of Panama and for its resident minister in Washington. In the discharge of his duties as counsel for the railroad company he brought to the service of the company, and therefore to the Government, an immense fund of valuable information with respect to the history of the railroad and affairs on the Isthmus of Panama. He was a lawyer of great experience and ability, and I considered it my duty to secure the benefit of his services for the United States by continuing him in his position as counsel for the railroad company. As counsel for the Republic of Panama he rendered much service in bringing about both the currency agreement of June 20, 1904, and the modus vivendi of December, 1904. As counsel for the railroad company and at my direct instance he was able to effect a union between all the bankers of any importance on the Isthmus in making the bankers' agreement of April 29, 1905, which worked so well for the benefit of everybody concerned, except possibly the bankers. As counsel for the railroad company he was the chief instrument by which I was able to purchase on behalf of the Government all the shares of the capital stock of the Panama Railroad Company outstanding. I conferred with him in respect to the form of the order of April 1 reorganizing the old commission. His intense interest in the success of the Panama Canal has been evident at every point; and he has rendered most loyal, efficient, and valuable service for the comparatively meagre compensation which he receives as general counsel for the railroad company. |