The first call for tenders was made in October, 1838. The St. George's Packet Company, owners of the Sirius, and the Great Western Steamship Company, owners of the Great Western, put in bids, the former offering a monthly service between Cork, Halifax, and New York for a yearly subsidy of sixty-five thousand pounds; the latter, a monthly service between Bristol, Halifax, and New York for forty-five thousand pounds a year.
Neither offer was accepted for the reason, as was stated, that a semimonthly service was desired.[[V]] Instead, private arrangements were made with Samuel Cunard and associates for a carriage between Liverpool, Halifax, Quebec, and Boston, twice a month, for a term of seven years, the subsidy to be sixty thousand pounds annually, less four thousand pounds for making only one voyage a month in the winter season.[[W]] The contract required Mr. Cunard and his associates to furnish five ocean steamships and two river steamers, the latter on the St. Lawrence.[[V]] There were also definite restrictions as to turning their steamers over to the Government for use in time of war. All were to be inspected by Admiralty officers, and were to carry officers of the navy to care for the mails.[[X]] The service was started with the Britannia, the first of the four to be finished, sailing from Liverpool for Boston on July 4, 1840. Thus was begun the career of the celebrated Cunard Line. In 1841 the subsidy was increased to eighty thousand pounds, and the number of steamers to five; and in 1846, a further increase brought the subsidy to eighty-five thousand pounds.[[Y]]
The Admiralty's favoritism toward the Cunard associates aroused a protest from the unsuccessful bidders for the subsidy, and at length the Great Western Company, whose bid had been the lowest, caused a Parliamentary inquiry to be made into the transaction. They complained that a monopoly had been granted "to their injury and to that of other owners of steamships engaged in the trade, and who were desirous of entering it"; and they asked the inquiry on the broad grounds "that the public were taxed for a service from which one company alone derived the advantage, and which could be equally well done and at less expense if mails were sent out by all steamers engaged in the trade, each receiving a certain amount percentage on the letters they carried."[[Z]] Although the fact was brought out in the testimony that the Great Western Company had offered to perform the service on practically the same basis as the Cunard associates, and that afterwards the Great Western had proposed to do it at half the subsidy to the Cunarders, the investigating committee sustained the Admiralty's action.[[AA]]
The Great Western Company overcame the advantage of the Cunarders in the latter's high mail subsidy by increased enterprise and superior management; and prospered. In 1843 they launched the Great Britain, the largest and finest steamship up to that period built for overseas service.[[AB]] She was, moreover, distinguished as the first liner to be built of iron instead of wood, and to be propelled by the screw instead of the paddle-wheel. In the latter innovation, however, she was not the pioneer. Again the Americans were first in the application of the auxiliary screw to ocean navigation,[[AC]] as they had been first in despatching a steamer across the Atlantic.
The initial transatlantic subsidy to the Cunard Company was followed up in 1840 and 1841 with contracts for steam mail-carriage to the West Indies and South American ports.[[AD]] The first (1840) went to the Royal Mail Steam Packet Company, for the West Indian service, the mail subsidy fixed at two hundred and forty thousand pounds a year;[[AE]] the second (1841), to the Pacific Steam Navigation Company. The latter enterprise was promoted by an American,[[AF]] after he had failed to obtain support in his own country[[AG]] for a project to establish an American steamship line to ports along the west coast of South America, a field in which American sailing ships had long been preëminent.[[AH]]
Up to 1847 the British lines monopolized the transatlantic service. Then the situation became enlivened by the advent of competing American steamships subsidized by the United States Government, with high-paying mail contracts. The first of these was the New York, Havre, and Bremen line starting in 1847; the next, the celebrated Collins Line between New York and Liverpool, underway in 1850. The competing vessels were American-built, wooden side-wheelers; those of the Collins Line superior in equipment and in passenger accommodations, and faster sailers, than the British craft.[[AI]] To meet this competition the Cunard Company increased their fleet while the Admiralty increased the subsidy. Four new steamers were first added, in 1848, to run directly between Liverpool and New York, and the postal subsidy was raised to one hundred and forty-five thousand pounds a year for forty-four voyages—three thousand nine hundred and twenty-five pounds a voyage.[[AJ]] The competition began sharply with the regular running of the Collins liners, in 1850. Meanwhile during this year and the next additional contracts were given the Cunard Company for carrying the mails between Halifax, New York, and Bermuda, on the North American side, in small steamers, fitted with space for mounting an 18-pounder pivot-gun, subsidy ten thousand six hundred pounds a year; and for a monthly mail conveyance between Bermuda and St. Thomas, subsidy four thousand one hundred pounds a year.[AK] These services united the West Indies with the United States and Canada.[[AK]]
In 1851 John Inman entered the trade with his "Inman Line" of transatlantic screw steamers, which were to carry general cargo and emigrant passengers, then a steadily increasing business, and to be independent in all respects of either the Admiralty or the Post-Office.[[AL]] The unsubsidized line prospered. The next year (1852) the Cunard Company increased their liners' horsepower, and the Admiralty again increased their subsidy. The contract, now made to run for ten years, provided a subsidy of one hundred and seventy-three thousand three hundred and forty pounds per fifty-two round trips a year. The Americans were pressing them closer. Now freight rates were cut, and the British premier is quoted as advising the Cunard Company to run without freight if necessary to "beat off the American line."[[AM]] The increasing subsidies occasioned a Parliamentary investigation. The committee, evidently impressed by the gravity of the American competition, reported that "the cost of the North American service was not excessive," but they advised that all contracts thereafter "be let at public bidding."[[AN]] This recommendation was not heeded. In 1857, upon the plea that the Americans were about to build larger and more powerful liners, the Cunard Company asked a five years' extension of the contract of 1852. The extension was promptly granted. At the same time they were awarded an additional subsidy of three thousand pounds for a monthly mail service between New York and Nassau in the Bahamas.[[AO]] The next year (1858) after suffering crushing disasters in the loss of two of their steamers, and the withdrawal of their subsidy, the Collins Company failed, and their line was abandoned.[[AP]] So this competition ended.
Meanwhile complaints of the Admiralty's partiality in the allotment of the contracts had been renewed more vigorously, with wider criticism of grants for mail carriage largely in excess of the postage received; and in 1859-60 another Parliamentary investigation was made. The ultimate result of this inquiry was a radical change in the system. The management of the ocean mail-service was taken from the Admiralty and placed wholly in the hands of the Post-Office Department; and at the expiration of the Cunard Company's extended contract, the service was thrown open to public competition, as the Parliamentary committee of 1846 had advised.
Bids were now received from the Cunard, the Inman, the North German Lloyd, and other lines. The Inman Company had previously offered to perform the service, and had done so for sea-postage only.[[AQ]] Contracts were finally concluded with the three named. The contract with the Inman Line was for a fortnightly Halifax service, for seven hundred and fifty pounds the round trip, nineteen thousand five hundred pounds a year, and a weekly New York service for sea-postage. That with the Cunard Line was for a weekly service to New York at a fixed subsidy of eighty thousand pounds. That with the North German Lloyd was for a weekly service, at the sea-postage. These contracts were to run for a year only. The Cunard's subsidy, although considerably less than half the amount that the company had received the previous ten years, showed a loss to the Government, at sea-postage rates, of forty-four thousand one hundred and ninety-six pounds, since the amount actually earned at sea-postage rates was twenty-eight thousand six hundred and eighty-six pounds.[[AR]]
When advertisements for tenders were next issued, it was found that the Cunard and Inman companies had formed a "community of interests," with an agreement not to underbid each other. They asked a ten years' contract on the basis of fifty thousand pounds fixed subsidy for a weekly service. Instead, they were awarded seven years' contracts: the Cunard for a semi-weekly service, seventy thousand pounds subsidy; the Inman, for a weekly service, thirty-five thousand pounds subsidy.[[AR]] At the same time contracts were made with the North German Lloyd and the Hamburg-American lines for a weekly service for the sea-postage.