3. The propriety of throwing these duties open to public competition.

4. The expediency of accepting the Peninsular and Oriental Company’s proposal for a modification of the terms of the contract.

Upon these important points the most careful and mature consideration has been bestowed; all the documents have been closely examined and compared with the books of the company, and the following are the results which are submitted for their Lordships’ information:—

First. That the amount paid to the Peninsular and Oriental Company for the duties it has performed has not hitherto been more than it was justly entitled to receive, on the principle that the shareholders are entitled to a fair commercial profit on the capital invested in the undertaking, and admitting that the affairs of the company have been managed, as they appear to have been, with economy and efficiency. The dividend hitherto made has never reached the amount of 10 per cent. per annum, and the additions made to their shipping and other capital are from reserves to meet contingencies. The principles on which these reserves have been laid aside, instead of being divided as profits, will be hereafter explained in this report.

Second. That the present inadequate means of ascertaining the expense of her Majesty’s steam vessels, especially in the Indian and China seas, renders it difficult to determine the comparative pecuniary results which would follow the transfer of the duties. Considering, however, the difficulty of adapting her Majesty’s vessels to commercial purposes, accommodation of passengers and freight of merchandise, and the superior convenience and advantages of mercantile companies in these respects, the success or expediency of such a change is exceedingly doubtful, except on a necessity, arising from exorbitant demands for carrying the mails by contract.

Third. Considering that the postal duties have been well and satisfactorily performed; that the company has never been fined for any breach of contract; that it has never asked for any increase of remuneration, or decrease of the duties to be performed, as has been the case in other instances of contract with companies; considering, also, the energetic manner in which this company has persevered in extending steam communication through new and untried channels, and that it has formed extensive establishments on the faith of the continued support of the Government, and that it still contemplates an extension of its communications with the farthest southern and eastern point of the British possessions; establishing for these proposes a steam navy of considerable magnitude, at the command of the public, on any emergency,—it appears to be entitled to as much consideration as is compatible with an economical administration of the duties of the Post-office.

Fourth. That for reasons hereafter suggested, the contract may now with great propriety be brought under conditions more favourable to the Government; and that this may be done either by a fixed reduction for a permanent term, or on a scale varying with the profits of the company.

In either case it will appear essential that any new arrangement to be made should rather be of a permanent than of a temporary character, both to ensure confidence to the company in the conduct and extension of their concerns, and efficiency in the discharge of the service entrusted to them.

The reasons for adopting these results, which are submitted with great deference to their Lordships’ consideration, are founded upon facts contained in the following statement:—

First: As regards the duties performed, and payments made.