Chapters on the History of the Southern Pacific

by Stuart Daggett

I venture the prediction that if this movement is placed upon a permanent footing the Pacific Mail subsidy which has been assessed against the commerce of the coast for many years will be discontinued ... I predict that this will, if properly supported, prove the beginning of the end of commercial oppression for this city and this State. The doctrine of helping yourselves by every means you can command, holding fast to that which you have and reaching out for more, will prove the deliverance of San Francisco.[438]

It was doubtless a considerable satisfaction to Mr. Leeds and to members of the Traffic Association that the water competition so vigorously inaugurated by the Merchants’ Shipping Association was increased late in 1892 by the formation of an independent steamship line known as the North American Navigation Company. The foundation of this new company was not directly due to the Traffic Association, although the Association gave it what support it could. It was rather the result of the discontinuance of the railroad subsidy to the Pacific Mail, which actually took place in 1892, as Mr. Leeds anticipated, and to the consequent separation of the Pacific Mail and the Panama Railroad Company—a separation which assured to an independent steamship line upon the Pacific Ocean equal or even preferential treatment at the Isthmus of Panama. This meant that San Francisco shippers were no longer restricted to clipper ships and to the Cape Horn route, but could promote a shorter and speedier line with reasonable hope of success.

In the year 1892 the transcontinental railroads determined to dissolve the transcontinental railroad association. The reasons alleged were the withdrawal of the Northern Pacific Railroad from the association, and the announcement by the Canadian Pacific of reduced rates to take effect September 10. The dissolution of the association meant the termination of the subsidy which the railroads had been paying to the Pacific Mail, and notice of cancellation was promptly given. The Pacific Mail was then paying to the Panama Railroad $55,000 per month, an amount that was more than 70 per cent of the sum which it received from the association. In spite of the termination of its own relations with the transcontinental railroads, the Pacific Mail offered to continue the payment of a subsidy to the Panama Railroad, but the two companies proved unable to agree on terms. Mr. Stubbs later explained the break as follows:

When the contract between the Panama Railroad Company and the Pacific Mail Company expired, they found it impossible to agree on terms for continuing the business. The transcontinental railroad companies had quarreled, and freight rates were demoralized. The Panama Railroad insisted on the former basis of traffic, and the Pacific Mail refused to go ahead on that understanding. Then there was some bad management, and the two companies began to throw mud. The trouble got into the courts, and finally it was called to the attention of Congress. The Panama road and the Pacific Mail consequently found themselves to be bitter enemies, and it didn’t seem that they could agree.[439]

Independent Steamship Line

Now it appears that a San Francisco shipping firm, the Johnson-Locke Mercantile Company, which was participating in the anti-railroad fight in 1891 and 1892 to the extent of operating a line of steamships around the Horn, noticed telegraphic advices in the San Francisco newspapers announcing the termination of relations between the Pacific Mail and the Panama Railroad. Describing the episode, Mr. Johnson later said:

I felt this was our opportunity, and immediately wired General Newton, of the Panama Railroad, suggesting that, in view of their determination to throw open the Isthmus and put on a line of their own steamers from New York to Colon, I thought we could secure the co-operation of the merchants of San Francisco, in this movement; that we had some steamers we were running between San Francisco and New York via Cape Horn, and asking, in the event of our organizing a company here, if they would join this company in maintaining a through line from San Francisco to New York.[440]

At this time the Panama Railroad was under the control of the official liquidator of the French Panama Canal Company. The railroad had already decided to operate a line of steamships between New York and Colon, and it accepted readily Mr. Johnson’s offer from the West. Yet Johnson himself lacked capital—as his own statement admits. To raise the necessary capital a new company—the North American Navigation Company—was at once organized, and subscriptions were solicited from San Francisco business men. Not all those approached were enthusiastic. Some merchants were afraid of antagonizing the Southern Pacific, some had an interest in it. James G. Fair said: “I am holding some millions of dollars in Southern Pacific bonds. Do you want me to put my eggs in a basket, get on a fence and chuck stones at it?”[441]