The difference between leased and proprietary lines was not in the operating relations between the two groups and the Southern Pacific Company, for as a matter of fact all were “leased lines” in this regard, but in the circumstance that the Southern Pacific Company held substantially all the stock of the proprietary companies in its treasury as the result of the issue of its own stock in exchange; this was not true of the so-called leased companies. In December, 1896, the Southern Pacific reported 5,250 miles of proprietary lines, and 2,128 miles of leased properties.[497]
From the standpoint of operation the distinction between proprietary and leased lines was completely disregarded, and naturally so because, as has been said, both kinds of properties were operated after the same general fashion. Instead of being classed as proprietary or leased companies, the Southern Pacific lines were divided for operating purposes between the Pacific system including the mileage south of and including Portland, Oregon, and west of Ogden and El Paso, and the Atlantic system, including the railroads east of El Paso. In 1889 local legislation compelled the separate operation of the lines in Texas. In 1896 there were 4,966 miles of main line in the Pacific system, 1,967 miles in Texas, and 445 miles in Louisiana. Mention should also be made of over 3,500 miles of water routes, chiefly those connecting New Orleans and Morgan City with the West Indies and with New York.
Bigness of System
The fact concerning Southern Pacific properties that seems to have most impressed observers was their sheer size. A company controlling 7,300 miles of railroad and 3,500 miles of water lines, and operating between Portland, New Orleans, and New York, was unusually large even to men accustomed to the great eastern corporations which operated in the nineties. The railroad mileage of the Southern Pacific in 1896 exceeded that of the Union Pacific by 2,600 miles, that of the Santa Fé by 940 miles, and that of the Northern Pacific by 2,800 miles. Even the Pennsylvania Railroad operated only 6,700 miles in 1896, including lines both east and west of Pittsburgh, while the reported mileage of the New York Central and Hudson River Railroad was but 2,395 miles in the same year.
In respect to earnings also, the Southern Pacific bulked large among its contemporaries. In the single year 1892, with its affiliated railroads and ferries, it took in nearly $49,000,000 on 6,486 miles of line, or more than half the earnings of the Santa Fé, Union Pacific, and Northern Pacific combined. In 1896 the earnings of the Southern Pacific were about the same as in 1892 upon a substantially greater mileage, but the earnings of its competitors had also greatly declined. Naturally enough, the great extent of the Southern Pacific system made its problems those of extensive rather than of intensive operation. Locomotive runs were longer on the Southern Pacific than elsewhere, and more attention was paid to questions of organization, particularly in later years.
There were other features about the Southern Pacific lines, however, besides their length, which deserve at least a passing mention. The system enjoyed, for example, the advantage of a highly diversified traffic. The year 1900 was not exceptional in this regard, yet in 1900, 22 per cent of the freight carried by the Southern Pacific fell in the class of products of agriculture, 17 per cent was manufactures, 15 per cent was products of the forest, 10 per cent products of mines, 8 per cent merchandise, and 4 per cent animal products. When we recall that in the same year 47 per cent of all the freight carried by the Pennsylvania Railroad Company consisted of anthracite and bituminous coal, and that nearly half of the freight transported over the Chicago, Milwaukee and St. Paul Railroad consisted of products of agriculture and of the forest, we can understand the unusual position in which the Southern Pacific was placed.[498]
High Average Earnings
Generally speaking, on a railroad system which handles a large traffic in manufactured goods, the average return per ton per mile will be large. This is particularly true when the company’s coal tonnage is of small proportions. In the case of the Southern Pacific, the effect of such a distribution of business was increased by the fact that the company possessed the well-nigh exclusive control of a large local business on the Pacific Coast, on which high rates could be charged. This was where the efforts of the associates to maintain a monopoly of rail transportation in California bore fruit. Eighty-two per cent in weight of the commercial freight handled in 1883 by the Central Pacific Railroad was classified as local, and almost two-thirds of this company’s earnings were derived from local business. Indeed, the local freight during the early years of operation exceeded expectations as much as the through freight fell behind what was thought would be its probable development. Prior to the construction of the Union and Central Pacific railroads, it was supposed that for many years the through business of the new lines would constitute by far their principal source of revenue. It was also supposed that the traffic of the companies would consist very largely in the transportation across the continent of the products of Asia in transit to the states situated east of the Mississippi River and to Europe. Both of these anticipations proved entirely mistaken.
Partly, then, because of the character of the freight which it handled, and partly because of the fact that a large proportion of its business was local, the average rate upon the Southern Pacific was very high. The average freight receipts of the Central Pacific in 1872 were 3.66 cents per ton per mile. While they declined in subsequent years, the figure was still 2.75 cents in 1878, and 2.14 cents in 1881. In 1878, while the Central Pacific was earning 2.75 cents per ton per mile, the Santa Fé received only 2.12 cents, the Union Pacific 2.27 cents, the Chicago and Northwestern 1.72 cents, the Pennsylvania .92 cents, and the Lake Shore and Michigan Southern .73 cents.[499] Fourteen years later, the average receipts on the entire Southern Pacific system were exactly twice the average receipts per ton per mile on the Illinois Central, and materially greater than those of most roads in other parts of the country.
It is evident that the average earnings of the Southern Pacific system were superior to those of the other transcontinental railroads, to say nothing of such eastern properties as the Illinois Central and the Chicago and Northwestern. To break the force of the comparison, Mr. Huntington was wont to compare Southern Pacific figures with the averages reported by the Interstate Commerce Commission for the so-called Group X, which included the Pacific Coast. These statistics showed, for example, in 1894, that the average receipts per ton per mile of railroads in Group X were 1.343 cents, while those of the Southern Pacific (Pacific system) were 1.316 cents. Territorial averages, however, made up of returns from small companies and from large, from local and from through concerns, may reasonably be expected to be higher than averages which apply only to large systems. The Southern Pacific received more on the average than its competitors, and almost as much as the group in which it lay, in spite of the fact that it enjoyed a through business in which a great many of the small western lines had no share.