This direct testimony of Southern Pacific employees is in harmony with repeated assertions made by persons outside of the organization, and seems to indicate that some discrimination against the Central Pacific and in favor of the Southern Pacific on transcontinental business was encouraged by those in control of the Southern Pacific Company’s affairs. As well informed a man as P. P. Shelby, traffic manager of the Union Pacific, declared in 1887 that he knew by conversation with shippers that the Central Pacific had diverted all the traffic they could control to the Sunset route ever since the Southern Pacific was completed, commencing in 1882. All kinds of merchandise had been diverted, especially such goods as canned fruits, canned fish, and wool. Asked whether the Union Pacific would carry 25 per cent more freight if the Central Pacific were separated from the Southern Pacific, Mr. Shelby qualified his statement by saying that it was hard to answer the question. The Southern Pacific gave the Central Pacific a good deal of freight which that company would not have received were the two lines segregated. Had they been two independent lines, under independent management, the Southern Pacific would not have given the Central Pacific any freight at all.[510]
Similar charges were made by representatives of interests such as those of the English stockholders of the Central Pacific, who asserted that Mr. Huntington wished to ruin the Central Pacific, and dwelt upon the advantages of bankruptcy to a company from which the United States government was about to attempt to collect a debt. Knowing as we do that the Huntington-Stanford group shifted the weight of their investments from the Central to the Southern Pacific in the eighties, there is of course ground for suspicion that the diversion of freight, to which the evidence that has been quoted refers, was part of a carefully thought-out plan, and that more than traffic matters were involved.
Real Reasons for Traffic Diversion
Yet the truth of the matter probably is that while some diversion from the Central to the Southern route occurred, this diversion, although looked upon with equanimity by Mr. Huntington, was not part of an attack upon the Central Pacific, but may be explained by certain simple traffic considerations. There were at least two good reasons why an attempt should have been made to handle business from New York over the Southern Pacific rather than over the Central Pacific. The first reason was that it was more profitable for the Southern Pacific to take freight from New York by a route which it entirely controlled, than to divide the earnings on such business with the direct lines between New York and Ogden. The second reason was that the Southern Pacific could offer better service on the Sunset route than over the Central Pacific because of the indifference of the lines east of Omaha. The Central Pacific business was done on a different classification from that in use in the East. Also, many classes of freight were taken at low rates because of water competition, so that the divisions accruing to eastern lines were very small, and their interest in the traffic correspondingly slight.
Finally, to the eastern roads the whole business was unimportant compared with the volume of other kinds of goods which they were handling. The result was that Mr. Stubbs, of the Southern Pacific, complained very vigorously that eastern lines neglected transcontinental business. It took four to six days he said, to get freight through the city of Chicago, and often thirty to thirty-five days to transport it from Omaha to New York. Freight had to be way-billed three times via Ogden as compared with one billing via El Paso. In fact, in 1885 and 1886 the trunk lines practically withdrew from the transcontinental business, and to this withdrawal should be attributed the large proportion of the traffic between San Francisco and New York which was handled by the Sunset route during these years.[511]
These two reasons, of which one still has force, and the other was important for a number of years, are sufficient to account for most of the diversions complained of, and it is not necessary to attribute additional motives to the Huntington management.
As a matter of fact, in spite of the traffic policy described, the gross earnings per mile of the Southern Pacific did not move very differently from those of the Central Pacific during the years from 1886 to 1895, when the data are distinguishable in the companies’ reports. The advances and recessions in volume of traffic were not identical for the two companies during these years, nor did they occur at exactly the same times, but the figures seem to offer no support to the charge that the prosperity of either company was being sacrificed.
It may also be observed that the policy of freight diversion was not confined to the period when the Central Pacific was negotiating with the government for the payment of its debt and with the English stockholders for the adjustment of their claims, nor to the years when the management of the Southern Pacific Company owned Southern Pacific shares and did not own a corresponding amount of the shares of the Central Pacific. In fact, as has been said, the policy of seeking to obtain the benefits of the long haul is still followed by the Southern Pacific Company, and its agents still take credit for sending freight all the way to New York by company lines, although the financial control of both the Southern and the Central Pacific has long been in one set of hands.
Traffic in Early Eighties
Like other systems in the United States, the earnings of the Southern and Central Pacific railroads fluctuated considerably from year to year. It has been pointed out in a previous chapter that during the period from 1870 to 1879 the rapid extension of the Southern Pacific in the South West, and the temporarily unproductive character of the new mileage built, well-nigh caused the bankruptcy of the entire concern. The associates were then saved by the completion of the Southern Pacific main line to The Needles, and by an improvement in general stock market conditions which enabled them to sell securities in New York. In 1885 the Central Pacific retired the greater part of a floating debt of $12,873,946 by an issue of bonds, and for the first time in many years was freed from what had always been a pressing danger.