I think very likely we could make out a through line. Very likely the Baltimore and Ohio would come in, and make up a line that would run to Omaha or Fort Kearney, passing through St. Louis and Chicago. But if this was done, very likely it would be difficult for us to control the steamship Company, and if we make up this line, leaving out the roads above mentioned, of course they would not expect any of the China business coming over our road, and then would they not be likely to work against us by allowing the Pacific Mail Steamship Company and any other companies to give bills of lading from China and Japan to Chicago, St. Louis, etc., over their roads, and to bring freight from those points to the sea coast here, to go by steamer and sail to California?... We cannot be too careful in starting this steamship line, for it is one of the things that if we go into, I have little doubt we shall hold it for years, and therefore the more reason why we should hold a majority of the stock of the company, as almost every road here is controlled by those that are always short or long of stock and endeavor to render everything bend to their particular wants. If short, they want to put the stock down, and if long they work for the reverse and we cannot afford to be in their power.[348]
Ownership of Shares
Doubtless for financial reasons the policy here laid down was departed from sufficiently to allow the Union Pacific a half-interest in the new company. For their part, Stanford, Huntington, Hopkins, Crocker and Colton subscribed each to 10,000 shares of the stock of the Occidental and Oriental Steamship Company. The account was charged to the Western Development Company and was held by that company as an asset. The remaining 50,000 shares were owned by the Union Pacific, and Mr. Gould shared with the associates the management of the enterprise.[349] It may be added that the Occidental and Oriental owned no steamers, but chartered the “Oceanic,” the “Belgic,” and the “Gaelic.” The “Oceanic” was a boat of 3,800 tons; the other ships were of 2,600 tons each.[350] The first dividend was declared in July, 1878, and by 1881 the rate had been raised to 4 per cent. Mr. Stanford has testified that the company expected to lose $100,000 a year, but that its owners were pleasantly disappointed.[351]
Agreement with Pacific Mail
There is evidence that as early as 1870 some agreement was entered into between the Huntington interests and the Pacific Mail Steamship Company, and that in 1871 a formal contract was concluded by these companies, defining their relation to each other. The terms of the contract of 1871 are not available, but a subsequent agreement, dated October 1, 1872, contained the following principal provisions:
The Pacific Mail Steamship Company agreed to provide every month three first-class steamers to sail from the port of New York for the Isthmus of Panama, with connecting steamers on the Pacific Ocean for the port of San Francisco. The company undertook to supply space in these steamers for an amount of freight not exceeding 14,700 tons annually.
The steamship company accorded to the railroad company the exclusive right to fix the rates on freight of every description, moving from New York to San Francisco during the period of the agreement, provided that the rates should not exceed the rates then in force, nor in any event $160 first-class, $140 second-class, $90 third-class, and $60 fourth-class and special.
Out of the gross receipts on the freight westbound the steamship company was first to draw $735,000, or at the rate of $50 per ton on 14,700 tons. If the amount of the freight handled should not equal 14,700 tons, or if that quantity of freight should be handled but the receipts therefrom should not amount to $50 per ton, the railroad agreed to make up the difference, so that the receipts on the first 14,700 tons should always amount to $735,000. If, on the other hand, the steamship should collect thereon an average rate exceeding $50, the railroad was to be entitled to the surplus.
In the event that through westbound freight exceeded in volume 14,700 tons, the gross earnings on the excess quantity were to be divided between steamship company and railroad company as follows: first, $30 per ton was to be taken by the steamship company; additional receipts up to $50 a ton were to be divided equally between steamship and railroad; and earnings over $50 were to go to the railroad.[352]