Still later the railroads returned to the one-rate policy. To arrive at this rate they adopted a plan of “harmonization”; they averaged the rates upon various commodities which had been charged to various shippers and made a new schedule of rates, from which they varied as emergency might require or expediency advise, by the current method of rebating.[377]
Administration of Contracts
The railroad company reserved from the beginning the option of way-billing the goods and collecting freights according to the printed rates, agreeing to return the difference on presentation of vouchers to the general freight agent of the Central Pacific at San Francisco after the lapse of a reasonable time for auditing and adjusting the bills. The carrier also always insisted on the privilege of examining the shipper’s books in case it suspected a violation of the agreement. In some respects, the wording and administration of the contracts became more stringent in the later years. J. T. Doyle, a well-informed San Francisco attorney, asserts that at the beginning merchants were merely forbidden to import goods otherwise than by rail. Following this the prohibition was extended to the handling or buying of goods imported by sea by other parties. Finally the boycott reached to the offending importers themselves, and firms signing the contracts were bound not to sell or deliver goods to anyone who was in the habit of importing otherwise than by rail.[378]
Probably there was some difference in the treatment of different shippers in these matters. Mr. Hawley, a large importer of hardware, told a committee of the California legislature in 1884 that he was at liberty to buy a great many things “to sort up with,” even goods sent via the Horn. On the other hand, there were a good many cancellations of contracts for alleged violations, and shippers lived in continual apprehension.
Taken as a whole, the special contract system was an exchange of a rebate by the railroad for an agreement for exclusive patronage on the part of the shipper. Prior to 1878, bulky, low-grade articles moving between the Atlantic and the Pacific coasts usually went by sea. Rates were lower and saving in time not important. High-grade goods and freight requiring quick transportation went by rail. It was the idea of the railroad that if compelled to choose, Pacific Coast business men would prefer to import all their freight by rail rather than to bring it all in by water, and that this would substantially increase railroad revenues even though incidental concessions in rates had to be made.
Objections to Contract Plan
This special contract plan was objectionable to shippers for three reasons. In the first place, it seemed likely to increase the rates which they would have to pay. Although the railroad undertook at the inception of the scheme to meet existing rates by water, at least to such an extent that the total expense to shippers who made special contracts with the railroads would not be increased, it needed no great prescience to foresee that the exclusion of water carriers from the business of the Pacific Coast would sooner or later bring about an increase in transcontinental rates. When special contracts were offered to merchants in Stockton, Los Angeles, Marysville, and Sacramento, San Francisco importers made the additional complaint that their natural advantages as residents in a seaport town were neutralized.
In the second place, the administration of the plan required a supervision over the business of individual dealers which was extremely distasteful. It was asserted that the railroads placed men on the wharves to take the marks of goods brought in by sea, that they followed up the drays to see where the goods went, and that they inspected the books of merchants to make sure that importers who had signed contracts had no dealings with firms who still patronized the shipping lines. Nor was this a casual abuse, but a necessary feature in the plan.
Again, the system lent itself to discrimination. Mr. Stubbs insisted that contract rates were open to all shippers, large or small, who would sign the necessary papers, but it was not denied that the first arrangements were made with large dealers only,[379] nor that during at least one period the whole scheme involved the abandonment of a published and open tariff in favor of a system of bargains in which each shipper’s rate was individually and secretly determined. Under such a plan it was inconceivable that discrimination should not develop.
Ostensibly the offer of a special contract was one which shippers were free to accept or to reject as they saw fit. Practically, this was not so. If A took a contract and B did not, the latter’s ability to compete was seriously impaired. For B had to import some things by rail in any case, while the fact that less business in the aggregate reached the Pacific Coast by sea reduced the shipping facilities which B otherwise would have had at his command.[380]