Prof. JOHNSON. It will not necessarily result in the reduction of transportation rates. The CHAIRMAN. What do you mean by that qualification? Prof. JOHNSON. I mean by that that it has now been established definitely that the rates of the steamship lines are fixed by agreements with each other. The CHAIRMAN. Are they not subject to the interstate-commerce provisions? Prof. JOHNSON (continuing). And the basis of their rates will not be the cost of performing the service, but what the traffic will bear, and the tonnage coming to the ships. The basis of the rate making will not be changed by the opening of the canal. If the railroads were for any reason to reduce their general schedule of rates very largely that would carry down with it the Panama Canal rates. But if it be assumed and I think we must assume that the general level of rail rates is not to go down-that the coastwise carriers will fix rates with reference to what the traffic can pay and go by water instead of going by rail. The cheapening of the cost of transportation by opening the canal will not necessarily reduce the freight rates. The CHAIRMAN. Then, in a word, from your view, the transcontinental railroads have nothing to fear from competition that might be opened in consequence of the canal traffic? Prof. JOHNSON. They have not very much to fear. The CHAIRMAN. Do you not know that they have been opposing the construction of this canal for more than 30 years? Prof. JOHNSON. I do not have any knowledge of the opposition. The CHAIRMAN. Did you ever hear the statements made? Prof. JOHNSON. I do not have any knowledge of an opposition for a number of years. The CHAIRMAN. Have you ever heard the statement before? Prof. JOHNSON. I think it did up to perhaps 10 or 12 years ago. Senator THOMAS. That is, it had opposition until the canal was an accomplished thing? Prof. JOHNSON. That is, until the Government of the United States decided to build the canal. Then I think the railroads stopped their opposition. The CHAIRMAN. Do you have any idea what influence their unfavorable attitude of 10 or 12 years ago had? Were they apprehensive that this canal, by water competition, might affect their rates, or did they have any reason for fear? Prof. JOHNSON. I think their fear was as you stated; they were afraid of the competition. The CHAIRMAN. From your point of view it was a groundless fear? Prof. JOHNSON. It is less groundless now than it was then. The railroads have now reached the point of cooperation whereby they make their rates with complete knowledge of each other's action. Those rates are stable and well established. Under present conditions it is not probable that the general and established schedule of rates will be disrupted to engage in active competition by way of the canal. If I may be permitted just one word more, traffic studies show that of the westbound traffic carried by the transcontinental railroads through to the west coast from 20 per cent to 22 per cent originates east of the Buffalo-Pittsburgh district-- that is, in the manufacturing eastern section of the United States. If the Buffalo-Pittsburgh district be added, some 35 per cent of that westbound tonnage through to the seaboard is included, which means that about two-thirds of the present westbound traffic of the railroads originates in the Mississippi Valley west of Pittsburgh and Buffalo. It is east of the Buffalo-Pitt-burgh district that the competition of the canal will most seriously affect the traffic of the railroads. The question which the railroads will have to decide when they come to adjust their rates with reference to the canal is how seriously they will endeavor to hold by rase reductions the percentage which they may be able to hold of 20 per cent. Of course, it goes without saying that a considerable portion of that 20 per cent of the traffic origi nating in the section of the country east of Buffalo and Pittsburg will go by rail anyway. It consists of manufactures which move most economically by rail from factory direct to warehouse of the consignee, and even with an appreciably higher rate by rail, the traffic. will continue to move by rail. If possibly the railroads, by active competition with the water carriers, could save 10 per cent of their tonnage or half of this traffic east of the Buffalo-Pittsburgh district, it might not be profitable for them to interfere with the general schedule of rates, because, as you know, railroad rates are blanketed, as regards most items of traffic, over the entire territory cast of the Missouri River. If you cut the rate from New York to San Francisco, you automatically cut it from St. Louis and Kansas City to San Francisco, and the effect on the rates which the railroads would exert by competing actively at New York and Philadelphia for westbound traffic against the water lines would be so expensive that they may find it--and in my judgment they will find it best to leave their schedule of rates practically as they now are and let that part of the traffic go by water which shippers prefer to ship by water instead of by rail at the existing rates. That is a brief statement of a rather complicated subject. Senator PAGE. Is it not a forced construction to say that after the canal is built they will blanket the freights from Kansas City to San Francisco? Will they not endeavor to hold the New York business by making a less rate than they do, say, to a western point? Prof. JOHNSON. I doubt that, Senator. That blanketing of rates was the outgrowth of the struggle between the eastern producers and central western producers for the western trade. I can not give the exact date-it is in my report-but a comparatively few years ago the rates were lower from the seaboard section of the United States through to the west coast than they were from Chicago and St. Louis, but the Chicago, St. Louis, and Minneapolis producers protested and succeeded in securing the entry into the western markets on a common footing with eastern manufacturers. Senator PAGE. At that rate? Prof. JOHNSON. Yes. Senator THOMAS. But they are still much lower than they are to Colorado points and intermountain points? Prof. JOHNSON. Yes. Senator THOMAS. We get it coming and going. Prof. JOHNSON. I assume that the reduction in costs of transportation via water between the coasts will be practically the cost of transportation across the Isthmus at the present time, which averages about $3.50 a ton at Tehuantepec, and $3 a ton at Panama. Senator PAGE. What is that as compared with the total rate? Prof. JOHNSON. The American-Hawaiian Steamship Co., which now handles a large tonnage across the Isthmus of Tehuantepec, pays under its agreement with the Mexican National Railway one-third of the through rate to the Mexican National Railway. The CHAIRMAN. Covering what distance generally? Prof. JOHNSON. It is 185 miles. The CHAIRMAN. I am not talking of the distance of the Tehuantepec Railroad, but the entire distance covered by the ships. Prof. JOHNSON. It is something over 4,000 miles. Senator PAGE. Is it not inconceivable that the cost of transportation should be reduced one-third and not have the general law of competition enter in to such an extent as to make the tariff lower after the canal is opened than it has been in the past? Prof. JOHNSON. It may sound strange, but is the law of competition operating in the coastwise business to-day? Senator PAGE. Perhaps not. I think it ought to be, and I think it will be. Prof. JOHNSON. If it is not, will present conditions be so changed as to introduce it in large measure into the coastwise business after the opening of the canal? That is the question. Senator PAGE. If the American people had not thought so, they would not have built the Panama Canal, would they? Prof. JOHNSON. I do not think so. I think if Dr. Huebner's report had come 10 years earlier we would not have built the canal. I am glad it did not come then. Senator PERKINS. I wanted to ask one question. When the canal is opened, what effect will it have upon the independent lines of German and French steamers plying on the west coast of South America as well as North America? In other words, they are carrying all the pack of Alaska salmon, which is of a very considerable amount and canned fruit from Puget Sound. They are taking that from San Francisco to Antwerp now. The ships go down to South America and through the Straits of Magellan, and if they have any space left they take on niter from Peru and Chili to England and Germany. They will still continue to operate that route after the canal is open, will they not? I think they will, because for the reason that they operate their ships about one-third less than we can possibly operate ours. Prof. JOHNSON. I agree with you fully, Senator. I see no reason why the German lines, which now carry traffic by the more expensive route, could not continue to carry that trade by a less expensive route. Senator PERKINS. It seems so to me. Senator BRISTOW. As I gather from your remarks, Prof. Johnson, you claim that since there is no competition in coastwise vessels, that when the canal is opened there will still be no competition, and because there is no competition, due to these combinations, there will probably be no reduction in rates? Is that the general line of your argument? Prof. JOHNSON. Yes; the general line of it. Of course, in stating matters categorically here, one omits the exceptions. My form of statement would perhaps be this, that the competition in the coastwise trade is now thoroughly regulated by agreements of steamship lines. That condition will not be changed by the opening of the canal, and any competition after the opening of the canal will be regulated as at the present time. Senator BRISTOW. Can you tell me why it is that the rate on baled cotton from Memphis to New Orleans-I may not get the cents exactly right now, but I know what it was years ago is 17 cents a hundred pounds, a distance of about 460 miles, while the rate from Meridian, Miss., to New Orleans, a distance of 196 miles, is 36 cents a hundred pounds? Why does that railroad charge 36 cents a hundred pounds for hauling baled cotton 196 miles in one instance and 17 cents for hauling it 460 miles in the other, when the contour of the country is the same and the conditions of the traffic are the same? Prof. JOHNSON. It is clear that the railroads do not want that traffic to go by the river. Senator BRISTOW. They make it so the boats can not carry it, and then they charge the interior the larger amount? Senator THOMAS. They do that for the same reason that they charge us twice as much in our country, we having no river, or even potential water competition. Senator BRISTOW. They charge what they can. Why is it that a waterway between the coasts or even towns on the Mississippi River and the Pacific coast-why is it that that waterway should not have the same effect if it was free and open that the river has on rates? Prof. JOHNSON. The railroad in question is probably the Illinois Central. It can make that special rate on cotton without disturbing its other rates at all probably, at least to but a very slight extent. And it finds it profitable to carry that cotton at a little more than operating cost. On the other hand, if it is a question of general traffic between the two seaboards, the railroads will hesitate before they interfere with the general schedule of rates covering the entire country from coast to coast, tied together in many intricate ways, and made more stable by this system of blanketing rates westbound, and to a large extent eastbound. It will be more profitable for the railroads to let certain bulky traffic go by water at such rates as the water carriers choose to make instead of actively endeavoring to hold that against the carriers by water. Senator BRISTOW. The rate on canned goods from Baltimore to San Francisco by rail has been-I have not looked it up for a year or more a dollar a hundred pounds, while the rate on canned goods from Baltimore to Salt Lake City, which is 800 miles this side of San Francisco, was $1.60 a hundred. Why was the San Francisco rate, 800 miles farther, a dollar, and the other rate $1.60? Prof. JOHNSON. That was a water-compelled rate. Senator BRISTOw. That was because of water competition, because the city of San Francisco was on the sea? Prof. JOHNSON. Yes. Senator BRISTOw. You stated that the American-Hawaiian Line fixes its rates lower than the rail lines, giving a differential just as much under the rail rates as was necessary to get the business. Does it not take into consideration the Panama route at all in fixing its rates? Prof. JOHNSON. No; I do not think it did to any considerable extent, because the Tehuantepec route was the shorter route, the less expensive route. It was the standard route. And then, as a matter of fact, the rates by the two routes are practically the same, as are brought out in my report in great detail. Senator BRISTOw. Yes; but who fixed the rates by the way of Panama? Prof. JOHNSON. Theoretically, they were fixed by the Secretary of War, I believe. Senator BRISTOW. But they were fixed by the governmental agencies and representatives. Were they fixed after conference and as a result of agreements with these other lines? Prof. JOHNSON. I so understand. I do not wish to testify on that, because I have no personal knowledge. The CHAIRMAN. That is your impression? Prof. JOHNSON. That is my understanding. Senator BRISTOW. Then this Government steamship line, which the Government owns, every dollar of it is a part of the combination fixing rates? Prof. JOHNSON. I understand that the rates by the Panama route and by the Tehuantepec route were worked out together. But, as I say, I have no personal knowledge of it. Senator BRISTOW. What is the basis of your information as to that? You say you understand that? How came you to arrive at that understanding? Prof. JOHNSON. From the reading of the testimony before your committee, I think. I think that matter was inquired into before this committee. The CHAIRMAN. It was. Senator BRISTOW. But my recollection is very different from that, so there must be Prof. JOHNSON. I say I do not wish to express Senator BRISTOW. My recollection is that Mr. Dearborn of the American-Hawaiian Line complained very bitterly of the attitude of the Government in fixing its rates independent of them Prof. JOHNSON. Yes; but I think he fixed his rates at the same point. Senator BRISTOW. He may, of course. That was his lookout. There was not any occasion for him doing it unless he wanted to do it. He did not control the Panama rate, did he ? Prof. JOHNSON. No; not altogether. Senator BRISTOW. Did he have anything to do with it? Prof. JOHNSON. In this sense, that the Panama rates, as I understand it, have largely followed the Tehuantepec rates. Senator BRISTOW. You think that the Government, then, in fixing these rates by way of Panama have followed the Tehuantepec Railroad? Prof. JOHNSON. I think so. Senator BRISTOW. What reason have you to believe that? Prof. JOHNSON. The fact that the rates are practically the same. Senator BRISTOW. Is that in evidence? Why should not the Tehuantepec Line or the American-Hawaiian Line have followed the Panama Railroad Line? Prof. JOHNSON. The President of the American-Hawaiian Line has stated before the House Committee on Interstate and Foreign Commerce that they made their rates with reference to the railroad |