Mr. DUNN. I think that the gentleman who made the statement was in part misinformed and did not think out the conditions very closely.

Senator PAGE. You think that competition will be sufficient to bring these rates down to somewhere near the proportionate cost?

Mr. DUNN. There will be, in the real sense, no competition at all. The rates by water will be so much lower that the transcontinental railroads will go out of the transcontinental business as such.

Senator PAGE. But there will be rates-there will be competitive rates between the different steamship lines.

Mr. DUNN. Oh, certainly.

Senator WALSH. Is it your idea that that competition will reduce the rates?

Mr. DUNN. Yes, sir; and I think, as I proceed to read what I am to say, it will appear in detail.

Senator SIMMONS. Right there, that is generally; you are speaking now of the competition created by conditions growing out of the construction of the canal. Please tell the committee at this point about what you estimate will be the difference in the present water rate around the Horn and the future rate by the canal.

Mr. DUNN. The present rate around the Horn, the minimum rate and I think the average rate, too-is about $9 or $10 per ton. The best rate-that is, between New York and San Francisco-will eventually come down as low as $2 a ton.

Senator SIMMONS. Then the difference between the present water rate, with which the railroads are competing, and the prospective water rate, as the result of the opening of this interoceanic canal, will be the difference between $9 a ton, or an average of $9 a ton, and an average of $2 a ton, and on that basis you say that the railroads lose two-thirds of their present transcontinental traffic? Mr. DUNN. I think the Senator misunderstood me. I was referring to $9 or $10 per ton, figured on the transportation rate around Cape Horn, not across the continent.

Senator SIMMONS. Now give it across the continent by the railroad

route.

Mr. DUNN. The lowest rate that I know of, coast to coast, is $11, and the highest rate about $120 per ton. The average rate, which I state further on here, is somewhere between $27 and $35 a ton.

The CHAIRMAN. Some rates are higher. What would be the maximum railroad rate across the continent now?

Mr. DUNN. I am giving this from memory, and I hope the committee will not deem it conclusive, but I recall that on first-class freight there is a rate of, as I remember, $6 a hundred pounds from New York to San Francisco-that is, a certain first-class rate. It may have been reduced later, but that is my memory about it.

Senator WALSH. A class rate would not be of any consequence here. Commodity rates would really be the governing factor. Mr. DUNN. They would not really be the determining factor at all. Senator WALSH. Will you tell us what the tea rate and the silk

rates are?

Mr. DUNN. I do not know; I presume the silk rate is a special rate, due to the fact that they usually put it on passenger time to save interest on the large sum of money invested in the silk while it is in transit.

Senator SIMMONS. If your testimony is to be of any importance or value to us it ought to be based either on some kind of traffic, or it would have to be based on the general average of all traffic. can not skip from one kind to another.

You

Mr. DUNN. That is due, I think, to the fact that the questions asked me have anticipated what I would have said.

The CHAIRMAN. You may proceed with what you have prepared. Mr. DUNN. The entire tonnage of the first two items, 2,500,000 tons, will, in my opinion, go by the Panama Canal route even should tolls be imposed. The effect of the toll imposition would be to raise the rates by about $1 per short ton, assuming the toll at $1.20 per registered vessel ton, making the rates $6 to $8 per short ton. By reason of the toll being a flat sum for each vessel, according to its capacity without regard to variations in quantities of cargo, and because this diverted freight would naturally go by liners running on schedules, the owners of the vessels, in self-protection against loss through carrying less than full cargoes, would be compelled to collect from the shippers of the freight a flat toll charge in excess of the mean rate based on full cargoes, which would be about 46 cents.

LUMBER TONNAGE BY CANAL.

The third item in my table is, "Lumber, 1,000,000,000 feet, 1,650,000 short tons." This would be new commerce. It would be new commerce created by the Panama Canal. The explanation of it is this: The production of lumber in the eastern, middle, and southern groups of States along the Atlantic and Gulf coasts, and including Arkansas and Oklahoma, in 1911 is reported to have been 19,600,159,000 feet. In 1909 it was 25,169,834,000 feet, showing a decrease of 5,569,675,000 feet in two years, due to the progressive exhaustion of forest areas. The Pacific coast of our States and Canada and Alaska contain a forest belt 1,600 miles long and from 30 miles to 150 miles wide barely cut into by lumbering. It is so situated that lumber can go directly from the mill saws into the holds of vessels, beyond which it is impossible to conceive of cheaper man handling of the logs from the forest to the lumber at the hand of the consumer. The difficulty of producers has been to sell at cost, close to the points of Pacific coast production, the "common" grade of the lumber cut, say, 70 per cent of the whole. The high grades could pay the high cost of railroad transportation to distant markets and still produce a profit. This is impossible with the "common" grade, and the production of both grades, which is made together, has been checked and restricted through lack of a consuming market for the "common" grade. The business on the whole has become unprofitable from this cause the demand for the high grade portion of the lumber cut stimulating an over-production of the "common" grade portion.

The continuing shrinkage of the Atlantic and Gulf States output of lumber creates a natural market for Pacific coast "common" grade lumber by way of the cheap transportation route of the Panama Canal. The rates by this all-sea route coastwise between ports of our Pacific Coast States of California, Oregon, and Washington will be, free of toll, from $4 to $5 per 1,000 feet. While it is a fact that lumber will go in full cargoes, a toll rate of $1.20 per registered vessel ton will put a toll charge of $1 per 1,000 feet on lumber, raising

the freight rates by that sum. But, the "common" grade of Pacific coast lumber will move to any market freely on a profit margin of $1 per 1,000 feet to the producer, and that sum, or at the most not over $2 per 1,000 feet, is the profit margin at which Pacific coast "common" lumber will meet Atlantic States common" lumber competitively in Atlantic ports with no toll charge.

Senator SIMMONS. Right there will you let me ask you about what test of this lumber that you speak of is of this low-grade or commongrade character?

Mr. DUNN. About 70 per cent of the whole would be classified, not as common grade, but as common grades.

Senator SIMMONS. Is that not about the same proportion as we have in the lumber districts on the Atlantic coast?

Mr. DUNN. I think in the lumber districts on the Atlantic coast the proportion of what are termed common grades is higher-about 80 per cent and the grade we call common; that is, the better class of common, would be here graded as No. 2 shop, or something of that grade-shop lumber instead of common.

So a canal toll charge of $1 on Pacific Coast States lumber will have either the effect of absorbing the profit margin, in which case no Pacific Coast States "common" lumber will be exported through the canal to Atlantic States ports until the market price of Atlantic States "common" lumber rises, so that the consumer will pay the toll, or the consumer of lumber will pay the $1 toll from the beginning in a maintained market price, which but for the canal toll would be lowered $1 per 1,000 feet by the entry of the Pacific coast supply.

Senator SIMMONS. Would not that same rule that you are laying down apply against any product on the Atlantic coast that may be shipped to the Pacific coast?

Mr. DUNN. Not necessarily so.

Senator SIMMONS. Why not necessarily so?

Mr. DUNN. Because in some cases the toll would be paid by the producer and in others by the consumer.

Senator SIMMONS. Would it not be paid that way whether it is that one case or the other case?

Mr. DUNN. As I have said, in discussing in detail these different exports, I will note each one on which the different parties pay the tolls. In some cases it is the producer and in some cases it is the consumer. In the case of lumber it happens to be the consumer, for the reason that the market here is short of supply and is getting shorter.

Senator SIMMONS. The Atlantic coast market for this common lumber?

Mr. DUNN. Yes.

Senator SIMMONS. It is short of the high-grade lumber, but there is a glut of the common lumber on the Atlantic coast-there is a glut, I mean, in the markets; that is, the supply of common grade on the Atlantic coast is very much greater than the demand for the common grade. That is not true of the high grades; at least that is my understanding of it.

Mr. DUNN. The price of common lumber on this coast, as given to me by people in the business whom I have asked, indicates that these figures are just about right; that there is just about $1 margin, maybe

a $2 margin, in the business for the Pacific coast producer if there are no tolls, and probably no margin if there is a toll.

Senator SIMMONS. Let me understand what you mean by that. You say there is a margin. You mean to say that the lumber on the Atlantic coast sells for a dollar and-what was it you said, how much? Mr. DUNN. It sells for a dollar more than the cost of the product shipped to the Pacific Coast States and plus the four or five dollars per thousand feet freight. That is about, I think, the margin.

The estimate of 1,000,000,000 feet of annual export seems conservative, under the probable fact, rather than over it, in consideration of the growing annual decrease of Atlantic States product, now about 3,000,000,000 feet annually, and in further consideration that the estimate includes exports to foreign Atlantic ports as well as our own-provided, however, the commerce be toll free both coastwise and foreign. If it be toll free coastwise and toll charged foreign, it is obvious that while Pacific Coast States exports of lumber and Atlantic States ports exports of lumber will meet in the ports of other of our States on absolutely even competitive terms, they will, nevertheless, meet in the ports of foreign countries on uneven terms; in the case of meeting in the port of Liverpool, England, for instance, the lumber exported from Atlantic States seaports would have a preference of $1 per 1,000 feet, which the lumber exported from the Pacific Coast States seaports would have paid as Panama Canal toll. Take another instance. Assume the lumber exports from one of our Pacific coast ports and from one of our Gulf coast ports to meet in the foreign port of Panama. The lumber exports from the Pacific coast port would have the preference of $1 per 1,000 feet over the lumber exports of the Gulf coast port which would pay $1 toll through the canal to Panama, at the other end of it. If, in place of a Pacific States port exporting the lumber to Panama, it be a port of British Columbia, exporting it, say Victoria, ther. British Columbia lumber in competition with our Gulf States' lumber, say Louisiana's, would have a preference of $1 per 1,000 feet, in the foreign port of Panama, which the Louisiana lumber would have paid as Panama Canal toll.

Senator THOMAS. And that would be obviated by a free-toll canal, would it?

Mr. DUNN. Yes, sir. In this instance a Panama Canal toll collected from an article, lumber produced in Louisiana, exported in its foreign commerce, puts that export at a disadvantage equal to the sum of the toll in meeting the price of a foreign competitor offering the same article in the same market.

I have discussed the economies of lumber traffic through the Panama Canal at length, because the probable profit margin in the business is so close in amount to the Panama Canal toll contemplated that, in my opinion, if the toll be charged, only a small part of commerce I have estimated will become created immediately, whereas if no toll be charged my estimate of that commerce may be far under

the fact.

PETROLEUM EXPORT BY CANAL.

The next item in my table is "Petroleum, 25,000,000 barrels, 4,000,000 short tons." This would be new commerce, practically no California petroleum now going into ship-carried commerce on

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the Atlantic Ocean. The opportunity for it is this: The present price of California petroleum at California ports is so much lower than the price of oil from any eastern or Mississippi Valley field at an Atlantic port, and the quality so different, that there is no competition. The market of the Atlantic States, many times larger in potential consuming power than the Pacific States market, is clear for California petroleum, so far as other States' export of petroleum is concerned. Its principal competitor in the eastern market is bituminous coal. The sale price of bituminous coal fixes the maximum market price of California petroleum in these Atlantic States markets at not over $1.50 per barrel, or $6 per ton, as equivalent to bituminous coal at $4.50 a ton. If bituminous coal sells at $3.60 per ton, then California petroleum would sell on even terms at $1.20 per barrel.

At the present time the price of California fuel petroleum at a California port is about 70 cents per barrel. The cost of sea transportation through the canal to Atlantic ports has been carefully estimated at 40 to 45 cents per barrel, making the cost of the petroleum in the Atlantic port from $1.10 to $1.15 per barrel. Toll free through the canal the California petroleum would then have a profit margin in the Atlantic States markets ranging from 5 cents per barrel to 35 cents per barrel, probably about 15 or 20 cents under the mean market price of bituminous coal.

The toll imposed on transport through the canal at the $1.20 vessel-tonnage rate is estimated at 14 cents, there being small probability of return cargo for an oil-tank carrier making the oil transported one way pay the toll both ways. Adding the toll charge, the total cost in Atlantic ports will be from $1.24 to $1.29 per barrel, and the profit margin will range between a loss of 9 cents a barrel and a profit of 21 cents-under mean market prices for bituminous coal, 1 cent to 6 cents profit per barrel.

It is obvious that under the imposition of the Panama Canal toll, there will practically be no commerce of California petroleum through the canal to our Atlantic States ports, except when the present price of California fuel petroleum at the well shall become lowered 5 cents to 10 cents a barrel. This would create a profit margin under which oil could move in commerce through the canal.

But the commerce would be uncertain in return at all, irregular and hazardous to the producer. And, in this canal toll burdened commerce it would be the California producer of the petroleum who would pay the toll. In this respect it would differ from the commerce in Pacific Coast States lumber on which the consumer would pay the canal toll.

California fuel petroleum in ports of our Atlantic States will be in direct competition with British owned petroleum imported from Mexico. With Panama Canal toll the foreign imported petroleum in our Atlantic States ports, here in Washington also for instance, will have a preference of 14 cents a barrel, 85 cents a ton, over petroleum from our own State of California.

Senator THOMAS. Is that due to the existence of the toll? Mr. DUNN. The toll; yes, sir. With toll imposed, there will also be the same preference of 85 cents a ton given through it to the British-owned Mexican petroleum wherever California petroleum enters our States' foreign commerce through the Panama Canal.