I am reading now from the minority report, page 609, published in the hearings before the Committee on Interoceanic Canals, United States Senate, Sixty-second Congress, on the bill H. R. 21969. It reads:

In a comparatively few instances opposition to free tolls has developed in certain localities in the Middle West based upon the erroneous assumption that any reduction in freight rates between the Atlantic and Pacific seaboards will give the Pacific. Gulf, and Atlantic coast cities an advantage over the Middle West cities in competing for the trade of the intermountain section of the West. There might be some ground for this assumption were it not for the fact that rail freight rates forced by sea competi tion between, say, New York and San Francisco is contemporaneously applied between Chicago, St. Paul, St. Louis, Kansas City, and, in fact, every city of the Middle West on the one hand and every Pacific coast city or town on the other. This has always been so-it will always be so. The selfish interests of the railroads serving the Middle West is the strongest possible guaranty of the perpetuity of this already wellestablished rate-making system. No road operating between St. Paul and Seattle will permit a lower rate to exist between New York and Seattle than exists between St. Paul and Seattle, otherwise St. Paul's trade would be captured by New York.

Therefore if by reason of free tolls to vessels in the coastwise trade freight rates between New York and Seattle are $1 per ton less than they would be if tolls were charged they will by the same measure be less between St. Paul and Chicago and Omaha and St. Louis and Kansas City on the one hand and Seattle and Portland and San Francisco and Los Angeles and San Diego on the other. It is not for the merchants, manufacturers, producers, and consumers of the Middle West to do other than to heartily favor free tolls. It is to be expected, however, that the railroads serving the Middle West, and for that matter the entire country, will strenuously oppose free tolls and with equal strenuosity advocate the highest tolls possible-the only limit being those charged contemporaneously through Suez. Inasmuch as rates between the entire country east of the Missouri River on the one hand and the intermountain section on the other are based upon the coast-to-coast rates, it is obvious that free tolls would be equally advantageous to this section as to all other sections of the country. Free tolls can not but minimize rail freight rates on all the manufactures of the Atlantic seaboard, and the Middle West, the products of the great Mississippi Valley, and those of the Pacific coast to the ultimate advantage of the producers and consumers throughout the entire country. Nor are reductions in rail rates the only advantages which the people of the great interior of our country are to reap from free tolls. They have even a more direct interest.

Much of the commerce of the great Mississippi Valley will flow down the rivers which drain it to the Gulf and thence through the canal to the Pacific coast. Likewise Pacific coast products will, under free tolls, to a large extent eventually be distributed throughout the Middle West via her waterways. The completion of the Lakes to Gulf waterway project will make it not alone possible, but practicable to exchange Pacific coast lumber for Lake Superior ore without either commodity touching the floor of a freight car. Every burden placed upon traffic through the canal impairs its usefulness as a competitive route and decreases its benefits to the American people.

Those are facts as to the railroad rate-making system which are fully illustrated by a tabulation which is found at page 206 of volume 4 of the hearings before this committee, where Prof. Johnson submits the table. These are all commodity rates, and commodity rates as applied to a railroad tariff as understood on the Pacific Coast are pretty generally applied to the rates which are especially low in order to compete with the water competition. It shows that the rates are the same from these various territories, New York, Pittsburgh, Cleveland, Chicago, Omaha, Kansas City, St. Paul, and St. Louis. In other words, they are blanketed.

The CHAIRMAN. What do you mean by saying they are the same? Mr. WHEELER. The rate upon a given commodity from New York to San Francisco by rail is just the same as the rate upon that same commodity from Chicago to San Francisco.

Senator WALSH. So that, as I understand you, if by reason of the canal the rate on a certain commodity from New York to Seattle is

fixed at $8 the railroad company will be obliged to carry that same commodity from St. Paul to Seattle for $8?

Mr. WHEELER. Not for $8. Let me explain-the rail has great advantages over the sea in the way of service. Bear in mind that the sailings, if we may use the simile, of a freight car are every day from a factory door, three or four or five times a day.

Senator WALSH. Then let us put it that they will have to reduce the rate from St. Paul to Seattle proportionately?

Mr. WHEELER. Proportionately, Senator; that is it.

Senator BRISTOW. That is, if the rate on canned goods as the result of this should be reduced between New York and San Francisco, to 75 cents, that same reduction would be made at St. Louis, Chicago, and Kansas City?

Mr. WHEELER. Absolutely, and for this reason, Senator, if, in order to compete with the canal route, the railroads are obliged to make a reduction from 85 cents to 75 cents, as you have just said, from New York, where the competition actually exists, the railroads serving Chicago, St. Paul, Kansas City, and St. Louis, let us say, are going to protect their terminals, they are not going to permit the New York distributor of that California product to come back into their dooryard by reason of his advantages in freight rate, even though they are forced by the water rates. It has always been their policy, and it always will be their policy, to protect their terminals. Senator SIMMONS. Under the present law the railroads are permitted to make a lower rate to ineet water competition. There is not any rule that the railroads shall adjust their rates to meet water competition, is there?

Mr. WHEELER. That is true. They are not obliged to use the watercompetitive rate as a yard stick to measure the other rates by. That rests within the discretion of the commission, however.

Senator SIMMONS. If the reduction of rates is as great as you anticipate, and that should make it impracticable for the railroads to compete for this through business, they would probably just say, "Well, we will surrender that business; we will go out of that through business. We will confine ourselves to the interior business.' Now, these boats will run from coast to coast. They will start at one city on one coast and go to another city on another coast. The goods that they carry will not be consumed in that city. Those goods will have to be taken by rail in many instances into the interior.

Mr. WHEELER. Yes.

Senator SIMMONS. What do you estimate as the distance of that probable back haul?

Mr. WHEELER. There will be no back haul to any great extent if the railroads meet the rate and protect themselves against that back haul.

Senator SIMMONS. In order that it may be distributed from New York it has got to be distributed in many instances by rail, has it not?

Mr. WHEELER. Yes.

Senator SIMMONS. That back haul would probably not exceed much over 500 miles, would it?

Mr. WHEELER. It will be about the dividing line, in my opinion, and for this reason

Senator SIMMONS. Hold on. If they have lost this through business and their ability to make a reasonable return is impaired, do you not think that they would be justified in increasing the rate for

that back haul?

Mr. WHEELER. They will not have any back haul, Senator. Let me make myself clear, if you please.

Senator SIMMONS. What I mean by the back haul is this: When the boat from San Francisco has landed a cargo of oranges in New York, that cargo of oranges is not going to be sold in New York; it is going to be distributed within a certain area of New York, and it will be distributed by these railroads.

Mr. WHEELER. Certainly.

Senator SIMMONS. The railroad having lost its ability to haul that across the continent, having lost that business, might it not reasonably say, "I must charge a little bit more for this back haul"?

Mr. WHEELER. No. It is going to increase its earnings by reason of that back haul to the extent that it performs the back haul.

Senator SIMMONS. You say the back haul will be probably 500 miles from the coasts. That would be 500 miles from San Francisco and 500 miles from New York. That leaves a stretch of country between those two zones of 2,000 miles. The people within that 2,000 miles area will want some of this San Francisco fruit. It does not make any difference to them whether they get it from New York, or whether they get it from San Francisco, but if they get it they have got to get it by rail, have they not?

Mr. WHEELER. Yes, sir.

Senator SIMMONS. Is it not reasonable to assume that having lost so much of the through business when they distribute those fruits, we will say, 2,000 miles into the interior, they will charge a greater rate than they would now? Even now that fruit has to be carried by rail within that radius.

Senator WALSH. To put it concretely, Senator, although the railroad company, as I understand it, will be obliged to reduce its rates from St. Paul to Seattle, it will make it up by charging a higher rate from St. Paul to Helena?

Senator SIMMONS. That is not the point I am making at all. The point I am making is this: that after this boat line is established the back haul will be 500 miles from the coast, whether it is the Atlantic coast or the Pacific coast. There is 2,000 miles that is not within the back haul. Those people have got to rely upon the railroads bringing this fruit to them

Mr. WHEELER. I understand your point perfectly.

Senator SIMMONS. The question I asked you was if you did not think that having sustained this loss in the through business, they might justly say, in order to remain a going concern we will have to increase our rates within this 2,000 mile zone?

Mr. WHEELER. Let me illustrate this case

Senator SIMMONS. I should like to have you answer that question. Senator BRISTOW. Let him answer it. He will answer it if you

will give him time. He has a good answer if you will just give him

time enough to make it.

Mr. WHEELER. Let us go back to the rate on canned goods. It is 85 cents all rail to-day; 85 cents is found to get a considerable proportion of the business; not a dominating proportion, however.

They are complaining very much about the amount now; 85 cents is the competitive rate all rail to New York against 45 cents via Tehuantepec. To-day the railroads are blanketing that rate of 85 cents. It applies to Chicago. Chicago, to all intents and purposes, is a seaboard city, getting the benefit of a location on the seaboard, and St. Paul likewise.

Senator SIMMONS. If you will pardon me, that is the very gist of the matter. They are blanketing it now because they are engaged in the through traffic. Suppose they get out of the through traflic. Mr. WHEELER. I am trying to show you why they will continue to blanket it, and that is this: Suppose they are obliged to reduce that rate from 85 cents to 75 cents, as Senator Bristow stated awhile ago-I think, as a matter of fact, they will reduce it much less at New York, in order to meet the competition of the canal-but the moment they do that the Sante Fe, we will say, which serves Chicago, will reduce its rates to 75 cents.

Senator SIMMONS. But you are proceeding upon an entirely different assumption from mine. I am assuming that they will go out of that business entirely.

Mr. WHEELER. I do not think they will do that.

Senator SIMMONS. I am assuming that they will be forced out of the business. My question is based upon the assumption that they will be forced out of business.

Mr. WHEELER. That is not my assumption from experience.

The CHAIRMAN. Is there any more reason for supposing that the transcontinental railroads will be forced out of the transcontinental business in competition with the canal than that they should be forced out of the transcontinental business in competition with the present water route? In other words, as I understand it, you can bring the commodity you have just spoken of by the Tehuantepec route for 45 cents a hundred, and yet the railroads, because of their quicker service, are able to-day to get 85 cents.

Mr. WHEELER. And the saving of reinsurance and the fact that they blanket the rate

The CHAIRMAN. So that, in other words, even under existing conditions water transportation is but about 50 per cent of railroad transportation. The railroads secure a certain proportion of the transcontinental business?

Mr. WHEELER. They do.

The CHAIRMAN. And by the same token will they not continue to retain a certain proportion of the transcontinental business even though they are forced into competition with the Panama route?

Mr. WHEELER. Under more severe competition they will have to make their rates lower. Let me say apropos of that that I have seen rates between New York and San Francisco down to 30 cents a hundred on staple commodities like nails. It is true it was a rate war, but it shows what they can do when they are obliged to do it. On a great many staple products that rate of 30 cents per 100 pounds, or $6 a ton, applied by way of New Orleans from San Francisco.

Senator BRANDEGEE. Was that a profitable business?

Mr. WHEELER. I do not know. The road did not go into bankruptcy. It was one of the few roads that did not go into bankruptcy at that time.

Senator BRANDEGEE. Is it your idea that they could have continued to give that rate?

Mr. WHEELER. I do not know. Nobody has yet been able to determine what is a compensatory rate. We have determined what are reasonable rates, but where a rate ceases to be a compensatory rate to reimburse the carrier we have not yet been able to say or they will not admit.

Senator SIMMONS. I understood you a little while ago to say that the water rate on fruits was $9 and the rail rate $17?

Mr. WHEELER. That is correct.

Senator SIMMONS. And as a result of the competition you said more and more the railroads were losing that business to the water routes, and that they now enjoy but a very small part of it?

Mr. WHEELER. Yes.

Senator SIMMONS. But you say that after this canal is open, if there are no tolls charge, that the rate will be reduced to $6. Were you here on Saturday when Mr. Dunn testified, as I remember it, that the present rate on lumber across the continent by rail was $24? I do not know that he gave the water rate at the present time, but Senator O'Gorman says it is about half. If it is half, it will be about $12.50 by water. If the roads could do a part of this business when there was that differential in rates, when you reduce the rate on lumber to $4 a ton, as Mr. Dunn said could be done after the canal is open, by using oil instead of coal, do you think the railroads will be able to do any part of that lumber business in competition with that $4 rate?

Mr. WHEELER. Let me first say that this $24 rate between the Pacific coast and New York, if such a rate exists-I am not prepared

to say

Senator SIMMONS. I believe we all agree that rate does exist.

Senator WALSH. But the evidence is that there is not anything carried under it.

Mr. WHEELER. It is a paper rate.

Senator WALSH. It is a paper rate except with respect to a very high class of lumber and special articles, such as masts for ships, or things of that sort.

Senator BRANDEGEE. I simply want to ask you this, Mr. Wheeler: Have you any information on which you can base an opinion you have any confidence in as to the probable lengths of the voyage between New York and San Francisco via the canal?

Mr. WHEELER. I think sailing at economical speed, Senator, a freighter will make it in about three weeks. It will be 20 days or 21 days, probably. That is, with economical speed.

Senator BRANDEGEE. How big a freighter? Carrying how much cargo ?

Mr. WHEELER. About 5,000 tons.

Senator BRANDEGEE. Of cargo?

Mr. WHEELER. Net registered tons. That is about the size of the vessels I think they will have.

· Senator BRANDEGEE. How many cargo tons would that be-5,000 net registered tons?

Mr. WHEELER. Of California products it would not be at any time more than 5,000 cargo tons.

Senator BRANDEGEE. That would take somewhere between 20 and 30 days, you say?