Publicity for Express Companies
JULY, 1905
BY FRANK HAIGH DIXON
SIXTY-SIX years ago, and but a few years after railways had demonstrated their practicability, William Harnden met what seemed to him to be a real economic need by offering to carry valuable packages from New York to Boston, and for a consideration to assume responsibility for loss. Harnden’ valise, carried by steamboat from New York to Providence and thence by rail to Boston, was the beginning of a service which has advanced hand in hand with the railway industry, with which it is necessarily closely associated. Recognition of the economic value of the service was immediate. Companies were organized which selected particular sections of the country as their special fields of activity, until now an express service is found wherever transportation facilities exist, whether it be railway, steamboat, or stagecoach; a service which handles almost every form of traffic that can bear the charges imposed.
Of this large transporting agency, whose receipts reach the enormous sum of seventy-five million dollars yearly, and which, for certain kinds of service, has become apparently an indispensable part of our industrial mechanism, the general public knows almost nothing. The companies neither make reports themselves, nor are reports required of them by any governmental department.
It is the purpose of this article to bring together such information as can be gathered from existing sources, and thus make clear the necessity for the provision of means by which these facts may be supplemented and the information required by the public supplied.
The express business of the country was conducted for many years by a large number of companies operating within limited fields; but it was natural, if not inevitable, that consolidation should eventually take place. It is sufficient for our purposes to state that at present there are in the country six large express companies and a few smaller ones. The four largest are the Adams, American, United States, and Wells-Fargo companies. The first three are joint stock companies organized under a New York law that grants them the right to issue transferable shares representing a beneficial interest in the company, and subjects the members to full personal liability as partners; while the fourth is a Colorado corporation. The Adams Express Company, operating on about 35,000 miles of railway,has 120,000 shares, valued on the market at $14,000,000, upon which it pays, at present, a regular dividend of 4 per cent and an extra dividend of the same amount. In 1898 it distributed to its members a 100 per cent extra dividend consisting of $12,000,000 in 4 per cent debentures, to dispose of a surplus which had been accumulating for nearly fifty years to protect stockholders against the personal liability due to the form of their organization. The capital of the American Express Company is given a face value of $18,000,000, upon which regular dividends of 6 per cent are paid, with, usually, an extra dividend of 2 per cent. It has no bonded debt. Its business extends over about 45,000 miles of railway. The United States Express Company has a capital valued at $10,000,000, upon which a 4 per cent dividend is paid, and has no bonded debt. It has contracts covering 30,000 miles of railway. Wells-Fargo and Company, a corporation with power to do an express and banking business, has a capital stock of $8,000,000, paying a 6 per cent regular dividend and a 2 per cent extra dividend, and has no bonded debt. It operates on more than 48,000 miles of railway, steamship, and stage lines. Besides these four companies, there are the Southern Express Company and the Pacific Express Company, both corporations, the one operating in southern territory, the other largely west of the Mississippi; the National, a joint stock company, on the Vanderbilt roads; two Canadian express companies whose business extends into the United States; and several companies organized by the railways themselves, operating on single systems or jointly over connecting lines. These last named,such as the Denver and Rio Grande, Great Northern, and Northern Pacific, are similar to the fast freight lines in their relation to the railways served, in that the corporation performing the express service is merely nominal, and the business is in every sense railway business. To this list should be added a large number of local companies which confine their business to the cities, or to the territory immediately adjoining them.
It is frequently asserted that the express companies have divided the country among them, delimiting their spheres of influence and maintaining a monopoly within their chosen territory, and this assumed division of the field is often referred to as an illustration of what will be the ultimate outcome of the present tendency in railway diplomacy. However, careful examination of the conditions reveals the fact that, except in one or two cases, it is difficult to determine whether or not a single express company exercises a predominant influence in any particular section. For example, New England is commonly said to be the home of the Adams Express Company,and New England and New Aork business its chief reliance. As a matter of fact, while it controls the business of southern New England, it operates over extensive systems in the South, such as the Louisville and Nashville and the Queen and Crescent, is found on the New York Central and the New York, Ontario and Western, moves west over the Pennsylvania to Chicago, and continues its influence still farther by way of the Chicago, Burlington and Quincy, and the St. Louis and San Francisco. In New England, it operates over only half as much mileage as the American Express Company. The latter has virtual control of northern New England, spreads out over the West and Northwest on the lines of the Vanderbilt system and the Chicago and Northwestern, and south on the Illinois Central. The United States Express Company has contracts in the East with a number of the coal roads, including the Reading, Lehigh Valley,and Lackawanna, reaches Chicago over the Baltimore and Ohio and the Lake Shore and Michigan Southern, serves many small systems in the middle West, and reaches trans-Mississippi territory by way of the Chicago, Milwaukee and St. Paul and the Chicago, Rock Island and Pacific. The Southern Express Company is predominant in the section of the South east of the Mississippi. It shares a few of the railways with the Adams; but operates all the rest exclusively. The Pacific Express Company, while choosing the Southwest as its special field at the beginning, and operating at present in this section over the lines of the Missouri Pacific and other smaller railways, reaches Pittsburg over the Wabash, and the West and extreme Northwest over the Union Pacific, Oregon Railway and Navigation Company, and Oregon Short Line. WellsFargo and Company controls most of the Pacific coast traffic, but it does not by any means confine its activities to this section. It comes east over the Atchison, Topeka and Santa Fe and the Southern Pacific, has contracts with the St. Louis and San Francisco and the Chicago Great Western, and reaches the coast over the Erie. The National Express Company has contracts with some of the Vanderbilt lines, with the Grand Trunk and the Wisconsin Central. Thus, instead of operating in sections exclusively their own, different express companies often serve the same territory and transport their traffic on parallel railways reaching the same termini, and in some few cases even work side by side on the same railway system. Instead of a necessary monopoly, therefore, there is in many sections opportunity for competition. Does competition appear with the opportunity for it ? The relation of the companies to one another, and the composition of their directorates, may assist us to answer the question.
It is generally known that the Adams Express Company controls the Southern Express Company; they operate side by side on several Southern railway systems. The National Express Company is regarded as but an offshoot of the American, and an examination of the directorates of the two companies confirms the general impression. President James C. Fargo of the American is a director of the National, while President Livingston and Vicepresident Ledyard of the National are both directors of the American. Again, it is to be noticed that President Fargo of the American and President Weir of the Adams are both directors of the United States Express Company. The appointment of these gentlemen started rumors of the prospective consolidation of the three companies, and Mr. Weir is quoted as saying in reply: “A consolidation of the three companies is no more possible than a consolidation of all the newspapers in New York. These companies have different territories, and serve different railroads. We can’t consolidate. The Adams and the American companies used to have directors in common. This new move is simply an investment on our part by which we hope to make a little more money.” It is evident that an invitation to these gentlemen to places on the board of directors of the United States Express Company meant either that they represented a considerable investment in the stock, or else that a community of interest plan was to be worked out among the three companies, or possibly both. We have no means of settling the question definitely, but we do know that when the Adams issued its debentures, among the securities which it pledged with the Mercantile Trust Company was $100,000 of American Express Company stock. A merger of the Pacific and Wells-Fargo companies has been predicted because of the fact that the Harriman interests possess large holdings in both companies.
All this would argue against the probability of vigorous competition between the various companies, but it is not necessary to rest the question on a basis of probability. It is a matter of common knowledge that the companies agree among themselves upon the rates to be charged, and that their agreements are, as a rule, carefully observed. Rate wars are practically unknown. Notices of changes in rates agreed to in conference between express companies appear as news items in the financial journals. President Ingalls of the Big Four testified before the Industrial Commission: “They [the express companies] manage their own business by making agreements. I should be sorry to have them put on the same basis as railroads, so they could not agree.”
It has been a common belief that the exclusive use of a railway system, secured by means of a written contract, is granted to the highest bidder among the express companies; but in view of the facts already presented, such competition must be regarded as purely perfunctory, and the refusal of the express companies to make their contracts public, on the ground that such action would benefit their competitors and correspondingly injure them, is obviously a mere subterfuge. These contracts vary to some extent in their details, but in general are similar. They are not as a rule made public, and only in a few instances, where demanded by state railway commissions, are they publicly on file. The general terms are obtainable, however, from the testimony of officials before various investigating commissions. The railway companies provide baggagecars, heat and light them, attach them to passenger trains, and haul them over their lines, together with the messengers needed to care for the traffic en route. They carry at their risk all equipment of the express companies needed at the various points on the road. They grant free approach to all stations, and reasonable time in which to load and unload express matter. At the way-stations they permit gratuitous use of a part of the station houses for the temporary storage of goods. They agree not to transport on their passenger trains in competition with the express companies any matter except passengers’ baggage, milk, and railway matter carried free, and to grant to the express companies the exclusive use of their lines, including any additions to their operated mileage, during the life of the agreement. The express companies on their part assume all risk for damage to express matter and all liability for injury to their own employees while engaged in their employment. They load, unload, and handle all express matter, and when the services of railway employees, such as train baggagemen and station agents, are utilized, they pay a portion of their salaries. They transport all valuable packages of the railway companies, such as money and tickets, free of charge; in fact, they accept any property of the railway companies, below a specified weight, for free transportation, and property exceeding this weight at a reduced rate. At the terminals they provide their own storerooms. They permit the railway companies to determine the trains upon which express matter shall be carried. In times of heavy traffic this matter is often delayed for many hours and then goes by the slower trains; frequently it is carried on night trains, and in bulk, and seldom, if ever, is it distributed over a large number of trains per day. Only in a few instances are express cars operated in solid trains. They agree to fix the minimum rate at one and one half times the freight rate of the railways, except where competition compels reduction, and then the permission of the railway companies must be secured. Finally, they pay the railway companies from 40 per cent to 60 per cent of their gross earnings, with a guaranteed minimum annual rental, and give the railways access to their books and records. In some instances the contracts call for the payment of a definite sum based upon tonnage or space occupied; but the gross earnings plan is much the more common.
Such contracts would appear to grant very favorable terms to the railways, and might suggest that they had taken advantage of their position to drive a hard bargain, were it not for the very important fact that they place no limit on the charge which the express companies may exact from the public. Available facts would tend to show that the railways, instead of regarding the express companies as legitimate objects of exploitation, are becoming, through stock ownership and representation on the directorates, personally interested in the management of the express business. A few illustrations from the present situation will make this point clear. The Morgan influence, predominant in so many railway systems, is represented on the board of the Adams Express Company by Charles Steele, on that of the United States Express Company by Francis Lynde Stetson. Vice-president Ledyard of the National Express Company is a director of the Boston and Maine and of the Maine Central; Charles M. Pratt is a director of the American Express Company and of the Boston and Maine; M. F. Plant, chairman of the board of directors of the Southern Express Company, is a director of the Atlantic Coast Line; President Fargo of the American is a director of the Chicago and Northwestern; President Weir of the Adams is on the board of the Iowa Central, and of the Minneapolis and St. Louis; the chairman of the board of Wells-Fargo and Company is E. H. Harriman of the Southern Pacific and Union Pacific, and President Underwood of the Erie is a member. As examples of stock ownership it may be noted that in 1902 the New York Central purchased $3,000,000 of the capital stock of the American Express Company, while the Union Pacific owns $2,400,000 of the $6,000,000 capital stock of the Pacific Express Company, and the Southern Pacific possesses $1,530,000 of Wells-Fargo stock. On May 1, 1900, the American Express Company held 29,000 shares of Boston and Maine stock, a tenth of the total capital, and among the stocks pledged as collateral for its debenture issue by the Adams are a large number of railway shares, including Pennsylvania, New York, New Haven and Hartford, Chicago, Milwaukee and St.Paul, Boston and Albany, Boston and New York Air Line, and Chicago and Northwestern. Other illustrations, such as the joint ownership of express companies and fast freight lines, might be given on the authority of financial circles, but they are omitted because definite proof of such alliances is impossible. One may infer much or little from such facts; but certainly they would hardly support any claim of serious rivalry or hostility between the two agencies.
It seems reasonable to assume that conditions are fairly satisfactory to the railway companies. They prefer to divide traffic with the express companies and obtain half the earnings from express traffic, rather than attempt to handle it all themselves. The need of an agency that would transport packages of great value was the occasion for the appearance of the express business, but the whole character of the business is now changed. While almost anything is accepted for transportation upon which the shipper will pay the charges, yet the greatest development has been in traffic which demands speedy delivery, such, for instance, as live-stock, fresh fruit, vegetables, fish, and oysters. The individual now has the option between slow shipment by freight at reasonable cost, with an added charge for cartage at destination, and transportation on passenger trains with store-door delivery. For the superior service he pays, on the average, four times as much. There is no indication that the railways, except in the products of the packing and fruit industries, in which they have been prodded by the private car owners, have any intention of developing this traffic and displacing the express service. Yet it is difficult to determine whether the railways are doing their full duty, without having some definite information regarding express traffic.
It is pertinent, therefore, to inquire what attempts have been made to secure information upon which the public might base judgment as to the necessity of the service performed by this agency over which no control has ever been exercised. Immediately after its organization, the Interstate Commerce Commission, in pursuance of the requirement that all common carriers subject to the act should file their tariffs with the Commission, was compelled to decide whether its jurisdiction extended to the control of express companies. The Commission deemed it wise to include express companies under the provisions of the act, and accordingly ordered that their tariffs should be filed. A few of the smaller companies complied, but most of the companies refused, and an opportunity was given them to present their objections. It was argued by them in defense of their attitude that the history of the agitation for railway legislation showed that other traffic than that of the express companies had been in the mind of the public; that they were innocent of the evil practices which the act was intended to punish and eradicate, and that an unjustifiably broad construction of the statute would be necessary to include them within its provisions; that they had not practiced secret rebates, nor had they frequently made greater charge for the short than for the long haul, nor had they practiced unjust discriminations between persons and places. Finally, they argued their practical inability to meet the wishes of the Commission, for so numerous were the points to which their business extended that a collection of tariffs such as the law required would be beyond the capacity of any Washington building.
In answer to the last objection, it was properly pointed out by the Commission that the companies seemed to have no difficulty in putting such printed tariffs into the hands of their agents as were necessary for the conduct of the business, and that it was a fair assumption that what the agents could understand the public could comprehend sufficiently well for their purposes. As for the claim to exemption on the plea that they were not guilty of the evil practices legislated against, it is a sufficient answer to say that the public was without facts on which to base judgment, and that these assertions of innocence rested solely on the testimony of the companies themselves. To be sure, there have been few complaints against express companies on the ground of unjust discrimination; but the act was intended to take cognizance of excessive rates as well, and complaints of this character have been numerous. The contention that the history of railway legislation argued against the inclusion of the express companies within the statute had more force, and was evidently the determining factor with the Commission. It was held that the express business, when conducted by a railway company itself as a branch of its business, was subject to the act, but when conducted by an independent organization which acquired its rights by contract it was exempt, because the terms of the act were not sufficiently precise to warrant the Commission in taking jurisdiction. Justice to the express business demanding that any action by the Commission should have general application, the Commission declined to discriminate against express companies operated by railway companies. In every report, from that time up to 1900, the Commission, through its statistician, has urged that legislation be enacted which would make it possible to secure from express companies reports similar to those now returned by the railways, but Congress has turned a deaf ear to these repeated requests. The result is that nothing more is known of these great transportation agencies by either national or state government than is known of the operations of a corner grocery in rural New England.
Moreover, it is evident from the testimony of express company officers and managers in various legislative investigations that, without a complete reform in their statistical methods, the companies would be unable to give any satisfactory account of the extent or character of their traffic or of the reasonableness of their charges. Testimony given before the Railway Mail Pay Commission in 1898 and 1899 brought out the fact that, with the exception of the American Express Company, no company attempted to keep any traffic statistics, and it is understood that the agents of this company, on January first of this year, were ordered to discontinue the practice. As might be expected, therefore, the testimony of officers before investigating commissions has been invariably vague and unsatisfactory. Testimony as to the average weight of packages carried, the typical kind of merchandise, the proportion of express traffic which is mailable, and the average charge per package, appear to be merely individual opinions based on observation, and are frequently contradictory. Statistics of express business published in the Census of 1890, and including, besides figures relating to mileage, equipment, employees, and expenditures, the number of packages carried and their weight, have often been used to determine the character of express traffic and the reasonableness of the charges; yet General Manager Julier of the American Express Company testified before the Railway Mail Pay Commission that the statistics furnished by him after repeated requests of the census agents were merely estimates hastily prepared. In view of the fact that none of the other companies keeps any traffic statistics whatever, the census figures may be cast aside as worthless.
Public knowledge of express charges is of the most superficial character. It is known that express tariffs are not so complicated as railway tariffs because there is but a rough classification of traffic; that the tariffs are based largely on the rate per hundred pounds, with greater proportional charges for less weights; that the element of distance affects the rate, but not proportionately, as the principle of group rates prevails; that the element of risk is recognized in the practice of charging a higher rate for traffic of more than ordinary value; that peculiar forms of traffic are given arbitrary rates; that, when competition prevails between mail and express service, rates are given that will ensure the business, especially if the shipper is a large one; that this competition is more apt to prevail in the East, where the traffic is denser and the shipments are made on the average for shorter distances. These few facts give us no basis for judging of the method of computation of rates or of reasonableness of express charges, either in themselves or in comparison with other forms of service.
Nothing is known of the amount of money invested in the business, or of the expense of conducting it. Only in a few individual instances, under pressure from investigating bodies, have the contracts with the railways been made public. We know that under their contracts the express companies paid the railway companies for the year ending June 30, 1903, over $38,000,000, which represented from 40 per cent to 60 per cent of their gross earnings, but this is the sum total of our information.
From the standpoint of the express companies, this failure to keep adequate statistics is entirely justifiable. Most of their contracts with the railways are on the basis of gross earnings, a few on the basis of the space occupied, and almost none on that of the traffic handled. Railway compensation is figured by the express company’s auditor from the original way-bills, and no necessity for tonnage statistics exists.
But from the public standpoint, the case is far otherwise. That the express companies are common carriers is no longer an open question. Their relation to the public has been many times judicially established. Congress has recognized their character by including them in legislation affecting common carriers, engaged in interstate commerce, in such acts, for example, as that prohibiting the transportation of obscene literature, and that for expediting the delivery of imported parcels. Upon this common carrier the public relies for the performance of a particular service. The shippers have no dealings with railway companies; in case of loss or damage to property in transit, they look for relief to the express company; and this agency enjoys an immunity from interference all the more extraordinary when contrasted with the policy of government toward the railways upon which express companies operate. In return for their franchises, the railways are subjected to control both as to the reasonableness and the equality of their rates; they are required to make reports which throw the business open in large part to the inspection of the public. The express companies, likewise common carriers engaged in interstate commerce, secure by contract with railway companies all the privileges which railways enjoy, but because of a slight variation in the character of their business are exempt from that control to which railways submit in return for advantages secured.
From the competition between express companies to secure these railway privileges, even if it is genuine, the public derives no benefit. It simply results in an increased revenue to the railway. Competition between express companies on the same railway system does not exist, and is probably impossible if the railway elects to prevent it. While the laws of a few states, upheld by their courts, have required that railways shall extend equal facilities and accommodations to all persons and companies doing an express business, the United States Supreme Court in 1885, in the Express Cases, held that railways are not common carriers of common carriers, and are not obliged either by common law or usage to do more than to provide the public with reasonable express accommodations. This decision has been recognized as establishing the principle of exclusive privilege.
Competition between express companies operating on different railways serving the same termini is never heard of. There has been occasional friction in the interchange of through traffic, but it has been only temporary, the public usually paying the charges of two express companies instead of one. As already noted, rates are scrupulously observed, and the semblance of competition leads to the maintenance by each company, at many points, of facilities far beyond the need of the community served, entailing an unnecessary burden upon the public.
Three considerations, then, would seem to argue in favor of greater publicity for the express business. In the first place, this great transporting agency is being permitted to derive all the advantages of a common carrier, and to assume none of its obligations. Justice to other agencies of transportation which have been brought under control, and the absolute necessity of publicity in the affairs of public service companies, demand that action should be taken.
In the second place, as has been urged by the statistician to the Interstate Commerce Commission, it is impossible to make thoroughly effective the working of the Interstate Commerce Law, if this important agency is exempt from investigation. It has frequently been charged that railways have found it to their advantage to withdraw facilities for fast freight in order to divert business to the express companies, from whom they receive nearly half of the gross return. What unreasonable or discriminating practices may exist as the result of this contractual relation cannot be known, without fuller knowledge of express company matters.
Finally, there is an increasing agitation in this country for the introduction of a parcelspost. It is probable that the United States government could not constitutionally make this extension of its mail service a monopoly, but that it could create an effective and salutary competition with the express companies is undoubted. It is a very great question whether the express business has not become in these last years an unnecessary agency, and a public burden, — whether a reasonable extension of the fast freight service of the railways, on the one hand, already to some extent developed, in the milk, fruit, and meat traffic, and the inclusion in the mail service of a parcels post, would not make it possible, with a slight increase of their present facilities, to do away with the express service altogether. The only function of real social utility performed by this agency, not already covered by the other two, is its delivery service by wagons and English experience has shown that this may be made an efficient part of the railway service. But such a large problem as this is not to be settled out of hand. More must be known of the detailed working of the express business before judgment on this question would be warranted.
From whatever standpoint, therefore, the question be approached, the first step seems to be clear. To require of express companies reports similar to those required of railways would seem to be the immediate duty of Congress. The express business is, from every point of view, an industry which should be subjected to the principle of publicity.