Railroad Reorganization

1 Milton Reizenstein, The Economic History of the Baltimore & Ohio Railroad, Johns Hopkins University Studies, July-August, 1897.

2 Reizenstein estimates the original cost of the first 379 miles to have been $37,612 per mile, and, adding the cost of reconstruction and extension to 1853, he gets a figure of $41,237 per mile. Vide infra, p. 75.

3 6th Annual Report, 1832, p. 4.

4 35th Annual Report, 1861.

5 Testimony of Mr. Blanchard, Hepburn Committee Report, p. 3171. See also Chron. 20:547, 1875.

6 The Baltimore & Ohio had no line to New York. The Pennsylvania had had one since 1873, and over it Mr. Garrett was forced to send all his New York business. Disputes arose over the proper pro-rating of charges. President Garrett alleged that the terminal charge of four cents per 100 pounds which the Pennsylvania Company imposed on freight coming to or going from New York was exorbitant, and that he was paying for 100 miles of transportation when the real distance was only 90. President Scott replied that the rates for terminal services in New York were not sufficient to cover the cost of doing the business, and that the Pennsylvania’s New York and Philadelphia line was open to the Baltimore & Ohio on the same terms as to all others. R. R. Gaz. 7:71–2, 1875.

7 R. R. Gaz. 6:8, 1874. The outcome was an agreement whereby the Baltimore & Ohio restored rates and fares, and the Pennsylvania agreed to haul two of the former’s trains daily each way between West Philadelphia and Jersey City, to sell through tickets West over the Baltimore & Ohio, and to give that road all necessary facilities for the handling of through freight.

8 Sugar, coffee, salt, etc.

9 The traffic between Cumberland and Baltimore was mostly coal. In an interview the last of May or first of June, 1875, President Garrett said that as soon as the right was conceded to his road to enter New York over the Pennsylvania Railroad as he had been doing for thirty years, and to make such rates from Baltimore and Chicago as he chose, he was ready for peace and not sooner.... The Saratoga combination, which had been gotten up to ruin the Baltimore & Ohio Railroad, had only served to establish the road and give it a standing in the West.... It had been and was now his firm object to maintain the freight rate on fourth class, the principal freight shipped from the West, at 35 cents per 100. This was a reasonable rate and gave his company a fair profit. The other lines had to submit to this rate or there could be no peace. R. R. Gaz. 7:237, 1875.

10 R. R. Gaz. 7:261, 1875; Ibid. 7:270, 1875; Ibid. 7:289, 1875; Chron. 20:593, 1875. The compact was to last for ten years, the companies to agree upon and to maintain moderate rates between all competing points. Each board of directors was to appoint a special committee to which was to be referred all differences which might arise. The Pennsylvania opened its lines to the Baltimore & Ohio between Philadelphia and New York on the same terms that it gave other connecting roads at Philadelphia.

11 See Interstate Commerce Commission, Railways in the United States in 1902, part 2, entitled, “A Forty-year Review of Changes in Freight Tariff,” p. 79.

12 For an account of the differentials at different times see the argument of counsel and the opinion of the Interstate Commerce Commission, “In the Matter of Differential Rates to and from North Atlantic Ports,” April 27, 1905, in Elkins Committee Report, vol. 5, Appendix E. See also 7 I. C. C. Rep. 612.

13 Albert Fink, Report on Adjustment of Railway Rates; also Testimony of Mr. Blanchard, Hepburn Committee Report, pp. 3171 ff.

14 “Additional Arguments on the Division of [Dead] Freight from Cincinnati of the Atlantic & Great Western,” etc., N. Y. 1879, p. 5. Speaking from the standpoint of an impartial observer, Mr. Fink declared that $1,840,494 had been lost between December 19, 1878, and May 1, 1879, through the failure of the Michigan Central, Lake Shore, Pennsylvania, and Baltimore & Ohio and their connections to observe their published tariffs. Chron. 28:578, 1879.

15 By agreement of March 11, 1881, the chairman of the Joint Executive Committee, Mr. Fink, was given authority to proclaim a general reduction in published rates when it should be shown that any pool line had been accepting traffic at less than the regular rate. This authority he exercised in April. Rates were restored almost immediately by special action of the Joint Executive Committee, only to be reduced again in June for similar reasons.

16 The actual outbreak of the war was due to the conviction of the New York Central that traffic was being diverted to other roads by secret departures from the published tariff. R. R. Gaz. 13:347, 1881.

17 Hepburn Committee Report, vol. 3, p. 558.

18 Cullom Committee Report, vol. 2, p. 98.

19 In January the Pennsylvania announced that it would take provisions from Chicago to New York for ten cents per hundred pounds. R. R. Gaz. 14:28, 1882.

20 See Albert Fink, Report upon the Adjustment of Railroad Transportation Rates to the Seaboard, 1882; also, Letter to a New York Merchant, by the same, Hepburn Committee Report, vol. 2, Exhibits, pp. 106–119.

21 For agreement see Chron. 34:116, 1882. The Commissioners’ functions were purely advisory. They reported in July that “no evidence has been offered before us that the existing differentials are unjust, or that they operate to the prejudice of either of the Atlantic seaboard cities.” Senate Committee on Interstate Commerce Report (Elkins Committee), 1905, vol. 2, pp. 1243 ff.

22 The question was passed upon by C. F. Adams as arbitrator in November, 1882 (Chron. 35:603, 1882), and by the Trunk-Line Board of Arbitration in January, 1884 (Chron. 38:31, 1884).

23 The attempt of the Pennsylvania to cut off the New York connection of the Baltimore & Ohio caused especial bitterness between those roads. See Chron. 39:420, 1884.

24 Chron. 41:393, 1885.

25 Cullom Committee Report, vol. 1, Appendix, pp. 237, and 240 ff.

26 Chron. 45:692, 1887.

27 The amount of issue was £2,400,000 ($11,678,400) at 4½ per cent, maturing April 1, 1933, and placed through Brown, Shipley & Co. of London. Chron. 36:426, 1883.

28 Chron. 40:453, 1885.

29 Chron. 41:555, 1885.

30 Chron. 43:190, 1886.

31 The Staten Island Rapid Transit possessed an extensive water front on Staten Island, besides franchises for two ferries from Staten Island to the Battery, New York City. Some trouble was experienced in securing permission to bridge the Kill von Kull between Staten Island and the New Jersey mainland. Congress passed an act permitting construction, New Jersey protested, and the courts upheld the authority of Congress. Stockton v. Baltimore & New York Railroad Co., 32 Fed. Rep. 9.

32 R. R. Gaz. 19:170, 1887; Ibid. 19:490, 1887. For an account of the Richmond & West Point Terminal Railway & Warehouse Company see the chapter on the Southern Railway.

33 R. R. Gaz. 18:49, 1886. Interview with Mr. Albert Fink. A passenger rate war between the Pennsylvania and the Baltimore & Ohio took place early in 1886, and resulted in the indirect cutting by the former of the pool rate which it had agreed to maintain. Chron. 42:73, 1886.

34 From $34,713,696 in 1884 to $56,868,201 in 1887.

35 Such as connecting lines, iron bridges over the Ohio River, elevators, wharves, terminal facilities, etc.

36 The lowest average price of the common stock before announcement of the measures taken for relief was 160, from which point the quotations rapidly dropped to 125, and on January 5, 1889, to 85.

37 Chron. 45:304, 1887; Ibid. 45:824, 1887.

38 About $5,000,000 of the floating debt in March, 1888, consisted of advances by the syndicate, for which they held 50,000 shares of Western Union Telegraph Company stock, and 15,000 shares of United States Express Company stock, which at current prices about covered their loan. Statement of President Spencer, Chron. 46:344, 1888.

39 Ry. Age, 12:640, 1887.

40 “If it [the stock] is sold,” said a statement in the New York Tribune, purporting to represent the views of Senator Gorman, a large stockholder, “it will place the control of the road practically in the hands of the syndicate.... It is clearly preferable to keep the control of the stock here [Baltimore], as the road is a city and state institution of the first importance to our business interests.” Ry. Age, 13:44, 1888. Another objection was that an issue of additional preferred stock would postpone indefinitely dividends upon the common.

41 Mr. Spencer had succeeded Robert Garrett in December, 1887.

42 Chron. 46:319, 1888. In connection with this proposition President Spencer made the following statement: Of the $11,148,007 floating debt, December, 1887, $7,769,314 consisted of loans and bills payable. This is now reduced to $6,446,173. There will probably be added to this $1,400,000 for equipment, already either under contract or to be constructed in the company’s shops. In addition there should be, in the near future, not less than $2,000,000 additional put into this property for the purpose of improvement. The total requirements are thus $10,000,000. Of this $5,000,000 will be disposed of by assets in the hands of the syndicate as collateral, or in the hands of the company. Of the remaining $5,000,000, $1,500,000 is floating debt. This will be more than provided for by the $2,500,000 of consolidated bonds remaining in the hands of the company for its future use after the sale of the $5,000,000 to the syndicate. The remaining $3,500,000 needed for equipment and improvements it is the desire of the company to provide for by that portion of the $2,500,000 not required for the floating debt, and by the $2,500,000 in the sinking-fund loan of 1890. Chron. 46:344.

43 Ry. Rev. 28:192, 1888.

44 Ry. Age, 12:728, 1887.

45 R. R. Gaz. 20:417, 1888.

46 Ry. Rev. 28:192, 1888. The amiability of the syndicate was profitable to it. On May 21 the subscription books of the $7,500,000 mortgage were opened in London and New York, and the whole issue was subscribed in London before the inhabitants of the American city, in spite of their proverbial alertness, were out of bed. In September, 1888, the Baltimore & Ohio was reported as “having all the funds needed for the present.” R. R. Gaz. 20:343, 1888.

47 Ry. Rev. 28:163, 1888.

48 Ibid. 28:236, 1888.

49 Ry. Rev. 28:678, 1888; Ibid. 28:689, 1888. The coincidence was so suggestive that it was thought necessary to “credibly inform” certain bankers that the investigating committee was expected to continue its investigation and to make a full report. In December the committee was instructed by a directors’ resolution not to report till its full statement was ready, and further notice does not appear.

50 Ry. Age, 16:882, 1891. At the same time the directors decided to sell $5,096,600 additional common stock to meet expenditures which would be necessary in connection with the World’s Fair at Chicago.

51 Chron. 47:575, 1888. It is impossible to give an adequate account of these wars without straying too far from our subject. Some of the methods by which rebates were granted are revealed in the case of Jacob Shamberg v. Del., Lack. & W. R. R. Co. et al., 4 I. C. C. Rep. 630. The differential question took on a new phase in 1888 through the demand of weaker roads for protection against stronger. This had long been a demand of the Grand Trunk, and had been conceded to it in the last part of 1887. In January, 1888, the Pennsylvania and the New York Central agreed to allow besides a differential rate to the Erie, the Lackawanna, the West Shore, and the Baltimore & Ohio, which should vary from five cents per hundred pounds from Chicago to New York on first class to one cent on fifth and sixth classes. R. R. Gaz. 20:26, 1888; Chron. 46:57, 1888. This did not prevent active warfare throughout the year.

52 Known as the Presidents’ and Bankers’ Agreement.

53 There was, however, a shortage in the wheat crop in 1888.

54 The comparative peace of 1889 was due as much to the abundance of traffic offering as to the efficacy of the agreement concluded in February of that year. According to the Chronicle the apportionment of traffic then contemplated proved difficult to carry out, and considerable discontent arose. Chron. 50:892, 1890.

55 In 1890 difficulties occurred through the competition of the Canadian Pacific, and more particularly through the attempt of the Lake Shore to reduce the differential formerly granted to the Grand Trunk. Chron. 50:850, 1890. The matter was left to arbitration, Chron. 51:625, with the result that the lines north of Lake Ontario were allowed to charge two and one-half cents less per hundred pounds on dressed beef to the seaboard than the lines further south. R. R. Gaz. 23:64, 1891. This had the effect of putting the Canadian Pacific on an equality with the Grand Trunk. Late in 1892 still another agreement between the trunk lines was found necessary to maintain rates. Chron. 55:857, 1892.

56 Ry. Rev. 30:382, 1890.

57 Chron. 50:800, 1890; Ibid. 50:833, 1890; Ry. Rev. 30:348, 1890; R. R. Gaz. 22:448, 1890.

58 Application for listing of Trustee certificates, Chron. 54:369, 1892.

59 Certain extensions had been made, which it is not necessary to describe at length. The most important had been those of the Pittsburgh & Western in 1891, Chron. 52:238, 1891, the Akron & Chicago Junction, Chron. 53:756, 1891, and the West Virginia & Pittsburgh, Chron. 54:725, 1892. In 1893 the Baltimore & Ohio Southwestern and the Ohio & Mississippi Railway companies consolidated, and the Baltimore & Ohio guaranteed the principal and interest of the first consolidated mortgage gold bonds of the consolidated company for $25,000,000. Chron. 56:332, 1893.

60 Chron. 59:696, 1894. In October, 1893, the Baltimore & Ohio was borrowing in London on one year 5 per cent promissory notes, and 2 per cent commission, paying, therefore, an equivalent of 7 per cent interest. Ry. Times, 64:499, 1893.

61 Chron. 60:42, 1895.

62 In 1895 the directors speak of the unremunerative rates prevailing. Chron. 60:711, 1895. At the end of the year Mr. Alexander Shaw, chairman of the board of directors, felt called upon to say, “The two subjects which are giving the new board of directors the most to think about are the floating debt and the future management of the property. We have to fund the former, and as to the latter there is a difference of opinion among the directors.... I deny specifically that the January interest on the bonds of the company will be passed; that a receivership, either friendly or otherwise, is contemplated; that the Baltimore & Ohio and the Southern Railway systems are to be consolidated; and the statements that there has been an irregularity in the manner of keeping the books of the company.” Chron. 61:1153, 1895.

63 Ry. Rev. 36:138, 1896. The receivers were appointed February 29.

64 Chron. 62:777, 1896.

65 The period covered was from September 30, 1888, to November 30, 1895. Report of Mr. Stephen Little to General Louis Fitzgerald, chairman of the reorganization committee.

66 Chron. 64:999, 1897.

67 President J. K. Cowen, Vice-President Oscar G. Murray.

68 Chron. 62:907, 1896.

69 Ibid. 69:128, 1899.

70 R. R. Gaz. 28:781, 1896; Ibid. 29:563, 1897; Chron. 65:110, 1897; Ry. Rev. 38:628, 1898. The status of the Baltimore & Ohio stock was somewhat peculiar, in that when first issued to the state of Maryland it had been accompanied by a guarantee, or conditional guarantee, of dividend payments; and Johns Hopkins University, to which the stock had been transferred, maintained that this contract, added to the continuous payment of dividends for over fifty years, gave them rights even against the bondholders.

71 Chron. 66:1235, 1898.

72 The prior lien bonds were “to be secured by a mortgage upon the main line and branches, Parkersburg Branch and Pittsburg Division when acquired by the new company, covering about 1017 miles of first track, and about 964 miles of second, third, and fourth track and sidings, and also all the equipment now owned by the company of the value of upward of $20,000,000, or hereafter acquired in any manner by the use of the $34,000,000 reserved first mortgage bonds, as hereinafter stated.”

73 The first mortgage 4s were to be a first lien “upon the Philadelphia, Chicago, and Akron divisions and branches and the Fairmount, Morgantown & Pittsburg Railroad, covering about 570 miles of first track, and about 332 miles of second, third, and fourth track and sidings, and also on the properties now included in the present Baltimore & Ohio Terminal mortgages of 1894, when said lines and properties are acquired by the new company; also on the Baltimore Belt Railroad, if and when the same shall be acquired by the new company. They will also be a lien subject to the prior lien mortgage upon the lines, properties, and equipment covered by the latter.”

74 Annual Yield of Old and New Securities:

75 Headed by Messrs. Speyer & Co. and Kuhn, Loeb & Co. of New York, and Messrs. Speyer Bros. of London. R. R. Gaz. 30:733, 1898.

76 The Western Union stock was sold to the same syndicate which took the Baltimore & Ohio’s securities, at a price said to be about 90. At this price the yield would have been $3,420,000; so evidently very little other stock was sold.

77 In fact they were never quite so low as this.

78 Chron. 69:128, 1899.

79 Chron. 67:27, 1898.

80 Ry. Rev. 38:656, 1898.

81 R. R. Gaz. 31:500, 1899.

82 Ry. Age 28:570, 1899.

83 The chief addition has been that of the Cleveland, Lorraine & Wheeling.

84 Chron. 72:1079, 1901. In February, 1906, the Pennsylvania Railroad and three other companies which it controlled owned $28,480,000 of Baltimore & Ohio preferred and $42,900,000 of Baltimore & Ohio common stock out of an authorized capital of $60,000,000 preferred and $125,000,000 common. Report of the Interstate Commerce Commission on the Pennsylvania community of interest, February 6, 1906.

85 See Chron. 76:102, 1903; and Interstate Commerce Commission, Report on Discriminations and Monopolies in Coal and Oil, January 25, 1907. The interest of the Baltimore & Ohio in the Reading dated from 1902, and was influenced in turn by the ability of the Reading to control the Central of New Jersey, over which the Baltimore & Ohio reached New York. The latter’s holdings of Reading stock were shared with the Vanderbilts. Both the Baltimore & Ohio and the Lake Shore sold a block of their Reading stock in 1904.

86 See statement by the Pennsylvania management in Chron. 83:563, 1906.

87 It is not necessary to do more than to mention the recent contest between the Baltimore & Ohio and the Hill-Morgan people over the Chicago Terminal Transfer Railway. By arrangement with this company the Baltimore & Ohio had enjoyed terminal facilities at Chicago on favorable terms. When the Terminal Railway went bankrupt the Baltimore & Ohio paid off the first mortgage bonds in order to prevent the loss of its privileges. Litigation followed, to end finally in an agreement between the Hill and Baltimore & Ohio interests for joint ownership of the Chicago Terminal by the Burlington and the latter, and for the use of its facilities in accordance with an equitable division of its trackage. The Pere Marquette and the Chicago Great Western, which had shared in the use of the property to that time, were left to shift for themselves. Ry. World, August 23, 1907.

88 E. H. Mott, Between the Ocean and the Lakes—the Story of Erie. N. Y. 1899.

89 Ibid. pp. 79–80.

90 Mott, p. 129. Default was also made on the first, second, third, and fifth mortgages.

91 See Adams’s Chapters of Erie, Boston, 1871.

92 The capital per mile rose from $81,068 in 1864 to $117,760 in 1872.

93 Chron. 12:203, 1871; Ibid. 16:489, 1873.

94 R. R. Gaz. 6:100, 1874. See affidavit of S. H. Dunan in the suit of John C. Angell against the Erie Railway Company and others, reprinted in Hepburn Committee Report, vol. 2, Exhibits, pp. 591–610.

95 Hepburn Committee Report, vol. 2, Exhibits, pp. 623–643.

96 Angell suit, R. R. Gaz. 6:269, 1874.

97 R. R. Gaz. 7:224, 1875.

98 Chron. 20:520, 1875.

99 From a loan of £3,000,000 placed in London, the company had received but £1,232,029 in cash; £508,431 being retained by the London Banking Association and by James McHenry for claims and commissions on which the critical condition of the company enabled them to insist. Chron. 20:500, 1875. For statement of the physical condition of the property, May 26, 1875, see Extracts from joint letter to Hon. H. J. Jewett, Hepburn Committee Report, vol. 2, pp. 517–518, Exhibits.

100 See R. R. Gaz. 7:423, 1875.

101 R. R. Gaz. 7:423, 1875.

102 R. R. Gaz. 7:479–80, 1875.

103 Chron. 21:277, 1875.

104 R. R. Gaz. 7:511, 1875.

105 R. R. Gaz. 7:533, 1875; Chron. 21:612, 1875.

106 R. R. Gaz. 8:818, 1876.

107 Chron. 22:233, 1876.

108 R. R. Gaz. 8:178, 1876.

109 Chron. 22:423, 1876.

110 Amounts received from assessments to January 18, 1878, were:

R. R. Gaz. 11:30, 1879. Report of Pres. Jewett, Chron. 28:67–8, 1879. Shares with assessment paid sold in October, 1878, at $15 for common and $30 for preferred. R. R. Gaz. 10:516, 1878.

111 Chron. 23:233, 1876; Ibid. 26:419; Ibid. 29:358, 1879; Hepburn Committee Report, vol. 2, pp. 252–7, Exhibits.

112 Chron. 26:419, 1878.

113 Ibid. 26:469, 1878. For indenture executed by the new corporation and for text of the first and second consolidated mortgage and of the second consolidated funded coupon mortgage, see Hepburn Committee Report, vol. 2, Exhibits, pp. 315–50.

114 Mott, p. 268.

115 Mott, p. 269.