THE PAPERS IN THIS PUBLICATION WERE

COLLECTED AND EDITED BY

S. S. HUEBNER, PH.D., ASSOCIATE EDITOR,

AND WERE WRITTEN DURING THE MONTHS OF MAY AND JUNE. THE VOLUME

WENT TO PRESS IN JULY, 1914.

COMPETITION VERSUS COÖPERATION IN THE STEAMSHIP BUSINESS: PROPOSED LEGISLATION

BY EMORY R. JOHNSON, Ph.D., Sc.D.,

Professor of Transportation and Commerce, University of Pennsylvania; Member of the Public Service Commission of Pennsylvania.

Shippers whether by rail or by water routes require, first of all, adequate and regular services at reasonable and relatively stable rates. The primary consideration is that of service. Under present-day conditions, the rates charged, though of importance to shippers, seldom impose serious restrictions upon trade, and it is probable that commercial transactions suffer more from frequent fluctuations in charges than from unreasonably high rates.

Carriers, particularly steamship lines, require, for the successful development of their business, a dependable volume of traffic moving in a steady flow and at rates that yield returns high enough to enable the carriers readily to secure the capital needed to develop adequate and up-to-date terminals and to provide the ships and other facilities required to handle a growing tonnage of traffic. Success in the transportation business doubtless depends more upon a steady volume of traffic than upon a large tonnage if it be fluctuating in volume. The steadier the flow of traffic the more fully can facilities and floating equipment be utilized; the greater the fluctuation in tonnage, the larger the unprofitable movement of vessels partly loaded or in ballast.

The net profits obtained by carriers ought, in the interest of the public as well as in the interest of the owners of railroads and steamships, to be large enough to attract capital to the transportation business; and the conditions under which transportation services are rendered ought to be such as to cause men having capital to invest and having a desire to achieve success in business to wish to devote their money and energies to the construction and operation of railroads and to the building and running of steamships.

The extent to which competition among railroads or among steamship lines should be insisted upon by law and regulation, and the degree of coöperation among rival carriers that should be permitted by the government must, in the last analysis, be decided with

reference to the effect of competition and coöperation upon the services and rates secured by shippers and upon the present prosperity and future prospects of rail and water carriers. It was formerly thought that the public interests required the fullest possible measure of competition in the transportation business, but experience has shown that the public does not necessarily suffer, and may benefit, from some forms of coöperation among rival carriers. It is the purpose of this paper to inquire to what extent there is coöperation among rival steamship lines and to consider the regulation that should be exercised by the Government.

Competition, it should be remembered, may be in rates or in services, or in both. Rival steamship lines combine or coöperate first of all to agree upon rates, and, secondarily, to regulate their services in such a way as to secure the best use of their facilities. Experience shows that agreements among rival carriers as to rates and services do not put an end to the efforts of the several companies that are parties to the agreement to secure business. Each company is managed by energetic and ambitious men who endeavor to attract passengers and tonnage to the vessels in which they are severally interested. Competition in service continues and the coöperation of steamship lines mitigates but does not terminate the operation of the law of increasing returns. Under normal conditions, every steamship manager strives to secure additional traffic, because more passengers and more tonnage mean less cost and more profits per unit of business handled.

Whatever the theory may be as to competition or coöperation in the steamship business, the fact is that there is at the present time a very large degree of coöperation among carriers by water. This is true both in the foreign trade and in the coastwise commerce of the United States. As Professor S. S. Huebner states in the comprehensive and valuable report which he made in 1914 to the Committee on the Merchant Marine and Fisheries of the House of Representatives (p. 281):

As regards nearly every foreign trade route, practically all the established lines operating to and from American ports work in harmonious coöperation, either through written or oral agreements, conference arrangements, or gentlemen's understandings. The few instances where two or more lines serve the same route and have denied the existence of written or oral agreements for the regulation of the trade, are exceptions and not the rule.

The coöperation among the carriers engaged in the coastwise trade of the United States is not quite so complete, but Professor Huebner states (ibid., 403) that "with the exception of the Pacific coast trade proper the line traffic is handled by comparatively few companies and these are largely controlled by railroads and shipping consolidations." Professor Huebner further states (p. 405) that

On the Great Lakes the through package freight from the western gateways to eastern seaports via Buffalo is controlled exclusively by six railroad-owned boat lines.

Even in the Pacific coast trade (including the intercoastal trade), where independent steamship lines make a more prominent showing than in either the Atlantic coast or Great Lakes trade, railroads and shipping consolidations represent a large proportion of the total tonnage.

In the recommendations which the House Committee on the Merchant Marine and Fisheries adopted at the close of its investigation of "Steamship Agreements and Affiliations in the American Foreign and Domestic Trade," the committee summarizes the present relations of ocean carriers engaged in the American foreign trade in the following concise language (p. 415):

It is the almost universal practice for steamship lines engaging in the American foreign trade to operate, both on the in-bound and out-bound voyages, under the terms of written agreements, conference arrangements or gentlemen's understandings, which have for their principal purpose the regulation of competition through either (1) the fixing or regulation of rates, (2) the apportionment of traffic by allotting the ports of sailing, restricting the number of sailings, or limiting the volume of freight which certain lines may carry, (3) the pooling of earnings from all or a portion of the traffic, or (4) meeting the competition of non-conference lines.

It is recognized by everybody that unfair and destructive competition among carriers is not desirable. When the Interstate Trade Commission bill was before the Senate, the following amendment, introduced by Senator Cummins of Iowa, was adopted by the Senate.

"That unfair competition in commerce is hereby declared unlawful.

"The commission shall have authority to prevent such unfair competition."

The commission, after hearings, may order a person or corporation to desist from unfair practices and—

Any suit brought by any such person, partnership, or corporation to annul, suspend, or set aside, in whole or in part, any such order of the commission shall be brought against the commission in a District Court of the United States in the judicial district of the residence of the person or of the district in which the principal office or place of business is located, and the procedure set forth in the act of Congress making appropriations to supply urgent deficiencies and insufficient appropriations for the fiscal year 1913, and for other purposes relating to suits brought to suspend or set aside, in whole or in part, an order of the Interstate Commerce Commission shall apply.

This legislation indicates that the public has come to realize that some restriction should be placed upon competition that is unfair and destructive, and experience will probably show that carriers in order to keep competition within fair limits, must be allowed some measure of coöperation.

In deciding upon the degree or form of coöperation that should be allowed rival steamship companies, the advantages claimed for coöperation should be considered, and the objections to interline agreements should be kept in view. It will be well to summarize, briefly, the advantages and disadvantages resulting from the coöperation of steamship companies with each other. These advantages and disadvantages are set forth in Professor Huebner's report, above referred to (pp. 300-307).

It is contended by the carriers, and it was the opinion of Professor Huebner and the House Committee on the Merchant Marine and Fisheries, that agreements among ocean carriers as to rates and services are a "protection to both shipper and ship owner." It was represented to the committee that the coöperation of rival steamship lines gave shippers a more regular service, that regularity of service enabled merchants to build up their trade, to reach a greater number of markets, and to carry smaller stocks of goods with consequent lower storage charges. A regular, dependable service, furthermore, enables merchants to avoid engaging cargo space in advance and yet to count upon being able to deliver goods at definite future dates. By means of agreements, it was pointed out to the committee, merchants trading in the United States may have a service comparing in regularity with the service from European countries, which together have a much larger foreign trade than is handled to and from the United States. Agreements, likewise, give a better distribution of sailings by dates and ports and permit exports to be shipped from