TELL TALE EXTRA: The Shape of Things to Come
St. Paul, Minn., March 30, 1937
Mr. L. B. da Ponte [Western Counsel, Seattle, Washington]:
We will naturally speak of the large expenditure of government money in the creation of new and unexpected forms of competition and when we refer to the improvement of navigation on the Columbia and Snake [r]ivers something will be said about other government projects which are expected to promote development and increase our earnings, such as the several irrigation projects and more particularly the Coulee Dam, which will, theoretically, add largely to the productive land acreage tributary to our railroad. Of course, there is much conflict of testimony as to whether and when and to what extent, the Coulee Dam will increase our carryings of wheat and other agricultural products. It was started as a power project when land reclamation was unpopular, and the plans were later elaborated in a way which almost makes the power development incidental to a stupendous reclamation project. It has occurred to me that we should be prepared to meet the suggestion of large benefits to come from this project, and that we might find good material in some of the earlier government reports or in studies which have been made by well-known engineers and economists. Unfortunately, I did not think of this while John Haw was here last week, and now I find that he is on the Coast and that he will visit Seattle before returning to St. Paul; therefore, a copy of this memorandum will be sent to him at Portland with the request that he give some thought to the subject and call on you while he is in Seattle. Mr. Haw, more than any of us, is familiar with what has been said and written on this subject and may be able to tell us where to find some material which would be useful in cross-examination should we try to show that we would suffer from this unexpected and unprecedented use of government funds to create and preserve other forms of transportation. Of course I will further discuss the subject with Mr. Haw when he returns to St. Paul, but in the meantime I think it will be helpful if he can talk with you and others who will be on the case.
J. G. Woodworth [Vice-President, Traffic, St. Paul, Minnesota]
St. Paul, Minn., April 14, 1937
Mr. W. P. Stapleton,
I talked at length with Mr. Woodworth this morning about the Washington tax case and his desire that we provide arguments to refute the connection that the Northern Pacific gains as much as it loses by reason of government construction projects such as highways, waterways, airways and irrigation development.
I gave him orally the substance of our conversation and told him that you would discuss with Mr. da Ponte. I did not gather from him that he wanted us to spend much time on the question or make up any elaborate basis for an answer. I think all that is necessary is for you to talk with Mr. da Ponte informally and be guided by expression of what he wants you to do, if anything.
[John W. Haw, Director, Department of Agricultural Development and Colonization, St. Paul, Minnesota]
Statement of James G. Woodworth, Vice-President, Traffic, Northern Pacific Railway, St. Paul, Minnesota, n.d. (ca. 1937).
Our present situation cannot be explained without some reference to the history of railroad construction in the state of Washington.
The Northern Pacific was the first important railroad to be built, its lines in Washington were part of a general plan to develop the resources of the Pacific Northwest and afford all needed transportation. These plans failed of fulfillment because of financial difficulties, and the opposition of communities with conflicting commercial interest, each influenced by the plans and promises of competing railroads.
The first transcontinental line serving Portland and Puget Sound was established by the Northern Pacific in 1883, using the Portland-Wallula line of the [Oregon Railway and Navigation Company], which was intermittently controlled by the Northern Pacific. The direct line to Puget Sound was completed in 1887. At that time a railroad had been built northward from Seattle to connect with the Canadian Pacific, but there was no direct competing U.S. transcontinental railroad in the state of Washington until the Great Northern came in 1893. In the meantime, the Northern Pacific had built numerous branch lines to meet the demands of developing business.
Development of the country was retarded and financial reorganization of the Northern Pacific was necessary in 1894. Then came a period of unexpectedly rapid development with increased volume of business taxing the capacity of existing lines. This started a new era of railroad building. Mileage in the state of Washington was more than doubled in the period 1890 to 1910, increasing from 1,783 miles to 4,875 miles, including extension of the Great Northern and Milwaukee lines to Puget Sound, and building of the North Bank [R]oad to provide a direct Portland connection for the [N]orthern lines independent of the Union Pacific. In this period the Great Northern and Union Pacific were admitted to joint use of the line between Portland and Puget Sound.
The shock of this new and rather unexpected competition was lessened by the development of business beyond expectation. To a great extent the new railroads absorbed the new business, but notwithstanding the strong position of the Northern Pacific and its good claim for preference there has been a natural tendency on the part of shippers to divide their business, and other roads have made a relatively better showing from year to year.
It could not be expected that the Northern Pacific would avoid disadvantages of the pioneer. Its original undertakings were more or less speculative, the roads which came later were able to select the proven fields and avoid errors in location. They had the advantage of new and cheaper construction methods and did not fail to urge their claims for public support.
It may be said also that the building of competing railroads had always been a possibility and might have been anticipated, but the most enthusiastic promoters of the original Northern pacific did not dream of the later and sudden development which tempted other railroads to invade the territory, with resulting loss to themselves and equally greater losses inflicted upon the Northern Pacific.
We have experienced other unfavorable changes in conditions which could not possibly be anticipated. The building of the Panama Canal has changed the course of world commerce and has changed the channels of domestic trade, particularly that trade which represents the business of the transcontinental railroads. We have also seen unexpected development of highway transportation, with public funds, and the use of such highways for the carrying of freight to an extent not originally intended, due to the wonderful improvement of self-propelled vehicles, including trucks carrying loads equaling the average loads of railroad freight cars 20 years ago.
Since a grater number of the large towns and cities are located on railroad lines first built, a large proportion of the important highways now parallel our line. We have 1,817 miles of railroad and the state has built 3,382 miles of road outside the city limits of which 1,995 or 60 [percent] are in counties served by the Northern Pacific.
We own 36 [percent] of the railroad mileage but counting the miles operated by each company including leased tracks our operation represents less than one-third of the total.
The business of the Northern Pacific has been peculiarly affected by the competition of highway carriers. Our losses have been relatively grater than the losses of other railroads for reasons already stated. Our exposed position is shown by a map made in 1933 and used in answering an inquiry of the Federal Coordinator. It shows practically all of our main line and most of our branches paralleled by highways on which regular bus and truck service is maintained.
The effect of this competition is illustrated by the decrease in revenue from passenger and [less-than-carload] freight business as shown by this statement for the years 1920 to 1935. System and Washington earnings are shown separately. [Statement not included in original.] We have no measure of the loss of carload business.
Thirty years ago we carried most of the lumber originating in the state of Washington. We now carry our allotted share because shipments mostly originate at common points where the business is divided. Perhaps this statement should be further explained. The original sawmills were located with reference to immediate timber supply. We built branch lines to handle this business and as late as 1914 had 144 sawmills in the state of Washington which we served exclusively. Today we have only 15 mills so located.
This change has been due to the exhaustion of immediate timber supply and the natural concentration of lumber manufacturing at tidewater points where the services of all carriers are available, and from which all markets are accessible. The question of log supply is also important, Puget Sound and [the] Columbia River offer the only open log markets.
From the beginning our company had a large investment in the coal business. We built many branch lines to serve coal mines. We owned and operated bunkers at Tacoma and Seattle to serve ships. No other railroad was so extensively interested and we suffered accordingly from the decreasing use of coal. The extensive use of electrical power and oil fuel could not have been anticipated. As late as 1902 the use of oil fuel for passenger carrying ships was prohibited by law. Now there is little use of coal for ship fuel and the many other important uses of coal have been discontinued or greatly limited. The coal used in the cities of Tacoma and Seattle is now largely carried by trucks from mines so located as to permit the use of paved highways.
The annual report of the Department of Labor and Industries dated December 31, 1936, shows total production of coal in Washington in the past years as follows:
1906 - 3,290,523 tons
1916 - 3,019,617 tons
1926 - 2,584,255 tons
1936 - 1,836,915 tons
We have a statement showing decreasing tendency of our commercial coal business 1922 to 1936. It will be noted that while total coal production decreased 29 [percent] 1926 to 1936, our shipments decreased 40 [percent]. The Department report above mentioned, page 5, shows tons of coal trucked from mines as follows:
1930 - 134,614 tons - 6 percent of total production
1931 - 198,714 tons - 10.8 percent
1932 - 270,653 tons - 17 percent
1933 - 342,828 tons - 24 percent
1934 - 309,920 tons - 22.4 percent
1935 - 379,605 tons - 24 percent
1936 - 439,834 tons - 23.9 percent
We have likewise shown disproportionate losses in connection with the log business, formerly an important source of revenue in this state.
The decrease of revenue from log traffic has been due to reduced rates and the gradual removal of timber tributary to our railroad, and the substitution of highway for railroad transportation and the extended use of exclusive logging railroads.
We have also made a statement which shows our carrying of [p]etroleum products in the years 1922 to 1936 inclusive.
This statement show rapid increase, 46,777 tons originated in 1922 to 176,802 tons in 1928. In this period the competition of highway carriers was unimportant. The use of trucks was largely confined to short haul business until 1930, when they began to bid for the long hauls. They have since taken more of our original business and have largely absorbed the enormous increase in this traffic. [Following section struck: of which we have no measure other than State gasoline tax collections which increased from $4,175,000 in 1928 to $14,188,000 in 1936.]
Available figure representing the highway movement of oil products are incomplete because all Washington truck carriers do not file reports, and much oil is trucked from Portland to points in Washington.
Our decrease in the Yakima district is typical. In 1931 we delivered 2,575 cars and in 1936 we delivered 933 cars. At Chehalis and Centralia we delivered 269 cars in 1928 and 16 cars in 1936.
I have said that all of these changed conditions more affected Northern Pacific earnings. To illustrate this we have prepared a statement based on reports filed at Olympia by Class I railroads showing their Washington earnings for the years 1922 to 1935 inclusive. [Statement not included in original.]
These figures reflect the general decrease of railroad earnings and show the relatively greater decrease of Northern Pacific earnings. For example, we showed 41.94 [percent] of total freight earnings in 1922 and 37.26 [percent] in 1935.
Of the total passenger earnings in 1922 we showed 34.74 [percent] and in 1935 we had 27.26 [percent].
We believe this change in our relative position is due to our greater losses chargeable to the changed conditions I have described.
Of all these changes which could not be anticipated, the Panama Canal was the most important and most destructive in its effect on our business.
The transcontinental railroads were intended primarily to carry transcontinental and Oriental traffic. In offering their stocks and bonds to the public the importance of through traffic was emphasized and the possibilities of local traffic were mentioned incidentally.
All existing transcontinental lines, excepting the Pacific Coast extension of the Milwaukee, had been built before there was any suggestion that an Isthmian canal would be built by the U.S. government and such an undertaking by other governments was even more remote. The U.S. project was under way when the Milwaukee extension was planned, but nobody knew what it would mean. it was put forward as a national defense measure in the Spanish [-American] [W]ar period. It was strongly urged by the President and hastily approved by the Congress which disregarded accurate descriptions of the resulting trade disturbances, particularly the effect on the U.S. domestic commerce. Congress accepted a War Department report which included Professor [Emory] R. Johnsonís [Professor, Transportation and Commerce, University of Pennsylvania] study and findings as to the probably effect of canal competition on earnings of the transcontinental railroads. he said the railroads could protect themselves on westbound business by making rates for manufacturers located in the Central States and they would thus be able to compete with Atlantic seaboard manufacturers. As to the eastbound business he aid the loss in hauling Pacific Coast products to Atlantic seaboard points would be compensated by other gains from increased development of the Pacific Coast states.
[Following paragraph struck: The Milwaukee was justified in assuming that domestic trade would not be unnecessarily disturbed and it is my own belief that trade relations between the Middle States and Pacific Coast could have been preserved and losses of transcontinental railroads greatly lessened had their been no change in the regulatory policy of the government.]
Instead of doing what was suggested in the War Department report, the railroads were deprived of their recognized right to make exceptional rates to meet ocean competition and their proportion of the total traffic consequently decreased.
To show the relation of the Panama Canal intercoastal tonnage and railroad earnings from year to year we have made a statement which shows that Canal tonnage of the year 1935 was 73.31 [percent] of 1927 tonnage while Northern Pacific system freight earnings for 1935 were 59.98 [percent] of 1927 and Washington earnings were 54.78 [percent].
Also statement showing total tons of intercoastal traffic moving through Panama Canal in years 1927 to 1936 inclusive, with separate showing of selected commodities. We cannot show the relatively greater decrease of our tonnage of these same commodities carried by rail because no corresponding figures are available. [Statement not included in original.]
To show the general trend of total traffic, domestic and foreign, through the Panama Canal we have made a statement for the years 1915 to 1935 inclusive. The Canal was opened in 1914 and its use was restricted by the war and disturbance of shipping in the World War period. [Statement not included in original.]
As I have said, the railroads might have withstood the shock of this new competition had they been permitted to meet it when they could meet it and had they been competing with U.S. ships representing investment of private capital and operated without subsidies. Instead of this they were stopped by the unfavorable exercise of government authority in the making or rates and instead of encountering legitimate competition, ship rates have been fixed by operators employing ships purchased from the government at prices representing a fraction of original cost. In may cases these intercoastal operations are but a part of larger undertakings by the same companies, including heavy mail subsidies. All of these things have been fully set forth in the Presidentís message to Congress March 4, 1935, and the accompanying reports.
[Remaining paragraphs struck.]
If asked to estimate or predict the tendency of our future earnings, I would say it is impossible. This statement would be based on actual experience in the past with repeated failure to make long-range estimates of railroad earnings.
We can say that some of these unfavorable conditions will be more or less permanent or increasing. On the other hand, some of them might be greatly improved. We cannot hope for decreased use of highway and water transportation and the cost of such transportation will be further reduced; the carrying capacity of ships will be increased; fuel costs will be lowered by use of [Diesel] or other improved engines; the cost of highway transportation will be decreased by further mechanical improvements, better organization and increased volume.
The railroads have not to the same extent been successful in reducing operating costs. For this reason and because of unavoidable rate reductions the recent increase of business volume has not produced a proportionate increase of either gross or net earnings.
The reduction of ton mile rates and length of haul is due to loss of short haul business to highway carriers and rate reductions. We expect further increase of earnings, depending on agricultural production and business conditions, but any prediction as to the future tendency of railroad net earnings is impossible because of uncertainty as to many important factors, for example: wages represent more than half of railroad operating costs, they have been recently increased, and further increases are demanded.
The improvement of highway passenger-carrying vehicles with the rapid development and increasing attractiveness of air transport is forcing large expenditures for improvement of railroad passenger cars and engines. Competition will force these improvements in the service between given points and public demand will make them generally necessary. Of course, faster trains mean increased expenditure for track improvement and maintenance.
Instead of increasing net revenue, these improvements will in most cases represent a payment for insurance against further losses. Another important and unpredictable condition is the future policy of national and state authorities administering laws which give them almost complete control of rates, wages and other details of management. We can see how the present attitude and policy of regulating bodies might be changed in a way which would greatly increase the change of future increase in our net earnings. We can also see how the powers conferred upon them might be used in a way which would lessen or destroy that chance.
Taken altogether, I donít see how anyone can say what is going to happen.
University of Montana, Mike and Maureen Mansfield Library, K. Ross Toole Archives, Northern Pacific Collection 128, Box 218, Folder 12.
da Ponte, Lorenzo B.
General Counsel, Northern Pacific Railway.
Office: 176 East Fifth Street, St. Paul, Minnesota.
Born: Galveston, Texas, April 23, 1879.
Son of: Harry and Gertrude (Hay) da Ponte.
Married: Edna Graesbeck.
Children: Bernice, Durant.
Education: University of Texas Law School, 1902.
Practiced law at Beaumont, Texas, 1902-1908.
Entered railway service: 1908, assistant division counsel, Northern Pacific, Tacoma, Washington; 1922-1929, assistant western counsel, Seattle, Washington; 1929-1937, western counsel, Seattle, Washington; June 1, 1937--, general counsel, St. Paul, Minnesota.
Member: Committee of General Counsels, Association of American Railroads; Northern Pacific Veteransí Association, Episcopalian, Democrat.
Clubs: Minnesota Club, Town and Country (St. Paul).
Home address: 215 South Chatsworth Street, St. Paul, Minnesota.
Haw, John W.
Director, Department of Agricultural Development and Colonization, Northern Pacific Railway.
Office: Fourth and Jackson Streets, St. Paul, Minnesota.
Born: Lewisville, Wisconsin, October 23, 1889.
Son of: John and Clara (Perkins) Haw.
Married: Frances Ehmke, July 2, 1910.
Children: Nivea Mary, John Robert, Nathan Smith.
Education: School of Agriculture, University of Minnesota, 1907.
Career: 1910, instructor, high school, Arlington, Minnesota; 1911-1912, superintendent, Department of Agriculture, high school, Sleepy Eye, Minnesota; 1912-1918, county agriculture agent, Langdon, North Dakota; 1918-1920, assistant county agent leader, North Dakota; 1921, section manager, agent leader, North Dakota; 1922-1923, state-county agent leader, North Dakota; 1924-1928, agricultural agent, Northern Pacific, St. Paul, Minnesota; 1928--, director, Department of Agricultural Development and Colonization, Northern Pacific. Vice-President, American Railway Development Association. Joint author, Haw-Schmidt Report on Federal Reclamation Policy for the Department of the Interior (1934). Methodist, Republican, Mason, Shriner.
Home address: 1965 Pemerton Avenue, St. Paul, Minnesota.
Woodworth, James Grant.
Former Assistant to President, Northern Pacific Railway.
Born: Hillsdale, Michigan, October 31, 1864.
Son of: Horace Gideon and France Jane (Jurney) Woodworth.
Married: Helen Burnside, November 20, 1895.
Education: common school.
Entered railway service: 1879 as office boy, General Freight Department, Chicago and North Western, serving in that capacity until 1880. Subsequent career has been as follows: 1880-1883, telegraph operator and station agent, Chicago and North Western, DeSmet, Dakota; 1883-1884, chief clerk, General Agentís office, Chicago, St. Paul, Milwaukee and Omaha, Minneapolis, Minnesota; 1884-1886, freight solicitor, Union Pacific, Portland, Oregon; 1886-1888, traveling freight agent and chief clerk, General Freight Department, Oregon Railway and Navigation; 1888-1889, Assistant General Freight Agent, same company; 1889-1890, Assistant General Freight Agent, Union Pacific, Portland, Oregon; 1890-1891, General Freight Agent, Pacific Division, same road; 1891-1892, Assistant General Western Freight Agent, same road, Portland, Oregon; 1892-1893, Assistant General Freight Agent, same road, Omaha, Nebraska; 1893-1894, General Freight Agent, Iowa Central; 1894-1896, Assistant to Receiver and General Manager, Oregon Railway and Navigation; 1896-1897, Assistant to President; 1897-1899, General Freight Agent, same road; 1899-1902, Traffic Manager, Pacific Coast Company; 1902-1904, Assistant to First Vice-President, Chicago, Burlington and Quincy; 1905-1913, Traffic Manager, Northern Pacific; 1913-1918, Vice-President in charge of Traffic, same road; 1918-1920, Traffic Assistant to Regional Director, U.S. Railroad Administration; 1920-1931, Vice President in charge of Traffic, Northern Pacific, St. Paul, Minnesota; 1931-January 1, 1938, Assistant to President, Northern Pacific.
Home address: 453 Portland Avenue, St. Paul, Minnesota.
N.A. Whoís Who In Railroading, Tenth Edition. New York: Simmons-Boardman, 1940.
Author: John A. Phillips, III. Title: Tell Tale Extra: The Shape of Things to Come.
© February 22, 2001