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them money, and in that way the company retains control of that business charging. I have no personal knowledge about this, but if they pursue the policy that obtains in the Philippines they get most of the profit out of the crop.

That is the business that is profitable to the steamship company, so when they get through business to San Francisco they are very slow and leisurely about taking it up. As a result these steamers, of very insufficient tonnage, have left (as Mr. Stevens told me yesterday or the day before) on the last four or five sailings with only a third of a cargo or with only half a cargo, leaving much more than a full cargo on the wharf at La Boca, where the steamers dock. We are therefore getting a glut of business as a result of the inactivity and the lack of desire on the part of the Pacific Mail Steamship Company to do that business, and the question which is presenting itself to us with a good deal of force is, What shall we do about it?"

I will ask you to state what the facts are regarding the situation and conditions at Panama which I have just called your attention to from the testimony of Secretary Taft.

Mr. SCHWERIN. In regard to that first portion that you read in relation to the Pacific Mail holding a certain influence over the coffee planters of Central America, by means of the device of acting as factors, I have to say that the Secretary has been misinformed on that, and he acknowledges that misinformation in a public letter to Congressman Littauer.

Senator DRYDEN. When was that letter published?

Mr. SCHWERIN. It was published in the Washington Post two days

ago.

Senator DRYDEN. Since his testimony here?

Mr. SCHWERIN. Yes; since his testimony here. I have a copy of it here.

(The letter referred to is as follows:)

"TAFT WITHDRAWS HIS PACIFIC MAIL CHARGE.

"Secretary Taft, in a letter to Representative Littauer, of the House Committee on Military Affairs, yesterday denied a statement he made at a recent hearing that the Pacific Mail Line was doing a banking business in Central America. The letter says:

"In my testimony before the subcommittee on deficiencies of the Appropriation Committee of the House, I made the statement that one of the reasons why another American line could not easily compete with the Pacific Mail Line in the business between Panama and San Francisco and intermediate ports was that the Pacific Mail Company had agents at the Central American and Mexican ports, and did, in a sense, a banking business or a factor business, furnishing capital to coffee and other planters to assist them in doing their business, and that this gave them a good will and a position of advantage which any other line would find great difficulty in wresting from them.

"Though I did not intend to criticise the Pacific Mail for this method of business, it has been so construed in some of the newspapers of the western coast. I now have definite information that I have been misled in respect to the business of the Pacific Mail at Central American and Mexican ports, and that they do not do either a factor or banking business at any of these ports, and never have.

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"I am glad to withdraw this erroneous statement, which has been used to the prejudice of the Pacific Mail Line.""

Generally, in regard to the balance of what the Secretary says, it appears to us that it is either a malicious statement tending to injure American interests, or else it is information upon which he was as ignorant as he was when he made the statement in regard to our acting as factor on the Central American coast and which he has now withdrawn.

The ACTING CHAIRMAN. What are the facts in regard to the conditions at Panama to which I have called your attention?

Mr. SCHWERIN. We are operating on the Pacific side nine regular steamers on a published itinerary which is approved in connection with the movement of the steamers with the Panama Railroad Company, operating on the Atlantic side. This itinerary has to be submitted to the Mexican Government and approved by them before we are permitted to operate in their ports, and is submitted to the approval of the Governments of Nicaragua, Costa Rico, and Honduras and accepted by them. The schedule is printed. It is rather a complicated schedule, and is drawn up to connect with the Panama Railroad Company's boats which leave New York, and which advertise us as their connections, sailing from Panama. It is absolutely essential that connection should be made at Panama with the Atlantic steamers in order that the passengers and freight and mail should be properly conducted across the Isthmus and delivered to the destination on the west coast.

We have been trying earnestly and with every endeavor on our part to fulfill our obligations to the port of Panama in receiving and deliving the freight as it should be received and delivered to our ports of call, but it has been absolutely impossible to perform this duty in a satisfactory way, and this, I am bound to say, is due either to culpable negligence on the part of the operating officers of the Panama Railroad or to total indifference on their part to their obligations as common carriers on the Isthmus of Panama.

The amount of cargo that has passed over that Isthmus for the last five or six years has run very close to 400,000 tons per annum, and that, over a link about 48 miles long, is quite a heavy tonnage.

Long before the Panama Railroad Company sold their interests to the Government, they had neglected to provide proper facilities, and there were difficulties between us in the days of our mutual contract, because they were very shy in cars and motive power. Really two years prior to the sale to the Government and the time the Government took over this property, the rolling stock and the power had run down to about as low an ebb as they could do the business with. At the time the Government took over this property, the management of the railroad was passed into the hands of the Isthmian Commission, and along about the summer of 1904, while we were still operating with the Panama Railroad Company under our contract, things began to change from a regular, orderly system of handling freight from the Atlantic to the Pacific and from the Pacific to the Atlantic, over what might be called a rail bridge, and this began to give trouble, for, as a matter of fact, the whole route is really a steamship route, with this short railroad link in it.

Along in December the Panama Railroad people cut the wages of their employees at Ancon, working on the La Boca docks. That created trouble there, and the men who had been working on their

cranes they had large electric cranes there on this pier-quit and left, and our labor generally follows the labor of the Panama Railroad Company. They work their gangs and we work ours. The result of that was that we are to day, after this trouble is all over, paying more wages than we did before, and so are they. That was the beginning of the congestion of freight at the Isthmus.

Then the statement went forth that the United States Government had purchased this property, and we were clearly given to understand that the United States Government had purchased this property for the purpose of using it to construct the canal, and that all commercial freight must take a secondary place to canal material. General Davis wanted to abolish the handling of commercial cargo entirely across the Isthmus. That was found impossible on account of the obligations which our Government assumed in the purchase of that property.

Senator MORGAN. Will you be kind enough to give a statement of what those obligations were that our Government assumed at that time?

Mr. SCHWERIN. As I understand them, Senator, the obligations. were that the Isthmian route had to be kept open, under the Panama Railroad Company's franchise from the Colombian Government, as a highway for traffic.

Senator MORGAN. Was that an obligation entered into with the Panama Railroad Company or with the Panama Canal Company?

Mr. SCHWERIN. The Panama Canal Commission purchased the railroad company, and with it, as I understood, all their obligations-all the obligations under which the railroad company's franchise had originally been granted.

Senator MORGAN. Is there any paper in which these obligations are stated or expressed?

Mr. SCHWERIN. I have never seen it, sir. That has been my understanding.

Senator MORGAN. Have you ever heard of a contract with the Government of the United States by which the Government assumes obligations in regard to the transmission of freight across the Isthmus by rail?

Mr. SCHWERIN. No, sir; but I have understood the obligations by which the franchise of the Panama Railroad was granted to New York gentlemen obligated that railroad to be kept open as a means of communication between the Atlantic and the Pacific.

Senator MORGAN. I am not aware of any contract between the Government and the Panama Canal Company, which owns the railroad and from whom we bought the stock, that they would do any particular thing with that property after they got it.

Senator DRYDEN. Do you mean that that was an obligation in their original charter?

Mr. SCHWERIN. Yes, sir.

Senator DRYDEN. And your contention is that the Government, in taking over that property, assumed the obligation which the private corporation was under?

Mr. SCHWERIN. Yes, sir.

Senator KNOX. The Government only took the stock. There has been no change in the corporate existence. You mean that it was a common carrier and had to continue to be a common carrier?

Mr. SCHWERIN. Yes; no matter who held the ownership.

Senator KNOX. No matter who owned the stock?

Mr. SCHWERIN. Yes, sir; no matter who owned the stock, it had to carry out its obligations under its original charter.

Senator KNOX. That is what I understood you to mean. Your original expression was a little unfortunate, I think, about its being an obligation between the United States and the Panama Canal Company. You did not exactly mean that.

Mr. SCHWERIN. I mean in the broad sense that the United States now being a stockholder and in control of the property would be the owner in exactly the same way as a certain railroad operating a subsidiary company would be spoken of as the owner of that company.

Senator MORGAN. Under that theory the United States Government would be bound to carry out this traffic arrangement, would it not, between New York and San Francisco, for instance the traffic arrangement with the Pacific Mail Company?

Mr. SCHWERIN. The Pacific Mail Company has no traffic arrangement there.

Senator MORGAN. It has had?

Mr. SCHWERIN. Yes; but it has not now.

Senator MORGAN. When did it cease?

Mr. SCHWERIN. Last July.

Senator MORGAN. Oh!

Mr. SCHWERIN. By notification on the part of the United States Government and instructions to the officers of the Panama Railroad Company that the contract would cease under six months' notice. That notice was given the 1st of January last year, and it ceased in July of this year.

Senator MORGAN. That obligation has been in existence for many years, has it not?

Mr. SCHWERIN. Which obligation?

Senator MORGAN. The contract between the Pacific Mail and the railroad company.

Mr. SCHWERIN. Well, during my time there were two contracts made.

Senator MORGAN. Yes; one was a modification of the other?

Mr. SCHWERIN. No, sir. There were two contracts· made. And then we all went it alone for a while, and afterwards the Panama Railroad wanted to make another contract, and that is the contract which has now lapsed by notification.

Senator MORGAN. That contract was in force at the time the Government of the United States took over the railway property from the Panama Canal Company?

Mr. SCHWERIN. Yes, sir.

Senator MORGAN. Why was not that an obligation that it should continue?

Mr. SCHWERIN. Because there was a clause in the contract that if the Panama Railroad Company sold that property to the United States Government, they could cancel the contract under six months' notice; and the Government, through the Secretary of War, instructed the directors of the Panama Railroad Company to serve that notice.

Senator MORGAN. It was, then, in virtue of that provision that the contract was terminated?

Mr. SCHWERIN. Yes, sir.

The ACTING CHAIRMAN. You may continue, Mr. Schwerin.

P C-06-32

Mr. SCHWERIN. The notice had gone out, and we were made very clearly to understand that the Government having taken this property for the purpose of building the canal, or assisting in the building of the canal, all commercial freight would be a secondary consideration. Senator MORGAN. How was that understanding expressed, and by whom?

Mr. SCHWERIN. By Mr. Wallace and Admiral Walker to myself personally; by Mr. Wallace to the people on the Isthmus and in correspondence, and by Mr. Shonts to the agents on the Isthmus and to myself.

Senator MORGAN. Was there any signed agreement to that effect? Mr. SCHWERIN. No, sir; it was a notice to us. They were the owners and operators of the property, and Secretary Taft told me that.

The result of that was that the Government freight had a prior right on all steamers out of New York; it had prior right in the handling of the steamer at Colon, and the movement of freight out on the line. Commercial freight was put on the dock and handled as the opportunity afforded. This meant a delay in the freight at Colon passing over to our steamers at Ancon.

I would like to explain here the difficulties under which we operated in this bridge. At Colon there is an accumulation of freight not only from New York, but from Europe, which passes over to us operating to the north and to the South American companies operating to the south. We get notice of the arrival of this freight at Colon and our agent at Ancon gives notice to the agent of the Panama Railroad Company of freight that he wants and when he wants it, according to the destination of the ship that may be on the berth loading at that time. And the custom has always been that the Panama Railroad Company would send that freight as we desired it, giving us the San Francisco freight first, as that is the last out of the ship in San Francisco, and so on down the different ports of call on the coast, so that the freight for the first port of call on the north-bound trip would be the last freight into the ship.

It is also a very important matter, as all this freight is foreign freight, and the laws of Mexico and Central America are very rigid as to custom-house requirements, that the bills of lading and the manifest and their accountable receipts should actually cover the freight that moves under those papers. In the desire of the operating officials that had charge of this property to get the canal material forward, it seemed to be impossible to do anything with the commercial freight except to dump it on their terminals, and they dumped it there and piled it to the rafters, without any record of marks or numbers, without any record of bills of lading, or the manifests, or the ship by which it arrived at Panama.

The ACTING CHAIRMAN. You are speaking now of the warehouse at Panama, or at Colon?

Mr. SCHWERIN. At Colon, I should have said.

The result was that as our agent ordered his freight over to load the ships it was impossible for the Panama Railroad people to segregate the freight that was required for that particular loading. They would give us what they could give us what they could get out-and the balance would lie there. This accumulation went on until it got, as Mr. Stevens testified, I believe, before you gentlemen or before one of these committees up here, so that when he went there he found an

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