2. The Cartel Agreements

A variety of agreements to limit competition had been effected in the region prior to this date but none in the passenger steamboat trade. The most direct evidence comes from the secretary of a succession of such associations based in Buffalo. "It is well known that the steamboats navigating these waters [above Niagara] have very frequently consolidated their interests and made returns of all the earnings to one office, where their accounts have been annually settled."(14) This arrangement was maintained, one season at a time between 1833 and 1835 and from 1839 to "some years" after 1841.(15) Moreover, the forwarders who were interested in the Royal Mail lines had openly testified in 1839 that for that and the previous two seasons a "written understanding" had bound them to charging fixed rates, a practice which was publically advertised in 1845.(16) Nor was price fixing unknown in the Royal Mail lines.

Implicit in the concept of a cartel, however, is considerably more than price fixing. Other activities typically associated with cartels include "market sharing or output limitation, joint selling, patent and process cross-licensing and profit pooling."(17) Not all are necessarily found associated with any one cartel, nor are these characteristics sufficient to define one. Essentially a cartel is an association of relatively independent firms which combine in order to limit competition significantly. This association is defined by some "explicit contractual organization or relationship."(18) It is the existence of this contract that helps distinguish the cartel model from the less formalized sub-contract model of line organization.

Observers of cartels which developed later in the century and into the next, consider the development of excess capacity and subnormal profits to be favourable to the cartelization process. In trades where profits were not regularly reported, the more visible indicator was falling prices.(19) Both this and excess capacity could be observed in the region. Virtually none of the ships in Bethune's fleet had been retired while the forwarders had built boats of nearly double of the tonnage of five years previous. The depression of 1848-49 had rendered much of this capacity redundant. While steamboat tonnage increased, rates had plummeted throughout the first half of the 1849 season. Given Bethune's manoeuvring and threats by Hamilton and the forwarders or a second, through line, the prospect of renewed price competition grew.

Eventually, all those previously involved in the mail lines, with the notable exception of Andrew Heron, met in Kingston just before the opening of navigation for the 1850 season. Even the Ontario and St. Lawrence Steam Boat Company was represented by observers. While none of the parties ever took 'credit' for initiating the meeting, it Kingston location and the previous experience of the forwarding firms suggest that Hamilton and his associates were responsible. Before the "convention" ended they signed formal articles of agreement which would form the basis of the reorganization of the lines.(20)

Several characteristics of the lines were unaffected by the new arrangements. There would be no joint liability, whereby the owners of one vessel might be held responsible for the debts of another.(21) In addition, the basic schedules were not affected. There would continue to be a lake line and a river line. However, the Through Line announced earlier that spring was not to be withdrawn.(22) Neither did the new arrangements affect the agents or the wharves employed by the individual proprietors at the major transfer points of Kingston, Montreal and Toronto.

One of the primary innovations introduced by the first cartel agreement was the creation of a formal decision making body. While hitherto meetings had often taken place in the course of settling their joint affairs, these had never been on a continuing basis. Now the proprietors pledged to meet once a month in Kingston in order to transact business--in particular "fixing from time to time a scale of fares for passengers--of dividing receipts [and] auditing accounts."(23) When alterations in previous agreements had been made, the principle seems to have been simply that of "mutual agreement".(24) The new compact established much more elaborate provisions. In the division of votes, John Hamilton held two, Macpherson and Crane another two and the remaining signatories, Bethune, Dick, the Magnet's owners, and Hooker and Holton one each, for a total of eight.(25) While this effectively represented the balance of power in the lines, clearly in the favour of Hamilton and the forwarders, it also represented a concession. All the votes represented the management of one vessel except Hamilton, who while running three vessels wielded only two votes.

That the power thus apportioned would be effective was assured by the financial arrangements at the heart of the document. While most expenses continued to be incurred by the individual vessels or their operators, now some were to be shared. In previous seasons the Montreal agency had deducted some of its expenses before distributing the revenues from through fares.(26) Now some of the expenses of this agency, as well as those in Quebec, Niagara Falls and Buffalo, were to be paid out of the signatories' joint revenues. Where income had been distributed in a variety of ways in earlier seasons, now each vessel was to turn over sixty per cent of its passenger and freight receipts to an independent accountant. After his and other expenses had been deducted, this sum was divided into nine shares, on for each boat in the three lines. Even the funds from the troop contract were to be paid into this central account, irrespective of who performed the services. By contrast the mail funds continued to be received only by those actually on postal duty, a clear concession to Bethune, Dick and Sutherland. Although opportunities for fraud would exist, the power of the independent accountant to examine the books of all the participating vessels was intended to reduce these. These income pooling arrangement were designed to give substance to the authority of the monthly management meetings. Consequently no penalties for noncompliance with the group's decrees were specified in the document.(27)

If the agreement represented the abdication of much of the independent authority of the lesser participants, what induced them to join? The key attraction was protection the cartel provided from competition. Obviously not all facets of opposition had been eliminated--the Through Line vessels would still drain revenue from the mail lines. But at least price competition among the members had been forbidden. Hooker and Holton were about to run a regular freight line into Lake Ontario. They agreed to limit the passenger component of these operations by not employing any runners at the various ports of call. These were, moreover, the only vessels owned by members permitted to offer opposition.(28) Paralleling this seems to have been an unspoken arrangement between the forwarders and the passenger lines about the solicitation of freight. It would not be until the forwarding interests withdrew in 1853 that the mail lines hired a Montreal freight agent.(29)

Bethune was able to derive a further advantage from special clauses relating to his contest with Andrew Heron for the Toronto-Lewiston route. If the Through Line were to shift its terminus from Hamilton to Lewiston, Bethune was to receive a kickback for every passenger delivered to the Niagara River ports. In any event he received a specified sum for every through fare transferred between his Toronto-Lewiston vessel and the lake line.(30) Although the Globe accused the Through Line proprietors of indiscriminately providing a kickback to the Mail line boats for every fare carried there is nothing in the formal agreement beyond the details of the common fund which might be construed as authorizing this.(31) However, the reverse was true to the extent that the Through Line vessels continued to draw their shares even after they were laid up mid-way through the season.(32) These compromises must have appeared more preferable to Bethune and Sutherland than the severe opposition they had witnessed the previous season and had been anticipating much of the winter. Undoubtedly, Dick was simply relieved that he was to be accommodated in one of the lines.

The annual renewal of the cartel over the ensuing five seasons is ample testimony to its success.(33) Part of this lay in achieving its original goals. Price competition among the members of the group was eliminated and it did provide a regular forum for the management of their joint affairs. Of the subsequent accords only the details of the 1852 pact have survived.(34) Here there were three major revisions. The voting procedure was altered to one boat, one vote; instead of dividing the postal revenue among the mail boats it was paid into the central fund for the benefit of all; finally, the proprietors jointly chartered a steamboat for whose expenses they were collectively responsible. None of these revisions substantively altered the relationships within the group, but they did represent the increasing strength of Hamilton's faction.

Another factor in the success of these agreements was the manner in which their annual renewal permitted regular revisions of the running arrangements. Dick left the group at the end of 1850 to be replaced by Heron in 1852.(35) More important was the adjustment, and eventual retirement from both the passenger and freight trades of the forwarding partnerships.(36) In the winter of 1852-53 most of their Through Line stock was sold in trust to an American railroad line with its terminus at Cape Vincent.(37) The following season saw power within the line more evenly divided between Hamilton on one side and Heron, Sutherland and Bethune on the other.(38) This situation did not persist long for Bethune & Co. were in severe financial straits and Bethune absconded late in 1853 with company funds.(39) The remaining Royal Mail Line proprietors took the opportunity to trim another boat from the lines. Despite these changes and a number of internal tensions, the owners did not engage in another series of internecine battles. Instead, changes were negotiated peacefully.

The cartel survived, despite the expansion of the number of steamboats in the region, by including other lines in its deliberations. Already the major American steamboat interests had attended as observers. Thereafter their fare schedule matched that of the cartel.(40) With the principal forwarding line on the lake there was a formal, functional division of the trade. Both the Watertown and Rome and the Great Western Railways participated in the annual mid-winter meetings and both kept their vessels out of Kingston, thereby not competing for the Mail Line's traffic at its most vulnerable transfer point.(41) The decision by the G.W.R. clearly reflected its fear that both of its expensive new boats might become the target of "ruinous competition" from the united steamboat interests.(42) This sentiment was undoubtedly encouraged by Captain Sutherland who, apart from being in the Great Western's employ beginning in 1854, was also the managing director of the Magnet, co-contractor for the carriage of the mails between Hamilton and Montreal, and for a season co-lessor of the New Era.(43)

With the prices schedules and contracts carefully regulated by the cartel agreements the natural rivalry of the signatories found other outlets. Notices in the newspapers emphasized the popularity and urbanity of the officers and the skills of the cooks.(44) Moreover, attention was focused on the lavishness or "classic simplicity" of the vessels' decorations.(45) The epitome of this trend was reached with the outfitting of Hamilton's Kingston in 1855. She incorporated a 160 foot saloon with marble topped tables and a piano, staterooms for 125 people, and was "finished in white and gold with carved mouldings and pilasters, lighted with richly stained class."(46) Given the same rates as its drabber linemates it was believed some would time their travels so as to voyage aboard such a floating palace. Whereas the image of the employee was largely a matter of careful advertising and advancing those officers, chiefly pursers, who showed facility in dealing with the public (irrespective, sometimes, of their navigational skills), the floating palace involved major additional capital investments. In spite of the rapid depreciation of these frills--a rate which accelerated if they served their purpose and attracted more customers--the steamboat proprietors continued to invest in them.

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Chapter 5 appeared in FreshWater.