2. Survival Strategies

Before the extent of the government's commitment to the Grand Trunk became fully evident, much of the Royal Mail Line's strategy had involved direct opposition to the interloper. In undertaking this the proprietors responded as they would have to any other competitor intruding on their 'territory'. They probed its weaknesses, promoting the convenience, security, comfort and aesthetic pleasures of their own service.

To these tactics the Grand Trunk was initially vulnerable. To only two of its stations, Toronto and Guelph, could the term 'convenient' have been applied.(7) In a region where shipping facilities, offices, warehouse and hotels had all typically clustered near an urban centre's harbour facilities, the railway's decision to build in inexpensive, semi-rural locations proved a boon only to the teamsters and cabbies. In Montreal alone, over $100,000 a year was spent on cartage between the Grand Trunk terminus and the City.(8) Not only was this expensive but it could lead to lengthy, frustrating delays. It cost as much and took as long to unload a car full of wheat in the railway's Point Charles yards and transfer this to the grain elevators on the Montreal waterfront as it did to bring the same produce by freight steamer and barge all the way from Toronto.(9) Passengers, abandoned to the mercies of the Montreal cabmen, saw the length and price of their trip similarly escalating. Until the problems of local storage and delivery were resolved by the railway, the express steamboat lines, especially when headed downriver, were not only able to provide competitive prices for passengers and package freight, but speed as well.

Moreover, the Mail Line was able to capitalize on a strong image of safety and passenger comfort. The early railway industry in general was plagued by a terrible safety record, with sensational accidents in the United States and overseas faithfully reported in the Canadian press. Spectacular local disasters like the Desjardins Canal Bridge calamity tended to confirm this reputation.(10) While occasional marine accidents on the Mississippi and the Gulf of St. Lawrence continued to draw attention, the local waters had seen relatively little loss of life. Finally, the smoothness of the train ride proved to be something less than the promised flight of an angel.(11) Far from attracting the custom of sea-sick voyageurs, the Grand Trunk found its ride unfavourably compared with "a comfortable night's rest" on Lake Ontario.(12)

A natural concomitant was the paring of rates to the minimum--and even beyond if necessary.(13) But price competition at that level was a short term solution at best and was utterly futile when the opponent was subsidized.

Once this realization was reached, the natural alternative seemed to be to discredit the program of railway aid or, being a pragmatic group of men, to secure similar government concessions themselves. But individual petitions achieved little, and strategically placed owners like Hamilton supported the Grand Trunk aid bills on party lines.(14) Eventually a broad spectrum of shipowners attempted to organize their own political interest group. In spite of the membership of men like John Hamilton, his son Clarke, and mail line associate, William Bowen, the Canadian Shipowner's Association soon faded from view.(15) One of its objects however, had been the reduction of the St. Lawrence canal tolls. The government went so far as to eliminate them for a brief period beginning in 1860.(16)

This short lived effort at collective action probably faltered on the same issue which had abruptly brought the cartel agreements to an end in 1856. That last conference had failed to resolve the issue of route, and who was to trade on them.(17) If the Grand Trunk could not be forced to its knees, then the excess capacity would have to be eliminated from the waters of the lake and river. Could any of those who were determined to run afford to buy off the other proprietors? The prospect otherwise was wholesale competition and everyone's ruin.

Despite the absence of any public agreement, several boats were laid up starting in 1857.(18) Most of their owners probably hoped to ride out the worst of the economic storm in harbour. By 1859, several of the major vessels, most notably the large passenger steamboats, were being run down the St. Lawrence rapids for operation in the Gulf of St. Lawrence and on the east coast of the United States. The American civil war provided an additional stimulus to this process as large profits stood to be made by supplying the Union forces with transports.(19)

Before relief for the excess capacity of the lake and river fleets was found there had been several major failures on the lakes.(20) Most spectacular of these was the collapse of the Ontario and St. Lawrence Steamboat Company. Rent by internal dissension between rival Ogdensburgh and Oswego interests, the company had seen the market value of its shares shrink to between 25 and 40 cents on the dollar. Originally capitalized at $750,000 its steamboat properties had declined in value to the level where a sherif's auction in the spring of 1858 realized a miserable $73,000. This amount was almost sufficient to discharge the firm's liabilities.(21) The successful bidder was a new firm, comprised of many of the old Ontario and St. Lawrence investors. Despite the exclusion of the Oswego interests this enterprise was also racked with internal tensions and within the year it fractured.(22) The Ogdensburgh members retained the Lake Ontario Express Line, from Lewiston to Ogdensburgh with connections for Montreal. The balance of the interests retained the local route along Ontario's south shore. With each of these new firms the proprietors of the Royal Mail Line would have to deal in turn.

In the meantime, the affairs of one of the Mail Line entrepreneurs had collapsed. Andrew Heron was tripped up by his expansion during the earlier part of the decade. He had leased the Niagara Harbour and Dock works for a time, and built two new vessels, the Arabian on his own account and the Peerless in conjunction with Captain Dick. He became a director of the Erie and Ontario Insurance Company soon after it was formed in 1853 and in partnership with John Simpson built a Hosiery Manufactory near Niagara in 1855. Finally, with a third partner, Captain James Sutherland he had chartered the New Era.(23) Two years later the threads rapidly began to unravel. In the Kingston assizes alone, in 1857 and 1858 he was successfully sued by the Bank of Montreal and others for over £1000 on his own account, and half as much again in partnership with Sutherland.(24) Another ex-partner's half-brother, James Dick, took him to court again when he failed to run the Peerless in 1857.(25) Some relief was obtained when he chartered the Arabian to some interests on the lower St. Lawrence, but this could not prevent the Bank of Upper Canada from seizing the Peerless.(26) Heron would never again participate in the passenger steamboat trade.

Nor would James Sutherland, but for substantially different reasons. The captain, a sea-faring man his entire adult life, perished in the icy waters of the Desjardins Canal, a victim of one of Canada's most infamous railway disasters.(27) While solvent at the time of his death, his principal asset was his share in the Magnet, an investment of which his family had considerable trouble disposing.(28)

The places of Heron and Sutherland were to some extent filled by a Kingston wharfinger, William Bowen. Having picked a propitious time to retire from Hamilton's employ, since 1849 Bowen occupied one of the best locations on the Kingston waterfront. His other activities included contracting for a land mail route, selling insurance and handling steamboat property. In addition, he held some other valuable real estate in the Kingston area. By 1857, he owned the St. Lawrence, an ex-mail line boat now chartered to someone in the Bay of Quinte trade, one half of the Champion, and one third of the Banshee, both of which he also managed. The Champion was held in partnership with John Hamilton, while the Gildersleeves owned another third of the Banshee. R.G. Dun's assessment of the new participant in the mail line was "good and safe".(29)

Price competition and political action having failed, and with none of the participants in the 1852 cartel left in the trade, Hamilton and his new associate tried a different tack for 1858. Yet another vessel was trimmed from the line, bringing the number down to five.(30) This smaller line was then operated on an accelerated timetable. So long as the proprietors had had to conform to the specifications of the mail contract there had been a delay of several hours at Kingston as the mails were re-sorted. Hamilton took advantage of the release from this obligation to eliminate that port as a transfer point. Henceforth the Mail Line ran a through service from Montreal to Hamilton.(31) Both moves, reducing the number of steamboats, and forming the balance into a through line were intended to exploit the existing trade more efficiently.

Although these manoeuvres may have achieved some limited success, by 1859 Hamilton began to act considerably more aggressively. He invaded entirely new territory, extending the Royal Mail Line through the middle St. Lawrence to Quebec. Here, for the first time he came into direct conflict with the Richelieu Company, perhaps lured by the 32% dividend that company had paid the previous season.(32) Despite the utter failure to recapture any business in the flagging immigrant trade, to the local press the season seemed "successful."(33) However, appearances were deceiving.

For the following year Hamilton negotiated a variant on the cartel model which involved his resumption of sole managerial control of the Royal Mail Line. In keeping with his bold, expansive strategy of the previous season Hamilton went so far as to charter the vessels of the Ogdensburg based, Lake Ontario Express Line. Having assumed control over two of the lines offering through passenger services between the head of Lake Ontario and Montreal, he then concluded a pact with the third, the Grand Trunk Railway. This was a three year agreement which prevented price competition between the two organizations and excluded the Royal Mail Line from all the ports between Toronto and Kingston. In return, the Grand Trunk's agent, general manager Walter Shanly, consented to the division of the profits or losses on Hamilton's two lines.(34)

To have concluded such an accord Hamilton must have already been prepared to write off the next three year's business. To benefit at all from its provisions he had to lose money. Even if rates were substantially raised, with no price differential the steamboat lines could expect to lose even more passengers, irrespective of their competitive advantages. Similarly the charter of the Ogdensburg Express Line brought it into line with the Grand Trunk's rate policy without improving its competitive position. No evidence, beyond the guarantee of a fixed salary for Hamilton and his two eldest sons, survives of any private subsidiary arrangements which might account for Hamilton's behaviour.

However, a second agreement was negotiated with the Richelieu Company. Where the Grand Trunk arrangements involved dividing all the risks, this pact meant splitting only the gross receipts of the through business between Montreal and Quebec. Some additional decisions were reached concerning the transferring of passengers, fixing rates and dividing territories between the two steamboat interests and the Grand Trunk.(35) Here, at least, Hamilton stood to profit if the Richelieu company, as was probable, generated more business than did his line.

Despite the coup of having the Kingston live up to her reputation as a floating palace by serving as the official transport of the Prince of Wales that autumn, the season was an unmitigated financial disaster. Although a princely $7760 was charged for the transport of the royal entourage, between them the two lines under Hamilton's management lost over $70,000, with not one of the eight participating vessels paying its own expenses.(36)

As the balance sheet for the year is the only one for the Royal Mail line which has survived, some aspects deserve closer examination. (See Table I) About 80% of the expenses were charged to the individual vessels, the balance including insurance, interest, office and a large "General Expense Account." The latter must have encompassed Hamilton's $4000 salary as general manager.(37) A similar sum, it was rumoured, was divided by his two eldest sons for assisting him, support which, given the number of vessels involved, was indispensable.(38) Whether the Hamiltons inflated other charges in this category in order to secure some extra return at the expense of the railway is impossible to judge, but no one publicly accused them of such.

The income accounts of the vessels confirm two facts. With the exception of the Kingston, which had spent a substantial part of the early fall in the government's employ, the freight receipts of the Royal Mail Line vessels were well over sixteen per cent of their total earnings. By contrast the Express Line freight receipts were less than seven per cent.(39) The Mail Line had maintained some of its former package freight trade. Secondly, in terms of income, the Royal Mail vessels were ranked first according the hull type and secondly according to age, with the five year old, iron hulled Kingston earning almost double that of the twelve year old, wooden hulled New Era.(40)

Because, for purposes of the joint accounting, Hamilton had included the charter value of his own three boats, his direct losses were less than half the total. His personal liability, assuming the books were not seriously "cooked', was about $27,000 for the season.(41)

Not only had the exercise proven financially unrewarding for both parties over its first season but it had also become a major political embarrassment. A select committee of the Legislative Assembly, chaired by George Brown, denounced the arrangement as monopolistic and warned that the Grand Trunk had never been authorized to engage in such proceedings.(42) In fact, the company's lawyers had recognized this, sidestepping the issue by making the general manager personally liable, and inserting a provision allowing him to assign his rights to any successor. This manoeuvre did not impress a subsequent Commission of Inquiry, which labelled the whole experience "unfortunate."(43) Although the principal partners were contemplating the dissolution of the agreement after only its first season, this consideration was pre-empted by the bankruptcy of Hamilton in 1861.

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Chapter 5 appeared in FreshWater.