British Shipping Subsidies

THE much-talked-of legislation in regard to shipping subsidies, which promises soon to become an accomplished fact so far as the United States is concerned, renders particularly interesting the policy pursued by the British government toward the great mercantile marine of that country, and its general effect upon it. It is important to note that the growth of British shipping has been due entirely to natural causes, and shipowners complain that so far as government or parliamentary action is concerned, it has been rather in the direction of hampering than of assisting the industry. Freedom to manage their ships and work their business in their own way is all they have asked for; and if this has not always been granted them, it is because the less scrupulous would take advantage, and be less careful than they should of life and limb and of the property committed to their charge.

There are no subsidies or grants of any kind made out of the public funds to shipbuilders. Every British vessel, as it leaves the stocks, represents neither more nor less than the cost of the material and labor expended upon it, plus whatever profit the builder has been able to make upon them. The great majority of such vessels have, then, to take their chance in open competition with the whole world, and the profits they earn for their owners are dependent entirely upon the freights and passage money they secure from the public in the ordinary way of business. There are, of course, some exceptions, and it is with these we have to deal. Large sums are paid for the carriage of mails to various parts of the world, and in this guise it is quite possible that the companies receiving them may be specially favored. We shall see.

There are five of these mail subsidies which may be classed as of first-rate importance, namely, to the United States, India and the Far East, Australia, the British West Indies, and South Africa. The last-named is a colonial contract, and beyond the control of the British government, the governments of South Africa having only recently concluded terms for its renewal. There is another important service, namely, with Canada, for which £60,000 per annum is paid; but this has undergone so many changes of late, and is even yet so subject to change, that it is difficult to discuss, particularly as it includes the overland service via Vancouver to China, Japan, and Australasia. There are one or two smaller contracts, like those for West Africa and South America, the latter being regulated strictly by weight of matter carried. Of the five we are to deal with, provision has been made for the current year as follows : —

For the United States, divided between the Cunard and White Star lines, outward to New York only, £130,000.

For India, Straits Settlements, Ceylon, China, and Japan, paid to the Peninsular and Oriental Company, outward and homeward, £245,000.

For Australia, divided between the Peninsular and Oriental and Orient companies, out and home, £170,000.

For the West Indies, to the Royal Mail Steam Packet Company, out and home, £80,000.

For South Africa, divided between the Union and Castle Mail lines, out and home, £90,000. After September, 1900, this will be increased, under the new contract, to £135,000.

Before discussing the details of these, it will be as well to add that there is a further annual payment made to four companies, amounting to £50,000, for the right to call upon certain steamers as armed cruisers in the event of hostilities between Great Britain and a foreign power. This is divided among four companies, namely, the Cunard, White Star, and Peninsular and Oriental, named in the preceding list, and the Canadian Pacific Railway for its Pacific mail steamers, the largest amount any one of them receives being £15,000, and for the total, ten or eleven of the finest and quickest steamers in the world can at very short notice be added to the British navy. A good deal of comment has been made upon the circumstance that none of them was at first chartered for the conveyance of troops to South Africa, but it must be borne in mind that the subsidy is paid for retention for fighting purposes, and not for transport service.

To return once more to the mail subsidies : it cannot be too strongly impressed that they are paid with the primary object of securing steamers for the respective services of great power and speed, which, owing to the enormous consumption of coal, are exceedingly costly to work and maintain. On the whole, the various companies act up to the spirit of their agreements, and are constantly adding to their fleets new and improved boats, calculated to increase the efficiency of the service they are called upon to render to the public. The two South African companies, for instance, have made so much progress in this direction that a number of their steamers are now delivering the mails several days ahead of actual contract time, thus permitting replies to be sent fully a week earlier than has been customary. The effective fleets, according to the latest reports of the respective companies, were as follows, though additions to several have since been made : —

Number of Steamers. Total Tonnage. Total Effective Horse Power. Average Tonnage. Average Horse Power.
Cunard 20 112,650 145,000 5625 7250
P. & O 56 276,100 286,050 4930 5100
Orient 6 32,000 5330
Union 21 120,620 5745
Castle Mail 18 87,170 83,200 4850 4620
Royal Mail 23 83,700 90,500 3640 3940

The White Star does not issue reports available to the public, the company being owned by a private body of shareholders, and the shares never coming upon the market.

The Cunard and White Star lines practically confine the mails to eight of their very considerable fleets, performing with them a bi - weekly service. Since the launch of the Oceanic, five of the eight are among the finest boats the world has yet seen, the only one so far comparable with them in size and speed combined being the Kaiser Wilhelm der Grosse, and the mails are delivered with a celerity and regularity which leave nothing to be desired. The Peninsular and Oriental and Orient companies have their entire fleet of ocean-going steamers more or less regularly employed in mailcarrying, the newest, largest, and most powerful, as well as the smaller ones. The same remark applies to the Union and Castle lines, every new steamer being promptly utilized for mail purposes. The Royal Mail Company, however, adopts a different policy with regard to the West Indies, and of the five steamers employed in the fortnightly service during the current year, one stands fifth on the list, the others seventh, eighth, ninth, and eleventh respectively; three of the five, moreover, being a quarter of a century old as regards the hulls, though fitted with machinery much more recent. This company has no boats at all equal, either in tonnage or horse power, to those of the other lines, and the best of what it possesses are regularly occupied in the South American service, for which, jointly with others, they are under contract for the mails, though, as already stated, receiving payment by actual weight, and not, as in the case of the West Indies, by subsidy.

In considering these subsidies, however, there are other things to be taken into account besides the size and speed of the vessels, important as these are from an international and political as well as a commercial point of view. Note must be taken of the distances to be covered as well as the weight of mail matter to be carried, and it is interesting to discover the rate per mile the payments indicate, as well as the rate per pound. This can be calculated, approximately at least. The distance, for example, between New York and Queenstown is 2850 miles, and as this is covered twice a week, 5700 miles per week must be traversed for the payment of £130,000. From Brindisi to Bombay is not quite 4000 miles, and as the mails are conveyed each way once a week, this is equivalent to a mileage of 8000 per week. From Brindisi to Shanghai is a trifle over 8000 miles, and as there is an outward and a homeward mail every fortnight, this is equivalent to another 8000 miles per week, or say 16,000 in all, for the subsidy of £245,000. From Brindisi to Albany the distance is 7500 miles, the service weekly each way: consequently, the total covered is 15,000 miles per week for £170,000. Cape Town is 6250 miles from Plymouth or Southampton, and weekly service each way makes 12,500 miles for £90,000, or, as it will be shortly, £135,000. The West Indian mileage is more difficult to estimate. The most distant colony, Jamaica, is 4500 miles from Plymouth, but the steamers subsequently proceed under contract to Colon, on the Isthmus of Panama, which would, however, probably be their destination in any case, if they were to obtain much homeward freight. There is also an inter-island delivery distributed from Barbados, though by small and slow steamers, which cannot involve very much outlay in working. A fair allowance would perhaps be 5000 miles per week. Thus we arrive at the following results: —

Miles traversed per Annum. Subsidy paid. Rate per Mile.
New York 300,000 €130,000 8s. 6d.
India and China 830,000 245.000 6
Australia 780,000 170.000 4 6
South Africa 650,000 90.000 3
West Indies 260,000 80.000 6

Though the New York service is apparently, according to this table, the most costly, the much greater speed compared with any of the other routes must be taken into account, and, as we shall discover later, the difference is much more than compensated for in other ways.

Then there is another very important test, namely, the weight of mail matter, and for particulars of this we can refer to the British Postmaster General’s annual report, from which the following information is taken : —

Total Weight of Letters, Book Packets, etc. Subsidy paid. Rate per Pound.
New York (outward only) 2,750,000 €130,000 11d.
India, Ceylon, China, etc. 3,400,000 245,000 1s. 5
Australia. 2,900,000 170,000 1 2
South Africa 1,500,000 90,000 1 2 1/2
West Indies 400,000 80,000 4

Some allowance, of course, must be made for distance: thus the rate per pound per thousand miles would be less to Australia and China than to the United States, so that the comparisons are by no means perfect. Then some of the contracts include parcels dispatched by parcels post, which, if added to the weights given above, would lessen the rate per pound materially. Parcels, however, must be regarded more in the light of general cargo earning a high freight, and the deductions to be made would not then amount to anything considerable.

There is still another most important aspect to be taken into account. The International Postal Convention takes no note of distances, and permits the same charge to be made for a letter dispatched from Dover to Calais as from London to Yokohama. Whether the mail-carrying companies or the post offices of the respective countries are to benefit from the short distances must be settled between them; but there can be little doubt that, in arranging the British contracts, account is taken as far as possible of postal earnings. Again, the actual disbursements of the British post office are in all cases much less than the amounts of the respective subsidies. A certain proportion of the latter are surcharged to the colonies and India for homeward mails. Further sums are collected from foreign post offices, or from colonial ones not directly concerned, for postage on matter dispatched from their respective countries by British mail routes, and in the case of the contracts for the West India mails a small portion of the subsidy has to be provided by the Haytian government. To arrive at the net cost, therefore, deduction must be made, first of the colonial and foreign reimbursements, and then of the amount of postage collected. The latter can be arrived at with an approximation to accuracy by calculating on the basis of the current rate of postage on the total weight; but inasmuch as many letters fall below the maximum weight allowed for the postage paid, the actual receipts must be somewhat in excess of the calculation.

The figures which follow are based upon two and a half pence per half ounce for foreign, and one penny for Indian and colonial postage, with the exception of Australia, which still maintains the old rate of two and a half pence, and a half-penny for every two ounces of book or newspaper matter : —

Total Subsidy. Colonial Contribution. Foreign. Receipts. Approximate Receipts for Postage in U.K. Approximate Profit. Loss.
New York €130,000 €27,280 €140,000 €37,250
India and China 245,000 €69,400 26,500 70,000 €80,000
Australia 170,000 71,650 7,750 70,000 20,000
West Indies 80,000 17,650 16,100 7,500 40,000

A further credit must be allowed — except in the case of the United States, with which country there does not exist at present a parcels post — for the postage received on parcels, but on the other hand there are charges which cannot easily be arrived at. Mails are dispatched to the farthest possible points by land routes, which involves considerable expense. It cannot be supposed, for example, that the large sum paid for the service between Great Britain and Ireland, amounting to about £100,000, is in the interests of the business connections between the two countries. The real purpose of the Irish Channel service is the acceleration of the American mails to and from Queenstown, though the actual saving of time does not now exceed a few hours in any instance. Then, again, mails going eastward have the advantage of quick overland transit to Brindisi, or some other port on the Italian or Southern French littoral, and payments for this have to be made in the English Channel service as well as to foreign post offices. In the West Indian and South African mail services an English port is used in each instance, and they get the benefit of the ordinary postal service, the weight of matter adding little to the cost of the ordinary contracts with the respective railway companies. Further, something must be allowed for the services of the post-office staff, — many employees being required for the handling of the foreign mails,— and also for the use of buildings and stock. It is probable, therefore, that, were these things taken into account, the apparent profit on the American mail service would disappear, and that the loss on the others would be somewhat increased.

When everything is considered, however, the fact remains that the gigantic foreign mail service of the United Kingdom costs the British taxpayer little if anything more than a quarter of a million sterling per annum, and this represents the subsidy which the entire British mercantile marine receives from the government. Something, of course, is added by the colonies and India, as they do not receive in postage the equivalent of the sums surcharged them ; but the net disbursements in these cases all together probably fall short of £100,000. The fact is, the conveyance of British mail to all parts of the world is purely a matter of commercial arrangement, and in no case does the government make it the vehicle for favoring any particular line of steamships or group of shipowners. The contracts are thrown open to public competition, and if, as is contended, the amounts paid are sometimes extravagant, it is either because the company tendering has bought off its competitors, or, as is more probable, that none of the latter are in a position to fulfill the exceedingly onerous conditions demanded. The British Postmaster General has more than once in recent years attempted to set the companies at defiance, where he has considered the terms demanded excessive, or the conditions of the service in any way objectionable. But in taking such a step he invariably finds himself in an exceedingly unpleasant position. The amount involved is never sufficient to make any appreciable difference to the individual taxpayer, who consequently does not thank the Postmaster for his efforts, while the inconvenience arising from even a temporary dislocation of the mail service is so great that the small portion of the public affected immediately raises an outcry which compels a settlement, and as likely as not results in the victory of the recalcitrant company.

Notwithstanding the efforts of the post-office authorities to make economical contracts, there has been much dissatisfaction of late years on the part of a section of the mercantile and manufacturing community, who are aggrieved at what they consider to be the excessive rates of freight they are called upon to pay, in comparison with some of their Continental competitors. The contention is that the large subsidies paid enable the companies receiving them to form combinations or rings, and beat off competitors not so favorably situated, yet willing to work at cheaper rates. This grievance has never extended to the Atlantic trade, which is too immense to be dominated by a couple of companies, however powerful, and rates of freight are invariably regulated by the laws of supply and demand. It is in the Eastern and South African trades that the dispute is particularly rife, and here, undoubtedly, the terms enforced upon shippers are of a despotic nature. The combination, or conference, as it is more generally termed, fix their rates of freight conditionally upon shippers confining themselves exclusively for a definite period to their lines of steamers. The nominal rate charged is in excess of the actual, the difference being returned as rebate when the term has elapsed, if the conditions have not been infringed. Thus a shipper is precluded from taking advantage of an occasional outsider which may be put upon the berth at a cheap rate, because in doing so he would forfeit rebates extending perhaps over many months, and amounting to hundreds, if not thousands, of pounds sterling.

It might reasonably be supposed that, enjoying the double advantage of handsome subsidies and of combination which they appear to afford, these companies would be among the most lucrative investments to be found in the list of British shipping. Many of the steamers, moreover, are floating palaces, and at certain periods of the year earn very large sums for the conveyance of passengers. Yet in spite of all this, the requirements under the mail contracts are so exacting and onerous that the sum distributed to bondholders and stockholders as interest and dividends falls far short of the amount received as subsidy, as the following figures amply testify : —

Subsidy received. Interest and Dividends paid for 1898.
Cunard €65,000 €56,000
P.& O 330,000 202,000
Orient 85,000
Union 45,000 50,000
Castle Mail 45,000 53,500
Royal Mail 80,000 48,500

Where a subsidy is divided between two companies, it has been assumed that each receives one half. The Union and Castle lines are the only two, therefore, which distribute more than their subsidy ; and this is more apparent than real, as the capital of the companies has been steadily growing for years, while the fleets have assumed an importance which will soon entitle them to £67,500 each per annum, instead of £45,000, when they, like the other companies, will show a deficiency. Nor are the rates of dividend, with one exception, in excess of, or even equal to, what might reasonably be looked for from first-class industrial undertakings. The Cunard Company, for instance, paid its shareholders in 1898 three and a half per cent, the highest rate for a number of years. The distribution to the shareholders of the White Star line is known to have been much higher, but it is equally well known that the profits of the company are derived, not from the subsidized mail steamers, but from its magnificent fleet of cargo boats. The P. & O. is the one instance where a really substantial dividend is paid, and this is the company which more than any other has roused the animosity of the mercantile community. Its colleague in the Australian service is quite at the other extreme, as for 1898 the Orient Company paid no dividend at all, and it is doubtful if it really succeeded in meeting its fixed charges. The two South African lines divided five and a half and five per cent respectively, the Royal Mail five per cent, though to do so an inroad had to be made into the insurance fund. Most of these companies have debenture or bond issues bearing very moderate rates of interest, so that the average distribution over the entire capital employed is less even than the figures named. This is markedly the case with the P. & O., the £202,000 paid being equal to very little over six per cent on all the money actually invested in the enterprise.

Were this a fair representation of the returns from the shipping industry, it would compare most unfavorably with other British industrial enterprises, and there would be little eagerness exhibited to invest accumulated wealth in it. British shipowners do not by any means rank among the poorest members of the community, and it must be assumed that the average earnings upon their capital are very much more than five per cent. Private owners are naturally in a better position than public companies, as by personal attention they can save a great deal in the cost of management, and many private owners are known to derive handsome incomes from their property. There are numerous instances, however, of companies earning substantial dividends without any aid whatever in the form of subsidies. Take the Leyland line, which traverses much the same routes as the Cunard. After paying a moderate dividend for the first year or two of its existence, it transpired that a reserve had been accumulated sufficient to justify an additional distribution to bring the average of the whole period up to eleven per cent, the rate now current. Compare this with three and a half per cent paid by its subsidized competitor. Again, the West India and Pacific Steamship Company, with its headquarters at Liverpool, covers a good deal of the same ground as the Royal Mail, but has recently been earning as much as twelve and a half per cent against the doubtful five per cent of its rival. So far, then, from subsidies being an advantage, they appear in some instances, at least, to be positively detrimental to the companies receiving them.

In face of these facts, it is scarcely to be wondered at that few shipowners care to enter the lists as competitors for government mail contracts. They much prefer to sail their vessels in their own way and to suit their own convenience ; and though many of the non-subsidized lines maintain as regular and punctual a service as the subsidized ones, they are under no legal compulsion, and can break it whenever serious loss is threatened. The mail service has to be regarded as a totally distinct branch of the business, and treated accordingly. The state of perfection to which it has been brought has been the outcome of the developments of many years, and only those who have taken part in them are able to cope with them. No shipowner would build a Campania or an Oceanic on the off chance of getting a share of the American mail contract; the consequences of his failing to do so, after it was built, being too serious to contemplate. There are many steamers trading with the East equal to or superior to some of the P. & O. boats carrying the mails, yet it would be impossible to find any single line or any combination sufficiently well equipped to carry on the whole service. Steamers quite equal, if not superior, both in size and speed, to those of the Royal Mail Company, call at ports in the British West Indies, yet £80,000 per annum is not sufficient inducement to their owners to compete for the mails. In these days, trade fluctuations are so violent, and channels so apt to change, that nobody likes to bind himself to one route for so long a period as five years, particularly where, as in the case of the West Indies, the prospects are anything but inviting.

It cannot be urged too strongly that the British mercantile marine owes practically nothing of its enormous development to government assistance, and were this entirely withdrawn only a very slight percentage of the total tonnage would be affected. For all the government pays it both expects and gets full value. The conditions necessary to secure its patronage are most costly, while there is no guarantee that it will be continued beyond a limited period. The P. & O. contracts, for instance, were renewed last year until 1905, but a good deal of uncertainty exists as to what may occur after that. With the completion of the Trans-Siberian Railway, that route is almost certain to be adopted for the transmission of the mails to the Far East, and perhaps eventually to Australia: in the first instance, at any rate, the time occupied will be about one third of what it is now. There may some day be a transcontinental route to South Africa; the transatlantic companies alone may feel tolerably secure that their route will not be disturbed, whatever other changes may take place in the arrangements. These are all risks which must be taken into account, and which few shipowners care to run ; those who do so often gain more credit than profit. In the great Atlantic liners, the new and powerful steamers of the two South African lines, and in a lesser degree the crack boats of the Eastern companies, the British public feel a legitimate pride, and it is quite true that without the prospect of the subsidies such vessels would never be constructed. But they are sometimes costly luxuries, and it is not upon them that the prosperity of British shipping rests.

These facts are well worth consideration before an attempt is made by any other government to build up, by wholesale subventioning, a mercantile marine to compete with the British. France has tried the experiment, at an enormous cost, with anything but satisfying results. The stimulus to the great expansion of German shipping has been from within, and not from heavy grants of taxpayers’ money ; and though two or three of the larger companies do receive mail subsidies in excess of those paid for like service by the British government, their success is in much grealer degree attributable to their independent efforts. The shipping industry is, in its very essence, an international one, and the application to it of principles which may have proved successful in the internal industries of a country may be found to end in very disastrous results.

J. W. Root.