much reduced in volume, and a large share of the world's shipping was made unavailable for commercial uses by the interning and blockading of vessels, the commandeering of ships for military and naval uses, and the actual destruction of a large tonnage of both freight and passenger steamers. It was only the trade between the two seaboards of the United States that was approximately normal; and for that trade the services established via the canal were fully equal to the predictions made before the isthmian route was opened.

The total interruption of traffic for a period of seven months as a result of the Culebra slide of September 18, 1915, coming at a time when the European War had created an abnormal scarcity of shipping, caused many vessels that had been operated through the canal in 1915 to be diverted to other services. It can hardly be expected that all the vessels thus diverted will be restored promptly to their former routes through the Panama Canal. The services through the canal during 1916 can hardly include all the lines and vessels that were in operation in September 1915.

CHAPTER V

THE CANAL AND FREIGHT RATES

The Panama Canal was constructed to lessen the costs of transportation by reducing the time and distances of voyages between the eastern seaboard of the United States and Canada and the west coast of North and South America, between Europe and the Pacific coast of the Americas and between the Atlantic seaboard of North America and Japan, China, the Philippines, Australia, and New Zealand. It was sought to effect this reduction in the costs of transportation in order thereby to facilitate trade, to assist industry to develop, and, if possible, to lower the price which consumers pay for articles.

It is clear that the carrier's costs of transportation can be lowered by shortening the distances that commodities have to be carried; and it is equally evident that trade and industry will be aided if the reduction in the costs of transportation is accompanied by a corresponding decrease in freight rates. If freight charges are lowered, manufacturers and other producers will be benefited and it will be possible for them to lower

wholesale prices. The extent to which wholesale prices will actually be reduced by a lowering of the costs of transportation and a decrease in freight rates will, of course, depend upon the extent to which wholesale prices in the various industries are subject to competition and the extent to which they are monopolistic. In international trade, wholesale prices are, in most instances, controlled by competition; but in domestic or internal trade, wholesale prices in many industries are only partially determined by competition. Some products are sold in the domestic market at wholesale prices that are fully competitive, the prices of other articles are controlled in part by competition and in part by monopoly, while some commodities are sold at such wholesale prices as producers may think best to charge; i. e., wholesale prices may be competitive, partially monopolistic, or completely monopolistic.

When wholesale prices are controlled by competition, a reduction in the producer's cost which includes freight charges will result in lower prices to wholesale buyers. Inasmuch as only a part of the many articles which enter into domestic trade are produced and sold under conditions of unrestricted competition, it must be evident that it would be difficult to determine the influence which a reduction in general freight rates, due to the Panama Canal, will have upon the general

level even of wholesale prices. It must also be evident that it would be more difficult to determine the effect which the Panama Canal may have upon retail prices. The factors which enter into the determination of retail prices are so many and so difficult to measure that one may well conclude that it is practically useless to endeavor to estimate the benefits which individual consumers will derive from the transportation economies resulting from the use of the Panama Canal.

In view of these facts, the present discussion of canal freight rates will be limited to a consideration of the general effects of the canal; first, upon the cost of transportation, particularly between the two seaboards of the United States; and, second, the effects which the reduction in the costs of transportation may be expected to have, or actually has had, upon the rates charged by American railroads that compete with the coastwise lines for traffic between the eastern and western parts of the country. This discussion will, necessarily include an analysis of the factors that control railway rates between the Atlantic and Pacific sections of the United States, and an explanation of the adjustment of rates that the interested railroads have actually made in order to meet the competition of the coastwise carriers.

The general effect of the Panama Canal upon the cost of transportation will be, first of all, that

due to reducing the length of ocean routes and the time vessels take in performing the transportation services for which charges must be paid by shippers and consignees. A statement has been made in Chapter III of the reduction which the canal will effect in the length and time of ocean voyages. The reduction in the cost of transportation between terminals is roughly proportionate to the reduction in the length and time of voyages.

Another measurable effect of the canal upon the cost of transportation is the economy due to the avoidance of the transfer of such traffic as was, or would be, transferred across the Isthmus at Panama or Tehuantepec. Since 1855 traffic has been regularly transferred across the Isthmus of Panama, and, during the seven years preceding the opening of the Panama Canal, an increasing tonnage of freight was shipped between the two seaboards of the United States, and from Hawaii to New York, via the Isthmus of Tehuantepec. The transfer costs at the Isthmus, including the double handling of traffic, the maintenance of expensive terminals, and the operation of a railroad across the Isthmus, amount, on the average, to more than $3 per ton of 2,000 lbs. For several years the American-Hawaiian Steamship Company paid the Mexican National Railway at Tehuantepec an average of about $3.50 per ton for