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Laying the Foundations of a Trust

oil, cleveland, day, rebate, arrangement, rates and crude

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LAYING THE FOUNDATIONS OF A TRUST while the producers and refiners were working out associations and alliances to regulate the output of crude and refined oil, the freight rates over the three great oil-carrying roads were publicly supposed to be those settled by the agreement of March 25. Except by the sophisticated it was believed that the railroads were keeping their. contracts. The Lake Shore and Michigan Southern and the New York Central had never kept them, as we have seen. Mr. Flagler's statement that the Standard received a rebate of twenty-five cents a barrel from April i to November 15, 1872, would seem to show that while with one hand Mr. Clark and Mr. Vanderbilt signed the agreement with the oil men that hence forth freights should be "on a basis of perfect equality to all shippers, producers and refiners, and that no rebates, draw- M backs, or other arrangements of any character should be made or allowed that would give any party the slightest difference in rates or discriminations of any character whatever," with the other they had signed an arrangement to give a twenty-five cent rebate to Mr. Rockefeller! They certainly had a strong incentive for ignoring their pledge. Consider what Mr. Rocke feller could offer the road—sixty car-loads of oil a day, over 4,00c) barrels. General Devereux points out in the affidavit already mentioned * what this meant. It permitted them to make up a solid oil train and run it out every day. By running nothing else they reduced the average time of a freight car from Cleveland to New York and return from thirty days to ten days. The investment for cars to handle their freight was reduced by this arrangement to about one-third what it would have been if several different persons were shipping the same amount every day. Promptness was insured in for warding and returning (a drawback of from fifty dollars to $1 so a day accrued if it was late, so that the Standard was bound to ship promptly), and all the inconvenience of dealing with many shippers each with his peculiar whim or demand was avoided. It was certainly worth a rebate to the Central, and the Central not having any prejudices in favour of keep ing agreements because they were agreements naturally con ceded what Mr. Rockefeller wanted. There was another point. If the Central did not concede to Mr. Rockefeller's terms it undoubtedly would lose the freight. There was the lake and

the canal and there was the Erie! Now it is not supposable that such an arrangement would go on long without leaking out in the upper oil circles. We have evidence that it did not. Indeed, there was among cer tain intelligent oil men a conviction when the agreement was signed that the New York roads would not regard it—that if they did it would ruin the refining business of Cleveland. W. T. Scheide, a member of the oil men's committee making this contract, the agent of one of the largest oil shippers in the country, Adnah Neyhart, in some frank and suggestive testimony given to the Hepburn Committee in 1879, said that at the time the arrangement was made he did not think any body connected with the business expected it would last. "My reason for that was that it was an impossible agreement," said Mr. Scheide. "The immediate effect of it would have been to have utterly destroyed fifty-five per cent. of the refining interest of the country; that is to say, Cleveland and Pitts burg, which during the previous four years had shipped fifty five per cent. of all the oil out of the Oil Regions—they, in addition to paying the rates of freights which all other refiners would have had to pay, were required to pay fifty cents a barrel on their crude oil to their works." The refiners in Cleveland and Pittsburg had of course always paid to get crude oil to their works, even the South Improvement Com pany tariffs provided for that, and under that arrangement Cleveland had come to be in 1871 the chief refining centre of the country. The chairman of the committee examining Mr. Scheide suggested it was a "temporary impossibility which would have adjusted itself," which Mr. Scheide admitted. " Yes, sir, naturally, it would have adjusted it self I suppose, but the effect was very marked at the time." So strong was Mr. Scheide's conviction that the New York roads would not stand the new rates that on the loth of April he went to the Pennsylvania railroad and asked for a rebate on Mr. Neyhart's crude shipments—and got it. What the rebate was he does not state, but Mr. Flagler tells us in his testimony * that in December he discovered that the Penn sylvania was shipping for as low as $1.o5 a barrel. And for one month he got from Mr. Vanderbilt a rate of $1.05 on his 4,0oo barrels a day.

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