The success of the Tidewater experiment brought Mr. Rockefeller face to face with a new situation. Just how seri ous this situation was is shown by the difference in the cost of transporting a barrel of oil to the seaboard by rail and transporting it by pipe. According to the calculation of Mr. Gowen, the president of the Reading Railroad, the cost by rail was at that time from thirty-five to forty-five cents. The open rate was from $1.25 to $1.40, and the Standard Oil Com pany probably paid about eighty-five cents, when the roads were not protecting it from "injury by competition." Now, according to General Haupt's calculation in 1876, oil could be carried in pipes from the Oil Regions to the seaboard for 16 2-3 cents a barrel. General Haupt calculated the average difference in cost of the two systems to be twenty-three cents, enough to pay twenty-eight per cent. dividends on the cost of a line even if the railway put their freights down to cost.
This little calculation is enough to show that the day of the railroads as long-distance transporters of crude oil was over ; that the pipe-lines were bound to replace them. Now, Mr. Rockefeller had by ten years of effort made the roads his servant; would he be able to control the new carrier? A man of lesser intellect might not have foreseen the inevitableness of the new situation ; a man of lesser courage would not have sprung to meet it. Mr. Rockefeller, however, is like all great generals : he never fails to foresee where the battle is to be fought; he never fails to get the choice of positions. He wasted no time now in deciding what should be done. He proposed not merely to control future long-distance oil trans portation; he proposed to own it outright.
Hardly had the news of the success of the Tidewater's experiment reached the Standard before this truly Napoleonic decision was being carried out. Mr. Rockefeller had secured a right of way from the Bradford field to Bayonne, New Jer sey, and was laying a seaboard pipe-line of his own. At the same time he set out to acquire a right of way to Philadelphia, and soon a line to that point was under construction. Even before these seaboard lines were ready, pipes had been laid from the Oil Regions to the Standard's inland refining points —Cleveland, Buffalo and Pittsburg. With the completion of this system Mr. Rockefeller would be independent of the rail roads as far as the transportation of crude oil was concerned. It was, of course, a new department in his business, and, to manage it, a new company was organised in April, 188I— the National Transit Company—with a capital of five million dollars, and a charter of historical interest, for it was a mate of the charter of the ill-fated South Improvement Company, granted by the same Legislature and giving the same omnibus privileges—the right in fact to do any kind of business, except banking, in any part of the world. The South Improvement
Company charter, as we have seen, was repealed. The charter which the National Transit Company now bought seems to have gone into hiding when the character of its mate was dis closed and so had been forgotten. How it came to be unearthed by the Standard or what they paid for it, the writer does not know. However, as H. H. Rogers aptly told the Industrial Commission in 1899, when he was asked if a considerable sum was not given for it: "I should suppose every good thing had to be paid for; I should say a man owning a charter of that kind would sell it at the best price he could get." And while Mr. Rockefeller was making this lavish ex penditure of money and energy to meet the situation created by the bold development of the Tidewater, what was his atti tude toward that company? One would suppose that Mr. Rockefeller, of all men, would be the first to acknowledge the service the Tidewater had rendered the oil business; that in this case he would have felt an obligation to make an excep tion to his claim that the oil business was his ; that he would have allowed the new company to live. But Mr. Rockefeller's commercial vision is too keen for that; that would not be business. The Tidewater had been built to feed a few inde pendent refineries in New York. If these refineries operated outside of him, they might disturb his system; that is, they might increase the output of refined and so lower its price. The Tidewater must not be allowed to live, then. But how could it be put out of commission? It had money to operate. There were plenty of oil producers glad to give it their prod uct, because it was independent. The Reading Railroad had gone heart and soul into its fight—it had refiners pledged to take its oil, and these refiners had markets of their own at home and abroad. What was he going to do about it? There were several ways to accomplish his end; in two of them, at least, Mr. Rockefeller excelled from long practice. The first was to get out of the way the refineries which the Tidewater expected to feed, and this was undertaken at once. The refiners were approached usually by members of the Standard Oil Company as private individuals, and terms of purchase or lease so generous made to them that they could not afford to decline. At the same time they were assured confidentially that the Tidewater scheme was a pure chimera, that they under stood the pipe-line business better than anybody else and they knew oil could not be pumped over the mountains. All but one firm yielded to the pressure. Ayres and Lombard stood by the Tidewater, but soon after their refusal to sell they were condemned as a public nuisance and obliged to move their works! The Tidewater met the situation by beginning to build refineries of its own—one at Bayonne, New Jersey, and another near Philadelphia—in the meantime storing the oil it had expected to sell.