Such were the returns from the pipe-line for its services that no business ever justified more fully the extraordinary outlays of money and energy which it had taken to perfect it. For each barrel of oil the United Pipe Lines gathered, they received, when it was taken from the lines, twenty cents. The service cost them perhaps two cents after installation, though in these years, when they were obliged to carry some 30,000,000 barrels, they had constantly $6,000,000 on their books on which they did not at once realise. They could afford to let this sum stand because of the storage charge. For every i,000 barrels carried in their tanks they received $6.25 each fifteen days— $152 a year. Now, tankage did not cost over $250 per 1,000 barrels, so that the storage more than paid its cost in two years. There were often great losses by fire, but these were paid by the owners of the oil—a pro rata assessment being made. There was a deterioration in quantity and quality of oil from holding, but this again was paid by the owners in a shrinkage charge of three per cent., deducted from the quantity of oil when run. Thus on every side the pipe-line business was guarded. So long as it could keep out competition and hold up its prices, there was no better paying business in the United States than piping oil.
As we have seen, Mr. Rockefeller began to add long distance pipe-lines to his business as soon as the Tidewater demonstrated their feasibility, and before the time the Tide water was brought into harmony he had a complete system to the seaboard and to his inland refinery points, organised under the name of the National Transit Company. The United Pipe Lines and the National Transit Company were really one business, the former consisting of local lines and the other of trunk lines, and to make the organisation more compact the former was transferred to the latter on April I, 1884. The paid-up capital of the concern at this date was $31,000,000. Just as Mr. Rockefeller claimed, in 1878, that he was "pre pared to enter into a contract to refine all the petroleum that could be sold in the markets of the world," so now he could announce that he was prepared to gather, store and transport all the crude petroleum not only that the markets of the world demanded, but that the producers took from the ground. As things now stood the only remaining point where he could possibly be affected by competition was the railroads. A new relation to the railroads was created by the new development. Mr. Rockefeller was not only independent of them, he was their competitor, for, like them, he was a common carrier obliged to transport what was offered. His open rate to New York was forty-five cents, to Philadelphia forty, though the actual service probably did not cost over ten cents. By the alliance with the Tidewater any danger of competition from a pipe-line, which could of course afford to cut the price, was shut off. The railroads might possibly, however, lower the prices a little and still make a profit. It was very necessary that the price be kept up in order that too much encourage ment should not be given to outside refiners. The only group which threatened to grow to large proportions, at this time, was in the Oil Regions, a group which was the direct out growth of the compromise of 1880. As will be remembered, the agreement with the Pennsylvania Railroad made then stipulated that all rates should be open, and that if a rebate was given to one shipper another could have it on demand. After the compromise the Pennsylvania had undertaken again to stimulate the growth of independent refineries, and several plants had been built in Titusville and Oil City. Having removed the New York group from competition by the alli ance with the Tidewater it was Mr. Rockefeller's business to make it as hard as possible for the independents in the Oil Regions to do business, and to do this he must make a contract with the Pennsylvania.
Moreover, when Mr. Rockefeller entered New Jersey with his seaboard pipe-line, he had been obliged to cross the Penn sylvania Railroad. He could not do so without the consent of the company, there being no free pipe-line in the country. He accordingly had been obliged to make a traffic arrange ment with them to get his pipe through. A new arrangement was now necessary in order to prevent competition, and in August, 1884, a contract was signed, for "considerations mutu ally interchanged," by which the National Transit Company agreed to give to the Pennsylvania Railroad twenty-six per cent. of "all petroleum brought to the Atlantic seaboard by all existing carriers, whether rail or pipe, now engaged in transporting such property, or which may hereafter engage in such transportation in conjunction with the Transit Com pany's pipes." At the same time that the Transit Company agreed to give the railroad this amount of oil, it also signed an agreement to carry this oil for the railroad on a sliding scale. When the open rate of the pipe-line was forty cents to Philadelphia the railroad was to pay the company eight cents—with each five cents difference, up or down, in the open rate, there was to be one cent difference to the railroad, the Transit never to receive less than six or more than ten cents.* Suppose, for example, that the entire seaboard shipment of oil in the month ending December 20, 1 8 84, had been t,000,000 barrels. 260,00o barrels belonged to the Pennsylvania. If the Transit Company ran all the railroad's percentage it would get eight cents a barrel for the service, $20,800, and it would pay the railroad $104,000 less $zo,800, or $83,20o. The pipe-line probably never ran the whole amount. More or less refined oil—naphtha, benzine, and other petro leum products—would necessarily go by rail. Large sums were paid monthly by the National Transit, however, to the railroad. Mr. Rockefeller seems to have been paying the Pennsylvania Railroad this money not to compete with him as an oil carrier. It would be difficult to find in our variegated commercial history a more beautiful example of the benefi cence of combination—to those in the deal! With the removal of danger of any competition by the Pennsylvania Railroad, the transportation department of the Standard Oil Trust seems to have been as nearly a perfect machine, both in efficiency and in its monopolistic power, as ever has been devised. It was more perfect, indeed, than the refining end of the trust, for independent refiners did exist, and since 188o they had been showing increasing vigour, whereas there seemed now no opportunity for an independent pipe-line ever again to develop. Who, with the Tidewater's story in mind, would be bold enough to attempt to reach the sea? For the time being, then, the Standard Oil Company had things all its own way. It collected with its ally, the Tide water, practically the entire output of a great raw product. It manufactured fully ninety per cent. of this product, and aimed to manufacture roo per cent. It was a common carrier, and so obliged to deliver oil to rival refineries if they called for it, but these refineries paid forty or forty-five cents for a service which cost the Standard Oil Trust not over one-fourth of the sum.
Mr. Rockefeller had every reason to be satisfied with oil transportation in 1884, but there was a part of the oil business which was not so completely in his grasp. The markets of the country were still open. There the few independent refiners who had escaped strangulation were free to barter as they could. But the right to make all the oil in the world, which Mr. Rockefeller claimed, carried with it the right to sell all the oil the world consumed. The independent was therefore a poacher in the market and must be driven out.