The Expansion of the Grand Trunk
In the eighties, it will be recalled, the activity of the Canadian Pacific in the eastern province had stirred the Grand Trunk to an aggressive counter-campaign. Line after line had been absorbed, extension after extension had been built. New life seemed to have been injected into the old system. Holders of even ordinary shares began to dream of dividends.
The activity was brief and prosperity briefer. Only in the golden days from 1881 to 1883, when the West was enjoying its first 'boom' and railway construction was at its height, did the policy of expansion justify itself from the shareholder's point of view. The year 1883 saw the high-water mark of prosperity for the Grand Trunk; for in that year dividends were paid not only on guaranteed but on first, second, and third preference stock. Not again until 1902 was even a partial payment made on the third preference; not until 1900, save for a fraction in 1887, was anything paid on second preference; first preference dividends were fractional and occasional, and even the guaranteed stock dividends were passed time and again. The financial position of this great system in the middle nineties may be briefly summed up in the statement that securities of the par value of £16,000,000, which in 1883 had a market value of £12,000,000, were worth in 1894 only £3,500,000. The junior securities had become only gambling counters on the stock exchange.
Where did the cause lie? There was not one; there were several. The first was in capitalization. The line had been hopelessly over-capitalized to begin with, and the new acquisitions doubled fixed charges, while net receipts increased only ten per cent; feeders had proved suckers.1 Secondly, in the general commercial situation. The whole continent was undergoing a trying test of panic and depression, of low prices and industrial stagnation. For a quarter of a century after 1873 the gloom had been broken only at brief intervals—from 1880 to 1883, and from 1887 to 1889. In 1893 the price of wheat fell to the lowest point in a century. The great Mississippi valley had been flooded with settlers, railway and steamship threw their millions of bushels on the world's markets, while the gold basis of prices failed to expand in proportion. Western farms were, it was said, 'plastered with mortgages'; one-sixth of the railways in the United States went into receivers' hands in 1893 alone. Free-silver agitators denounced the 'gold bugs' of the east; Coxey armies marched to Washington. Another cause was in excess competition. The St Lawrence was more accessible to shippers than ever, while the Canadian Pacific had cut into the best paying territory in Ontario. In the Chicago traffic absolute demoralization ruled—reckless rate wars were waged, agreement after agreement was broken, line was played against line by grain-shipper or by dressed-beef magnate. A final cause was in management. The attempt was still being made to manage a great railway from London, three thousand miles away. The Canadian officials had little independent direction; interminable delays, lack of initiative, red tape, nepotism, followed inevitably. Here and there officials strove strenuously to better conditions, but the odds were against them. Practically no Grand Trunk stock was held in Canada; it was not even quoted on Canadian exchanges; Canadians regarded the road entirely from the user's point of view.
The traveller and shipper had less to complain of than the shareholder. The service of the road had been greatly increased. The mileage was large in proportion to population. Rates were low. True, it was a rare event for a Grand Trunk train to arrive on time, but it usually arrived.
For these various ills corresponding remedies were sought in turn. Drastic capital reorganization was discussed, but nothing was done. Commercial prosperity could not be revived by the efforts of a single railway. Competition was met by agreement after agreement, 'gentleman's' and otherwise, but in vain. The most hopeful resource lay in the only remaining direction, change of management.
In 1895 Sir Henry Tyler resigned from the presidency after twenty-three years of faithful service. His place was taken by Sir Charles Rivers-Wilson, who had a record of efficient service on the borders of politics and finance. The new president and a committee of directors mad a thorough investigation of the Grand Trunk, and recommended some immediate improvements. Their chief contribution to its success, however, was the discovery of Charles M. Hays.
The great rival of the Grand Trunk had pressed forward to prosperity under the driving power of an American general manager. The new administration decided that it, too, would look to the United States for a chief executive of the ruthless efficiency and modern methods which the crisis demanded. They found him in the man who had pulled the Wabash out of a similar slough of despond. Mr Hays was not quite forty when, in 1895, he was appointed general manager of the Grand Trunk. He had risen rapidly since the days when, a boy of seventeen, he had entered the office of the Atlantic and Pacific. At twenty-nine he had been secretary to the general manager, and three years later manager himself, of the Wabash.
His presence was soon felt. The staff realized, some with relief, some with consternation, that the good old leisurely days, the days of vested interests, were gone. Many were pensioned, some were dismissed. In some cases American officials were imported to fill the vacant posts, to the patriotic discontent of the old guard. Equipment was overhauled, larger freight cars were ordered, and new terminals acquired. The main bridges on the road—the Suspension at Niagara Falls, the International at Fort Erie, and the Victoria at Montreal—were all rebuilt on a larger scale between 1896 and 1901. The double tracking of the main line from Montreal westward was continued, and many of the sharp curves and heavy grades of the original construction were revised. Elevators at Portland, Montreal, Midland, Tiffin, Goderich, Point Edward, and Fort William were built or acquired. Trains came in on time. The whole system was 'speeded up.'
Later changes in the administration may be briefly summarized here. In 1900 Mr Hays's five-year contract as general manager expired. At the same juncture a vacancy occurred in the presidency of the Southern Pacific, which had fallen on evil days, and Hays was offered and accepted the post at four times his salary with the Grand Trunk of $25,000 a year. A year later he was back again in Canada. There was not room in the Southern Pacific for both Hays and Harriman, then in financial control, and the Grand Trunk directors seized the opportunity which the breach afforded. In 1909 the wide recognition of Mr Hays's great services led to long overdue increase of the authority of the Canadian officials of the road by his appointment as president, on the retirement of Sir Charles Rivers-Wilson. Three years later, with his projects for expansion still incomplete, he met a tragic death in the sinking of the Titanic. Mr Edson J. Chamberlin, who had increased his reputation for efficiency by his management for four years of the Grand Trunk Pacific, was chosen as successor in the presidency.
Fortune favoured the new administration from the start. The tide in the continent's business affairs turned soon after the new men took the helm. The long depression ended, prices rose, farmers met mortgage payments, factory chimneys smoked once more, traffic multiplied.
The first result of the improved conditions was the easing of the tension in railway relations. There was no longer a life-and-death necessity for rate-cutting and traffic-stealing. Rate wars between the trunk lines in the United States came to an end. On the Canadian side peace was longer in coming. The rush to the Klondike in 1897 started a rate war between the Canadian Pacific and the Grand Trunk, with its American connections, which lasted nearly a year. In its course rates were cut in the east as well as in the west, and the Canadian Pacific sent its west-bound freight from Toronto by Smith's Falls rather than use any longer the direct line of the Grand Trunk to North Bay. Peace was patched up, but the Canadian Pacific shortly afterwards set about building a road of its own from Toronto north to its main line, thus threatening the Grand Trunk with permanent loss of western business, and providing it with one incentive toward the great westward expansion it was soon to undertake.
Along with prudent retrenchment went increasingly aggressive expansion, both east and west. It was one of the main objects of Mr Hays's policy to secure a hold on the rich traffic possibilities of New York and the New England states. Portland, the original New England terminus of the Grand Trunk, had not become the great commercial centre it once expected to be. The first further step was taken in 1899, when the Grand Trunk secured control of the five hundred miles of the Central Vermont, with which relations had been close for some years past. With running rights over a gap controlled by the Boston and Maine, this gave a line from St Johns, Quebec, to the port of New London, Connecticut; from this point connection was made by boat to New York, where valuable terminal docks were owned.
New London was not the final goal, however—Providence and Boston offered greater possibilities. But to seize them it was first necessary to break through the monopoly of New England land and water transport, which the New York and New Haven line had acquired, or to come to terms with the interests in control. At first the word was to fight. The Grand Trunk was received with open arms by the business men of Massachusetts and Connecticut, eager for competition in railways, and in spite of all the political influence of the New Haven, hays secured a charter for his Southern New England Railroad, to run from Palmer, on the Central Vermont system, to Providence; a branch from Bellows Falls to Boston was also planned. Construction was begun on the Providence line in May 1912, but suddenly halted. The Grand Trunk management declared the halt due to financial conditions, but New England suspected a compromise with the New Haven. Probably the change in policy was mainly due to the change in management, the new administration setting less store on the extension than the Hays-Fitzhugh executive had done.
All these eastern activities, however, were overshadowed by the Grand Trunk Pacific scheme. It was not the first plan the Grand Trunk had formed for westward expansion. In the embryo days of the Canadian Pacific, it may be recalled, the government had offered to the old line the opportunity of carrying through with the new one. Later, a connection with the Northern Pacific through Sault Ste Marie had been discussed, but Van Horne had forestalled this move. Still later an extension of the Grand Trunk from Chicago northwesterly, possibly through control of the Wisconsin Central, had been under consideration. Nothing came of these plans until the proved fertility and rapid settlement of the Canadian North-West, the improved position of the Grand Trunk in the money markets, and the threatened loss of traffic between Toronto and North Bay, lured and urged the new administration forward.
In 1902 Mr Hays announced that the directors were considering building a line from North Bay, though New Ontario westward, to a terminus on the Pacific at Port Simpson on Bute Inlet. It would be a line of the highest standards. Government aid, the announcement continued, would certainly be sought and expected.
Once more railways became Canadian politics. There was little doubt that the government would aid either this or some rival transcontinental scheme. Opposition to the lavish subsidy policy of the past had developed, indeed, but it was overwhelmed by the demands from every quarter for a vigorous forward policy. It was Canada's growing time, and new-born confidence spurred country and government on. But if the line was to be not merely a private enterprise, but in part a policy of state, then considerations of high politics and low politics alike came in, and compelled material changes in the Grand Trunk's scheme before it could secure government acceptance.
A road from North Bay west would satisfy the local demands of the western provinces, but would not satisfy the local demands of the East, or meet certain common national aspirations. Eastern, and particularly Quebec, interests, demanded that any new transcontinental should be built far to the north, opening up the wilderness between Hudson Bay and the Laurentian highlands bordering the St Lawrence. A Quebec company, the Trans-Canada, was in fact urgently seeking support for such a line, endeavouring, since patriotism is in Canada the last refuge of the promoter, to stimulate investors by stressing the military advantages of the remote route. Again, the Maritime Provinces protested against aid to a company to carry the traffic of the West to Boston and Portland instead of to St John and Halifax.
Sir Wilfrid Laurier, the prime minister, endeavoured to combine all these ends. His plan provided for a road 3550 miles in length, beginning at Moncton—a neutral point between the politically inconvenient rivalries of St John and Halifax—crossing New Brunswick northwesterly, skirting the Maine border, and on to Quebec City, where the St Lawrence was to be crossed by a great bridge. Thence it would strike westerly far to the north of existing settlements. From Winnipeg the previously proposed route was followed. The West would have the development and competition demanded, the hinterland of Quebec and Ontario would be opened, and the ports of the Maritime Provinces put on an equality with their American rivals. And since this vast project was much beyond the power of the Grand Trunk to finance, it was arranged that the road should be divided into two sections. The eastern, from Moncton to Winnipeg, was to be built and owned by the government and leased to the Grand Trunk Pacific, free for seven years and at a rental of three per cent of the cost for forty-three years following. The western, from Winnipeg to the coast, was to be built and operated by the company, aided by a government guarantee of principal and interest on the greater part of the bond issue.
The announcement of this plan in July 1903 led to a storm of controversy as fierce as that which followed the launching of the Canadian Pacific. The Opposition brought forward various policies, looking to a greater measure of government ownership; the minister of Railways, Andrew G. Blair, resigned in protest; rival railways opposed openly and sometimes by secret plot; two general elections were fought on the issue. But rarely is a government in Canada defeated on a proposal, sound or unsound, to spend untold millions, if the money is to be had at all. The agreement went through, with modifications, in the following year, and the building of the great northern road began.
The railway policy of the past twenty years is still on its trial, but some tentative conclusions may be ventured.
In the first place, it seems clear that a new transcontinental was needed, not only to open the West, but to develop the hinterland of eastern Canada. The rediscovery of a vast clay belt north of the height-of-land between Hudson Bay and the Great Lakes, its known resources in timber and pulp and its probable mineral wealth, as well as the farming areas of the western plains, and the forest, mine, and fishery wealth of northern British Columbia, all gave some economic justification for the adventure. Perhaps even stronger were the political considerations. Here, again, if railways were Canada's politics, it was not only because Canadians were materialists, but because they were idealists. They were determined that, in spite of geography and diplomacy, in spite of Rocky Mountains and Lake Superior wildernesses, Laurentian plateaus and Maine intrusions, Canada should be made one and independent. Often this national spirit has been manipulated to serve sordid ends in railway as in tariff matters; the flag has covered a multitude of sinners. Yet whether it was the Grand Trunk or the Intercolonial, the Canadian Pacific or the Grand Trunk Pacific, the national purpose has been strong, and must fairly be set on the assets side of the balance sheet. Sir Wilfrid Laurier and Sir John Macdonald both worked with high courage and enduring faith for a greater and more united Canada. Any one who looked at a map of the Dominion and realized how incredibly narrow a fringe of population was strung out on the southern border, could not but feel that some attempt to add a second storey to the structure, to give breadth as well as length, was a national necessity. Perhaps least defensible was the Quebec-Moncton section; true, it was essential, if freight was to reach the Maritime ports, that a shorter line with better grades than those of the Intercolonial should be secured if possible. Grades were bettered in the lines secured, but the saving in distance was not as great as old and incorrect surveys had led the government to anticipate.
How should the road be built, granted its need? Government ownership had its advocates, but experience of political 'machines' and a recognition of the difficulties of a government line in carrying on steamship or irrigation or other subsidiary activities, or in making international extensions, told heavily against such a policy. The real choice lay between the two private companies, the Grand Trunk and the Canadian Northern, which were seeking to rival the Canadian Pacific. Undoubtedly the best solution would have been to amalgamate these companies, and thus to save the eventual outlay on a line north of Lake Superior, on closely parallel lines in the prairies, and on the enormously costly rival lines to be built through the Rockies. True, competition even in railway matters has still its merits, but one strong competitor of the Canadian Pacific would have better served the country than two in financial straits. This solution appeared for a time possible. As has been seen, negotiations were carried on in 1902 and 1903 looking for such a union, but unfortunately without result. Forced to choose, the government had no alternative but to give its aid to the older and better known system.
What standards were to be set for the new road? The continent's pioneer traditions were plain: build the road in the cheapest way it could be made to hold together, with sharp curves and steep grades if need be, with scanty ballast, wooden bridges, and light rails, since traffic would be light and capital hard to get. Then, if the country developed, and perhaps after a reorganization or two, rebuild the road on a permanent basis. But 1903 was not 1873, and Mr Hays had learned on the Wabash and on the Grand Trunk how difficult it was for a second-class road to compete, and how costly was the process of rebuilding with the line in operation. He knew that with high and rising wages for trainmen, and with frequency of service a minor matter on the long stretches, it was essential to concentrate loads in as few trains as possible, and that a locomotive could haul almost twice as great a load on a four-tenths grade as on a one per cent grade. So he determined to build from the outset up to the highest standard, securing a lower ruling grade than any other transcontinental enjoyed. The policy meant high fixed charges and low operating costs.
What outlay would be involved and what state aid was needed? Given the route and the standard set, the outlay could not but be vast. It proved, in fact, much greater than the estimates, as is the way with most big enterprises. The government section cost about a hundred and sixty instead of sixty millions, and the Grand Trunk Pacific section about a hundred and forty, or three hundred millions in all—twice the estimate for the Panama Canal and nearly its actual cost.2 The standard set was high, and proved difficult to attain; labour was scarce and expensive, and prices of all materials were soaring constantly. The large expenditure lent colour to charges of corruption in the construction of the government section. Investigation after investigation was held, however, without revealing any gross betrayal of trust. One contractor had been handled too tenderly for repeated delays, possibly engineers sometimes stretched classification on a losing contract, and doubtless contractors were as usual given the privilege of contributing to party campaign funds. But, fortunately for the good name of Canada, the serious charges of corruption were not sustained. Of this great outlay the country bore the lion's share. The Grand Trunk Pacific was organized as a subsidiary company of the old Grand Trunk, which secured control of ownership of all but a nominal share of the $25,000,000 common stock, given it in return for guaranteeing part of the Pacific bonds. Only $20,000,000 preference capital stock was provided for, and this was not issued. The interest of the independent shareholder was thus negligible. The money required was secured by the issue of bonds and debenture loans guaranteed by the government or the Grand Trunk. Up to 1914, in connection with the western section, the government had guaranteed the company's bonds to the amount of over eighty millions, had lent twenty-five millions for ten years at four per cent, and had made or promised a cash gift of twenty-three millions. On the eastern section, the company was subsidized by the use for seven years of the road, rent free, equivalent to thirty-four millions. It was a vast outlay, though not as difficult for the country to bear as one-third the amount would have been a generation earlier. The unique and consoling feature, so far as posterity was concerned, was that the bulk of the government expenditure was provided out of surplus current revenue, so that for the future the net income to be received from rental would much more than balance interest on borrowings.
Once the contract was ratified by parliament and by the Grand Trunk, and the new company had been formally organized with Mr Hays as president and Mr Frank Morse, and later Mr Chamberlin, formerly of the Canada Atlantic, as general manager, the work of surveying and determining the route began. On the government section political difficulties were met in New Brunswick, from the advocates of a route down the St John to the city at its mouth, and engineering difficulties of many forms in the long trail through the northern wilderness. The bridge which was being constructed by an independent company across the St Lawrence at Quebec collapsed in 1907, with great loss of life, and the delay in completing the second bridge made it necessary to depend upon car-ferries for some time. On the western section a good route through the prairies was decided upon, not without vigorous protest from the Canadian Pacific because of the close paralleling of its line. After repeated surveys of the Peace, Pine, Wapiti, and Yellowhead Passes, the last was chosen, and a line was settled upon down the Fraser and Skeena valleys, passing through two million acres of fertile land. Remarkably low grades were secured; in fact, as favourable as on the prairie section. Kaien Island, 550 miles north of Vancouver, was chosen as the terminus, rather than Port Simpson as originally designed, and soon on its magnificent harbour and most unpromising site of rock and muskeg the new and scientifically planned city of Prince Rupert began to rise.
As the main line ran far to the north of the St Lawrence lake and river system, the original plan provided for the construction of branch lines to Fort William, to North Bay, and to Montreal. Of these only the first, aided by the Dominion and also by the Ontario government, was built. For the connection with North Bay running rights over the provincial road, the Timiskaming and Northern Ontario, sufficed. Later, in 1914, the Dominion government itself decided to build the Montreal branch. In Alberta and Saskatchewan over 1200 miles of branch lines were begun, under guarantees of bonds by the provincial governments. In British Columbia an independent road, projected by the contracting firm of Foley, Welch and Stewart—the Vancouver, Pacific and Great Eastern—promised when completed to give the Grand Trunk Pacific, by a traffic agreement, entrance into Vancouver.
The first contracts on the main line were let in 1905. For ten years construction went on, at the rate of a mile a day, with occasional slackening from scarcity of labour or financial stringency, but with no complete halt. Last to be completed were the section to be built by the company in the Central plateau of British Columbia and the section built by the government west of Cochrane. Meanwhile, the prairie lines had been in operation through to Edmonton since 1910, and grain reached Fort William over the Lake Superior branch in the same year.
From the beginning it had been questioned whether the Grand Trunk Pacific would carry out its bargain to operate the government section. The management professed its intention to perform every promise, but fulfilment was delayed. In 1915 the company demurred to assuming the lease, on the double ground that the road was not definitely completed, and that, since the change of government in 1911, the standard of construction agreed upon had not been maintained. Accordingly the government took power to operate the road from Winnipeg to Moncton, and to expropriate the company's branch from Superior to Fort William, pending further negotiations.
The great Canadian railway companies are much more than railways. The Grand Trunk system, in its new expansion, branched into every neighbouring field which could be made to increase the traffic. Fleets of steamers, on the Pacific coast, on the Great Lakes, and on the New England route, filled in gaps in its lines. Modern car-ferries crossed Lake Ontario and Lake Michigan, as well as the river Detroit. Elevators, it has been noted, were built at strategic points on the way from the wheat-field to the sea. Magnificent hotels were opened at Ottawa, Winnipeg, and Edmonton, with more rustic resorts in the parks along the route. Tourist traffic was stimulated by lowered fares and alluring advertising.
The Grand Trunk of 1914 was a much greater factor in the life of Canada than the Grand Trunk of 1894; it had become nation-wide in its interests, and had shaken off the unfortunate traditions of its earlier stagnant days. Difficult tasks still faced it: the building up of the traffic in the far north would demand ceaseless effort, and when the wheel of time should bring round slackened business once more, it would call for all its powers to make ends meet in face of rising wages, taxes, outlays of every kind. The record of the recent past gave assurance that the need would be met with courage and alert endeavour.
- 1One recent acquisition, the Toronto Belt Railway, to meet a rental of $19,000 and working expenses of $22,500, had gross receipts of less than $5000 a year.
- 2The Chicago, Milwaukee and Puget Sound, a high-grade road built to the Pacific coast at nearly the same time, was capitalized, it may be noted, at $157,000 a mile, or nearly $70,000 a mile more than the cost of the Grand Trunk Pacific and National Transcontinental.