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 4^ A. i»JHIKt;' 
 
 THE ''RUIN" OF A RAILWAY. 
 
 V'tilt" 7'(i)i:' , ''iili April. 
 
 THE 
 
 GREAT WESTERN OF CANADA. 
 
 ■''W''^"«K««irt»..*»,*e.S--> -■^' 
 
 ...Ifc^MMS'v .-,,i- 
 
 vTIlE REPORT OF THE DH^ECTORS 
 
 M) 
 
 LEI TER OF THE Rt. Hox. HUGH CKHLDERS 
 
 EXAMINE!), 
 
 W I IH F:XPLANAT0RY MAP. 
 
 ff 
 
 " ' :.e truth can ov.W ittlme those who desk-e to profit by its suppression ; con- 
 
 I ,ffttth may inju. -'-nds of innocent persons," 
 
 Canndiiin Xcws, Thursday, April 22. »875.] 
 
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 I R I A RS ^ i' R K K T . 
 
 -j — p. 
 
 PRICE 5;iXPENCE. 
 
VliLE DE MONTREAL 
 
 COLLECTION 
 GAGNON 
 
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VI 
 
 Ur^'^t^^- 30037 
 
 ERRATUM AT PAGE 3. 
 
 'I'lie signs on lint-s 10, 2n, ami 2G sh<Mild be for doUar.s, not inmnih 
 
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THE GREAT WESTERN OF CANADA 
 
 RAILWAY. 
 
 FROM THE "CANADIAN NEWS." 
 
 A FORTNIGHT ago WO Called the attention of our readers to the 
 unfortunate position to which this railway company was re- 
 duced, and our statements have since received the most com- 
 plete official confirmation in the shape of the half-yearly 
 report. 
 
 This report is candid and straightforward as far as it 
 relates to the present position of the company, but it is alto- 
 gether silent as to the prospects of the future. The letter of 
 the Chairman, however, printed with the report, giving the 
 results of his expedition to Canada, after painting in the most 
 gloomy colours the situation as regards the abstraction of 
 traffic, " local " as well as '* through," winds up in these 
 words : — 
 
 I make no doubt that, in spite of the recent large increase in capital ex- 
 penditure, prosperity will return to the Great Western Railway of Canada ; 
 but it will require, on the part of the shareholders, as I said in October last, 
 " time, patience, and confidence." 
 
 We cannot accuse Mr Childers of using too sanguine 
 expressions, if we make allowances for the usually assumed 
 necessity of saying something hopeful to the shareholders, 
 after such a tnelancholy account of their position, but it 
 
2 
 
 becomes a question whether it is justifiable, under tlic circum- 
 stances in which this concern is unfortunately placed, to excite 
 such hopes as will unquestionably bo raised by usins:^ the 
 words "return of prosperity," as if this were only a (question 
 of time. If by such expressions immediately over his own 
 signature persons are induced to invest in the share capital of 
 the company at, say, 45 to 50 per cent, of its par value, Mr 
 Childei's imdoubtedly incurs a grave responsibility. 
 
 Under the belief in the return of prosperity to the G rcat 
 Western of Canada, the ordinary share capital is now valued in 
 the market, and investments made in it, at a total of about 
 £2,400,000. Yet persons, whose judgment from their know- 
 ledge of the subject w^e are bound to respect, assert as their 
 deliberate opinion that the ordinary share capital of the Great 
 Western of Canada is not worth a shilling. Let us then 
 examine the following not uninteresting questions : — Is the 
 share capital of the Great Western worth the market value of 
 £2,400,000 ? Or, is it worth anything at all ? And is Mr. 
 Childers justified in alluding to the "■ return of prosperity," 
 as a matter of course, after what he had told us of the posi- 
 tion into w^hich this undertaking has now fallen ? 
 
 To suDnnarize the Report as briefly as possible : — It tells 
 us that (although the second half is always the more profitable 
 of the year) the deficiency in revenue to meet the interest of 
 bonds and accumulative preference interest has grown from 
 £2G,000 to £50,000 ; that £78,000 of bad debts, or deprecia- 
 tion of assets, must be written off from revenue at the rate of 
 £13,000 a-year for the next six years ; that no provision has 
 been made to meet the depreciation in the permanent way 
 recently laid throughout with steel rails, which, as the Com- 
 mittee reported, were already shewing serious signs of wear. 
 This provision is postponed to some future time, when they 
 
 '^w^m^ 
 
' ito 
 ihe 
 
 8 
 
 may "bo ablo " to attend to it ; but, In order to enable us to 
 uiidorstind the true position of the concern, it ought to bo 
 eHtiinatod now. If wo allow fifteen years' life for the steel 
 rails (about four times the life experienced from iron rails), 
 we f,^ot an annual depreciation of £33,000, and this we think 
 the very lowest tigure that sliould be del)ited to revenue under 
 this head. 
 
 Let us see, then, what is the position of this Company in 
 tlie half year now current : — 
 
 111 tlio correspoiuling lialf-ycar of 1871 Iho dcficfoncy of revenue was £149,000 
 
 In Iho first month (Fohrmiry) of which returns are ab'oady puhlislictl, 
 
 ll»cro is an acUJitional deficiency of GG,000 
 
 For the remaining ii\o months we shall estimate only $20,000 per 
 month 100,000 
 
 The increase in the preference interest for the lialf-year as compared 
 with 1874 is 17,000 
 
 The sum to be written oft for bad debts, as recommended in the Re- 
 port, is, for the half-year, £G,500, or 32,000 
 
 The depreciation of steel rails is, as above 81,000 
 
 There will be a loss in working the leased lines at least equal to that 
 for the second half of 1874, whereas there was no loss charged in 
 the first half 28,000 
 
 (The lieport tells us in rather ominous language that the leased 
 lines will require increased charges for renewal.) 
 
 Total deficiency for the half-year £473,000 
 
 As the debenture and preference interest amounts to £540,000 
 
 for the half-year, the result may be roughly stated, that the 
 company is earning about one-seventh of its prior charges, 
 leaving six-sevenths to accumulate against its revenue account. 
 Such a position is disastrous enough without saying more ; 
 but the Report makes things even worse, for it shews us that 
 the company is still charging to ccqntal account such items as 
 
 ■M 
 
 ai^^^mXi^a^ 
 
T 
 
 renewing in steel rails, additional sidings, new bridges and 
 culverts, alterations to embankments, waterways, &c., amount- 
 ing to £57,000 in the half-year. 
 
 And we are gravely informed that .£11,000 for the 
 renewal of a bridge is also to be charged to capital account 1 
 Are these productive expenditures ? And is not the capital 
 account sufficiently over-burdened already ? Surely it is time 
 the capital account was absolutely closed, and that the farce 
 of charging necessary expenditure for maintenance against 
 capital should be put an end lo. 
 
 If this position were merely the result of a commercial 
 crisis, the shareholders might console themselves and exercise 
 "patience." But the report tells the shareholders, what we 
 told our readers long ago, that this is not the case, and that 
 the causes are not removable. If it were the result of a crisis, 
 we should see the leading A merican lines in the same position ; 
 but the Baltimore and Ohio, Pennsylvania, and New York 
 Central are maintaining the dividends they paid before the 
 late crisis, which was a crisis of no small magnitude. The 
 Grand Trunk of Canada is showing increase of traffic, and 
 only those that have outrun the constable in expenditure, or 
 suffered from, competition, have seriously suffered. We will 
 quote Mr. Childers own statement of the causes, to show that 
 we have anything but exaggerated the position in what we 
 have hitherto laid before our readers : — 
 
 I propose to describe in a few words the present position of the Company 
 in respect of the competition to which it has been and always must be exposed. 
 The Great Western Eailway forms a link in one of the several systems of 
 cormunication between the Atlantic ports and the Western and North -Westmi 
 States. These ports may be stated to be Montreal and Quebec on the River 
 St. Lawrence, Portland, Boston, Now York, Philadelphia, and Baltimore. 
 The Western States, in the ba>>ines3 of which the Company is interested, 
 
5 
 
 extend from Minnesota as far south as Missouri. As between these districts 
 oast and west, it may be said that at present the Great Western competes 
 witli no less than six lines, lying nearly parallel to it along its whole course. 
 These six are : — The Grand Tru'ik Railway, the Canada Southern Railway, 
 the Lake Shore and Michigan Southern Railway, t^o Atlantic and Great 
 Western Railway, the Pennsylvania Railway, and the Baltimore and Ohio 
 Railway. Each of these six railways shares with the Great Western and its 
 connexions the transport of grain and other produce from the AVcst to the 
 Atlantic States and ports, of manufactures from the Atlantic seaboard to the 
 West, and of passengers both ways. Nor is this competition confined to 
 " through " business. A glance at the map will show that in the province of 
 Ontario, where for many years the Great Western was formerly exposed to a 
 much more limited competition, the Company has now rivals at every point. 
 Our own lines extend from Toronto, Suspension Bridge, and Buffalo on the 
 eastern side, to Sarnia and Detroit on the western. But from Toronto and 
 Buffalo to Sarnia and Detroit we are in competition with the Grand Trimk ; 
 and from Suspension Bridge and Buffalo to Detroit with the Canada Southern. 
 At Sarnia the Grand Trunk's Ferry over the St. Clair River is shorter than 
 ours ; and at Amhertsburg the ferry of the Canada Southern, though not so 
 conveniently situated as ours for the Detroit traffic, is at a narrower point of 
 the river. We are also exposed to the competition of one or other of these 
 companies at almos r, every town in Western Canada from which we derive 
 traffic. This competition for both "through" and ''local" business has 
 become much more formidable during the last year. The extension of the 
 Baltimore and Ohio line to Chicago was only completed during my visit to 
 America, The New York Central Company, with which we interchange so 
 much traffic, has only recently obtained complete control over the amalgamated 
 Lake Shore and Michigan Southern Lines, and we must be prepared at any 
 time to hear that they are still more closely miited. The Canada Southern 
 was only opened for traffic in November 1873. The gauge of the Grand 
 Trunk was also assimilated to that of the New York Central and Michigan 
 Central lines only last year. Thus three or four additional elements of railway 
 competition have, to our disadvantage, come into operation within a few 
 months past. Besides the railway competion, we have to take into account 
 an immense development during the Inst year in the facilities for water trans- 
 portation atYorded by the powerful and roomy steamers lately placed on the 
 lakes and canals. The Company has received these blows at a time when it 
 could least afford to bear them. To say nothing of the very large capital 
 
^ 
 
 ''^«'0 result, of ,™<=™;- O" "-o co„t,.„„ t,' ' ' '"•':' "-ro b„e„ „„^ 
 ^^"■''tom Stat,., * "'"«' '^ ''"■"■«1 from 7 / ^'""' ''" Enrono A 
 
 '''■•"ever of ,',,"', "■''«" J 'eft America t' '" °""''"'"-"' of tI,o 
 
 s-«,me„a: t.:;;^;™--- ^-^^ «.o\,ei::, ;":':'-■''. -i.jeot«, to 
 
 ■7'e. eompetulo ' ^ r"""^ "'^ «-'■' '-= a "./''V''"^'™'^^^ "^ 
 "''at at first appeare.I n '"'■'^' ''« '■""'lod a cli« . ' '"•' '"'•'^"y »"",'- 
 
 ^'■' "'0 office, estnbl J ;"^'"'^"' '-^ ""^ A„,e,ioa,? I' ™" "■'*'"^ ""'' 
 
 ^'"■■n>e.' (umle,. ^I,;';, ""'*'^ '' 'i'o .Saratoga c" ' , '"''''° "^-^''^-V 
 '■"'-. -! to <,I:^ , '" '"■"-■""' American iC t" /';"' '"=" "'""'S la t 
 •*°"''l cea,e. T "t "; ''""'"« -mmissio,,; t, ? "'""'■* -'•on,, 
 "■»' ""^ IToh/Ut : t "°" ^'""-""o,, i„e,f i,,i' ,^ ; ' -'-•"« agencies 
 
 "■0 sreat America," V, '"'""''"''■ "oweve.- Wrt "' """ ^ ^'^''^ct 
 
 '-■"•'^i'- in t,.is : ;, :""f C'o."Pa,.ic, l fea ,^ 7V»"^ "» "■oatecl ,., 
 
 ^^ tJiis Hot o|.fl3 • 
 
 i 
 
^''^^ ^^ more 
 ^^■''"'c than 
 
 "/^oen any 
 
 d 
 
 ^pnug^ 
 
 0^ tho 
 Pi-ospoct 
 vest of 
 ctct/ to 
 
 ^Jon of 
 y aui)-- 
 
 ' Us. 
 ies," 
 
 hut 
 >iiii 
 
 'ics 
 
 adding a single productive mile to its system, and it has now 
 a parallel line to the south sliorter, straighter, more level, and 
 made at a much cheaper cost, running at a distance varying 
 from 1 to 20 miles, and another to the north at distances 
 varying from 1 to 25 miles, both of them*, as Mr. Childers 
 says, cutting into the local traffic at every point — between 
 which competitive lines the Great Western is simply done to 
 death. 
 
 The prior charge capital of tho line in this position is 
 £4,100,000, for a productive mileage of 350 miles, or about 
 £12,000 per mile, while none of the new lines being con- 
 structed in Canada cost more than £G,000 per mile, and the 
 Canada Southern could be bought for less than this. Is there, 
 then, any value whatever in the ordinary shares of the Great 
 Western of Canada beyond the £4,100,000 of debenture or 
 preference ? We fear not ; and if it be so, to encourage any 
 opposite opinion will be to take the responsibility of the loss 
 to be incurred by those investors who may purchase sliares 
 under the delusion that they are cheap. Tlie probabilities 
 are that, after a year or two more of accumulated deficiencies, 
 a receiver will be appointed, and a reconstruction of the 
 capital, made in accordance with the value of the j^ropcrty, 
 take place. 
 
 One word as to the change in management announced in 
 the report. Mr. Broughton is not the first English railway 
 man who, after a scamper over some American roads, has 
 imagined that he can effect great reform and economies, but 
 who, when he came to undertake the task, found that he had 
 everything to learn, and took years to learn it. Percentage 
 of working expenses does not depend only upon the cost of 
 working, but upon the rates of remuneration received for the 
 traffic carried. If English raihvays, now worked at 50 per 
 
8 
 
 cent., had their rates of carriage reduced to oue-hali', their 
 working expenses would evidently be at once raised to 100 
 per cent. This is the difficulty with regard to American 
 through traffic ; the great through lines enjoying a good local 
 traffic, and having comparative small capitals, can pay good 
 dividends, even if their through traffic leaves them only 20 per 
 cent, of margin. Hence the steady lowering of rates that has 
 taken place year by year, and hence, also, the reason to fear 
 til at the old paying rates will never return ; but that, on the 
 contrary, the agitation throughout America for still further 
 reductions may not be without fruits of an unpleasant kind to 
 shareholders. 
 
 Our readers, we trust, Avill gather from this and our 
 previous articles, that we are as ready to warn them and the 
 public against any dangerous investment in Canada, whatever 
 it may be, as we shall always be to promote and encourage 
 investments of a well-secured kind. 
 
'''-^'^^K their 
 '^«ed to 100 
 
 S'ooc/ Joca] 
 
 ' I'^^y good 
 , '""^y 20 per 
 r *^^^ ^ia« 
 '^« to fear 
 
 ''^^^ on tile 
 ^^1 further 
 ^^ ^ind to 
 
 and our 
 ''ind tile 
 iicitever 
 ^courage 
 
 :> 
 
 POSTSr^UTPT. 
 
 Since tlie publication of tin; forc^'oint^' artiiile, we liave 
 received comments upon our Hgures, as respects the estimate 
 of our revenue for the current haU'-year, to which it is pro])er 
 we should allude. 
 
 It is objected to our charge of $81,000 for depreciation 
 of steel rails, that revenue is now being charged with $15,000 
 per half-year for the cost of changing the gauge, which will 
 cease in 1876, and that our estimate includes another excep- 
 titmal charge of $32,000, which will cease in six years. 
 
 We gladly admit the fjxirness of this objection, and were 
 we sure that no ])art of the present charges against capital 
 ought to be placed against revenue, we would amend our 
 estimate to the full extent of these two items amountino- to 
 $77,000, leaving a ilefciency of only $31)0,000 to meet the 
 interest charges of $540,000. 
 
 Unhappily, however, it appears that we have under- 
 estimated the falling off in the net revenue. 
 
 At the same rate of saving in working expenses as in 
 February, the March return will show a net diminution, as 
 compared with March, 1874, of $30,000, instead of the 
 $20,000 a month of our estimate. Further, the traffic 
 returns published for April indicate that the net loss for this 
 month will not be less than $50,000. 
 
 Canadian advices also indicate that there will be extreme 
 depression in the sunmier rates after the opening of naviga- 
 tion, and therefore it is to be feared that the remaining 
 three months of the half-year must also show very seriou.s 
 diminutions compared with 1874. The falling off in Feb- 
 ruary, March, and April being $1 40,000, we cannot estimate 
 
'iwRawiS^'" 
 
 ■"':v^. 
 
 10 
 
 that of the remaining three montlis at \qh^ tlian $90,000, 
 or $23G,0L»0 for the six months, instead of the ;? 106,000 in 
 our first estimate. 
 
 Such a result on two main lines indicates a further loss 
 in working the leased lines, the estimate for which must be 
 raised to $40,000. 
 
 We therefore give an amended estimate, leaving out the 
 charge for depreciation of steel rails as nearly counterbalanced 
 by other exceptional charges, and, to suit those of our readers 
 unfamiliar with dollars, we give the figures in sterling. 
 
 Deficiency in half-year ending 31st July, 1874 £30,000 
 
 Additional loss in first three months, 1875 29,000 
 
 „ „ remaining estimated 18,500 
 
 Increase in Preference Interest 3,500 
 
 Write off for bad debts as per report 6,500 
 
 Loss on working leased lines 8,000 
 
 £95,500 
 
 The Interest charge for the half-year being £110,000, 
 the net earnings will only be £14,500 to meet this sum, the 
 share of capital of £5,500,000 being left out of the calculation 
 altoofether. 
 
m^m^^^&i&S 
 
 /nrther loss 
 f^cii must he 
 
 f^S out the 
 
 "^^ i'eaders 
 
 r^S- 
 
 ^8,500 
 
 G,500 
 
 ^,000 
 
 "«i, the 
 '^ihtion 
 
 
 11 
 
 P.P.S. — The return for the month of March, due here 
 on the 2l8t, has been published to-day (28th), and instead of a 
 decrease of $30,000, there is an increase shown of $3,000, as 
 compared with $GG, 000 decrease in the previous month. 
 
 When this return is examined, however, we find the 
 working expenses of the same niontli last year i^iven as 
 $387,000, whereas they were then returned as $377,000. On 
 the otlicr hand the traffic returns for the best four weeks of 
 March showed a decrease of $70,500, to which the decrease for 
 three days lias to be added (about $7,000 more), whereas the 
 return now publislied shows only $.59,000 deci'ease in tlie 
 niontli. 
 
 Thus we tliink our estimate of $30,000 net decrease will 
 prove nearly correct, while it would appear that the necessity 
 for investigation into the way the returns of this Company are 
 treated has not ceased.