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PUBLIC RECORD OFFICE
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ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO
C.O. 885/5 AUSYC RECORD OFFICE. LONDON
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but no steps can be taken until these tenders are dealt with, and it is decided whether the Australian and Indian mails will continue to go together through Europe.
Colonial Office, March 1887.
Appendix I. to No. 24.
Peninsular and Oriental Steam Navigation Company. Offices, 122, Leadenhall Street, London, E.Ċ.
19th January 1887.
SIR,
I HAVE had the honour on the 5th inst. to acknowledge the receipt of your letter, the 4th idem, with reference to the Company's tender for the conveyance of the Australian mails, and I stated that the important questions raised in that letter would receive the earliest and most careful consideration of the directors of this Company.
In the communication referred to, you inform me that the Postmaster-General has received instructions from the Lords Commissioners of the Treasury to enter into negotiations with the Peninsular and Oriental Company for a modification of their tender to convey the Australian mails on the basis of certain alterations sought for by the Colonies in the terms of the Company's proposals. Briefly stated, these alterations are threefold:-
1st. A quicker transit.
2nd. A shorter period of contract.
3rd. Payment by poundage instead of by fixed subsidy.
It is unnecessary for me to say that the directors have given the most earnest attention to the important questions thus raised, and the first observation I am requested to make in reference to the same is that the conditions now put forward by the Colonies for the Company's acceptance, seem, from a shipowner's and mail contractor's point of view, somewhat at variance with each other in point of effect.
It must, the directors submit, be perfectly clear that if a higher speed than that tendered by the Company be required, a higher rate of remuneration must also be necessary; while it equally follows that the shorter the term of contract the greater is the risk of investing capital in the undertaking, and that accordingly the larger must be the subsidy. But, on the other hand, it seems evident that the preference for a poundage system expressed on behalf of the Colonies, denotes the desire to diminish rather than increase the contractor's payment, for it is reasonable to suppose that if such was not the intention, the demand for a more arduous service, and for a shorter term, on a poundage basis, would have been accompanied by some intimation that the question of poundage was simply one of principle and not of amount. In the absence of any intimation of this kind, the directors conceive that they are justified in stating that the Colonies have put forward conditions which in their nature are inconsistent with each other, unless, indeed, it could be shown that there was something unfair or unreasonable in the Company's tender which called for amendment on the ground of extravagance and inadequacy. The directors venture to submit that no accusation of that kind has been or can be brought against the Company's proposals, which were framed to combine the possibility of a very moderate profit to the contractors with an assured degree of efficiency in carrying out this important service.
Under these circumstances it has been exceedingly difficult for the directors to determine what course they should adopt in reference to the negotiation opened up by your letter. To reply to these overtures by a simple non possumus would not be in accord with the feeling or practice of the board in dealing with such matters. Moreover, the directors gladly recognise that there is an evident wish on the part of the Colonies and the Imperial Post Office to arrive at a settlement of this matter with the Company. It has, therefore, been the most anxious desire of the directors to discover the means by which they could offer some concession which might be acceptable as a compromise between the demands of the Colonies, on the one hand, and the Company's tender, as it at present stands, on the other. I shall have the pleasure to submit in the course of this letter such a modification of the Company's proposals as the-directors trust may lead to a solution of this question.
But it will first be respectful to state what the Company do not see their way to do in reference to the proposals of the Colonies, as these proposals at present stand, and the reasons which compel the directors to adopt a conservative attitude in reference to the
same.
The directors cannot see their way to offer a quicker transit than they have already tendered, unless they should be informed that the Colonies entertain the idea of paying for
the increased cost of the same, which would largely exceed the amount of the tender already submitted by the Company.
It is needless to say that the speed of a service must be determined, not by the capability of the fastest, but by that of the slowest vessel employed on the line. The service offered by the Company is via Colombo, and therefore covers a greater distance than by the most direct. route, and will require a speed of little short of 12 knots throughout a very long voyage and from year's end to year's end. This must be accomplished by the slowest vessel on the line, otherwise the contract will not be performed, while on an average considerably more than what the contract requires must be done. The directors have come to the conclusion that to offer a higher speed would be impossible, without undertaking a serious capital expenditure and an enhanced outlay in general disbursements, which neither the prospect of the amount of mail subsidy obtainable, nor the general prospects of the Australian trade, would at all justify.
To illustrate this point, the directors ask me to state that they have recently ordered four vessels to be built of great size, which would, no doubt, be well suited to the Australian trade. These ships will cost, by the time they are sent to sea, upwards of 700,000, and they will be capable of steaming at a higher speed than that suggested by the Colonies. But if the directors were to undertake a higher speed than they themselves have proposed, they would probably have to double at a single stroke the above very large amount of capital expenditure. There is nothing in your letter, nor in any expression of public opinion in the Colonies which would warrant the directors in believing that the Colonies or the Imperial Post Office are prepared to pay a considerable addition to the amount already asked for by the Company, and which this immediate capital outlay would certainly render necessary. the contrary, the directors have been led to understand that the position sought to be attained, as nearly as possible, is that of the postage sufficing to cover the amount of the subsidy.
That ideal result the directors do not suppose will be attained in the Australian service for some time to come. But if the expenditure which I refer to had to
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be undertaken, it would place the amount of subvention at a figure much further removed from any approximation to the commercial principle which the directors understand to be desiderated alike by the Colonies and by the Post Office in transactions of this kind.
an hour.
I have already alluded to the circumstance that the Company have under construction four new vessels of great speed and size. This fact will serve to confirm the anticipation which must otherwise arise from the experience of the Post Office in connexion with the Company's work, viz., that there will be a steady improvement witnessed in the work of the Australian line during the currency of
any future contract. How do the facts stand with regard to the contract which is about to terminate? It is for a line between Ceylon and Australia; but in actual working this service has been converted into a through line between Australia and England, while practically the speed stipulated has been increased by something like a knot It cannot, therefore, be doubted that a further term of contract will witness a further improvement, and this at no expense either to the mother country or the Colonies. But if an acceleration beyond what has been offered by the Company is to be rendered arbitrary and to take effect at once, then an immediate and exceptional outlay of capital and an enhanced general expenditure must be encountered, which can only be met by a cor- responding addition to the subsidy hitherto demanded. proposal of this kind in response to your letter, because the general tenor thereof affords The directors do not make a them no ground for believing that such a proposal would be in accord with the spirit of the suggested modifications, the intention of which is evidently not to increase the standard of payment as advanced in the Company's tender.
I now come to the question of the term of contract, which the Colonies wish to be reduced to a period of five years. To this the directors must also respectfully demur, and they have given their reasons so fully for considering seven years the briefest term for which a contract like this should be made in the letters accompanying their tenders both for the India, China, and Australian services, that it would be useless to repeat at length the arguments therein employed. Shortly, however, the position of the directors on this point is that while a seven years' term is really inadequate in view of the risks undertaken, a five years' contract affords no security whatever for the capital employed. No doubt this disadvantage may be compen- sated by an increased rate of subsidy, just as a gambling risk may be taken if the premium be made high enough. But the directors have had it in view to put forward a strictly business-like proposal, which should not be prejudiced by anything excessive in the way of its conditions, and they believe the soundness of this action cannot easily be challenged.
It is necessary now to refer to the third principle adverted to in your letter, viz., that of payment by a poundage rate. On this subject the directors fully entered in their letter of the 30th April, which accompanied their tender for the Australian mails. The directors do G 4
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