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PUBLIC RECORD OFFICE

C.O.

Reference :-

8855 PUBLIC RECORD OFFICE, LONDON

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-

COPYRIGHT PHOTOGRAPH-NOT TO

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not object to the principle of payment by poundage, provided the contractor is guaranteed a minimuin annual receipt; but without that guarantee the directors object to the system, because they do not see why the risk of the return from postal receipts should fall exclusively on the contractors, seeing that their expenditure must be an absolute certainty, and that they must therefore base their calculations on some figure of minimum revenue. Granting, however, the principle of a minimum, the virtue of a poundage system seems to the directors to disappear. But even if the contractors were willing to assume all the risk of postal receipts, is it not the case that the advantage to the Post Office would be more theoretical than real, seeing that the contractors who take this risk must, to insure against disappointment, adopt the least sanguine view of what the poundage system will produce? Might not the result be to show that at the end of a series of years the contractors had done better, and the Post Office worse, than if the arrangement had been started from the first on the footing of a moderate fixed payment?

The directors must respectfully observe that in any mail service to India, China, or Australia the subsidy must in the present day play a considerable part. It may be different in the American trade, where the shortness of the voyage and the gigantic passenger traffic may render mail receipts less important. But in the Eastern trade there would not, without a considerable payment for the conveyance of mails, be any mail service at all, properly so called. Under the most favourable circumstances the risk of carrying out a mail contract with these countries must be considerable, and the directors have never been able to see why they should be called on to encounter the additional risk of the amount and increment of postal receipts. Any offer they might be compelled to make under such circumstances would of necessity be speculative in its character, whereas by calculating on a fixed amount they confidently assert they are able to place their proposals on the most moderate basis. The directors, therefore, respectfully decline to make an offer on a being accorded a fixed minimum of payment, and they do not see their way to name a lesser poundage system without minimum than the amount which they are now ready to accept without reference to the poundage system at all.

Having thus stated frankly but, the directors venture to hope, not with too much boldness, the views which they entertain with respect to the suggested modification in the Company's tender, I now proceed to lay before you the proposals which the directors submit, with thes desire to secure the approval of the Colonies and the Postmaster General,

may remind you that the tender which the Company offered was, for a service to continue in force seven years, 115,0007., or 10 years, 100,000. I am now authorised to offer on behalf of the Company to undertake the same service, subject to a modification in point of form, for a period of seven years, 100,000., or 10 years, 85,000. The time for the transit of the nails between Brindisi and Adelaide to be the same as that previously offered by the Company. The modification identified with this new proposal would be for the purpose of affording the Company additional freedom of action with regard to the transport of the mails between Brindisi and Colombo.

The directors now propose, in consideration of the reduction in the amount of their tender, that the mail service to China and Australia shall be carried out on a basis of corresponding dates as it is at present, so that the Company may have liberty to transmit the China mails by the Australian steamer between Brindisi and Colombo, or vice versa (at certain seasons), if they should think advisable to do so This proposal can have no adverse influence on either one mail service or the other; on the contrary, the directors believe it would have an advantageous effect; because now that the India and China mails are to proceed through the Canal it will easily be understood that the fewer mail steamers passing the Canal at the same moment the less will be the risk of any detention. It would be, in fact, a disadvantage to have more than one mail steamer passing through the Canal to or from Brindisi at the same time. It would be to tempt a block in this direction with no possible gain to the mail service.

In order to put the question of efficiency, so far as the Australian mails are concerned, beyond cavil, the directors would propose to penalise the steamer carrying these mails to Brindisi, on account of the Australian service, while, as you are aware, that steamer would also be liable to another penalty on account of the India and China service. The penalties under the Australian contract would, therefore, be leviable on account of late arrivals either at Adelaide or Brindisi.

While proposing this modification of their tender, which is a merely formal one, as far as the conveyance of the mails is concerned, the directors would still adhere to that proviso in their tender which would enable them to transfer the Australian service to Naples, and to carry the mails direct instead of via Colombo. It is certainly their desire to adhere to the Colombo route, if possible, and they believe that route, as affording direct communication with India and China, is favourable to the interest of the Colonies. But the condition of the

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Australian trade may become such that the Company might lose heavily by continuing the service via Colombo, and hence the provision now referred to in the Company's tender.

In conclusion, the directors would again beg reference to the observations contained in their letter of the 30th April accompanying their tender, and which set forth with tolerable dis- tinctness the principles on which their proposals were framed. The present opportunity may be taken to repeat here one of the passages contained in that letter, bearing very closely on the question now at issue. It runs thus:-

"It will thus be seen that the Company have done considerably more than was required by their mail contract. But I regret to state that the financial result has been far from satisfactory. While developing their Australian service into a through line and increas- ing the size of the steamers from an average of 3,000 tons to about 4,500 tons, the directors find the result is a loss on the total working of the year, after crediting the line with its subsidy of 85,0007. per annum,

"It would be out of place to dwell here on this fact, or to seek to account for the result. The directors would simply observe that they have to approach the consideration of tenders for a new mail service with Australia, with the knowledge that this work is not remunerative to the company at the present time, and with the present subsidy." Following up this remark I have to observe that the service now proposed to be undertaken will be more arduous and expensive to carry out than the contract now expiring, and which has, in a financial aspect, been the reverse of a success. It is, therefore, almost needless to say that in tendering on the amended terms now submitted, and in expending at the same time a large amount of capital on the construction of new steamers, the directors base their hopes of future profit on the prospective development of the Australian trade, rather than on the amount now stipulated for as payment for the conveyance of the mails.

The Secretary,

SIR,

General Post Office, E.C.

I have, &c. (Signed)

Appendix II. to No. 24.

A. M. BETHUNE, Secretary.

Orient Steam Navigation Company, Limited,

18, Fenchurch Avenue, E.C.,

London, January 19, 1887.

SINCE receiving your letter of the 4th instant (C.P. No. 4185) with regard to the tender sent in by this Company on the 30th of April last, for the conveyance of Her Majesty's mails between Naples and Adelaide, we have carefully re-considered the subject with an anxious desire to meet, as far as possible, the views of the Governments of New South Wales, Victoria, and South Australia, as explained by you.

We note that the Colonial Ministers continue to prefer that the payments should be based entirely upon the net weight of correspondence, and not partly on the weight and partly by fixed sum per voyage.

Our reasons for preferring the mixed basis are, that under present circumstances a contract based entirely upon a poundage rate would be so speculative as to make it incumbent on us either to require a guarantee as to the quantity of mail matter which would make the contract practically one for a fixed subsidy, a condition of matters which would be in entire opposition to the terms of the advertisement, or to name a poundage rate so high as to produce to the Governments concerned a loss which would increase in direct proportion to the increase of the correspondence. It appeared to us desirable to fix the poundage rate low enough to leave a profit to the Governments, which profit would increase as the mail matter increased, and to reduce the fixed payments.

go

way.

While we do not see our way to make a proposal based entirely upon poundage rates, we are prepared, in view of the pressure put upon us by you, to meet the wishes of the Colonial Governments to the extent of reducing the fixed payments from 7501. to 5507. per voyage each While under the circumstances we offer this important concession, we wish at the same time distinctly to reassert our opinion that in view of the heavily subsidized foreign competition with which we are confronted, the fixed payments of 7501. per voyage asked in our original tender are none too inuch to secure that degree of satisfaction with the business on the part of our proprietary, which is essential to enable us to render the service in the fullest sense progressive in the matter of quality.

In connexion with the subject of speed, we would remark that in framing our tender of 30th April last we did so with the knowledge that in abstaining from offering the full speed called for by the advertisement, we were exposing ourselves to the risk of losing the contract

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