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Sunday, 6 May 2012

A Misinformed but Devious Take-over of a Railway

The Somerset and Dorset Railway in 1875
The ultimate point of my PhD on the London and South Western Railway’s (LSWR) management between 1870 and 1910 is to determine the quality of managers' and directors' decisions in the period. Therefore, I deal with questions surrounding what drove decisions and what decision-makers knew when making them. One event I focus on is the LSWR and Midland Railway’s lease of the Somerset and Dorset Railway (SDR) in 1875.

The LSWR and Midland Railway's Lease

The SDR was formed from a number of small companies in 1862. Yet, after connecting to Bath in 1874 it got into financial trouble, even though the trade with the Midland at that place and the LSWR at Templecombe was healthy.[1] Consequently, the beleaguered company approached the Great Western Railway (GWR) with the proposal that it would purchase the SDR. Thereafter, the GWR and its Bristol and Exeter Railway (BER) allies engaged in protracted negotiation with the SDR,[2] and by early August a deal was close. On the 12 August 1875 James Grierson and J.C. Wall, the GWR and BER General Managers, visited the LSWR’s General Manager, Archibald Scott, at Waterloo. The LSWR and GWR were fierce competitors, but as an act of good faith Grierson and Wall informed Scott of the negotiations and offered the LSWR a working agreement on the southern part of the line between Templecombe and Wimborne.[3] Scott expressed his alarm at the proposal[4] and requested another meeting on the 16 August to give him time to consult the LSWR’s board.[5]
James Allport

It was at that point that the LSWR out-flanked the GWR. Scott met his board on 13 August and was immediately sent to Birmingham to confer with the Midland’s Deputy Chairman and General Manager, James Allport.[6] By the 17 August they decided to work with the LSWR to offer the SDR a better deal than the GWR and B&ER's.[7] Yet, knowledge of Scott's trip was withheld from Grierson and Wall when he met them on sixteenth,[8] with Scott stating that a LSWR half-yearly meeting of proprietors had prevented the board considering the matter.[9] This gave the LSWR and Midland time to finalise their deal with the SDR board, who on 19 August rejected GWR and BER’s offer. The agreement between the LSWR, Midland  and SDR was signed on the 1 November.[10] Naturally, the GWR was angered by Scott’s actions and opposed the leasing Bill in Parliament.[11] However, against its many protestations, this passed on 13 July 1876.[12]

Decision-making

The question remains as to why the LSWR decided to go behind the GWR's back and secure the SDR for itself? Certainly, LSWR decision-makers thought their company would benefit from leasing the SDR and augmenting its infrastructure. Scott described its traffic as being ‘in its infancy’ and at the parliamentary committee investigating the lease stated that:

James Grierson
‘A considerable amount of money will have to be expended on the Somerset and Dorset Line to improve it and make it efficient for traffic purposes, and I have no hesitation in saying that the traffic to be carried over the Somerset and Dorset Line in connection with the South Western system and the Midland as well as locally, will be very large indeed.’[13]

However, the LSWR did not employ accurate predictions of the capital expense required to realise the SDR's revenue generating potential. Like Channon argued regarding the Midland’s London extension in 1869, LSWR decision-makers’ knowledge of costs and revenues was too incomplete for accurate predictions of these things to be made.[14] Furthermore, there was realistically not time enough between Scott being notified of the GWR and BER’s plans on the twelfth, and the agreement’s completion on the nineteenth, for accurate forecasts to be formulated. This is not to say LSWR decision-makers had absolutely no idea of the potential revenues and costs of taking over the line, and the proposal for the LSWR to operate between Wimborne and Templecombe was deemed objectionable because Scott recognised the region’s poor revenue generating potential. But this analysis was not systematic, and based on ‘gut-feeling’ and experience.

In reality, the potential profits the SDR could generate with investment was not the reason the LSWR joined with the Midland to lease it. Before 1876 the SDR generated little traffic for the LSWR. In 1871 freight moving from the SDR onto the LSWR’s system contributed to the latter revenue of only £38,282, rising to £54,482 by 1875, the increase being because the Bath connection opened. Yet, this still only constituted 2.19 per cent of the LSWR’s gross receipts in 1875[15] and it is unlikely this traffic alone justified the lease.

Rather, the timing of the LSWR’s approach to the Midland and SDR were determined by the GWR and B&ER’s actions. The LSWR's trade could have been potentially disadvantaged if they had taken over the line, and Portal, the LSWR Deputy-Chairman, stated that the GWR and B&ER’s proposals were ‘highly injurious to the interests of the public, contrary to the interests of Parliament and hurtful to the South Western Company.’[16] Strategically, the SDR was important for the LSWR, with trade coming through it from the north and South Wales to Southampton. In August 1875 Scott stated that ‘…naturally the South Western Company, [has been] interested…for so many years been in the traffic in connection with the Somerset and Dorset line.’[17] Therefore, the GWR’s proposals would have given it control of this traffic, possibly damaging the LSWR's revenue.

Thus, the LSWR’s concern to control its trade and territory on its own terms, overrode others regarding the investment the line needed or its revenue generating capacity. Indeed, LSWR decision-makers were attempting to protect a regional monopoly, as Dodgson argued occurred at the time in the industry more generally.[18]



Archibald Scott
However, the lack of accurate cost and revenue predictions played a role in LSWR decision-makers’ mind-sets when approaching the SDR takeover. Firstly, they had believed from as early as the 1840s that traffic and revenue would always increase irrespective of the state of the economy (as I prove elsewhere in my Phd). This fed the belief that territorial protection would always put extra traffic onto the LSWR’s system, which would ultimately be good for company profits. Consequently, because accurate project forecasting was largely absent and decisions were usually made based on gut-feeling, these largely assumed beliefs underpinned the rationale and timing of most decisions. Indeed, in the SDR's case, for the LSWR to loose territorial control, may also have potentially lost it the profit from the naturally assumed traffic growth. Again, Channon argued that similar thinking was behind the Midland Railway’s construction of the London extension.[19]

A Successful Take-Over?

Ultimately, the SDR lease mirrored Watkin’s extensions of the Manchester, Sheffield and Lincolnshire railway to some extent, as Hopkins described them as ‘expensive failures’ because they ‘were not properly weighed up as investment opportunities’.[20] While the the success of the SDR lease is hard to determine accurately, it was seemingly limited. Between 1875 and 1880, when the LSWR and Midland was investing heavily in the line,[21] passenger numbers hauled grew by 53.22 per cent, and goods tonnage hauled increased by 26.75 per cent.[22] Contrastingly, the LSWR’s passenger traffic numbers grew by 44.26 per cent and goods tonnage by 37.90 per cent over the same period. Yet, thereafter, traffic growth on the SDR stalled, and between 1885 and 1895 the passenger and goods traffic originating from the company grew by 26.94 and 14.58 per cent respectively, while the LSWR’s proportions were 53.02 and 34.47 per cent.[23] Therefore, in later decades the SDR’s own traffic growth was proportionately much lower than the LSWR’s, and its traffic would have made up proportionately less of its parent company's over time.[24] Nevertheless, the benefit of the LSWR controlling the line for its traffic from the north and South Wales may have been considerable as the SDR provided a more direct route to Southampton for it, but this cannot be determined.

Overall, however, the case of the SDR lease shows that rather than mid-Victorian railway managers and directors making calculated decisions about network expansion; the protection of territory was a very important concern for them in the period. Yet, this was despite them never being able to truly quantify what the costs and benefits of protecting this territory would be.

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[1] Williams, R.A., The London and South Western Railway, Volume 2: Growth and Consolidation, (Newton Abbot, 1973), p.173
[2] MacDermot, E.T., revised by Clinker, C.R., History of the Great Western Railway: Volume 2, (Shepperton, 1982), p.52
[3] The National Archives [TNA] RAIL 1066/1692, Sir D. Gooch to the Hon. R.H. Dutton Bart. 26 August 1875, p.44
[4] TNA, RAIL 1066/1692, Wyndham S. Portal. To Sir D. Gooch, 4 September 1875, p.46
[5] TNA, RAIL 1066/1692, Sir D. Gooch to the Hon. R.H. Dutton Bart. 26 August 1875, p.44
[6] TNA, RAIL 1066/1692, Archibald Scott’s evidence for Somerset and Dorset Railway Bill, Minute No. 418, p.55
[7] Williams, The London and South Western Railway, Volume 2, p.174
[8] TNA, RAIL 1066/1692, Sir D. Gooch to Wyndham S. Portal. 27 October 1875, p.48
[9] TNA, RAIL 1066/1692, Sir D. Gooch to the Hon. R.H. Dutton Bart. 26 August 1875, p.44
[10] Williams, The London and South Western Railway, Volume 2, p.174-175
[11] TNA, RAIL 1066/1692, Parliamentary Bills and Minutes of Evidence, etc.
[12] Williams, The London and South Western Railway, Volume 2, p.175
[13] TNA, RAIL 1066/1692, Archibald Scott’s evidence for Somerset and Dorset Railway Bill, Minute No. 378, p.42, 24 March 1876
[14] Channon, Geoffrey, Railways in Britain and the United States, 1830-1940: Studies in Economic and Business History, (Aldershot, 2001), p.107
[15] TNA, RAIL 1066/1692, Archibald Scott’s evidence for Somerset and Dorset Railway Bill, Minute No. 369, p.41, 24 March 1876
[16] TNA, RAIL 1066/1692, Wyndham S. Portal. To Sir D. Gooch, 4 September 1875, p.46
[17] TNA, RAIL 1066/1692, Archibald Scott’s evidence for Somerset and Dorset Railway Bill, Minute No. 375, p.42, 24 March 1876
[18] John, ‘New, disaggregated, British railway total factor productivity growth estimates, 1875 to 1912’, The Economic History Review, 64 (2011), p.639
[19] Channon, Railways in Britain and the United States, 1830-1940, p.107
[20] Hodgkins, David, The Second Railway King: The Life and Times of Sir Edward Watkin (Llandybie, 2002)
, p.486
[21] TNA, RAIL 262/16, Somerset and Dorset Joint Line Committee, Meetings of Officers 1875-1884
[22] Board of Trade, Railway Returns for England and Wales and Scotland and Ireland, 1875, p.58-62 and 1880, p.50-54
[23] Board of Trade, Railway Returns for England and Wales and Scotland and Ireland, 1880, p.52-56 and 1885, p.52-56
[24] Board of Trade, Railway Returns for England and Wales and Scotland and Ireland, 1875, p.62 and 1880, p.54

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