The discussion of the transcontinental rate structure leads naturally to a consideration of a very serious controversy in which the Southern Pacific became engaged in 1891. This controversy arose as the result of an attempt by certain merchants of San Francisco to secure lower distributive rates in the interior California valleys. The official statement of the shippers’ side of the case in this lively conflict of the nineties has been compiled and published.[414] No similar statement of the position of the railroad has come out, but the important facts are pretty well on record. There is no question that the political and commercial policies of the Southern Pacific had by 1890 engendered restlessness and discontent among the commercial classes on the Pacific Coast. It was believed that railroad rates from the East were high. It was thought that use of the water lines had been limited by the special contract system while that was in force, and that water competition had been affected subsequently by arrangements between the transcontinental lines and the Pacific Mail Steamship Company. The work of the State Railroad Commission had proved disappointing. In short, the situation was such that it needed only the pressure of the business depression of 1890 to 1897 to stir men to vigorous action. Coastwise Trade via Foreign Port The episode which is to be described began with an attempt on the part of certain San Francisco merchants to use British clippers for the importation of freight from New York, in spite of the fact that the right to engage in coastwise traffic was limited by statute to ships flying the American flag. It appears that in 1891 a consignment of nails was shipped from New York in a Belgian vessel to Antwerp, consigned to a commercial house there. At Antwerp the merchandise was discharged and landed, and from that city it was then shipped on a British vessel to Redondo, California, where it was entered at the customs house as a manufacture of the United States, entitled as an American product to free entry under American law. Nor was this the only case of the sort. In all, sixteen shipments were sent to California via European ports between October 16, 1891, and May 28, 1892. The obvious intent of the whole transaction was to evade the statute governing the movements of merchandise by water between United States ports, in order to effect a saving in freight estimated to amount to $4 a ton. In spite of the somewhat transparent nature of the business, the District Court of the United States for the Southern District of California and the Circuit Court of Appeals both held that the operation had been legally accomplished. According to these courts the law forbade a method, not a result, and unless goods were transported from one port of the United States to another port in a vessel belonging in whole or in part to foreign subjects, no penalty was incurred.[415]