[309] Specifically described in Senate (Elkins) Committee, 1905, II, p.
923.
[310] 7 Int. Com. Rep., 458; reprinted in our Railway Problems, chap.
XII.
[311] "Practically it may be declared that the public, considered as
distinct from railway owners, must pay for all the transportation which
it receives." ... H. T. Newcomb in _Pubs. Am. Stat. Ass._, N. S. Nr.
34, p. 71.
[312] Agreements for a scale of cross freights by wholesalers' or
jobbers' associations as in Ohio for groceries or hardware are equally
effective.
[313] 7 Int. Com. Rep., 458; in our Railway Problems, chap. XII.
[314] This problem is involved in the Youngstown-Pittsburg case already
mentioned. In the original Louisville and Nashville decision the
Commission apparently preferred to encourage competition even at the
risk of its being roundabout and "illegitimate." But after the railway
attorneys expanded the "rare and peculiar" cases to cover all kinds of
competition, the Commission apparently regretted its earlier position.
_Cf._ 1 I.C.C. Rep., 82; 5 _Idem_, 389; and especially the brief of Ed.
Baxter, Esq., in the Alabama Midland case, U. S. Supreme Court, Oct.
term, 1896, No. 563, p. 118.
CHAPTER IX
FREIGHT CLASSIFICATION[315]
Importance and nature of classification
described, 300.--Classifications and tariffs
distinguished, as a means of changing rates, 301.--The
three classification committees, 304.--Wide
differences between them illustrated, 305.--Historical
development, 306.--Increase in items
enumerated, 309.--Growing distinction between carload
and less-than-carload rates, 310.--Great volume of
elaborate rules and descriptions, 312.--Theoretical basis
of classification, 314.--Cost of service _v._ value of
service, 315.--Practically, classification based upon
rule of thumb, 319.--The "spread" in classification
between commodities, 319.--Similarly as between
places, 320.--Commodity rates described, 322.--Natural in
undeveloped conditions, 323.--Various sorts of commodity
rates, 324.--The problem of carload ratings, 325.--Carloads
theoretically considered, 326.--Effect upon commercial
competition, 327.--New England milk rates, 329.--Mixed
carloads, 331.--Minimum carload rates, 322.--Importance
of car capacity, 334.--Market capacity and minimum
carloads, 336.
Uniform classification for the United States, 337.--Revival
of interest since 1906, 339.--Overlapping and
conflicting jurisdictions, 340.--Confusion and
discrimination, 341.--Anomalies and conflicts
illustrated, 342.--Two main obstacles to
uniform classification, 345.--Reflection of
local trade conditions, 345.--Compromise not
satisfactory, 346.--Classifications and distance tariffs
interlock, 347.--General conclusions, 351.
OFFICIAL (Trunk Line)
A Subject to
Uniform Bill
of Lading
Conditions.
L.C.L. C.L.
1 Academy or Artists'
Board, in cases
(C. L. min, weight,
36,000 lbs.) 2 5
2 Acetone, in iron drums 3 5
3 ACIDS:
* * * * *
4 Acetic, liquid:
In carboys, boxed
(C. L., min. weight
24,000 lbs.)
(subject to Rule
27 and Note 2) 1 5
In bbls. or iron
drums (C. L., min.
weight 36,000
lbs.)-- 3 5
In tank cars (see
Note 1) -- 5
5 Boracic, in bags,
boxes, bbls. or
casks (C. L., min.
weight 36,000
lbs.) 3 5
* * * * *
7 AGRICULTURAL IMPLEMENTS
AND MACHINES:
8 Agricultural Implements
and Machines, N. O. S.:
S. U D1 --
K. D. flat 1 --
Min. weight 24,000
lbs. (subject
to Rule 27) -- 5
9 Axes or Hooks, Bush:
In bundles 1 --
In boxes -- 3
Min. weight 24,000
lbs. (subject
to Rule 27) -- 5
* * * * *
23 ZINC:
24 Pig or Slab (C.L., min.
weight 36,000 lbs.) 4 6
25 Plates (not Engravers'
Plates) boxed (C. L.
min. weight 36,000 lbs.) 4 5
26 Scrap:
In bags 2 --
In bales 3 --
In boxes, kegs,
bbls. or casks
(see Note) 4 --
Min. weight
36,000 lbs. 6 --
* * * * *
34 ZINC, SULPHATE OF:
In boxes or kegs 2 --
In bbls. (C. L., min.
weight 36,000 lbs.) 4 5
35 Zylonite Goods,
in packages 1 --
* * * * *
WESTERN
A C.L.
1 ADVERTISING MATTER }
printed, N. O. S. }
(exclusive of signs and }
show cards), boxed or }
in bundles prepaid (not }
otherwise specified) 1}
2 Advertising Matter }
consisting of Almanacs, }
Circulars, and Pamphlets, }
for advertising purposes }
only and so stated on }
shipping ticket and bill } 3 Min. wt.
of lading, value not } 24,000 lbs.
exceeding 5c. per lb. }
and so receipted for, in }
bundles or boxes prepaid }
or guaranteed 2}
3 Chinese, Japanese and }
Palm-leaf Fans, with }
advertisements printed }
on the face, and }
Catalogues, boxed or in }
bundles, prepaid 1}
4 Advertising racks (sheet
iron) nested solid,
boxed or crated, min.
C. L. wt. 30,000 lbs. 2 4
* * * * *
6 AGRICULTURAL IMPLEMENTS:
7 Except Hand:
8 Barrel Carts: }
9 Set up, on wheels 1-1/2}
10 K. D. flat 1}
11 Bean Pickers, }
S. U. crated 1-1/2}
12 Beet Harvesters: } A
13 Set up 1} Min.
14 K. D., in bundles 2} wt.
15 K. D., boxed or crated 3} 24,000
16 Boll Weevil Machines K.D. } lbs.
flat 3}
17 Blue Grass Strippers: }
18 S. U. D 1}
19 K. D., small parts boxed 3}
* * * * *
42 ZINC:
43 Ashes, min. C.L. wt.
40,000 lbs. 4 D
44 Batts or Wainscoting
enameled 2
45 Concentrates, in sacks,
min. wt. 40,000 lbs. C
46 Dross, min. C.L. wt.
40,000 lbs. 4 D
47 Flue dust, min. C. L. wt.
40,000 lbs. 4 D
} 5
48 Pigs or slabs 4} min. wt.
49 Sheet, in casks 4} 36,000
} lbs.
50 Shavings, min. C. L. wt.
36,000 lbs. 2 R
51 Sheets, perforated for
screens, boxed, min.
C. L. wt. 36,000 lbs. 4 5
52 Sheet or roll, not packed 1
53 Strips (for weather
strips), boxed or crated 3
54 Sweepings, min. wt.
40,000 lbs. E
* * * * *
SOUTHERN
Item A. Class if
No. Released
1 Accoutrements, Military 1
2 ACIDS (Carriers's Option) viz:
3 Acetic, liquid, in bbls.,
or drums, L. C. L. 3
4 Same, C. L., min. wt.
30,000 lbs. 5
5 Carbolic, crude, in
bbls. or drums 3
6 Carbonic, liquid in
drums or tubes
* * * * *
44 AGRICULTURAL IMPLEMENTS
C. L., owners to load
and unload, viz:
45 Cleaners, Tobacco,
min. wt. 15,000 lbs. 3
46 Fodder Shredders and Corn
Huskers, min. wt. 12,000 lbs. 4
47 Fodder Shredders and Corn
Huskers, in mixed C. L., with
other agricultural implements,
min. wt. 20,000 lbs. 6
48 Harvesters and Pickers,
Cotton, min. 15,000 lbs. 3
* * * * *
14 ZINC, viz.:
15 In boxes, casks, sheets
or rolls 4
16 In blocks or pigs,
L. C. L. 5
17 Same, C. L., min. wt.
30,000 lbs. 6
18 Scrap, packed 5
19 ZINC, CHLORIDE OF, viz.:
20 In boxes, or in glass jugs,
or carboys, packed,
L. C. L. 1
21 In kegs, or bbls.,
L. C. L. 4
22 Same, packed, or in tank
cars, C. L. (see
General Rule 3) 6
23 Zinc Ashes or Residue,
L. C. L. 4
24 Same, C. L. 6
25 Zinc Dust and Zinc Flue
Dust; same as Paints.
26 Zinc Oxide 5
27 Zinc Paints; same as Paints.
28 Zinc, Sulphate of,
in boxes 1
29 Same, in kegs, bbls. or
drums 4
30 Zincs, Battery, in
crates, boxes, or
bbls., L. C. L. 3
31 Same, C. L. 6
Imagine the Encyclopædia Britannica, a Chicago mail-order catalogue and
a United States protective tariff law blended in a single volume, and
you have a freight classification as it exists in the United States at
the present time! A few selections from the first and last items of
such a document are reproduced on the preceding pages. They give some
idea of the amazing scope of trade. Such a classification is, first of
all, a list of every possible commodity which may move by rail, from
Academy or Artist's Board and Accoutrements to Xylophones and Zylonite.
In this list one finds Algarovilla, Bagasse, "Pie Crust, Prepared";
Artificial Hams, Cattle Tails and Wombat Skins; Wings, Crutches,
Cradles, Baby Jumpers and all; together with Shoo Flies and Grave
Vaults. Every thing above, on, or under the earth will be found listed
in such a volume. To grade justly all these commodities is obviously
a task of the utmost nicety. A few of the delicate questions which
have puzzled the Interstate Commerce Commission may give some idea
of the complexity of the problem.[316] Shall cow peas pay freight as
"vegetables, N. O. S., dried or evaporated," or as "fertilizer"--being
an active agent in soil regeneration? Are "iron-handled bristle
shoe-blacking daubers" machinery or toilet appliances? Are patent
medicines distinguishable, for purposes of transportation, from other
alcoholic beverages used as tonics? What is the difference, as regards
rail carriage, between a percolator and an everyday coffee pot?
Are Grandpa's Wonder Soap and Pearline--in the light of the claims
put forth by manufacturers, suitable either for laundry or toilet
purposes--to be put in different classes according to their uses or
their market price? When is a boiler not a boiler? If it be used for
heating purposes rather than steam generation, why is it not a stove?
What is the difference between raisins and other dried fruits, unless
perchance the carrier has not yet established one industry while
another is already firmly rooted and safe against competition?
The classification of all these articles is a factor of primary
importance in the making of freight rates both from a public and
private point of view. Attention has been directed of late to its
significance and importance to the private shipper, by reason of the
use made of it in the advances of freight rates which have taken place
throughout the country within the past decade. Its public importance
has not been fully appreciated until recently as affecting the general
level of railway charges. So little was its significance understood,
that supervision and control of classification were not apparently
contemplated by the original Act to Regulate Commerce of 1887. The
anomaly existed for many years, therefore, of a grant of power intended
to regulate freight rates, which, at the same time, omitted provision
for control over a fundamentally important element in their make-up.
The Interstate Commerce Commission, however, assumed jurisdiction over
the matter: and for more than twenty years, despite doubts expressed by
the Department of Justice as to its legality, passed upon complaints as
to unreasonable classification without protest even from the carriers
themselves. Control over it has now been assured beyond possibility of
dispute by the specific provisions of the Hepburn Act of 1910.
The freight rate upon a particular commodity between any given points
is compounded of two separate and distinct factors: one having to do
with the nature of the haul, the other with the nature of the goods
themselves. Two distinct publications must be consulted in order to
determine the actual charge. Although both of them usually bear the
name of a railway and are issued over its signature, they emanate,
nevertheless, from entirely different sources. The first of these is
known as the Freight Tariff. It specifies rates in cents per hundred
pounds for a number of different classes of freight, numerically
designated, between all the places upon each line or its connections.
Thus the tariff of the New York Central & Hudson River Railroad gives
rates per hundred pounds from New York to several hundred stations,
for first, second, third, etc., classes. This freight tariff, however,
contains no mention whatever of commodities by name. The second
publication which must be consulted supplies this defect. This is
known as the Classification. Its function is to group all articles
more or less alike in character, so far as they affect transportation
cost, or are affected in value by carriage from place to place. These
groups correspond to the several numerical classes already named in
the freight tariff. Thus dry goods or boots and shoes are designated
as first class. Turning back to the freight tariff, the rate from
New York, for example, to any particular place desired, for such
first-class freight, is then found in cents per hundred pounds. It
thus appears, as has been said, that a freight rate is made up of
two distinct elements equal in importance. The first is the charge
corresponding to the distance; the other is the charge as determined by
the character of the goods. Consequently, a variation in either one of
the two would result in changing the final rate as compounded.[317]
A concrete illustration or two may emphasize the commercial importance
of classification. So far as it may be used to effect an increase
of rates, the following case is typical, as given by a Boston
manufacturer, in evidence before the Senate Committee on Interstate
Commerce in 1905:
"From July 15, 1889, to January 1, of this year, the classification
(of carbon black, basis of printers' ink) continued to be once and a
half first class in less-than-carload lots, third class in carload
lots, approximately twice the freight required between 1887 and 1889.
Meanwhile, the price had declined.... On January 1 the classification
was again raised, to class 2, rule 25, an increase of about ten per
cent, in carload lots. Numerous efforts have been made by myself and
others to have this commodity classified where it belongs, as dry
color, but the only result has been the reverse of what we desired; and
the industry has been and is in a somewhat precarious condition, as we
have contracted for millions of pounds of black at prices fixed at the
point of delivery, and had no notice of the raise in freight rate until
subsequent to its going into operation."[318]
The Spokane Chamber of Commerce, in these same Senate Committee
hearings, gave an illustration of the use of classification to bring
about a change of rates without modifying the individual railway
tariff. "The Pacific Coast Pipe Company started to make wired wooden
pipe in the spring of 1900.... There was at that time but one factory
of the kind on the North Pacific coast, located at Seattle.... The
Seattle factory, backed by the big lumber firms on the coast, finding
a serious competitor in the Spokane field, got the railways to put
manufactured pipe under the lumber classification, thus reducing the
rate from Seattle to Spokane from forty-six to twenty cents per 100
pounds.... The Spokane factory at once filed a vigorous protest, with
the result that the railways put back the rate from Seattle to Spokane
to forty-six cents, but established a maximum rate of fifty cents for
Seattle pipe, which, of course, shut off all territory east of Spokane
from the Spokane factory.... The remnant of the Spokane factory ...
has been compelled to shut down, and the entire plant is being removed
to Ballard." Whether these facts are exactly as thus informally
stated or not, is by the way. If not done at this time, it is certain
that similar manipulation of classification rules often enters into
commercial competition.[319]
Freight tariffs and classifications are as distinct and independent
in source as they are in nature. Tariffs are issued by each railway,
by and for itself alone and upon its sole authority. Classifications,
on the other hand, do not originate with particular railways at all;
but are issued for them by coöperative bodies, known as classification
committees. These committees are composed of representatives from
all the carriers operating within certain designated territories.
In other words, the United States is apportioned among a number of
committees, to each of which is delegated by the carriers concerned,
the power over classification; that is to say, the right to assign
every commodity which may be shipped or received to any particular
group of freight ratings. This delegation of authority is always
subject, however, to the right of filing whatever exceptions to the
classification any railway may choose independently to put in force.
These exception sheets contain the so-called commodity tariffs, to
be subsequently described, which stand out in sharp relief against
the so-called class rates. Such exceptions are independently filed by
each railway at Washington and do not generally form integral parts
of the volume issued by the classification committee, except in the
southern states. New editions of these classifications are published
from time to time as called for by additions or amendments, the
latest, of course, superseding all earlier ones. Thirty-seven such
issues have already appeared in series in trunk line and southern
territory, while fifty have been put forth in western territory, since
the practice was standardized in 1888. At the present time freight
classification for all the railways of the United States is performed
mainly by three committees, known as the Official, the Southern and
the Western, with headquarters, respectively, in New York, Atlanta
and Chicago. Each of these three committees has jurisdiction over a
particular territory. Thus the Official Classification prevails east
of Chicago and north of the Ohio and the Potomac; the Southern, over
the remaining part of the country east of the Mississippi; and the
Western, throughout the rest of the United States. In addition to these
three primary classifications there is also another, issued by the
Transcontinental Freight Bureau, with headquarters at Chicago. This
committee has supervision over classification upon the Pacific coast
business. A number of the states also, notably Illinois, Iowa and most
of the southwestern commonwealths, promulgate state classifications
having relation, however, only to local business within their several
jurisdictions. These are prescribed by law and represent modifications
to suit peculiar exigencies or to foster local trade ambitions. There
are also a number of other coöperative local railway committees,
each dealing with the special concerns of its own territory, and
representing the joint interests of the railways therein included to
all the world outside. Thus, for instance, Southern Classification
territory is subdivided into local units, known, respectively, as
the Southeastern Mississippi Valley Association, the Southeastern
Freight Association, and the Associated Railways of Virginia and
the Carolinas.[320] But for all practical purposes, so far as the
larger problems of classification are concerned, our attention may be
concentrated upon the three principal committees above mentioned.
Some impression of the wide differences between these three main
classifications in different parts of the country may be derived from
the set of excerpts at the head of this chapter. In three parallel
columns the alpha and omega of each are reproduced, together with bits
of one of the most complicated schedules, viz., that dealing with
agricultural implements. Even where the same commodities occur in
each classification, the diversity in description, mode of packing,
carload and other requirements, renders any direct comparison almost
impossible. The mere fact that the class assignment, as shown at the
right in each column, happens to be the same, as in the case of acetic
acid in barrels or drums which moves both in Official and Southern
Classification territory, third class in less-than-carload lots (_L.
C. L._) and fifth class in carloads (_C. L._), shows nothing at all as
far as equality of charges is concerned. For, as has been said, this
is only half the statement of the rate. The spread between charges for
different classes yet remains to be determined. The actual relativity
between third-class and fifth-class rates, moreover, may be very
different in the two places. In the New York Board of Trade case[321]
this point was well exemplified. Comparative conditions as to rates in
the three main sections of the country, as they then existed, were as
follows:
RATES IN CENTS PER HUNDREDWEIGHT
Canned
Class goods
------ -----------
Miles I. IV. L.C.L. C.L.
New York to Chicago (Official class'n) 912 75 35 65 30
Chicago to Omaha (West'n class'n) 490 75 30 28.5 25
Louisville to Selma (South'n class'n) 490 98 63 63 52
On the trunk lines fourth-class rates were thus less than half those
charged for the first class; in the West they were even lower,
relatively; while in the South fourth-class rates were about two-thirds
as high as the first-class rates. These differences in the spread
between classes, as will be seen, interlocking as they do with a
multitude of other considerations, are a serious bar to any partial
modification in the direction of uniformity for the United States as a
whole. Only by consideration of every factor entering into any given
rate may comparisons safely be entertained.
* * * * *
Historically considered, the development of freight classification has
been much the same in England and the United States. Early railway
practice was an outgrowth of the tariffs in force upon canals and
toll roads.[322] In America, freight charges were at the outset often
arbitrarily fixed by the state legislatures, as conditions precedent
to the grant of charter. In many instances they were based upon the
customary performance by wagon, distinguishing between light-weight
articles paying by the cubic foot, and heavy ones for which the tariff
was based upon weight. Thus in 1827 the charter of the South Carolina
Railroad established its tolls at one half the usual wagon charge. The
Southern Pacific in local rates on ore into San Francisco followed
along just below the charges by ox cart. The freight was proportioned
also according to the length of haul by an arbitrary mileage rate. It
soon developed, however, that railway rates were unique in the fact
that not only was there a great increase in the volume of trade, but
also in the diversity of articles offered for transportations as well.
Far more elaborate classifications were soon seen to be necessary.
The South Carolina Railroad tariff of 1855, described by
McPherson,[323] exemplified the primitive traffic conditions then
prevalent. Goods were divided into four classes. The first consisted
of articles of light weight or high value, including, for example,
such incongruities as bonnets, tea, and pianos. The remaining three
classes paid by weight with a descending scale of charges. It is
difficult to explain why coffee and sugar should be rated lower than
stoves and feathers; or why dry hides and rice should be charged a
higher rate than cotton yarn and bacon; but it is evident that a rough
classification according to weight, value, use and cost of service
was being attempted. There was in addition a considerable collection
of special rates on chosen commodities according to the method of
packing them, whether by barrel, bale or case. And there were also
what corresponded to modern commodity rates upon cordwood, lumber,
bricks, and similar goods. This tariff, though primitive, including
no less than three hundred items, was far more elaborate than those
commonly used at the time. The Louisville & Nashville originally
distinguished but three classes: one by bulk, another by weight and a
third applicable to live stock. Poultry was rated by the dozen long
after the Civil War, with a higher charge for Muscovy than for ordinary
ducks. The traffic manager of the Chicago, Milwaukee & St. Paul
testified before the Elkins committee in 1905, that the classification
in Illinois in his youth was printed on the back of a bill of lading
no greater than the size of an ordinary sheet of letter paper, and the
page was not full.
From these modest beginnings the development of classification in the
United States was rapid, responding to the ever-increasing intensity
of competition and the spread of markets, particularly after 1875. By
the middle of the eighties most of the large railways were working
under six or eight different classifications. It began to be apparent
that some check must be placed upon such increasing complexity. For
conditions were wellnigh intolerable, with one set of rules for
Illinois, and yet another west of Buffalo, divided into eastbound and
westbound sections, with still a third on westward shipments local to
territory between Chicago and the Missouri river. The first attempt
at a systematic scheme was made in 1882, but the agreements then made
proved unstable. By 1887 conditions had become insupportable, so great
was the number and the diversity of the classifications throughout the
country.[324] Some applied to local business only, and were peculiar to
each road. Some applied only to westbound business, others to eastbound
traffic. The traffic manager of the New York Central & Hudson River
testified before the Interstate Commerce Commission that there were at
one time 138 distinct classifications in trunk line territory alone.
The case of the Wabash in 1883 was typical. A shipper desiring to
determine freight rates over that road might be compelled to consult a
classification for the middle and western states in six classes; one
for the Southern Railway & Steamship Association territory in eighteen
classes; one for Mississippi valley business in five classes; one
known as the Revised Western in nine classes; the Trunk Line East in
thirteen classes; the Trunk Line West in five classes; a classification
for Texas points in eight classes; and two for the Pacific coast,
according to direction, in eight and nine classes, respectively. This
situation, rendering it almost impossible for any shipper to determine
in advance what his freight rates were going to be, as well as what
his competitor was paying, early impressed itself upon the Interstate
Commerce Commission. And it was doubtless due in part to its initiative
that classifications were shaken down into substantially their present
general form in 1888.
NUMBER OF RATINGS IN 1909[325]
Less than Carload Carload
Southern Classification 3,503 703
Western Classification 5,729 1,690
Official Classification 5,852 4,235
The natural growth of classification in a rapidly developing country
like the United States, has manifested itself in three distinct ways:
there has been a steady increase in the number of items of freight
separately enumerated; a growing distinction in rates between carload
and less-than-carload shipments; and a steadily enlarging volume of
the most elaborate special rules and descriptions. As for the mere
increase in distinct commodities enumerated, in the East in 1886
there had come to be about 1,000. The first Official Classification
in the following year increased to 2,800 items; and by 1893, in the
eleventh issue, there were twice that number. The latest Official
Classification, No. 34 in 1909, contained approximately 6,000 separate
enumerations--not many more, in fact, than fifteen years earlier.
The point of saturation, or else the limit of human ingenuity, seems
to have been about reached some years ago. The same thing was true
of the Western Classification. In 1893 this contained 3,658 items,
representing an increase of about 2,000 over the number of commodities
classified by name in 1886. By 1909, as the above figures show, it
comprehended 5,729, almost as many separate items, in fact, for
less-than-carload lots as were recognized in trunk line territory.
Only in carload ratings is the Western Classification less extensive.
The Southern Classification reflected somewhat simpler trade conditions
prevalent south of the Ohio river, by the relatively smaller number
of articles enumerated; but it should be added that the number of
exceptions--filling no less than 160 pages in the latest issue--is
indicative throughout of a lesser degree of standardization than is
found elsewhere. Perhaps the most striking feature of the southern
system is the very small proportion of carload rates. But it should
be noted in this connection that the basing point system afforded
preference to market towns in any event; so that jobbers in such places
did not need wholesale rates to the same degree. This phase of the
matter will be elsewhere discussed.[326]
The second natural tendency in the development of classification
above mentioned, is an increase in the number of separate ratings for
large and small shipments. The normal growth of trade ought to make
possible a steady increase in shipments by the carload, rather than by
the box, barrel, or case; and the increase in the number of separate
carload ratings--always, of course, at a reduced rate by comparison
with less-than-carload lots--conforms territorially to the growth
in the volume of trade. In 1877, even in trunk line territory, only
twenty-four commodities were accorded a special carload rate.[327] By
1880 the number had increased to 50, and seven years later to 160.
Just before the passage of the Act to Regulate Commerce there was no
distinction between carload and small lots in eighty-five per cent.
of the articles enumerated. A sudden change supervened in the first
Official Classification issued after the Federal Act. The number of
carload ratings was suddenly raised to 900, provoking a storm of
protest from eastern shippers who resented this advantage accorded to
jobbers in the West and South, because it enabled the latter to buy
their supplies directly at wholesale.
The dispute between dealers in the older and newer commercial
centres came to a head in the so-called New York Board of Trade and
Transportation case of 1888, elsewhere discussed. Yet notwithstanding
this protest of jobbers and manufacturers in eastern trade centres,
who insisted that they should be permitted to compete on even terms
with provincial jobbers by making their shipments direct from New
York or Boston in small lots as cheaply as the local jobber could buy
them by the carload, the number of separate carload ratings steadily
augmented year after year. By 1893 more than half of the articles
enumerated in the Official Classification were allowed a lower rate for
large shipments. Present conditions are set forth by the statistics
in the preceding paragraph. From these it appears that in trunk line
territory nearly three-fourths of the commodities now enjoy carload
ratings; while in the South, on the other hand, only about one-fifth
of them make such distinction between carload and less-than-carload
lots.[328] One reason is evident; namely, that throughout a large part
of the South few jobbers command a business of sufficient magnitude to
make use of carload shipments. It is but recently, to take a specific
illustration, that business has developed in volume sufficient to
permit of the shipment of fly paper in carload lots. Until such time no
distinction between large and small shipments could well be made.
Conditions in the West, according to these figures, are intermediate
between those in the East and the South. On the other hand,
transcontinental business, as carried on in competition with ocean
steamers, is almost entirely confined to shipment by the carload. The
Transcontinental Classification is unique, therefore, in offering but
very few opportunities for shipment by package, except under specially
onerous conditions.
The spread, in other words, between the two sorts of carriage operates
most unfavorably by contrast upon the intermountain centres. Denver,
for example, under the Western Classification enjoys no carload rates,
while competitors at San Francisco have a large number.[329]
A much more elaborate code of rules and regulations having reference to
local practices and conditions is the third accompaniment of the growth
of trade.[330] Prior to 1887, and again before the recent revival of
interest in uniform classification, conditions had become intolerable
in this regard. All sorts of details, covering relatively unimportant
differences in conditions of carriage, bill of lading contracts,
marking and packing, led to constant confusion and annoyance,
especially in cases of shipment from one classification territory to
another. An eastern shipper of iron bolts, having in mind that a gunny
sack is equivalent to a box or barrel in the East, orders a small
shipment in a bag to a far western point. He finds that bolts in bags
under the rules of the Western Classification, are specially enumerated
only for carload lots, and that he must pay a rate one class higher
for such shipment than if contained in a barrel, box or keg. This
difference in classification may more than absorb his profit. Recent
evidence before the Interstate Commerce Commission,[331] contained a
striking illustration of such local diversity in rules and descriptions
as applied to furniture.
"_Western class_: 'Bank, store, saloon and office furniture,
consisting of arm rails, back bar mirrors, bottle cases,
chairs, counter-fittings, desk, foot rails, metal brackets for
arm and foot rails, refrigerators, tables and work boards.
Note--Door, window and bar screens, partitions, prescription
cases, patent medicine cases, show cases, wall-cases,
wainscoting, office railing and wooden mantels may be shipped
with bank, store, saloon or office furniture in mixed carloads
at third-class, minimum weight 12,000 lbs.
"There is no such provision as this in the Official
Classification. On the contrary, a shipment of that kind can
only be made by figuring out the less-than-carload rate on each
article, many of which take first, double first and even three
times first ratings.
"For example, mirrors over five feet in length are classified
double first class in the official classification, while show
cases, set up, take three times first. The natural result
of this difference in classification has been to shut out
competition of eastern dealers in these articles entirely in
Western Classification territory."
Only in a customs tariff of the United States would one expect to find
any such complexity as is discoverable in railway documents of this
sort.
The mere interpretation of such classification rules is often
difficult; especially with reference to the mode of packing. Suppose a
tariff provides a certain rate on stamped metal ware in boxes, barrels
or crates and, furthermore, fixes the charge fifty per cent, higher for
shipment in bales, bags or bundles. If the consignment is encased in
corrugated straw-board, which of the two rates applies? The difference
in rates being so great, it becomes quite an item on a shipment of
fifteen carloads from Buffalo to the Pacific coast.[332] Or it may be
a question as to whether a crate for Colorado cantaloupes is actually
of such dimensions as to come in under a specially favorable commodity
rate.[333]
The growing diversification of manufactures and trade is, of course,
responsible for all three of the developments above indicated. Not only
the increasing refinement of commerce, but the technical nomenclature
or trade jargon, necessary for the specific and accurate description
of so many thousands of articles, have conspired to render these
documents extremely cumbersome in the absence of a general revision and
simplification. It is but natural that one item after another should
be added, each bearing a particular name or being classified upon
some new basis. A striking example of this increase of complexity was
afforded by the cotton goods schedule in the Southern Classification.
By 1900 there were upwards of thirty different names under which cotton
cloth might be shipped. Great complaint was occasioned, as well as
the possibility of fraud, by underclassification, etc. Most of these
thirty names did not represent different values of goods, but in
many instances were merely trade-marks of particular manufacturers.
At the urgent request of the shippers this complicated schedule was
superseded in 1900 by one comprehensive title of "cotton goods in the
piece" irrespective of color, particular method of weaving or other
subordinate details.
* * * * *
From the point of view of economic theory, the warrant for a
differentiation of charges between various classes of commodities
offered for transportation, may be considered primarily from two
distinct points of view. The first is that of operation, which
determines cost. The second is from the standpoint of traffic whereby
the value of service, so-called, is measured. The reasonableness of
making a distinction in freight rates according to the character of
goods is easily apparent, as judged on the basis of cost of service.
A multitude of factors enter into consideration at this point. The
railway ought in self-protection to charge more for hauling a thing,
if it actually costs it more in the long run to perform that service.
Some of the factors which enter into this cost were well put by the
Interstate Commerce Commission in 1897.[334]
"Whether commodities were crude, rough, or finished; liquid
or dry; knocked down or set up; loose or in bulk; nested or
in boxes, or otherwise packed; if vegetables, whether green
or dry, desiccated or evaporated; the market value and
shippers' representations as to their character; the cost of
service, length and direction of haul; the season and manner of
shipment; the space occupied and weight; whether in carload or
less-than-carload lots; the volume of annual shipments to be
calculated on; the sort of car required, whether flat, gondola,
box, tank, or special; whether ice or heat must be furnished;
the speed of trains necessary for perishable or otherwise rush
goods; the risk of handling, either to the goods themselves
or other property; the weights, actual and estimated; the
carrier's risk or owner's release from damage or loss."
Instances of approval of classification on the basis of such cost of
operation are frequently found in the decisions of the Interstate
Commerce Commission. For example, special service or equipment, as
in the rapid transport of fresh vegetables and fruit from the South,
justify the carriers in a specially high classification.[335] Rates
on live hogs by comparison with rates on hog products, as well as on
live cattle and dressed beef, have likewise been adjusted in terms of
cost of carriage. A classification on hogs yielding a rate equal to
two-thirds of that on hog products has been held equitably to represent
the relative expense.[336] Even the indefinite element of risk has
been accepted as justifying a higher classification for live stock as
compared with other commodities.[337]
Classification is less easy to defend from the standpoint of the
traffic manager alone, than from that of the vice-president in charge
of operation. Value of service is at times difficult to understand. It
is not at first sight reasonable, that of two commodities which cost
the railway exactly the same amount to transport, one should be charged
twice as much as the other. For example, the rate on anthracite coal
is very much higher than upon soft coal; the rate upon wheat is higher
than the rate upon some other foodstuffs; the rate upon fine woollen
goods is very much higher than upon coarse cotton cloth, etc.[338] It
has been urged frequently that any discrimination in the freight rate
on the basis of difference, either in the value of the commodity itself
or in the value of the service rendered, is unreasonable and unjust.
The case, however, is entirely analogous to that of discrimination
between a long and short haul of the same goods. The principle is
perfectly defensible in both cases, and has been accepted in legal
decisions as well as by economic writers for many years. It is based
upon the fact, which confronts one at every turn in a discussion of
railway economics, that a large proportion of the expenses of a railway
is independent of the amount of traffic. These fixed expenses must be
met at all cost if the road is to remain solvent. They constitute a
charge upon the entire traffic of the line, and are not susceptible
of apportionment to each unit of transportation. Any rate which
will contribute a surplus, small or large, above the mere cost of
transportation,--that is to say, above the expenses incident to this
particular carriage,--and which thereby lessens by the amount of that
excess the burden of the fixed charges remaining upon other traffic,
is justifiable. But it is defensible only under two conditions. The
first is that the goods at any higher rate will go by another route or
not at all; and the second is that the effect may not be detrimental
to the general course of business,--that is to say, that it is not
opposed to the public welfare. Thus a long haul at a lower rate than
the rate charged for a shorter haul, if it must be lower in order to
secure the business, constitutes no injustice to the local shipper;
for the surplus remaining above the cost of haulage of that particular
increment of freight lessens thereby the charge which must be made
upon local freight for meeting interest on bonds, maintenance of way,
and equipment expenses, etc., all of which charges, as we have seen,
go on more or less independently of the traffic. On precisely the same
grounds a discrimination of freight rates in favor of the cheaper
commodity or the less valuable service may be defended. Coal or sand
may reasonably be carried at two and one-fourth mills per ton mile,
while the road is coincidently charging three or four times as much
for hauling dry goods or fine hardware. For if a quarter of a mill
per ton mile can be earned above the expenses incident to hauling
that sand or coal, it enables the rates on the dry goods or hardware
to be maintained at a lower point than they otherwise would be. It
is unnecessary to elaborate this principle further. It is everywhere
accepted as valid. And it in a measure substantiates Mavor's statement
that "freight rates, like rent, are rather the effect of price
movements than the cause of them." When tariffs are high because prices
are high, we are afforded a fair illustration of value of service as an
element in rate making.
Value of service, therefore, as affording a warrant for classification,
has also been recognized in a number of Interstate Commerce decisions
since 1887. A relation between the grade of the charge and fluctuations
in the market price of the commodity--in other words, charging what the
traffic will bear--is at times discernible. It is to the interest of
the public that carriers should be satisfied with relatively smaller
profits from the transportation of commodities of low price which are
in general demand.[339] Under these circumstances changes in price of
such staple commodities as iron and steel or the lower priced grains,
should be reflected in a corresponding modification of rates.[340]
Akin to this is recognition of a relation in general between the value
of a commodity and its classification. Where, for example, articles
representing different stages of manufacture have to be graded, it
is but fair that the raw material, or the partly-made product should
be graded lower than the finished article.[341] Similarly, articles
which may fairly be substituted for one another ought to be classified
with reference to their common market value.[342] The relative value
of commodities, as controlling classification, clearly governs the
treatment of hard and soft coal.[343] The practical difficulty, of
course, is to know where to stop in admitting such considerations.
Shall "small-vein" soft coal, because it cannot compete on even terms
with the "big-vein" product, be accepted for carriage on a more favored
basis?[344] Some rather nice questions, both of business and public
policy, would be suggested by such a precedent.
Different classification of the same commodity according to the use
to which it may be put, is evidently an attempt to grade according
to value rather than cost of service. Automobile parts may come in
from the wheel-maker at second-class rates, but when they go out to
jobbing houses they are rated three times first class.[345] A number
of cases of this sort have come before the Commission. Shall cow peas,
for example, be classed with corn and oats as agricultural products in
one case, while according them a rating with commercial fertilizers in
another, inasmuch as they may become an active agent in nitrogenizing
soil?[346] More recently the Commission has declined to recognize the
validity of classification on this basis. Thus brick is always to be
charged the same without regard to whether it is for fire, building
or paving purposes.[347] Unusually low rates for steam coal used by
carriers and open only to certain shippers for this or other particular
purposes, likewise have been forbidden.[348] The carriers have
attempted to distinguish in grade between dried fruit and raisins. For
the two industries call for relatively different protection against
old-established competitors.[349]
As actually effected in practice, classification of freight seems
to have been largely empirical--the result of long experience in
sympathetically feeling the pulse of the business community. In the
main, despite their denial of the validity of cost as an element in
rate making, traffic managers and the Interstate Commerce Commission
seem to have been swayed more commonly by this consideration in the
make-up of schedules. Nevertheless, charging what the traffic will
bear, as a principle, will suffice alone to explain many of the details
of classification now in force. Rates have been adjusted so as to
secure the largest amount of business possible at the highest rate
compatible with that volume. In other words, traffic managers have been
mainly influenced by the consideration well stated by a witness before
the United States Industrial Commission: that, "a freight tariff is
made as it is, not because it ought to be that, but because it must
be that." The procedure of classification committees seems, in other
words, to have been mainly based upon considerations of revenue, and
that, too, without any very positive evidence as to details.[350]
Rule-of-thumb experience, therefore, is mainly represented in
classifications of the present time; that is to say, an adjustment
of freight rates upon different commodities to suit the commercial
conditions which have happened to prevail at any given time. All of
which emphasizes still further the need of scientific revision of these
most important schedules, preferably by the carriers themselves, but by
public authority if commercial inertia be too powerful to be overcome.
The spread of a classification,--that is to say, the graduation of
rates as between all kinds of goods, from fine silks to lime and sand,
or from aeroplanes, "set up," to pig iron, "knocked down,"--is not
constant. How shall this be theoretically justified? At first sight
it would appear as if the relativity of charges between different
things, as determined by cost or value of service, ought to remain
fixed; that is to say, for example, that rates on raw hides fairly
standing at one-half of the charge for shoes, ought to remain always
and everywhere at this ratio. Advocates of a rigid classification
prescribed by public authority seem often to assume that this could be
brought about. But a moment's consideration of the nature of a tariff
as it has already been described will show that this is impossible. The
spread or gradation, far from being fixed, must in the nature of things
ever vary from place to place with change of trade conditions. The rate
on raw hides relatively to that on shoes in New England--the centre of
manufacture for footwear--should be very different at Kansas City or
Chicago, whence the raw hides are derived: different alone, if for no
other reason than because hides, moving east, progressively add the
cost of carriage the farther they go; while with shoes the augmentation
of value goes on in the opposite direction, geographically. True as
between commodities, the same inconstancy of ratio also holds good as
between different points along a given line. The rate from New York
to Durham, North Carolina, for example, on first-class freight may
be fifteen per cent. above that for freight of the second class; the
second class maybe twenty per cent. above that of third class for this
distance, etc.; yet the divergence between these same classes for
another distance, as between New York and Jacksonville, Florida, may
be quite different,--twenty per cent. between first and second class,
twenty-seven per cent. between second and third, and so on. This is
indeed rather a difficult matter to understand.
This ever-changing spread of rates from place to place, as between
different commodities and with all possible combinations of the two,
may be clearly explained by reference to the diagram at page 108,
showing the gradation of charges by distance for different goods. Is
it not plain that the spread between commodities at any given place is
indicated by taking a vertical cross section of the diagram at that
point? We have already seen that the curves, rising with increase of
the distance, do so by different degrees. They cross and recross,
making an intricate lace work of lines, because of the fact that
while cost, in general, may increase more or less proportionately to
distance, competition in its ever-varying forms, plays all sorts of
pranks with the rates from point to point. The rate at any station is
shown by the height of the curve on the vertical line for that place.
Even, however, if the curves never crossed, but rose by evenly spraying
out from the point of shipment at one end of the line, as in the case
of those for the three upper classes, their relative heights would
constantly change with distance. But owing to the complexities of
competition the onward and upward movement of the curves for particular
commodities is usually much more erratic than this. Some goods, like
children, "get their growth" early. They soon attain the level of all
the charge they can ever bear. Others distribute their development
over a much greater distance. Sometimes, as we have observed, the coal
curve will be above the wheat curve; sometimes it will be below. In
other words, the vagaries of these sloping lines cause the vertical
cross sections, indicative of spread, to vary from point to point all
along the line. Such a thing as constancy of ratio between classes
or particular goods is, in the nature of transportation things,
impossible. This is a matter of fundamental importance, especially
in its bearing upon the proposition, soon to be considered, of
substituting a single uniform classification under government authority
for the present threefold system. Moreover, it demonstrates the great
commercial disturbance which might ensue from a general advance of
freight rates by an indiscriminate transfer of commodities from lower
to higher classes, such as was attempted in 1900. Such procedure is
altogether illogical, and economically as upsetting to trade as a
general "horizontal" increase or reduction of a customs tariff.
* * * * *
Commodity rates as a means for enabling shippers to reach beyond
their immediate territory and gain an entrance to new markets, form
an entirely distinct variety of charges from those quoted in the
classified tariffs. These are special rates made to suit particular
contingencies,[351] although, of course, under the law they must be
filed with the Interstate Commerce Commission in the same manner. Such
commodity rates, however, do not apply to persons but to localities.
Although granted to shippers in a particular place to build up an
industry, the privilege of shipment under the same conditions is
theoretically open, of course, to all others at that point. Such
commodity rates naturally apply to three sets of commercial conditions:
they either govern large shipments for long distances, as in the
case of live stock; or, if for short distances, they are confined to
commodities of the very lowest grade, such as lime, sand or paving
blocks; or else they are introduced to meet special conditions, such as
an irregular market or rapidly fluctuating competitive circumstances,
as in the case of goods for import or export. Such special rates are
almost invariably granted for carload lots alone. The reason is,
naturally, that it would not be worth while to make an exception to the
classified schedules for less than that amount. Moreover, it should
be observed, special rates of this sort are often introduced in order
to meet changeable competition, such as by steamship lines engaged in
export or import business. The classified ratings change but little,
and oftentimes remain the same for many years. But in all cases where
fluctuating conditions have to be met, commodity rates by the carload
are likely to appear. This is one reason why the transcontinental
tariffs, exposed to competition either by the Cape Horn or Panama
water routes, contain so large a proportion of commodity or carload
ratings.[352]
Exceptional or commodity rates are also commonly found in a territory
like the southern states, where manufactures are struggling to maintain
a foothold. If it appear that a new industry can maintain itself
in competition with already established industries elsewhere only
by a concession in charges, the traffic manager may elect to grant
a commodity rate until such time as the industry has been placed
firmly upon its feet. The tonnage moving under commodity rates in
such circumstances may be much greater than that included under the
classified schedules. Attention has already been drawn to this fact,
but it merits still further comment. Probably three-fourths of the
business of American railways is done under such special rates. This
is apparently a higher proportion than rules in foreign countries with
the possible exception of England. Yet it is important to notice that
the revenue obtained from such traffic is relatively much less than the
tonnage, inasmuch as most commodity rates are confined to low-grade
goods. Whether such exceptions to the classified tariffs are on the
increase or not is open to question. The evidence tends to show that
special rates granted in connection with industrial development tend
to increase up to a certain point. Commodity rates, for example, are
said to be much more important in the West than they were fifteen
years ago.[353] But, on the other hand, industrial conditions having
once become standardized and assured, the natural disposition of the
railways is to substitute regular schedules for a multiplicity of
special rates. The dilemma is that such a special rate once allowed,
is exceedingly difficult to withdraw. An earnest attempt was made by
the trunk lines in 1899 to retire a large number of these commodity
rates. It then appeared that the New York Central & Hudson River
Railroad had no less than 1,370 on file. Opposition naturally arose to
the cancellation of these--an opposition less easily overcome because
of the complication that the withdrawal of commodity rates meant
practically the abolition of carload ratings. Such action, therefore,
looking toward simplification of tariffs, threatened substantially to
disturb all the existing commercial adjustments. Nevertheless it is
encouraging to note that a distinct reduction in the number of separate
and independent rates put into effect is apparent since the recent
extensions of Federal authority. The following table, covering the
tariffs officially filed at Washington since 1906, is proof positive of
great improvement in this regard:
FREIGHT SCHEDULES FILED WITH THE INTERSTATE COMMERCE
COMMISSION
1896 131,597
1906 193,995
1907 187,041
1908 161,584
1909 129,294
1910 109,550
1911 93,821
A reduction of more than one half within five years is matter for
public congratulation.[354]
Special or commodity rates for the maintenance of equilibrium between
competing markets fall naturally into several distinct groups.[355]
In the first of these, concerning commodity rates on grain and grain
products and cotton, production takes place over a vast extent of
territory and the products are marketed in places widely remote from
one another. The problem under such circumstances is mainly that of
securing equalization through different gateways.[356] In the case
of wheat it is a question first of concentration at primary markets,
such as St. Paul, Kansas City, or Chicago; and thereafter of carriage
by competitive routes whether by the way of the Gulf, by any of the
various Atlantic seaports or by the St. Lawrence River. Commodity
rates are thus determined in this first class of cases mainly with
references to competition of routes. On the other hand, when production
is spread over a considerable territory, but when transportation is
thereafter effected along converging lines to a fairly localized centre
of manufacture, the problem of equalizing conditions, competitively,
by the resort to commodity rates, has mainly to do with competitive
conditions at the place of production. Rates on wool to the highly
localized markets of the world afford illustration of this second
type of commodity rate problem.[357] Commodity rates upon fruits and
vegetables to common markets from such widely separated sources of
supply as Florida and California or the equilibration of conditions of
production for coal or lumber from the most widely scattered sources of
supply, are perhaps the most difficult of all to settle satisfactorily.
* * * * *
The amount of reduction to be allowed on shipments by carload as
against consignments in small lots is a nice and most perplexing
problem in classification. Attention has already been directed to
the great increase in distinct carload ratings which has accompanied
the development of trade. As affecting the interests of shippers in
different parts of the country, the question came up almost immediately
after the passage of the Act to Regulate Commerce. In the so-called
New York Board of Trade case,[358] complaint was entered by eastern
merchants against a great increase in the number of wholesale ratings
in 1888. More than five times as many commodities as before were
abruptly given lower rates when shipped out of New York by the
carload. Inasmuch as a very large proportion of groceries and other
supplies went by box or package, this reduction accorded on carload
shipments greatly benefited the jobbers all through the West and South.
Under new conditions provincial middlemen could buy in carloads; and
then re-distribute from local centres much more advantageously than
before. The Commission, called upon to decide as to the relative rights
of these two classes of jobbers, attempted to bring about an adjustment
which should, in the main, conform to the existing trade conditions;
and yet should take into consideration the relative cost of service
in the two cases. The competitive struggle between eastern and both
southern and western dealers revealed in these early proceedings, has
cropped out continually in official proceedings ever since that time.
In a modified form the same question came to the front in connection
with the general advance of freight rates in 1900.[359] The changes at
this time were twofold--not only modifications in the number of carload
ratings, but also an altered differential or spread between the charges
for the two sorts of shipments. The question is a vital one to all the
shipping interests of the country. It is one of the most troublesome
elements in the establishment of a uniform classification for the
United States as a whole. For inability to standardize reasonable
differences between carload and small shipments, under the widely
different trade conditions and practices in various sections of the
country, is an almost insuperable difficulty in the way of that reform.
The economic justice of allowing a carload shipper lower rates than one
who ships in small lots is apparent, on account of the difference in
the cost of such service to the railways. This has been recognized by
the Interstate Commerce Commission and the courts as beyond question.
Not only the amount of paying freight in relation to dead weight; but
the cost of loading and unloading, of billing or collection and of
adjusting damages--all of these elements of cost are noticeably less
in the case of a full carload. Turning from these considerations of
cost to those prescribed by what may be called traffic principles,
the difficulty in arriving at a just determination may be easily
appreciated. Glass battery jars in less-than-carload lots were at one
time charged from New York to Atlanta, Georgia, second-class rates,
namely ninety-eight cents per one hundred pounds. The same commodity
when in carload shipments (not less than 20,000 pounds) was rated as
fifth class; in which case the charge from New York to Atlanta became
sixty cents. Here was a plain difference of thirty-eight cents per one
hundred pounds--upward of sixty per cent. greater charge--to the small
shipper whose business or capital was insufficient to warrant shipments
to such an amount. Two results of such discrimination are possible. In
the first place, the large shipper is enabled to undersell his smaller
competitor and perhaps to drive him out of that class of business. This
may take place as between two dealers, both located in the South and
buying their supplies from New York. The second result is that under
such rates it is impossible for the manufacturer or northern jobber to
sell direct from New York to the retailer in the South in competition
with the provincial jobber there located, who ships his goods in at the
cheap carload rate and distributes them thereafter. The problem thus
concerns at the same time both the small local shipper or dealer, as
against a more formidable provincial competitor; and also the remote
jobbers as a class against the whole group of local middlemen. In the
latter case, sometimes, as in the South, the question is still further
complicated by a basing point system, under which the provincial jobber
re-distributes to the country stores the goods which have already been
shipped in on a low carload rate.[360] And, locally, there is also the
immanence in the South of water competition by sea and river to be kept
in mind. Boat charges are based upon space requirements rather than
weight. This introduces further important considerations in fixing the
spread of charges.
The problem as it affects the manufacturer is akin to that concerning
the jobber. Originally, as a matter of fact, the carload reduction was
essentially a manufacturers' rating, especially for goods in which
the cost of raw material formed a large part of the price of the
finished product. The relations of the carload rate on the former to
the less-than-carload rate on the latter, it is obvious, may readily
become an important element in industrial success. It is plain enough
that carload charges under such circumstances should be substantially
less than those upon small consignments; but that is far from affording
a satisfactory answer to the question as to the proper spread or
difference in charge to be allowed between the two.
Obviously, in any representation as to the reasonableness of the
discount which shall be allowed on carloads, either on the basis
of cost or of traffic principles, the interests of localities are
commercially pitted one against another. The New York or Chicago
jobbing house desiring to sell its goods directly to the retailers
throughout the West, wishes to have a relatively low rate on such
small shipments as the retailers in lesser places alone can afford to
purchase. Participation in this distributing business, however, is
resented by the middlemen located in western centres--Omaha, Denver,
Kansas City, etc.--who all insist that there should be so wide a
difference between carload and less-than-carload rates that they may
ship in their wholesale purchases at a low rate, and thus compete
in their own territory with the manufacturer in the East or the
jobber in New York who desires to sell direct.[361] Comparison of the
classifications in different parts of the country reveals the influence
of these local interests. The railways in Official Classification
territory desire, of course, to build up the manufacturing and jobbing
cities tributary to them. This can best be done by encouraging the
growth of eastern jobbing centres, stimulated by as low rates for
retail as for wholesale shipments. The railways in the western and
southern territory, on the contrary, are obliged to consider the claims
of their constituents, and to correspondingly minimize the advantages
which foreign competitors of their local wholesale dealers enjoy.
Another consideration must also be kept in view, namely, that carload
ratings can only be accorded when business has developed a magnitude
sufficient to permit shipments of that size. The growth of the volume
of business in general, therefore, might be normally expected to
produce an increase in the proportion of carload ratings. Experience,
as we have seen, confirms this view. The normal development, then, is
toward an increase in the number of lower rates quoted for carload
lots. This is retarded only by the influence of the jobbers and
manufacturers in the eastern trade centres, who insist that they shall
be permitted to compete on even terms with provincial middlemen by
making their shipments direct in small lots at rates approximately
as low as the local jobbers pay on carload lots. This question is an
exceedingly important one, requiring the balance of opposing interests
to a nicety.
Not unfamiliar aspects of the problem of carload rating are revealed
in a recent case before the Interstate Commerce Commission, concerning
milk rates in New England.[362] And yet the normal order is reversed.
Usually, complaint is made of the denial of carload ratings. In this
instance a plea was entered for a useable small unit rate as against
the wholesale charge. The dispute was precipitated by a deadlock in
1910 between the three large Boston milk contractors and the farmers'
associations of several states. The producers, failing in their demand
for an increased price, declined to furnish milk at the old figure.
A famine resulted, which drew the attention of the public sharply
to the system under which the Metropolitan district of Boston was
supplied. The belief prevailed that the peculiar transportation
conditions known as the "leased car system" which had existed for half
a century, was mainly responsible for the tight monopoly of the milk
supply. Under this arrangement specially low charges were allowed to
those who made shipments regularly by the carload. The Massachusetts
legislature, after an investigation, finally passed a law providing
that no carrier should charge more for the transportation of milk by
the can than was charged for larger quantities; and also that the same
facilities, icing, for example, should be furnished in the one case
as in the other. This settled the intrastate charges; but it left
matters as before for all the other New England states contributing
to the market. In this form the controversy was brought before the
Federal authorities, which exhaustively considered the methods of
transportation as affecting all parties concerned. The contrast with
the older elastic situation as to milk ratings in New York was sharp in
many respects.[363] This earlier controversy had to do mainly with the
relative rights of nearby and distant producers. It was a question of
the element of distance as affecting a local or territorial monopoly.
The Boston case, on the other hand, was rather a matter of carload
ratings than of graduation of charges according to the length of the
haul. The monopoly in this instance was that of contractors who had
succeeded in getting entire control of the business by reason of the
wide spread between charges for milk by the can and by the "leased
car." Shipments by the can from the independent farmer were rendered
practically impossible since they had to be carried in the baggage car
and were liable to spoil through lack of refrigeration.
By contrast with the New York "open car system," the New England plan
from the standpoint of cost of service alone seemed to offer several
advantages. A caretaker, hired by the milk contractor and in constant
personal touch with the farmers, exercised supervision both over milk
and cans; this insured a heavier loading and more prompt service at
terminals; resulted in the operators providing the best facilities
for handling the supply; and allowed surplus milk to be directed to
other uses without waste. A large investment had been made under this
system, dependent upon its continuance for a reasonable return. On
the other hand, denial of equally low rates with the same facilities
for refrigeration to the single-can shipper, had undoubtedly fostered
monopoly. The railways, conforming to the new Massachusetts law
above mentioned, offered to furnish and operate a car suitable for
independent shippers on condition that six hundred cans should be
tendered for shipment. But they denied obligation to furnish icing
facilities, which latter, of course, were absolutely necessary for
the success of the competitive service. To be sure, the leased car
controlled by the contractors had been theoretically open to all, on
condition of a small charge for icing; but the farmers contended that
independent shippers ought not to be compelled thus to deliver over
their property into the hands of competitors, with the accompanying
exposure of their business relations. In the light of all these
complications the Commission decided that a _per_ can rate with the
necessary refrigeration, and bearing a proper relation to the carload
rate, ought to be established. And there the matter rests at this time.
The problem of mixed carloads, also, is a difficult one to adjust
to the needs of primary and secondary distributing points.[364] It
is oftentimes of vital importance to a small jobber to be able to
make up a carload of miscellaneous packages. His business may not
be large enough to permit him to enjoy the advantage of a carload
rate on any single commodity. Or the independent meat packer may be
greatly benefited by a rule which permits him to bulk his soap and
other by-products with other goods in securing a wholesale rate. Why
may a paper manufacturer not combine paper bags and wrapping paper
in one territory as well as another? In this regard the rules in the
West and South are naturally much less liberal than in the East. The
privilege of mixture has been given only to a limited extent to jobbing
and manufacturing centres by means of commodity tariffs. Such mixture
is usually restricted to analogous articles, such as agricultural
implements, furniture or commodities intended to serve a joint purpose.
The recent bitter protest against the discontinuance of the right to
ship binder twine with agricultural implements is a case in point. On
the other hand, eastern railways are a unit in opposing the bulking
of separate shipments in carloads when owned by different shippers.
The western and southern roads do not specially forbid it. All such
differences come to the fore in any attempt to unify the practice of
all the carriers of the country under a single set of regulations.
* * * * *
Assuming the reasonableness of a difference in charges between carload
and small shipments, where shall the dividing line as to size be drawn?
This is the important and perplexing problem of minimum carload rates.
Turning to our excerpt from the Western Classification on page 298,
it appears that 24,000 pounds of advertising matter, N. O. S. (not
otherwise specified), must be shipped at one time in order to warrant a
carload rate. Under such circumstances a consignment of 20,000 pounds
would be classified first instead of third class--the difference in
rate varying according to distance, but in all cases being substantial.
Between St. Louis and St. Joseph, Missouri, for example, the charge
would be sixty instead of thirty-five cents per hundredweight. Were
the minimum weight for carloads but 15,000 pounds, as in the case of
harvesters under the Southern Classification, this particular shipment
of advertising matter would have enjoyed the full benefit of wholesale
charges.[365] From this instance it is apparent that the point at
which the minimum carload weight falls, is of great importance in
the determination of the actual rate--an importance also dependent,
of course, upon the spread between carload and less-than-carload
charges. It is also evident that minimum carload ratings may readily
be used as a means of advancing charges. If, as appeared in a recent
case,[366] the minimum carload for wool in sacks was advanced between
1896 and 1912 from 15,000 to 20,000 pounds, the effect upon the shipper
of a consignment of 18,000 pounds, for example, would be as truly
an increase of charges as if the freight rates themselves had been
actually advanced. For under the new schedule, he would be compelled
to pay less-than-carload charges instead of the lower carload rates
formerly granted. Moreover, it is apparent that minimum carload weights
may enter seriously into commercial competition in a number of ways.
If 45,000 pounds of raw cotton by a special round-bale process can be
loaded upon a standard car; when but 25,000 pounds of the ordinary
square bales could be carried by the same equipment; it is evident
that tariffs based upon the higher minimum would especially favor
one set of competitors as against another.[367] They might, in fact,
be sufficient to turn the scale entirely in favor of the round-bale
system throughout the South. Granted, however, that such heavy loading
makes for economy in operation, it is clear, nevertheless, that the
carload minima must be so established as not to discriminate against
the great bulk of shipments of the more common sort. All along the line
one meets with such illustrations of the bearing of the minimum carload
upon rivalry in business. Large shippers are continually striving for
a high minimum. The small shippers oppose it for the same reasons. In
a similar way the interest of the manufacturer distributing his goods
direct, in competition with middlemen, is vitally affected.[368]
Car capacity, both as regards ability to load and carry economically,
is the principal factor in the determination of minimum carload rates.
It is largely a question of relative cost of operation.[369] Reference
has already been made to the great economy incident to the use of
large cars, whereby the paying load becomes less in proportion to the
deadweight. This, of course, largely accounts for the steady increase
in carload capacity in recent years. But the question is even more
complicated. An adjustment must be made between two main groups of
freight: first, that which is sufficiently heavy to be readily loaded
to the minimum weight in ordinary cars; and, secondly, light and bulky
goods of which the common car will contain but a small proportion in
bulk of its truck capacity by weight. Fortunately, we may evade the
moot point, theoretically, as to whether a carrier is entitled to the
same revenue from a given vehicle, whether it be loaded with heavy
or light goods; that is to say, whether the rate ought properly to
decrease per pound with increase in the density of the lading. This is
a technical matter as to cost. But it carries certain implications of
considerable importance commercially, as will shortly appear.
The difficulty of conforming carload minima upon light and bulky
articles to those on heavier goods has appeared with each attempt
to standardize equipment. Widely divergent rules in the three main
classification territories still cause great confusion in this
regard. There is a constant temptation to construct extra long or
wide cars, particularly in the western states, in order to assist
the manufacturers of such light and bulky products as furniture and
agricultural machinery in their competition with dealers in the
East, shipping under Official Classification requirements. In other
words, the penalty carried under the rules as to minimum carloads,
for the use of cars larger than the standard, has been much less in
the West than in the East and South. The situation has been further
complicated in some instances by the arbitrary action of state railway
commissions. The experience in this regard is illuminating, as again
showing the extreme delicacy of adjustment in such matters under the
stress of commercial competition. The short-line distance between the
Missouri and Mississippi rivers lies entirely within the state of
Missouri. It governs, as we have already seen,[370] the entire rate
structure in this part of the country. This commonwealth some years
ago by law fixed a carload minimum of 20,000 pounds for furniture,
agricultural implements and wagons.[371] As it is not practicable to
attain this minimum load on an ordinary standard car, the Missouri
shipper was stimulated to demand larger equipment in order that he
might avail himself of the lower rate for carload lots. The local
railways, accordingly, built such cars, which, of course, travelled
far beyond the limits of this single commonwealth. This forced other
western roads, in order to protect their clients in the same markets,
to adopt a similar policy. The result is that extra large equipment is
relatively more common throughout this territory; thereby conferring
a distinct advantage over their eastern competitors upon western
shippers of such light and bulky freight. In pursuance of this same
protective policy, the western roads have also enforced distinctly
favorable rules as to carload lots applied to several small cars
instead of one large one.[372] These troublesome details are given
in the hope that they may show how far the ramification of trade
competition extends. They re-enforce the conviction that any reform of
classification is a matter of extreme difficulty; and, if undertaken
at all, must be done under governmental compulsion and by a single
universal reform, rather than by any attempt at piecemeal improvement.
Next to ability to load and carry, as a determinant factor in fixing
minimum carload weights, the consuming capacity of the market must be
considered. A reasonable minimum carload in the East might well be
unfair in the West or South. An old-established factory in New England
might satisfactorily use a quantity of raw material which in a carload
lot would overwhelm a western or southern plant. Thus it comes about
that minimum weights on the same goods quite properly vary widely in
different territories; being higher in the East than in the West, and
least of all in the South. The problem, therefore, of standardizing
carload rates throughout the country, unfortunately becomes exceedingly
difficult. A compromise will fail to satisfy anybody; and, moreover,
such a change of minimum carload weights at once necessitates a
remodelling of the particular distance tariff to which it applies. This
point was well illustrated in a recent case.[373] A railway accepted
for the same carriage at different times two carload shipments of
lime from a given concern. On the one, a rate of thirty-four cents
per one hundred pounds was based upon a minimum carload weight of
24,000 pounds. On the other twenty-nine cents was assessed upon a
minimum of 30,000 pounds. The carrier alleged that these differences
in rates per pound were entirely compatible in view of the difference
in carload minima. It then appeared that these minima, especially
with a perishable commodity like lime, varied considerably according
to destination. Large distributing centres were given low rates on
high minima, while small towns, consuming relatively less, were best
served by a lower carload minimum to which a higher rate per pound was
applied. In other words, the close interrelation between the rate and
the minimum was a matter of great commercial importance.
The relation of carloads to consuming capacity of the market is an
element in the trade policy of protection to clients extended by
the railway. The difficulty of properly relating rates upon raw and
finished products has already been discussed. Carload minima must
also be considered in this connection. Why should 50,000 pounds be
prescribed as the carload limit on corn to Texas points, when the
limit on corn-meal is only 30,000 pounds? Evidently differences in
loading capacity are inadequate as an explanation. Nor can this be
accounted for on the ground of any difference in mere cost of carriage.
The explanation is purely commercial--springing from the competition
between northern mills and mills located in Texas, both making use
of raw material from the same fields. A heavy carload minimum is
entirely practicable on corn for the Texas miller; but an equally heavy
carload requirement on corn-meal would shut out the northern miller
entirely from many local points. For the market at these small places
is, of course, relatively restricted.[374] There can be no doubt that
every feature of classification, even down to the last minute details
of carload minima, stands in such intimate relation to commercial
competition, that to disturb it in one regard may entail the most
far-reaching consequences.
* * * * *
Ever since 1888 the constantly increasing elaboration of the three main
classifications in force, with all the resulting inconsistencies and
overlappings, has led to a persistent demand for the introduction of a
single uniform classification for the entire country. Soon after the
passage of the original Act to Regulate Commerce in 1887, a resolution
passed the House of Representatives directing the prescription of such
a classification. Apparently the Interstate Commerce Commission was
fully alive to the difficulties of such an undertaking. The railways
were induced to move in the matter, but to no purpose.[375] This first
abortive attempt reflected the mutual jealousies of competing roads,
as well as the difficulties of suiting a single classification to
the variety of local conditions existing throughout the country. All
that was done was the recommendation of a "Board of Uniform Freight
Classification," comprising two members from each of the important
territorial bodies and including both the Mexican and Canadian
carriers. Changes were to be made by a two-thirds vote. Jurisdiction
over the tripartite division of territory, east, south and west, was
to be assigned to district chairmen. Final authority for the country
at large was to be vested solely in the whole board. The absolute
refusal of the New York Central & Hudson River to accede to this plan
prevented its acceptance. Apparently too many special or commodity
rates were in force upon its line, in order to hold its powerful
clients in markets all over the country, to make it practicable to
adopt the scheme. Efforts toward uniformity were renewed in 1890,
confined this time, however, to an attempt to merge the Official and
Western Classifications. But the same jealous regard of local interests
in each territory, especially with reference to the treatment of
carload ratings, once more proved an insuperable obstacle. The trunk
lines insisted upon such specially low charges on small shipments
as would enable manufacturers and jobbers in the East to hold their
markets in remote districts in competition with rivals in the Middle
West. The issue raised in the New York Board of Trade case, previously
discussed, led to the defeat of this plan.
A notable revival of interest in uniform classification under
governmental authority has taken place since the enactment of the
Mann-Elkins amendments to the Interstate Commerce Law in 1910. An
independent bill in Congress to authorize the enforcement of such a
schedule failed. The railways were stimulated, however, to make a
further attempt to solve the difficulty.[376] Protracted sessions
during 1907-1908 by a conference of five representatives from different
parts of the country, known as the Uniform Classification Committee,
led to many concessions and compromises in favor of harmony. The
committee expressed its belief that a uniform classification could
be drawn up in time; but it emphasized the important point that
all changes in classification must be accompanied by such advances
or reductions in the distance tariffs as to insure the prevailing
commercial adjustments.
The latest advertisement of the difficulties of uniform classification
took place in connection with the attempted introduction in 1912 of
various amendments and reforms proposed by this Uniform Classification
Committee.[377] Acting in conjunction with the National Association
of Railway Commissioners, an earnest attempt seems to have been made
to eliminate differences between the three great schedules. Few
articles were actually shifted from one class to another, the effort
being concentrated upon the establishment of more uniform rules
and descriptions. It was alleged by shippers that more often than
otherwise, these changes had brought about an advance rather than a
reduction of charges. It is difficult to decide as to this. But it is
clear that progress in the direction of uniformity is taking place.
For example, the minimum carload weight for paper, once varying greatly
in different parts of the country, was fixed at an intermediate figure
which fairly satisfied conflicting interests. Many opportunities for
personal discrimination were also eradicated. Grading according to
value, for instance, has in the past been a prolific source of abuse.
Candy at less than fifteen cents a pound rated third class, but if
of higher value moving on first-class rates, offered an incentive to
false declaration on the part of unscrupulous shippers which was very
properly eliminated. Abolition of the distinction between finished
stationery and flat paper, put an end to possible underclassification
in the same way. Naturally the carriers in abolishing such fine
distinctions, grade upward rather than downward. Much objection was
also made at this time to beneficial modification of the rules for
mixed carload shipments. Binder twine had for years been classified
with ploughs and harvesters rather than with ropes and cordage. Half
a carload of agricultural machinery, therefore, with half a carload
of twine, formerly moving under carload rates, was no longer, as
proposed, to be allowed the privilege of mixing. Similarly, abolition
of the right to bunch wood-working and iron-working machinery
naturally aroused protest. Such details are here offered, not because
of their intrinsic importance, but as illustrating the opposition on
behalf of shippers to any movement toward uniformity, even in these
minor details. What the force of this opposition would become, were
propositions advanced for shifting thousands of articles bodily from
one class to another, may be readily imagined. The experience thus far
obtained, emphasizes the point that any considerable improvement must
be carried through, if at all, by direct pressure from governmental
authority, not upon the carriers alone _but upon the shippers as well_.
The degree of complexity at the present day incident to overlapping
and conflicting jurisdiction of the several state and railway
classification committees and associations, may be best described
by means of a few examples.[378] Traffic originating in Southeastern
Freight Association territory, except Florida, destined to cities in
trunk line territory is governed by the Southern Classification all
the way if moving on through rates; if on local rates, the Official
Classification applies north of the Ohio river. From "Green Line
territory"[379] to Pacific coast terminals, the Southern Classification
governs to the Mississippi or other gateways; the Western
Classification beyond. But if it originate in Louisiana or Mississippi,
the Western Classification governs all the way. From most places in
Tennessee, Western Classification rules govern all the way, "subject to
commodity rates or less-than-carload consignments, classified not lower
than fourth class." To Wisconsin from points throughout the South,
the Southern Classification governs all the way. But to Minnesota,
generally, Southern rules govern to the Ohio river crossing, while
Western rules apply to the balance of the trip; unless the goods move
through trunk line territory by way of the Virginia gateways, in which
case the Official Classification is effective. These are only a few
samples chosen from a large collection. Is it any wonder that to the
uninitiated, rate making under such conditions appears to be almost a
superhuman task; and is it surprising that to the unscrupulous, such
complicated conditions give rise to more or less successful attempts at
evasion of published rates?
The present threefold territorial division of the country, for
the purposes of classification, naturally affords all sorts of
possibilities in the way of veiled discrimination, not merely as
between persons but as affecting the interests of different competing
markets. Not only is there liability to confusion, but the way is
paved for all sorts of favoritism. Wherever shipment is made from one
classification territory to another, it is always possible to adjust
the rates with a view to local advantage. For instance, one of the
principal causes of complaint in the South is the advantage which
Nashville, Tennessee, enjoys through having all of its rates from
eastern and northern centres made upon the Official Classification.
Inasmuch as the rates under the Southern Classification are
considerably higher, this operates to place other competing cities in
the South under a distinct disability in competition with Nashville. It
is possible, therefore, for the Louisville & Nashville by this means to
build up one community at the expense of another. The same device gives
Richmond, Norfolk and the other Virginian cities a great advantage
over their competitors.[380] Again, rates from New York to Memphis and
New Orleans are made upon the Official Classification, by whatever
route; while to intermediate points, such as Vicksburg, Natchez,
and Baton Rouge, they go on the rates prescribed by the Southern
Classification, which are considerably higher. From New York to St.
Paul through Chicago, shipments are made on the low rate basis of the
Official Classification; while from Chicago to St. Paul they go under
the Western Classification. From Birmingham, Alabama, to St. Paul,
the rates as far as Chicago are based upon the Southern schedule, and
from thence on under the Western. From San Francisco to St. Paul, the
Western Classification prevails, unless the freight is carried under
the commodity rates of the Transcontinental schedule. The peculiar
situation of Nashville on shipments from the Northeast has already
been stated. This immediately complicates the rates from so-called
Cook County Junctions--that is to say, from Chicago territory. All
consignments for the entire distance are governed by the Southern
Classification. This, in face of the low Official Classification
rates from trunk line territory, operates as a discrimination against
Chicago. Even more complicated still are the combinations by which
rates are made from local points in the North into the Far Southwest.
And still farther complexity results from the existence, as already
mentioned, in several parts of the country, such as Iowa, Illinois,
Georgia, etc., of state classifications, prescribed by the railway
commissions. These, to be sure, are intended for application only
to local rates. But by this means, the jobbing interests of the
localities are protected, without at the same time giving consideration
to an equitable adjustment as between all the remoter interests
concerned.[381] One of the primary advantages, therefore, from the
unification of the three systems now existing, would be the possibility
of readjusting not only definitely, but also equitably, the conflicting
interests of various shippers and communities now tied up by these
local arrangements.
A recent case[382] illustrates the bearing of classification rules upon
competition in trade as between rival cities. Chicago and most of the
Ohio river gateways enjoy a so-called "two-for-one-rule," permitting
the application of carload rates on part carloads in excess of full car
ladings. The complaint alleged that the denial of this privilege to
Indianapolis, whereby less-than-carload rates were charged on excess
fractional carloads, unjustly discriminated against this city in the
transportation of various light and bulky articles, such as vehicles
and furniture, in competition for trade throughout the Southwest.
The difficulty arose from a conflict between rules in the Western
Classification and the Southwestern Tariff Committee, the latter being
a subordinate body having jurisdiction over local practices in Texas
and the neighborhood. The rule in one case provided that where a car of
sufficient capacity to accommodate light and bulky shipments could not
be promptly furnished, two smaller cars would be provided, subject to
wholesale rates, however the consignment was divided between the two
cars. The Commission declined to interfere in this case, anticipating
the necessity for a thoroughgoing revision of all such rules which,
it is obvious, almost invite manipulation of rates and improper
discrimination.
Even a cursory examination of the classification a few years ago would
bring to light all sorts of petty anomalies and inexplicable conflicts
both of description and rates. Most of these doubtless had some warrant
originally, but it seems, indeed, as if many differences might be
eliminated.[383] For instance, "excelsior spring beds K. D. (knocked
down), sawdust, and leather belting, are all in the second class of
the Official Classification, when shipped in less-than-carload lots.
In the Western, only the belting and beds are in the second class,
excelsior is third and sawdust fourth; while in the Southern, beds are
first class, belting second class, excelsior fifth class, and sawdust
sixth." The recent complaint of the Greater Des Moines Committee[384]
disclosed an odd state of affairs under which old shoes were given a
carload rating to Des Moines--an advantage not extended to new and
unused footwear. Why should axes be given carload rating in trunk
line territory when the freight rate on hatchets is the same whether
the shipments are in 100 pound or 20,000 pound lots? Is it logical
that cotton piece goods from Atlanta to Boston should be differently
classified from the same commodity exchanged between the same two
cities in the opposite direction; or that goods should enter Richmond,
Virginia, on one classification and go out on another? Such anomalies
are sometimes difficult to account for. Their existence, however,
despite the efforts of the carriers to eliminate them and to keep them
eliminated, emphasizes strongly the need for such continual revision
as shall more generally standardize practice. Few carriers alone are
able to withstand pressure from powerful shippers. It is difficult, in
fact, even for the classification committees to oppose them. The strong
hand of the government should enforce harmonious action to the fullest
degree compatible with the growth of trade and conflicting commercial
interests. It would help the railways even more than the shippers.
And yet, bearing in mind all the disadvantages and evils of the
present threefold system, the obstacles incident to the substitution
of a single uniform classification for the United States grow more
impressive as one examines them in detail. Our vast territory and the
extreme diversity of agricultural and industrial conditions render the
problem far more difficult than in the compact and more homogeneous
communities abroad. The primary advantage of the present system is
that each of the three existing classifications more or less clearly
reflects local trade conditions in its own territory. From the point of
view of transportation, the same commodity may well be able to yield
widely different proportions of the total revenue levied upon the
traffic of that section. For example, cotton piece goods may be rated
first class in Western territory, fourth class in Southern, second
class less fifteen per cent. in Official territory, and one-third
of first class in the transcontinental tariffs. The reason for this
diversity of treatment is that such cotton piece goods both in the
South and the East are a staple product of the district. The rates,
therefore, in each case are intended to foster the manufacture of
cotton by according a relatively low freight rate upon its output. In
the West, on the other hand, where no cotton is raised and no cotton
mills exist, these goods become much more valuable, as classified,
relative to other commodities. Oranges or lemons in southern California
are favored by almost commodity rates in order to foster the industry
in that locality. But these citrus fruits reaching New England as a
luxury, may consequently there be made to contribute a much larger
proportion of the railways' revenue. The East, as a rule, classifies
manufactured products relatively low, inasmuch as it is the home
territory for industry of this sort. But these products, when they pass
beyond the Mississippi, rise almost automatically to a higher class as
they increase in value to the community in which they are consumed.
How different are the commercial conditions under which wool is rated
east and west! In one territory it is distributed to manufacturers in
small lots at way stations; in the other it moves long distances in
solid carload lots.
One further illustration may make our point clear. At first sight it
is anomalous that in the East the rates on cattle and shoes between
New York and Boston are not widely different, namely nineteen cents
and twenty-five cents, respectively, per one hundred pounds; while as
between Montana and Chicago, the rate on shoes west bound is almost
four times as great as the rate on cattle over the same haul eastward.
In other words, rates on shoes in the East are at bed-rock, whereas in
the West it is the cattle rates which are held at the lowest possible
point. Ton-mile rates on shoes, in other words, increase progressively
toward the west, while ton-mile rates on cattle rise, contrariwise, in
the direction of the stronghold of manufactures. The difference between
the two, however, is in the fact that the upper level of what the
traffic will bear is very much greater in the case of one than of the
other. Cattle, possibly, may never support more than seventy-five cents
per hundredweight; while shoes can be moved under rates four times as
high.
Obviously any mere compromise between divergent classifications, each
based upon the protection of a local constituency against competition
from outside its own territory, can hardly prove satisfactory. Cotton
piece goods, already instanced in this regard, if grouped as first
class in the West, second class less fifteen per cent. in the East,
and fourth class in the South, would hardly be adequately treated
in a uniform classification for the entire country by averaging
these different figures. For neither the West nor the South would be
satisfied--the rating being too high to fully protect the southern
mills against competitors in New England; nor, on the other hand,
would the classification be sufficiently high in the West to yield
the roads proportionately the revenue which goods of that character
ought properly to contribute. The East, alone, lying intermediate
between the other two, would not be greatly disturbed. The necessary
outcome, it is predicted, of the adoption of any such average or
uniform classification would be the quotation of exceptional commodity
rates wherever the uniform classification was at variance with local
interests. The increase in commodity ratings after 1887--now happily
reversed--may perhaps be in part accounted for in this way. Any such
stimulation of exceptional ratings would be a primary objection to
any uniform classification for the United States as a whole. As one
witness before the Interstate Commerce Commission testified, "If ever
there is a uniform classification, it will take a warehouse to hold
the commodity tariffs." Were such the case, far greater complexity and
possible discrimination might exist than at the present time.
A second equally important disadvantage of the prescription of
a uniform classification arises from the fact, already noted,
that classifications and distance tariffs are interlocking and
interdependent. Any change of the one involves a change of the other.
Therefore, a unification of the three existing classifications would
render it necessary to overhaul from top to bottom the distance tariffs
under which it was to be applied all over the country. For example,
the rate from New York to Atlanta, first class, being $1.14, while the
rate from New York to Chicago, about the same distance, first class,
was 75 cents; to choose a first-class rating which should apply on
both these lines would involve, not only a re-classification of the
commodities, but also that the new rates applying upon first-class
goods should be somewhere between $1.14 and 75 cents. Inasmuch as it
had taken many years to reach the present adjustment, it seems hardly
possible that a new arrangement could be made which would yield the
railways a satisfactory return upon their traffic. The difficulty
herein suggested was clearly instanced in the case of a comparison made
between the Southern Classification and the Uniform Classification
proposed in 1890. The difficulty, and always a prominent one, was that
the Uniform Classification was largely for carload lots, while the
practice was entirely different in the old Southern Classification.
Moreover, most of the Southern rates were given for goods "released";
that is to say, at the owner's risk. Cotton piece goods, non-released,
in less-than-carload lots from New York to Atlanta, were charged
sixty cents a hundredweight under the old Southern Classification. As
reclassified in the suggested Uniform Classification, the rate was
ninety-eight cents; and was given only for "released," that is to say,
at owner's risk. The difference for the same commodity from Louisville
to Atlanta was as fifty-six cents in the old Southern, to ninety-two
cents under the Uniform. Canned goods, not otherwise specified,
"non-released," in less-than-carload lots from Louisville to Atlanta,
were charged sixty-eight cents under the old Southern Classification.
The new Uniform Classification, in order to yield the same revenue,
made it necessary to charge a rate of eighty-one cents. Differences of
this kind were manifest in every one of the thousands of commodities.
In other words, the adoption of a uniform classification meant to
abolish by a stroke of the pen all the old rates which formerly
existed. An entirely new schedule of rates would have had to be worked
out; with the most uncertain results upon revenue and upon the rival
commercial interests concerned. The magnitude of such a task can be
scarcely appreciated. Years would be required to reach a condition of
relative stability once more.
The close interdependence of classification and distance tariffs, as
well as, incidentally, the differing spread of rates between various
groups of goods under the three existing classification systems, are so
fundamental in their bearing on reform that yet another illustration
may not be out of place. It is given in the following table. This shows
the rates from St. Louis--standing at the meeting point of the main
classification territories--for approximately equal distances out in
three different directions.
Rates Cents per 100 lbs.
Southern Classification--
St. Louis to Nashville 1 2 3 4 5 6 A B
------------------------------
(323 miles) 61 52 45 35 28 23 22 26
Official Classification--
St. Louis to Louisville 1 2 3 4 5 6
----------------------
(317 miles) 41 34½ 25½ 17½ 15 12
Western Classification--
St. Louis to St. Joseph 1 2 3 4 5 A B C D E
--------------------------------------
(320 miles) 60 45 35 27 22 24½ 19½ 17 13½ 11
Illinois Classification--
St. Louis to Chicago 1 2 3 4 5 6 7 8 9 10
----------------------------------------------
(284 miles) 43.3 35.2 27.5 22 17.6 16.6 15.1 13.5 10.7 9.6
One line penetrates Southern territory 323 miles to Nashville; another
goes eastward 317 miles to Louisville under Official ratings; and
the third extends westward 320 miles to St. Joseph, according to the
schedules of the Western Classification. To these three there is also
added a set of rates north bound under the Illinois Classification
which applies between St. Louis and Chicago, 284 miles. This last
schedule, of course, is prescribed by the state railway commission.
The first point to notice is the widely different number of groups
in the four schedules. One is divided into eight classes; another
into six; while the last two are each spread over ten subdivisions.
Secondly, bearing in mind that the three upper schedules govern
approximately the same mileage, it will be noted that the Official
rate, first class, is only about two-thirds of that in the other
two classes. If one then compares the sixth group in each case, an
even greater divergence appears--the Official rate being only about
one-half of that in the other two cases. Or, taking the lowest rates
of all in the three upper schemes--always, be it noted, for equal
mileages--it now appears that the Official and the Western descend
to about the same figure, while the Southern is arrested at a point
more than twice as high. The primary significance of this showing
is, of course, that a single uniform classification in which all of
these three systems should be merged, means not merely a reassignment
of all possible commodities in a given number of classes; but also a
complete recasting of the distance tariffs as well. In other words, as
aforesaid, freight rates being compounded of the two factors, distance
charge and classification, all the delicate adjustments based upon
commercial competition throughout the country, would be thrown into
utter confusion; unless every modification of the grouping of classes
were accompanied by a corresponding change in the rates per mile. A
task sufficient indeed to appall the best of traffic experts!
To complete the demonstration of the complexity of present
arrangements, and yet of the danger incident to rudely disturbing them,
one should apply the classified rates in the preceding paragraph for
these equal hauls to particular commodities. Take household goods in
carloads, for example:--
Cents Per Cent. of
per 100 lbs. first-class rate.
St. Louis to Nashville 23 38
St. Louis to Louisville 34.5 83
St. Louis to St. Joseph 19.5 33
St. Louis to Chicago 15.1 35
Examination of the classification volumes thus assigns these the
following rates in the three directions for equal distances out of
St. Louis. Going east the charge would be 34.5 cents, going west
19.5 cents, and going south 23 cents per 100 pounds, respectively.
The hodgepodge is made more manifest by the right hand column in
this table, in which the percentage of first-class rates levied upon
household goods in carloads under the four classifications is shown.
Under the Official system, with the lowest first-class rates, as
above noted, the rate on household goods is higher than under any of
the other three. The result is that the relation between the rate
on household goods and first-class goods is eighty-three per cent.;
whereas in the other two cases it is substantially less than half this
percentage. This single illustration, it is hoped, may drive home the
conclusion that there is an immense mass of fortuitous and utterly
unreasonable allocation under the classification systems as they are at
present established.[385] But whether that may be used as an argument
in favor of substituting a single uniform classification is open to
serious doubt. Rather does it serve to emphasize the fact that rigid
revision of the present scheme under Federal control, perhaps, is more
necessary than an experiment in uprooting the entire system.
A few general conclusions may be drawn from this rather over-elaborate
description of present conditions as to classification in the United
States. It has been necessary, however, to reiterate details in order
to make clear the extremely unsatisfactory situation at the present
time. In fact, in this domain of classification, standardization of
practice so characteristic of American rate making and operation in
general, has noticeably lagged behind. Whether it will be possible,
in view of the wide extent of the country and the diversity of its
climatic and commercial conditions, ever to devise a single uniform
classification is open to serious doubt. Even the Interstate Commerce
Commission, once a leader in the demand for uniformity, now concedes
this fact in particular instances.[386] Thus:--"wool east of the
Mississippi is taken up at numerous points and is carried under
comparatively light loading. What would be a fair classification
there, would not be just in the Far West, where the movement is almost
entirely in carloads and where the actual loading is from two to three
times that in Official Classification territory. We are of the opinion
that wool should be classified under the Western Classification as
second class, l. c. l., and fourth class, c. l.," etc. The experience
of England is, of course, commonly cited as a precedent.[387] In that
little country the ever-increasing complexity of classification was
precisely parallel to our own. From simple schedules for a few hundred
articles, the number of items steadily increased until there were over
4,000. At this point the government intervened; and after tedious and
protracted sessions under the auspices of the Board of Trade in 1888
the whole schedule was brought down to 1,400 separate items. All the
complicated and confusing rules were harmonized and many anomalies were
cut out. Certain it is that matters should be firmly taken in hand in
this country in the same manner. The separate state classifications and
hundreds of conflicting rules and jurisdictions should be eradicated.
Even if a single uniform classification be proved impracticable, as
seems to me likely, it might still be possible to greatly simplify
the present intolerable mix-up. There should be a representative of
the Interstate Commerce Commission on each of the classification
committees, ready at all times to exert pressure for simplification and
uniformity.[388] The three main classification committees, supposing
that they shall continue to exist, should interlock by exchange of
representatives. The greater the reform flowing from the initiative
of the carriers themselves, the better. Thus, in time, matters may
become sufficiently standardized as between the three main committees
so that, under legal compulsion or otherwise, the final problem of
uniformity may be tackled by recasting the whole body of tariffs and
classifications together. But such a task at this writing appears
almost superhuman. Conditions may, of course, so shape themselves
ultimately that it may be brought about. But, in the meantime, steady
and persistent pressure should be exercised in the direction of this
final goal. Reform of classification practice is certainly the greatest
need of the time in the transportation field.
FOOTNOTES:
[315] 1901. Ripley, W. Z.; Report U.S. Industrial Commission, XIX, pp.
383-397.
1902. Interstate Commerce Commission, Railways in the U. S. in 1902.
Part II. [Fine data.]
1905. Acworth, W, M.; Elements of Railway Economics, pp. 99-118.
1909. Dunn, S. O.; Uniform Classification, _Railway Age Gazette_,
XLVII, pp. 413, 462, 497, 552.
1911. Hammond, M. B.; Railway Rate Theories of the Interstate Commerce
Commission.
1912. Strombeck, J. F.; Freight Classification. (Limited to classified
schedules.)
[316] 10 I.C.C. Rep., 281; 13 _Idem_, 111; 4 _Idem_, 32; 9 _Idem_, 264;
17 _Idem_, 511; 23 _Idem_, 242; 2 _Idem_, 1.
[317] Railways in the United States in 1902, by the Interstate Commerce
Commission, 1903. Part II, p. 24, gives much data on changes of
classification of specific articles since 1886.
[318] For the rate advances of 1900, mainly effected by this means; U.
S. Industrial Commission, IX, p. 859, and XIX, p. 282.
[319] _Cf._ underclassification as a means of rebating; p. 190, _supra_.
[320] The Official Railway Guide of the United States gives the
personnel of scores of these associations annually, with a definition
of the territory of each.
[321] 3 I.C.C. Rep., 473.
[322] Acworth's Elements of Railroad Economics, p. 104, is best on
England. _Cf._ McPherson's Railroad Freight Rates, p. 148.
[323] _Op. cit._, p. 149.
[324] Cullom Committee, Testimony, p. 759.
[325] _Railway Age Gazette_, September 8, 1911, p. 458.
[326] P. 385, _infra_.
[327] 3 I.C.C. Rep., 473.