39; In the South in 1876 only 6 per cent. of items had carload ratings;
while in 1902, 65 per cent. were so favored, as compared with 82 per
cent. in trunk line territory and 81 per cent. in the West.
[329] The Intermountain Rate cases are fully discussed at p. 610,
_infra_.
[330] Samuel O. Dunn, _Railway Age Gazette_, September 10, 1909, p.
462, is best on this. Cf. 8 I.C.C. Rep., 368.
[331] Proposed rate advances November 29, 1910.
[332] 22 I.C.C. Rep., 565.
[333] 22 I.C.C. Rep., 585. Cf. also 23 _Idem_, 395, on articles too
large to be loaded through the side door or too long to be loaded
through the end window.
[334] Hammond, Railway Rate Theories, etc., 1911, p. 42, analyzes
interstate commerce decisions as to these. Strombeck, Freight
Classification, 1912, pp. 35-60, also discusses the various factors
entering into cost.
[335] 6 I.C.C. Rep., 295; 10 _Idem_, 255.
[336] 4 I.C.C. Rep., 611; 9 _Idem_, 382. But compare 23 _Idem_, 663,
fixing the rate on stock cattle at 75 per cent. of that for beef or fat
cattle. How about cost of service here?
[337] 10 _Idem_, 327.
[338] _Cf._ revenue per ton mile by commodities, p. 421, _infra_.
[339] _Cf._ p. 412, _infra_, on the significance of revenue per ton
mile.
[340] 6 I.C.C. Rep., 88; 9 _Idem_, 382; 4 _Idem_, 48. On freight rates
and prices compare Rep. U. S. Industrial Commission, XIX, p. 366, and
chap. X, _infra_.
[341] Hammond, Railway Rate Theories, p. 14 _et seq._
[342] _Ibid._, pp. 27 and 36.
[343] _Ibid._, p. 29.
[344] 14 I.C.C. Rep., 127.
[345] _Freight_, February, 1905, p. 61.
[346] 10 I.C.C. Rep., 281.
[347] 17 I.C.C. Rep., 197. But compare 23 _Idem_, 7, on stock and fat
cattle; and 14 _Idem_, 127, on "big-vein" and "small-vein" coal, as
above.
[348] 20 I.C.C. Rep., 426; 21 _Idem_, 41.
[349] 2 _Idem_, 1.
[350] Evidence before the Interstate Commerce Commission and the
Industrial Commission as to freight rate advances in 1900 proves this
point.
[351] Pp. 108, 118, etc., _supra_.
[352] Sixteenth Annual Report I.C.C., 32; 19 I.C.C. Rep., 244; 21
_Idem_, 349 and 418.
[353] 18 I.C.C. Rep., 459.
[354] _Cf._ Annual Report, I.C.C., 1909, p. 11.
[355] McPherson, Railroad Freight Rates, pp. 117-148, is good on this.
[356] Cotton pools in the South; _cf._ vol. II.
[357] 23 I.C.C. Rep., 151, investigating the transportation of wool
affords a fine example.
[358] 3 I.C.C. Rep., 473.
[359] United States Industrial Commission, XIX, 1901, p. 281.
[360] P. 387, _infra_.
[361] _Cf._ testimony of Wicker before the Cullom Committee in 1886.
[362] 22 I.C.C. Rep., 303.
[363] 7 I.C.C. Rep., 92.
[364] Samuel O. Dunn, _Railway Age Gazette_, September 10, 1909,
p. 463. Cf. 12 I.C.C. Rep., 510; 9 _Idem_, 440; and 23 _Idem_, 504.
[365] The following wide variations as between the different
classifications appear in these excerpts alone, varying from 40,000 to
12,000 lbs. in the Southern Classification, for instance.
Official Classification--
Scrap zinc 36,000 lbs.
Acetic acid in carboys 24,000 lbs.
Western Classification--
Advertising matter 24,000 lbs.
Advertising racks, iron 30,000 lbs.
Southern Classification--
Zinc concentrates 40,000 lbs.
Fodder shredders 12,000 lbs.
Harvesters 15,000 lbs.
Search through the entire list would doubtless disclose a far wider
range, with coal or iron at 90,000 lbs. or more, and feathers at the
foot of the list.
[366] 23 I.C.C. Rep., 158.
[367] 11 I.C.C. Rep., 328.
[368] Changes in minimum carloads since 1887 by commodities are fully
described in "Railways in the United States in 1902," I.C.C., 1903,
Part II, p. 17. Their relation to rate increases is evident.
[369] Strombeck, Classification, p. 35 _et seq._; _Railway Age
Gazette_, June 30, 1911, p. 1696.
[370] P. 128, _supra_.
[371] _Railway Age Gazette_, September 24, 1909, p. 553, Samuel O.
Dunn, best treats this topic.
[372] _Cf._ the "two-for-one" rule in the Indianapolis case; 16 I.C.C.
Rep., 254.
[373] 23 I.C.C. Rep., 259; also 23 _Idem_, 226.
[374] 11 I.C.C., 223. _Cf._ also p. 395, _infra_.
[375] Nothing was accomplished, beyond the preparation of a
comprehensive report, under the chairmanship of J. W. Midgley in June,
1890.
[376] _Railway Age Gazette_, May 10, 1907, p. 727; 1909, p. 415.
The whole movement is reflected in the Proceedings of the National
Convention of State Railroad Commissioners year by year.
[377] _Railway Age Gazette_, 1912, pp. 211, 224, 252 and 370.
[378] Lectures by O. M. Rogers, La Salle Extension University, Chicago,
1910. Also Railway Traffic Maps by W. A. Shelton, Chicago, 1913.
[379] P. 12, _supra_.
[380] Well brought out in the Danville case, 8 I.C.C. Rep., 409 and
571; and in the complaint of Wilmington, 9 _Idem_, 48.
[381] Notable recent instances are afforded in the State Rate cases now
pending before the U. S. Supreme Court, and in the Shreveport case, 23
I.C.C. Rep., 31; both discussed in chapter XX.
[382] 16 I.C.C. Rep., 254.
[383] Some are described in the Reports of the U. S. Industrial
Commission, 1900; and the Senate (Elkins) Committee, 1905.
[384] 14 I.C.C. Rep., 294.
[385] "In the Southern Classification plate glass, all sizes, in
carloads, is rated third class; window glass and rough or ribbed
glass, fifth class. In the Western Classification plate glass, outside
measurement not exceeding 100 united inches (that is, length and width
added), is rated fourth class in carloads; window glass, and rough,
rolled, or ribbed glass, fifth class. In the Official Classification
plate glass, outside measurement not exceeding 80 united inches, is
rated fourth class in carloads; window glass and rough and ribbed
glass, fifth class. Thus it appears that in Southern Classification
territory plate glass of ordinary size is rated higher than in Official
or Western Classification territories; and while in the two latter
territories plate glass is rated one class higher than window glass,
or rough or ribbed glass, in Southern Classification territory, plate
glass is rated two classes higher than rough, ribbed, or window glass.
As applied to the transportation from St. Louis territory to Memphis it
results in payment by the consignee at Memphis of rates on plate glass
which are 50 per cent. higher than the rates on window glass."--21
I.C.C. Rep., 113.
[386] 23 I.C.C. Rep., 169.
[387] Acworth, Elements, etc., p. 99; McDermott, Railways, p. 29;
Ripley, Railway Problems, chap. XXV.
[388] 22 I.C.C. Rep., 103, is a fine instance of rectification of
unjust classification rules on vehicles into the South from Toledo,
Ohio.
CHAPTER X
THE TRUNK LINE RATE SYSTEM: A DISTANCE TARIFF
Conditions prevalent in 1875, 356.--Various elements
distinguished, 358.--The MacGraham percentage
plan, 360.--Bearing upon port differentials, 361.--The
final plan described, 363.--Competition at
junction points, 368.--Independent transverse
railways, 370.--Commercial competition, 372.--Limits of the
plan, 375.--Central Traffic Association rules, 376.
The trunk line freight rate system effectively demonstrates certain
principles in railway economics which are of great importance. The
danger of arbitrary administrative interference without a full
understanding of the intricacies of rate making, and at the same
time the essential soundness of American railway practice in seeking
independently to solve these complex problems by equitable means, are
amply illustrated. The fallacy of certain objections to governmental
control, on the other hand, is revealed with corresponding clearness.
Three principles in particular deserve mention in this connection.
These are: (1) that the element of distance should be a prime factor
in the final adjustment of rates as between competing localities;[389]
(2) that coöperation and agreement between competing carriers are
essential to any comprehensively fair system; and (3) that permanency
and stability of rates are of equal importance with elasticity. That
all three of these results have been voluntarily worked out in practice
by the trunk lines is a tribute at once to the ability and fairness of
their traffic officials. Standards are thus established toward which
the carriers in the West and South should strive, as soon as their
local traffic conditions will permit, in an endeavor to promote good
relations with the shipping and consuming public.
That distance tariffs, modified in part to suit commercial conditions,
are not only theoretically sound, but entirely practicable, this study
aims to prove. The bogey of German rate schedules vanishes into thin
air when it appears that the greatest railway companies in the United
States have for years adopted the same principles in working out their
tariffs. The long and short haul rule is here enforced, not alone as
between various points on the _same_ line, but also as between points
equally distant from a common destination on _different_ roads. Thirty
years ago the trunk lines conceded the principle, for the recognition
of which the shippers of the West and South are now so vociferously
clamoring before Congress and the Federal courts.
This desirable end could never have been attained if the several
competing companies had not been able to act in coöperation. The
erroneous popular opinion that railway competition must be preserved
in the public interest, had it been legally enforced in this territory
a generation ago, would have prevented absolutely any comprehensive
solution of the problem. Until Congress abandons this theory, and
treats railways as essentially monopolistic, thereafter to be protected
and maintained as _beneficent_ monopolies through adequate governmental
supervision, the lesson of trunk line experience will not have been
learned. And, finally, the interesting fact that for almost thirty
years it has not been necessary to change either the main system or, in
many instances, the actual rates charged thereunder, is an offset to
the contention that success in railway operation is to be judged by the
instability of rates, seeking to follow constantly the ups and downs of
commercial conditions. Certain modifications, especially in export and
import traffic, or wherever water rates have to be made or met, are, of
course, inevitable. But it is absurd to reason from this that railway
tariffs in the main need to be continually jostled about at the behest
of the shipping public. Of course, if one railway changes its rates,
all the rest must follow. That is the principal reason why many of our
rate schedules have been as uncertain as the weather. But there is no
reason why, if all parties in competition keep good faith and observe
their tariffs, a schedule of class rates for domestic shipments should
not remain practically constant.
Take the rates on raw cotton from Mississippi river points like
Memphis to New England cities, for example. Was any staple product
ever subject to greater fluctuations in price than raw cotton, varying
as it has in the last few years, from five to fifteen cents a pound?
Yet through it all, good years and bad, whether for the planter or the
manufacturer, the freight rate has stood unchanged at fifty-five cents
per hundredweight. In the same way, within the limits hereafter to be
described, the trunk line rate system has endured for a generation.
Founded upon sound and, consequently, defensible principles, it has
promoted good feeling between railway and shipper. And, if the changes
of classification since 1900 had not been made, one may reasonably
doubt whether the demand for Federal legislation would have been any
more insistent throughout the eastern central states than it now is in
New England.
* * * * *
The causes leading to the adoption of a systematic rate scheme by the
trunk lines acting jointly[390] can be understood only in the light of
the conditions existing about 1875. The Baltimore & Ohio Railroad had
entered Chicago in 1874, after which time the most furious rate wars
between the four trunk lines had been in progress. The main dependence
of all these lines was still upon the grain traffic, and all of this
was moving in one direction toward the seaboard. As late as 1882,
seventy-three per cent. of the trunk line tonnage east bound consisted
of such commodities.[391] Moreover,--and this is a point of especial
importance,--the bulk of this grain originated in the territory east
of the Mississippi and south of Chicago. Over four-fifths of the
eastbound traffic came from the states of Illinois, Indiana, Ohio,
Michigan, and Pennsylvania. The great northwest and trans-Mississippi
territory was not yet opened up. Wisconsin and Iowa contributed only
about ten per cent. of the eastbound tonnage, while over two-thirds of
the westbound business did not pass beyond Illinois.[392] Nor was the
traffic concentrated as yet in the larger cities. Mr. Fink makes it
clear that most of the business was gathered up by the trunk lines and
their connections from small towns along the way. The modern problem of
the great city in competition with the small towns was as yet unknown.
The trunk lines had few feeders. Only the main stems to Chicago had
been built. Consequently these central states were served by a host of
little cross lines, built as local enterprises, many of them radiating
from Chicago, Cincinnati, Toledo, or Cleveland at right angles with
the trunk lines, and, for the main part, engaged in an endeavor to
open up their territories to water communication with the East by way
of the lakes and the Erie Canal. Rail rates, nominally at least, were
still high, the rate first-class Chicago to New York, for example,
being about double its present figure; and the conditions of railway
operation were such that water competition was a matter for grave
concern. Every change in the lake situation was at once reflected in
the rail rates, violent dislocations at the opening and closing of
navigation in the spring and fall being of especial importance.
Among these confusing elements in the problem of trunk line rate
adjustment five distinct phases were prominent. In the first place the
four trunk lines were a unit in opposition to the diversion of traffic
to the Great Lakes and the Erie Canal. However much they might bicker
with one another afterward,--apportionment of the rail business being
a distinct feature of the problem,--their interests at the outset were
identical respecting the necessity of holding the business on land.
Water competition by way of the lakes or the Ohio river was a danger
common to them all. The intensity of this pressure may be understood
from the statement that the trunk lines were not even consulted in
making the Chicago-New York rate on which the western lines pro-rated.
They had no voice in it, merely accepting the figure offered them by
their connections into Chicago.[393] The second feature of the problem,
namely, the division of the all-rail traffic among the competing
carriers, is immaterial to the main question before us. Thirdly, it was
essential to the trunk lines to restrict and control the activities of
the subsidiary cross lines and feeders, most of which, as has been
said, were independent. Many of these, aside from having a direct
interest in their longest haul to a terminus on the lakes or the Ohio
river, had been built by local capital, and were administered in the
interests of the lake cities or Cincinnati and Louisville. There was
no unity whatever in their policies, and the most ridiculous wastes of
transportation resulted. Grain was literally meandering toward the East
instead of moving by a direct route.[394] Joint through rates would be
made by the most extraordinary chain of connecting links leading to the
seaboard by very circuitous ways.[395]
A fourth evil, akin to this, consisted of the difficulty of maintaining
through rates, not as among the trunk lines who might be made parties
to a pool, but by reason of cut-throat competition between their
western connections.[396] The agents of these western lines would
indiscriminately cut rates to or from points on their lines, and then
expect their trunk line connections to accept a proportionate shrinkage
of the joint through rate for their part of the haul. The weaker
companies would, of course, be susceptible to such temptations in order
to secure the business. No stable apportionment of this western traffic
among the eastern lines would be possible until they could agree upon
a fair rate for the trunk line haul, and rigidly adhere to it. And,
finally, water competition, causing constant fluctuations in the lake
and Ohio river rates, while directly potent only at waterway points,
was continually putting the through rates from these points out of line
with the local rates from non-competitive inland centres. Or, perhaps,
the Ohio river and lake rates would be out of joint with one another.
The Chicago basis, if applied to Paducah, would make a rate on tobacco
that would send it _via_ New Orleans.[397]
Products would go down the Mississippi after the lakes had been closed
by ice. A considerable amount of corn was certainly moved to New York
by that route.[398] Some device for coordination of the through and
local rates--or, as one might put it, for the distribution of the
localized shock of water rate changes--was imperatively necessary.
An ingenious rate clerk named MacGraham, in the offices of the
Pennsylvania Railroad, proposed a comprehensive scheme for meeting
these difficulties which was first used for westbound rates on
December, 15, 1871. The Chicago-New York rate was to constitute a
basis, upon which all other rates were to be made in percentages,
according to their relative distance from New York.[399] Thus, assuming
Chicago to be 900 odd miles from New York, the rate from a point 600
miles inland would be about sixty-six and two-thirds per cent. of the
Chicago rate, whatever that might be. Whenever the lake rate at Chicago
changed, every other rate throughout trunk line territory would vary
in due proportion. Relativity of charges would thus be preserved.
Moreover, the shortest route, "worked or workable," was to be used
in calculating the rates, the basic distance being about 920 miles
by the Lake Shore from Chicago to Dunkirk, Ohio, and thence by the
Erie to New York. This would give compelling effect to distance as a
factor, and would tend to penalize the roundabout carriage of goods.
More than this, however, it would render the inland territory directly
tributary to New York. From a point, for example, fifty or one hundred
miles south of Chicago, Toledo, or Cleveland, the local rate into
those towns plus the through rate east to New York would always exceed
the rate by a direct route east. For the hypothenuse of a triangle is
clearly always shorter than the sum of the other sides. All shipping
points equidistant from New York would enjoy equal rates, those rates
at any time being determined by the state of water competition. This
was a manifest advantage to the small inland centres, while the rate
on the lake front was not affected. The trunk lines lost something,
perhaps, through lower rates at intermediate points; but the gain
through diversion of traffic from the lake to the rail lines more
than compensated. For conditions were such in the summer of 1875 that
the lake boats were prepared to carry grain for almost nothing. The
railroads were helpless in such cases.[400] The only real sufferers
were the short, independent cross lines and the lake and river cities.
Of these, the former were reduced to a status of mere feeders or
branches of the trunk lines. They were compelled to accede to the
plan, however, by threatened refusal of the trunk lines to turn over
business to them westbound, unless they reciprocated with their grain
shipments eastbound.[401] Many of these lines became bankrupt later,
and were absorbed by the larger companies.[402] And, as for the cities
unfavorably affected, the scheme based upon distance was so obviously
fair that their protests were of no avail.[403]
The great contest between the trunk lines over the granting of
differentials to Philadelphia and Baltimore, as against New York
and Boston, played a not unimportant part in the diplomacy leading
to the acceptance of the MacGraham system. The New York Central,
the Lake Shore, and the Boston & Albany roads, of course eagerly
accepted it, because it promised aid in meeting the lake competition
to which they were peculiarly exposed. The Pennsylvania and the Erie,
lying considerably further from Lake Erie, would also be benefited,
operating as they did in a territory naturally tributary to them, but
exposed to drainage to the lakes by lateral lines. But the Baltimore
& Ohio, ever since its entry into Chicago in 1874, had been a thorn
in the flesh of the others. The territory along its line was so far
from the lakes that it had little to fear from water competition at
intermediate points between Chicago and the seaboard. Would it accept
a plan primarily intended to meet a danger which, while injuring
its powerful rivals, was of less consequence to itself? Fortunately
for the scheme, it was based upon the solid principle that distance
was of preponderating influence in the adjustment of rates. The
entire contention of the Baltimore & Ohio and the Pennsylvania for a
differential rate to Baltimore and Philadelphia below New York rested
upon this same principle. The distance from Chicago to the southern
ports was less. Consequently, they insisted, they were entitled to
offer a lower rate. The MacGraham scale and the port differentials
were thus logically connected. They stood or fell together. The
MacGraham plan materially aided the Baltimore & Ohio in making good
its demands.[404] It was acceptable, therefore, by reason of this
collateral advantage.
Another factor in the situation appealed to the Pennsylvania and the
Baltimore & Ohio. Their lines to tide water were about seventy-five and
one hundred miles shorter, respectively, than the shortest line to New
York.[405] In the division of the joint through rate between a chain of
connecting railway lines this was of great advantage. It always aids
the shorter line if pro-rating is based upon mileage. A feeder one
hundred miles long pro-rating with a trunk line one thousand miles in
length would be entitled to only one-eleventh of the total rate. Were
the trunk line only eight hundred miles long, the neutral road might
claim one-ninth. This seemingly slight difference might mean several
hundred thousand dollars more earnings to the neutral road or feeder,
if it turned over its business to the short line.[406] Any emphasis
upon distance as a general principle strengthened the Baltimore & Ohio
in securing patronage from other roads by this means. The other trunk
lines, through acceptance of the MacGraham scale, conceded the distance
principle, and with it, coincidently, the pro-rating practice.
After three years' experience, the MacGraham scale was readjusted
to conform more closely to the cost of service principle. The plan,
as thus revised, is the one still in force.[407] It recognizes that
railway charges should be proportioned to the length of haul, so far as
actual costs of haulage are concerned; but it first eliminates those
constant elements in cost which do not vary with distance. The original
MacGraham scale made no such distinctions. The expenses at terminals,
such as loading and unloading, are, of course, entirely independent of
the distance covered by the shipment. These, being determined roughly
by experimentation, are first deducted from an assumed Chicago rate.
From the remainder the rate per mile by the shortest route to New York
(920 miles) is then calculated by simple division. This rate per mile
is then applied to the distance to any intermediate point, and the
terminal charge is again added. Thus a rate is found which is reduced
to a percentage of the original Chicago base rate.
FOR ILLUSTRATION[408]
Cents
per 100 lbs.
Chicago to New York 25
Less fixed charges on both ends of the line 6
--
The basis of rate for computation being the remainder, or 19
Using short line mileage 920 miles, Chicago to New York,
would yield a rate per mile 00.0206
Short line mileage Indianapolis to New York, 833 miles,
yields a rate of 17.2
Plus six cents fixed charges, as above, makes 23.2
The percentage of New York rate being 93 per cent.
Which is the present percentage basis Indianapolis to
New York
Short line mileage Frankfort, Indiana, to New York is 881
miles, which would yield at the rate of 00.0206 cents
per mile 18
Plus terminal charges 6
--
Which is 96 per cent. of 25 cents 24
[Illustration: [_Facing page 364_]]
The revised system provides in theory for an absolutely constant rate
per ton mile. It is a rigid mileage tariff in every respect. The
original MacGraham scale had been so in theory, but not in practice.
As amended in conformity with a sound economic principle, it had,
moreover, one important practical advantage over the original scale.
It yielded more revenue at all the intermediate points.[409] Local
rates would be higher as thus calculated than they were originally. It
would be unjust to ascribe undue importance to this motive on the part
of the roads in the adoption of the new system. That the plan yielded
additional revenue, while obviously more just in theory, was naturally
no objection to its acceptance.
The fruits of all this process of adjustment are depicted upon the
accompanying diagram. Viewing it in a large way, and reserving details
for later consideration, we may compare it to a topographical contour
map. The several rate zones are thus analogous to a series of levels or
steps rising from east to west. Our cross section of these along a line
from Pittsburg to Burlington, Iowa, makes this relation plain. Another
cross section at right angles to the first from Louisville, Kentucky,
to Lansing, Michigan, and beyond, shows how these levels are arranged
in a plane from north to south. These steps form a sort of irregular
amphitheatre opening toward the east, with its main axis lying in a
direction slightly south of west toward St. Louis. Or, more correctly,
these rate zones, pursuing our analogy to a topographical contour map,
indicate a broad valley opening toward the east. Along the bottom of
this freight-rate valley lie the great direct trunk lines converging
from Chicago and St. Louis. Throughout the State of Illinois the valley
opens up onto a plateau, somewhat grooved in the middle at Peoria,
where the direct lines from the west cross a neutral field tributary
neither to Chicago nor St. Louis exclusively.
[Illustration: CROSS-SECTION THROUGH LOUISVILLE AND LANSING]
[Illustration: CROSS-SECTION FROM BURLINGTON TO PITTSBURGH] This
general description harmonizes with the apt figure used by that master
mind in railway economics, Albert Fink. Speaking of this situation, he
says, "The trunk lines are nothing but great arteries of commerce, like
rivers, only with this difference: the rivers never run across each
other, the territory from which they draw their supplies is distinct
and well defined." Since his time, by reason of coöperative action for
a generation, the confusing maze of railway lines has now been reduced
to a single comprehensive system. Cross-currents of trade hither and
thither have been united or articulated in such a way as, speaking
in terms of freight charges, to cause the great internal commerce of
the country to flow downhill toward the seaboard in an orderly and
reasonable way. The inequalities incident to commercial competition
have been modified, or, to revert to our original figure, eroded; so
that one may literally speak of the products of the country as flowing,
like rivers, in more or less natural channels over the railway lines
from the great interior basin towards the Atlantic seaboard.
The mathematical precision of the method of computation heretofore
described, while theoretically applicable to a series of parallel roads
in a flat country, free from either water competition, the competition
of cross railway lines, or the competition of towns and cities of
unequal size and importance, obviously requires modification to suit
the actual traffic conditions in this densely populated trunk line
territory. The process of adjustment has been gradual and necessarily
tentative. Every influence brought to bear has been subversive of
systematic arrangement, tending, that is to say, to amend the scheme
out of all semblance to mathematical order. After reading volumes of
the Proceedings of the Joint Rate Committee, filled with petitions of
railways, towns, and individuals for exception to the general rules,
one is surprised to find that, after all, the scheme is so well ordered
as it is. It has been held true only by rigid adherence to the rule
that by the shortest "workable and worked route" no intermediate
place shall be charged more than is charged to any point beyond.
In other words, the long and short haul principle is consistently
observed. Space does not permit a discussion of all of the factors
which have tended to modify the original simple scheme. Three alone
may be considered as illustrative of the rest. These are: (1) the
effect of railway competition at the important junction points; (2) the
influence of the independent cross lines of railway; and (3) commercial
competition between producing or distributing centres.
The effect of railway competition at junction points is revealed at
once, upon inspection of the map, by the general law that the boundary
line of zones lies immediately west of the large cities. Notice the
location of Cleveland; Warren, Pennsylvania; Newark, Ohio; Dayton,
Fort Wayne, Detroit, Port Huron, Cincinnati, Indianapolis, Louisville,
Lansing, Logansport, Terre Haute, Peoria, and Decatur. Columbus,
Toledo, and Evansville, Indiana, are about the only exceptions. In
nearly every case the theoretical zone boundary has been shifted in
such a way that the rate rises just west of the important competitive
point. The reason is obvious. Rates being held down at these points,
and no greater rate being possible at any other point further east,
conditions must be equalized _upwards_, immediately the depressing
influence of competition is removed. Each zone level is of necessity
an average of a theoretic constantly rising scale from east to west.
Places immediately west of an important junction point are raised
somewhat above their theoretical grade as a compensation for those
places on the westerly side of each zone whose rate is held down below
their theoretical level by the exigency of competition at the next
large town. Or, to be specific, Indianapolis may hold down the rate to
ninety-three per cent. of the Chicago rate farther west than otherwise
would be the case. In fact, by reason of its paramount importance as a
railway centre, it has held down the rate so far west that for purposes
of equalization the rate west of it immediately jumps to one hundred
per cent. For, as will be observed, on inspection of the map, the
96-97 per cent. zone is interrupted at this point; the 92-95 per cent.
zone being extended unduly far west and the one hundred per cent. zone
being extended inordinately far east, until the two meet just west of
Indianapolis. Detailed study of the schedules and maps will reveal many
similar instances.
The converse of the proposition that important junction points
lie near the western zone boundaries is found in the fact that,
where competition is absent, the zones sweep much farther east
than mathematically would be prescribed. In other words, wherever
competition is less keen, the percentage rates remain high. Were
competition entirely uniform in its geographical distribution, the
several zones would be parallel, sweeping evenly clear across the
map. Illustration of this circumstance will be found in the extension
of the 87 per cent. zone far to the east, along the Ohio river, in
fact nearly to Parkersburg, West Virginia; or, again, in the 110 per
cent. territory which extends nearly to Louisville. This latter rate
has been recently amended, as will be shown later; but for many years
continued, as here represented, abnormally far to the east. In both
these instances the railway facilities along the river are monopolized
by the Baltimore & Ohio as a trunk line. The only competition is due to
the Cincinnati, Hamilton & Dayton and Norfolk & Western, both of which
work their traffic from New York north. The population and traffic
density being at the same time low, a relatively high level of rates
has resulted. Sometimes, also, it may happen that in these outlying
regions the shortest line "workable and worked" to the seaboard may not
be due east, but may proceed north until a junction with a trunk line
can be effected.[410]
The influence of independent transverse lines of railway has been of
great importance in shifting the zone boundaries from their theoretical
location to conform to practical requirements. Study of the map
permits a second important generalization. Not only does the boundary
of the zones usually lie just west of large cities, the course of the
boundary at the same time frequently follows the location of important
independent transverse railways. The zone boundary, in other words,
lies just west of the cross railway line. For example, the western
boundary of the 100 per cent. Chicago zone, after leaving a point on
the Illinois Central, is defined from north to south by the course of
the Chicago & Eastern Illinois Railroad, and below Terre Haute by the
line of the Terre Haute & Evansville. Similarly, practical exigencies
determined the odd shape of the 110 per cent. zone, formed like a great
distorted boot leg. The western boundary of this 110 per cent. zone
from Peoria south closely follows the Peoria, Decatur & Evansville road
nearly to the Ohio river. Similarly conditioned by railway lines are
the boundaries north and south of Indianapolis, and especially north
and south of Fort Wayne, Indiana. In other cases where the transverse
lines do not cross nearly at right angles with the trunk line, the
zone boundary will follow one railway for some distance, and then
skip across to another railway whose general direction is more nearly
perpendicular to the trunk lines. Thus, from Toledo to Lima, Ohio, the
western boundary of the 76-80 per cent. zone follows the Cincinnati,
Hamilton & Dayton, cutting the Baltimore & Ohio and Pennsylvania trunk
lines at right angles; and then it jumps across to the east until it
strikes the sweep of the Toledo & Ohio Central, which carries it down
almost to Columbus. Similarly, the western boundary of the 66-1/2 per
cent. zone follows the line of the Pittsburg & Western north from
Warren, in order that that line may participate in New York business by
working its line north _via_ Painesville on the Lake Shore.
Why is it apparently necessary that these zone boundaries should
follow along just west of the cross railway lines? The reason may be
made clear by a concrete instance. Originally and until about 1891,
Louisville, Kentucky, instead of having the 100 per cent. Chicago rate,
as at present, enjoyed, on the base of its distance from New York,
about 96 or 97 per cent. of the Chicago rate. In other words, the
96-97 per cent. zone shown on our map as interrupted at Indianapolis,
partly for reasons already mentioned, originally swept across the map
all the way from Grand Rapids to the Ohio river. This territory from
Chicago south is served by the Monon Railway (Chicago, Indianapolis
& Louisville), whose line, not fully indicated on the map, thus lay
partly in 100 per cent., partly in 96 per cent., and partly in 97 per
cent. territory. An important part of the traffic of the Monon, as
well as of the other independent north and south lines, consists of
business coming in from the east at the north and worked south, or
coming in from the east at the south and worked north. Or, in other
words, this line subsisted in part upon indirectly routed tonnage
from New York, let us say, destined for Louisville, but reaching it
by way of Chicago junction points. Freight thus hauled around two
sides of a triangle, instead of by a direct line, as described in
Chapter VIII,[411] constitutes one of the important sources of waste of
transportation energy. The Monon by such tactics is able to participate
in, and to profit by, a much larger volume of through business. That
is to say, its proportion of the entire haul is much greater than
it would be if the business moved by the shortest line. Moreover,
when indirectly routed, the Monon, often securing for its trunk line
connections tonnage for the east which would naturally go to other
competitive trunk lines, is able to exact a higher pro-rating than
even its extended lateral haul would justify on a strictly distance
basis. Such circumstances always greatly enhance the profitableness
of lateral hauls to minor connecting roads. It is obvious that much
of this transverse haulage would be impossible wherever the lateral
railway lines traverse different zones of rates. It might haul traffic
from its 100 per cent. end to connect at its 96 per cent. end with a
trunk line for the east, but not in the opposite direction. The Monon,
always in a position to disturb the rate situation, through connection
with all the competing trunk lines, insisted upon equality of rates all
along its lines. To do this, the 100 per cent. zone had to be extended
east to Indianapolis. Thereafter the Monon could profitably "work its
line in both directions." This illustration will serve to show why
ordinarily the zone boundaries conform as closely as possible to the
course of the lateral roads. The confusion which would be engendered,
were the Peoria, Decatur & Evansville to be partly in the 110 per
cent. and partly in higher percentage territory, while still insisting
upon its right to work its line both ways, can readily be imagined. To
avoid such difficulties, the present modification of strictly distance
percentages had to be adopted.
The third dominant influence, above mentioned, in modifying the
mathematical precision of percentages based alone upon the distance
from New York, has been the commercial competition of traders and
cities one with another. The aim of all rate adjustment should be,
and in fact, so far as possible in American railway practice, is
to equalize conditions, so that the widest possible market shall
result. Producers or traders in each city demand access on even terms
to all territory naturally tributary to them by reason of their
geographical location. Each particular railroad sees to it that its
own patrons and cities are "held" in all parts of these markets, as
against the efforts of competing railways to promote the welfare of
their own constituencies. Consequently, the Proceedings of the Joint
Rate Committee are filled with discussions as to the advisability
of amending general rules here and there to suit local conditions.
Minor changes are continually being effected. Grand Rapids, Michigan,
once in 100 per cent. territory, asked for a 90 per cent. rate, and
in 1891 secured a reduction to 96 per cent.[412] Louisville, once
in 97 per cent. territory, is now a 100 per cent. point. Shifts in
both directions have frequently occurred, as the following table of
percentages shows:[413]--
-------------------------+---------+--------+----------+-----------
Basis | Detroit | Toledo | Sandusky | Cleveland
-------------------------+---------+--------+----------+-----------
April 13, 1876 | 85 | 78 | 71 | 65
June 23, 1879[414] | 81.5 | 81.5 | 78 | 73.5
April 14, 1880 | 75.5[415]| 75.5 | 75.5 | 70
Present (1900) | 78 | 78 | 78 | 71
-------------------------+---------+--------+----------+-----------
A number of changes were made in 1887 in order to conform to the long
and short haul clause. Flint, Michigan, for example, was reduced from
95 to 92 per cent.; Ashtabula, Ohio, from 71 to 67; while Springfield,
Ohio, was raised from 82 to 83 per cent.[416] Detroit has been most
active in prosecuting its claims for a reduced percentage.[417] But
the Interstate Commerce Commission in 1888 upheld the present status.
A recent minor change is indicative of the forces which must be dealt
with. Evansville, Indiana, on the Ohio river, according to our map, is
a 110 per cent. point. Vincennes, Indiana, lies just north of it in the
108 per cent. triangular zone. Since this plate was made, Evansville
has been reduced to 105 and Vincennes to 103 per cent., respectively.
This is substantially, I am told, on a mileage basis. The reason for
the amendment is that certain important industries are located at these
points. Either to favor them specially or to remove a pre-existing
disability in competition with other towns, this change was insisted
upon by the railways interested in their prosperity. By tentative
processes of adjustment like this the present general relations have
been established.[418] They have been kept constant only by the steady
resistance of the majority of carriers to action which is in the
interest of a few. Judged by results, it would appear that the broad
view has, in the main, prevailed.
The actual situation resulting from the above-named causes, it should
be observed, is not quite as simple as our map makes it appear. Most
of the zones are in fact subdivided into minor gradations. Thus the
closely dotted zone designated "86-90 incl." is constituted of an 87
per cent. area up as far as the railway from Dayton to Indianapolis;
while the rest of it is broken up into little 88, 89, and 90 per
cent. areas, respectively. The same thing occurs elsewhere. Our
map generalizes the results, in an effort to bring out the zone
relationships as fully as is technically possible in a single diagram.
Certain of the zones, however, such as the 60, 66-1/2, 100, and 110 per
cent. territories, are bounded exactly as here represented.
As for direction, the original scale was intended only for eastbound
traffic. Westbound rates were lower and more regular. But the system
worked so well that it was soon extended to cover the westbound
business. Owing to difficulties of routing, in order to transport by
the shortest line into Chicago, these westbound percentages were often
quite different from those in the opposite direction.[419] Detroit, for
instance, for some time prior to 1886, enjoyed a 70 per cent. rate west
bound, while its percentage in the opposite direction was 78.[420] But,
after the passage of the Act to Regulate Commerce in 1887, efforts
were made to harmonize the differences.[421] At the present time the
rates east and west are in most cases the same.
At this point it is essential to understand the limitations within
which this percentage system is confined. It does not necessarily
determine the exact rate to be applied in practice from every little
station in trunk line territory. For, in the first place, it concerns
only the so-called common points; that is to say, points where
competition of two or more carriers is effective. Purely local stations
are charged an "arbitrary" into the nearest common point.[422] But,
inasmuch as throughout this much be-railroaded country most shippers
are less than twenty miles from the next line,[423] and since,
moreover, the arbitrary can never raise the local rate above the
rate to the next common point beyond,[424] the scale is practically
effective everywhere. A more important consideration is the fact that
this scale, even for common points, does not positively fix the rate.
It merely provides a minimum below which rates shall not be reduced,
except by authority of the roads acting jointly. It is a minimum, not a
maximum, schedule in every sense. Its provisions are never promulgated
in the form of tariffs as such. They are rarely known to shippers, but
serve only as a guide to traffic officials. The Interstate Commerce
Commission, in sanctioning the system, has expressly recognized this
fact.[425] Moreover, these percentage rates applied at first to
"classified" tonnage. They were soon, however, extended to include the
great bulk of commodity or special rates which are independently made.
And I am informed by the chairman of the Trunk Line Association that
the MacGraham table was applied to special rates--such as sugar, coffee
and molasses--as early as 1871.
Other exceptions to the applicability of this percentage system
deserve mention, although they are of relative unimportance. Principal
among these is the confusion engendered in Illinois territory
through the entry of the western lines into Chicago. Throughout
their constituencies, by reason of the sparse population, freedom
from competition, inequality of east, and westbound tonnage, and
low-grade freight, western railroad rates per ton mile are very much
higher than on the trunk lines. Moreover, they are naturally desirous
of as long a haul as possible, namely into Chicago. To turn over
their local Illinois traffic to the trunk line feeders exposes them
financially to the same losses as those above mentioned in the case
of lateral independent lines further east. But these western lines,
being stronger, have insisted upon recognition of their claims to a
proportion of the through rate which would at least "pay for their
axle grease."[426] The result is that throughout Illinois, especially
in the north and toward the Mississippi, the distance principle is
considerably distorted, as our map clearly shows. The percentage system
practically excludes freight "from beyond," the rates on that being
determined by other rules.[427]
East of the Central Traffic Association territory shown on our map
the same percentage system is extended to points in New York and
Pennsylvania.[428] Suppose, for example, the rate were desired from
Columbus, Ohio, to Albany, New York, or any other point between Buffalo
and New York City. The rate from Columbus to New York City would
first be determined as a percentage of the Chicago-New York rate,
under the system already described. Then from Columbus to Albany the
rate would be prescribed as a new percentage of this percentage. The
initial western points, however, are not determined individually, but
are comprehended in large groups. Thus the rate from all points in the
72-78 per cent. territory, shown on our map, to Albany, New York, is
96 per cent. of what the rate would be from those points to New York
City. Syracuse has 76 and Utica 87 per cent., respectively, of the
rate from any point in this 72-78 per cent. territory. From points
beyond Chicago, taking, that is to say, more than 100 per cent. of the
New York-Chicago rate, the percentages of the rate to New York City
applying to Albany, Syracuse, and Utica are correspondingly modified to
96, 84, and 91, respectively. Other complications, such as the addition
of arbitraries to Boston and New England points or the subtraction of
differentials to Baltimore and Philadelphia, follow. But, in the main,
conforming always to the long and short haul principle,[429] rates to
all local stations are prescribed within narrow limits by means of a
small number of these fixed points. The system is the same, although
details may vary. Everything interlocks and is harmoniously related on
the distance basis.
Rates from one point to another within the Central Traffic Association
territory shown on our map now alone remain for consideration. These
cannot, of course, be adjusted on a percentage basis, inasmuch as
such traffic may not be east or west bound at all, but may consist
of shipments in any direction. There is no logical reason why they
should interlock with east or westbound through rates when the traffic
is, perhaps, moving locally north and south. Nevertheless, the long
and short haul principle is observed with the same fidelity. A rigid
distance tariff for short hauls, the limits of which are prescribed by
the rates for long hauls under the MacGraham schedule, prevails.[430]
For distances up to 75 miles this conforms closely to the rates
originally prescribed by the Ohio legislature. For greater distances
it is much lower than the Ohio tariff.[431] Thus the Ohio rate for 350
miles is 87.5 cents, while the C. F. A. (Central Freight Association)
scale is only 42 cents. The Ohio scale for 200 miles is 50 cents, the
C. F. A. rate for the same distance is only 33 cents. Thus it appears
that this C. F. A. tariff, applicable to interstate business and beyond
control of any state legislature, has, in reality, been voluntarily
adopted by the interested railroads. The tariff is only a minimum
scale, below which the roads agree not to reduce rates, and above which
the actual rates often rise.[432] Nevertheless, the fact remains that
these rates, according to distance, are so much lower than the Illinois
Railroad Commission's tariff that Chicago and other distributing
centres throughout the State of Illinois claim that it works great
hardship to them. The situation in Illinois is geographically peculiar.
Its great commercial centre is in the extreme northeastern corner,
while, at the same time, the greatest extension of the state is north
and south. These circumstances, coupled with an interstate (C. F. A.)
tariff lower than the Illinois official tariff under which Chicago
merchants must ship out their goods, enable Detroit, Indianapolis,
and Cincinnati to undersell Chicago in its own state. Chicago can be
equalized there only by special or secret rates.[433] Other local
centres, like Quincy, Illinois, joined with Chicago in this complaint
to the Illinois Railroad Commission that their rates were too
high.[434] Think of it! Shippers complaining that a government rate was
too high, and requesting that the railway tariff (C. F. A. schedule)
be adopted in its place! Is that not evidence that reasonable treatment
of its shippers by railway companies is appreciated by the public?
Without undue extension further details of this interesting controversy
cannot be given. It will suffice to state that in December, 1905,
the Illinois Railroad Commission ordered a reduction of its official
schedule by 20 per cent., in an attempt to reduce its rates to conform
more nearly to the C. F. A. railway tariff.
The evils incident upon two conflicting governmental authorities, State
and Federal, each attempting to regulate rates independently, are
clearly indicated in the preceding paragraph. The Interstate Commerce
Commission has been brought flatly up against them in one of its
recent Texas cases.[435] Local and interstate rates must inevitably be
adjusted with reference to one another, so complex are the conditions
of commercial competition. While the plain people remained unsatisfied
that any real Federal regulative power existed, it was inevitable that
the number of arbitrary state tariffs, like those of Illinois and,
more recently, of Missouri, should tend to increase. But now since the
amplified Federal powers under the laws of 1906 and 1910, any clash
between the two must result in limitations placed upon state activity.
FOOTNOTES:
[389] Compare chap. IV, p. 102, _supra_.
[390] The literature on the subject is scanty. Much of the material
has necessarily been gathered in the field by conference with traffic
officials and others. My hearty thanks are due primarily to Paul P.
Rainer, Esq., chief of the Joint Rate Inspection Bureau at Chicago,
for his willingness to impart such explanation of this complicated
matter as the delicate responsibilities of his important post permit.
The map published herewith, while in part prepared from the actual
percentage tables, with his permission and that of several important
trunk line officials concerned, has been checked and corrected by his
official copyright map of January 1, 1899. While the scheme of graphic
representation is entirely different, the facts represented are the
same. I am also especially indebted to H. C. Barlow, Esq., formerly
president of the Terre Haute & Evansville Railroad and now director of
the Chicago Commercial Association, and to J. W. Midgley, Esq., for
many years one of the Trunk Line Commissioners, for assistance in many
ways.
The principal references consulted are included in the following list:
1874. Windom Committee Report, officially known as Report
of the Select Committee on Transportation Routes to the
Seaboard, 43d Congress, 1st Session, Senate Report No. 307,
vol. I, pp. 24-30; vol. II, pp. 7, 80, 283.
1879. Hepburn Committee Report, New York State, Special
Committee on Railroads, 8 vols., pp. 3001-3006, 3102-3111.
1886. Cullom Committee Report, 49th Congress, 1st Session,
Senate Report No. 46, vol. II, p. 101.
1887. Typewritten Record, Opinion, etc., of the Interstate
Commerce Commission in Detroit Board of Trade _v._ Grand
Trunk, etc., Railways. Also the Toledo case (1889) and that
of Pratt Lumber Company (1905), I.C.C. Reports, vol. II, p.
315; vol. V, p. 166; and vol. X, p. 29.
1890. Senate Report on the Transportation Interests of the
United States and Canada, 51st Congress, 1st Session,
Senate Report No. 847, pp. 497, 611-636.
1892. Cincinnati Freight Bureau case. Copy of Record before the
Interstate Commerce Commission, etc., United States Circuit
Court for Southern District of Ohio, In Equity No. 4748,
vol. I, pp. 42-53. (Reprint.)
1900. Report of United States Industrial Commission, vol. IV,
pp. 556-562.
1905. Elkins Committee, officially known as Hearings before the
Committee on Interstate Commerce, United States Senate, 5
vols., vol. II, p. 1569, and vol. III, p. 2271.
1905. Record of Proceedings before the Illinois Railroad and
Warehouse Commission in the Matter of Revision of the
Schedule of Reasonable Maximum Rates, etc., Springfield,
especially pp. 31 _et seq._ (Reprint.)
1876-1905. Proceedings and Circulars, Joint Executive Committee
and Joint Rate Committee of the Trunk Line, etc.,
Associations.
[391] Fink, Adjustment of Railroad Transportation Rates, etc., p. 16.
[392] _Ibid._, pp. 19 and 52.
[393] Windom Committee Report, II, p. 7.
[394] Waste of transportation as an economic problem has already been
discussed in chap. IX, _supra_.
[395] This persisted even in 1890. Consult 51st Cong., 1st sess., Sen.
Rep., No. 847, p. 616.
[396] Hepburn Committee, pp. 3006-3010.
[397] Hepburn Committee Report, p. 318.
[398] Windom Committee Report, II, p. 287.
[399] This was adopted officially by the trunk lines April 13, 1876.
[400] Hepburn Committee Report, p. 3112.
[401] Record Proceedings Railroad Commission of Illinois in Revision of
Maximum Freight Rates, 1905, pp. 32 and 88.
[402] 55th Cong. 1st ses., Sen. Doc. No. 39, p. 33. The Hepburn
Committee (p. 3111) describes the local jealousies which prevailed.
[403] Chicago has never become reconciled to it, however, alleging
that it injures her commercially. Compare Windom Committee, 1874, vol.
i, p. 24; 51st Cong., 1st ses., Sen. Rep. No. 847, 1890, p. 611 _et
seq._; Elkins Committee, 1905, pp. 1433, 2538 _et seq._; and Record
Proceedings Illinois Railroad Commission on Revision of Maximum Rates,
1905. _Cf._ p. 378, _infra_. Seaport differentials are discussed in
chap. XI, _infra_.
[404] Hepburn Committee, p. 3104.
[405] Distances are given in the Thurman-Washburne-Cooley Advisory
Commission on Differentials, etc., of 1882.
[406] Hepburn Committee, pp. 3188, 3195. "Taking the Indianapolis &
St. Louis Railroad, for example, running to Indianapolis, where they
can connect with all the trunk lines.... Assume that company had only
100 cars of business per day; if the property went to Baltimore, that
company would receive $800 per day more than if it came to New York,
pro-rating the rates by mileage to both places; now $800 a day, there
being 300 working days in the year, is a difference of $240,000 a year."
[407] The revised table of percentages is reprinted in full in Hepburn
Committee Report, p. 3107 _et seq._
[408] The official rule from Proceedings of the Joint Executive
Committee, June 12 and 13, 1879, is as follows:
"First.--That from all points being less distant from New York than
Chicago new percentages be adopted for making up rates on eastbound
freight upon the following basis: the percentages from points of the
same, or no greater distance than Chicago, to continue as heretofore.
"Second.--That six cents per 100 pounds be first deducted from an
assumed rate of 25 cents per 100 pounds, Chicago to New York, said
deduction to represent the fixed charges at both ends of long or short
hauls.
"Third.--That, after such deduction, the rate per mile, which the
remainder, or 19 cents per 100 pounds, produces from Chicago to New
York, shall be charged per mile from all common points named in the
first section, according to the percentages of distance shown by the
table adopted at Chicago, April 30, 1876, to which result so computed
the 6 cents per 100 pounds of fixed charges first above deducted shall
be again added, and the percentage of the Chicago rate of 25 cents,
produced by such additions, shall thereafter constitute the percentage
of the Chicago rate, which shall be subsequently charged from the
points named in first section.
FOR ILLUSTRATION
Chicago to New York, per 100 lbs. 25c.
Less fixed charges, per 100 lbs. 6
--
Basis of rate for computation 19
Columbus, Ohio, as at present 70 per cent. of
Chicago net rate, will be 13.3c
To which add the fixed charges 6
----
And the new percentage from Columbus will
hereafter be 77-2/10 per cent. of Chicago, 19.3c
in lieu of 70 per cent., as at present."
[409] Hepburn Committee, p. 3104. A hypothetical instance will serve
as illustration. Suppose a point with an 80 per cent. rate on the old
schedule. When Chicago paid 25 cents, the rate to this point would be
20 cents. Under the new scheme the intermediate rate would be 80 per
cent. of 19 cents, or 15.2 cents, plus 6 cents terminal charge, making
a total of 21.2 cents. This is 84.8 per cent. of the Chicago rate
instead of 80 per cent. as before. Compare table, p. 373, _infra_.
[410] Thus from Ironton, in the 87 per cent. zone south of Columbus,
Ohio, the distance to Columbus is 127 miles, added to 638 miles from
Columbus to New York makes a total of 765 miles. Multiplying this by
00.0206 makes it 87 per cent. of the Chicago rate.
[411] Page 264, _infra_.
[412] _Cf._ Industrial Commission, IV, p. 556.
[413] Record, Detroit Board of Trade case.
[414] Consult p. 195, _supra_.
[415] Computed apparently by regular rules, but on the basis of only 4
cents terminal charges instead of the usual 6.
[416] Joint Rate Circular, No. 815.
[417] Demanding a 70 per cent. rate on a strict mileage basis, and
also, because the pro-rating basis with Western lines is that figure.
[418] 23 I.C.C. Rep., 684, on wool from Detroit, for example. 13
_Idem_, 300 concerns Evansville rates and those across in Kentucky.
[419] Trunk Line Association Circular No. 523, issued July 26, 1883,
gives tables of these percentages in each direction. Present westbound
percentages are given in _ibid._, No. 751, issued April 3, 1899.
[420] Typewritten record, Detroit Board of Trade case, 1887-88,
Interstate Commerce Commission Office, pp. 244-251.
[421] Under a committee headed by the late J. T. R. McKay, of
Cleveland. The Official Classification and the 75 cent New York-Chicago
rate first-class were then adopted for good.
[422] 12 I.C.C. Rep., 186, on points about New York, for example.
[423] I am told that rivers intervening, to cut off cartage by wagon to
competing lines, have sometimes effectively influenced the charges.
[424] The long and short haul principle has always been given great
weight here. All exceptions to it were removed in good faith by the
carriers when the Act of 1887 was passed. _Cf._ Windom Committee, vol.
I, p. 26; vol. III, pp. 42, 134, and 283.
[425] _G. C. Pratt Lumber Co. v. Chicago, Ind. & Louisville Railway
Co._, decided January 27, 1904.
[426] U. S. Industrial Commission, vol. IV, p. 562.
[427] _Cf._ 8 Int. Com. Rep., 169, on grain rates from Minnesota and
trans-Missouri points; as also 23 I.C.C. Rep., 195.
[428] _Cf._ Joint Committee Information No. 298 of January 13, 1900,
giving all these rules in detail.
[429] _Cf._ Windom Committee, vol. II, pp. 42 and 134.
[430] Known as the C. F. A. scale. Full text is printed in Illinois
Railroad Commission Proceedings in Maximum Freight Rate case, Record,
etc., 1905, p. 43. See also p. 97.
[431] Detailed comparison is made in _ibid._, p. 45. See also p. 17.
[432] Illinois Railroad Commission Proceedings in Maximum Freight Rate
case, Record, etc., 1905, p. 152.
[433] Exhibit A 15, _ibid._, shows this by means of a map. See also
Senate (Elkins) Committee, 1905, vol. III, p. 2271.
[434] The double disability of these smaller places is stated in
_ibid._, p. 7.
[435] Chapter XVIII, _infra_.
CHAPTER XI
SPECIAL RATE PROBLEMS: THE SOUTHERN BASING POINT SYSTEM;
TRANSCONTINENTAL RATES; PORT DIFFERENTIALS, ETC.
Contrast between the basing point and trunk line
systems, 380.--Natural causes in southern
territory, 381.--Economic dependence, 381.--Wide-spread
water competition, 382.--High level of rates, 382.--The
basing point system described, 383.--Its economic
defences, 384.--Early trade centres, 384.--Water
competition once more, 385.--Three types of
basing point, 387.--Purely artificial ones
exemplified, 388.--Different practice among
railroads, 390.--Attempts at reform, 391.--Western
_v._ eastern cities, 391.--Effect of recent industrial
revival, 392.--The Texas group system, 393.--An outcome
of commercial rivalry, 394.--Local competition of trade
centres, 395.--Possibly artificial and unstable, 395.--The
transcontinental rate system, 395.--High level of
charges, 396.--Water competition, 396.--Carload
ratings and graded charges, 398.--Competition
of jobbing centres, 398.--Canadian
differentials, 400.--"Milling-in-transit" and similar
practices, 401.--"Floating Cotton," 402.--"Substitution of
tonnage," 403.--Seaboard differentials, 403.--Historically
considered, 403.--The latest decision, 403.--Import and
export rates, 404-409.
The rate system in the southern states contrasts sharply with that
of trunk line territory.[436] Its most unsatisfactory feature is its
complete violation of the distance principle. Public dissatisfaction
was long voiced by a large number of complaints before the Interstate
Commerce Commission in the early days,--a cessation of these complaints
since 1900, however, was the result of the nullification of the law by
judicial interpretation, rather than an indication of any acquiescence
of the public in the scheme. Next to settlement of the problem of
transcontinental rates, a reasonable adjustment of the southern
situation is one of the important tasks confronting the Federal
authorities.
Certain natural features of southern territory are connected with
its peculiar rate system. The first of these is its scattered and
relatively thin settlement. Density of population varies between
one-third and one-fourth of that in the northern states. This greatly
limits the volume of local business. In the second place, the largely
agricultural character of the country, yielding a traffic predominantly
of low grade, has had a great effect. Much attention being devoted to
cotton, there is little local interchange of freight. The business,
moreover, is largely seasonal in character. In the early days, at
least, practically all of the profits of the carriers had to be made
between September and January. This concentration of interest in the
movement of the cotton crop is now rapidly being supplanted by a much
more general movement of traffic; but the rate system in force is an
outgrowth of the conditions prevalent in the early days.
The entire dependence of this territory for manufactured goods upon
the northeastern states, and for foodstuffs upon the West, has had
a profound effect, we have seen, upon its railway development.[437]
The predominant direction of traffic is rendered quite peculiar by
contrast with trunk line territory. In the North, the principal
railroads lie parallel, east and west; in the South, they are radially
distributed outward from Atlanta like the spokes of a wheel. Imagine a
triangle with its apex at this city,--the focus of all transportation
interests in the South,--and with its other two angles lying at New
York and Chicago respectively. The hollow centre of this triangle, as
appears by the accompanying map, is occupied by the Allegheny mountain
chain. The movement of traffic historically along the western side
of this triangle has been overwhelmingly southward; at one time the
disproportion southbound from western territory being as thirteen to
one.[438] Along the eastern side of this triangle,--that is to say
parallel with the Atlantic seaboard,--the preponderance of tonnage,
by bulk and probably by value as well, has been toward the north. In
this direction cotton in the early days, and latterly lumber, have
moved from southern fields and forests to northeastern markets. In
Virginia-Carolina territory, today, about three-fifths of the loaded
mileage is north bound. The uneven distribution of traffic is still
further complicated by the excess of tonnage eastbound in trunk line
territory along the northern side of our triangle, above mentioned.
This general description explains many of the abnormalities in freight
rates throughout this territory. Bulky staples moving one way, while
manufactured goods, high in value but more concentrated in weight, go
the other, greatly complicate the problem of economical operation.
Another omnipresent complication in the southern states is the
widespread existence of water competition. The situation in the South
in this regard is not unlike that of England. Its entire territory
is threaded with a series of more or less navigable watercourses
which penetrate from the seaboard or the Mississippi river, far into
the interior. Here again is a physical peculiarity of the southern
territory, which historically explains, even if it does not fully
justify, as we shall see, certain peculiarities of its freight rate
system.
[Illustration: MAP SHOWING PRINCIPAL RAILROAD SYSTEMS IN THE SOUTHERN
STATES
[Facing page 382]]
The first general characteristic of the southern system is the
relatively high level of freight rates. Bearing in mind that the
distance from New York to Chicago is practically the same as from
New York to Atlanta, the freight rate, first-class, on the trunk lines
was, in 1900, 75 cents per hundredweight as against $1.14 to Atlanta.
Sixth-class rates then stood to one another as 25 cents and 45 cents
respectively, the relatively high ones being in the South. Reference,
for example, to the table on page 349, will bring out this contrast
at the present time in another way. According to this the rates in
the South are not higher than in the West for the same distance. The
disproportionately high charges in the South, however, occur mainly in
the field of local rates. And it is the local, rather than the through,
charges, which cause the present dissatisfaction. The principal
complaint concerning through rates is that they are made up principally
as the sum of locals based upon Ohio or Mississippi gateways.[439]
Whenever such sums of locals have given place to unbroken through
rates, a large measure of satisfaction to shippers has resulted. And
then, finally, it should be observed that certain peculiarities of
the classification system somewhat increase the relatively high grade
of charges throughout this territory,[440] tending to support the
allegation that rates are unreasonably high.
The so-called basing point system is the second fundamental peculiarity
of southern rate adjustment. It has already been discussed in
connection with local discrimination.[441] This basing point system,
although not absolutely confined to the South, has been more highly
developed here than elsewhere. In principle it is simply this: certain
cities are established as basing points,[442] and rates to all other
places in that neighborhood are made by adding to the through
rate into the basing point, the local from that city to the final
destination. Since local rates in the South, based upon slender local
traffic, are always exceedingly high, this appears to confer a very
great advantage in the matter of charges on the cities thus favored.
The way in which this system is opposed to the long and short haul
principle in law has also been discussed in another connection.[443]
On the face of things it certainly appears unjust that goods should be
transported directly through the place to which they are ultimately to
go; and after being hauled to the basing point with a heavy charge for
that haul, should thereafter be brought back again with the addition of
a second high local rate for the service. And yet that very commonly
occurs.
A number of economic defences for the basing point system have been
urged by the carriers at different times. The most substantial one
is that the basing points, historically, were originally important
trade centres and are still intimately related to the business customs
of the South.[444] These trade centres, it is alleged, were not
made by the railroads: they were in existence before the railroads
were constructed. They are an outgrowth of the agricultural system
of the region. In the West a farmer may take a sample of his grain
to the nearest town and sell the whole crop by that sample. No such
transaction is possible with cotton and tobacco. Each shipment must
be sampled, weighed and classified on its own merits. Such grading
cannot take place at local stations. Convenient commercial centres
are, therefore, a necessity, serving for the proper concentration of
products. These trade centres, moreover, arising in connection with the
sale of staple products of the soil, became natural distributing or
jobbing points. The planters naturally buy in the places to which they
resort to sell their crops, often employing the same merchant.[445]
As such natural trading centres, these southern towns are forced to
compete with the older established distributing cities up north. At
this point a second defence of the basing point system arises.[446]
It is urged that a decentralization of jobbing trade in a sparsely
settled or newly developed territory can be effected only by means of
encouragement through peculiarly favorable rates to offset the strength
of the remoter great cities. The plausibility of this defence, however,
is considerably weakened by the fact that under the peculiar southern
classification system, carload ratings are largely absent.[447]
Therefore, as it appears, the local jobber in the South competes under
a disability as compared with New York and Cincinnati which is no
less at the basing point than in the small town. Still a third, and
probably a valid, defense of this violation of the distance principle
by the use of basing points, is the paucity of local business. It is
alleged that in the North the competitive points are so near together,
and the volume of competitive business is so large, that it pays to
reduce the charges at immediate points. In the South, on the other
hand, competitive points are so far apart and, relatively speaking, the
local tonnage is so small, that the adoption of such a policy would be
ruinous.[448]
The most prominent defence of the basing point system brought forward
at all times, and greatly emphasized in proceedings before the
Interstate Commerce Commission, is the widespread existence of water
competition. Carriers allege that in order to secure any portion
of the traffic at many points, low rates must be offered, quite
irrespective of the charges to intermediate inland stations. They
affirm that to lower all rates to this "compelled" competitive level,
would deplete their revenues and lead to bankruptcy. This has been
the main excuse for the persistent violation of the long and short
haul clause by carriers in the southern states down to the present
time. The evidence goes to show, however, that on the lesser streams,
at least, the steamers are so small, their service so irregular, and
the incidental risk of damage, cost of insurance and other expenses
of transhipment are so great, that the railroads practically control
the business.[449] Furthermore, in many places it appears that the
water lines were either owned by the railroads or appeared in league
with them; or else that a division of the business had been effected
by which the little river steamers were accorded a certain proportion
of the low grade freight.[450] Such facts have been established before
the Interstate Commerce Commission, for example, in the so-called
Dawson case concerning the Chattahoochee river; on the Ocmulgee at
Macon in the Griffin and Hawkinsville cases; at Montgomery in the Troy
case; and on the St. Johns river at Palatka, Florida, in the Hampton
case. A competent witness has declared in fact that there is "no more
real water competition at many of these places than in the Rocky
Mountains."[451] Probably the potentiality of competition is somewhat
greater today with improvement of the larger navigable waterways.
It seems to be real at Chattanooga since the construction of the
Mussel Shoals canal; but that it has in late years been effective at
Nashville seems open to question. The practical disappearance of the
Mississippi river traffic also points to the decline in importance of
the great rivers as rate regulators, except in respect of the carriage
of ore, lumber, and coal. Whether the National Waterways movement
will ever succeed in its revival is, it seems to me, open to serious
question.[452]
Analyzing these several grounds of defence, a distinction should be
made at the start between three varieties of basing point. This is not
clearly brought out in the numerous decisions upon rates in southern
territory. In the first group are the old natural trading centres,
usually once blessed with effective competition by water, even if at
the present this is of limited character. Savannah and Montgomery,
Alabama, are of this type. Then, secondly, there are the great railroad
centres like Atlanta and Birmingham. These are modern creations without
water competition of any sort, although the rivalry of railroads
with one another is exceedingly keen. Until recently, moreover, this
competition has been over such widely divergent routes that agreement
has been difficult and consolidation impossible.[453] And, then, in the
third place, there are the basing points which seem to be absolutely
artificial. A number of these are to be found in the southeastern part
of Georgia, such as Cordele, Americus, Albany, etc. In these cases the
only criterion which seems to have been adopted is that the place shall
have attained sufficient importance to enable it to compel some carrier
to give it special privileges in the matter of rates. As was tersely
stated in a leading case--Cordele at that time not having been made a
basing point:[454]
"Cordele is not treated by defendant roads as a competitive
point, because it is not a sufficiently large distributing
point, and it is not such a distributing point because it is
not treated as a competitive point. Hence it appears that the
roads seek to excuse their wrong-doing by offering the results
of the wrong in justification. Judged by its results, this
system of rate making is at variance with all the equality
provisions of the act to regulate commerce."
The subsequent experience in this last case is significant. One of the
carriers at Cordele having afterwards discovered the advantage to
itself in making this town a basing point, all the other railroads were
compelled to acquiesce. Such a thing has happened frequently throughout
the South; with the result that many places have been given strongly
preferential rates for no other reason than the arbitrary decision of
some one of the carriers. Even the railroads themselves recognize this
fact. They often deplore the necessity for reducing rates because of
action by competitors at some particular point; but no option remains.
It is with reference to this third class of purely artificial basing
points that the most dissatisfaction among shippers arises.
The awkward and unreasonable situation is well exemplified in a very
recent case,--important, also, because it was the first to be decided
by the Interstate Commerce Commission under its new and enlarged
powers. The location of Ashburn in southeastern Georgia, a county
seat with a population of about 2,200, is shown with references to
surrounding places by the map on opposite page.[455] It lies in the
centre of an irregular quadrilateral, the corners of which are occupied
by Cordele, Albany, Tifton and Fitzgerald. It has no commercial
standing at present, but, being as large at least as Tifton, aspires
to become a distributing centre in its immediate neighborhood. Yet
from every direction its rates are made by a combination upon these
surrounding towns. The disparity is illustrated by the charges from
New York, which are $1.42 per hundredweight, first class, as compared
with $1.17 to all the neighboring places. Examination of the history
of these favored towns shows, however, that they have acquired their
favored status as basing points, neither because they were originally
important trading centres, nor because they enjoyed water competition.
Two of them, actually, are as remote from streams as is Ashburn. The
fact is that the competition of western and eastern dealers with one
another, backed in each case by local railroads having routes or
affiliations either northeast or northwest, has brought about their
establishment as basing points. Neither is Ashburn today more of a
local point than either Tifton or Cordele when they were first granted
lower rates. As one examines further, it appears that this keenness
of trade competition between East and West,--that is to say, from
Baltimore and New York as against Cincinnati and Chicago, etc.,--which
has brought Atlanta into prominence and made it finally the key to
the entire southern rate arch,[456] has in the same manner led to the
special favors granted to one town as against another.
[Illustration]
In this case the Interstate Commerce Commission ordered an
equalization between all five points. It is to be hoped that this
special case may be a point of departure for a general reform in the
immediate future of the entire iniquitous scheme of local favoritism
which has too long been allowed to exist.
The entire artificiality and even at times iniquity of the basing point
system is admitted in the following brief for the railways in the
Alabama Midland case before the Supreme Court of the United States.
"There may be," it is conceded, "a few mere 'railroad junctions' in
the South, which, owing to the ignorance or corruption of certain
railroad officials, have been arbitrarily 'called' competitive points
and which 'receive' certain arbitrary 'concessions' in rates to which
they are not justly entitled. There may be also a few strictly local
stations in the South, which are not even 'railroad junctions,' where
arbitrary and unfair 'concessions' in rates have been made by certain
corrupt railroad officials, to enhance the value of property owned at
such stations by said officials, or by their relatives or friends ...
[but they are] the offspring of ignorance or corruption and should not
be recognized by the courts." This artificiality is also proven by the
difference of practice which exists on the various southern roads.[457]
The worst offender and most defiant opponent of the government from the
inception of Federal regulation, has been the Louisville & Nashville
Railroad. The Southern Railway introduced the long and short haul
principle in the main on its through line to Atlanta long ago. On the
Atlantic Coast Line few violations of the distance principle exist,
and the condition is improving. No basing points whatever exist in
South Carolina; and the state railroad commissions in general are
working for betterment. Neither the Chesapeake & Ohio nor the Norfolk &
Western, operating alike in sparsely settled regions, find it necessary
to violate the distance principle. One of the curses of the scheme,
however, is that irregularity of one carrier may compel its neighbors
to adopt a policy which they recognize as unjust. Only by compulsion
applied to all alike can a just solution be had.
A determined effort was made in 1880 by the carriers themselves to
apply the trunk line rate system, based upon the distance principle,
to the southern states.[458] A thoroughgoing scientific readjustment
was proposed. The situation is significantly described in the following
extract from this report:
"Your committee entered upon the performance of their duty
entertaining the sentiment that experience and observation have
rendered generally potent among those in charge of the revenue
interest of transportation lines, namely, the necessity for
more intelligent and defensible methods of making competitive
freight rates than the following of figures, descending to
us from tariffs named on arbitrary bases or conditions now
obsolete, or by the assumption of differences between centres
of trade now changed or junction points now no longer such,
or other methods for which there are no reasons capable of
satisfactory explanation."
Representatives of most of the important lines subscribed to this
plan; but it fell through at the last because of the opposition of
others, selfishly viewing their own particular interests rather than
the general welfare of all. It is clear that while minor improvements
may be introduced, no widespread reform can be effected without the
interposition of Federal authority. It is to be hoped that this
exercise of authority under the larger powers now conferred by Congress
since 1906 may not long be withheld.
A third and essentially different problem respecting southern rates
concerns the discrimination against western cities in favor of those
along the Atlantic seaboard. This has been for years before the
Interstate Commerce Commission in the Cincinnati and Chicago Freight
Bureau cases.[459] The amount of this discrimination appears in
the fact that at the time of the original complaint, the rate from
Cincinnati to Atlanta was ninety-four per cent. of the rate from
New York to the same point; although the distance from Cincinnati
was scarcely more than half of that from New York. It appears as if
this difference were largely the result of keen water competition
by coastwise steamers,--a competition which affects rates for a
considerable distance inland all along the coast as far as New Orleans.
Where such water competition is absent, there seems to be a general
arrangement as between East and West which is standardized by distance.
Atlanta gives the keynote; and all rates from outside southern
territory change with its fluctuations. The disability against western
cities may be expressed, therefore, in another way, by the fact that
New York, although so much farther north than Baltimore,--supposed
theoretically to be kept on a par with Louisville as to rates,--reaches
Atlanta on lower charges than are made to Cincinnati.
Fortunately an attempt at improvement of the southern rate system
will be greatly aided by the wonderful industrial revival which has
been under way during the last decade. The growth of population, and
especially the development of manufactures, may render it possible for
the carriers to endure the hardship which any traffic readjustment
always entails. The growth of manufactures, measuring in a way the
degree to which the South is learning to supply its own needs,
appears in the fact that in 1907 it converted one-fifth of its cotton
production into cloth, and reduced from its own ores one-half of its
consumption of pig iron in its own local factories. Furniture shipments
to the South were once large. At the present time High Point, North
Carolina, is second only to Grand Rapids in this line of manufacture.
Every new mill and mercantile establishment which springs up, is bound
to help to a degree in the transition from a mediaeval scheme of rate
making to a more defensible system.
The Texas "common point" system affords a valuable illustration of
the influence of competitive forces in trade in bringing about an
equalization of transportation charges over a wide area.[460] It also
shows the danger of localization of interest through the exercise of
piecemeal control by state commissions rather than the enforcement of
broad-gauge regulation by the Federal government. The settlement of
the great area of Texas naturally first took place by extension inland
from the Gulf coast. All supplies came by sea from the north. Freight
schedules were scaled from the seaboard according to distance, more or
less, in competition with stage and wagon. Gradually, however, with
the growth of St. Louis as a rival centre of distribution, railroads
serving that city penetrated directly from the northeast. The St.
Louis jobbers were at once brought into keen rivalry with merchants
in North Atlantic states, served by coastwise steamship lines. This
competition beginning at the points of contact of the two different
sets of railroads, gradually extended all over the state. St. Louis
lines, acting for local jobbers whose goods came from New York, might
not charge more at any point in the aggregate than the total rate from
the same initial city which applied by way of the Gulf steamers. Nor
could the railroads in from the Gulf ask more for both steamer and
rail carriage than the entire double charge from New York around by
way of St. Louis. The natural stronghold of the Gulf lines was in the
centre and the south; northern Texas was more naturally tributary to
St. Louis; but gradually a compromise was effected whereby equality of
rates was accorded either from New York or St. Louis to all stations
throughout the state. Thus arose the so-called Texas Common Point
Territory, to all parts of which Kansas City, Chicago, and finally all
other distant cities were admitted on even terms.
Another feature of the Texas rate adjustment is suggestive.
A vast territory, uniform in products and needs, might either be
served by a few great distributing centres or by a larger number
of smaller ones, each forming the natural focus of trade within a
given district. Believing the latter arrangement to be better suited
to local conditions, the Texas Railway Commission has arbitrarily
prescribed such intrastate tariffs as to foster the development of
a number of such jobbing points or mercantile centres. Local rates,
more or less proportioned according to distance, are graded up to
a maximum, all based principally upon the needs of the principal
city, Houston, as served by its seaport, Galveston. The significant
feature of these Texas local rates, however, is the fact that beyond a
fixed maximum,--say 245 miles on classified tonnage, or 160 miles on
cotton,--no further increase of rate occurs with extension of the haul.
That is to say, beyond a certain radius fixed by the maximum rate,
distributing centres are placed upon an entire parity with one another.
Fort Worth, for example, within a distance of about two hundred miles,
naturally has an advantage over all other competing centres, more
distantly located; but outside of this zone, naturally tributary to
it as a provincial trade centre, all others such as Dallas, Waco,
or San Antonio enjoy equal opportunity. In only one respect is the
distance principle violated: namely, in the preferential rates from
the north to Houston and Galveston as compared with the higher charges
to intermediate Texas points. These primary centres are encouraged by
standing in a class by themselves.
This theoretically admirable Texas system is, however, unstable in
several regards. It is artificial in that it is primarily adjusted
to the needs of the state, without reference to the rights of other
places lying beyond its borders.[461] The railroads naturally desire to
contract the common point territory; the forces of trade rivalry seek
to enlarge it. The growth of middle western cities and manufactures,
supplying Texas from their own domestic plants rather than merely
redistributing goods manufactured in the East, also tends to modify
the scheme. Whether the common point system, therefore, can long
withstand the force of these disintegrating influences remains to be
seen. The conditions are not compact and homogeneous as they are in New
England, which enjoys a similar flat rate system. And it may well be
that ambitious cities along the northwestern border of the state, like
Fort Worth, may finally succeed in forcing concessions in rates from
the Middle West on the ground of their relative nearness as compared
with competitors further south. On the other hand, distributing centres
farthest away from the main sources of supply, like San Antonio, would
naturally resist any infraction of the rule of parity. And then, again,
it is becoming apparent that the decentralization of distribution
through a number of second-rate jobbing towns rather than from one
preëminent centre, is hindering the growth of a metropolis, able to
compete on even terms in high grade products with the older centres of
the East. Few dealers in Texas cities are able to purchase dry goods or
boots and shoes in carload lots, that is to say, on the lowest terms as
concerns freight rates; and the combination of shipments of different
goods to make up a miscellaneous carload rate, thus overcoming this
disadvantage, is open to serious objection.[462] All told, therefore,
the experience of Texas is well worth attentive consideration, as a
study in the intimate relationship between trade and transportation.
The sharpness of contrast between such a common point scheme and the
basing point system of the other southern states, brings the relative
advantages and defects of each into strong relief.
* * * * *
Transcontinental freight rates have been brought into prominence of
late in direct connection with the wonderful growth of population
and trade on the Pacific slope.[463] Our territorial possessions in
the Pacific and the development of Oriental trade, together with the
general interest in the Panama Canal since 1900, have all conspired to
direct attention to this complicated problem. The first point to notice
is the relatively high level of rates, averaging very much more per
mile than anywhere else in the United States. The following table of
rates in 1905 is significant:
------+---------------------------------------+------------------
Miles | | Class
------+---------------------------------------+---------+--------
| From | 1 | 5
------+---------------------------------------+---------+--------
912 | Chicago to New York | $0.75 | $0.30
912 | Chicago to New Orleans | 1.10 | 0.47
2328 | Chicago to San Francisco | 3.00 | 1.65
------+---------------------------------------+---------+--------
These distance tariffs, however, as already explained in our chapter
on Classification, need to be supplemented by additional details in
order to bring into relief the relative amount of the charge. So far
as these figures go, it will be observed that for a distance about two
and one-half times as great as from Chicago to New York or the Gulf of
Mexico, the rates to San Francisco are very much higher in proportion.
The unrest among shippers in far western territory is not due to
the relatively high tariffs in force. It arises primarily from the
nullification of the distance principle in rates. And, in the second
place, it hinges upon the relation between carload ratings and the
development of local jobbing business. The primary factor in the
making of rates to the coast has always been the existence of water
competition, either by way of Cape Horn or the Isthmus of Panama.[464]
The facilities for cheap transportation over these routes have
compelled the all-rail lines to make low through rates which would
enable them to secure a portion of the business. Inasmuch, also, as
most of the competition of the steamships over these very long routes
involves shipments in large quantity, competition with the railroads
has mainly been felt in making rates by the carload. The result has
been the existence for many years of a special transcontinental tariff,
more or less uniformly adopted by all the roads, which consists in the
main of commodity rates for carload shipments, the scale of these rates
being sufficiently low to meet steamship competition as above described.
This simple situation has been complicated by the fact that all of the
transcontinental lines, except the Southern Pacific with its eastern
terminus at New Orleans, have had a particular interest in building up
both manufacturing and jobbing business at their eastern terminals at
Chicago or Missouri river points. For such a policy enabled them to
secure the entire charge for the transportation of commodities to the
Pacific coast, without the necessity of a pro-rating division, as when
goods are hauled from the Atlantic seaboard cities. The situation then
resolved itself practically into a competition of markets. Chicago, St.
Louis, and St. Paul were pitted against New York, Philadelphia, and
other Atlantic ports in rivalry for the trade of the Pacific coast. In
order to benefit the cities in which they had a peculiar interest, the
all-rail lines, therefore, gradually introduced what is known as the
system of "postage-stamp rates."[465] That is to say, they gradually
extended to one city after another east of the Mississippi river, the
same rates to the Pacific coast as were enjoyed by the seaboard cities.
As a consequence, for some years every city east of the Mississippi
has been able to ship goods to San Francisco at the same rate which is
paid from Boston and New York, which may be more than a thousand miles
farther away.
This system is justified in theory, even for rates from Chicago and
St. Louis, as due to water competition; and it has been said that
commodities are sometimes shipped from as far inland as this to the
Atlantic seaboard, and thence to San Francisco by water. The latest
phase of the controversy reveals the weakness of this argument. The
inland cities, such as Chicago and St. Louis, having been accorded the
same rate to San Francisco as New York and Philadelphia, demand lower
rates than the Atlantic cities in proportion to their relative nearness
to San Francisco. In other words, they demand that the rates, instead
of being made upon the "postage-stamp basis"--absolutely the same from
all cities, however remote--shall be graded. This would give Chicago,
St. Louis, and St. Paul an advantage in laying down manufactures or
in distributing products secondarily, in competition with the older
centres at the East. To this policy the jobbing interests of the
Pacific coast strenuously object. From their point of view, any grading
of rates will enable the western cities to compete with them directly
in local distributive business. They do not object to the low rates
from the eastern seaboard, nor would it avail to do so because the
natural conditions of water competition are beyond control. Moreover,
the low rates from Atlantic points are all, as above said, on carload
lots, and such low carload rates operate distinctly to the advantage
of the Pacific coast jobber, enabling him to obtain goods in wholesale
lots, and then to break bulk in order to distribute them up and down
the coast.
The intimate relationship between the carload question and the grading
of rates to interior centres, is plain from the foregoing paragraph.
Viewed by itself alone, the carload question is not dissimilar to
that presented in the southern states. Rivalry between jobbers in the
East and provincial middlemen in a little developed territory is in
evidence in either case. The St. Louis Business Men's League case best
exemplifies this issue.[466]
Trade interests in this interior city wished to abolish all
distinction between carload and less-than-carload lots, for the patent
purpose of enabling them to sell direct throughout the Pacific coast
territory in competition with San Francisco jobbers. The latter, on
the other hand, demanded that all less-than-carload ratings should be
abolished on transcontinental shipments; so that they might purchase
their goods by the carload and resell them in parcels. The Commission,
after fully weighing the evidence, decided that, so far as carload
differentials were concerned, the existing scheme in 1902 was not
abnormal as compared with other portions of the country. On the other
aspects of the matter, such as the relativity of rates to Rocky
mountain and Pacific terminal points, no ruling was made. But the
dissenting opinion upon this point is significant, as we shall see, in
that it put forth the suggestion of a scheme of rates graded according
to distance,--a plan ten years later to be enforced by the Commission
under its amplified powers at law.
The welfare of the entire Rocky mountain belt of population, and
particularly its commercial centres, constitutes a second phase of
the problem of transcontinental rates.[467] The whole chain of cities
from Spokane on the north to the Mexican border has been long and
vitally interested in this matter. Rates to these cities, elsewhere
described,[468] as well as from these cities out in either direction,
are very much higher than the rates for longer distances through
them and beyond. Thus, for instance, in the case of Pueblo, it has
been shown that bar iron was hauled 2,400 miles from Chicago to San
Francisco, for fifty cents per one hundred pounds, and rails were
hauled the same distance for sixty cents; while for the haul from
Pueblo, Colorado, to San Francisco, only 1,500 miles, the rate on both
commodities was $1.60. Cotton piece goods were shipped from Boston to
Omaha for fifty-two cents per one hundred pounds, with the added rate
on to Denver of $1.25, giving an aggregate of $1.77. In face of this,
the rate through Denver to California is only one dollar. The railways'
defence for this situation was that the low through rates were
compelled by water competition. But it is certainly difficult on this
ground to justify lower rates to Missouri river points than to Denver
or Salt Lake City. In other words, as urged in our chapter on local
discrimination,[469] having once recognized the principle of blanket
rates as far west as Kansas City, there seemed to be no reason why the
limit should not be pushed further west. All of these allied cases,
however, were left unsettled for years, owing to the lack of power on
the part of the Interstate Commerce Commission to enforce its decisions
under the law as then interpreted. With the new legislation since 1906,
as will be shown,[470] a permanent and just solution of the matter is
promised at last.
The relations between the Canadian railways and the transcontinental
lines in the United States were for many years unsatisfactory; and were
oftentimes a source of serious disturbance in the matter of rates. The
Canadian Pacific claimed, and was in fact accorded for some years, a
differential or a lower rate, in order to offset its disability in the
matter of distance, extra-territoriality, etc. Thus, for instance, in
1888 the Canadian Pacific was allowed to quote rates thirty cents per
one hundred pounds below those by the standard lines. The rates were
afterwards increased on first-class traffic. The other roads refused,
after a time, to continue differentials at this figure, and after
a year the differential was reduced to twenty-eight cents from the
Atlantic seaboard. The question was bitterly contested after that until
1892, when all agreements were abandoned.
Since that time the Canadian Pacific has acted independently, taking,
as a rule, rates about ten per cent. less than its competitors in
American territory. The whole question was submitted to arbitration
in 1898, and by a divided opinion two out of three of the arbitrators
decided that the Canadian Pacific Railway was not, nor should it
be, entitled to a differential under the rates made by the United
States lines.[471] The intricacy of the question is indicated by the
non-concurrence in this conclusion of so well recognized an authority
as J. W. Midgley. The railroads concerned having all agreed to
acquiesce in this decision, the situation has been far more harmonious
in this respect than for many years previous.
* * * * *
A difficulty often arises in connection with the interruption of
a shipment of goods in order to subject it to some simple process
of manufacture. Shall the entire journey from producer to consumer
be considered as a unit in determination of the rate; or shall the
two parts, before and after the change of form by manufacture, be
considered as separate and distinct in this regard? This problem arises
in connection with the so-called "milling-in-transit" system for
grain.[472] Logs likewise may be stopped at some convenient point en
route for cutting into lumber.[473] Cattle or hogs must sometimes be
stopped on the way to market in order to fatten or otherwise prepare
them for sale;[474] structural iron may be halted for the purpose of
fitting, shearing, or punching;[475] transit privileges on wool or
concentration points for other commodities may be involved;[476] or
other goods may be substituted at an intermediate point.[477] And then,
finally, there are the so-called "floating cotton" cases.[478] The
principle at bottom is practically the same in all of these sets of
cases. It may be worth while briefly to consider two of them.
The "milling in transit" system is simply that of according to grain
which is unloaded and milled at an intermediate point, the low through
rate from the point of origin to that of consumption. Thus, for
instance, wheat grown in North Dakota may be unloaded and ground into
flour at Minneapolis and thence shipped to New York at the through
rate from its point of origin to New York. Oftentimes a very small
charge, as, for instance, one cent per one hundred pounds, is made for
the privilege. This system prevails throughout the southern states
also. Grain is brought, for instance, from Kansas City to Nashville or
Birmingham, milled there, and shipped farther south for consumption.
The rate charged is based upon the entire haul from Kansas City to
the local point where the flour is consumed. Obviously this system
stimulates very greatly the development of the milling industry at
intermediate points. It is opposed correspondingly by the large cities
which otherwise enjoy special privileges in the matter of low rates.
Precisely the same principle is involved in what are known as "floating
cotton" rates. In this case the system has developed of permitting
cotton to be unloaded in transit and compressed at an intermediate
point, it being thereafter reshipped to the point of destination at a
through rate from its point of origin. Thus, for example, cotton may be
hauled twenty to thirty miles to one of the larger towns. There it is
unloaded, sorted and compressed, reloaded, and sent on as if it had not
been interfered with at all. Obviously one rate for the entire shipment
is much less than the local rate into the town--which is always very
high--plus a second rate from that town on to destination. The system
in respect to cotton has developed even further than that of milling
in transit of grain; for in the latter case the grain must be unloaded
at some point on the line to destination; whereas in the case of
cotton it may, under rulings of the Interstate Commerce Commission,
be actually hauled _away_ from its ultimate destination a number of
miles and then reshipped back over the same line though at a lower rate
than it could otherwise have enjoyed. Thus, in a leading case decided
in 1899 it was held by the Interstate Commerce Commission that cotton
could be hauled from Gattman, Mississippi, forty-one miles northwest to
Tupelo, compressed there, and then hauled back again through Gattman
and Birmingham to New Orleans.
Important centres, such as Memphis, which formerly enjoyed almost a
monopoly of the compressing business, have strenuously opposed the
development of this system. On the other hand, it offers a distinct
advantage to the grower, because in place of selling the cotton
through cotton factors at Memphis or other centres, it may be sorted
and compressed at local stations. By this means much expense in the
matter of drayage, handling and commissions is saved. This system is
particularly advantageous because it tends to break up the pernicious
basing point system, which tends to centralize all business at a few
important points in the southern states. Almost a complete revolution
in the matter of handling cotton has been effected during the last
few years by the growth of this practice. Not only has the floating
cotton system developed further than that of milling in transit by
according the right of shipping even backward, away from the ultimate
destination; it has also permitted of liberality in the handling of the
product itself. It has been held that it is not even necessary for the
same cotton to be reshipped from the point of compression. A carload
started from the initial point for Boston, for example, may never
reach there, other cotton being substituted for it. The destination
of the car may be, and frequently is, changed. A few dozen grades
of cotton being on the market, the original shipment into the point
of compression may be entirely resorted and distributed to a dozen
different points. Even the ownership of the cotton may change while it
is in transit. Nevertheless, the system has been held as valid under
the law, and its beneficial effects during the last few years have
been observable, especially in the southern states. Of late the danger
lurking in these systems of gross personal favoritism, have led to
their careful examination in a number of cases. What the final policy
regarding them is to be, cannot at this writing be affirmed.[479]
* * * * *
A problem of considerable difficulty, involving the relative shares
of the various seaports in American export business, has occupied the
attention of experts for more than a generation; and at this present
writing, although before the Interstate Commerce Commission for the
third time, seems to be almost as far from a satisfactory solution as
ever.[480] It originated at the time of the rate wars in 1876. The
first agreement between all the trunk lines concerning it was entered
into in the following year. By this an attempt was made to equalize
the aggregate cost of ocean and rail transportation between competing
points in the West and all foreign and domestic points reached through
Baltimore, Philadelphia, New York, and Boston. Under this agreement,
Baltimore was allowed a rate of three cents below the rate from Chicago
to New York; Philadelphia enjoyed a concession of two cents; while
Boston had its rate fixed at a certain percentage of the Chicago-New
York figure. There was considerable dissatisfaction expressed at
various times with these differentials, and the whole matter was
submitted to arbitration in 1882. The commercial interests of New York,
as well as of the railroads centering in that city, have complained
bitterly that these differences, once adjusted upon a very much higher
scale of rates than at present, have become increasingly burdensome
now that the Chicago-New York rate is perhaps not more than a third
or a quarter of what it formerly was, while the differential has
remained at a fixed figure. The recent decline of the export commerce
of New York is, in fact, ascribed in a large measure to the operation
of these differentials; and a leading case before the Interstate
Commerce Commission, instituted by the Produce Exchange of New York,
endeavored to secure their abolition. The Commission held, however,
that the differentials--recognized by the Joint Traffic Association
of 1896--were legitimately based upon competitive relations of the
carriers; and that consequently no unlawful preference or advantage had
been accorded to the cities competing with New York for export business.
The result of pressure for a larger division of export business,
particularly from Boston, led, in 1899, to a reduction by one-half of
the differentials. The matter was finally submitted for arbitration
to the Interstate Commerce Commission, which very fully examined
the question and rendered a decision in 1905.[481] By this decision
rates _via_ Philadelphia on traffic for export were to be one cent
less than by way of New York, while to Baltimore they were to be two
cents less. This arrangement still left Boston subject to its former
substantial disability. It was contended that the original purpose
of the differentials, namely, equilibration of rates from western
centres of production through the various ports to Liverpool, had been
practically nullified. For a time the phenomenal development of the
Gulf exports diverted attention, forcing all the Atlantic seaports to
make common cause against their southern rivals.[482] But the passing
of this danger once more revived interest in the struggle between the
Atlantic cities. Opportunity for the collection of full data under
the strengthened Federal law in 1906, made it possible to reopen the
case in 1912 before the Interstate Commerce Commission. But, in the
meantime, both in 1909 and 1911, after an interval of twenty years,
trunk line rate wars threatened to break out for the protection of
Boston against its rivals. The latest decision by the Commission,
just handed down,[483] still fails to satisfy Boston. No differential
rate on export grain on the ground of distance as against New York is
conceded; but those already in effect at Philadelphia and Baltimore
are sanctioned. What the effect will be, remains for the future to
determine.
* * * * *
The principle involved in the so-called import and export cases[484] is
that of the reasonableness of charging lower rates on goods originally
shipped from or destined to domestic points, than are charged for
similar goods, over the same lines and for the same distances, when
brought from or destined to foreign countries. Thus, for instance, in
the case of cotton cloth shipped by way of Pacific ports to the Orient,
the practice is not uncommon of charging a less rate to San Francisco
for the transportation of goods ultimately destined for export, than is
charged on similar goods which are to be unloaded for consumption at
San Francisco or other California points. Or, reversing the case, this
question touches the reasonableness of transporting goods from New York
to Chicago at a lower rate, if they have been brought in from Europe,
than is charged for similar service in the case of goods that have
originated at or near New York. Cases of this description have become
increasingly frequent during the last twenty years. The first and most
important one, upon which both the Interstate Commerce Commission and
the United States Supreme Court have passed, originated in proceedings
before the Interstate Commerce Commission, brought by the New York
Board of Trade of Transportation against the Pennsylvania and other
railroad companies. The case practically raised the general question
whether, in the carriage of goods from American seaports, carriers
subject to the act could lawfully charge less for the transportation of
imported than of domestic traffic of like kind to the same destination.
The Commission, after careful examination, held that such differences
in rates constituted discrimination as against the domestic shipper.
According to its view, the circumstances and conditions pertaining to
the carriage of freight from a foreign port to the United States could
not be considered as creating the dissimilarity of conditions which
alone would justify a different rate for like service in the two cases.
The Commission held that:
"One paramount purpose of the act to regulate commerce,
manifest in all its conditions, is to give to all dealers and
shippers the same rates for similar services rendered by the
carrier in transporting similar freight over its line. Now, it
is apparent from the evidence in this case that many American
manufacturers, dealers, and localities, in almost every line
of manufacture and business, are the competitors of foreign
manufacturers, dealers, and localities for supplying the
wants of American consumers at interior places in the United
States, and that under domestic bills of lading they seek to
require from American carriers like service as their foreign
competitors.... The act to regulate commerce secures them this
right. To deprive them of it by any course of transportation
business or device is to violate the statute."