[328] Railways in the United States in 1902, I.C.C., 1903, Part II, p.

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."

Railroads: Rates and Regulations · 第 26 / 31 章