Abilene Cotton Oil Co. (204 U. S., 426), construing the ninth and
twenty-second sections on the right of a shipper to apply to the
courts for pecuniary redress for an alleged unreasonable rate held
that, until the protested rate was condemned by the commission, there
was no relief in the courts. This decision avoided a conflict of
jurisdiction between the courts and the commission. It would lessen
very greatly the value of the amendment of the act of June 29, 1906,
which requires thirty days' notice in a change of rate, which was
adopted, with a view of investing rate conditions with a greater
degree of stability than formerly. Under existing law, the shipper is
assured of that degree of stability, and can predicate his sales and
purchases accordingly. Under the amendment, shippers would never know
whether or not a rate is to become effective on schedule time, or at
any future time. The effect of the amendment would, therefore, be to
a considerable degree to nullify the permanency which this amendment
to the act to regulate commerce sought to impress upon the law.
We must remember in considering this question that the majority
of advances have resulted from the practice of the roads in the
reduction of rates to meet certain commercial and economic conditions
at the time, which have usually been the result of appeals from
shippers and suggestions from commercial organizations.
We desire to direct attention to the statement filed before the
Committee on Interstate and Foreign Commerce upon a similar bill to
this by the chairman of the committee of the Southwestern Traffic
Association, which is as follows:
"A very small percentage of the changes in freight rates,
either reductions or advances, is evolved by railroad
officials. Practically every change in rates is the result of
suggestion from one or more shippers, who find that by some
modification in the existing schedules their business in a
certain territory can be increased by enabling them to meet
competition which they encounter from other sources of supply,
which are in most cases served by rival railroads. Their
representation is that by the proposed change their profit
or business will be increased, and consequently the railroad
serving them will share in an augmented traffic which, at the
time of the suggestion, is being handled by the rival shipper
and carrier.
"Ninety or more per cent. of these suggestions are for
reductions in rates or for changes in rules and regulations
beneficial to shippers and classed as reductions. The railroad
company is anxious at all times to increase its traffic and
gives a keen ear to such pleas of the shipper. The railroad
official to whom such requests are made carefully investigates
the conditions recited by the shipper and, by correspondence
with such railroad's representatives at the points of origin
and destination, confirms, if possible, the views of the
shipper and the effect of the proposed change on the tonnage
and revenue of the company. The traffic official of the
railroad thus being daily engaged in investigations of this
kind becomes very proficient in his knowledge of the factors
surrounding the movement of the principal articles of commerce
and becomes, after experience, a ready judge of the merit of
such propositions. When thus convinced, he becomes the agent of
the shipper in securing the proposed adjustment. This may take
the form of suggesting to a rival railroad that the advantage
which its shippers have enjoyed is unjust and that he should be
permitted, without any corresponding reduction on the part of
such rival railroad, to reduce his rate that the complaining
shipper may profitably secure an increased share of the
competitive traffic in question. Being unable to thus persuade
the competing railroad of the merits of such a contention he
is forced to proceed by reducing his own rate without regard
to the possible change which may follow on the part of other
railroads as a consequence of his reduction.
"It will, therefore, naturally be seen that the railroad
official and the shipper are constantly planning to increase
the business in which they are jointly interested, to the
disadvantage of the rival railroad and shipper. Sometimes
these efforts result in serious rate wars until the point in
controversy has been adjusted and the competitive rates placed
on a basis which is more nearly equitable to all concerned. In
many instances these disputes result in arbitration either by
the Interstate Commerce Commission or by individuals who may be
agreed upon by the contending interests.
"Bearing in mind, therefore, that practically all rate
reductions are the result of the effort of the railroad company
to serve the shipper, it can easily be seen what the result
will be if no advances in rates can be made without practically
the approval of the Interstate Commerce Commission. Where it is
difficult to restore rates to normal figures, the carrier will
be loath to reduce them in order that the shipper dependent
upon such carrier may increase, for the time being, his share
in the competitive traffic in which he is interested."
ADJUSTMENT OF RATES.--INTERRELATION OF RATES.--PRACTICAL OPERATION OF
AMENDMENT.
6. The subject of rate adjustment, even upon a single system of
transportation, is one involving great difficulty and perplexity.
When this adjustment is considered in its relation to the entire
country, to the diversified commercial conditions, as affected by
commercial competition, and as controlled by the interrelation of
rates, it stands forth as one of the most difficult of all the
problems which must be mastered that the transportation agencies
may not be injuriously crippled in the performance of their quasi
public functions, or the prosperity and development of the commercial
interests be retarded by the failure to enact proper, reasonable, and
just governmental regulations.
Rates which can be considered alone are comparatively few in number.
In the large majority of cases they are interrelated with other
rates, and frequently this interrelation exists as between areas
widely separated. The rates upon iron and steel from mills within 50
to 100 miles of New York, Philadelphia and Baltimore, whose relations
to each other are established by long custom and usage, are based
primarily upon the necessity of preserving a fair comparative charge
between the different shipping points and destinations. Rates upon
coal from central Pennsylvania to tide water have close relations
with the rates upon coal from West Virginia to tide water, competing
as such coal does, in the same markets. The rates upon lumber from
the Michigan markets must bear some relation to the rates on lumber
from Louisiana and Georgia to the same market of distribution,
although separated by hundreds of miles.
The rates upon grain from western farms to eastern points bear
a relation to the other, and upon export grain the rates to the
Atlantic seaboard bear a close relation to the rates to the Gulf.
The rates upon fruit and vegetable traffic from the various shipping
districts, as California on the West and Florida on the South,
must be considered in the making of rates. The structure of rates
between the territory east of the Mississippi and north of the Ohio
River, and the territory east of Pittsburg and Buffalo, including
New England, is closely interrelated; as an example, the rates
between Chicago and New York take a percentage of the Chicago rate
from all points west of Pittsburg and Buffalo. The principle of
the interrelation of rates has frequently been recognized in the
decisions of the Interstate Commerce Commission.
In the interest of the manufacturer there is a very important
relationship between rates upon different products entering into
the manufacture of a given article. In the great steel-producing
districts of the Shenango and Mahoning valleys and Pittsburg for many
years the rates upon raw material to the furnaces for the production
of pig iron have been adjusted upon a basis, so far as possible, of
making the freight cost of assembling the raw materials that enter
into this product the same to each furnace. In the one case the rate
upon coke may be higher and the rate upon ore or limestone lower; in
other cases the reverse. The adjustment of rates upon these different
raw materials is so made that when assembled at the different
furnaces the aggregate cost is relatively the same. This illustrates
the contention that such rates cannot be considered separately, but
must be taken as a whole.
Bearing these facts in mind it is manifest that if an advance in
rates is made and the protest of one shipper shall operate as a stay
to the advance of a particular rate in which he may be interested the
result would be to burden thousands of other shippers who have made
no objection. The protesting shipper would thus secure an advantage,
enjoying for a time, at least, a rate relatively lower than that to
which he was entitled. It might be urged that it would be open to all
other shippers to file similar protests, but under the provisions of
the bill, or of the amendments suggested in committee, the protesting
shipper might wait until the last day of the thirty-day period, thus
giving no opportunity to other shippers, who would be ignorant of
his purpose, to file their protest. It would be possible if this
amendment became a law that many individual shippers would take
advantage of their competitors by making contracts upon the basis of
a lower rate and at the last moment file the protest, suspend the
advance rate, and deliver their product under such contracts within
the period of the suspension of the advanced rates and thus profit at
the expense of their competitors.
The effect of this amendment becomes more serious where the relation
of rates is between wide areas, and these relative rate adjustments
cannot be made simultaneously. The rates upon grain for export, from
the West to the Gulf, as compared with the Atlantic seaboard, will
illustrate this statement. The protest of one shipper between two
specific points would not only result in throwing out of relation
the rates from all points in that section, but would also affect
the competitive rates from other sections. Such a result would
necessarily render the rate situation in reference to the grain rates
"confusion worse confounded."
Rates in a country like the United States, which is comparatively
young, and the development of which attracts the attention of the
world, must, necessarily, be elastic, not only in the interest of
the carrier, but of the shipping public. The principle is sound and
has received the approval of the Interstate Commerce Commission,
that rates must be fixed with regard to their relations one with
the other, and not entirely upon the cost of service. This relation
is because of the competition between shippers, between sections
of shippers, and between localities, and as (because of the rapid
development of our country in the production of new sources of
supply, in the opening up of new grain fields, flour mills, mines,
and factories, etc.) this competition is constantly changing. It is
manifest that rates must constantly fluctuate, so as to be adjusted
to the new condition; it is essential in the development of the
country, even in the older sections, that rates must be elastic,
which means constant reductions and advances.
This is in the interest of communities and the individual shipper.
There must be elasticity for other reasons, in the interest of
communities as of the railroads; in meeting changes in commercial
conditions that necessitates reductions in rates for shorter or
longer periods, as an illustration, to enable our grain and other
products of the farm to reach foreign markets, which would be
impossible in one period unless rates were lowered, whereas in other
periods higher rates could be charged without injurious results.
Understanding the conditions that surround this complex subject,
it is manifest that if a single shipper, or even the Interstate
Commerce Commission, is to have the power to prevent at any time that
elasticity which involves an advance in rates, the natural result
will be that reductions will not be made by the carrier, and the
elasticity will be lost. The fear would be ever presented to the mind
of the traffic official that the rate once reduced could not--at
least, until after exhaustive and long-drawn-out hearings before the
commission--be advanced.
The necessary fluctuation in rates to meet the changing conditions of
commerce, when examined in the light of the reports of the Interstate
Commerce Commission, is startling to one not familiar with the
rapid change of commercial conditions in this country. There were
225,982 tariff publications filed with the commission in one year,
all containing changes of rates, either reductions or increases,
and rules governing transportation. These publications--many of
them--contained a great number of different tariffs. The Pennsylvania
lines, east of Pittsburg, issued 2,200 tariffs and 3,600 supplements.
About 33-1/3 per cent of these covered advances, and 66-2/3 per
cent were reductions. As the law exists today, there was no special
inducement to the shipper to file protests against the advances.
Suppose, however, that this amendment had been a part of the act to
regulate commerce, how many protests would have been filed, and what
length of time would it have taken the commission to have disposed
of them? What uncertainty would have resulted to the commercial
interests while waiting for the adjudication of these questions?
OPPORTUNITY FOR FRAUD AND DISCRIMINATION UNDER THE AMENDMENT.
7. One of the most serious objections urged to the passage of this
amendment is the opportunity which such a law would present for the
perpetration of frauds under it, and in the case of even honest
protest to the advance of rates, where rates rest on a differential
basis, in producing thousands of instances of unfair discrimination.
An example under the first proposition may be stated briefly, as
follows: There are two men engaged in the same line of trade; they
are both called upon to bid on a contract involving a large amount
of a given commodity in which both deal. The carrier has given
notice of an advance in rate, effective thirty days from the filing
and publication of the schedule; the commodity is not to move
for some days; one of the bidders files his bid, based upon the
advanced rate, assuming that the notice of the carrier will be made
effective; the other shipper and bidder waits until two or three days
before the date the rate is to be made effective, files a protest,
confident that it will take three or four months to have the matter
adjudicated, files his bid against his competitor, based on the
current rate, and being the lowest, secures the contract. An example
under the second proposition would be in case of a rate published
from St. Louis to be followed differentially from Chicago by a number
of competing roads. A shipper on one of the lines, just prior to the
taking effect of the rate, would file his protest as to the rate east
of Chicago. The differential adjustment that has been made by all
these roads will at once be destroyed, and the shipper on the road
against which the protest was filed would have the advantage over all
of his competitors on the other lines in shipping east.
These discriminations between shippers would be the direct result of
the power placed by Congress in the hands of shippers and would have
received the sanction of legislative approval, and, therefore, be
lawful. The statute has taken it out of the power of the carrier to
meet such a condition and to prevent the discrimination. It cannot
change its rate under thirty days without a special order of the
commission, and that order, it must be assumed, cannot be granted
without a reasonable hearing. Congress since 1887 has sought by the
most stringent measures of legislation to prevent discrimination
and preserve equality among shippers. The original act was demanded
more to accomplish that purpose than for any other. The Elkins Act
was confined almost entirely to the subject, and the act of June 29,
1906, increased the penalties for the violation of these provisions.
Should this policy, which has been followed for more than twenty
years, be modified and an act passed, the tendency of which is to
tempt the cupidity of the shipper to accomplish results which it has
earnestly and vigorously fought to stamp out?
WOULD PREVENT REDUCTIONS, AS WELL AS ADVANCES, IN RATES, AND DESTROY
THEIR FLEXIBILITY.
8. On the face of this amendment, it seems only to give to the
commission the authority to prevent an increase in rates, but the
practical result of such a law would be far more reaching. Such a law
would mean a rigid freight tariff in place of the present flexible
and elastic system of rates which exists alone in this country.
Stability of freight rates is important, but not to the extent that
the carrier shall not feel warranted in promptly applying remedies
for the relief or assistance of shippers who find themselves no
longer able to compete, due to advantages which other shippers have
secured, or changes which have occurred in the conditions surrounding
the marketing of their products.
A law which tends to minimize the commercial or competitive
conditions existing at the present time will necessarily result
to the disadvantage of shippers, to the carrier, and to the
communities they serve. It is not necessary here to again refer to
the presentation of the importance of the flexibility of rates,
which is so clearly shown in the discussion of the influences which
control in making reductions, as well as advances of rates by the
chairman of the Southwestern Traffic Committee, as quoted under
section 5 of this report. The more the committee has reflected upon
the probable tendency of the principle announced by this amendment,
if incorporated into the law, the more definite has become its
conviction that it would ultimately result in destroying that
important factor in American railroad management, "the flexibility
of their tariffs--their adaptability to the changing commercial and
economic conditions."
One of the most distinguished and skilled traffic officials in the
country, Mr. Henry Fink, in considering this amendment uses the
following language:
"Railroad officials are constantly engaged in the work of
adjusting rates so as to meet as far as practicable the
requirement of their patrons. In times of depression of
business they make reduction in rates in order to enable
shippers to send their commodities to certain markets, and
keep industrial establishments from being closed. These
reduced rates are often so low as to barely cover the cost of
transportation. But they are meant to be temporary in their
operation, and to be advanced when business conditions have
become more favorable.
"It must be obvious that when the restoration of such rates is
obstructed, so that railroad officials are not permitted to
advance rates except by permission of a government bureau after
an investigation which must consume considerable time, railroad
officials will naturally hesitate, and often decline, to make
reductions in rates which involve considerable loss of revenue
without any compensating benefits to their companies, either in
the present or future.
"It is easy to see the effect of this. Railroads would no
longer be able to afford the desired assistance to shippers,
however anxious they might be to do so. The rates would in a
large measure lose their elasticity, and become rigid, and a
condition similar to that existing in France would be created,
where state controlled rates prevent railroads from building up
the territory."
In considering this question, we must not forget that when we destroy
elasticity and flexibility in our rates, we prevent reductions of
rates, as well as the raising of rates. Its tendency is not only to
prevent the reduction in particular instances that has resulted in
great advantage to the shippers and the country in the past, but it
prevents the lowering of the general average of rates. There have
been comparatively few complaints, as to the unreasonableness of
the rates of this country per se. The vast majority of complaints,
against the reasonableness of rates, is the claim that they
are relatively unreasonable. Under the American system of rate
adjustment, with its freedom to meet commercial and economic
conditions, the general average of rates per ton per mile has
voluntarily been reduced by the carriers of the country from 1870;
not so strikingly since 1896 as previously, but substantial reduction
as follows:[J]
1896 802
1897 789
1898 753
1899 724
1900 729
1901 750
1902 757
1903 763
1904 780
1905 766
1906 748
1907 759
The leaders of railroad management and the ablest experts on railroad
economics in foreign countries have approved in the most enthusiastic
language, the wisdom which has preserved to the American railway
system its freedom of management and its flexibility of rates,
subject only to the limitations of reasonable rates, equality
among shippers, and the avoiding of all devices that might result
in discrimination among those who use these public means of
transportation.
The view of M. Emile Heurteau, president of the Orleans Railroad,
speaking of the American system of roads, said:
"We would be only too glad to adopt the American system
of fixing the lowest rates proper, and making up the loss
of profit on each shipment out of the increased volume of
business they make the railways available to, which is the
only economically and commercially right and sensible way
of doing. We would be glad to build up our territory as the
American railways do, by encouraging its industries, by opening
its markets, by enabling it to compete with other territory
contributing to the same markets.
"But we can not do that; the state-controlled rates prevent it,
however strong our desire or the people's may be.
* * * * *
"Railroads under government supervision must set their rates
close to the maxima then, and maintain them there, for their
own salvation. There are many times when, if it were possible,
we would like to lower freight charges to meet some special
emergency, such as the necessities of a district suffering from
a crop failure, for example.
"That is not philanthropy, but commercial sense, to help the
man who creates business for you, when he is hard pressed,
and to increase the volume of traffic that is falling because
people have not the money to pay the price they have been
accustomed to pay easily. But if we should once lower our
rates--possibly to the point of loss, as American railways have
done frequently in crises--we would not be allowed to restore
them later, when they could be fairly restored.
* * * * *
"The wonderful growth and development of the United States is
the admiration of the whole world. I have no doubt it is to be
attributed largely to the freedom you have always enjoyed in
your commercial and industrial life.
"Opportunity is given here for railways and communities to be
mutually helpful, and splendid use has been made and is being
made of it. The few cases of complaints against your railways,
the expansion of trade through the opening of European markets
to the producers of your Central and Western States, who
are enabled to deliver their products abroad, the low cost
of transportation that enables them to compete there with
the foreign producer near at hand, whose railways are in no
position to help him--all these things seem to me sufficient
evidence of the success and desirability of the American
practice in the management and regulation of railway matters.
"Any economist, any business man, any transportation manager
will tell you that the present American method of fixing
freight rates is the only logical and rational one."
In the investigation of railways by the Senate committee in 1905,
Mr. W. M. Acworth, who is regarded as one of the leading experts
in England on railroad transportation and railroad economics, was
invited to appear before the committee, with the request to give a
review of the historical facts bearing on the control and management
of the railways of England. After complying with the request of
the committee, certain questions were asked him that were of great
importance at that time in the consideration of the questions then
being investigated by the committee. One of these questions involved
the effect of the provision of the new canal and traffic act of
Parliament, which for the first time embodied the provision that
"railway companies must make no increase except for good cause, if
anybody objects," and which, as construed by the courts, prevented
any increase of a rate where objection was made, until after hearing
by the board of trade.
His examination will be found in the third volume of the hearings
of that investigation, pages 1848, 1852, 1853 and 1854, and was as
follows: