LOCAL RATES IN CALIFORNIA
Charging What the Traffic Will Bear
The general policy of the associates in dealing with problems of
rate-making in which rival towns were interested, was the same as that
which they adopted to meet differences in competitive power between
different individuals. The tests applied were simple. What was the
market to be reached? Had the community concerned an alternative
route? Was there an alternative source of supply which limited the
willingness of the community to pay freight? If so, was this second
source of supply one served by the Central Pacific, or one which had
the benefit of water communication, or possibly one which possessed a
rival rail connection? To what extent should concession be made from
the highest rate which could be charged, in order to promote the growth
of business?[383]
The standard of rate-making just described, which may be summed up as a
policy of charging what the traffic would bear, was not peculiar to the
Southern Pacific at the time it was adopted, nor was it particularly
repugnant to public opinion in California, taken as a whole. The
error must not be made of ascribing to the western communities of the
seventies and eighties a clear conception of the reasons of public
policy which are properly urged today against the unlimited recognition
in railway rate schedules of the competitive forces which still have
free play in private business. Such ideas have slowly developed only
during the last forty years.
Limited Encouragement of Business
Nor was the policy of adapting rates to the ability of shippers to pay
inconsistent with the rendering of important service to business men in
California and elsewhere who were seeking to expand their sales. Only
a few illustrations need be given of the promotion of business by rate
adjustments, but they will serve as examples of many more about which
information is on record.
One case of this sort, which shows the willingness of the Southern
Pacific management to respond to what they considered a reasonable
request, had to do with the shipment of beer from a place known as
Boca, in the state of Nevada, to San Francisco. It appears that a
gentleman named Hess once conceived the idea of establishing a brewery
at Boca. This town was 220 miles from San Francisco, and yet all of Mr.
Hess’s beer had to find a market in the latter place, in competition
with beer from Milwaukee and St. Louis. Mr. Stubbs, general traffic
manager of the Central Pacific, welcomed the proposal to build a
brewery in the West, and put in special rates to help shut out the
eastern product. Every pound of brewery supplies, he reasoned, would
have to go over the Central Pacific. It was all clear gain, like so
much money picked up out of the ditch. In another case the Southern
Pacific quoted special rates on sugar from San Francisco to the
Missouri River, to enable the California Sugar Refining Company and
the American Sugar Refining Company to sell their sugar at the Missouri
River in competition with sugar reaching New York by water and thence
moving westward.[384]
Still again, in 1884 an attempt was made to persuade the St.
Louis-Kansas City lines to participate in a rate of 75 cents per
hundred pounds on cast iron pipe from St. Louis to the Pacific Coast
in order to encourage production in the Middle West in competition
with that on the Atlantic seaboard. The matter of the 75-cent rate was
taken up with J. W. Midgley, Trunk Line commissioner, who declined
temporarily on December 24, 1884, on the ground that the rate would
be a special one, and that there was an understanding that no special
rates should be made prior to January 31 next ensuing, pending an
anticipated agreement between the Transcontinental Association and its
eastern connections.[385]
In the instances which have been given, the impelling motive of the
Southern Pacific was frankly to increase its profit by increasing the
movement of freight over its line. Yet the shipper was also benefited
because his interests were substantially identical with those of the
railroad company, and he warmly welcomed the powerful support of the
railroad lines. These cases are not unimportant. The enumeration of
such isolated instances, however interesting as they may be, affords
no very clear picture of the aggregate of local rate adjustments with
which the Southern Pacific interests were concerned. For this purpose a
more systematic survey of the rate system administered by the Southern
Pacific is necessary, and to this attention is now directed.
Distance the Governing Factor
The foundation of any system of railroad rates is the distance which
commodities are carried. Generally speaking, the Southern and Central
Pacific railroads, like other companies in the United States and
Europe, varied their local charges with the distance between point of
origin and point of destination. To illustrate this point briefly, two
charts are here presented.
[Illustration: Chart showing rates on second-class freight and on grain
in the Sacramento Valley, 1876.]
The first chart depicts the rates on second-class freight and those
on grain in January, 1876, between Sacramento and points in the
Sacramento Valley north of that city. Second-class freight at this
time on the Southern Pacific included articles such as coal oil,
agricultural implements, machinery, furniture, crated glassware, and
wines and liquors. Freight of the description mentioned ordinarily
moved north from the city of Sacramento. Grain, on the contrary, moved
south. It will be observed that rates on the lines of the Southern
Pacific increased with considerable regularity as point of origin or
destination proceeded north into the non-competitive territory around
Tehama and Redding.
[Illustration: Chart showing rates on miscellaneous commodities in the
San Joaquin Valley, 1892.]
The second chart displays rates between San Francisco and stations in
the San Joaquin Valley as far south as Fowler, 205 miles distant from
point of origin. These rates are for the year 1892.
Non-competitive rates in the San Joaquin Valley in 1892 increased as
distance grew greater, much as they had increased in the northern
territory sixteen years before. The rates given are for a few
commodities only, namely, agricultural implements, barbed wire, boots
and shoes, coal, and grain; but these are typical of the construction
of schedules on a much larger number of articles. The extent of the
increase was relatively greater to points beyond Lathrop because of the
effect of water competition on San Francisco Bay.
Grades and Traffic Density
These two schedules illustrate a fact which could be readily proved by
repeated examples, namely, that local rates in California were and are
first based on the element of distance. Possibly such a fact might be
assumed; yet in California, as elsewhere, the statement that railroad
rates have varied with the distance traversed needs promptly to be
qualified in order to be true. For, first of all, it was evident at
the beginning that costs of transportation were not solely determined
by distance, and that other considerations had to enter in. One of
these other considerations was the matter of grades. Because of the
conditions under which the Central Pacific was constructed, to say
nothing of the extremely mountainous character of certain portions of
the Central Pacific lines, differences in the rates per ton per mile
between the valley and the mountain sections were introduced by the
company at the commencement of its history.
A second characteristic of railway traffic which had a profound effect
upon early railroad tariffs was the relative density of business. Mr.
Stanford advanced the theory that the railroad should strive to secure
a certain average earning per car; and in sections where business was
light, as well as upon commodities which were bulky in proportion to
their weight, a high average rate per hundred pounds was accordingly
charged.
Relative grades and relative density of traffic were not the only
conditions relating to cost which influenced the varying level of
transportation rates in California, but, apart from distance, they
were perhaps the most important, and in any case they may be taken
as illustrative of the group of circumstances to which they belong.
In addition to the whole class of facts relating to cost, however,
the Southern Pacific gave heed to matters of value of service in the
fixing of its rates. Nothing will be said here of the principles of
classification of freight, principles which have to do in part with the
value of the service rendered; nor of individual differences between
shippers, which have been alluded to in the preceding chapter in the
discussion of personal discrimination. The effect of competition in
distorting distance schedules in California will, however, be dealt
with at some length.
Water Competition
It has already been pointed out that the presence or absence of water
competition has always been a most important factor in determining the
relative adjustment of local rates in the state of California. This
competition has been extremely pervasive. Although the scarcity of
good harbors and the location of the Coast Range of mountains hinders
access from the sea into the interior of California, yet, on the other
hand, the ports of San Diego, San Pedro, and San Francisco, and the
long stretches of navigable water on the Sacramento and San Joaquin
rivers have opened the possibilities of water shipment to a multitude
of inland towns. Indeed, in 1883 General Manager Towne, of the Central
Pacific, submitted to the State Railroad Commission a list of fifty-two
points in California at which the Central Pacific and its leased lines
met direct water competition. The water routes included San Francisco
Bay and the Sacramento River and sloughs, Suisun Bay, Napa River,
San Joaquin River, Feather River, the Pacific Ocean, Wilmington Bay,
and the Colorado River. In addition, Mr. Towne enumerated eighty-two
points where rates were affected by proximity to the competitive points
previously mentioned.[386] On the face of things, the extent of the
water competition thus indicated was sufficient to warp almost beyond
recognition the simple distance scale of tariffs which a railroad
completely protected from competition would naturally apply.
Low Rates to Competitive Points
An illustration of the effect of the water routes on local rates
is found in the fact that the round trip fare from San Francisco
to Sacramento by rail in 1878 was $3, while that to Woodland was
$4.25.[387] The _San Francisco Chronicle_ declared in 1879 that,
according to a recently published schedule, the movement charge
for grain, potatoes, vegetables, and wool from Lathrop to Mojave
was exactly the same as to Ravenna, Newhall, or Los Angeles. The
first-named distance was 288 miles, making the movement mileage rate
7.2 cents; the second-named distance was 337 miles and the rate per
mile was 6.2 cents; the third distance was 356 miles, the rate being
only 5.8 cents; and the distance to Los Angeles was 388 miles,
or a mileage rate of 5.4 cents. The truth of the statement of the
_Chronicle_ is established by data published by the State Commissioners
of Transportation in 1877, which show the striking contrast that
existed in 1877 between non-competitive rates in the interior valleys
and rates to points which enjoyed the advantage of nearness to the
water routes.
Low water-compelled rates to Sacramento and to Los Angeles were in
force as early as 1877. Yet this was only a beginning, and as time went
on and the number of towns in California increased, the practice of
recognizing the force of water competition was extended. Moreover, the
Southern Pacific began to quote _lower_ instead of merely equal rates
to more distant points which enjoyed the advantage of nearness to a
water location. Since the ability to make use of a competing railway
afforded opportunities similar to those afforded by ability to use a
water route, low rates were also extended to towns served by more than
one railroad line. All this greatly complicated the rate situation in
the state, gave rise to numerous complaints, and renders difficult the
task of concise description.
Rates to Intermediate Points
Official confirmation of the general correctness of the complaint of
discrimination which reached the public press from time to time is
found in a comprehensive investigation of railroad rates in California
which the Railroad Commission of that state undertook as late as the
year 1916. This inquiry was provoked by an application by the Southern
Pacific, Santa Fé, and other railroads in California for relief from
the clauses of the amended state constitution and of the California
Public Utilities Act prohibiting greater charges to intermediate points
than were collected on shipments to more distant points over the same
line. Although the legal aspects of the case were therefore the result
of modern legislation, the facts brought out were typical of conditions
of long standing.[388]
[Illustration: Diagram showing adjustment of freight rates between San
Francisco and Stockton, 1916.]
Exhibit No. 1 in the case in question referred to class rates in
the San Joaquin Valley. It appeared that class rates between San
Francisco, San José, Port Costa, Stockton, Sacramento, Marysville, and
intermediate points to Los Angeles, were 60 cents per hundred pounds
first-class, and corresponding sums less for the lower classes. These
rates were shown to be controlled by the class rate of the Pacific
Coast Steamship Company, which quoted a through first-class rate of 52
cents, including wharfage and handling, between San Francisco and Los
Angeles via San Pedro. On all-rail shipments down the valley, as well
as on shipments over the coast rail route, however, water competition
was not effective. The rate from San Francisco to Simi, 429 miles from
San Francisco, was therefore 80 cents, and that to Acton, 415 miles
from San Francisco, was 83 cents, although shipments from San Francisco
to Los Angeles passed through Simi and Acton on their way to Los
Angeles over the coast and San Joaquin Valley routes, respectively.
A condition similar to that at Los Angeles and at points in the San
Joaquin Valley was developed in connection with shipments from San
Francisco to Stockton. The diagram on page 266 will show the relative
position of these two towns as well as that of an intermediate place
named Banta.
The distance between San Francisco and Stockton was 91 miles, and
the first-class rate was 10 cents per hundred pounds. This rate
was identical with the rate charged by boat lines operating on San
Francisco Bay, and on the Sacramento and San Joaquin rivers. But
although these boats touched at some intermediate points, their
competition was not everywhere effective; so that the first-class rate
from San Francisco to Banta, 74 miles, could be and was 17 cents,
although freight from San Francisco passed through Banta on its way to
Stockton.
Other Instances
Still another illustration of the influence of water competition upon
local rates in California may be drawn from the territory immediately
north of San Francisco Bay. The towns involved in this adjustment were
San Francisco, Sebastopol, and Santa Rosa, as shown in the diagram on
page 268. The first-class rate from San Francisco to Sebastopol on the
Northwestern Pacific was 23 cents. This rate was shown to be limited by
the competition of a rail and water line, including a steamship haul
from San Francisco to Petaluma and a haul over an electric railway
from Petaluma to Sebastopol. The distance from San Francisco to
Sebastopol over the Northwestern Pacific was 58.5 miles. The distances
from San Francisco to the towns of Kenilworth and Santa Rosa, on the
same railroad, were 45.7 and 52.5 miles, respectively. Shipments to
Sebastopol passed through these places, but because neither enjoyed
the advantage of an alternative route, the first-class rate to Santa
Rosa was 25 cents and that to Kenilworth 28 cents—materially more than
was charged for the longer haul to Sebastopol.
[Illustration: Diagram showing adjustment of freight rates between San
Francisco, Santa Rosa, and Sebastopol, 1916.]
While instances of the extreme discrimination of a greater charge for
a shorter than for a longer haul were shown in 1916 to be usually the
result of water competition, it has already been suggested that not
all cases of discrimination were of this sort. A particularly striking
case of unequal rates due to rail competition alone was brought out
in the same proceedings from which the preceding illustrations have
been drawn, by the application of the Atchison, Topeka and Santa Fé
Railway to continue lower rates from Los Angeles to Mojave, California,
a distance of 212 miles, and to Lindsay, a distance of 411 miles,
than were charged to Kramer, an intermediate point 174 miles from Los
Angeles. The relative position of the points is shown in the diagram
given above.
[Illustration: Diagram showing adjustment of freight rates between Los
Angeles and points north and east of Los Angeles, 1916.]
In this case the rate to Mojave at the time application was filed was
52 cents first-class, and that to Lindsay 70 cents, while the rate to
Kramer was 78 cents. But at both Mojave and Lindsay, the Santa Fé had
to meet the competition of the short Southern Pacific line, while at
Kramer this competition was not effective.
Development of State Retarded
The data which have been presented show that, while the system of
local rates in California was based originally upon distance, it soon
became profoundly modified by conditions of cost, and still more by
the presence of competition at strategic points, and by the occasional
necessity of reducing rates in order to stimulate the movement of
freight. The charges for short hauls in the interior valleys where
the Southern or Central Pacific possessed a monopoly were made high,
because traffic was scant and because the railroad was able to exact
a monopoly return. Rates were also regularly progressive under these
conditions. In sharp contrast to the practice which obtained where the
Southern Pacific was the only carrier, rates to points located upon
the coast, on navigable rivers, or on competing railroad lines were
relatively low and were often extremely irregular.
It is generally difficult to criticize a system of rate-making upon _a
priori_ grounds because the test of such a system is to be found only
in the form which it gives to the industrial life of the community to
which it is applied. There is reason to believe, nevertheless, that the
local rate structure created by the Southern Pacific gave an advantage
to a few shippers and to a few towns which affected unfavorably the
development of the state. This is the fundamental objection to any
system of rates in which competitive influences are recognized to an
unlimited extent.
Without going further into the matter at this point, we will content
ourselves with adding to our description of local rates in California
some observations upon the attitude of California shippers with respect
to railroad charges.
Conflicting Claims of Cities
The rates of the Southern Pacific and of the Central Pacific railroads
were unpopular in California because they were believed to be too high.
Beyond this, and when it came to questions of relative adjustments,
each community looked at the relations of rates which interested it
from the narrow viewpoint of its individual advantage. Indeed, when one
reviews the course of the controversy between railroad and shipper in
the state, it seems very clear that, apart from questions of excessive
profit, the objections which California cities entertained toward the
irregular and unequal rates charged by the Southern Pacific Company
were only slightly based on considerations of general policy, but
were, on the contrary, due to the feeling of various towns that their
distributing areas were unfairly circumscribed by the manner in which
railroad rates were arranged.
One small piece of evidence to show that competition between rival
towns or producing districts was the reason for some of the most
bitter attacks upon the railroad, may be found in the complaint of the
anti-monopolists of Tulare County in 1885 that their fruits, which
ought to have found a market in the southern parts of the state and in
Arizona, were subjected to higher freight rates than were the fruits
of Sacramento and of San José, points more than 200 miles to the
north.[389]
A few years earlier the merchants of Stockton insisted that the rates
out of Stockton were extortionate as compared with the rates out of
San Francisco. The distance from Lathrop to Stockton was said to be 10
miles, and the railroad rate per ton on wheat was $1.20, or 12 cents
per mile. The distance from Lathrop to San Francisco was 82 miles, or
more than eight times the distance to Stockton, but the price per ton
for wheat was only $2.50, or about one quarter the price per ton per
mile in the first instance. The price per ton from Lodi to Stockton was
$1.40, and to San Francisco $2.50; but whereas the last-named sum was
less than twice the former, the distance from Lodi to San Francisco was
eight times as great as the distance to Stockton.[390]
In addition to their contention that mileage rates on shipments
into Stockton compared unfavorably with rates on shipments into San
Francisco, Stockton residents made the general charge that rates up the
San Joaquin Valley were generally less than the rates down the valley.
The rate from Stockton to Merced was said to be $6.80 per ton, but the
rate from Merced to Stockton was $3.40. Stockton objected to forcing of
the San Joaquin Valley to make San Francisco its market.[391]
Interstate Commerce Decision
Complaints similar to those voiced by Stockton were registered by the
people of Los Angeles. In the eyes of inhabitants of that city, the
rates on northbound freight from Los Angeles consigned to the San
Joaquin Valley were relatively higher than the rates from San Francisco
south into that same valley. Yet, dissatisfied as Los Angeles was with
the relation which her rates bore to those out of San Francisco, it
seemed to other cities in the south that her position was on the whole
more favorable than was that of her neighbors. In 1889 a dealer in the
city of San Bernardino protested against being forced to pay a higher
rate from eastern points than was charged the city of Los Angeles. He
showed that the rate on agricultural implements from the Missouri River
to San Bernardino was $1.27 per hundred pounds while to Los Angeles it
was $1.07. On stoves the rates were $1.19 and 99 cents, respectively,
and on school furniture $1.55 and $1.35. This preference was alleged to
be discriminative and illegal.[392]
In a decision approving the discrimination against San Bernardino,
the Interstate Commerce Commission in 1890 remarked that originally
southern California had been served from San Francisco direct; and that
San Francisco jobbers had covered its territory. When the railroads
reached Los Angeles they found it to their advantage to grant it low
rates, not so much because it lay near the Pacific Ocean as because
the interests of the Southern Pacific and especially of the Santa Fé
demanded that some point in southern California should be given such
a rate that merchandise from the East could be brought there all-rail
and from that point be distributed. The fact that water competition
was not the only influence which determined the Los Angeles rate from
the eastern states was indeed shown later by the fact that the port of
Los Angeles, San Pedro, did not receive a terminal rate until 1910,
although Los Angeles itself had been given terminal privileges at least
twenty years before.[393]
Stockton, Los Angeles, and San Bernardino thus illustrate in their
conflicting claims the constant effort of cities in California to
extend the area over which they might distribute goods. Among other
instances of dispute between California cities may be mentioned
the demand of Santa Barbara in 1907 to be made a Pacific Coast
terminal,[394] and the angry contentions of Santa Clara, San José,
Marysville, Santa Rosa, and Fresno in 1914 over the question of
relative railroad rates from eastern points.[395] The characteristics
of the system of transcontinental rates which were involved in these
complaints will be discussed in the following chapter.