TERMINAL RAILROADS.
Another method of preference without departing from published rates is
the division of rates with private terminal companies or mere switching
roads, or roads existing only on paper. A man of large experience in
railroad matters said to me not two years ago that “Since injunction
suits were instituted by the Interstate Commerce Commission in 1900,
published tariffs have been more generally followed. But big concerns
build a mile or more of railroad of their own, or incorporate their
switch tracks and sidings in a railroad company, and the division of the
through rate permits any commission that may be desired. That is the new
kind of discrimination that is spreading very rapidly. The effect is to
concentrate discrimination and the advantages it gives more and more in
the hands of the largest concerns. Formerly any big shipper could get a
rebate. Now only those big enough to build a railroad or own an elevator
get lower rates than others.” This is a little too strong. There are
many other forms of preference still in prevalent use, as we have seen,
but there is no doubt that the private railroad and the private car do
tend to concentrate discrimination, giving greater and greater
advantages to those who need them least.
They not only give the private railroads of some shippers a larger
percentage of through rates than they give to the private railroads of
other shippers, but they refuse to give the railroads of some shippers
any division of rates while dividing rates in this way with other
shippers in the same business.[251]
A few examples will make clear the private railroad or “fake terminal”
method of discrimination. The first case of this kind came to light in
1903 through an investigation of the “Salt Trust” by the Interstate
Commission. Hutchinson is the centre of the salt industry in Kansas.
There are 16 mills, 9 of which are operated by the Hutchinson Salt
Company, known as the “Salt Trust,” while each of the independent mills
is operated by a different individual or company. In July, 1902, the
Hutchinson and Arkansas River Railroad was organized under the laws of
Kansas. It took possession of about 1 mile of side tracks which had been
built by the Salt Trust in connection with its works. This new
Lilliputian railroad company had no equipment of any kind. The president
of the Salt Trust and the president of the railroad were one and the
same man, Joy Morton, brother of Paul Morton, who was then at the head
of the traffic department of the Santa Fe. The Santa Fe, the Rock
Island, and the Missouri Pacific—all the railroads entering
Hutchinson—made an agreement with the switch-track Salt railroad to give
said little 1–mile Salt Trust railroad 25 percent of the rates on bulk
salt to Missouri River points, not to exceed, however, 50 cents a ton on
all the bulk salt shipped to such points. The rate to Omaha was 12 cents
per hundred and the rate to Kansas City was 10 cents. The division was
therefore equivalent to a rebate of 50 cents a ton, which is of itself
an excellent profit in the manufacture of salt. The result was that
without departing from published rates, or apparently violating any
provision of law, the trust and the railroads drove the independents out
of the bulk salt business on the Missouri River and elsewhere, and an
extension of the arrangement to all markets and all kinds of salt would
give the Trust a weapon with which it could at any time destroy the
independents.[252]
Barton, one of the independents, had a contract to supply all the bulk
salt used by Swift & Co., at Missouri River points. The contract expired
April 1, 1903. Before asking renewal of the contract Barton went to the
coal people and the railroad to see what his costs were to be for the
coming year. He found that coal was to be advanced 25 cents a ton and
freight on it 25 cents a ton, making 50 cents a ton more on coal. As it
takes 1 ton of coal to produce 2 tons of salt, the increase in coal cost
meant 25 cents added to the cost of each ton of salt. Barton’s former
contract was on the basis of $2.25 at Hutchinson, now he must have
$2.50. While Barton was negotiating a renewal of his contract with the
Swifts, Hon. Frank Vincent, State Senator, manager of the Salt Trust,
and director in the Salt Trust railroad at Hutchinson, took a vacation
from the legislature, went to see the Swifts, and offered them salt on
the basis of $2.10 at Hutchinson, or 40 cents less than the independents
could afford to sell it. The Trust got the contract with Swift. This
gives an idea of the extent to which the railway favoritism enabled the
Trust to underbid the independents.
The owner of one of the independent salt plants was asked: “From where
did you meet most competition, as far as you know?” “From the Santa Fe
Railroad,” he replied.
One of the most remarkable facts in the case is that the division of
rates with the Salt railroad was made without even taking the trouble to
find out whether or no there was any railroad at all of any kind behind
the name presented in the request for a division.
“MR. MARCHAND. Then you entered into this joint arrangement with the
Hutchinson and Arkansas River Railroad without really knowing whether
there was any road there or not?
“MR. BIDDLE. I have done that hundreds of times.”[253]
Another indication that the terminal railroad is not the real reason for
the division of rates is found in the fact that it is not every large
shipper who can get a rebate by owning a private railroad. One of the
independent salt mills, the Matthews mill, had a switch built and paid
for and expected to get a rebate of $1 a car on the strength of it. But
the railroad refused to give any division of rates. Matthews did not
belong to the Morton family, nor have any other special claim to
hospitality at the hands of the Santa Fe.
The International Harvester Company, popularly known as the Harvester
Trust, was formed in 1902 to consolidate several big concerns
manufacturing farm machinery. It organized the “Illinois Northern
Railroad Company” and turned over to it the 17 miles of switching track
in the private grounds of its Chicago works. Till the end of 1903 this
vest-pocket railroad handled the cars of the Trust for a switching
charge of $1 to $3.50 per car, the average haul being about 4 miles. For
the works at Plano, another microscopic railway company, “The Chicago,
West Pullman and Southern Railroad,” with 4 miles of track, was
organized to switch the cars of the Harvester Trust. The International
Harvester Company owns these two railroads. Its officials are the
officials of those railroads in most instances. And it absolutely
controls the operations of the roads.[254] In January, 1904, contracts
were made for the division of rates to the Missouri River. The Santa Fe,
C. B. & Q., Rock Island, Chicago and Alton, Great Western, Chicago and
North Western, Wisconsin Central, Chicago, Milwaukee and St. Paul,
etc.—practically all the railroads going west—allowed the private Trust
railroads a division of 20 percent of the through rate with the Missouri
River as a maximum, amounting to $12 on an ordinary car of 20,000 lbs.
of farm machinery going from Chicago to any point in Kansas or Nebraska
or the Far West. The Interstate Commerce Commission says: “Since the
International Harvester Company owns the Illinois Northern Railroad, a
payment to the railroad is a payment to its owner, the International
Harvester Company. When a line transporting a carload of traffic from
Chicago to the Missouri River pays the Illinois Northern Railroad $12
for switching that car from the McCormick works to its iron, it gives
the International Harvester Company a preference of at least $8.50 over
what any other shipper of that same carload would be obliged to pay....
And there is no limit in law to the extent to which this shipper may be
preferred to other shippers in this way.”[255] In a suit brought July
11, 1905, by R. B. Swift, a former officer of the McCormick branch of
the Harvester Trust, it is declared that up to September 30, 1902, the
Trust received rebates from the railroads amounting to $500,000 through
the West Pullman switch road, and over $3,000,000 through the Illinois
Northern switch road.
The “Chicago, Lake Shore and Eastern Railway” is another of these
homeopathic railroads. It was organized in the interest of the Illinois
Steel Company and is now owned by the Steel Trust (The United States
Steel Corporation) which some time ago absorbed the Illinois Steel
Company. Since 1897 this private railway has been allowed a division of
10 percent on business to New York and other seaboard points, 15 percent
to Pittsburg, Buffalo, and other middle points, and 20 percent on
traffic to the Missouri River. It also has a division on rates to the
South. All Eastern and Southern lines as well as the Western roads
divide their rates with this Trust road. These divisions amount to $6 to
$12 a car for the switching service performed by the private road.
Besides this, certain special divisions are made. On coke from the
Connellsville region, for example, a division of 70 cents per ton is
allowed. This gives the “Chicago, Lake Shore, etc.,” above named, $700
to $1000 for hauling a train of coke 7 miles from Indiana Harbor to its
plant in South Chicago, while the actual cost would not exceed one-tenth
of this sum.
Railroad officers have claimed that such divisions of rates are
justified because the little private road is the “gateway of the
traffic.” “The business originates on the little road and it controls
the routing, and the division is only an application of the custom of
allowing the road on which traffic originates a considerable percentage
of the through rate, usually 25 percent.” Other railroad men tell me
that this is not true. President Tuttle, for example, says: “There is no
such thing as a custom to give the initiating road 25 percent or 10
percent or any percent. The division is on the mileage basis, but if one
road does special work, switching etc., a reasonable allowance may be
made, 1 percent or 2 percent or whatever is fair to cover the special
work or expense.” Even if there were a custom to give 25 percent to the
initiating railroad that could hardly explain the 70 cents per ton on
traffic not originating on the trust railroad in Chicago, but coming to
it from Pennsylvania points.
Whatever may be the custom or analogy used as a warrant for these
divisions it is clear that their effect is precisely the same as that of
a giant rebate.
The Trust railroad in this case makes a net profit of 150 percent a year
upon its capital stock of $650,000. How much the Steel Trust as a whole
gets in this way through all the private railroads connected with its
various plants is not known, but the Commission says it is certainly a
“sum sufficient to pay dividends on several millions of dollars of
capitalization.”[256]
The Illinois Glass Company at Alton, Ill., is the largest producer of
glass bottles in the United States. In 1895 certain persons in its
interest organized the Illinois Terminal Railroad Company, the principal
business of which is to handle the cars of freight that come to and from
the Glass Works. This terminal company in Alton is allowed by the
railroads a division of rates amounting to 25 percent of the Chicago
rate, and 15 percent of the rates to the Missouri River and to Eastern
destinations, or $8 to $13 per car. This is the testimony of the Glass
Works manager, but the Commission finds that as much as $17.10 has been
paid the Terminal Company on a car shipped from Alton to Kansas City, an
amount that is nearly double the 15 percent above mentioned. This $8 and
$13 or $17 is a pretty heavy payment for switching a car, a service
which the Terminal Company renders for $1.50 a car when the amount is to
be paid by the Glass Works.[257]
The St. Louis Preserving Company at Granite City, Ill., also gets large
rebates in the form of divisions of rates with a toy railroad the
company controls.[258]
Rate divisions have also been made by the railroads with boat lines[259]
belonging to or in league with large shippers, with “tap roads”
belonging to lumber companies,[260] etc., and this method of securing a
practical rebate is being rapidly adopted by large concerns all over the
country. A division of rates with a private line is not necessarily
unfair but if there is a desire to give an unfair advantage, this system
affords a cloak for it.