Whatever theory of rates may be accepted as ideally best, it cannot be
strictly adhered to under the existing conditions of active competition
obtaining in the United States. Actual charges have to be fixed and
revised to meet the varying circumstances under which railway traffic is
conducted. This competition takes several distinct forms. One is that
between railways and waterways. A large part of the domestic traffic of
the United States has the choice of transportation by rail or by water
on the great lakes and the tributary canals, by the navigable rivers, or
by one of the many ocean routes followed by our coastwise commerce.
There is also the competition of rival railways connecting common
termini or serving the same cities. These forms of competition are the
ones most frequently noted; but they perhaps exercise a less potent
influence over rates than what is known as competition through the
markets or through the channels of trade. The competition between rival
centres of commerce and industry--between the Atlantic cities and the
gulf ports, for instance, or between the manufactures of New York and
Philadelphia and those of Chicago or Cincinnati for the markets of the
Southern States, to cite another example--is a force that must be
considered in making rates and fares. Even towns served by only one
railway and by no waterway enjoy the benefits of this industrial
competition. Unless the railroad can give the industries in these
local towns rates that will enable them to market their products,
the industries will decline and the railway will lose its traffic.
An interesting result of the competition of roads connecting common
termini or joining a common industrial region with seaboard points is
that the road whose line is the longest and whose expenses of
transportation are greatest is obliged to charge the lowest rate. The
short lines can charge more because they compete for traffic under
more favourable circumstances. The lower charge of the longer line is
called a differential rate, and it is customary for the shorter or
"standard" lines to agree to allow the "differential" line a
stipulated differential rate. This is the concession which the
standard lines are obliged to make to temper competition and to
prevent rate wars. The Grand Trunk, running from Chicago to Boston by
way of Montreal, is a good example of a differential line, and the New
York Central is a good instance of a standard line.