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FREIGHT TRAFFIC AND RATES.

Discussion of reasonableness of existing rates.-Several witnesses representing railroad companies assert that railroad rates in the United States have in general steadily and rapidly decreased, and that they are much lower than in most European countries. Comparisons are made as to the grain rates from Chicago to New York, which show that the all-rail rate in 1868 was 42.6 cents per bushel, and that in 1899 it had fallen to 10.23 cents a bushel, while the lake-and-rail rates had fallen in fully as great proportion, and stood in 1899 at 6.63 cents. Mr. Markham presents a table showing that the average receipts per ton per mile for hauling freight in the United States are only 97 cents, while in Prussia the average rates are 1.32 cents per ton per mile, and in other Europen countries they are still higher. As indicated in another connection, figures presented by advocates of Government ownership show also that the average freight rates in the United States are lower than in European countries; but it is argued that the wide differences in conditions make fair comparisons impossible, and that the longer hauls in the United States especially tend to reduce the cost of transportation.1

Increase of rates in 1900.—Several witnesses allude to the increase in freight rates at the beginning of the year 1900, and some of them assert that the existing rates, especially in the Southern and Western sections of the country, are excessively high. Mr. Langley, a representative of the Merchants' Association of New York,2 states that these advances in 1900 were nearly all made by the process of changing commodities from lower classes to higher classes, and in some instances by the abandonment of commodity rates, lower than the lowest class rates, which had formerly existed, or by raising the commodity rates. This witness declares that out about 3,000 items in the Official classification, 818 were advanced in January, 1900, and that the average increase in rates on these articles between New York and Chicago, as the result of these changes, was 35.5 per cent. The Western classification committee about the same time advanced the classification-that is, practically advanced the rates-of 240 items, the average increase on them from Chicago to Missouri River points being 47.4 per cent. In February, 1900, continues Mr. Langley, the Southern classification was revised, about two-thirds of the articles being advanced in class, with an increase of rates of from 30 to 50 per cent.

Mr. Langley and two or three others hold that these advances in freight rates were unnecessary and unjustifiable; that the earnings of the railroads during 1899 were much larger than they had been for many years previous, and rendered them fair profits; the increased tonnage growing from the general prosperity of the country sufficiently increasing the revenues of the railroad companies without advances in rates. Mr. Langley complains especially of the employment of the method of advancing rates by means of changes in the classification. He says that this practice is confusing; that many shippers do not understand the manner in which rates have been advanced, and that it results in great inequalities. The action of the railroads in transferring goods from one class to another is entirely arbitrary, and instead of making approximately the same increase in rates for all commodities, certain classes have been discriminated against. Manufactured articles in particular were generally advanced by the classification changes in 1900, while raw products and heavier commodities were left unchanged or advanced to a less degree. Another witness, who consumes large quantities of coke in Michigan, asserts that the advance in the rate on coke from Pennsylvania during the year 1900 was no less than 55 cents per ton. He gives also illustrations of advances in the rates on alkali products manufactured by his company, and complains particularly of the excessive rates from Michigan to various Southern cities. It appears, for example, that it costs $195 to haul a carload 2 Pages 860-877.

1 Thomas, p. 560; Markham, p. 430. See also post, p. XXXVII.

of bicarbonate of soda from Wyandotte, Mich., to Atlanta, 716 miles, as compared with only $48 to New York, 700 miles. This witness also asserts that the freight rates in Western territory are very high on the products of his company, as well as on other products. He believes that it would be to the interest of the railroads in these less highly developed sections to reduce freight rates generally, with a view to building up manufactures and other industries, and thus ultimately increasing their traffic and profit.1

Mr. McGovern, of the Southern classification committee, admits that there were numerous increases in rates in the Southern territory by means of classification changes during the year 1900, although he asserts that the rates on various other articles were reduced. He says that prior to 1900 the classification of freight in the Southern territory was not made by one unified organization, and that there were many inconsistencies and many instances where classifications were unduly low. The establishment of one classification committee for the entire Southern territory made possible a general revision and the adjustment of inequalities. The fact that prices throughout the country had risen greatly, and especially that the prices of articles used by the railroads themselves had so increased as to add materially to the cost of operation, seems to this witness to justify fully such increases of rates as were actually made.

Mr. McGovern asserts further that most of the numerous changes which were made and against which there are complaints were only technically advances. Prior to this time there had been two columns of rates, one for goods carried at the risk of the carrier under ordinary common-law rules, and one for goods carried at the owner's risk by a bill of lading exempting the carrier from liability except for certain faults of its own. As a matter of fact, practically 99 per cent of the business in the Southern territory, as elsewhere, had been carried on bills of lading under the limited liability or owner's-risk system. The lower rates for owner's risk, which apparently had not before been applied even where such limited bills of lading were used, were entirely abolished. About 1,700 articles which had been in the carrier's-risk column only were made subject to owner's risk, bearing the same rates as before. At the same time a new rule was passed providing that if the carrier assumed the risk the rate should be 30 per cent higher. By later action the carrier's-risk rates were reduced, being made 20 per cent higher than the published rates. Mr. McGovern holds that this was only technically an advance, because in practice the higher rates had formerly been actually applied in ninety-nine cases out of a hundred. This witness says further that a later change in classification advanced the rates on 400 or 500 commodities and reduced them on about 100. The changes in many cases were on unimportant articles and the rates on many large classes of traffic are the same as before 1900.

Two or three other witnesses from the South, including a representative of the shippers of Memphis, were inclined also to justify the advance in Southern freight rates for the reasons above stated, and also because the Southern railroads have never in the past been profitably operated. It is also stated that the establishment of cotton factories in the South has reduced the amount of railroad transportation by substituting the less bulky cotton goods for cotton itself, and that for this reason rates should be somewhat higher than before."

A representative of the Southern Pacific Company declares that transcontinental freight rates have not been advanced recently, but have steadily decreased since 1891. He asserts also that there is no ground for complaint on the part of California fruit shippers regarding excessive charges, though they had complained somewhat regarding the charges for refrigeration on the part of the private car companies.3 One witness also states that while numerous advances were made in the official

8 Stubbs, pp. 765, 767.

1 Bacon, pp. 74, 77, 80.

2 McGovern, pp. 656-662; Dunlap, pp. 2-4; Davant, p. 6.

classification in 1900, an order was soon afterwards issued which reduced by 10 or 20 per cent the rates on many of the articles which had been advanced. 1

Influences affecting freight rates and policy of railroads regarding them.—Several witnesses representing the railroad companies assert that neither is it the policy of the railroad companies to advance freight rates to an unreasonable figure, nor would it be practicable for them to do so, because of the competition of other railroads and of water carriers (see below, p. xx1), and especially because of the competition of different sections of the country and of different countries. This position is especially affirmed in connection with discussion as to the possible effect of the establishment of community of interest between previously competing railroads. It is held that it must always be to the interest of the railroad companies to build up the country through which they operate, and that in order to do so they must make rates which will enable the industries of that country to compete with those of other sections and of other countries in the world markets. The railroad manager who undertakes to put rates at an exorbitant figure because he has an apparent monopoly would soon dry up the source of his business. At the same time these witnesses hold that excessive competition and “rate wars" between railroads are undesirable, that it is not to the interest of the public that railroads should fail to earn reasonable profits, and that rate wars lead to discriminations between places and between individuals.2

The competition of Canadian railroads.—Two or three witnesses allude to the competition of the Canadian railroads as an important factor in the fixing of freight rates in the United States. It is pointed out that the Canadian roads have often demanded the right to charge somewhat lower rates in hauling goods from one part of the United States through Canadian territory to another part of the United States than those made by the roads of this country themselves, on the ground of the greater distance and inconvenience of transportation through Canada. It appears that formerly there was a differential of 10 per cent allowed to the Canadian Pacific Company on transcontinental shipments. The roads in the United States, it is alleged, frequently cut rates secretly in order to do away with the advantage of this differential. Finally, after a prolonged rate war, the Canadian Pacific was forced to abandon its claim to a differential, and its business with San Francisco has been greatly reduced. The importance of Canadian transportation to the prosperity of Boston is especially mentioned by one or two witnesses.3

Freight classification.-Several witnesses describe the system of freight classification, Mr. McGovern, chairman of the Southern classification committee, entering into the subject with especial fullness. There are three general classifications in the country-the Eastern or Official classification, the Southern, and the Western. Each is adopted by a classification committee, consisting of representatives of each important railroad company. In earlier days each railroad made its own classification of freight. Later on various traffic associations made classifications, and only more recently were the present wide-reaching systems adopted. The Southern classification committee had its origin only in 1899. By the system of freight classification commodities are grouped into from five to nine classes, and the rates made by each railroad for articles in one class are the same. In determining the class an article shall take, consideration is given as to its value and ability to pay the rate, and, though apparently to a less degree, as to weight, bulk, and cost of transportation. In addition to the regular classes, there are many heavy commodities, such as usually move in carload lots, which are given special rates, known as commodity rates. The railroads hold that these articles can not afford to pay the regular class rates even of the lowest class. Each railroad determines largely its own commodity rates, the differ

1 Griswold, p. 618; cf. Markham, p. 435.

2 Thomas, pp. 551, 552, 554; Schiff, p. 774; Greene, pp. 484-487.

3 Thomas, p. 552; Ripley, p. 298; Howes, pp. 701-702; Stubbs, p. 763; Markham, p. 442.

ences in the character of goods transported by different railways making it desirable, so it is stated, that these commodity rates should vary on the different lines. Mr. McGovern declares that commodity rates can not be considered personal discriminations since all shippers on a given railroad receive the same rates. Nor are they an injustice as between different classes of shippers. Just as the prices of some classes of commodities must be relatively lower than those of other classes in order to meet competition, so, says this witness, the railroads must put down the rates on certain important commodities in order that they may handle them at all. Even these reduced rates make a profit to the railroad companies.1

It is admitted by representatives of the railroad companies that the power to put a commodity in a given class is part of the power to make rates, even although the rates upon a given class may be fixed at different figures by the various railroads. Reference has already been made to the complaints of shippers regarding the advance in freight rates in 1900 by means of classification changes.

Two or three witnesses representing shippers favor the establishment of a uniform national classification of freight, subject to some modifications in detail, on the different railways, by means of commodity rates. They assert that the present threefold system of freight classification is very confusing to shippers, especially where goods pass from the territory of one classification to that of another. They hold also that the inequality between rates in different sections, resulting from the placing of commodities in different classes, is in many instances an injustice. It is suggested that an association composed of business men and railroad men, under the general supervision of the Interstate Commerce Commission, should be formed to establish such a uniform classification."

Representatives of railroad companies in some instances think that greater uniformity of classification would be desirable, but all who testified before the commission hold that the establishment of a single national classification is impracticable. In some sections of the country there may be a very large traffic in a commodity which in other sections is of much less importance to the transportation lines. Under such circumstances, it is asserted, a difference in the classification is imperative. It is argued, especially, that if a uniform classification should be attempted the number of special commodity rates made by the separate railroad companies would necessarily be greatly increased, so that there would really be no simplification as compared with present methods. These witnesses state that there has been a steady movement toward harmony between the railroads in matters of classification and that as the country develops there may be further movement in the same direction; but they believe that any compulsory introduction of uniform classification would be entirely inadvisable. It is also suggested that the matter is of less importance than is often supposed, because each railroad company can make its own rates, whatever the classification may be.3

The suggestion that the Interstate Commerce Commission should itself fix the classification of freight is especially opposed by railroad witnesses on the ground that the commission is incompetent to handle such a difficult and complex undertaking.*

Export and import rates.-Several witnesses allude to the practice of the railroad companies in making lower rates on goods destined to foreign countries by ocean routes, and on goods brought from foreign countries to interior points, than are made on the same class of goods for the same haul when they come from or are destined to domestic points. The Supreme Court of the United States has upheld the making of low import rates under certain conditions on the ground of the necessity of meeting

1 Ripley, pp. 302, 303; McGovern, p. 652 ff; Talcott, pp. 632, 633; Griswold, pp. 617, 618, 623.

2 Bacon, pp. 74, 76, 82, 84: Wilson, p. 698; Wheeler, p. 749.

3 Stubbs, pp. 766, 767; Talcott, p. 633; Griswold, pp. 617-619; Greene, pp. 485,486, Nicholson, pp. 726-727.

4 Griswold, p. 618.

the competition of water transportation direct from foreign countries. Witnesses representing the railroad companies defend the practice chiefly on this ground. They also justify low export rates on the ground that thereby the markets for American products are extended. It is asserted that unless special export rates for American grain were made, it could not be sold in Europe in competition with grain from India, Argentina, and other sources. While the railroad companies could not afford to haul all of the traffic at the same rates which are sometimes made for export and import commodities it is asserted that these low rates do not involve an absolute loss. The amount of traffic of a railroad can be increased without increasing the fixed charges, and even a considerable part of the ordinary operating expenses do not vary much with the amount of traffic handled. If the railroad companies can cover by their rates the actual additional cost of operation necessitated by hauling these goods, with a moderate profit, it is to their advantage to take the traffic, and ultimately the result may even be a reduction of the domestic rates. It is also asserted that ordinarily no city or community is injured by the diversion of traffic from it through export and import rates, since the traffic would not be hauled at all unless such low rates were made. Reference should be made to the preceding volume on transportation for a discussion from the standpoint of the shippers of flour as to the effect of export grain rates on their business.1

Carload rates. It appears from the testimony of several witnesses that it is a common practice on the part of the railroad companies to make lower rates on goods carried in carload lots than those shipped in smaller quantities, the difference in some instances being greater than the mere difference in the cost of handling would justify. The merchants of New York' complain of the discrimination between carloads and part carload rates, especially in the Southern territory. The representative of the New York Merchants' Association asserts that the changes in the Southern classification in 1900 increased the number of carload ratings, and increased the difference between them and part carload rates. He holds that this makes it in many cases almost impossible for Northern merchants and manufacturers to ship directly in moderate quantities to retail dealers in the South, and gives an unfair advantage to the jobbers in the Southern trade centers, who can bring in goods at the low carload rates and distribute them to the smaller towns in less quantities.

In reply to this it is stated by the representative of the Southern classification committee that the Southern classification makes fewer carload ratings than the official and Western classifications, and that the Southern railroads have not especially attempted to build up the interior points by carload differentials to the disadvantage of Northern cities.

The fact that the interests of the shippers and merchants in different sections of the country as to railroad rates often differ greatly is evidenced by the attitude of the Pacific coast jobbers, which is precisely the opposite of that of the New York merchants, in that the Western merchants insist that they should be allowed sufficient carload differentials to permit them to control to a considerable extent the jobbing trade of the Pacific coast. This matter is alluded to in another connection.5

Subsidiary freight and traffic organizations—Private cars.—It appears from the testimony of several witnesses that the system of fast freight lines is becoming a less important feature of the transportation business than it was formerly. In many instances in the earlier days cars were owned by separate corporations, which operated over several railway systems and which aimed especially to facilitate through

1 Vol. IV, pp. 69-77 of Digest; Ripley, pp. 299, 301; Thomas, p. 557; Greene, pp. 484, 485, 487; Markham, p. 431; Stubbs, p. 761.

* Langley, pp. 861-863. Langley, pp. 862.

4 McGovern, pp. 662-665.

See below; Wheeler, p. 744; Stubbs, p. 758.

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