2. The evidence of complainants strongly tended to show that an illegal agreement to advance rates on cotton-piece goods was entered into by transcontinental lines and that the advanced rates were put in in consequence of that agreement; but it is not necessary to pass upon that question, because if it were answered in favor of complainant the Commission should still be of the opinion that this would afford no ground for either reducing the rate from southern mills or awarding reparation. The mere fact that the advance was the product of an unlawful combination will not justify the Commission in setting aside such rate if the Commission is of the opinion that such rate is not unreasonably high. Tift v. Southern Ry. Co. et al., 10 I. C. C. Rep. 548, and other decisions of the Commission cited and followed.

R. J. Southall for complainants.

Ed. Baxter, S. F. Andrews, C. B. Northrop, L. E. Payson and Hale Holden for defendants.

REPORT OF THE COMMISSION.

PROUTY, Commissioner:

The rate for the transportation of cotton piece goods from New England mills through Pacific coast ports to the Orient is $11.25 for 40 cubic feet of measured space, said to be equivalent to about 85 cents per 100 pounds. The rate from southern mills over the same route is $1.25 per 100 pounds. The complaint alleges, first, that this adjustment of rates discriminates against southern mills in favor of New England; second, that the rate in effect from southern mills is excessive. The prayer is for a reduction of this rate and for reparation. The China & Japan Trading Company, which may be taken as typical of the several complainants who join in this proceeding, is a corporation located at New York City. Its business is the buying of cotton fabrics from various mills in the United States on account of purchasers in China. It buys the goods, selects the route of shipment, and receives for its compensation an agreed commission. Its only interest in the matter is that of a factor.

It was objected by the defendants that upon this state of the facts the complainants had no interest in the prosecution of this complaint, but we hold otherwise. Cotton goods are bought by China both in the United States and in England, and the price at which they can be laid down in the Orient manifestly may determine the point at which they will be purchased. An increase in the freight rate increases the price of goods from America and may therefore diminish the amount of business which the complainants can obtain.

Cotton fabrics may be transported from the mill to China by two routes: The one by water through the Suez Canal, known as the Suez route or the water route; the other by rail to some Pacific coast port and thence by water to destination, commonly called the overland route.

Ships by the Suez route only leave the port of New York, and goods carried by that route must first be brought from the mill to that point. For this reason it is the uniform custom of these complainants to buy goods from the mills upon the basis of a New York delivery; that is, by the terms of the contract of sale the vender agrees to deliver the goods in New York, or, if the vendee elects to take them at the mill, to allow upon the purchase price a sum equivalent to the freight rate from the mill to New York.

In actual practice the complainants sometimes elect to have the goods shipped to them at New York, in which event they are received by them at that point, put on shipboard and sent via the Suez route, the price paid being the full contract price; or, if they elect to transport by the overland route, the goods are received by the purchaser at the mill and the manufacturer deducts from the contract price the freight to New York, which was said to be, in case of New England, an average of 16 cents per 100 pounds, and from the southern mills 49 cents per 100 pounds.

For some years previous to July 1, 1906, rates by the Suez route had been low and demoralized, while from southern mills the overland rate had been $1.10. From New England the present rate has been continuously in effect since 1893. On July 1 the Suez rate was advanced to 62 cents and the overland rate from the South to $1.25.

It will be seen that upon this basis the expense by the Suez route is 62 plus 16, or 784 cents, a difference of about 8 cents against the overland route. From southern mills the cost via Suez is 624 plus 49, or $1.111, a difference of 13 cents against the overland route. Inquiry was made as to how it was possible to make a greater difference from the South in favor of the rail lines than from New England, and the reply was that the measured space from New England, while generally treated as equivalent to 85 cents per 100 pounds, in fact varied with different commodities, being often considerably more and probably upon the average somewhat more than that figure, and especially that the much greater length of time required to bring the goods from the southern mill to New York than from New England placed the water route from the South under a disability which enabled the overland carriers to charge somewhat more in proportion than from New England.

The Secretary of the China & Japan Trading Company testified that in his opinion 62 cents by Suez and $1.25 overland were just about an "even break." He did not suggest that there was or that there could be any discrimination in favor of New England. So far as the statistics introduced indicate anything the discrimination hitherto has been the other way.

Of all cotton fabrics shipped from the United States to China from 70 to 80 per cent are produced in the South and from 20 to 30 per cent

in New England. Figures were given showing the total shipments from the United States during the years 1905 and 1906. The figures were also furnished showing the amount of overland shipments from the spring of 1905 to the spring of 1907. The fair inference from these statements is that during these two years something over one-half the total shipments went by the Suez route; that in case of overland shipments passing through the port of San Francisco about 12 per cent came from New England and 87 per cent from the South, while of the total shipments through North Pacific coast ports 10 per cent were from New England and 90 per cent from the South. While New England has furnished from 20 to 30 per cent of all goods sent to China, only from 10 to 12 per cent of all overland shipments have originated there.

This shows that in the past the adjustment of rail rates has been such as to stimulate shipments by rail from the South rather more than from the North. It is true, however, that during the greater portion of this time both the water route from New York and the rail route from the South were somewhat lower than they are to-day, while the New England rate was the same, and it is possible that under the present adjustment of rates relative shipments may be somewhat different from what they have been. This can only be determined by actual experience.

It is difficult to see why there should be any intentional discrimination between these sections. Certainly, there is no motive for it upon the part of the railways, since they desire to obtain, as against the Suez route, the greatest possible amount of traffic at the highest possible rate, whether from one place or the other. The Suez route is the common enemy of all overland carriers.

It

It is still more difficult to understand how, under the present method of doing business, there can be any discrimination between these two sections. Goods are sold upon the basis of a New York delivery. is entirely immaterial to the mill producer whether the transportation to China is via Suez or San Francisco. The advance in both water and southern rail rates made on July 1, 1906, very likely decreased to some extent the price for which the southern mill could sell its goods; but it decreased by exactly the same amount the sum for which the New England mill must sell, for the decrease was in the New York price, and the cost of getting goods from New England or the South to New York remained exactly the same after the advance in oriental rates that it had been before. The greater proximity of the New England mill to New York is a natural advantage which diminishes the freight paid for the distribution of the finished product in exactly the same way that the location of the southern mill near the cotton field is an advantage which decreases the freight rate upon the raw material.

The lower overland rate which these defendants make from New England is forced by water competition, and the Supreme Court of the United States has held in many cases too well known to require citation that railways do not violate the terms of the act to regulate commerce by meeting such competition without reference to rates from other points where the competition does not exist.

The first claim of the complainants is not sustained.

The second claim is that the rate of $1.25 from southern mills is excessive. This Commission has very recently held that a rate of $1.15 from these southern mills to Pacific coast terminals was not unreasonable. Enterprise Manufacturing Co. v. Georgia Railroad Co. et al., 12 I. C. C. Rep., 130. That rate carried the goods only to San Francisco, while the rate under consideration carries them more than 5,000 miles beyond. In view of that decision, we must plainly hold that this rate is not too high.

In examining this rate it is instructive to note the divisions which these different carriers receive. This traffic may go via the "Sunset" route from New Orleans to San Francisco, or it may go via the northern routes through either San Francisco or the northwestern ports. In the latter case it is carried to some Mississippi River crossing like St. Louis. The testimony showed that on traffic through St. Louis and via the Northern Pacific, lines up to St. Louis receive 47 cents, lines from St. Louis to St. Paul 10 cents, and from St. Paul to Shanghai the balance, or 68 cents. The 68 cents was divided equally between the rail and the water, thus allowing 34 cents per 100 pounds for the carriage from St. Paul to Seattle and 34 cents from Seattle to Shanghai. Under the $1.10 rate southern lines had insisted upon the same 47 cents up to St. Louis, the balance being divided between lines from there west. The advance of 15 cents went entirely to the transcontinental lines. Certainly they appear to have stood in need of it. Counsel for the complainants did not seriously contend that this rate considered as an original proposition would be too high, but he vigorously insisted that the manner in which the advance was made stamped it as unlawful and required this Commission to reduce it.

As already said, rates for some time previous to the summer of 1906 had been in an extremely unsatisfactory condition, and various attempts had been made upon the part of all lines to secure a better adjustment. Finally, a meeting was held in the city of New York, as a result of which the advances by both the Suez route and the overland route were made on July 1. The complainants assert that these advances were in pursuance of an agreement entered into in violation of the antitrust act and that for this reason they should be condemned in this proceeding.

The evidence of the complainants very strongly tended to show that an illegal agreement to advance these rates was entered into by these transcontinental lines and that the advanced rates were put in in consequence of that agreement. We do not, however, find it necessary to pass upon that question, because if it were answered in favor of the complainants we should still be of the opinion that this would afford no ground for either reducing the rate from southern mills or awarding reparation.

We administer the act to regulate commerce alone. The complainants assert that under the provisions of that act this rate is excessive. In determining that issue we should inquire into the circumstances under which the rate was made. If we find that it was not the product of free competition, but was the result of an agreement, this fact would rob the rate of the presumption of reasonableness which might otherwise attach, and should be considered by the Commission in determining whether the advance was justifiable; but if, after giving due weight to that and all other circumstances, we are still of the opinion that the rate in effect is not too high, the mere fact that it was the product of an unlawful combination will not justify us in setting it aside. Such is the fair import of what we have said in several cases. In Matters of Advances in Rates from St. Louis to Texas Points, 11 I. C. C. Rep., 238; Cattle Raisers' Association of Texas v. Missouri, Kansas & Texas Railway Co. et al., 11 I. C. C. Rep., 296; Tift v. Southern Railway Co. et al., 10 I. C. C. Rep., 548; Central Yellow Pine Association v. Illinois Central Railroad Co. et al., 10 I. C. C. Rep., 505.

To order these defendants to put in and maintain a rate of $1.10 from southern mills would be in effect to inflict upon them à penalty of indefinite extent for the violation of the Sherman Act. We hold that $1.25 is a reasonable rate. These defendants would have, therefore, but for this illegal meeting the right to charge and collect that rate; but should we make the order asked for they would be thereby debarred from so doing and thereby deprived of the money which they might lawfully earn by so doing. Not only should we penalize the guilty parties, but we should inflict the same penalty upon the innocent, for rates by all these lines must be the same. The Commission expressly held against this contention of the complainants in Sprigg v. Baltimore & Ohio Railroad Co., 8 I. C. C. Rep., 433, 456, and further reflection reveals no reason for a modification of that opinion.

The complaint will be dismissed.

12 I. C. C. Rep.