Walter Chadwick Noyes.

American railroad rates online

. (page 11 of 17)
Online LibraryWalter Chadwick NoyesAmerican railroad rates → online text (page 11 of 17)
Font size
QR-code for this ebook


than passenger fares. In following this rate move-
ment we should

(i) Find out the course of average rates.

(2) Compare charges through a series of years
for some particular services.

(3) Collate the results of i and 2.

The railroad unit of traffic, as we have seen, is
the ton-mile — hauling a ton a mile. The railroad
measure of freight rates is the average receipt per



MOVEMENT OF RATES i6i

ton-mile. This is obtained by dividing the aggre-
gate freight receipts by the result secured by reduc-
ing the whole freight traffic to ton-miles. Thus if
the total annual freight revenue be ^1,000,000 and
the traffic amount to 100,000,000 ton-miles the
average receipt per ton-mile is a cent. Now assum-
ing that traffic remains of the same nature changes
in ton-mile receipts indicate changes in rates. The
less received per unit the less paid, and conse-
quently the lower the charge. Making this as-
sumption we find that, treating all the railroads in
the United States as one system, freight rates on
the average per ton-mile were, in 1867, 1.92 cents;
in 1870, 1.88 cents; in 1880, 1.23 cents; in 1890,
0.94 cents, and in 1900, 0.72 cents. The decline
is graphically shown on page 162.

These figures show that the average freight rate
in this country in the period from 1867 to 1900
declined sixty-three per cent. But the accuracy of
the conclusion drawn from these figures is weakened
by the necessity of making an assumption contrary
to the fact. Traffic has not remained of the same
nature during the period. Receipts per ton-mile
are manifestly determined by two factors: (i) the
rate, and (2) the nature of the traffic. Changes
in receipts may result from changes in the na-
ture of the traffic as well as from changes in
tariffs. Receipts per ton-mile may, of course,
decline when rates decline. But they may like-
wise decline if rates remain unchanged or even



i62 AMERICAN RAILROAD RATES



be slightly raised and a large amount of new low
grade traffic be carried. Suppose the New Haven
railroad, handling high grade traffic, received in 1903

AVERAGE RATES PER TON-MILE, 1867-I9OO
Cents .20 .40 .60 .80 1. 00 i.ao 1.40 1.60 1.80 a. 00



1867



1870



1890



1900



MOVEMENT OF RATES 163

an average of 1.40 cents per ton-mile. Suppose in
1904 it made an arrangement with the Ontario and
Western road, by which it hauled a large amount of
coal — far more than it had ever hauled before. Its
receipts per ton-mile in that year might decline to
1.20 cents, without any change whatever in the
schedule of charges. Increases in traffic — low grade
or through — taking low rates, show declines in re-
ceipts in the same manner as reductions in charges.
Therefore, as low grade and through traffic increased
during the period we are considering, we cannot
accept unreservedly the conclusion that the decline
in ton-mile receipts accurately shows the decline
in even average rates. But the decline in ton-mile
receipts was very great. Changes in the character of
the traffic caused some part of it, but could not have
caused a large part compared with that resulting
from reductions in charges. The traffic as a whole
was not greatly changed. While, therefore, we can-
not take the figures we have noted as accurate, we
are justified at least in saying from our examination
thus far that there was a most marked decline in
freight rates in this country from 1867 ^o 1900.

Let us now see what results can be obtained by
noting the movement of actual charges. New York
and Chicago are the most important commercial
centres in this country. The rates between these
cities are not only of importance in themselves, but
they form bases for rates upon traffic moving be-
tween other points and in other directions. We



i64 AMERICAN RAILROAD RATES



will first notice the movement of rates upon classi'
fied traffic for a period of nearly forty years :

RATES ON CLASSIFIED TRAFFIC FROM NEW YORK
TO CHICAGO FROM 1 862 tO 1900.^









CLASSES. 1






(Rates in cents per 100 pounds.) 1


Date.












Special or




I


2


3


4


5


6


1862-Oct.


180


150


125


75








1863-May


160


117


94


55












1864-Sept.


215


180


120


96












1865-Oct.


215


180


90


82












1866-Mar.


188


160


127


82












1867-N0V.


202


170


138


86












1868-Sept.


188


160


127


82












Oct.


70


60


55


50












Dec.


202


170


138


86












1869-Aug.


25


25


25


25


^5






Nov.


150


130


100


80


55






j87o-July


50


50


50


45


35


4





Dec.


180


150


120


80


60






1871-June


100


90


70


55


45






Sept.


30


30


30


30


24






Dec.


125


I 10


85


65


50






1872-Aug.


75


70


60


45


35






Oct.


125


I 10


85


65


50






1873-Apr.


100


90


75


60


45






Aug.


27


27


18


18


17






1874-Jan.


100


90


75


60


45






Aug.


75


70


60


45


35






1875-Jan.


100


90


75


60


45






May


40


40


35


35


^5






1876-Jan.


75


70


60


45


35






July


15


15


15


10


10






1877-Mar.


75


70


60


45


35






Oct.


100


90


75


45








1878-Feb.


75


60


50


40








1 88 1 -Aug.


45


32


26


19








Nov.


60


50


40 1 28


• •







1 This table and those following are
state Commerce Commission for 1902,



abridged from Report of Inter-
Appendix G, Part 2.



MOVEMENT OF RATES 165

RATES ON CLASSIFIED TRAFFIC {contiuued).









CLASSES.










(Rates in cents per loo pounds.)




Date.












Special or




I


2


3


4


5


6


1882-Jan.


45


32


26


19






Nov.


75


60


45


35


• •


. .


1883-June


75


60


45


35


25




1885-Jan.


50


40


30


25


18




Nov.


75


60


45


35


. .


25


1887-Apr.


75


65


50


35


30


25


1888-Jan.


75


65


50


38;^


33


■^lYz


Nov.


50


40


35


30


25


20


Dec. 1888 to 1900


75


65


50


35


30


^5



This table is of interest not only as showing the
course of rates, but as graphically indicating the
effect of rate wars and periods of depression.
The fact that rates during the summer months
were, as a rule, lower than in the winter months
was undoubtedly due to lake competition. These
figures show a marked decrease in rates during the
period stated. Taking the average rates for 1867
and 1900 the percentage of decline is even more
than that indicated by the average ton-mile receipts
which we have considered. But it must be borne
in mind that only competitive rates, which have de-
clined more than local charges, are given. This
table is also somewhat unreliable as a comparison
sheet on account of changes in classification. Per-
haps we shall obtain better results by comparing
rates between the same points upon several im-
portant commodities :



i66 AMERICAN RAILROAD RATES



RATES ON DIFFERENT COMMODITIES FROM NEW-
YORK TO CHICAGO, 1 867-1900.



Date.


COMMODITIES (rates


in centj


per 100 pounds).


Dry

Goods.


Tea.


Nails.


Beer.


Less than
Carloads.


Car-
loads.


Less than
Carloads.


Carloads.


1867-N0V.


202


202


86


86


127


138


1 868- Aug.


149


149


82


82


127


120


Oct.
Dec.


70
202


70
202


50
86


50

86


127

55


55
138


1869-Feb.

July
Aug.


45
188

25


45
188

^5


45
82

25


45
82

25


45
127

25


45
127

25


Nov.


150


150


80


80


1 00


100


1870-July
Dec.


50
180


50
180


45
80


45
80


50
120


50
120


1871-Sept.
Dec.

1872-Aug.

Sept.
187 3- Apr.

Aug.


30
125

75
125
100

27


30
125

75
125
100

27


30
65
45
65
60
18


30
65
45
65
60
18


30

85
60

85
75
18


30
8^
60
85
75
18


1874-Jan.


100


100


60


60


75


75


Aug.


75


75


45


45


60


60


1875-Jan.


100


100


60


60


75


75


Dec.


30


30


20


20


20


20


1876-Jan.

July

Dec.


75
15
50


75
15
50


45
10
30


45
10

30


60

15

40


60

15
40


1877-Oct.
1878-Feb.


100

75


100

75


45
40


45
40


45
40


45
40


i88i-Aug.
Nov.


45
60


45
60


19

28


19

28


19
28


19
28


1882-Jan.


45


45


19


19


19


19


Nov.


75


75


35


35


35


35


i883_June


75


75


35


35


35


35


1885-Jan.


50


50


25


25


25


25


Nov.


75


75


35


35


35


35


1 8 86- Aug.
1887-Apr.
1888-Jan.


75
75
75


75
75
75


35
35
38;^


35
30

33


35
50
50


35
30
33


Nov.


50


50


30


25


35


25


Dec.
Apr. 1 89 1 to Jan. 1900


75
75


75
75


35
30


30
25


50
50


30
30



MOVEMENT OF RATES



167



This table shows a decline In rates fully equal
to that Indicated by the movement of ton-mile
receipts. But this table, like the one preceding,
includes only competitive charges.^

Here are tables showing the movement of local
freight rates upon an Eastern and a Western railroad :

LOCAL FREIGHT RATES UPON PENNSYLVANIA
RAILROAD, 1876-1900.^



Stations.




CLASSES (rates in cents per


100 poun


cis).


From New York
to


Year.














I


3


3


4


5


6


Trenton, N. J.


1876


20


17


15


12








1886


17


17


14


12








1887


20


16


13


9


8


7




1890


20


16


13


9


8


7




1895


20


16


13


9


8


7




1900


20


16


13


9


8


7


Harrisburgh, Pa.


1876


45


30


25


20








1886


35


30


23


17








1887


33


28


22


17


15


12




1890


33


28


22


17


15


12




1895


33


28


22


17


15


12




1900


33


28


22


17


15


12


Pittsburgh, Pa.


1876


45


30


25


29








1886


43


35


26


20








1887


45


39


30


21


18


15




1890


45


39


30


21


18


15




1895


45


39


30


21


18


15




1900


44


39


30


21


18


15


Erie, Pa.


1876


40


35


30


25








1886


43


35


26


20








1887


45


39


30


21


18


15




1890


45


39


30


21


18


15




1895


45


39


30


21


18


15




1900


45


39


30


21


18


15



1 It also, like the preceding table, indicates the effect of rate wars
upon charges.

2 Joint Merchandise classification before 1887 j Official Classifica-
tion after 1887.



i68 AMERICAN RAILROAD RATES



LOCAL FREIGHT RATES UPON CHICAGO, MILWAUKEE
& ST. PAUL RAILROAD, 1883—1900.^



Dis-


Stations.






CLASSES (rates in cents


per 100 pounds).




tance

(Miles.)


From
Chicago to


Year.




















I


2


3


4


5


A


B


c


D


£


228


Marion,
Iowa.


1883


70


55


45


35


27 K


32K


27K


25


20








1887


60


50


37


25


20


25


20


16


13


It






iSgo


55


45


32


22


16


20


16


13


12


10






■895


58


47


35


24


19


24


19


16


14


II






igoo


58


47


35


24


19


24


19


16


14


II


309


Melbourne,
Iowa.


1883


75


60


45


35


30


35


30


25


20








1887


73


S8


43


28


20


25


20


16


15


12






iSgo


62


52


37


25


19


24


'9


16


•4


12






1895


65


54


40


27


22


27


22


18


16


•3






I goo


65


54


40


27


22


27


22


18


16


13




Council
























487


Bluffs,
1 vva.


1883


90


75


50


32


28


ziVi


32


23


23








1887


90


75


50


35


30


32K


29^


23


26


16






i8go


70


58


42


28


21


28


23


18


16


15






1895


80


65


45


32


27


32


27


22


18K


16






I goo


80


65


45


32


27


32


27


22


18^


16



These tables of local rates indicate two facts,
both of which are fully established by statistics from
all over the country — (i) that local rates have
declined less rapidly than competitive charges, and
(2) that declines in local rates have been more
marked in the Western than in the Eastern States.

We have now found that upon the basis of ton-
mile receipts average rates declined considerably
over sixty per cent from 1867 to 1900; that the
particular competitive rates examined have declined
to an equal extent ; that ton-mile averages must be
modified by changes in traffic, and that local rates
have decreased to a limited extent. Without going

^ Governed by "Western" Classification.



MOVEMENT OF RATES 169

further into details, we may safely conclude that
rates on an average in 1900 were less than half
what they were thirty years before.

An analysis of the causes which pro- Causes of
duced this marked decline in rates is : rates.

I. Reductions in cost ^ occasioned by

(i) Increases in traffic which permitted the full
utilization of facilities (or, stated in another form,
the operation of the law of increasing returns).

(2) Economies in operation resulting from

(A) Combining connecting roads.

(B) Employing improved machinery to handle
the traffic.

II. Competition —
(i) Indirect.

(2) Direct.

Reductions in the cost of rendering services —
effected either by doing more work at the same
expense, or by doing the same work at less expense
— permit corresponding decreases in the charges for
performing them. A reduction in cost should mean
a reduction in rate, and reductions in cost — more
than any other cause — have brought about the
reductions in American rates.

We saw in our examination of underlying prin-
ciples,^ that a railroad is subject to the law of

^ While we have seen in an earlier chapter that cost of service
cannot be apportioned to different items of traffic and individual rates
thereby determined, changes in the cost of handling the traffic as a
whole are always reflected in the auerage rate.

2 See page i 9.



I70 AMERICAN RAILROAD RATES

increasing returns — the principle that increase in
production, within the limit of facilities, yields a
constantly increasing percentage of profit. The
more business a railroad does the cheaper it can
do it. Cost varies inversely with traffic. A road
may be able to obtain a constant return upon capi-
tal with an increasing business and decreasing rates.
Net earnings increase more rapidly than gross earn-
ings — rates received and prices paid for labor and
materials remaining the same. Thus, from 1895 to
1900 the Rock Island road showed an increase in
\ gross earnings of forty-five per cent and an increase
in net earnings of seventy-three per cent. It is clear,
therefore, that increase in traffic generally tends to
reduce rates ; and, as we have seen, reduced rates
stimulate traffic. The marvellous growth of the
United States since the civil war has given the rail-
roads a larger traffic, enabled them to fully utilize
and enlarge their facilities, and has been a most im-
portant factor in producing the decline in rates. ^
Reciprocally, the reductions in rates have tended
to increase business and develop the country.
A particular way in which the development of the

^ The growth of freight traffic is indicated by the fact that the
number of ton-miles hauled increased from 95,000,000,000 in 1897
to 142,000,000,000 in 1900. Making comparison in another way
and for a longer period — "the number of tons carried one mile in
1870 on 3. per capita basis was 343. This rose to 833 in 1880 and
to 121 7 in 1890, while for 1900, 1871 tons of freight were carried
one mile for each person in the United States." Report of Indus-
trial Commission, Vol. XIX, p. 264.



MOVEMENT OF RATES 171

country directly permits the railroads to more fully
utilize their facilities is shown in the case of empty
freight cars. A railroad upon which the great bulk
of the traffic is in one direction has its freight cars
to haul back empty. The power expended to haul
them back brings in nothing. Thirty years ago a
very large part of the freight cars which came east
full went back empty. The population in the west
did not begin to buy back the bulk of the commod-
ities shipped east. But while west-bound traffic is
still much less than east-bound the difference has
diminished. The Lake Shore Railroad which in
1870 reported seventy-two per cent of its freight
moving east, in 1895 reported that it was reduced
to fifty-six per cent.^ The growth of population
in the west has tended to equalize traffic over the
trunk lines. The development of business along
the trans-continental roads has given them freight
to carry east in the otherwise empty cars. As the
country grows, traffic in different directions tends
to equality. And all this makes and has made for
lower rates. The railroad which has to haul back
its cars empty must charge both hauls against one
shipment. If it can get a return load at barely
cost the charge can be reduced. If the return
shipment pay full charges, the outward charge may
be cut in two and the road make nearly the same
profit.

Economies in operation manifestly reduce cost

^ Report of Industrial Commission, Vol. XIX, p. 296.



172 AMERICAN RAILROAD RATES

and enable the railroad to lower rates. In the early
days of railroads, freight could not be moved
any considerable distance without trans-shipment.^
Handling several times en route involved delay and
expense, and practically prevented any large amount
of long-distance traffic. The combination of short I
connecting roads into through lines, which began
before the war and has continued ever since, made
it possible to ship goods long distances without
breaking bulk, and eliminated the expense of trans-
shipment, and of duplicate accounts and services, j
Economies in operation were effected and reduc- I
tions in rates made possible. Combinations of con- !
necting roads, unlike those of competing roads, have !
always been approved by the legislatures and the

1 The condition, about 1851, of the roads now composing the
New York Central, illustrates conditions in general : " We had ten
roads between Albany and Buffalo. There was just about as much
efficiency in operating ten roads as there would be in ten men doing
a thing which one ought to do. Every board of directors had its
own profit to make and its own schemes to advance. There was no
obligation on the part of any one company to do anything for any
other. Through lines of cars could be run only by very complicated
and embarrassing arrangements. I can remember the time when
conductors were changed at the end of each one of the roads of the
old line between Buffalo and Albany. In some cases a ticket could
not be bought through from Albany to Buffalo. The elements of
usefulness and economy were very few. In regard to freight there
was no obligation on the part of any one of the roads to take a single
pound of it from another. Except so far as they might agree with
each other it involved changing at each terminus." Statement of
Secretary of New York Central Railroad before Senate Committee
(1874). From American Rathvay Transportation. By Emory R.
Johnson, 1904, p. 216.



MOVEMENT OF RATES 173

courts. And they have always worked to the
public good.

But while economies in operation have resulted
from increases in the traffic and from working
together connecting roads, their principal cause
has been the improvements in the means of deal-
ing with the traffic. These improvements may be
divided into

(i) Improvements in the track.

(2) Improvements in the rolling stock.

Prior to 1870 light weight iron rails were in use.
They could not bear heavy weights, were expensive,
and deteriorated rapidly. With the coming into
use of Bessemer steel the situation was radically
changed. Rolled steel rails were brought within the
means of the railroads and rapidly supplanted those
made of iron. As the use increased, the price
decreased. In ten years' time nearly three-tenths
of the trackage in the United States had steel rails,
and the average price had fallen from $120 to ^67
per ton. In 1890 eight-tenths of the trackage was
steel and the price of rails had fallen to $32 per ton.
In 1898 the price of rails had dropped to |i8 per
ton, and not more than one-tenth of the trackage
was of iron rails. Since that time the price of steel
rails has increased about fifty per cent and iron
rails have practically gone out of use. They only
exist upon a few sidings and unimportant branches.
And although the price of steel rails has increased
from the phenomenally low price of a few years ago,



174 AMERICAN RAILROAD RATES

they now cost considerably less than half what iron
rails cost in 1870.

With the increase in use and decrease in price of
steel rails has come an increase in their size and
weight. Twenty years ago rails in general use
weighed about fifty pounds to the yard. Now the
new rails laid generally run from eighty to one
hundred and ten pounds — a hundred pound rail
being the standard for heavy traffic.

The saving in first cost is one of the least of the
advantages of steel rails. They last three times
as long as iron rails and require fewer repairs. They
permit higher speed and, more than all in its ulti-
mate consequences, they will bear far heavier weights.
This permits increases in the size of locomotives
and freight cars and, consequently, of the train
loads. And heavier train loads, as we shall see,
mean more economical operation.

A railroad is no better than its weakest part.
Only light trains could run over hundred-pound
rails if light wooden bridges were upon the line.
All parts of a road must be brought to the same
standard of efficiency. Accordingly, improvements
in bridges and road-bed followed the use of steel
rails. The use of steel bridges, like the use of steel
rails, has made heavier train loads practicable and
thereby promoted economy of operation.

Improvements in the rolling stock followed im-
provements in the track. Steel rails could bear
heavier weights. More powerful locomotives and



MOVEMENT OF RATES 175

more capacious freight cars came into use, and in-
creased in power and capacity. Locomotives have
more than doubled in weight and hauling power
since i 870. The capacity of a freight car then was
about ten tons. Now pressed steel cars of forty or
fifty tons' capacity are not uncommon. Large cars
give a much greater proportion of paying to dead
weight than small cars. Increase in size increases
capacity more than weight. A car weighing nine
tons will carry a ten ton load. A twelve ton car
will carry a twenty ton load.

Cars of large capacity with powerful locomotives
to haul them permit great increases in train loads
and consequent savings per unit of traffic. More
paying weight is handled without a proportionate
increase in expense. A train of twenty cars weight
ing nine tons each has three hundred and sixty
thousand pounds of dead weight, and can carry four
hundred thousand pounds paying weight. A train
of fifteen twelve ton cars gives exactly the same dead
weight and can carry six hundred thousand pounds
paying weight. At precisely the same expense of
haulage, fifty per cent more paying weight Is
obtained.

We have, therefore, two factors: (i) cars of
large capacity capable of carrying a much larger
proportion of paying to dead weight than was
formerly possible; (2) powerful locomotives able
to haul as many or more of the large cars as the
earlier locomotives moved of the light ones. The



176 AMERICAN RAILROAD RATES

necessary result of the operation of these factors is
decrease in cost per unit of traffic. The same profit
can be made at a lower level of charges. It is true
that heavier trains require more fuel than light
trains, but the increase is by no means in the pro-
portion of the increase of the paying load. So too
the interest on the increased cost of the heavy roll-
ing stock is a factor, but not an important one. On
the other hand, the number of engine and train men
are not increased whether the locomotive and cars
be heavy or light, or — within limits — whether the
number of cars in the train be many or few. In-
creases in the train load, by reducing the ton-mile


1 2 3 4 5 6 7 8 9 11 13 14 15 16 17

Online LibraryWalter Chadwick NoyesAmerican railroad rates → online text (page 11 of 17)