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cost, have enabled the railroads to reduce rates, and
have had a most marked effect upon the decline in
charges.

We have already considered the effect of com-
petition upon rates,^ and it is unnecessary to do
more than briefly note how far it has been a factor
in producing the decline in charges which we have
noticed. Indirect competition has undoubtedly
played an important part in bringing about the re-
ductions in charges. The rivalry between roads in
different parts of the country to put the products
of their territories into important markets upon
a competitive basis has tended to keep down prices.
And with the development of the country and the
increase in products, this tendency has grown. The
roads have been obliged to lower charges to get and

I See Chap. VI.



MOVEMENT OF RATES 177

build up business. Direct competition has also
been a cause of the decline in competitive rates.
But, as we have seen, it has worked by fits and
starts and has rather tended to increase local charges
than to reduce them. Still, it must be counted as
a factor in bringing about the decline in average
rates.

While rates declined more than half in the thirty
years preceding 1899, that year marked the lowest
ebb. Rates have not only not declined ^

J Arrest of

since that time, but have shown an advanc- rate
ing tendency. Advances have been made
in different ways :

(i) By changes in classification, through placing
articles in higher classes or by reducing the dif-
ferences between carload and less than carload
shipments.

(2) By abolishing commodity rates and compell-
ing commodities to pay the heavier class rate.

(3) By directly raising the class and commodity
rates.

Class rates have been raised in a very few in-
stances. Commodity rates upon coal, iron, grain,
and other products are, as a rule, slightly higher
than in 1899. Some important changes have been
made in the classifications, but they probably amount
to less than ten per cent of all the items.

Averages based upon ton-mile receipts are not —
as we have seen — wholly reliable, but they afford
the customary basis for comparing charges. Here



\



lyS AMERICAN RAILROAD RATES

is a table showing the movement of average rates
per ton-mile from 1899 ^° ^9^3 •

Year Cents

1899 .724

1900 .729

1901 .750

1902 .757

1903 -763

The average rate, therefore, increased in the
period stated thirty-nine hundredths of a mill. If
we multiply this difference by the total freight
hauled in 1903 reduced to ton-miles — 173, 221,
278, 993 — we have 167,556,299, representing in
concrete form the increase in gross earnings that
year caused by the advance in the average charge.
This amounts to about three and one-half per cent
of the whole gross earnings. While the figures
indicate an advance, it has been slight.

But if net earnings had increased far more rapidly
than gross earnings during this period this slight
increase in charges would not have been the only
factor. By the operation of the law of increasing
returns the railroads might have obtained a largely
enhanced percentage of profit at the same rates.
We should not have been able to say that rates had
risen, but we might have said that they should have
been reduced. But unlike the years previous to
1899, the law of increasing returns has not been
operating in favor of the railroads as a whole since



MOVEMENT OF RATES



179



that time. The following table shows the average
gross and net earnings per mile of the American
railroads from 1899 to 1904 with the ratio of net to
gross :





Gross Earnings


Net Earnings


Ratio of Net




per Mile.


per Mile.


to Gross.


1899


$7005.


^2435.


35%


1900


7722.


2729.


36%


I90I


8123.


2854.


35%


1902


8625.


3048.


34%


1903


9258.


3133.


3 3%


1 904 (estimated)


9410.


3035.


3^%



It appears, therefore, that the ratio of net to gross
earnings, instead of declining, has advanced a little
in the last five years.^ This has been the result of
increases in operating expenses due to advances in
the prices of labor and materials. Expenditures
for wages, fuel, and rails constitute the great part of
the expense of operation, and all of these items have
increased in cost from ten to fifty per cent. The
railroads have required a large increase in earnings

^ This does not mean, of course, that net earnings have not in-
creased. The table shows that they increased ^600 a mile from 1899
to 1903. But an increase in actual net earnings as the result of in-
creased business is not — standing by itself — a reason for reductions
in charges. When, however, the effect of increased business is both
to increase net earnings and their proportion to the gross, the enhanced
percentage of profit may be so great as both to justify and call for
rate reductions. As we have seen, the operation of the law of in-
creasing returns was an efficient factor in producing the decline in
charges.



i8o AMERICAN RAILROAD RATES

to take care of the additional cost. Advances in
prices may be sufficient to prevent the operation of
the law of increasing returns.

But increases in the cost of commodities have a
more far-reaching effect upon railroad charges than
through the particular materials which the railroads
purchase. Prices of commodities in general affect
the purchasing power of the dollar which the rail-
roads receive in rates. The stockholders of a rail-
road must receive more dollars to buy the same
articles when prices are high than when they are
low. Rates may be increased in dollars but without
any increase in real profit. Maintaining rates at
the same figures in the face of advancing prices
upon products in general is equivalent to reducing
them. And that the prices of commodities have
materially increased in the last six years is a well
established and thoroughly appreciated fact.

We conclude, therefore, that while rates have
undoubtedly advanced in dollars since 1899, ^° ^^^
slight extent shown in the movement of average
charges, there has been no relative advance as com-
pared with prices in general. Probably the most
we can say is that the long continued decline has
been checked. Undoubtedly it will be resumed
under more normal conditions. The factors which
brought it about and kept it up have not wholly
lost their power.



CHAPTER VIII

COMPARISON OF RATES

The conditions under which the freight service is
carried on in the United States and in foreign coun-
tries vary so widely that only the broadest conclu-
sions can be drawn from comparisons of charges.
Such comparisons do not give accurate results. The
actual difference in real charges cannot be measured.
But we may ascertain that marked differences exist,
and learn something from comparing methods of
rate-making.

A comparison of the average freight charge in the
United States with the average rate in the principal
countries of Europe shows clearly that the ^

^ •' Comparing

former is very much lower than the latter, average
A frraphic comparison is shown on p. 182.

A comparison of average charges in the different
countries through a series of years shows also that
average rates have declined much more rapidly in this
country than abroad. All those factors which — as
we have seen — make for more efficient service and
lower rates, have operated in much less degree in
Europe than in the United States. While rates
have here declined more than fifty per cent in the

1 On the other hand passenger fares are much higher in this coun-
try than in Europe.



i82 AMERICAN RAILROAD RATES



COMPARISON OF AVERAGE RATES PER TON-MILE

(1902)
Cents .ao .40 .60 .80 i.oo 1.20 1.40 1.60 1.80 2.00



UNITED STATES



GERMANY



HUNGARY



^ British statistics do not show ton-mile earnings. The estimate
in the table is based upon the consensus of expert opinion that the
average ton-mile rate in England is a little over two cents. The
North Eastern Railway which alone gives ton-mile statistics reports
the following average ton-mile receipts in 1903 : on minerals, 1.93
cents ; on merchandise and live stock, 2.94 cents ; on all commodi-
ties, 2. 32 cents.



COMPARISON OF RATES



183



last thirty years European rates have been reduced
a very much smaller percentage.^

But we cannot accept the comparisons of average
charges as correctly showing the real differences be-
tween American and European rates. They are by
no means so great as indicated. Differences in av-
erages show real differences only when due considera-
tion is given to dissimilarity in conditions. These are
the most important differences in the rate situation
upon the roads of this country and those of Europe :

( I ) The average length of haul is much greater
in this than in European countries. The typical
haul upon the average railroad in the United States
is 131 miles. This is nearly double the average
haul in any European country, except Russia. Statis-

1 The following table abridged from one in Raihvay Rate Regu-
lation in Foreign Countries (1905), a pamphlet by H. T. Newconib, a
well known writer upon railroad questions, gives the comparative
movement of rates in this country and Europe :





United
States.


France.


Germany.


Austria.


Italy.


European
Russia.


1870


1.89


1.78






1-95''


. ■ •


1880


I


23


1.68




I. 81


1.97




I 890




94


1.54


1.34


1.39


1.64


I. 14


1892




90


I. 51


1.33


1.33


1.63


•95


1894




86


1-47


1.32


I. 31


1.63


1. 00


1896




81


1.44


1.32


1.32


1.63


•95


1898




75


1.39


1.27


,.23


1.60


.86


1900




73


1.32


1.22


1.24




.84


1902




76


1.33


1.22


1.26












« For 187


2.








i84 AMERICAN RAILROAD RATES

tics showing the average haul of the British railroads
are not prepared, but it is estimated to be about
thirty miles, and less than in most other countries.

Length of haul is an important factor. Termi-
nal expenses are independent of mileage. They are
just as large whether the shipment be carried ten or
a thousand miles. Rut it makes a vast difference
with the average rate per ton-mile whether the aver-
age haul be long or short. If the average haul
be a hundred miles a terminal expense of forty cents
for both ends spread over the miles of haul adds
four-tenths of a cent per mile to the rate. But if
the average haul be forty miles the same expense
adds a cent a mile.

(2) Differences In the size of the shipment also
affect the average ton-mile charge. It is far more
expensive to handle small shipments than carload
traffic in proportion to weight. In this country
probably the normal shipment is a carload. In
European countries a hundred or two pounds is
nearer the mark. Another thing which materially
affects the size of the shipment is that the European
railroads do a parcel business corresponding to the
business of the express companies in this country.
If the express traffic in this country should be in-
cluded with the railroad freight traffic, it will readily
be seen that the average American ton-mile rate
would be considerably increased.

(3) Differences in the nature of the commodities
carried make differences in charges. Cheap goods



COMPARISON OF RATES 185

cannot bear high rates, and rates upon low grade
traffic are very moderate in this country. Raw prod-
ucts constitute a large part of the freight carried
here, and necessarily diminish the average ton-mile
rate. On the other hand, European railroads carry
a larger proportion of manufactured goods and high
grade traffic. They also — as we have just seen —
carry on the express business.

(4) Differences in methods of doing business
affect relative charges. Whether a rate be higher
than another depends upon the service which it pays
for. In most European countries the railroads col-
lect and deliver the high class freight, and the rate
paid covers the entire charge for collecting, carrying,
and delivering. In this country, the railroad receives
and delivers the freight at its stations, and its charges
should be less.

(5) Expensesof operation also affect charges. In
Europe wages are much lower than in this country.
Probably the wages of railroad employees are less
than half those paid in this country. On the other
hand, American railroad employees render the far
more efficient service and a less number are required.
Fuel is cheaper in America than Europe.

It is apparent, therefore, that the real difference
in charges for similar services is very much less than
that indicated by the comparison of average rates.
But this does not mean that there is no difference.
The superior efficiency of the American railroad
service must be reckoned with. Nearly all those



i86 AMERICAN RAILROAD RATES

improved facilities for the economical transaction of
business which we have noticed were first put into
practical use by the American railroads. But more
than all, the American railroad — having no State
treasury to fall back upon — has been obliged to
reduce the cost of transportation to obtain business ;
and, obtaining business, has been enabled to make
still greater reductions.

While, therefore, we can only draw the most
general conclusions from the comparison of charges,
we may safely state these broad propositions :

(i) American rates upon long-distance traffic and
upon heavy shipments are very much less than
the charges for similar services upon the European
railroads.

(2) Charges upon short-distance traffic and small
shipments are not materially different in America
and Europe.

(3) Charges upon parcels by European railroads
are less than the charges of the express companies
in this country.

We have thus far considered European rates as
a whole. Let us now briefly examine the rate situ-
ation in different countries.

In England the railroad companies — like those

of this country — own and operate the railroads.

, , Maximum rates are prescribed by Parlia-

England. r ^ •

ment. Separate orders fix the maxmia of
each of the large railroads ; the smaller roads are
grouped together. There is a uniform classification



COMPARISON OF RATES



187



for the whole country, the classes being designated
A, B, C, I, II, III, IV, V. Reversing the practice
in this country, the first class applies to the lowest
grade traffic. Class V is high ; class A is low.
The classifications, like the rates, are maximum.
The railroad may place commodities in lower classes
if it see fit. The real classification is, therefore, that
made by the united action of the railroads, called
the "working" classification. This, like the stat-
utory classification, is uniform for all the roads.

The lettered classes include articles which gener-
ally move in large quantities, and call for " station
to station " charges with minimum weights. The
class rates upon articles in the numbered classes,
however, include collection and delivery. The Eng-
lish railways collect the high grade freight with
teams and deliver in the same way to consignees.
The following table shows the class rates for differ-
ent distances upon a leading English railway :^







ENGLISH


CLASS RATES.






Distance

(Miles.)


A


B


C


I


2


3


4


5




J. d.


J. d.


J. d.


I. d.


s. d.


J. d.


s. d.


1. d.


20


2 I


3


5 6


10 3


12 3


14


16 7


20 I


47


5 II


5 4


8 9


14 6


17 6


20 4


23 7


29


95


6 I


8 6


13 10


20 2


24 10


28 6


34 3


42 I


149


7 II


10 II


17 3


24 5


31 I


36


43 5


52 6


211


9 II


13 10


21 4


30 8


40


46 8


56 5


67 6



^ From Rail-ways and their Rates. By Edwin A. Pratt. Lon-
don, 1905, p. 62. The rates in the table under Class A apply only
to freight carried in shipper's own cars.



i88 AMERICAN RAILROAD RATES

" Exceptional rates " — lower than class rates
and corresponding to our commodity rates — are
also granted for reasons similar to those which in-
duce the American railroads to make commodity
tariffs. It is estimated that three-quarters of the
British traffic is handled at exceptional rates.

The English maximum rates are so high as to
have very little influence upon real charges. The
railroads can fix the actual rate at any point within
the prescribed limit, and the maximum rates are
scarcely ever charged except upon the local and
short distance traffic. But there is one peculiar
thing about the English rate law. While the rail-
roads are free to reduce rates at pleasure and, of
course, originally fixed their charges at such points
within the prescribed maxima as they saw fit, they
cannot raise rates when once fixed without being
liable to proceedings before the Railway Commis-
sion.^ Any shipper may appeal to the Commission
to annul the advance, and the burden is upon the
railroad to justify its action. The result is that
charges are seldom reduced. Rates are deprived
of that adaptability to conditions so essential to the
development of business. A railroad official will
not test a low rate on the traffic if he cannot put
back the original charge if the reduction prove
unprofitable.

Subject to the statutory maxima and to the im-

1 The British Railway Commission is composed of three members,
one of whom must be a judge of a superior court.



COMPARISON OF RATES 189

practicability of reducing charges, actual rates are
based upon what the traffic will bear. As indicated
by the table, long-distance traffic pays proportion-
ally much less than short hauls. The average charge
per ton-mile is several times the average rate in this
country. But the difference is largely caused by
shorter hauls and smaller shipments. We have the
advantage on long hauls and heavy shipments; but
charges upon very short-distance traffic do not vary
widely, allowing for expenses of collecting and
delivering.

Pooling is permissible in England, but the neces-
sity for it is largely obviated by a practical division
of the field between the railroads. Rates are pub-
lished, and deviations from the published rate have
been much less common in England than in this
country before the Elkins law. Secret rebates are
very seldom given, and the statute against undue
preferences has generally been lived up to.

In France the railroads are divided into seven sys-
tems of which the government operates one — a com-
paratively small system in the southwestern

^ . France.

part of the country. The six great systems
are worked by private companies.^ The roads of
these companies were built with State aid, and they
are operated under contracts with the State. Upon
the expiration of these contracts — in about 1957 —
the roads will belong absolutely to the State. In the

1 Private companies operate 26,148 miles, and the State, 1762
miles of road.



I90 AMERICAN RAILROAD RATES

meantime the State guarantees minimum dividends
upon the railroad stocks, and makes provision for
the re-payment of all moneys spent in new construc-
tion. The railroads absolutely divide the field and
are complete monopolies within their territories,
except as they may be affected by water competi-
tion. The French railroads are highly subsidized
roads under strict governmental supervision. Max-
imum rates are specified in the contracts between the
railroads and the State. These rates are theoreti-
cally composed of three elements: (i) the tolls for
the use of the road ; (2) the transportation charge
for moving the goods, and (3) the terminal or
" accessory " charges. Practically, the rate includes
all three. Maximum rates are the actual rates
for animals and carriages. As a general rule, how-
ever, rates are somewhat below the maxima, although
by no means so far below as in England or America.

Rates are uniform throughout France for all fast
freight transportation and upon articles shipped by
slow freight and charged by the piece or head.
Charges upon slow freight, however, are not uni-
form, although conditions of shipments are the
same, and there is a uniform classification. The
classification is divided into six classes, with some
thirteen hundred items distributed according to
value, nature, bulk, and risk.

Charges are of two kinds — rates made by kilo-
metric tables and fixed rates. Kilometric rate tables
are general formula from which the rate for any dis-



COMPARISON OF RATES



191



tance can be computed. Tariffs following such
tables are usually upon a tapering basis; that is, the
rate per kilometer decreases as the distance increases,
as shown by this illustration :



GENERAL TARIFF.





Rate per


Food


Other




Kilometer.


Products.


Merchandize.




Kilometers.


Centimes.


Centimes.


Per kilometer


O-IOO


24


32


Per additional kilometer


100-300


22.5


30


Do


300-500


21


28


Do


500-600


19.5


26


and so on — the reduction be-








ing per even 100 kilometers.









A fixed rate is lower than that which would result
from the general rate table and is granted when
required by peculiar commercial conditions. Special
rate tables are also sometimes made in order to give
reduced charges. When a reduced rate is given,
stations beyond those to which it applies may take
advantage of it by welding the reduced rate to the
local charge for the additional distance.

While the contract between the railroad and the
State fixes the maximum rate, all charges within the
prescribed limit must be approved by the minister
of public works. The minister has discretionary
power to give or withhold his approval. Similarly,

1 From Abrig'e de la Legislation des Chemins de Fer et Tram^ways.
By C. Colson, 1903. A large part of the data regarding French
rates has been obtained from this book.



192 AMERICAN RAILROAD RATES

all changes in tariffs must be submitted to the min-
ister and go through a long and complicated course
of procedure before they can go into effect. The
initiative, however, must be taken by the railroads.
Changes in tariffs can be made by the public author-
ities of their own motion only under extraordinary
circumstances.

As charges must always be approved, the railroad
is bound to abide by them. It can, under no cir-
cumstances, deviate from the approved rate. Dis-
criminations are practically unknown in France.

The railroads are bound, under the contracts with
the State, to deliver goods at the residence of the
consignee, except in small places, or places a con-
siderable distance (more than 5 kilometers) from
the station. It is optional with the roads to collect
freight at the point of departure, but it is customary
to do so in order to fully utilize the wagons.

Average charges, as we have seen, are higher in
France than in this country. And while conditions
are so different as to make comparisons of averages
of little use, charges for the same service — if in-
volving a heavy and long-distance shipment — are
undoubtedly much less upon the American than
upon the French roads. Charges in France are also
higher than in the other leading continental countries
of Europe, and have declined less rapidly. This
situation is largely the result of two factors: (i)
the non-development of long-distance traffic, and
(2) the difficulty of reducing charges. The situation



COMPARISON OF RATES 193

in the last respect is even worse than in England.
It is practically impossible to lower rates to de-
velop traffic. Rates become stereotyped and cannot
be adjusted to meet changing business conditions.
Inelasticity and high charges, resulting from close
governmental supervision, offset in France the bene-
fits accruing from the absence of discriminations and

direct comoetition.

1.

In Germany the State-operated railroad has reached
its highest type. Out of thirty-two thousand miles of
road less than ten per cent are operated by

, ;t^, . / Germany.

private companies. 1 hese private roads,
moreover, are comparatively unimportant, are not
competitors of the State roads, are under close gov-
ernmental supervision and, probably, will be taken
into the State system. The remainder of the Ger-
man railroads are owned and operated by the State.
State-owned railroads have existed to a limited
extent in Germany for many years, but the policy
of nationalizing the roads of the country began only
about 1 878, after which it developed rapidly. Roads
were purchased from their owners — usually by the
exchange of government bonds for the railroad

1 The total railroad mileage in Germany is 32,288 miles, of which


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Online LibraryWalter Chadwick NoyesAmerican railroad rates → online text (page 12 of 17)