Walter Chadwick Noyes.

American railroad rates online

. (page 6 of 17)
Online LibraryWalter Chadwick NoyesAmerican railroad rates → online text (page 6 of 17)
Font size
QR-code for this ebook


LOCAL CLASS TARIFF









CLASSES.






Between New York




(Rates


n Cents per 100 F


ounds.)




and












I


2


3


4


5


6


Harlem River, N. Y.


8


7


6


5


5


5


New Rochelle, N. Y.


12


10


8


6


5


5


Greenwich, Conn.


13


1 1


9


8


7


7


South Norwalk, Conn.


15


13


10


8


7


7


Milf'ord, Conn.


16


14


12


10


8


8


New Haven, Conn.


17


14


12


10


9


8


Wallingford, Conn.


18


14


12


10


9


8


Hartford, Conn.


20


17


14


12


10


9


Springfield, Mass.


20


17


14


12


10


9



JOINT CLASS TARIFF



Between Boston, Mass., via

Belchertown, Mass.,

and




(Rates


CLASSES,
n Cents per lOO V


ounds).


















I


2


3


4


5


6


Brattleboro, Vt.


24


22


18


14


13


i^'A


Northfield, Mass.


24


22


18


^4


13


12


Miller's Falls, Mass.


22


19


17


14


13


12


Amherst, Mass.


20


17


14


12


10


8


Palmer, Mass.


18


15


13


11


10


8


Willimantic, Conn.


20


18


15


13


1 1


9


Norwich, Conn.


20


18


15


13


1 1


10


New London, Conn.


22


19


16


14


12


10



Commodity tariffs contain the charges upon
specific commodities. They are entirely outside
rorr.,v,r,H,f„ the classification. The railroads reserve to

Commoaity

Tariffs. themselves the right, in respect of many



CLASSIFICATION AND TARIFFS 8i

articles, to make and put in force these special and
independent tariffs. They apply as a general rule
to heavy or bulky commodities such as grain, lum-
ber, coal, iron, fertilizers, live stock, and oil which
move in carload lots.^

Commodity tariffs may be either local or joint,
although they are generally the latter. Here is a
specimen of a joint commodity tariff: '^

COMMODITY TARIFF





(Rates in Cents


per 100 Poun


Js)


To




From












Spokane,
Washington.


New York,
Boston


Cincinnati,
Detroit,
Buffalo,


Chicago,
Milwaukee


Mississippi
River




and common


Pittsburg!)


and common


and common


Articles.


points.


and common
points.


points.


points.


Copper, bar and ingot
Earthenware


179


179
154


179
154


179
149


FertiHzers




. . •


60


60


Lumber
Paper (cheap)
Petroleum


129


129


85
119

144


H/2
119
144


Soap


123


123


123


120


Stoves (cast iron)


189


185


170


170


Zinc, plate and sheet


173


173


170


170


Zinc, slab


128


128


128


128



1 The much greater part in bulk of the freight transported in the
United States moves at commodity rates. But probably the greater
gross revenue is produced by articles carried at class rates.

^ Sometimes so many articles are excepted from the classification,
and a commodity rate given, as to render class tariffs largely inoperative.
This is particularly the case upon the transcontinental roads.

6



82 AMERICAN RAILROAD RATES

Commodity rates are lower than class rates and
are granted for a variety of reasons. Competition
with water routes may necessitate concessions in
charges. This is especially true in the case of
transcontinental traffic. Railroads desire to pro-
mote the interests of manufacturers within their
territory, and commodity rates enable such manu-
facturers to reach out into new markets. Com-
modity rates may also be granted to enable a new
industry along the line of the railroad to establish
itself in competition with established industries else-
where. There is a constant demand for concessions
in the way of commodity rates and a constant in-
crease in their number. When a special rate has
once been granted it is difficult to change it.

Commodity rates do not involve discrimination
between persons, since all shippers upon a given
railroad receive the same rates and they must be
posted and filed with the Interstate Commerce Com-
mission. They may involve discrimination between
places — but usually only discriminations in favor
of the places upon the railroad granting them. The
problem of the road is to promote the interests of
its patrons by concessions in the way of commodity
rates, and at the same time obtain for itself as high
a rate as the traffic is able to bear.

Rates in this country are not in form upon a
mileage basis. They are seldom so in fact. While
many of the early charters prescribed maximum
rates upon that basis, and several State statutes



CLASSIFICATION AND TARIFFS 83

now contain similar provisions, the statutory maxima
have always been so high as to have no effect upon
the real rates or the methods of making Making
them. The value of service theory can- *^"^^s-
not operate upon a mileage basis. Instead, therefore,
of a general mileage tariff each railroad has, as we
have seen, numerous class and commodity tariffs,
giving the specific rates upon the different classes of
commodities between each of its stations and every
other station upon its road and upon connecting
roads where a through rate is made. There are as
many tariff sheets as there are stations upon the
road. The rate is not given for distance, but for
transportation between the stations by name.

In making tariffs, the controlling factors differ
from those governing the making of classifications.
The classifications determine the relation of charges ;
the tariff the specific charge. Different roads with
the same classification must make very different rates
for similar services. As we saw in our examination
of the subject of equal mileage rates,^ physical and
commercial conditions absolutely prevent different
roads from making the same charge for the same
haulage. Gradients largely determine the cost of
construction and operation and the train load which
can be moved. The railroad through the sparsely
settled country must charge high rates or go out of
business. More than any other factor, the density
of the traffic must determine the rate. The railroad

1 See page 43.



84 AMERICAN RAILROAD RATES

which is obliged to raise a million dollars a year to
meet expenses and has a million tons of freight,
obviously must charge a dollar a ton ; if it have
two millions, fifty cents a ton is sufficient.^ In-
creases in tonnage permit decreases in charges. The
law of increasing returns enters into the rate.

Formerly it was a common practice to have two
sets of rates. One applied to freight moving in the
direction of the great bulk of the traffic ; the other
to freight moving in the opposite direction — that
of the empty cars. The growth of the country and
the development of traffic have, however, largely
rendered this practice unnecessary. As a general
rule the same rate governs in both directions.

In making rates upon long-distance traffic it is
customary to give small stations grouped about an
important shipping point the same rate as that
point. These small stations are said to be " common
points," with the large station.

The amount of the charge largely depends upon

1 "If 1 have $100,000 profit to raise and 100,000 tons of freight
it is very easy. I must make a profit of $1 a ton. Now if you give
me 200,000 tons 50 cents a ton will be sufficient ; and if you give me
400,000 tons 25 cents a ton will be sufficient. The density of traffic
must determine the rate. The cost varies on the different divisions of
a railway. Among sixteen divisions on the Great Northern we found
some places where the cost is three times as much as in others. If the
average rate or the average cost were applied to some divisions the rate
would be prohibitory almost. We have divisions where the amount
that it costs us for transporting a ton of freight 100 miles is 20 per cent
higher than the average rate that we receive from the public for the
whole road." — Testimony of Mr. James J, Hill before Senate
Committee on Interstate Commerce, 1905.



CLASSIFICATION AND TARIFFS 85

the risk, assumed by the railroad. We have seen
that risk is a factor in classification and influences
the relation of charges. It also directly affects the
actual rate. Freight shipped at carrier's risk, i. e.
with the full common-law liability of an insurer,
is charged more than freight shipped under the
conditions of the Uniform Bill of Lading. These
conditions practically release the railroad from all
liability except that resulting from its own neg-
ligence. And this is not all. The normal rate
upon many valuable articles is based upon a limited
value being placed upon them. If lost or destroyed
no more than the agreed valuation is recoverable.
If the shipper desire to ship at a higher valuation,
or with unlimited liability, he must pay a much
higher rate.^ Only a very small percentage of

^ The following extract from the "Official" classification shows
the method adopted — the different rates being made by means of the
classification.



Description of Article.


L. C. L.


C. L.


Concentrates, Lead — when consignor's val-
uation is not expressed or when expressed
exceeding $ioo per net ton

Valuation expressed by consignor not exceed-
ing $100 per net ton (subject to Note) .


2
3


5
6


Note. — The following clause must be entered in fall on shipping order
and bill of lading and signed by consignor: "The consignor of this property
has the option of shipping same at a higher rate without limitation as to value
in case of loss or damage, from causes which would make the carrier liable,
but agrees to the specified valuation named in case of loss or damage from
causes which would make the carrier liable, because of the lower rate thereby
accorded for transportation."



86 AMERICAN RAILROAD RATES

shipments is made upon the full liability basis.
It is cheaper to insure than pay the difference in
charges.

The Interstate Commerce Act provides that
all common carriers shall plainly print and post
Publishing fo^ public inspection in all stations local
Tariffs. j.^|.g tariffs in force ; that no advance
in published rates shall be made except after
ten days', and no reduction except after three
days', public notice ; and that " when any such
common carrier shall have established and pub-
lished its rates, fares, and charges in compliance
with the provisions of this section, it shall be
unlawful for such common carrier to charge, de-
mand, collect, or receive from any person or
persons a greater or less compensation for the
transportation of passengers or property, or for
any services in connection therewith, than is
specified in such published schedule of rates,
fares, and charges as may at the time be in
force."

The Act also compels carriers to file their tariffs
with the Interstate Commerce Commission and to
notify the Commission of all changes. It further
requires all joint tariffs to be filed with the Com-
mission, and empowers the Commission to deter-
mine to what extent they shall be made public.
It also provides that joint rates shall not be ad-
vanced or reduced except after ten and three days'
notice respectively to the Commission, and that it



CLASSIFICATION AND TARIFFS 87

shall be unlawful to deviate from the joint rates as
filed with the Commission/

The purpose of these statutory provisions is
to give full information to the public of the rates
— both in class and commodity tariffs — for all
transportation services. The clauses requiring no-
tice of changes in rates are designed to prevent
discriminations such as " midnight tariffs " • — chang-
ing the rate at night to obtain the favored ship-
ment and changing it back the next morning.
These provisions, however, do not cover the
whole field. They deal with the tariff and not
with the classification. The framers of the Inter-
state Commerce Act apparently failed to realize
that any change in classification necessarily in-
volves a change in rates. When an article is
taken from a lower and placed in a higher class
the change in effect is an advance of the rate from
that of the lower to that of the higher class.
Charges can be raised or lowered through classi-

1 The Interstate Commerce Act, of course, applies only to inter-
state commerce. State statutes providing for publicity in rates upon
interstate traffic by posting tariffs at stations are in force in Alabama,
Arkansas, California, Colorado, Florida, Georgia, Kansas, Kentucky,
Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire,
North Carolina, North Dakota, Oregon, South Carolina, South
Dakota, Tennessee, Texas, Virginia, and West Virginia. Rates must
ht printed in California, Florida, Georgia, Illinois, Kansas, Kentucky,
Minnesota, Missouri, Nebraska, Nevada, North Carolina, North
Dakota, South Dakota, Texas, Utah, and Virginia. Rates must be
kept for public inspection in stations in Iowa, Minnesota, Nebraska,
North Dakota, South Dakota, and West Virginia.



88 AMERICAN RAILROAD RATES

ficatlon without touching the tariff at all. But
changes cannot be made as readily in the classifica-
tion as in the tariff. The one requires the action of
the classification committee ; the other is made by
the road itself

We have now examined the first result of the
value principle in making rates — the classification
and its complement, the tariff. Let us next consider
the second result — discrimination.



CHAPTER V

DISCRIMINATION

We have seen that a necessary corollary of the
value of service principle in rate-making is that the
same service has a varying value when rendered to
different localities. Local discriminations neces-
sarily result from the application of the value
principle. If they are within its application they
are just; but they may go beyond and be unjust.
Some discriminations, therefore, may not be wholly
just; some are wholly unjust. The value principle
draws the line between just and unjust discrimina-
tions. But all discriminations affect rates, and we
cannot fairly consider those on the one side of the
line without examining those on the other. Show-
ing how rates should not be made shows how rates
should be made.

First let us see what a rate discrimination is.
Broadly speaking it is an inequality in charges.
More particularly it is a difference in Nature and
charges for transporting (i) an equal {SSfmi-"^
quantity of (2) like articles in (3) the same nations,
manner for (4) an equal distance.

An inequality in charges for similar services may
be justified by different circumstances and conditions



90 AMERICAN RAILROAD RATES

— a. just discrimination. It may be without any
reasonable basis and the result of favor — an unjust
discrimination.

Discrimination between commodities results from
classification when like articles are placed in differ-
ent classes. Classification is not discrimination when
it affects unlike commodities. Whether an unjust
or just discrimination between similar commodities
is produced by classification depends upon whether
the differences are arbitrary or are based upon con-
siderations of cost, risk, or value. The value of the
service is the controlling factor; and, as already
shown, classification upon the basis of value, modi-
fied by the elements of cost and risk, is reasonable
and proper, and does not constitute unjust discrim-
ination, or discrimination at all unless it affect
similar articles.*

Discrimination between localities is the charging
of higher rates for transporting the same article an
equal distance; or the same rate for a lesser dis-
tance. Local discriminations are unjust when not
justified by different circumstances or conditions.
They are just when the advantages of one place

1 Differences between commodities as involved in classification have
been fully considered. Unjust discriminations e. g. when goods of
equal value and involving the same cost and risk to move are placed in
different classes, do not require separate discussion. The principles
governing unjust discriminations between places and persons are appli-
cable to them, and the Interstate Commerce Act (sec. 3) prohibits the
giving of any undue advantage to "any particular description of
traffic."



DISCRIMINATION 91

over another produce conditions which render dis-
criminations necessary in order to obtain traffic.

Discriminations between persons — preferential
rates — stand upon an entirely different basis from
local discriminations. They can be defended upon
no theory of rates. The value, cost, and risk of the
same service is the same without regard to the
person for whom it is rendered. Personal discrim-
inations are unjust. They work, in the end, prej-
udicially to the railroad ; drive the small shipper
out of business, and injure the whole community.

From these principles we may draw these con-
clusions with respect to the justness of local and
personal discriminations :

(i) A discrimination in charges Is unjust when the
same service is rendered to different localities and the
circumstances and conditions do not warrant it.

(2) A discrimination in charges Is just when the
same service Is rendered to different localities and
the circumstances and conditions warrant it.

(3) A discrimination In charges Is unjust when
the same service Is rendered to different persons.

But before examining In detail the forms dis-
criminations take let us see how they work. We
can best do this by comparing them with their
antitheses — equal charges.

Equal rates are more to be desired than low rates.
Cost of transportation Is, as a rule, of relatively small
importance. A hundred factors affect the price of a
loaf of bread more than the expense of carrying



92 AMERICAN RAILROAD RATES

the wheat to market. Discriminations — differences
in charges without corresponding differences in con-
_. . . ditions — are, on the other hand, real griev-

Discrimin- , ' o

ations and ances. If all the shippers of the wheat

equal rates. , , n i i •

pay the same rate they can all do busmess.
If the rate be raised the consumer pays a little more
for his bread. If it be reduced the consumer in
theory pays less. In practice the middleman usually
takes the benefit of the reduction. But if the rate
be reduced to some shippers and not to others, those
less favored cannot stand the competition. A slight
difference may be just enough to drive them out of
business. Similarly, a city may, on account of its
location, enjoy low rates, but if its rival obtain still
lower the former place will complain, — and with
reason, if the difference be not based upon different
conditions. The ground of complaint will not be
that the rates of one place are too high, but that
the rates of the other place are too low.

It cannot be too distinctly borne in mind that
many persons in complaining of unreasonable rates
actually intend to charge unequal treatment. As
said by an English Parliamentary committee, " they
really mean not that the rates they pay themselves
are too high, but that the rates others pay are too
ow.

And now let us look at discriminations in detail.

Local discriminations, as we have seen, result from
the application of the principle of value in rate mak-
ing. The same service may have a different value



DISCRIMINATION g^

when rendered to different localities. When com-
petition makes local discriminations necessary they
are justified by the value principle. But

, •; , . . .■' . , . r ^ Local dis-

local discriminations which are not war- crimina-
ranted by this principle, or which go
further than it requires, are unjust.

The railroad is not indispensable to the com-
munity having the benefit of natural transportation.
The locality having water communication will not
pay more to the railroad for a service not requiring
great speed than the water carrier charges. The
traffic will not bear a greater rate. The railroad can
only obtain the traffic of such a community by
meeting the charges for water transportation, how-
ever low they may be. A discrimination in its
favor merely recognizes the discrimination of nature.
Similarly, a locality having more than one railroad
will give its business to the road making the cheap-
est rate. The value of the service to the shipper
cannot exceed that rate. A railroad must meet
the charges of its competitors in order to obtain
traffic.

The railroad is indispensable to the inland com-
munity which has but one. The service offered by
the railroad is of more value to the shipper at such
a place than where railroad and water meet. It is
likewise of more value than to the shipper who has
the choice of roads. When there are two railroads
neither one is indispensable. The traffic of non-
competing points will bear more than the traffic at



94 AMERICAN RAILROAD RATES

competing points because the service is needed more
and is more valuable.

The consequence is that railroads usually make
their rates lower to competitive points than to inter-
mediate stations. As already shown, any rate which
pays a profit above the actual expense of earning it,
is worth getting, if no more can be obtained. A
railroad in competing for business may offer rates
which would bankrupt it if applied to its whole traf-
fic. But if the competitive traffic pay nothing above
the expense of handling it, it is not worth having.

The statement that low rates at competitive points
impose heavier burdens upon local traffic is falla-
cious. The railroad could not get the through traf-
fic at all unless it made low rates. Unless carried at
an actual loss — impossible from an economic stand-
point — it does the local traffic no harm. If it pay
any profit — although insufficient to contribute to
fixed charges — it reduces the amount necessary to
be raised from local shipments. Low rates at com-
petitive points by producing paying business not
otherwise obtainable, in the end benefit the local
traffic by enabling the railroad to reduce the rates
thereon. Moreover a reduction of through rates to
a competitive point generally benefits the surround-
ing territory. The low through rate to the distrib-
uting centre plus the local rate to the near-by
station, is often less than the regular rate to that
station, even though it be nearer the shipping point
than the distributing centre.



DISCRIMINATION ^^

Discrimination between places tends to stimulate
production at competitive centres and, necessarily,
to draw from less favored localities. Superior
means of transportation often more than offset
superior natural advantages for production. The
result is not the fault of the railroad. It arises
from the element of competition. Rates at com-
petitive and non-competitive points can only be
maintained relatively equal by the elimination of
competition.

The intermediate station seldom has a right to
complain of the existence of local discrimination,
although it may have just cause to find fault with
its extent. A railroad is often built to reach inland
points. When built it will be of the utmost benefit
to those places. But it cannot be built if it can
obtain only local traffic, although it may charge that
traffic all it will bear. It can obtain competitive
traffic only by making a low rate, and it cannot be
supported by through traffic alone. It must obtain
(i) local traffic at remunerative rates; (2) through
traffic at any rate which will show a profit above the
expense of earning it. The inland community can
only have the railroad by being discriminated against.
The value of the service to it warrants the discrimi-
nation. President Hadley makes this point very
clear by the following illustration : ^

1 Railroad Transportation .- Its History and Its Lanvs. By Arthur
Twining Hadley, p. ii6. This scholarly work, although published
before the passage of the Interstate Commerce Act and, therefore, not



^d AMERICAN RAILROAD RATES

" On the coast of Delaware a few years ago there
was a place which we shall call X, well suited for
oyster growing, but which sent very few oysters to
market because the railroad rates were so high as to
leave no margin of profit. The local oyster-growers
represented to the railroad that if the rates were
brought down to one dollar per hundred pounds
the business would become profitable and the rail-
road could be sure of regular shipments at that
price. The railroad men looked into the matter.
They found that the price of oysters in the Phila-
delphia market was such that the local oyster-men
could pay one dollar per hundred pounds to the
railroad and still have a fair profit left. If the road
tried to charge more, it would so cut down the
profit as to leave men no inducement to enter the


1 2 3 4 6 8 9 10 11 12 13 14 15 16 17

Online LibraryWalter Chadwick NoyesAmerican railroad rates → online text (page 6 of 17)