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business. That is, those oysters would bear a rate
of one dollar per hundred and no more. Further,
the railroad men found that if they could get every
day a carload, or nearly a carload, at this rate, it
would more than cover the expense of hauling an
extra car by quick train back and forth every day
with the incidental expenses of interest and repairs.
So they put the car on and were disappointed to
find that the local oyster-growers could only furnish
oysters enough to fill the car about half full. The
expense to the road of running it half full was al-
most as great as of running it full ; the income was

treating many modern questions, has never been superseded as an ex-
position of principles.



DISCRIMINATION 97

reduced one-half. They could not make up by-
raising the rates, for these were as high as the traffic
would bear. They could not increase their business
much by lowering rates. The difficulty was not
with the price but with the capacity of the local
business. It seemed as if this special service must
be abandoned.

" One possibility suggested itself. At some dis-
tance beyond X, the terminus of this railroad, was an-
other oyster-growing place, Y, which sent its oysters
to market by another route. The supply at Y was
very much greater than at X. The people at Y
were paying a dollar a hundred to send their oysters
to market. It would hardly cost twenty-five cents
to send them from Y to X. If, then, the railroad
from X to Philadelphia charged but seventy-five
cents a hundred on oysters which came from Y, it
could easily fill its car full. This was what they
did. They then had half a carload of oysters
grown at X, on which they charged a dollar, and
half a carload from Y on which they charged
seventy-five cents for exactly the same service.

" Of course, there was a grand outcry at X. Their
trade was discriminated against in the worst possible
way — so they said — and they complained to the
railroad. But the railroad men fell back on the
logic of facts. The points were as follows : i. A
whole carload at seventy-five cents would not pay
expenses of handling and moving. 2. At higher
rates than seventy-five cents they could not get a

7



98 AMERICAN RAILROAD RATES

whole carload, but only half a carload ; and half
a carload at a dollar rate (the highest charge the
article would bear) would not pay expenses. There-
fore, 3. On any uniform rate for everybody, the
road must lose money, and, 4. They would either
be compelled to take the oyster car away altogether,
or else get what they could at a dollar, and fill up
at seventy-five cents. There was no escape from
this reasoning, and the oyster-men of X chose to pay
higher rate rather than lose the service altogether."

Here the facts were so clear that the locality dis-
criminated against was brought to recognize the
necessity for the discrimination. Generally the facts
are more complicated, and the difficulty of making
clear the necessity for local discriminations greater.
But the same principles underlie the complex as the
simple case. The locality which pays a fair rate
cannot complain that another place obtains a cheaper
rate if the difference in conditions warrant it. And,
as we have seen, unless the road obtain the traffic
at Y at a cheap rate, it may not be able to take the
traffic from X at any rate which it is able to pay.

Local discriminations to the extent made neces-
sary by competition are not, as we have seen, unjust
discriminations. Discriminations between places not
induced by competition stand upon a different basis.
Rates given merely to develop business may build
up industries at favored points along the line of
road. New traffic for the road may be obtained.
But the increased business is generally at the ex-



DISCRIMINATION 99

pense of the development of the industries in the
localities which receive no aid. Unless compelled
by force of competition, a railroad has no economic
right to make rates which will put less favorably-
situated places upon its line on an equality with
communities possessing superior natural advantages.
Paternalism has no part in the business of a rail-
road. But to give low rates and build up com-
munities upon its line at the expense of places upon
other roads, is not discrimination at all, as we have
used that term.

It is only in times of unusual prosperity that
railroads have enough business to tax their facilities.
The tracks and equipment are generally

. Personal

sufficient to accommodate more freight discrimina-
than is offered. The railroad is on the ^*°"^'
lookout for additional traffic. Competition, there-
fore, exists at all places served by more than one
road, or having several means of reaching markets.
Industrial combinations have tended to confine the
heavy traffic at most centres to the output of a few
producers. Special efforts are made to obtain this
traffic. Open offers would necessarily lead to uni-
formly reduced rates and, therefore, secret conces-
sions to important shippers were, in years past, the
rule. These preferential rates were unjust discrimi-
nations.

Personal discriminations have taken a multitude
of forms, varying from direct reductions in charges
to indirect concessions for private cars or terminals.



loo AMERICAN RAILROAD RATES

The necessity for secrecy, except as a matter of
expediency, has corresponded to the state of the
law. As we shall see, before the Interstate Com-
merce Act discriminations were not prohibited, and
the direct payment of rebates was common. The
passage of this act made more complex methods
necessary, but did not stop the practice. Since the
enactment of the recent Elkins law, directed against
discriminations, preferential rates have greatly di-
minished, and are granted only in devious ways.
But the law has been only one of the causes of the
decrease.

Here are some of the methods by which personal
discriminations have been effected : ^

(i) Special contracts at reduced rates. This

^ In his statement before the Industrial Commission, Mr. George
R. Blanchard said : " Discriminations against persons result mainly
from secret rebates, which create unequal rates on direct through ship-
ments or in combinations of rates in inward and outward products, so
as to affect the through charges. In much less degree they arise from
favoritisms in terminal facilities ; quicker time in transit ; unequal or
hidden allowances in weights ; dissimilar storage periods in cars or ware-
houses ; preferences in supplying cars when the demand for them exceeds
the supply ; differences in special charges such as switching, loading, or
unloading, or in cartage allowances ; advantages alleged to be ex-
tended to enterprises in which the carriers may have interests, mainly
coal ; paying large forwarders mileages for cars so much in excess of
legal interest on the cars furnished, and repairs and depreciation, as to
be equivalent to abatements in rates ; the leasing of elevators to, or
making elevator contracts with, large handlers of grain, to their excep-
tional advantage ; the grant of undue allowances under the fictitious
guise of commissions, etc., and other minor advantages granted to
preferred patrons." (Report of Industrial Commission, Vol. IV,
p. 625. See also lb. Vol. XIX, p. 349.)



DISCRIMINATION loi

form, perhaps on account of its very directness, has
been less generally adopted than others.

(2) Payment of rebates. This was formerly the
commonest method of discriminating. Publicity in
accounts as well as more effective laws have largely
put an end to rebates. When accounts are publicly
filed it is a little difficult to put rebates in as oper-
ating expenses.

(3) Underbilling, by (a) accepting shipments at
weights known to be understated, or (b) permitting
traffic to be charged for as though carried a shorter
distance than actually moved.

(4) Shipping goods under a false classification.
Thus fine hardware may be shipped as some low
class iron product, or woollen goods as cotton. This
form of discrimination is especially hard to detect.

(5) Changing the destination in transit. Thus
goods may be shipped at a lower rate for export and
unloaded on the way.

(6) Excessive allowances to companies owning
private cars. Fruit and dressed meats are usually
shipped in refrigerator cars. The railroads seldom
own these cars as they can be used — at least for
fruit — only a small part of the year. Car compa-
nies, however, can use them advantageously in dif-
ferent parts of the country at different seasons.
The railroads, therefore, allow the car companies a
mileage on these cars, and sometimes grant them
exclusive privileges. The mileage granted is often
so excessive as to constitute an unjust discrimina-



I02 AMERICAN RAILROAD RATES

tion, especially when the company carries its own
freight ; and when the railroads agree to use the
cars of only one company the discrimination is
still more unjust.^

(7) Excessive allowances to private terminals.
The terminal road has become an important factor
in personal discriminations. A large manufacturing
establishment may own several miles of private
tracks within its yards. A railroad company is
formed to operate a railroad made up of these
tracks, all the stock of which is owned by the
manufactory. This railroad obtains a division of
the rate with the railroads which carry the output of
the factory. The division gives the little railroad
much more than its fair share, and its owner thereby
gets the rebate to obtain which it was formed.

Allowances for quantity in the shape of a reduc-
tion for carload lots is not an unjust discrimination.
As we have seen, there is a larger paying freight in
proportion to dead weight and less proportional
expense for loading, unloading, billing, and collect-
ing in the case of carload lots than in smaller ship-

1 One private car company controls a large part of the refrigerator
cars in the United States. It has a practical monopoly of the move-
ment of fruit in many parts of the country, and is largely interested in
the shipment of dressed meats and packing house products, as well as
eggs, dairy products, and vegetables. The charges of these private
car companies are said to be excessive and to have been recently
largely increased. Excessive charges by these companies, as distin-
guished from excessive allowances to them, do not constitute cases of
unjust discrimination, however much they may require governmental
regulation.



DISCRIMINATION 103

ments. But the general principle of an allowance
for quantity — a preferential rate for large shippers —
is indefensible. A merchant may charge less for
his goods at wholesale than at retail. A private
dealer may make con>cessions to obtain a large
order. But a railroad is engaged in a business
affected with a public interest, and must treat all
alike. Personal discriminations based on quan-
tity, regardless of differences in cost, are wholly
unjustifiable.

Personal discriminations necessarily tend to build
up the large producer at the expense of the small.
Energy, skill, and experience may prevail against
local discriminations, but they are of no use when
the small producer, handicapped at the outset, is
denied the same rates his large competitor obtains.
Rebates and other personal discriminations too
often have driven the small manufacturer from the
field and left it free for the corporate combination.

Under the common law, as stated by the English
courts, it was the duty of a common carrier to
afford equal facilities to all his patrons and to
exact only a reasonable charge for his

B^u ^u J^x.^ Discrimin-

ut he was not bound to treat ations at

all his customers with absolute equality. J^°vl?!"^°"

So long as he transported for every

shipper at a reasonable rate, it was held that no one

could complain if he chose to carry for some at a

lower rate than for others. He could charge more

than a fair rate to no one. He could charge less



I04 AMERICAN RAILROAD RATES

than a fair rate to any one. " It is a common
carrier's privilege to charge less than fair compensa-
tion to one person or class of persons, and others
cannot complain so long as he carries on reasonable
terms to them. Respecting preferences in rates of
compensation, his obligation is to charge no more
than a fair return in each particular transaction and,
except as thus restricted, he is free to discriminate
at his pleasure. This is the equal portion to all
which the law exacts from the common carrier in
his relations with the public." ^

Under the common law, therefore, positive dis-
criminations are prohibited. Negative discrimina-
tions are permitted. The carrier cannot grant
special facilities to one shipper in preference to an-
other ; but he may, if he please, withhold the favor
of lower rates from the one and not from the other.
When railroads came into existence they naturally
took advantage of this rule of the common law.
Their managers saw a way to obtain traffic through
favors, and discriminations began, increased, and
permeated the whole transportation business.

This rule of the common law, that if the rate
given to one shipper be reasonable in itself he has

^ Menacho 'v. Ward, 27 Fed. Rep. 532, per Wallace J.

See also Fitchburg R. Co. 'v. Gage, 12 Gray (Mass.), Rep. 399.

While the rule of the common law is undoubtedly correctly stated
in the text it has not been followed by several American courts of high
standing. In fact, at the present time it is probable that the weight of
American authority is in favor of equal charges to all persons for simi-
lar services — even in the absence of statutory provision.



DISCRIMINATION 105

no interest in the rate given to other shippers, could
only have been justifiable in the days of carriers by
wagon. It is fundamentally unsound when applied
to railroads which, unlike the early carrier, often
have a practical monopoly. The shipper does have
an interest in the rate charged other shippers. He
has a right to demand that the railroad shall afford
him the same treatment as his competitors. The
question of relative rates is often of more impor-
tance than that of absolute charges.

The injustice of the rule of the common law when
applied to railroads, and the desirability of equal rates,
induced legislation in England at an early Discrimi-
date, having for its object the prevention before^n-
of all forms of discrimination. The first ^erstate

Commerce

Statute was contained in the " Railway Act.
Clauses Consolidation Act" of 1845, which pro-
hibited common carriers from charging more to one
person than, during the same time, they charged
others for the same kind of service. Statutory and
constitutional provisions modelled after the English
Act were adopted by several of the American States.
These provisions, however, were not enforced; and if
enforced, could not have reached the discriminations
of real importance — those in interstate traffic.

Prior to 1887 Congress had enacted no law upon
the subject. The result was that there was scarcely
a pretense of maintaining rates. Concessions were
given almost as a matter of course if the business of
the shipper were at all profitable. It came to be



io6 AMERICAN RAILROAD RATES

understood that published tariffs were made only for
small shippers and those unsophisticated enough to
pay the regular rate. The established rate was the
exception rather than the rule. Shippers controlling
the largest amount of business received the lowest
rate, although advantageous concessions were often
obtained by those upon the "inside."^

The result was often unsatisfactory even to those
who obtained concessions, for they could never be
certain that their competitors did not receive still
better terms. It was most unfortunate from the
point of view of the public, because the reduced
rates were obtained by those who needed them least.
Monopolies were so fostered and built up by re-
bates that they often became strong enough to
control the railroads.

The primary object of the " Act to Regulate Com-
merce " was to prevent unjust discriminations in
, , , , interstate commerce. Discriminations had

Interstate

Commerce been SO gross and prevalent that public

Act and . ^. . n- j • j j

Discrimi- Sentiment had crystallized into a demand
na ions ^^^ their abolition by the only body capa-
ble of effective action — Congress. The report of
the Cullom committee in 1886 brought matters to a
head. Congress, after several disagreements between
the Senate and the House, adopted the Interstate
Commerce Act in February, 1887.

The second section of the Act is directed against
unjust personal discriminations, and is modelled

^ Report of Senate Committee of 1885.



DISCRIMINATION 107

upon the section known as the " Equality Clause " in
the English " Railway Clauses Consolidation Act,"
already referred to. It reads as follows: "If any
common carrier subject to the provisions of this act
shall, directly or indirectly, by any special rate,
rebate, drawback, or other device, charge, demand,
collect, or receive from any person or persons a
greater or less compensation for any service rendered,
or to be rendered, in the transportation of passengers
or property, subject to the provisions of this act, than
it charges, demands, collects, or receives from any
other person or persons for doing for him or them
a like and contemporaneous service in the transpor-
tation of a like kind of traffic under substantially
similar circumstances and conditions, such common
carrier shall be deemed guilty of unjust discrimina-
tion, which is hereby prohibited and declared to be
unlawful."

The third section of the Act is aimed generally at
unjust discriminations against persons, localities, or
commodities. It is modelled upon the second section
of the English Act " for the better regulation of
traffic on railways," passed in 1854, and the eleventh
section of the Act of 1873 amendatory thereof. It
provides as follows : " It shall be unlawful for any
common carrier subject to the provisions of this act
to make or give any undue or unreasonable prefer-
ence or advantage to any particular person, com-
pany, firm, corporation, or locality, or any particular
description of traffic, in any respect whatsoever, or



io8 AMERICAN RAILROAD RATES

to subject any particular person, company, firm,
corporation or locality, or any particular description
of traffic, to any undue or unreasonable prejudice or
disadvantage in any respect whatsoever."

The Act further provides for the recovery of the
damages sustained by any person through its viola-
tion either by proceedings before the Commission
or by action in a federal court. It also makes the
officers and agents of offending railroad companies
liable to criminal prosecution.^

The provisions of the Interstate Commerce Act
against discriminations refer only to those which are
uniust and unreasonable.^

Construe- •'

tion of In- Whether there has been an unjust
Commerce discrimination in violation of the second
^^' section of the Act, or whether an undue

preference has existed contrary to the third section,
are questions of fact and not of law. There is
nothing in the Act which defines the terms " undue,"
" unreasonable," or " unjust."^

The purpose of the second section is to enforce
equality between shippers, and it prohibits any rebate
or other device by which two shippers, shipping over

^ This has been changed by the Elkins law of 1903, which in
effect, though not in form, is an amendment of the Interstate Com-
merce Act — the only important amendment since its passage. The
Elkins law will be considered later.

2 Interstate Commerce Commission 'V. Baltimore etc. R. Co. 145
U. S. Rep. 276.

2 Texas etc. R. Co. f. Interstate Commerce Commission, 162
U. S. Rep. 219.



DISCRIMINATION 109

the same line, the same distance, under the same
circumstances, are compelled to pay different charges.
The phrase " under substantially similar circum-
stances and conditions," as used in this section, re-
fers to the circumstances of carriage, and does not
include competition between rival routes/ The
fact that competition may make concessions neces-
sary to obtain certain traffic does not justify personal
discriminations.

The prohibition of the third section against any
undue or unreasonable preference in favor of any
person or locality is directed against unjust discrim-
inations arising from the voluntary and wrongful
acts of the carrier and not from natural causes. The
existence of competition with other routes is a mat-
ter beyond the control of the carrier, and a pref-
erence between localities induced by substantial
competition is not unlawful.^

Even in the case of traffic originating in foreign
ports competition affecting rates must be considered
in determining whether lower rates than are charged
for domestic traffic, but which are necessary to ob-
tain foreign freights, are undue or unjust. This is

1 Interstate Commerce Commission 'v. Alabama Midland R. Co.
168 U. S. Rep. 145. Wight 'f. United States, 167 U. S. Rep. 512.

We shall later see that the same phrase in the fourth section — the
long and short haul clause — has been given a much broader meaning.
The different objects of the two sections justify the different meanings,

2 East Tennessee etc. R. Co. 'v. Interstate Commerce Commis-
sion, 181 U. S. Rep. 18 ; Interstate Commerce Commission i;.
Alabama Midland R. Co. 168 U. S. Rep. 144.; Interstate Com-
merce Commission


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Online LibraryWalter Chadwick NoyesAmerican railroad rates → online text (page 7 of 17)