Chapter IX: Freight Classification315 (1)

Importance and nature of classification
described, 300.--Classifications and tariffs
distinguished, as a means of changing rates, 301.--The
three classification committees, 304.--Wide
differences between them illustrated, 305.--Historical
development, 306.--Increase in items
enumerated, 309.--Growing distinction between carload
and less-than-carload rates, 310.--Great volume of
elaborate rules and descriptions, 312.--Theoretical basis
of classification, 314.--Cost of service _v._ value of
service, 315.--Practically, classification based upon
rule of thumb, 319.--The "spread" in classification
between commodities, 319.--Similarly as between
places, 320.--Commodity rates described, 322.--Natural in
undeveloped conditions, 323.--Various sorts of commodity
rates, 324.--The problem of carload ratings, 325.--Carloads
theoretically considered, 326.--Effect upon commercial
competition, 327.--New England milk rates, 329.--Mixed
carloads, 331.--Minimum carload rates, 322.--Importance
of car capacity, 334.--Market capacity and minimum
carloads, 336.

Uniform classification for the United States, 337.--Revival
of interest since 1906, 339.--Overlapping and
conflicting jurisdictions, 340.--Confusion and
discrimination, 341.--Anomalies and conflicts
illustrated, 342.--Two main obstacles to
uniform classification, 345.--Reflection of
local trade conditions, 345.--Compromise not
satisfactory, 346.--Classifications and distance tariffs
interlock, 347.--General conclusions, 351.

OFFICIAL (Trunk Line)
A Subject to
Uniform Bill
of Lading
Conditions.
L.C.L. C.L.
1 Academy or Artists'
Board, in cases
(C. L. min, weight,
36,000 lbs.) 2 5
2 Acetone, in iron drums 3 5
3 ACIDS:

* * * * *

4 Acetic, liquid:
In carboys, boxed
(C. L., min. weight
24,000 lbs.)
(subject to Rule
27 and Note 2) 1 5
In bbls. or iron
drums (C. L., min.
weight 36,000
lbs.)-- 3 5
In tank cars (see
Note 1) -- 5
5 Boracic, in bags,
boxes, bbls. or
casks (C. L., min.
weight 36,000
lbs.) 3 5

* * * * *

7 AGRICULTURAL IMPLEMENTS
AND MACHINES:
8 Agricultural Implements
and Machines, N. O. S.:
S. U D1 --
K. D. flat 1 --
Min. weight 24,000
lbs. (subject
to Rule 27) -- 5
9 Axes or Hooks, Bush:
In bundles 1 --
In boxes -- 3
Min. weight 24,000
lbs. (subject
to Rule 27) -- 5

* * * * *

23 ZINC:

24 Pig or Slab (C.L., min.
weight 36,000 lbs.) 4 6
25 Plates (not Engravers'
Plates) boxed (C. L.
min. weight 36,000 lbs.) 4 5
26 Scrap:
In bags 2 --
In bales 3 --
In boxes, kegs,
bbls. or casks
(see Note) 4 --
Min. weight
36,000 lbs. 6 --

* * * * *

34 ZINC, SULPHATE OF:
In boxes or kegs 2 --
In bbls. (C. L., min.
weight 36,000 lbs.) 4 5
35 Zylonite Goods,
in packages 1 --

* * * * *

WESTERN
A C.L.
1 ADVERTISING MATTER }
printed, N. O. S. }
(exclusive of signs and }
show cards), boxed or }
in bundles prepaid (not }
otherwise specified) 1}
2 Advertising Matter }
consisting of Almanacs, }
Circulars, and Pamphlets, }
for advertising purposes }
only and so stated on }
shipping ticket and bill } 3 Min. wt.
of lading, value not } 24,000 lbs.
exceeding 5c. per lb. }
and so receipted for, in }
bundles or boxes prepaid }
or guaranteed 2}
3 Chinese, Japanese and }
Palm-leaf Fans, with }
advertisements printed }
on the face, and }
Catalogues, boxed or in }
bundles, prepaid 1}
4 Advertising racks (sheet
iron) nested solid,
boxed or crated, min.
C. L. wt. 30,000 lbs. 2 4

* * * * *

6 AGRICULTURAL IMPLEMENTS:
7 Except Hand:
8 Barrel Carts: }
9 Set up, on wheels 1-1/2}
10 K. D. flat 1}
11 Bean Pickers, }
S. U. crated 1-1/2}
12 Beet Harvesters: } A
13 Set up 1} Min.
14 K. D., in bundles 2} wt.
15 K. D., boxed or crated 3} 24,000
16 Boll Weevil Machines K.D. } lbs.
flat 3}
17 Blue Grass Strippers: }
18 S. U. D 1}
19 K. D., small parts boxed 3}

* * * * *

42 ZINC:

43 Ashes, min. C.L. wt.
40,000 lbs. 4 D
44 Batts or Wainscoting
enameled 2
45 Concentrates, in sacks,
min. wt. 40,000 lbs. C
46 Dross, min. C.L. wt.
40,000 lbs. 4 D
47 Flue dust, min. C. L. wt.
40,000 lbs. 4 D
} 5
48 Pigs or slabs 4} min. wt.
49 Sheet, in casks 4} 36,000
} lbs.
50 Shavings, min. C. L. wt.
36,000 lbs. 2 R
51 Sheets, perforated for
screens, boxed, min.
C. L. wt. 36,000 lbs. 4 5
52 Sheet or roll, not packed 1
53 Strips (for weather
strips), boxed or crated 3
54 Sweepings, min. wt.
40,000 lbs. E

* * * * *

SOUTHERN
Item A. Class if
No. Released
1 Accoutrements, Military 1
2 ACIDS (Carriers's Option) viz:
3 Acetic, liquid, in bbls.,
or drums, L. C. L. 3
4 Same, C. L., min. wt.
30,000 lbs. 5
5 Carbolic, crude, in
bbls. or drums 3
6 Carbonic, liquid in
drums or tubes

* * * * *

44 AGRICULTURAL IMPLEMENTS
C. L., owners to load
and unload, viz:
45 Cleaners, Tobacco,
min. wt. 15,000 lbs. 3
46 Fodder Shredders and Corn
Huskers, min. wt. 12,000 lbs. 4
47 Fodder Shredders and Corn
Huskers, in mixed C. L., with
other agricultural implements,
min. wt. 20,000 lbs. 6
48 Harvesters and Pickers,
Cotton, min. 15,000 lbs. 3

* * * * *

14 ZINC, viz.:

15 In boxes, casks, sheets
or rolls 4
16 In blocks or pigs,
L. C. L. 5
17 Same, C. L., min. wt.
30,000 lbs. 6
18 Scrap, packed 5

19 ZINC, CHLORIDE OF, viz.:

20 In boxes, or in glass jugs,
or carboys, packed,
L. C. L. 1
21 In kegs, or bbls.,
L. C. L. 4
22 Same, packed, or in tank
cars, C. L. (see
General Rule 3) 6
23 Zinc Ashes or Residue,
L. C. L. 4
24 Same, C. L. 6
25 Zinc Dust and Zinc Flue
Dust; same as Paints.
26 Zinc Oxide 5
27 Zinc Paints; same as Paints.
28 Zinc, Sulphate of,
in boxes 1
29 Same, in kegs, bbls. or
drums 4
30 Zincs, Battery, in
crates, boxes, or
bbls., L. C. L. 3
31 Same, C. L. 6

Imagine the Encyclopædia Britannica, a Chicago mail-order catalogue and a United States protective tariff law blended in a single volume, and you have a freight classification as it exists in the United States at the present time! A few selections from the first and last items of such a document are reproduced on the preceding pages. They give some idea of the amazing scope of trade. Such a classification is, first of all, a list of every possible commodity which may move by rail, from Academy or Artist's Board and Accoutrements to Xylophones and Zylonite. In this list one finds Algarovilla, Bagasse, "Pie Crust, Prepared"; Artificial Hams, Cattle Tails and Wombat Skins; Wings, Crutches, Cradles, Baby Jumpers and all; together with Shoo Flies and Grave Vaults. Every thing above, on, or under the earth will be found listed in such a volume. To grade justly all these commodities is obviously a task of the utmost nicety. A few of the delicate questions which have puzzled the Interstate Commerce Commission may give some idea of the complexity of the problem.[316] Shall cow peas pay freight as "vegetables, N. O. S., dried or evaporated," or as "fertilizer"--being an active agent in soil regeneration? Are "iron-handled bristle shoe-blacking daubers" machinery or toilet appliances? Are patent medicines distinguishable, for purposes of transportation, from other alcoholic beverages used as tonics? What is the difference, as regards rail carriage, between a percolator and an everyday coffee pot? Are Grandpa's Wonder Soap and Pearline--in the light of the claims put forth by manufacturers, suitable either for laundry or toilet purposes--to be put in different classes according to their uses or their market price? When is a boiler not a boiler? If it be used for heating purposes rather than steam generation, why is it not a stove? What is the difference between raisins and other dried fruits, unless perchance the carrier has not yet established one industry while another is already firmly rooted and safe against competition?

The classification of all these articles is a factor of primary importance in the making of freight rates both from a public and private point of view. Attention has been directed of late to its significance and importance to the private shipper, by reason of the use made of it in the advances of freight rates which have taken place throughout the country within the past decade. Its public importance has not been fully appreciated until recently as affecting the general level of railway charges. So little was its significance understood, that supervision and control of classification were not apparently contemplated by the original Act to Regulate Commerce of 1887. The anomaly existed for many years, therefore, of a grant of power intended to regulate freight rates, which, at the same time, omitted provision for control over a fundamentally important element in their make-up. The Interstate Commerce Commission, however, assumed jurisdiction over the matter: and for more than twenty years, despite doubts expressed by the Department of Justice as to its legality, passed upon complaints as to unreasonable classification without protest even from the carriers themselves. Control over it has now been assured beyond possibility of dispute by the specific provisions of the Hepburn Act of 1910.

The freight rate upon a particular commodity between any given points is compounded of two separate and distinct factors: one having to do with the nature of the haul, the other with the nature of the goods themselves. Two distinct publications must be consulted in order to determine the actual charge. Although both of them usually bear the name of a railway and are issued over its signature, they emanate, nevertheless, from entirely different sources. The first of these is known as the Freight Tariff. It specifies rates in cents per hundred pounds for a number of different classes of freight, numerically designated, between all the places upon each line or its connections. Thus the tariff of the New York Central & Hudson River Railroad gives rates per hundred pounds from New York to several hundred stations, for first, second, third, etc., classes. This freight tariff, however, contains no mention whatever of commodities by name. The second publication which must be consulted supplies this defect. This is known as the Classification. Its function is to group all articles more or less alike in character, so far as they affect transportation cost, or are affected in value by carriage from place to place. These groups correspond to the several numerical classes already named in the freight tariff. Thus dry goods or boots and shoes are designated as first class. Turning back to the freight tariff, the rate from New York, for example, to any particular place desired, for such first-class freight, is then found in cents per hundred pounds. It thus appears, as has been said, that a freight rate is made up of two distinct elements equal in importance. The first is the charge corresponding to the distance; the other is the charge as determined by the character of the goods. Consequently, a variation in either one of the two would result in changing the final rate as compounded.[317]

A concrete illustration or two may emphasize the commercial importance of classification. So far as it may be used to effect an increase of rates, the following case is typical, as given by a Boston manufacturer, in evidence before the Senate Committee on Interstate Commerce in 1905:

"From July 15, 1889, to January 1, of this year, the classification (of carbon black, basis of printers' ink) continued to be once and a half first class in less-than-carload lots, third class in carload lots, approximately twice the freight required between 1887 and 1889. Meanwhile, the price had declined.... On January 1 the classification was again raised, to class 2, rule 25, an increase of about ten per cent, in carload lots. Numerous efforts have been made by myself and others to have this commodity classified where it belongs, as dry color, but the only result has been the reverse of what we desired; and the industry has been and is in a somewhat precarious condition, as we have contracted for millions of pounds of black at prices fixed at the point of delivery, and had no notice of the raise in freight rate until subsequent to its going into operation."[318]

The Spokane Chamber of Commerce, in these same Senate Committee hearings, gave an illustration of the use of classification to bring about a change of rates without modifying the individual railway tariff. "The Pacific Coast Pipe Company started to make wired wooden pipe in the spring of 1900.... There was at that time but one factory of the kind on the North Pacific coast, located at Seattle.... The Seattle factory, backed by the big lumber firms on the coast, finding a serious competitor in the Spokane field, got the railways to put manufactured pipe under the lumber classification, thus reducing the rate from Seattle to Spokane from forty-six to twenty cents per 100 pounds.... The Spokane factory at once filed a vigorous protest, with the result that the railways put back the rate from Seattle to Spokane to forty-six cents, but established a maximum rate of fifty cents for Seattle pipe, which, of course, shut off all territory east of Spokane from the Spokane factory.... The remnant of the Spokane factory ... has been compelled to shut down, and the entire plant is being removed to Ballard." Whether these facts are exactly as thus informally stated or not, is by the way. If not done at this time, it is certain that similar manipulation of classification rules often enters into commercial competition.[319]

Freight tariffs and classifications are as distinct and independent in source as they are in nature. Tariffs are issued by each railway, by and for itself alone and upon its sole authority. Classifications, on the other hand, do not originate with particular railways at all; but are issued for them by coöperative bodies, known as classification committees. These committees are composed of representatives from all the carriers operating within certain designated territories. In other words, the United States is apportioned among a number of committees, to each of which is delegated by the carriers concerned, the power over classification; that is to say, the right to assign every commodity which may be shipped or received to any particular group of freight ratings. This delegation of authority is always subject, however, to the right of filing whatever exceptions to the classification any railway may choose independently to put in force. These exception sheets contain the so-called commodity tariffs, to be subsequently described, which stand out in sharp relief against the so-called class rates. Such exceptions are independently filed by each railway at Washington and do not generally form integral parts of the volume issued by the classification committee, except in the southern states. New editions of these classifications are published from time to time as called for by additions or amendments, the latest, of course, superseding all earlier ones. Thirty-seven such issues have already appeared in series in trunk line and southern territory, while fifty have been put forth in western territory, since the practice was standardized in 1888. At the present time freight classification for all the railways of the United States is performed mainly by three committees, known as the Official, the Southern and the Western, with headquarters, respectively, in New York, Atlanta and Chicago. Each of these three committees has jurisdiction over a particular territory. Thus the Official Classification prevails east of Chicago and north of the Ohio and the Potomac; the Southern, over the remaining part of the country east of the Mississippi; and the Western, throughout the rest of the United States. In addition to these three primary classifications there is also another, issued by the Transcontinental Freight Bureau, with headquarters at Chicago. This committee has supervision over classification upon the Pacific coast business. A number of the states also, notably Illinois, Iowa and most of the southwestern commonwealths, promulgate state classifications having relation, however, only to local business within their several jurisdictions. These are prescribed by law and represent modifications to suit peculiar exigencies or to foster local trade ambitions. There are also a number of other coöperative local railway committees, each dealing with the special concerns of its own territory, and representing the joint interests of the railways therein included to all the world outside. Thus, for instance, Southern Classification territory is subdivided into local units, known, respectively, as the Southeastern Mississippi Valley Association, the Southeastern Freight Association, and the Associated Railways of Virginia and the Carolinas.[320] But for all practical purposes, so far as the larger problems of classification are concerned, our attention may be concentrated upon the three principal committees above mentioned.

Some impression of the wide differences between these three main classifications in different parts of the country may be derived from the set of excerpts at the head of this chapter. In three parallel columns the alpha and omega of each are reproduced, together with bits of one of the most complicated schedules, viz., that dealing with agricultural implements. Even where the same commodities occur in each classification, the diversity in description, mode of packing, carload and other requirements, renders any direct comparison almost impossible. The mere fact that the class assignment, as shown at the right in each column, happens to be the same, as in the case of acetic acid in barrels or drums which moves both in Official and Southern Classification territory, third class in less-than-carload lots (_L. C. L._) and fifth class in carloads (_C. L._), shows nothing at all as far as equality of charges is concerned. For, as has been said, this is only half the statement of the rate. The spread between charges for different classes yet remains to be determined. The actual relativity between third-class and fifth-class rates, moreover, may be very different in the two places. In the New York Board of Trade case[321] this point was well exemplified. Comparative conditions as to rates in the three main sections of the country, as they then existed, were as follows:

RATES IN CENTS PER HUNDREDWEIGHT

Canned
Class goods
------ -----------
Miles I. IV. L.C.L. C.L.
New York to Chicago (Official class'n) 912 75 35 65 30
Chicago to Omaha (West'n class'n) 490 75 30 28.5 25
Louisville to Selma (South'n class'n) 490 98 63 63 52

On the trunk lines fourth-class rates were thus less than half those charged for the first class; in the West they were even lower, relatively; while in the South fourth-class rates were about two-thirds as high as the first-class rates. These differences in the spread between classes, as will be seen, interlocking as they do with a multitude of other considerations, are a serious bar to any partial modification in the direction of uniformity for the United States as a whole. Only by consideration of every factor entering into any given rate may comparisons safely be entertained.

* * * * *

Historically considered, the development of freight classification has been much the same in England and the United States. Early railway practice was an outgrowth of the tariffs in force upon canals and toll roads.[322] In America, freight charges were at the outset often arbitrarily fixed by the state legislatures, as conditions precedent to the grant of charter. In many instances they were based upon the customary performance by wagon, distinguishing between light-weight articles paying by the cubic foot, and heavy ones for which the tariff was based upon weight. Thus in 1827 the charter of the South Carolina Railroad established its tolls at one half the usual wagon charge. The Southern Pacific in local rates on ore into San Francisco followed along just below the charges by ox cart. The freight was proportioned also according to the length of haul by an arbitrary mileage rate. It soon developed, however, that railway rates were unique in the fact that not only was there a great increase in the volume of trade, but also in the diversity of articles offered for transportations as well. Far more elaborate classifications were soon seen to be necessary.

The South Carolina Railroad tariff of 1855, described by McPherson,[323] exemplified the primitive traffic conditions then prevalent. Goods were divided into four classes. The first consisted of articles of light weight or high value, including, for example, such incongruities as bonnets, tea, and pianos. The remaining three classes paid by weight with a descending scale of charges. It is difficult to explain why coffee and sugar should be rated lower than stoves and feathers; or why dry hides and rice should be charged a higher rate than cotton yarn and bacon; but it is evident that a rough classification according to weight, value, use and cost of service was being attempted. There was in addition a considerable collection of special rates on chosen commodities according to the method of packing them, whether by barrel, bale or case. And there were also what corresponded to modern commodity rates upon cordwood, lumber, bricks, and similar goods. This tariff, though primitive, including no less than three hundred items, was far more elaborate than those commonly used at the time. The Louisville & Nashville originally distinguished but three classes: one by bulk, another by weight and a third applicable to live stock. Poultry was rated by the dozen long after the Civil War, with a higher charge for Muscovy than for ordinary ducks. The traffic manager of the Chicago, Milwaukee & St. Paul testified before the Elkins committee in 1905, that the classification in Illinois in his youth was printed on the back of a bill of lading no greater than the size of an ordinary sheet of letter paper, and the page was not full.

From these modest beginnings the development of classification in the United States was rapid, responding to the ever-increasing intensity of competition and the spread of markets, particularly after 1875. By the middle of the eighties most of the large railways were working under six or eight different classifications. It began to be apparent that some check must be placed upon such increasing complexity. For conditions were wellnigh intolerable, with one set of rules for Illinois, and yet another west of Buffalo, divided into eastbound and westbound sections, with still a third on westward shipments local to territory between Chicago and the Missouri river. The first attempt at a systematic scheme was made in 1882, but the agreements then made proved unstable. By 1887 conditions had become insupportable, so great was the number and the diversity of the classifications throughout the country.[324] Some applied to local business only, and were peculiar to each road. Some applied only to westbound business, others to eastbound traffic. The traffic manager of the New York Central & Hudson River testified before the Interstate Commerce Commission that there were at one time 138 distinct classifications in trunk line territory alone. The case of the Wabash in 1883 was typical. A shipper desiring to determine freight rates over that road might be compelled to consult a classification for the middle and western states in six classes; one for the Southern Railway & Steamship Association territory in eighteen classes; one for Mississippi valley business in five classes; one known as the Revised Western in nine classes; the Trunk Line East in thirteen classes; the Trunk Line West in five classes; a classification for Texas points in eight classes; and two for the Pacific coast, according to direction, in eight and nine classes, respectively. This situation, rendering it almost impossible for any shipper to determine in advance what his freight rates were going to be, as well as what his competitor was paying, early impressed itself upon the Interstate Commerce Commission. And it was doubtless due in part to its initiative that classifications were shaken down into substantially their present general form in 1888.

NUMBER OF RATINGS IN 1909[325]

Less than Carload Carload
Southern Classification 3,503 703
Western Classification 5,729 1,690
Official Classification 5,852 4,235

The natural growth of classification in a rapidly developing country like the United States, has manifested itself in three distinct ways: there has been a steady increase in the number of items of freight separately enumerated; a growing distinction in rates between carload and less-than-carload shipments; and a steadily enlarging volume of the most elaborate special rules and descriptions. As for the mere increase in distinct commodities enumerated, in the East in 1886 there had come to be about 1,000. The first Official Classification in the following year increased to 2,800 items; and by 1893, in the eleventh issue, there were twice that number. The latest Official Classification, No. 34 in 1909, contained approximately 6,000 separate enumerations--not many more, in fact, than fifteen years earlier. The point of saturation, or else the limit of human ingenuity, seems to have been about reached some years ago. The same thing was true of the Western Classification. In 1893 this contained 3,658 items, representing an increase of about 2,000 over the number of commodities classified by name in 1886. By 1909, as the above figures show, it comprehended 5,729, almost as many separate items, in fact, for less-than-carload lots as were recognized in trunk line territory. Only in carload ratings is the Western Classification less extensive. The Southern Classification reflected somewhat simpler trade conditions prevalent south of the Ohio river, by the relatively smaller number of articles enumerated; but it should be added that the number of exceptions--filling no less than 160 pages in the latest issue--is indicative throughout of a lesser degree of standardization than is found elsewhere. Perhaps the most striking feature of the southern system is the very small proportion of carload rates. But it should be noted in this connection that the basing point system afforded preference to market towns in any event; so that jobbers in such places did not need wholesale rates to the same degree. This phase of the matter will be elsewhere discussed.[326]

The second natural tendency in the development of classification above mentioned, is an increase in the number of separate ratings for large and small shipments. The normal growth of trade ought to make possible a steady increase in shipments by the carload, rather than by the box, barrel, or case; and the increase in the number of separate carload ratings--always, of course, at a reduced rate by comparison with less-than-carload lots--conforms territorially to the growth in the volume of trade. In 1877, even in trunk line territory, only twenty-four commodities were accorded a special carload rate.[327] By 1880 the number had increased to 50, and seven years later to 160. Just before the passage of the Act to Regulate Commerce there was no distinction between carload and small lots in eighty-five per cent. of the articles enumerated. A sudden change supervened in the first Official Classification issued after the Federal Act. The number of carload ratings was suddenly raised to 900, provoking a storm of protest from eastern shippers who resented this advantage accorded to jobbers in the West and South, because it enabled the latter to buy their supplies directly at wholesale.

The dispute between dealers in the older and newer commercial centres came to a head in the so-called New York Board of Trade and Transportation case of 1888, elsewhere discussed. Yet notwithstanding this protest of jobbers and manufacturers in eastern trade centres, who insisted that they should be permitted to compete on even terms with provincial jobbers by making their shipments direct from New York or Boston in small lots as cheaply as the local jobber could buy them by the carload, the number of separate carload ratings steadily augmented year after year. By 1893 more than half of the articles enumerated in the Official Classification were allowed a lower rate for large shipments. Present conditions are set forth by the statistics in the preceding paragraph. From these it appears that in trunk line territory nearly three-fourths of the commodities now enjoy carload ratings; while in the South, on the other hand, only about one-fifth of them make such distinction between carload and less-than-carload lots.[328] One reason is evident; namely, that throughout a large part of the South few jobbers command a business of sufficient magnitude to make use of carload shipments. It is but recently, to take a specific illustration, that business has developed in volume sufficient to permit of the shipment of fly paper in carload lots. Until such time no distinction between large and small shipments could well be made.

Conditions in the West, according to these figures, are intermediate between those in the East and the South. On the other hand, transcontinental business, as carried on in competition with ocean steamers, is almost entirely confined to shipment by the carload. The Transcontinental Classification is unique, therefore, in offering but very few opportunities for shipment by package, except under specially onerous conditions.

The spread, in other words, between the two sorts of carriage operates most unfavorably by contrast upon the intermountain centres. Denver, for example, under the Western Classification enjoys no carload rates, while competitors at San Francisco have a large number.[329]

A much more elaborate code of rules and regulations having reference to local practices and conditions is the third accompaniment of the growth of trade.[330] Prior to 1887, and again before the recent revival of interest in uniform classification, conditions had become intolerable in this regard. All sorts of details, covering relatively unimportant differences in conditions of carriage, bill of lading contracts, marking and packing, led to constant confusion and annoyance, especially in cases of shipment from one classification territory to another. An eastern shipper of iron bolts, having in mind that a gunny sack is equivalent to a box or barrel in the East, orders a small shipment in a bag to a far western point. He finds that bolts in bags under the rules of the Western Classification, are specially enumerated only for carload lots, and that he must pay a rate one class higher for such shipment than if contained in a barrel, box or keg. This difference in classification may more than absorb his profit. Recent evidence before the Interstate Commerce Commission,[331] contained a striking illustration of such local diversity in rules and descriptions as applied to furniture.

"_Western class_: 'Bank, store, saloon and office furniture,
consisting of arm rails, back bar mirrors, bottle cases,
chairs, counter-fittings, desk, foot rails, metal brackets for
arm and foot rails, refrigerators, tables and work boards.
Note--Door, window and bar screens, partitions, prescription
cases, patent medicine cases, show cases, wall-cases,
wainscoting, office railing and wooden mantels may be shipped
with bank, store, saloon or office furniture in mixed carloads
at third-class, minimum weight 12,000 lbs.

"There is no such provision as this in the Official
Classification. On the contrary, a shipment of that kind can
only be made by figuring out the less-than-carload rate on each
article, many of which take first, double first and even three
times first ratings.

"For example, mirrors over five feet in length are classified
double first class in the official classification, while show
cases, set up, take three times first. The natural result
of this difference in classification has been to shut out
competition of eastern dealers in these articles entirely in
Western Classification territory."

Only in a customs tariff of the United States would one expect to find any such complexity as is discoverable in railway documents of this sort.

The mere interpretation of such classification rules is often difficult; especially with reference to the mode of packing. Suppose a tariff provides a certain rate on stamped metal ware in boxes, barrels or crates and, furthermore, fixes the charge fifty per cent, higher for shipment in bales, bags or bundles. If the consignment is encased in corrugated straw-board, which of the two rates applies? The difference in rates being so great, it becomes quite an item on a shipment of fifteen carloads from Buffalo to the Pacific coast.[332] Or it may be a question as to whether a crate for Colorado cantaloupes is actually of such dimensions as to come in under a specially favorable commodity rate.[333]

The growing diversification of manufactures and trade is, of course, responsible for all three of the developments above indicated. Not only the increasing refinement of commerce, but the technical nomenclature or trade jargon, necessary for the specific and accurate description of so many thousands of articles, have conspired to render these documents extremely cumbersome in the absence of a general revision and simplification. It is but natural that one item after another should be added, each bearing a particular name or being classified upon some new basis. A striking example of this increase of complexity was afforded by the cotton goods schedule in the Southern Classification. By 1900 there were upwards of thirty different names under which cotton cloth might be shipped. Great complaint was occasioned, as well as the possibility of fraud, by underclassification, etc. Most of these thirty names did not represent different values of goods, but in many instances were merely trade-marks of particular manufacturers. At the urgent request of the shippers this complicated schedule was superseded in 1900 by one comprehensive title of "cotton goods in the piece" irrespective of color, particular method of weaving or other subordinate details.

* * * * *

From the point of view of economic theory, the warrant for a differentiation of charges between various classes of commodities offered for transportation, may be considered primarily from two distinct points of view. The first is that of operation, which determines cost. The second is from the standpoint of traffic whereby the value of service, so-called, is measured. The reasonableness of making a distinction in freight rates according to the character of goods is easily apparent, as judged on the basis of cost of service. A multitude of factors enter into consideration at this point. The railway ought in self-protection to charge more for hauling a thing, if it actually costs it more in the long run to perform that service. Some of the factors which enter into this cost were well put by the Interstate Commerce Commission in 1897.[334]

"Whether commodities were crude, rough, or finished; liquid
or dry; knocked down or set up; loose or in bulk; nested or
in boxes, or otherwise packed; if vegetables, whether green
or dry, desiccated or evaporated; the market value and
shippers' representations as to their character; the cost of
service, length and direction of haul; the season and manner of
shipment; the space occupied and weight; whether in carload or
less-than-carload lots; the volume of annual shipments to be
calculated on; the sort of car required, whether flat, gondola,
box, tank, or special; whether ice or heat must be furnished;
the speed of trains necessary for perishable or otherwise rush
goods; the risk of handling, either to the goods themselves
or other property; the weights, actual and estimated; the
carrier's risk or owner's release from damage or loss."

Instances of approval of classification on the basis of such cost of operation are frequently found in the decisions of the Interstate Commerce Commission. For example, special service or equipment, as in the rapid transport of fresh vegetables and fruit from the South, justify the carriers in a specially high classification.[335] Rates on live hogs by comparison with rates on hog products, as well as on live cattle and dressed beef, have likewise been adjusted in terms of cost of carriage. A classification on hogs yielding a rate equal to two-thirds of that on hog products has been held equitably to represent the relative expense.[336] Even the indefinite element of risk has been accepted as justifying a higher classification for live stock as compared with other commodities.[337]

Classification is less easy to defend from the standpoint of the traffic manager alone, than from that of the vice-president in charge of operation. Value of service is at times difficult to understand. It is not at first sight reasonable, that of two commodities which cost the railway exactly the same amount to transport, one should be charged twice as much as the other. For example, the rate on anthracite coal is very much higher than upon soft coal; the rate upon wheat is higher than the rate upon some other foodstuffs; the rate upon fine woollen goods is very much higher than upon coarse cotton cloth, etc.[338] It has been urged frequently that any discrimination in the freight rate on the basis of difference, either in the value of the commodity itself or in the value of the service rendered, is unreasonable and unjust. The case, however, is entirely analogous to that of discrimination between a long and short haul of the same goods. The principle is perfectly defensible in both cases, and has been accepted in legal decisions as well as by economic writers for many years. It is based upon the fact, which confronts one at every turn in a discussion of railway economics, that a large proportion of the expenses of a railway is independent of the amount of traffic. These fixed expenses must be met at all cost if the road is to remain solvent. They constitute a charge upon the entire traffic of the line, and are not susceptible of apportionment to each unit of transportation. Any rate which will contribute a surplus, small or large, above the mere cost of transportation,--that is to say, above the expenses incident to this particular carriage,--and which thereby lessens by the amount of that excess the burden of the fixed charges remaining upon other traffic, is justifiable. But it is defensible only under two conditions. The first is that the goods at any higher rate will go by another route or not at all; and the second is that the effect may not be detrimental to the general course of business,--that is to say, that it is not opposed to the public welfare. Thus a long haul at a lower rate than the rate charged for a shorter haul, if it must be lower in order to secure the business, constitutes no injustice to the local shipper; for the surplus remaining above the cost of haulage of that particular increment of freight lessens thereby the charge which must be made upon local freight for meeting interest on bonds, maintenance of way, and equipment expenses, etc., all of which charges, as we have seen, go on more or less independently of the traffic. On precisely the same grounds a discrimination of freight rates in favor of the cheaper commodity or the less valuable service may be defended. Coal or sand may reasonably be carried at two and one-fourth mills per ton mile, while the road is coincidently charging three or four times as much for hauling dry goods or fine hardware. For if a quarter of a mill per ton mile can be earned above the expenses incident to hauling that sand or coal, it enables the rates on the dry goods or hardware to be maintained at a lower point than they otherwise would be. It is unnecessary to elaborate this principle further. It is everywhere accepted as valid. And it in a measure substantiates Mavor's statement that "freight rates, like rent, are rather the effect of price movements than the cause of them." When tariffs are high because prices are high, we are afforded a fair illustration of value of service as an element in rate making.

Value of service, therefore, as affording a warrant for classification, has also been recognized in a number of Interstate Commerce decisions since 1887. A relation between the grade of the charge and fluctuations in the market price of the commodity--in other words, charging what the traffic will bear--is at times discernible. It is to the interest of the public that carriers should be satisfied with relatively smaller profits from the transportation of commodities of low price which are in general demand.[339] Under these circumstances changes in price of such staple commodities as iron and steel or the lower priced grains, should be reflected in a corresponding modification of rates.[340] Akin to this is recognition of a relation in general between the value of a commodity and its classification. Where, for example, articles representing different stages of manufacture have to be graded, it is but fair that the raw material, or the partly-made product should be graded lower than the finished article.[341] Similarly, articles which may fairly be substituted for one another ought to be classified with reference to their common market value.[342] The relative value of commodities, as controlling classification, clearly governs the treatment of hard and soft coal.[343] The practical difficulty, of course, is to know where to stop in admitting such considerations. Shall "small-vein" soft coal, because it cannot compete on even terms with the "big-vein" product, be accepted for carriage on a more favored basis?[344] Some rather nice questions, both of business and public policy, would be suggested by such a precedent.

Different classification of the same commodity according to the use to which it may be put, is evidently an attempt to grade according to value rather than cost of service. Automobile parts may come in from the wheel-maker at second-class rates, but when they go out to jobbing houses they are rated three times first class.[345] A number of cases of this sort have come before the Commission. Shall cow peas, for example, be classed with corn and oats as agricultural products in one case, while according them a rating with commercial fertilizers in another, inasmuch as they may become an active agent in nitrogenizing soil?[346] More recently the Commission has declined to recognize the validity of classification on this basis. Thus brick is always to be charged the same without regard to whether it is for fire, building or paving purposes.[347] Unusually low rates for steam coal used by carriers and open only to certain shippers for this or other particular purposes, likewise have been forbidden.[348] The carriers have attempted to distinguish in grade between dried fruit and raisins. For the two industries call for relatively different protection against old-established competitors.[349]

As actually effected in practice, classification of freight seems to have been largely empirical--the result of long experience in sympathetically feeling the pulse of the business community. In the main, despite their denial of the validity of cost as an element in rate making, traffic managers and the Interstate Commerce Commission seem to have been swayed more commonly by this consideration in the make-up of schedules. Nevertheless, charging what the traffic will bear, as a principle, will suffice alone to explain many of the details of classification now in force. Rates have been adjusted so as to secure the largest amount of business possible at the highest rate compatible with that volume. In other words, traffic managers have been mainly influenced by the consideration well stated by a witness before the United States Industrial Commission: that, "a freight tariff is made as it is, not because it ought to be that, but because it must be that." The procedure of classification committees seems, in other words, to have been mainly based upon considerations of revenue, and that, too, without any very positive evidence as to details.[350] Rule-of-thumb experience, therefore, is mainly represented in classifications of the present time; that is to say, an adjustment of freight rates upon different commodities to suit the commercial conditions which have happened to prevail at any given time. All of which emphasizes still further the need of scientific revision of these most important schedules, preferably by the carriers themselves, but by public authority if commercial inertia be too powerful to be overcome.

The spread of a classification,--that is to say, the graduation of rates as between all kinds of goods, from fine silks to lime and sand, or from aeroplanes, "set up," to pig iron, "knocked down,"--is not constant. How shall this be theoretically justified? At first sight it would appear as if the relativity of charges between different things, as determined by cost or value of service, ought to remain fixed; that is to say, for example, that rates on raw hides fairly standing at one-half of the charge for shoes, ought to remain always and everywhere at this ratio. Advocates of a rigid classification prescribed by public authority seem often to assume that this could be brought about. But a moment's consideration of the nature of a tariff as it has already been described will show that this is impossible. The spread or gradation, far from being fixed, must in the nature of things ever vary from place to place with change of trade conditions. The rate on raw hides relatively to that on shoes in New England--the centre of manufacture for footwear--should be very different at Kansas City or Chicago, whence the raw hides are derived: different alone, if for no other reason than because hides, moving east, progressively add the cost of carriage the farther they go; while with shoes the augmentation of value goes on in the opposite direction, geographically. True as between commodities, the same inconstancy of ratio also holds good as between different points along a given line. The rate from New York to Durham, North Carolina, for example, on first-class freight may be fifteen per cent. above that for freight of the second class; the second class maybe twenty per cent. above that of third class for this distance, etc.; yet the divergence between these same classes for another distance, as between New York and Jacksonville, Florida, may be quite different,--twenty per cent. between first and second class, twenty-seven per cent. between second and third, and so on. This is indeed rather a difficult matter to understand.

This ever-changing spread of rates from place to place, as between different commodities and with all possible combinations of the two, may be clearly explained by reference to the diagram at page 108, showing the gradation of charges by distance for different goods. Is it not plain that the spread between commodities at any given place is indicated by taking a vertical cross section of the diagram at that point? We have already seen that the curves, rising with increase of the distance, do so by different degrees. They cross and recross, making an intricate lace work of lines, because of the fact that while cost, in general, may increase more or less proportionately to distance, competition in its ever-varying forms, plays all sorts of pranks with the rates from point to point. The rate at any station is shown by the height of the curve on the vertical line for that place. Even, however, if the curves never crossed, but rose by evenly spraying out from the point of shipment at one end of the line, as in the case of those for the three upper classes, their relative heights would constantly change with distance. But owing to the complexities of competition the onward and upward movement of the curves for particular commodities is usually much more erratic than this. Some goods, like children, "get their growth" early. They soon attain the level of all the charge they can ever bear. Others distribute their development over a much greater distance. Sometimes, as we have observed, the coal curve will be above the wheat curve; sometimes it will be below. In other words, the vagaries of these sloping lines cause the vertical cross sections, indicative of spread, to vary from point to point all along the line. Such a thing as constancy of ratio between classes or particular goods is, in the nature of transportation things, impossible. This is a matter of fundamental importance, especially in its bearing upon the proposition, soon to be considered, of substituting a single uniform classification under government authority for the present threefold system. Moreover, it demonstrates the great commercial disturbance which might ensue from a general advance of freight rates by an indiscriminate transfer of commodities from lower to higher classes, such as was attempted in 1900. Such procedure is altogether illogical, and economically as upsetting to trade as a general "horizontal" increase or reduction of a customs tariff.

* * * * *

Commodity rates as a means for enabling shippers to reach beyond their immediate territory and gain an entrance to new markets, form an entirely distinct variety of charges from those quoted in the classified tariffs. These are special rates made to suit particular contingencies,[351] although, of course, under the law they must be filed with the Interstate Commerce Commission in the same manner. Such commodity rates, however, do not apply to persons but to localities. Although granted to shippers in a particular place to build up an industry, the privilege of shipment under the same conditions is theoretically open, of course, to all others at that point. Such commodity rates naturally apply to three sets of commercial conditions: they either govern large shipments for long distances, as in the case of live stock; or, if for short distances, they are confined to commodities of the very lowest grade, such as lime, sand or paving blocks; or else they are introduced to meet special conditions, such as an irregular market or rapidly fluctuating competitive circumstances, as in the case of goods for import or export. Such special rates are almost invariably granted for carload lots alone. The reason is, naturally, that it would not be worth while to make an exception to the classified schedules for less than that amount. Moreover, it should be observed, special rates of this sort are often introduced in order to meet changeable competition, such as by steamship lines engaged in export or import business. The classified ratings change but little, and oftentimes remain the same for many years. But in all cases where fluctuating conditions have to be met, commodity rates by the carload are likely to appear. This is one reason why the transcontinental tariffs, exposed to competition either by the Cape Horn or Panama water routes, contain so large a proportion of commodity or carload ratings.[352]

Exceptional or commodity rates are also commonly found in a territory like the southern states, where manufactures are struggling to maintain a foothold. If it appear that a new industry can maintain itself in competition with already established industries elsewhere only by a concession in charges, the traffic manager may elect to grant a commodity rate until such time as the industry has been placed firmly upon its feet. The tonnage moving under commodity rates in such circumstances may be much greater than that included under the classified schedules. Attention has already been drawn to this fact, but it merits still further comment. Probably three-fourths of the business of American railways is done under such special rates. This is apparently a higher proportion than rules in foreign countries with the possible exception of England. Yet it is important to notice that the revenue obtained from such traffic is relatively much less than the tonnage, inasmuch as most commodity rates are confined to low-grade goods. Whether such exceptions to the classified tariffs are on the increase or not is open to question. The evidence tends to show that special rates granted in connection with industrial development tend to increase up to a certain point. Commodity rates, for example, are said to be much more important in the West than they were fifteen years ago.[353] But, on the other hand, industrial conditions having once become standardized and assured, the natural disposition of the railways is to substitute regular schedules for a multiplicity of special rates. The dilemma is that such a special rate once allowed, is exceedingly difficult to withdraw. An earnest attempt was made by the trunk lines in 1899 to retire a large number of these commodity rates. It then appeared that the New York Central & Hudson River Railroad had no less than 1,370 on file. Opposition naturally arose to the cancellation of these--an opposition less easily overcome because of the complication that the withdrawal of commodity rates meant practically the abolition of carload ratings. Such action, therefore, looking toward simplification of tariffs, threatened substantially to disturb all the existing commercial adjustments. Nevertheless it is encouraging to note that a distinct reduction in the number of separate and independent rates put into effect is apparent since the recent extensions of Federal authority. The following table, covering the tariffs officially filed at Washington since 1906, is proof positive of great improvement in this regard:

FREIGHT SCHEDULES FILED WITH THE INTERSTATE COMMERCE
COMMISSION

1896 131,597

1906 193,995
1907 187,041
1908 161,584
1909 129,294
1910 109,550
1911 93,821

A reduction of more than one half within five years is matter for public congratulation.[354]