Chapter IX: Freight Classification315 (2)

Special or commodity rates for the maintenance of equilibrium between competing markets fall naturally into several distinct groups.[355] In the first of these, concerning commodity rates on grain and grain products and cotton, production takes place over a vast extent of territory and the products are marketed in places widely remote from one another. The problem under such circumstances is mainly that of securing equalization through different gateways.[356] In the case of wheat it is a question first of concentration at primary markets, such as St. Paul, Kansas City, or Chicago; and thereafter of carriage by competitive routes whether by the way of the Gulf, by any of the various Atlantic seaports or by the St. Lawrence River. Commodity rates are thus determined in this first class of cases mainly with references to competition of routes. On the other hand, when production is spread over a considerable territory, but when transportation is thereafter effected along converging lines to a fairly localized centre of manufacture, the problem of equalizing conditions, competitively, by the resort to commodity rates, has mainly to do with competitive conditions at the place of production. Rates on wool to the highly localized markets of the world afford illustration of this second type of commodity rate problem.[357] Commodity rates upon fruits and vegetables to common markets from such widely separated sources of supply as Florida and California or the equilibration of conditions of production for coal or lumber from the most widely scattered sources of supply, are perhaps the most difficult of all to settle satisfactorily.

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The amount of reduction to be allowed on shipments by carload as against consignments in small lots is a nice and most perplexing problem in classification. Attention has already been directed to the great increase in distinct carload ratings which has accompanied the development of trade. As affecting the interests of shippers in different parts of the country, the question came up almost immediately after the passage of the Act to Regulate Commerce. In the so-called New York Board of Trade case,[358] complaint was entered by eastern merchants against a great increase in the number of wholesale ratings in 1888. More than five times as many commodities as before were abruptly given lower rates when shipped out of New York by the carload. Inasmuch as a very large proportion of groceries and other supplies went by box or package, this reduction accorded on carload shipments greatly benefited the jobbers all through the West and South. Under new conditions provincial middlemen could buy in carloads; and then re-distribute from local centres much more advantageously than before. The Commission, called upon to decide as to the relative rights of these two classes of jobbers, attempted to bring about an adjustment which should, in the main, conform to the existing trade conditions; and yet should take into consideration the relative cost of service in the two cases. The competitive struggle between eastern and both southern and western dealers revealed in these early proceedings, has cropped out continually in official proceedings ever since that time. In a modified form the same question came to the front in connection with the general advance of freight rates in 1900.[359] The changes at this time were twofold--not only modifications in the number of carload ratings, but also an altered differential or spread between the charges for the two sorts of shipments. The question is a vital one to all the shipping interests of the country. It is one of the most troublesome elements in the establishment of a uniform classification for the United States as a whole. For inability to standardize reasonable differences between carload and small shipments, under the widely different trade conditions and practices in various sections of the country, is an almost insuperable difficulty in the way of that reform.

The economic justice of allowing a carload shipper lower rates than one who ships in small lots is apparent, on account of the difference in the cost of such service to the railways. This has been recognized by the Interstate Commerce Commission and the courts as beyond question. Not only the amount of paying freight in relation to dead weight; but the cost of loading and unloading, of billing or collection and of adjusting damages--all of these elements of cost are noticeably less in the case of a full carload. Turning from these considerations of cost to those prescribed by what may be called traffic principles, the difficulty in arriving at a just determination may be easily appreciated. Glass battery jars in less-than-carload lots were at one time charged from New York to Atlanta, Georgia, second-class rates, namely ninety-eight cents per one hundred pounds. The same commodity when in carload shipments (not less than 20,000 pounds) was rated as fifth class; in which case the charge from New York to Atlanta became sixty cents. Here was a plain difference of thirty-eight cents per one hundred pounds--upward of sixty per cent. greater charge--to the small shipper whose business or capital was insufficient to warrant shipments to such an amount. Two results of such discrimination are possible. In the first place, the large shipper is enabled to undersell his smaller competitor and perhaps to drive him out of that class of business. This may take place as between two dealers, both located in the South and buying their supplies from New York. The second result is that under such rates it is impossible for the manufacturer or northern jobber to sell direct from New York to the retailer in the South in competition with the provincial jobber there located, who ships his goods in at the cheap carload rate and distributes them thereafter. The problem thus concerns at the same time both the small local shipper or dealer, as against a more formidable provincial competitor; and also the remote jobbers as a class against the whole group of local middlemen. In the latter case, sometimes, as in the South, the question is still further complicated by a basing point system, under which the provincial jobber re-distributes to the country stores the goods which have already been shipped in on a low carload rate.[360] And, locally, there is also the immanence in the South of water competition by sea and river to be kept in mind. Boat charges are based upon space requirements rather than weight. This introduces further important considerations in fixing the spread of charges.

The problem as it affects the manufacturer is akin to that concerning the jobber. Originally, as a matter of fact, the carload reduction was essentially a manufacturers' rating, especially for goods in which the cost of raw material formed a large part of the price of the finished product. The relations of the carload rate on the former to the less-than-carload rate on the latter, it is obvious, may readily become an important element in industrial success. It is plain enough that carload charges under such circumstances should be substantially less than those upon small consignments; but that is far from affording a satisfactory answer to the question as to the proper spread or difference in charge to be allowed between the two.

Obviously, in any representation as to the reasonableness of the discount which shall be allowed on carloads, either on the basis of cost or of traffic principles, the interests of localities are commercially pitted one against another. The New York or Chicago jobbing house desiring to sell its goods directly to the retailers throughout the West, wishes to have a relatively low rate on such small shipments as the retailers in lesser places alone can afford to purchase. Participation in this distributing business, however, is resented by the middlemen located in western centres--Omaha, Denver, Kansas City, etc.--who all insist that there should be so wide a difference between carload and less-than-carload rates that they may ship in their wholesale purchases at a low rate, and thus compete in their own territory with the manufacturer in the East or the jobber in New York who desires to sell direct.[361] Comparison of the classifications in different parts of the country reveals the influence of these local interests. The railways in Official Classification territory desire, of course, to build up the manufacturing and jobbing cities tributary to them. This can best be done by encouraging the growth of eastern jobbing centres, stimulated by as low rates for retail as for wholesale shipments. The railways in the western and southern territory, on the contrary, are obliged to consider the claims of their constituents, and to correspondingly minimize the advantages which foreign competitors of their local wholesale dealers enjoy. Another consideration must also be kept in view, namely, that carload ratings can only be accorded when business has developed a magnitude sufficient to permit shipments of that size. The growth of the volume of business in general, therefore, might be normally expected to produce an increase in the proportion of carload ratings. Experience, as we have seen, confirms this view. The normal development, then, is toward an increase in the number of lower rates quoted for carload lots. This is retarded only by the influence of the jobbers and manufacturers in the eastern trade centres, who insist that they shall be permitted to compete on even terms with provincial middlemen by making their shipments direct in small lots at rates approximately as low as the local jobbers pay on carload lots. This question is an exceedingly important one, requiring the balance of opposing interests to a nicety.

Not unfamiliar aspects of the problem of carload rating are revealed in a recent case before the Interstate Commerce Commission, concerning milk rates in New England.[362] And yet the normal order is reversed. Usually, complaint is made of the denial of carload ratings. In this instance a plea was entered for a useable small unit rate as against the wholesale charge. The dispute was precipitated by a deadlock in 1910 between the three large Boston milk contractors and the farmers' associations of several states. The producers, failing in their demand for an increased price, declined to furnish milk at the old figure. A famine resulted, which drew the attention of the public sharply to the system under which the Metropolitan district of Boston was supplied. The belief prevailed that the peculiar transportation conditions known as the "leased car system" which had existed for half a century, was mainly responsible for the tight monopoly of the milk supply. Under this arrangement specially low charges were allowed to those who made shipments regularly by the carload. The Massachusetts legislature, after an investigation, finally passed a law providing that no carrier should charge more for the transportation of milk by the can than was charged for larger quantities; and also that the same facilities, icing, for example, should be furnished in the one case as in the other. This settled the intrastate charges; but it left matters as before for all the other New England states contributing to the market. In this form the controversy was brought before the Federal authorities, which exhaustively considered the methods of transportation as affecting all parties concerned. The contrast with the older elastic situation as to milk ratings in New York was sharp in many respects.[363] This earlier controversy had to do mainly with the relative rights of nearby and distant producers. It was a question of the element of distance as affecting a local or territorial monopoly. The Boston case, on the other hand, was rather a matter of carload ratings than of graduation of charges according to the length of the haul. The monopoly in this instance was that of contractors who had succeeded in getting entire control of the business by reason of the wide spread between charges for milk by the can and by the "leased car." Shipments by the can from the independent farmer were rendered practically impossible since they had to be carried in the baggage car and were liable to spoil through lack of refrigeration.

By contrast with the New York "open car system," the New England plan from the standpoint of cost of service alone seemed to offer several advantages. A caretaker, hired by the milk contractor and in constant personal touch with the farmers, exercised supervision both over milk and cans; this insured a heavier loading and more prompt service at terminals; resulted in the operators providing the best facilities for handling the supply; and allowed surplus milk to be directed to other uses without waste. A large investment had been made under this system, dependent upon its continuance for a reasonable return. On the other hand, denial of equally low rates with the same facilities for refrigeration to the single-can shipper, had undoubtedly fostered monopoly. The railways, conforming to the new Massachusetts law above mentioned, offered to furnish and operate a car suitable for independent shippers on condition that six hundred cans should be tendered for shipment. But they denied obligation to furnish icing facilities, which latter, of course, were absolutely necessary for the success of the competitive service. To be sure, the leased car controlled by the contractors had been theoretically open to all, on condition of a small charge for icing; but the farmers contended that independent shippers ought not to be compelled thus to deliver over their property into the hands of competitors, with the accompanying exposure of their business relations. In the light of all these complications the Commission decided that a _per_ can rate with the necessary refrigeration, and bearing a proper relation to the carload rate, ought to be established. And there the matter rests at this time.

The problem of mixed carloads, also, is a difficult one to adjust to the needs of primary and secondary distributing points.[364] It is oftentimes of vital importance to a small jobber to be able to make up a carload of miscellaneous packages. His business may not be large enough to permit him to enjoy the advantage of a carload rate on any single commodity. Or the independent meat packer may be greatly benefited by a rule which permits him to bulk his soap and other by-products with other goods in securing a wholesale rate. Why may a paper manufacturer not combine paper bags and wrapping paper in one territory as well as another? In this regard the rules in the West and South are naturally much less liberal than in the East. The privilege of mixture has been given only to a limited extent to jobbing and manufacturing centres by means of commodity tariffs. Such mixture is usually restricted to analogous articles, such as agricultural implements, furniture or commodities intended to serve a joint purpose. The recent bitter protest against the discontinuance of the right to ship binder twine with agricultural implements is a case in point. On the other hand, eastern railways are a unit in opposing the bulking of separate shipments in carloads when owned by different shippers. The western and southern roads do not specially forbid it. All such differences come to the fore in any attempt to unify the practice of all the carriers of the country under a single set of regulations.

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Assuming the reasonableness of a difference in charges between carload and small shipments, where shall the dividing line as to size be drawn? This is the important and perplexing problem of minimum carload rates. Turning to our excerpt from the Western Classification on page 298, it appears that 24,000 pounds of advertising matter, N. O. S. (not otherwise specified), must be shipped at one time in order to warrant a carload rate. Under such circumstances a consignment of 20,000 pounds would be classified first instead of third class--the difference in rate varying according to distance, but in all cases being substantial. Between St. Louis and St. Joseph, Missouri, for example, the charge would be sixty instead of thirty-five cents per hundredweight. Were the minimum weight for carloads but 15,000 pounds, as in the case of harvesters under the Southern Classification, this particular shipment of advertising matter would have enjoyed the full benefit of wholesale charges.[365] From this instance it is apparent that the point at which the minimum carload weight falls, is of great importance in the determination of the actual rate--an importance also dependent, of course, upon the spread between carload and less-than-carload charges. It is also evident that minimum carload ratings may readily be used as a means of advancing charges. If, as appeared in a recent case,[366] the minimum carload for wool in sacks was advanced between 1896 and 1912 from 15,000 to 20,000 pounds, the effect upon the shipper of a consignment of 18,000 pounds, for example, would be as truly an increase of charges as if the freight rates themselves had been actually advanced. For under the new schedule, he would be compelled to pay less-than-carload charges instead of the lower carload rates formerly granted. Moreover, it is apparent that minimum carload weights may enter seriously into commercial competition in a number of ways. If 45,000 pounds of raw cotton by a special round-bale process can be loaded upon a standard car; when but 25,000 pounds of the ordinary square bales could be carried by the same equipment; it is evident that tariffs based upon the higher minimum would especially favor one set of competitors as against another.[367] They might, in fact, be sufficient to turn the scale entirely in favor of the round-bale system throughout the South. Granted, however, that such heavy loading makes for economy in operation, it is clear, nevertheless, that the carload minima must be so established as not to discriminate against the great bulk of shipments of the more common sort. All along the line one meets with such illustrations of the bearing of the minimum carload upon rivalry in business. Large shippers are continually striving for a high minimum. The small shippers oppose it for the same reasons. In a similar way the interest of the manufacturer distributing his goods direct, in competition with middlemen, is vitally affected.[368]

Car capacity, both as regards ability to load and carry economically, is the principal factor in the determination of minimum carload rates. It is largely a question of relative cost of operation.[369] Reference has already been made to the great economy incident to the use of large cars, whereby the paying load becomes less in proportion to the deadweight. This, of course, largely accounts for the steady increase in carload capacity in recent years. But the question is even more complicated. An adjustment must be made between two main groups of freight: first, that which is sufficiently heavy to be readily loaded to the minimum weight in ordinary cars; and, secondly, light and bulky goods of which the common car will contain but a small proportion in bulk of its truck capacity by weight. Fortunately, we may evade the moot point, theoretically, as to whether a carrier is entitled to the same revenue from a given vehicle, whether it be loaded with heavy or light goods; that is to say, whether the rate ought properly to decrease per pound with increase in the density of the lading. This is a technical matter as to cost. But it carries certain implications of considerable importance commercially, as will shortly appear.

The difficulty of conforming carload minima upon light and bulky articles to those on heavier goods has appeared with each attempt to standardize equipment. Widely divergent rules in the three main classification territories still cause great confusion in this regard. There is a constant temptation to construct extra long or wide cars, particularly in the western states, in order to assist the manufacturers of such light and bulky products as furniture and agricultural machinery in their competition with dealers in the East, shipping under Official Classification requirements. In other words, the penalty carried under the rules as to minimum carloads, for the use of cars larger than the standard, has been much less in the West than in the East and South. The situation has been further complicated in some instances by the arbitrary action of state railway commissions. The experience in this regard is illuminating, as again showing the extreme delicacy of adjustment in such matters under the stress of commercial competition. The short-line distance between the Missouri and Mississippi rivers lies entirely within the state of Missouri. It governs, as we have already seen,[370] the entire rate structure in this part of the country. This commonwealth some years ago by law fixed a carload minimum of 20,000 pounds for furniture, agricultural implements and wagons.[371] As it is not practicable to attain this minimum load on an ordinary standard car, the Missouri shipper was stimulated to demand larger equipment in order that he might avail himself of the lower rate for carload lots. The local railways, accordingly, built such cars, which, of course, travelled far beyond the limits of this single commonwealth. This forced other western roads, in order to protect their clients in the same markets, to adopt a similar policy. The result is that extra large equipment is relatively more common throughout this territory; thereby conferring a distinct advantage over their eastern competitors upon western shippers of such light and bulky freight. In pursuance of this same protective policy, the western roads have also enforced distinctly favorable rules as to carload lots applied to several small cars instead of one large one.[372] These troublesome details are given in the hope that they may show how far the ramification of trade competition extends. They re-enforce the conviction that any reform of classification is a matter of extreme difficulty; and, if undertaken at all, must be done under governmental compulsion and by a single universal reform, rather than by any attempt at piecemeal improvement.

Next to ability to load and carry, as a determinant factor in fixing minimum carload weights, the consuming capacity of the market must be considered. A reasonable minimum carload in the East might well be unfair in the West or South. An old-established factory in New England might satisfactorily use a quantity of raw material which in a carload lot would overwhelm a western or southern plant. Thus it comes about that minimum weights on the same goods quite properly vary widely in different territories; being higher in the East than in the West, and least of all in the South. The problem, therefore, of standardizing carload rates throughout the country, unfortunately becomes exceedingly difficult. A compromise will fail to satisfy anybody; and, moreover, such a change of minimum carload weights at once necessitates a remodelling of the particular distance tariff to which it applies. This point was well illustrated in a recent case.[373] A railway accepted for the same carriage at different times two carload shipments of lime from a given concern. On the one, a rate of thirty-four cents per one hundred pounds was based upon a minimum carload weight of 24,000 pounds. On the other twenty-nine cents was assessed upon a minimum of 30,000 pounds. The carrier alleged that these differences in rates per pound were entirely compatible in view of the difference in carload minima. It then appeared that these minima, especially with a perishable commodity like lime, varied considerably according to destination. Large distributing centres were given low rates on high minima, while small towns, consuming relatively less, were best served by a lower carload minimum to which a higher rate per pound was applied. In other words, the close interrelation between the rate and the minimum was a matter of great commercial importance.

The relation of carloads to consuming capacity of the market is an element in the trade policy of protection to clients extended by the railway. The difficulty of properly relating rates upon raw and finished products has already been discussed. Carload minima must also be considered in this connection. Why should 50,000 pounds be prescribed as the carload limit on corn to Texas points, when the limit on corn-meal is only 30,000 pounds? Evidently differences in loading capacity are inadequate as an explanation. Nor can this be accounted for on the ground of any difference in mere cost of carriage. The explanation is purely commercial--springing from the competition between northern mills and mills located in Texas, both making use of raw material from the same fields. A heavy carload minimum is entirely practicable on corn for the Texas miller; but an equally heavy carload requirement on corn-meal would shut out the northern miller entirely from many local points. For the market at these small places is, of course, relatively restricted.[374] There can be no doubt that every feature of classification, even down to the last minute details of carload minima, stands in such intimate relation to commercial competition, that to disturb it in one regard may entail the most far-reaching consequences.

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Ever since 1888 the constantly increasing elaboration of the three main classifications in force, with all the resulting inconsistencies and overlappings, has led to a persistent demand for the introduction of a single uniform classification for the entire country. Soon after the passage of the original Act to Regulate Commerce in 1887, a resolution passed the House of Representatives directing the prescription of such a classification. Apparently the Interstate Commerce Commission was fully alive to the difficulties of such an undertaking. The railways were induced to move in the matter, but to no purpose.[375] This first abortive attempt reflected the mutual jealousies of competing roads, as well as the difficulties of suiting a single classification to the variety of local conditions existing throughout the country. All that was done was the recommendation of a "Board of Uniform Freight Classification," comprising two members from each of the important territorial bodies and including both the Mexican and Canadian carriers. Changes were to be made by a two-thirds vote. Jurisdiction over the tripartite division of territory, east, south and west, was to be assigned to district chairmen. Final authority for the country at large was to be vested solely in the whole board. The absolute refusal of the New York Central & Hudson River to accede to this plan prevented its acceptance. Apparently too many special or commodity rates were in force upon its line, in order to hold its powerful clients in markets all over the country, to make it practicable to adopt the scheme. Efforts toward uniformity were renewed in 1890, confined this time, however, to an attempt to merge the Official and Western Classifications. But the same jealous regard of local interests in each territory, especially with reference to the treatment of carload ratings, once more proved an insuperable obstacle. The trunk lines insisted upon such specially low charges on small shipments as would enable manufacturers and jobbers in the East to hold their markets in remote districts in competition with rivals in the Middle West. The issue raised in the New York Board of Trade case, previously discussed, led to the defeat of this plan.

A notable revival of interest in uniform classification under governmental authority has taken place since the enactment of the Mann-Elkins amendments to the Interstate Commerce Law in 1910. An independent bill in Congress to authorize the enforcement of such a schedule failed. The railways were stimulated, however, to make a further attempt to solve the difficulty.[376] Protracted sessions during 1907-1908 by a conference of five representatives from different parts of the country, known as the Uniform Classification Committee, led to many concessions and compromises in favor of harmony. The committee expressed its belief that a uniform classification could be drawn up in time; but it emphasized the important point that all changes in classification must be accompanied by such advances or reductions in the distance tariffs as to insure the prevailing commercial adjustments.

The latest advertisement of the difficulties of uniform classification took place in connection with the attempted introduction in 1912 of various amendments and reforms proposed by this Uniform Classification Committee.[377] Acting in conjunction with the National Association of Railway Commissioners, an earnest attempt seems to have been made to eliminate differences between the three great schedules. Few articles were actually shifted from one class to another, the effort being concentrated upon the establishment of more uniform rules and descriptions. It was alleged by shippers that more often than otherwise, these changes had brought about an advance rather than a reduction of charges. It is difficult to decide as to this. But it is clear that progress in the direction of uniformity is taking place. For example, the minimum carload weight for paper, once varying greatly in different parts of the country, was fixed at an intermediate figure which fairly satisfied conflicting interests. Many opportunities for personal discrimination were also eradicated. Grading according to value, for instance, has in the past been a prolific source of abuse. Candy at less than fifteen cents a pound rated third class, but if of higher value moving on first-class rates, offered an incentive to false declaration on the part of unscrupulous shippers which was very properly eliminated. Abolition of the distinction between finished stationery and flat paper, put an end to possible underclassification in the same way. Naturally the carriers in abolishing such fine distinctions, grade upward rather than downward. Much objection was also made at this time to beneficial modification of the rules for mixed carload shipments. Binder twine had for years been classified with ploughs and harvesters rather than with ropes and cordage. Half a carload of agricultural machinery, therefore, with half a carload of twine, formerly moving under carload rates, was no longer, as proposed, to be allowed the privilege of mixing. Similarly, abolition of the right to bunch wood-working and iron-working machinery naturally aroused protest. Such details are here offered, not because of their intrinsic importance, but as illustrating the opposition on behalf of shippers to any movement toward uniformity, even in these minor details. What the force of this opposition would become, were propositions advanced for shifting thousands of articles bodily from one class to another, may be readily imagined. The experience thus far obtained, emphasizes the point that any considerable improvement must be carried through, if at all, by direct pressure from governmental authority, not upon the carriers alone _but upon the shippers as well_.

The degree of complexity at the present day incident to overlapping and conflicting jurisdiction of the several state and railway classification committees and associations, may be best described by means of a few examples.[378] Traffic originating in Southeastern Freight Association territory, except Florida, destined to cities in trunk line territory is governed by the Southern Classification all the way if moving on through rates; if on local rates, the Official Classification applies north of the Ohio river. From "Green Line territory"[379] to Pacific coast terminals, the Southern Classification governs to the Mississippi or other gateways; the Western Classification beyond. But if it originate in Louisiana or Mississippi, the Western Classification governs all the way. From most places in Tennessee, Western Classification rules govern all the way, "subject to commodity rates or less-than-carload consignments, classified not lower than fourth class." To Wisconsin from points throughout the South, the Southern Classification governs all the way. But to Minnesota, generally, Southern rules govern to the Ohio river crossing, while Western rules apply to the balance of the trip; unless the goods move through trunk line territory by way of the Virginia gateways, in which case the Official Classification is effective. These are only a few samples chosen from a large collection. Is it any wonder that to the uninitiated, rate making under such conditions appears to be almost a superhuman task; and is it surprising that to the unscrupulous, such complicated conditions give rise to more or less successful attempts at evasion of published rates?

The present threefold territorial division of the country, for the purposes of classification, naturally affords all sorts of possibilities in the way of veiled discrimination, not merely as between persons but as affecting the interests of different competing markets. Not only is there liability to confusion, but the way is paved for all sorts of favoritism. Wherever shipment is made from one classification territory to another, it is always possible to adjust the rates with a view to local advantage. For instance, one of the principal causes of complaint in the South is the advantage which Nashville, Tennessee, enjoys through having all of its rates from eastern and northern centres made upon the Official Classification. Inasmuch as the rates under the Southern Classification are considerably higher, this operates to place other competing cities in the South under a distinct disability in competition with Nashville. It is possible, therefore, for the Louisville & Nashville by this means to build up one community at the expense of another. The same device gives Richmond, Norfolk and the other Virginian cities a great advantage over their competitors.[380] Again, rates from New York to Memphis and New Orleans are made upon the Official Classification, by whatever route; while to intermediate points, such as Vicksburg, Natchez, and Baton Rouge, they go on the rates prescribed by the Southern Classification, which are considerably higher. From New York to St. Paul through Chicago, shipments are made on the low rate basis of the Official Classification; while from Chicago to St. Paul they go under the Western Classification. From Birmingham, Alabama, to St. Paul, the rates as far as Chicago are based upon the Southern schedule, and from thence on under the Western. From San Francisco to St. Paul, the Western Classification prevails, unless the freight is carried under the commodity rates of the Transcontinental schedule. The peculiar situation of Nashville on shipments from the Northeast has already been stated. This immediately complicates the rates from so-called Cook County Junctions--that is to say, from Chicago territory. All consignments for the entire distance are governed by the Southern Classification. This, in face of the low Official Classification rates from trunk line territory, operates as a discrimination against Chicago. Even more complicated still are the combinations by which rates are made from local points in the North into the Far Southwest. And still farther complexity results from the existence, as already mentioned, in several parts of the country, such as Iowa, Illinois, Georgia, etc., of state classifications, prescribed by the railway commissions. These, to be sure, are intended for application only to local rates. But by this means, the jobbing interests of the localities are protected, without at the same time giving consideration to an equitable adjustment as between all the remoter interests concerned.[381] One of the primary advantages, therefore, from the unification of the three systems now existing, would be the possibility of readjusting not only definitely, but also equitably, the conflicting interests of various shippers and communities now tied up by these local arrangements.

A recent case[382] illustrates the bearing of classification rules upon competition in trade as between rival cities. Chicago and most of the Ohio river gateways enjoy a so-called "two-for-one-rule," permitting the application of carload rates on part carloads in excess of full car ladings. The complaint alleged that the denial of this privilege to Indianapolis, whereby less-than-carload rates were charged on excess fractional carloads, unjustly discriminated against this city in the transportation of various light and bulky articles, such as vehicles and furniture, in competition for trade throughout the Southwest. The difficulty arose from a conflict between rules in the Western Classification and the Southwestern Tariff Committee, the latter being a subordinate body having jurisdiction over local practices in Texas and the neighborhood. The rule in one case provided that where a car of sufficient capacity to accommodate light and bulky shipments could not be promptly furnished, two smaller cars would be provided, subject to wholesale rates, however the consignment was divided between the two cars. The Commission declined to interfere in this case, anticipating the necessity for a thoroughgoing revision of all such rules which, it is obvious, almost invite manipulation of rates and improper discrimination.

Even a cursory examination of the classification a few years ago would bring to light all sorts of petty anomalies and inexplicable conflicts both of description and rates. Most of these doubtless had some warrant originally, but it seems, indeed, as if many differences might be eliminated.[383] For instance, "excelsior spring beds K. D. (knocked down), sawdust, and leather belting, are all in the second class of the Official Classification, when shipped in less-than-carload lots. In the Western, only the belting and beds are in the second class, excelsior is third and sawdust fourth; while in the Southern, beds are first class, belting second class, excelsior fifth class, and sawdust sixth." The recent complaint of the Greater Des Moines Committee[384] disclosed an odd state of affairs under which old shoes were given a carload rating to Des Moines--an advantage not extended to new and unused footwear. Why should axes be given carload rating in trunk line territory when the freight rate on hatchets is the same whether the shipments are in 100 pound or 20,000 pound lots? Is it logical that cotton piece goods from Atlanta to Boston should be differently classified from the same commodity exchanged between the same two cities in the opposite direction; or that goods should enter Richmond, Virginia, on one classification and go out on another? Such anomalies are sometimes difficult to account for. Their existence, however, despite the efforts of the carriers to eliminate them and to keep them eliminated, emphasizes strongly the need for such continual revision as shall more generally standardize practice. Few carriers alone are able to withstand pressure from powerful shippers. It is difficult, in fact, even for the classification committees to oppose them. The strong hand of the government should enforce harmonious action to the fullest degree compatible with the growth of trade and conflicting commercial interests. It would help the railways even more than the shippers.

And yet, bearing in mind all the disadvantages and evils of the present threefold system, the obstacles incident to the substitution of a single uniform classification for the United States grow more impressive as one examines them in detail. Our vast territory and the extreme diversity of agricultural and industrial conditions render the problem far more difficult than in the compact and more homogeneous communities abroad. The primary advantage of the present system is that each of the three existing classifications more or less clearly reflects local trade conditions in its own territory. From the point of view of transportation, the same commodity may well be able to yield widely different proportions of the total revenue levied upon the traffic of that section. For example, cotton piece goods may be rated first class in Western territory, fourth class in Southern, second class less fifteen per cent. in Official territory, and one-third of first class in the transcontinental tariffs. The reason for this diversity of treatment is that such cotton piece goods both in the South and the East are a staple product of the district. The rates, therefore, in each case are intended to foster the manufacture of cotton by according a relatively low freight rate upon its output. In the West, on the other hand, where no cotton is raised and no cotton mills exist, these goods become much more valuable, as classified, relative to other commodities. Oranges or lemons in southern California are favored by almost commodity rates in order to foster the industry in that locality. But these citrus fruits reaching New England as a luxury, may consequently there be made to contribute a much larger proportion of the railways' revenue. The East, as a rule, classifies manufactured products relatively low, inasmuch as it is the home territory for industry of this sort. But these products, when they pass beyond the Mississippi, rise almost automatically to a higher class as they increase in value to the community in which they are consumed. How different are the commercial conditions under which wool is rated east and west! In one territory it is distributed to manufacturers in small lots at way stations; in the other it moves long distances in solid carload lots.

One further illustration may make our point clear. At first sight it is anomalous that in the East the rates on cattle and shoes between New York and Boston are not widely different, namely nineteen cents and twenty-five cents, respectively, per one hundred pounds; while as between Montana and Chicago, the rate on shoes west bound is almost four times as great as the rate on cattle over the same haul eastward. In other words, rates on shoes in the East are at bed-rock, whereas in the West it is the cattle rates which are held at the lowest possible point. Ton-mile rates on shoes, in other words, increase progressively toward the west, while ton-mile rates on cattle rise, contrariwise, in the direction of the stronghold of manufactures. The difference between the two, however, is in the fact that the upper level of what the traffic will bear is very much greater in the case of one than of the other. Cattle, possibly, may never support more than seventy-five cents per hundredweight; while shoes can be moved under rates four times as high.

Obviously any mere compromise between divergent classifications, each based upon the protection of a local constituency against competition from outside its own territory, can hardly prove satisfactory. Cotton piece goods, already instanced in this regard, if grouped as first class in the West, second class less fifteen per cent. in the East, and fourth class in the South, would hardly be adequately treated in a uniform classification for the entire country by averaging these different figures. For neither the West nor the South would be satisfied--the rating being too high to fully protect the southern mills against competitors in New England; nor, on the other hand, would the classification be sufficiently high in the West to yield the roads proportionately the revenue which goods of that character ought properly to contribute. The East, alone, lying intermediate between the other two, would not be greatly disturbed. The necessary outcome, it is predicted, of the adoption of any such average or uniform classification would be the quotation of exceptional commodity rates wherever the uniform classification was at variance with local interests. The increase in commodity ratings after 1887--now happily reversed--may perhaps be in part accounted for in this way. Any such stimulation of exceptional ratings would be a primary objection to any uniform classification for the United States as a whole. As one witness before the Interstate Commerce Commission testified, "If ever there is a uniform classification, it will take a warehouse to hold the commodity tariffs." Were such the case, far greater complexity and possible discrimination might exist than at the present time.

A second equally important disadvantage of the prescription of a uniform classification arises from the fact, already noted, that classifications and distance tariffs are interlocking and interdependent. Any change of the one involves a change of the other. Therefore, a unification of the three existing classifications would render it necessary to overhaul from top to bottom the distance tariffs under which it was to be applied all over the country. For example, the rate from New York to Atlanta, first class, being $1.14, while the rate from New York to Chicago, about the same distance, first class, was 75 cents; to choose a first-class rating which should apply on both these lines would involve, not only a re-classification of the commodities, but also that the new rates applying upon first-class goods should be somewhere between $1.14 and 75 cents. Inasmuch as it had taken many years to reach the present adjustment, it seems hardly possible that a new arrangement could be made which would yield the railways a satisfactory return upon their traffic. The difficulty herein suggested was clearly instanced in the case of a comparison made between the Southern Classification and the Uniform Classification proposed in 1890. The difficulty, and always a prominent one, was that the Uniform Classification was largely for carload lots, while the practice was entirely different in the old Southern Classification. Moreover, most of the Southern rates were given for goods "released"; that is to say, at the owner's risk. Cotton piece goods, non-released, in less-than-carload lots from New York to Atlanta, were charged sixty cents a hundredweight under the old Southern Classification. As reclassified in the suggested Uniform Classification, the rate was ninety-eight cents; and was given only for "released," that is to say, at owner's risk. The difference for the same commodity from Louisville to Atlanta was as fifty-six cents in the old Southern, to ninety-two cents under the Uniform. Canned goods, not otherwise specified, "non-released," in less-than-carload lots from Louisville to Atlanta, were charged sixty-eight cents under the old Southern Classification. The new Uniform Classification, in order to yield the same revenue, made it necessary to charge a rate of eighty-one cents. Differences of this kind were manifest in every one of the thousands of commodities. In other words, the adoption of a uniform classification meant to abolish by a stroke of the pen all the old rates which formerly existed. An entirely new schedule of rates would have had to be worked out; with the most uncertain results upon revenue and upon the rival commercial interests concerned. The magnitude of such a task can be scarcely appreciated. Years would be required to reach a condition of relative stability once more.

The close interdependence of classification and distance tariffs, as well as, incidentally, the differing spread of rates between various groups of goods under the three existing classification systems, are so fundamental in their bearing on reform that yet another illustration may not be out of place. It is given in the following table. This shows the rates from St. Louis--standing at the meeting point of the main classification territories--for approximately equal distances out in three different directions.

Rates Cents per 100 lbs.

Southern Classification--
St. Louis to Nashville 1 2 3 4 5 6 A B
------------------------------
(323 miles) 61 52 45 35 28 23 22 26

Official Classification--
St. Louis to Louisville 1 2 3 4 5 6
----------------------
(317 miles) 41 34½ 25½ 17½ 15 12

Western Classification--
St. Louis to St. Joseph 1 2 3 4 5 A B C D E
--------------------------------------
(320 miles) 60 45 35 27 22 24½ 19½ 17 13½ 11

Illinois Classification--
St. Louis to Chicago 1 2 3 4 5 6 7 8 9 10
----------------------------------------------
(284 miles) 43.3 35.2 27.5 22 17.6 16.6 15.1 13.5 10.7 9.6

One line penetrates Southern territory 323 miles to Nashville; another goes eastward 317 miles to Louisville under Official ratings; and the third extends westward 320 miles to St. Joseph, according to the schedules of the Western Classification. To these three there is also added a set of rates north bound under the Illinois Classification which applies between St. Louis and Chicago, 284 miles. This last schedule, of course, is prescribed by the state railway commission. The first point to notice is the widely different number of groups in the four schedules. One is divided into eight classes; another into six; while the last two are each spread over ten subdivisions. Secondly, bearing in mind that the three upper schedules govern approximately the same mileage, it will be noted that the Official rate, first class, is only about two-thirds of that in the other two classes. If one then compares the sixth group in each case, an even greater divergence appears--the Official rate being only about one-half of that in the other two cases. Or, taking the lowest rates of all in the three upper schemes--always, be it noted, for equal mileages--it now appears that the Official and the Western descend to about the same figure, while the Southern is arrested at a point more than twice as high. The primary significance of this showing is, of course, that a single uniform classification in which all of these three systems should be merged, means not merely a reassignment of all possible commodities in a given number of classes; but also a complete recasting of the distance tariffs as well. In other words, as aforesaid, freight rates being compounded of the two factors, distance charge and classification, all the delicate adjustments based upon commercial competition throughout the country, would be thrown into utter confusion; unless every modification of the grouping of classes were accompanied by a corresponding change in the rates per mile. A task sufficient indeed to appall the best of traffic experts!

To complete the demonstration of the complexity of present arrangements, and yet of the danger incident to rudely disturbing them, one should apply the classified rates in the preceding paragraph for these equal hauls to particular commodities. Take household goods in carloads, for example:--

Cents Per Cent. of
per 100 lbs. first-class rate.

St. Louis to Nashville 23 38
St. Louis to Louisville 34.5 83
St. Louis to St. Joseph 19.5 33
St. Louis to Chicago 15.1 35

Examination of the classification volumes thus assigns these the following rates in the three directions for equal distances out of St. Louis. Going east the charge would be 34.5 cents, going west 19.5 cents, and going south 23 cents per 100 pounds, respectively. The hodgepodge is made more manifest by the right hand column in this table, in which the percentage of first-class rates levied upon household goods in carloads under the four classifications is shown. Under the Official system, with the lowest first-class rates, as above noted, the rate on household goods is higher than under any of the other three. The result is that the relation between the rate on household goods and first-class goods is eighty-three per cent.; whereas in the other two cases it is substantially less than half this percentage. This single illustration, it is hoped, may drive home the conclusion that there is an immense mass of fortuitous and utterly unreasonable allocation under the classification systems as they are at present established.[385] But whether that may be used as an argument in favor of substituting a single uniform classification is open to serious doubt. Rather does it serve to emphasize the fact that rigid revision of the present scheme under Federal control, perhaps, is more necessary than an experiment in uprooting the entire system.

A few general conclusions may be drawn from this rather over-elaborate description of present conditions as to classification in the United States. It has been necessary, however, to reiterate details in order to make clear the extremely unsatisfactory situation at the present time. In fact, in this domain of classification, standardization of practice so characteristic of American rate making and operation in general, has noticeably lagged behind. Whether it will be possible, in view of the wide extent of the country and the diversity of its climatic and commercial conditions, ever to devise a single uniform classification is open to serious doubt. Even the Interstate Commerce Commission, once a leader in the demand for uniformity, now concedes this fact in particular instances.[386] Thus:--"wool east of the Mississippi is taken up at numerous points and is carried under comparatively light loading. What would be a fair classification there, would not be just in the Far West, where the movement is almost entirely in carloads and where the actual loading is from two to three times that in Official Classification territory. We are of the opinion that wool should be classified under the Western Classification as second class, l. c. l., and fourth class, c. l.," etc. The experience of England is, of course, commonly cited as a precedent.[387] In that little country the ever-increasing complexity of classification was precisely parallel to our own. From simple schedules for a few hundred articles, the number of items steadily increased until there were over 4,000. At this point the government intervened; and after tedious and protracted sessions under the auspices of the Board of Trade in 1888 the whole schedule was brought down to 1,400 separate items. All the complicated and confusing rules were harmonized and many anomalies were cut out. Certain it is that matters should be firmly taken in hand in this country in the same manner. The separate state classifications and hundreds of conflicting rules and jurisdictions should be eradicated. Even if a single uniform classification be proved impracticable, as seems to me likely, it might still be possible to greatly simplify the present intolerable mix-up. There should be a representative of the Interstate Commerce Commission on each of the classification committees, ready at all times to exert pressure for simplification and uniformity.[388] The three main classification committees, supposing that they shall continue to exist, should interlock by exchange of representatives. The greater the reform flowing from the initiative of the carriers themselves, the better. Thus, in time, matters may become sufficiently standardized as between the three main committees so that, under legal compulsion or otherwise, the final problem of uniformity may be tackled by recasting the whole body of tariffs and classifications together. But such a task at this writing appears almost superhuman. Conditions may, of course, so shape themselves ultimately that it may be brought about. But, in the meantime, steady and persistent pressure should be exercised in the direction of this final goal. Reform of classification practice is certainly the greatest need of the time in the transportation field.

FOOTNOTES:

[315] 1901. Ripley, W. Z.; Report U.S. Industrial Commission, XIX, pp. 383-397.

1902. Interstate Commerce Commission, Railways in the U. S. in 1902.