Chapter VIII: ,411 constitutes one of the important sources of waste of

transportation energy. The Monon by such tactics is able to participate in, and to profit by, a much larger volume of through business. That is to say, its proportion of the entire haul is much greater than it would be if the business moved by the shortest line. Moreover, when indirectly routed, the Monon, often securing for its trunk line connections tonnage for the east which would naturally go to other competitive trunk lines, is able to exact a higher pro-rating than even its extended lateral haul would justify on a strictly distance basis. Such circumstances always greatly enhance the profitableness of lateral hauls to minor connecting roads. It is obvious that much of this transverse haulage would be impossible wherever the lateral railway lines traverse different zones of rates. It might haul traffic from its 100 per cent. end to connect at its 96 per cent. end with a trunk line for the east, but not in the opposite direction. The Monon, always in a position to disturb the rate situation, through connection with all the competing trunk lines, insisted upon equality of rates all along its lines. To do this, the 100 per cent. zone had to be extended east to Indianapolis. Thereafter the Monon could profitably "work its line in both directions." This illustration will serve to show why ordinarily the zone boundaries conform as closely as possible to the course of the lateral roads. The confusion which would be engendered, were the Peoria, Decatur & Evansville to be partly in the 110 per cent. and partly in higher percentage territory, while still insisting upon its right to work its line both ways, can readily be imagined. To avoid such difficulties, the present modification of strictly distance percentages had to be adopted.

The third dominant influence, above mentioned, in modifying the mathematical precision of percentages based alone upon the distance from New York, has been the commercial competition of traders and cities one with another. The aim of all rate adjustment should be, and in fact, so far as possible in American railway practice, is to equalize conditions, so that the widest possible market shall result. Producers or traders in each city demand access on even terms to all territory naturally tributary to them by reason of their geographical location. Each particular railroad sees to it that its own patrons and cities are "held" in all parts of these markets, as against the efforts of competing railways to promote the welfare of their own constituencies. Consequently, the Proceedings of the Joint Rate Committee are filled with discussions as to the advisability of amending general rules here and there to suit local conditions. Minor changes are continually being effected. Grand Rapids, Michigan, once in 100 per cent. territory, asked for a 90 per cent. rate, and in 1891 secured a reduction to 96 per cent.[412] Louisville, once in 97 per cent. territory, is now a 100 per cent. point. Shifts in both directions have frequently occurred, as the following table of percentages shows:[413]--

-------------------------+---------+--------+----------+-----------
Basis | Detroit | Toledo | Sandusky | Cleveland
-------------------------+---------+--------+----------+-----------
April 13, 1876 | 85 | 78 | 71 | 65
June 23, 1879[414] | 81.5 | 81.5 | 78 | 73.5
April 14, 1880 | 75.5[415]| 75.5 | 75.5 | 70
Present (1900) | 78 | 78 | 78 | 71
-------------------------+---------+--------+----------+-----------

A number of changes were made in 1887 in order to conform to the long and short haul clause. Flint, Michigan, for example, was reduced from 95 to 92 per cent.; Ashtabula, Ohio, from 71 to 67; while Springfield, Ohio, was raised from 82 to 83 per cent.[416] Detroit has been most active in prosecuting its claims for a reduced percentage.[417] But the Interstate Commerce Commission in 1888 upheld the present status. A recent minor change is indicative of the forces which must be dealt with. Evansville, Indiana, on the Ohio river, according to our map, is a 110 per cent. point. Vincennes, Indiana, lies just north of it in the 108 per cent. triangular zone. Since this plate was made, Evansville has been reduced to 105 and Vincennes to 103 per cent., respectively. This is substantially, I am told, on a mileage basis. The reason for the amendment is that certain important industries are located at these points. Either to favor them specially or to remove a pre-existing disability in competition with other towns, this change was insisted upon by the railways interested in their prosperity. By tentative processes of adjustment like this the present general relations have been established.[418] They have been kept constant only by the steady resistance of the majority of carriers to action which is in the interest of a few. Judged by results, it would appear that the broad view has, in the main, prevailed.

The actual situation resulting from the above-named causes, it should be observed, is not quite as simple as our map makes it appear. Most of the zones are in fact subdivided into minor gradations. Thus the closely dotted zone designated "86-90 incl." is constituted of an 87 per cent. area up as far as the railway from Dayton to Indianapolis; while the rest of it is broken up into little 88, 89, and 90 per cent. areas, respectively. The same thing occurs elsewhere. Our map generalizes the results, in an effort to bring out the zone relationships as fully as is technically possible in a single diagram. Certain of the zones, however, such as the 60, 66-1/2, 100, and 110 per cent. territories, are bounded exactly as here represented.

As for direction, the original scale was intended only for eastbound traffic. Westbound rates were lower and more regular. But the system worked so well that it was soon extended to cover the westbound business. Owing to difficulties of routing, in order to transport by the shortest line into Chicago, these westbound percentages were often quite different from those in the opposite direction.[419] Detroit, for instance, for some time prior to 1886, enjoyed a 70 per cent. rate west bound, while its percentage in the opposite direction was 78.[420] But, after the passage of the Act to Regulate Commerce in 1887, efforts were made to harmonize the differences.[421] At the present time the rates east and west are in most cases the same.

At this point it is essential to understand the limitations within which this percentage system is confined. It does not necessarily determine the exact rate to be applied in practice from every little station in trunk line territory. For, in the first place, it concerns only the so-called common points; that is to say, points where competition of two or more carriers is effective. Purely local stations are charged an "arbitrary" into the nearest common point.[422] But, inasmuch as throughout this much be-railroaded country most shippers are less than twenty miles from the next line,[423] and since, moreover, the arbitrary can never raise the local rate above the rate to the next common point beyond,[424] the scale is practically effective everywhere. A more important consideration is the fact that this scale, even for common points, does not positively fix the rate. It merely provides a minimum below which rates shall not be reduced, except by authority of the roads acting jointly. It is a minimum, not a maximum, schedule in every sense. Its provisions are never promulgated in the form of tariffs as such. They are rarely known to shippers, but serve only as a guide to traffic officials. The Interstate Commerce Commission, in sanctioning the system, has expressly recognized this fact.[425] Moreover, these percentage rates applied at first to "classified" tonnage. They were soon, however, extended to include the great bulk of commodity or special rates which are independently made. And I am informed by the chairman of the Trunk Line Association that the MacGraham table was applied to special rates--such as sugar, coffee and molasses--as early as 1871.

Other exceptions to the applicability of this percentage system deserve mention, although they are of relative unimportance. Principal among these is the confusion engendered in Illinois territory through the entry of the western lines into Chicago. Throughout their constituencies, by reason of the sparse population, freedom from competition, inequality of east, and westbound tonnage, and low-grade freight, western railroad rates per ton mile are very much higher than on the trunk lines. Moreover, they are naturally desirous of as long a haul as possible, namely into Chicago. To turn over their local Illinois traffic to the trunk line feeders exposes them financially to the same losses as those above mentioned in the case of lateral independent lines further east. But these western lines, being stronger, have insisted upon recognition of their claims to a proportion of the through rate which would at least "pay for their axle grease."[426] The result is that throughout Illinois, especially in the north and toward the Mississippi, the distance principle is considerably distorted, as our map clearly shows. The percentage system practically excludes freight "from beyond," the rates on that being determined by other rules.[427]

East of the Central Traffic Association territory shown on our map the same percentage system is extended to points in New York and Pennsylvania.[428] Suppose, for example, the rate were desired from Columbus, Ohio, to Albany, New York, or any other point between Buffalo and New York City. The rate from Columbus to New York City would first be determined as a percentage of the Chicago-New York rate, under the system already described. Then from Columbus to Albany the rate would be prescribed as a new percentage of this percentage. The initial western points, however, are not determined individually, but are comprehended in large groups. Thus the rate from all points in the 72-78 per cent. territory, shown on our map, to Albany, New York, is 96 per cent. of what the rate would be from those points to New York City. Syracuse has 76 and Utica 87 per cent., respectively, of the rate from any point in this 72-78 per cent. territory. From points beyond Chicago, taking, that is to say, more than 100 per cent. of the New York-Chicago rate, the percentages of the rate to New York City applying to Albany, Syracuse, and Utica are correspondingly modified to 96, 84, and 91, respectively. Other complications, such as the addition of arbitraries to Boston and New England points or the subtraction of differentials to Baltimore and Philadelphia, follow. But, in the main, conforming always to the long and short haul principle,[429] rates to all local stations are prescribed within narrow limits by means of a small number of these fixed points. The system is the same, although details may vary. Everything interlocks and is harmoniously related on the distance basis.

Rates from one point to another within the Central Traffic Association territory shown on our map now alone remain for consideration. These cannot, of course, be adjusted on a percentage basis, inasmuch as such traffic may not be east or west bound at all, but may consist of shipments in any direction. There is no logical reason why they should interlock with east or westbound through rates when the traffic is, perhaps, moving locally north and south. Nevertheless, the long and short haul principle is observed with the same fidelity. A rigid distance tariff for short hauls, the limits of which are prescribed by the rates for long hauls under the MacGraham schedule, prevails.[430] For distances up to 75 miles this conforms closely to the rates originally prescribed by the Ohio legislature. For greater distances it is much lower than the Ohio tariff.[431] Thus the Ohio rate for 350 miles is 87.5 cents, while the C. F. A. (Central Freight Association) scale is only 42 cents. The Ohio scale for 200 miles is 50 cents, the C. F. A. rate for the same distance is only 33 cents. Thus it appears that this C. F. A. tariff, applicable to interstate business and beyond control of any state legislature, has, in reality, been voluntarily adopted by the interested railroads. The tariff is only a minimum scale, below which the roads agree not to reduce rates, and above which the actual rates often rise.[432] Nevertheless, the fact remains that these rates, according to distance, are so much lower than the Illinois Railroad Commission's tariff that Chicago and other distributing centres throughout the State of Illinois claim that it works great hardship to them. The situation in Illinois is geographically peculiar. Its great commercial centre is in the extreme northeastern corner, while, at the same time, the greatest extension of the state is north and south. These circumstances, coupled with an interstate (C. F. A.) tariff lower than the Illinois official tariff under which Chicago merchants must ship out their goods, enable Detroit, Indianapolis, and Cincinnati to undersell Chicago in its own state. Chicago can be equalized there only by special or secret rates.[433] Other local centres, like Quincy, Illinois, joined with Chicago in this complaint to the Illinois Railroad Commission that their rates were too high.[434] Think of it! Shippers complaining that a government rate was too high, and requesting that the railway tariff (C. F. A. schedule) be adopted in its place! Is that not evidence that reasonable treatment of its shippers by railway companies is appreciated by the public? Without undue extension further details of this interesting controversy cannot be given. It will suffice to state that in December, 1905, the Illinois Railroad Commission ordered a reduction of its official schedule by 20 per cent., in an attempt to reduce its rates to conform more nearly to the C. F. A. railway tariff.

The evils incident upon two conflicting governmental authorities, State and Federal, each attempting to regulate rates independently, are clearly indicated in the preceding paragraph. The Interstate Commerce Commission has been brought flatly up against them in one of its recent Texas cases.[435] Local and interstate rates must inevitably be adjusted with reference to one another, so complex are the conditions of commercial competition. While the plain people remained unsatisfied that any real Federal regulative power existed, it was inevitable that the number of arbitrary state tariffs, like those of Illinois and, more recently, of Missouri, should tend to increase. But now since the amplified Federal powers under the laws of 1906 and 1910, any clash between the two must result in limitations placed upon state activity.

FOOTNOTES:

[389] Compare chap. IV, p. 102, _supra_.

[390] The literature on the subject is scanty. Much of the material has necessarily been gathered in the field by conference with traffic officials and others. My hearty thanks are due primarily to Paul P. Rainer, Esq., chief of the Joint Rate Inspection Bureau at Chicago, for his willingness to impart such explanation of this complicated matter as the delicate responsibilities of his important post permit. The map published herewith, while in part prepared from the actual percentage tables, with his permission and that of several important trunk line officials concerned, has been checked and corrected by his official copyright map of January 1, 1899. While the scheme of graphic representation is entirely different, the facts represented are the same. I am also especially indebted to H. C. Barlow, Esq., formerly president of the Terre Haute & Evansville Railroad and now director of the Chicago Commercial Association, and to J. W. Midgley, Esq., for many years one of the Trunk Line Commissioners, for assistance in many ways.

The principal references consulted are included in the following list:

1874. Windom Committee Report, officially known as Report
of the Select Committee on Transportation Routes to the
Seaboard, 43d Congress, 1st Session, Senate Report No. 307,
vol. I, pp. 24-30; vol. II, pp. 7, 80, 283.

1879. Hepburn Committee Report, New York State, Special
Committee on Railroads, 8 vols., pp. 3001-3006, 3102-3111.

1886. Cullom Committee Report, 49th Congress, 1st Session,
Senate Report No. 46, vol. II, p. 101.

1887. Typewritten Record, Opinion, etc., of the Interstate
Commerce Commission in Detroit Board of Trade _v._ Grand
Trunk, etc., Railways. Also the Toledo case (1889) and that
of Pratt Lumber Company (1905), I.C.C. Reports, vol. II, p.
315; vol. V, p. 166; and vol. X, p. 29.

1890. Senate Report on the Transportation Interests of the
United States and Canada, 51st Congress, 1st Session,
Senate Report No. 847, pp. 497, 611-636.

1892. Cincinnati Freight Bureau case. Copy of Record before the
Interstate Commerce Commission, etc., United States Circuit
Court for Southern District of Ohio, In Equity No. 4748,
vol. I, pp. 42-53. (Reprint.)

1900. Report of United States Industrial Commission, vol. IV,
pp. 556-562.

1905. Elkins Committee, officially known as Hearings before the
Committee on Interstate Commerce, United States Senate, 5
vols., vol. II, p. 1569, and vol. III, p. 2271.

1905. Record of Proceedings before the Illinois Railroad and
Warehouse Commission in the Matter of Revision of the
Schedule of Reasonable Maximum Rates, etc., Springfield,
especially pp. 31 _et seq._ (Reprint.)

1876-1905. Proceedings and Circulars, Joint Executive Committee
and Joint Rate Committee of the Trunk Line, etc.,
Associations.

[391] Fink, Adjustment of Railroad Transportation Rates, etc., p. 16.

[392] _Ibid._, pp. 19 and 52.

[393] Windom Committee Report, II, p. 7.

[394] Waste of transportation as an economic problem has already been discussed in chap. IX, _supra_.

[395] This persisted even in 1890. Consult 51st Cong., 1st sess., Sen. Rep., No. 847, p. 616.

[396] Hepburn Committee, pp. 3006-3010.

[397] Hepburn Committee Report, p. 318.

[398] Windom Committee Report, II, p. 287.

[399] This was adopted officially by the trunk lines April 13, 1876.

[400] Hepburn Committee Report, p. 3112.

[401] Record Proceedings Railroad Commission of Illinois in Revision of Maximum Freight Rates, 1905, pp. 32 and 88.

[402] 55th Cong. 1st ses., Sen. Doc. No. 39, p. 33. The Hepburn Committee (p. 3111) describes the local jealousies which prevailed.

[403] Chicago has never become reconciled to it, however, alleging that it injures her commercially. Compare Windom Committee, 1874, vol. i, p. 24; 51st Cong., 1st ses., Sen. Rep. No. 847, 1890, p. 611 _et seq._; Elkins Committee, 1905, pp. 1433, 2538 _et seq._; and Record Proceedings Illinois Railroad Commission on Revision of Maximum Rates, 1905. _Cf._ p. 378, _infra_. Seaport differentials are discussed in chap. XI, _infra_.

[404] Hepburn Committee, p. 3104.

[405] Distances are given in the Thurman-Washburne-Cooley Advisory Commission on Differentials, etc., of 1882.

[406] Hepburn Committee, pp. 3188, 3195. "Taking the Indianapolis & St. Louis Railroad, for example, running to Indianapolis, where they can connect with all the trunk lines.... Assume that company had only 100 cars of business per day; if the property went to Baltimore, that company would receive $800 per day more than if it came to New York, pro-rating the rates by mileage to both places; now $800 a day, there being 300 working days in the year, is a difference of $240,000 a year."

[407] The revised table of percentages is reprinted in full in Hepburn Committee Report, p. 3107 _et seq._

[408] The official rule from Proceedings of the Joint Executive Committee, June 12 and 13, 1879, is as follows:

"First.--That from all points being less distant from New York than Chicago new percentages be adopted for making up rates on eastbound freight upon the following basis: the percentages from points of the same, or no greater distance than Chicago, to continue as heretofore.

"Second.--That six cents per 100 pounds be first deducted from an assumed rate of 25 cents per 100 pounds, Chicago to New York, said deduction to represent the fixed charges at both ends of long or short hauls.

"Third.--That, after such deduction, the rate per mile, which the remainder, or 19 cents per 100 pounds, produces from Chicago to New York, shall be charged per mile from all common points named in the first section, according to the percentages of distance shown by the table adopted at Chicago, April 30, 1876, to which result so computed the 6 cents per 100 pounds of fixed charges first above deducted shall be again added, and the percentage of the Chicago rate of 25 cents, produced by such additions, shall thereafter constitute the percentage of the Chicago rate, which shall be subsequently charged from the points named in first section.

FOR ILLUSTRATION

Chicago to New York, per 100 lbs. 25c.
Less fixed charges, per 100 lbs. 6
--
Basis of rate for computation 19

Columbus, Ohio, as at present 70 per cent. of
Chicago net rate, will be 13.3c
To which add the fixed charges 6
----
And the new percentage from Columbus will
hereafter be 77-2/10 per cent. of Chicago, 19.3c
in lieu of 70 per cent., as at present."

[409] Hepburn Committee, p. 3104. A hypothetical instance will serve as illustration. Suppose a point with an 80 per cent. rate on the old schedule. When Chicago paid 25 cents, the rate to this point would be 20 cents. Under the new scheme the intermediate rate would be 80 per cent. of 19 cents, or 15.2 cents, plus 6 cents terminal charge, making a total of 21.2 cents. This is 84.8 per cent. of the Chicago rate instead of 80 per cent. as before. Compare table, p. 373, _infra_.

[410] Thus from Ironton, in the 87 per cent. zone south of Columbus, Ohio, the distance to Columbus is 127 miles, added to 638 miles from Columbus to New York makes a total of 765 miles. Multiplying this by 00.0206 makes it 87 per cent. of the Chicago rate.

[411] Page 264, _infra_.

[412] _Cf._ Industrial Commission, IV, p. 556.

[413] Record, Detroit Board of Trade case.

[414] Consult p. 195, _supra_.

[415] Computed apparently by regular rules, but on the basis of only 4 cents terminal charges instead of the usual 6.

[416] Joint Rate Circular, No. 815.

[417] Demanding a 70 per cent. rate on a strict mileage basis, and also, because the pro-rating basis with Western lines is that figure.

[418] 23 I.C.C. Rep., 684, on wool from Detroit, for example. 13 _Idem_, 300 concerns Evansville rates and those across in Kentucky.

[419] Trunk Line Association Circular No. 523, issued July 26, 1883, gives tables of these percentages in each direction. Present westbound percentages are given in _ibid._, No. 751, issued April 3, 1899.

[420] Typewritten record, Detroit Board of Trade case, 1887-88, Interstate Commerce Commission Office, pp. 244-251.

[421] Under a committee headed by the late J. T. R. McKay, of Cleveland. The Official Classification and the 75 cent New York-Chicago rate first-class were then adopted for good.

[422] 12 I.C.C. Rep., 186, on points about New York, for example.

[423] I am told that rivers intervening, to cut off cartage by wagon to competing lines, have sometimes effectively influenced the charges.

[424] The long and short haul principle has always been given great weight here. All exceptions to it were removed in good faith by the carriers when the Act of 1887 was passed. _Cf._ Windom Committee, vol. I, p. 26; vol. III, pp. 42, 134, and 283.

[425] _G. C. Pratt Lumber Co. v. Chicago, Ind. & Louisville Railway Co._, decided January 27, 1904.

[426] U. S. Industrial Commission, vol. IV, p. 562.

[427] _Cf._ 8 Int. Com. Rep., 169, on grain rates from Minnesota and trans-Missouri points; as also 23 I.C.C. Rep., 195.

[428] _Cf._ Joint Committee Information No. 298 of January 13, 1900, giving all these rules in detail.

[429] _Cf._ Windom Committee, vol. II, pp. 42 and 134.

[430] Known as the C. F. A. scale. Full text is printed in Illinois Railroad Commission Proceedings in Maximum Freight Rate case, Record, etc., 1905, p. 43. See also p. 97.

[431] Detailed comparison is made in _ibid._, p. 45. See also p. 17.

[432] Illinois Railroad Commission Proceedings in Maximum Freight Rate case, Record, etc., 1905, p. 152.

[433] Exhibit A 15, _ibid._, shows this by means of a map. See also Senate (Elkins) Committee, 1905, vol. III, p. 2271.

[434] The double disability of these smaller places is stated in _ibid._, p. 7.

[435] Chapter XVIII, _infra_.