Chapter XV: Appendix: B (4)

This policy, we believe, has been approved by the country during that period. Pending the elaborate investigation of this subject prior to the passage of the act of June 29, 1906, no crystallized sentiment was manifested, either in the press or during the hearings, that indicated a public sentiment that this policy should be departed from. Since this bill has been before your committee no such public sentiment has been shown to exist by those who appeared before it.

The conferring upon the commission the power to suspend a rate advanced, either upon the filing of a protest by a shipper or in the discretion of the commission, taken in connection with the provision of the statute which gives to the commission the power to fix a rate and to designate the time, not longer than two years, that it should remain in force, would ultimately turn over to that administrative body the function of initiating the rates of the entire country. It would offer a premium to every shipper to enter a protest to the advance of rates, whether they were reasonable or unreasonable, even if discretion was vested in the commission. The protest, prepared by skilled attorneys, presenting a prima facie case of unreasonable advance of the rate, with no opportunity for an investigation before it must be acted upon, an official body, on which was imposed the responsibility to act would be constrained to suspend the rate until a final determination of the complaint.

The existing law permits any shipper to protest any rate that has gone into effect, the hearing on the protest is made without formal pleadings, and the commission is authorized then to determine the question whether the rate put in effect by the carrier was a reasonable rate or not, and, if not, to make the rate reasonable. So far, in the practical operation of the act of June 29, 1906, this provision of law has worked satisfactorily, and but comparatively few of the decisions of the commission have been contested by the carriers. Under existing law both parties are protected. If the decision is that the rate is unreasonable a judgment may be rendered in favor of the protestant for the difference between what the commissioners determine is a reasonable rate and the rate fixed by the carrier, with 6 per cent interest from the date of the overcharge. If, on the other hand, this amendment should receive the approval of Congress and the rate filed by the carrier should be protested and then suspended by the commission (in the multiplicity of duties imposed upon that tribunal), considerable time would elapse before a final determination of the question could be reached. During that period the carrier would be receiving only the old rate, and if the commission finally decided that the advance was reasonable no reparation in any way could be awarded.

It was alleged before the committee that this last result would not be very injurious to the carrier, for the reason that it would be receiving the rate which it had fixed as a fair compensation for the service performed prior to the change. The answer to this seems reasonable, which was, that conditions had so changed that it required an advance of the rate to meet those new conditions. Otherwise the advanced rate would have no justification. That traffic officials fully appreciate the fact that, with the watchful eyes of every shipper affected by an advanced rate and the authority of the commission to determine and fix a just and reasonable rate (as a general rule), rates would not be advanced by such officials without a belief upon their part that there were sufficient reasons to sustain them, if protested.

The attention of the committee has been called to the attitude of the commission in its rulings upon the advance of rates, even where the facts have shown that the rates have been lowered with a view of developing a particular industry. In the case of the New Albany Furniture Company against Mobile, Jackson and Kansas City Railroad Company, etc., decided June 2, 1908, the commission held:

"The rates were low before the increase, but having been
established, after prolonged negotiations, especially for the
purpose of permitting complainant to reach a particular market,
and in preference to making a readjustment in some other
direction or territory, and complainant having adjusted its
business thereto, defendants may not by an arbitrary advance
in those rates destroy complainant's business, there being no
evidence that the rates advanced were less than the cost of
service."

A similar decision was rendered on the 1st of June in the case of Western Oregon Lumber Manufacturers' Association against the Southern Pacific Company.

Knowledge of the views held by the commission by the traffic officials and shippers will serve as the most effective check upon the part of the carrier in advancing rates over those which have been in existence for any considerable period of time, unless they can support the advance by the most satisfactory reasons.

WOULD THE AMENDMENT PROPOSED BE IN CONFLICT WITH THE FIFTH AMENDMENT TO THE CONSTITUTION?

2. An objection urged to the approval of this amendment, even though modified as suggested in committee, was that it conflicted with the fifth amendment in depriving the carrier of its property without due process of law.

The existing law authorizes carriers to make reasonable rates. Congress recognizing the right of control by the carrier has provided reasonable regulations to safeguard the interests of the public in the exercise of that right. It authorizes a protest after the rate had gone into effect; it provides for a full hearing after notice by the commission; it has further extended the time when the rate shall be made effective to thirty days from the filing of the schedule with the commission. These were held to be reasonable regulations, but it is claimed that under the amendment proposed to the sixth section, that if the rate is suspended from going into effect at the end of the thirty days by a protest, there is no limitation in the act fixing the time when the commission shall determine the question of the reasonableness of the advance; that the period is therefore indefinite, depending upon numerous considerations which might extend the time when the rate would be effective, if it was finally held to be reasonable, to six months or a year.

That the act of suspension either by the operation of the statute or by the commission is without notice or hearing to the carrier; that Congress has no greater right to authorize an administrative tribunal to suspend indefinitely the taking effect of a reasonable rate without notice or hearing than it has the right to provide that an administrative tribunal may authorize a rate which would yield less than the cost of the service.

It was decided in the case of Chicago, M. & St. P. R. R. Co. against Minnesota, 134 U. S., 418, that the right to make a reasonable rate was a property right. In the case of Interstate Commerce Commission _v._ Chicago Great Western Ry., 209 U. S., 118, the Supreme Court said:

"It must be remembered that railroads are the private property
of their owners; that while from the public character of the
work in which they are engaged the public has the power to
prescribe rules for securing faithful and efficient service and
equality between shippers and communities, yet in no proper
sense is the public a general manager."

Justice Brewer, in the above case, page 108, speaking for the court said:

"It must also be remembered that there is no presumption
of wrong arising from a change of rate by a carrier. The
presumption of honest intent and right conduct attends the
action of carriers as well as it does the action of other
corporations or individuals in their transactions in life.
Undoubtedly when rates are changed the carrier making the
change must, when properly called upon, be able to give a good
reason therefor, but the mere fact that a rate has been raised
carries with it no presumption that it was not rightfully done.
Those presumptions of good faith and integrity which have been
recognized for ages as attending human action have not been
overthrown by any legislation in respect to common carriers."

It is claimed that the indefinite suspension of the rate until final hearing is to deprive the carrier, if the rate advanced is reasonable, of its right of property during the period of suspension, without having given it any opportunity to be heard prior to the act of suspension. Due process of law must precede, and should not follow, the suspension. To set aside the carrier's act in fixing the rate pending the investigation required by due process of law is to deprive the carrier, pro tanto, of its property right to charge a reasonable rate. The fact that the statute requires an investigation after the suspension of the rate does not avoid the constitutional inhibition, as that provision can only be satisfied when the investigation precedes any disturbance of property rights. The carrier is entitled to the investigation before it is restrained in the _exercise_ of its property rights; the theory of the amendment suggested is that the shipper is entitled to an investigation before the carrier can _exercise_ its property rights.

Those contending for this objection to the amendment assumed that the indefinite suspension without hearing of the act of the carrier which deprived it, beyond a reasonable time, of the benefit of the advanced rate, was in effect the same as that which was condemned by the Supreme Court in the case of the Chicago, M. & St. P. R. R. Co. against Minnesota. Under the statute of that State, a carrier had the right to initiate the rate, and to put it in effect, and, under the law, the commission was authorized to make such changes as it deemed proper in the schedule so filed, and to direct the carrier to modify or change the schedule in accordance with the decision of the tribunal. In the one case the going into effect of the rate is suspended indefinitely without notice or hearing; in the other, the rate is changed or modified without hearing. On page 418 the court condemns this in the following language:

"No hearing is provided for, no summons or notice to the
company before the commission has found what it is to find and
declared what it is to declare, no opportunity provided for the
company to introduce witnesses before the commission, in fact,
nothing which has the semblance of the process of law."

On page 458 the court said:

"If the company is deprived of the power of charging reasonable
rates for the use of its property, and such deprivation takes
place in the absence of an investigation by judicial machinery,
it is deprived of the lawful use of its property, and thus, in
substance and effect of the property itself without due process
of law and in violation of the Constitution of the United
States."

This view of the law as announced in 134 U. S. was affirmed by the Supreme Court in the case of Louisville and Nashville Co. against Kentucky, 183 U. S., 510.

It was further suggested that if this amendment was incorporated in the sixth section, that it was so fundamental in its character, that if the court should hold that it was an unconstitutional exercise of power by Congress, that it might have the effect of destroying the entire value of this remedial legislation, as it would be impossible to separate the clause from those provisions of the law directly controlling the subject of rates.

The committee, without expressing any opinion upon the constitutional questions suggested, feels that it is of sufficient importance and gravity to cause it to hesitate to incorporate such amendment into the sixth section, especially in view of the other objections to such legislation.

COULD THE COMMISSION, UNDER THE AMENDMENT, FIX A REASONABLE RATE, IF IT HELD THE PROPOSED ADVANCE RATE UNREASONABLE?

3. One of the most serious objections to this measure, if the contentions of those who oppose it are well founded, is the assertion that the adoption of this amendment would, in reference to advanced rates that were protested, deprive the commission of the power conferred upon it by the fifteenth section of the act of June 29, 1906, empowering it, if on protest and hearing it found a rate to be unreasonable, to fix a reasonable rate.

The authority to the commission proposed in the amendment "to hear and determine the matter in all respects as it was required to do by sections 13 and 15 of this act," can only be construed to refer to the procedure as provided in the thirteenth and fifteenth sections of the interstate commerce law. There is no attempt to amend the provisions of section 15, which confers upon the commission the right to declare a rate unreasonable, and when so declared to fix a reasonable rate. There are no provisions found in the amendment suggested to the sixth section conferring upon the commission the power, when it finds a rate proposed to be advanced unreasonable, that it may then proceed to fix a reasonable rate.

An examination of section 15 in reference to the power of the commission to fix a rate depends upon a condition precedent that is clearly set forth in said section. It is, that before the commission has the authority to fix a rate it must first reach the opinion that--

"The rates, or charges whatsoever, demanded, charged, or
collected by any common carrier or carriers, * * * or that
any regulation or practice whatsoever of such carrier or
carriers affecting such rates, are unreasonable, or unjustly
discriminatory, or are unduly preferential or prejudicial, or
otherwise in violation of the provisions of this act."

When this conclusion has been reached as to existing rates the section then authorizes the commission--

"to determine and prescribe what will be the just and
reasonable rate or rates, charge or charges, to be thereafter
observed in such cases as the maximum to be charged; and what
regulations or practice in respect to such transportation is
just, fair and reasonable to be thereafter followed."

To leave no doubt of the true construction of this section, an examination of the order required to be entered by the commission is conclusive of the meaning and intention of Congress in the enactment of this portion of the fifteenth section. It provides:

"And to make an order that the carrier shall cease and desist
from such violation to the extent to which the commission finds
the same to exist, and shall not thereafter publish, demand, or
collect any rate or charge for such transportation in excess of
the maximum rate or charge so prescribed."

An analysis of this order of the commission which requires it to provide "that the carrier shall cease and desist from such violation, to the extent to which the commission finds the same to exist," recognizes the fact that the rate is an existing rate, is an effective rate, is a rate in full operation, and cannot, therefore, be applied under the provisions of the amendment suggested to the sixth section, as no rate has gone into effect and become operative.

The subject we are considering as affected by the proposed amendment and the provisions of the fifteenth section, do not rest upon any principle of the common law, but are purely statutory enactments to carry out a policy in reference to interstate commerce deemed wise by Congress. The construction, therefore, of the statute in this respect cannot be aided by any principles of the common law, and the conclusion as to its meaning must rest entirely upon the intention of the legislature as expressed by the language of the act.

If this view of the fifteenth section is correct, the adoption of the amendment to the sixth section would change one of the most effective provisions of the act of June 29, 1906, and which was contended for with such earnestness in its passage through Congress.

Under the amendment to the sixth section, if adopted, and a protest was made to the advanced rate, or the commission under a protest was authorized in its discretion to suspend the advanced rate, until hearing as to its reasonableness, the only decision that could be made under that amendment would be, that the rate proposed to be advanced was either reasonable or unreasonable, but there would exist no power in the commission, if they found the rate unreasonable, to fix what in its judgment would be a reasonable rate. The committee does not believe that it is the desire of Congress, in view of the sentiment of the country as expressed in the press and before it, to pass additional legislation which would invite and suggest such confusion and legal difficulties in the construction of an act which has not yet been put in full operation by the tribunal charged with that duty.

COULD THE DECISION OF THE COMMISSION, CONDEMNING AN ADVANCE OF RATES, BE REVIEWED BY THE COURTS?

4. It was suggested to the committee that the incorporation of this amendment to the sixth section of the act of June 29, 1906, would deprive the carrier of the right to review by a bill in equity a decision of the commission which denied to the carrier the right to advance a rate. This contention is based upon the ruling of the courts, that the making of a future rate is a legislative act, and not a question for judicial review, and that until the rate is fixed and becomes effective it is purely one within the legislative function, and presents no subject cognizable by the court.

Under the amendment proposed a carrier would file a schedule of advanced rates; a shipper enters a protest to the rate taking effect; either by operation of the statute or the exercise of discretion by the commission, the rate is suspended until final hearing; subsequently there is a notice of the hearing and a decision rendered adverse to the contention of the carrier seeking an advance of the rate. Under these circumstances there is no remedy of review of that act of the commission provided for by existing law or under the principles of equity.

Existing law, providing for a review of a decision of the commission, does not by its terms enlarge the subject of equitable jurisdiction. The provision of the statute confers upon the court the right to take jurisdiction of a case against the commission and to review its decision when based upon an existing rate. There is no provision of the statute that contemplates the exercise of a jurisdiction by the courts in a case arising under a provision of law similar to the amendment sought to the sixth section of the act of June 29, 1906. In the decision rendered by the commission denying the right to advance the rate, the question of the reasonableness of the former rate or of any existing rate is not involved in the order to be entered by the commission. Under this proposed amendment the carrier submits a proposition to advance the rate, which has never become effective. The order of the commission would simply approve the proposition or deny the advance of the rate. This, under the proposed amendment, would be the extent of the authority and act of the commission.

In the case of McChord _v._ L. & N. R. R. Co. (183 U. S., 483), followed by the case of L. & N. R. R. Co. _v._ Ky. (183 U. S., 503), the court sustains the doctrine announced, and held that before a court of equity can intervene, the administrative body must do some act that advances beyond the legislative function. (Reagan _v._ Farmers' Loan & Trust Co., 154 U. S., 362; Interstate Commerce Commission _v._ Railway Co., 167 U. S., 479.)

It is contended that the decision of the commission prohibiting the advance is a legislative act, and that under the decisions of the courts the order simply prohibiting the taking effect of a proposed advance could not be the subject of equitable cognizance. If this view is not correct, it is contended that the courts by overruling the order of the commission would in effect be putting in force a future rate. Under existing law, however, if the rate has taken effect its reasonableness is a matter of judicial review, and should the commission after protest and hearing declare it to be an unreasonable rate and set the same aside in its order, that decision is reviewable by the courts, as it presents a judicial question. The statute conferring upon the commission the power to determine whether an existing rate is reasonable or unreasonable has fixed the standard which must determine the jurisdiction of the administrative tribunal, and the courts have a right to review the act of the commission, with a view of ascertaining whether it has acted within the limitations of the power conferred upon it.

In the case of the State Corporation Commission of Virginia against Railways, decided by Mr. Justice Holmes November 30, 1908, speaking of the power of the commission to fix a rate and the appeal from its decision to the court of appeals of Virginia, the court said:

"A judicial inquiry investigates, declares, and enforces
liabilities as they stand on present or past facts and under
laws supposed already to exist. That is its purpose and end.
Legislation, on the other hand, looks to the future and
changes existing conditions by making a new rule to be applied
thereafter to all or some parts of those subject to its power.
The establishment of a rate is the making of a rule for the
future, and therefore is an act legislative, not judicial, in
kind. * * *

"Proceedings legislative in nature are not proceedings in a
court within the meaning of the Revised Statutes, section 720,
no matter what may be the general or dominant character of the
body in which they may take place. * * * That question depends
not upon the character of the body, but upon the character of
the proceedings. (Ex parte Va., 100; U. S., 339-348.) They are
not a suit in which a writ of error would lie under Revised
Statutes, section 709, and act of February 18, 1875. (C. 80
Stat., 318.) * * * Litigation can not arise until the moment
of legislation is passed. * * * We may add that when the rate
is fixed a bill against the commission to restrain the members
from enforcing it will not be bad as an attempt to enjoin
legislation or as a suit against a State, and will be the
proper form of remedy."

The recent decision of the Supreme Court in the case of Public Service Commission _v._ Consolidated Gas Co. of New York, in which the opinion was delivered by Mr. Justice Peckham, in deciding what is known as the Eighty-Cent Gas Case from the southern district of New York, is instructive upon the question discussed in this objection.

In that case, the parties had gone to issue upon the question as to whether the rate of 80 cents enjoined by the court from taking effect was confiscatory. After deciding the case upon the merits in favor of the commission, the court was unwilling, upon the supposed effect of a rate which had never been in operation, to bar the parties of their right when the same became effective from asking the protection of the court against its practical results. The memorandum announcing the position of the court upon that question is as follows:

"As it may possibly be that a practical experience of the
effect of the acts by actual operation under them might
prevent the complainant from obtaining a fair and just return
upon its property used in its business of supplying gas, the
complainant, in that event, ought to have the opportunity
of again presenting its case to the court. Therefore, the
decree is reversed, with direction to dismiss the bill without
prejudice."

This case simply illustrates the fact that the court was unwilling to decide the question finally until the rate contested had become effective. This was a suit involving a schedule of rates, and the question made by the record was that these rates would result in the confiscation of the property of the complainant in violation of the Federal Constitution. Where that question can be properly made, the courts have intervened upon clear proof and sustained their jurisdiction to prevent such a violation of the constitutional protection. In this case, although the court held that the evidence developed the fact that this allegation of the bill was not sustained, it was so reluctant to give effect to testimony as to what might be the effect of the rates before they were made operative that it preserved the rights of the parties by authorizing a new suit after the rate should become effective. Under the act to regulate commerce, such a constitutional question could hardly be practically raised, and the rights of the court to intervene must depend upon the limit placed upon the power of the commission by Congress in the enactment of the law, in fixing the standard which should guide the commission in its action.

BURDEN IMPOSED ON THE COMMISSION.--CONFLICT OF JURISDICTION.--HOW RATES ARE MADE.

5. Your committee has deemed it proper that it should report to the Senate the legal objections to the incorporation of this amendment in the sixth section of the act of the 29th of June, 1906, but although giving due weight to these objections, the committee has been more strongly influenced in its adverse report upon this bill because of the strong and forcible practical objections which have been urged to the adoption of this amendment as a part of the interstate commerce law.

Should this amendment become a part of the law, it would be in the power of any shipper, whether interested or not in the result, to file a protest against the advance of the rate which under the proposed amendment would at once suspend its going into effect, and under the amendment offered in committee would place it in the power of the commission to order its suspension, if a prima facie case was presented in the protest. The shipper in filing a protest assumes no responsibility, either as to the effect of his action upon the carrier or liability in any way for cost accruing during the proceeding. Considering the thousands of articles transported by the carriers of the country, the hundreds of thousands of rates published for the transportation of these articles, and the thousands of shippers interested in their movement, some idea of the number of protests that probably would be filed on the advance of rates can be imagined. The burden that would be thrown upon the commission in its effort to meet this responsibility would, as Judge Cooley well remarked, require "superhuman" efforts on its part. He said:

"Moreover, an adjudication upon a petition for relief would in
many cases be far from concluding the labors of the commission
in respect to the equities involved, for questions of rates
assume new forms, and may require to be met differently from
day to day; and in those sections of the country in which the
reasons or supposed reasons for exceptional rates are most
prevalent the commission would, in effect, be required to
act as rate makers for all the roads and compelled to adjust
the tariffs so as to meet the exigencies of business while
at the same time endeavoring to protect relative rights and
equities of rival carriers and rival localities. This in any
considerable State would be an enormous task. In a country so
large as ours, and with so vast a mileage of roads, it would be
superhuman. A construction of the statute which should require
its performance would render the due administration of the law
altogether impracticable, and that fact tends strongly to show
that such a construction could not have been intended."

If the advance of rates was ultimately decided to be reasonable, the carrier would have been deprived during the period of suspension of the additional earnings to which it was entitled, and under such a provision of law would be required to maintain, at enormous expense, a large force of attorneys to answer and defend these protests. It would confer upon the commission the powers now exercised by the courts, and the jurisdictions over the same subject by both the courts and the commission would necessarily produce conflict and confusion.

The Supreme Court in the case of Texas Pacific R. R. Co. _v._ Abilene Cotton Oil Co. (204 U. S., 426), construing the ninth and twenty-second sections on the right of a shipper to apply to the courts for pecuniary redress for an alleged unreasonable rate held that, until the protested rate was condemned by the commission, there was no relief in the courts. This decision avoided a conflict of jurisdiction between the courts and the commission. It would lessen very greatly the value of the amendment of the act of June 29, 1906, which requires thirty days' notice in a change of rate, which was adopted, with a view of investing rate conditions with a greater degree of stability than formerly. Under existing law, the shipper is assured of that degree of stability, and can predicate his sales and purchases accordingly. Under the amendment, shippers would never know whether or not a rate is to become effective on schedule time, or at any future time. The effect of the amendment would, therefore, be to a considerable degree to nullify the permanency which this amendment to the act to regulate commerce sought to impress upon the law.

We must remember in considering this question that the majority of advances have resulted from the practice of the roads in the reduction of rates to meet certain commercial and economic conditions at the time, which have usually been the result of appeals from shippers and suggestions from commercial organizations.

We desire to direct attention to the statement filed before the Committee on Interstate and Foreign Commerce upon a similar bill to this by the chairman of the committee of the Southwestern Traffic Association, which is as follows:

"A very small percentage of the changes in freight rates,
either reductions or advances, is evolved by railroad
officials. Practically every change in rates is the result of
suggestion from one or more shippers, who find that by some
modification in the existing schedules their business in a
certain territory can be increased by enabling them to meet
competition which they encounter from other sources of supply,
which are in most cases served by rival railroads. Their
representation is that by the proposed change their profit
or business will be increased, and consequently the railroad
serving them will share in an augmented traffic which, at the
time of the suggestion, is being handled by the rival shipper
and carrier.

"Ninety or more per cent. of these suggestions are for
reductions in rates or for changes in rules and regulations
beneficial to shippers and classed as reductions. The railroad
company is anxious at all times to increase its traffic and
gives a keen ear to such pleas of the shipper. The railroad
official to whom such requests are made carefully investigates
the conditions recited by the shipper and, by correspondence
with such railroad's representatives at the points of origin
and destination, confirms, if possible, the views of the
shipper and the effect of the proposed change on the tonnage
and revenue of the company. The traffic official of the
railroad thus being daily engaged in investigations of this
kind becomes very proficient in his knowledge of the factors
surrounding the movement of the principal articles of commerce
and becomes, after experience, a ready judge of the merit of
such propositions. When thus convinced, he becomes the agent of
the shipper in securing the proposed adjustment. This may take
the form of suggesting to a rival railroad that the advantage
which its shippers have enjoyed is unjust and that he should be
permitted, without any corresponding reduction on the part of
such rival railroad, to reduce his rate that the complaining
shipper may profitably secure an increased share of the
competitive traffic in question. Being unable to thus persuade
the competing railroad of the merits of such a contention he
is forced to proceed by reducing his own rate without regard
to the possible change which may follow on the part of other
railroads as a consequence of his reduction.

"It will, therefore, naturally be seen that the railroad
official and the shipper are constantly planning to increase
the business in which they are jointly interested, to the
disadvantage of the rival railroad and shipper. Sometimes
these efforts result in serious rate wars until the point in
controversy has been adjusted and the competitive rates placed
on a basis which is more nearly equitable to all concerned. In
many instances these disputes result in arbitration either by
the Interstate Commerce Commission or by individuals who may be
agreed upon by the contending interests.

"Bearing in mind, therefore, that practically all rate
reductions are the result of the effort of the railroad company
to serve the shipper, it can easily be seen what the result
will be if no advances in rates can be made without practically
the approval of the Interstate Commerce Commission. Where it is
difficult to restore rates to normal figures, the carrier will
be loath to reduce them in order that the shipper dependent
upon such carrier may increase, for the time being, his share
in the competitive traffic in which he is interested."

ADJUSTMENT OF RATES.--INTERRELATION OF RATES.--PRACTICAL OPERATION OF AMENDMENT.

6. The subject of rate adjustment, even upon a single system of transportation, is one involving great difficulty and perplexity. When this adjustment is considered in its relation to the entire country, to the diversified commercial conditions, as affected by commercial competition, and as controlled by the interrelation of rates, it stands forth as one of the most difficult of all the problems which must be mastered that the transportation agencies may not be injuriously crippled in the performance of their quasi public functions, or the prosperity and development of the commercial interests be retarded by the failure to enact proper, reasonable, and just governmental regulations.

Rates which can be considered alone are comparatively few in number. In the large majority of cases they are interrelated with other rates, and frequently this interrelation exists as between areas widely separated. The rates upon iron and steel from mills within 50 to 100 miles of New York, Philadelphia and Baltimore, whose relations to each other are established by long custom and usage, are based primarily upon the necessity of preserving a fair comparative charge between the different shipping points and destinations. Rates upon coal from central Pennsylvania to tide water have close relations with the rates upon coal from West Virginia to tide water, competing as such coal does, in the same markets. The rates upon lumber from the Michigan markets must bear some relation to the rates on lumber from Louisiana and Georgia to the same market of distribution, although separated by hundreds of miles.

The rates upon grain from western farms to eastern points bear a relation to the other, and upon export grain the rates to the Atlantic seaboard bear a close relation to the rates to the Gulf. The rates upon fruit and vegetable traffic from the various shipping districts, as California on the West and Florida on the South, must be considered in the making of rates. The structure of rates between the territory east of the Mississippi and north of the Ohio River, and the territory east of Pittsburg and Buffalo, including New England, is closely interrelated; as an example, the rates between Chicago and New York take a percentage of the Chicago rate from all points west of Pittsburg and Buffalo. The principle of the interrelation of rates has frequently been recognized in the decisions of the Interstate Commerce Commission.

In the interest of the manufacturer there is a very important relationship between rates upon different products entering into the manufacture of a given article. In the great steel-producing districts of the Shenango and Mahoning valleys and Pittsburg for many years the rates upon raw material to the furnaces for the production of pig iron have been adjusted upon a basis, so far as possible, of making the freight cost of assembling the raw materials that enter into this product the same to each furnace. In the one case the rate upon coke may be higher and the rate upon ore or limestone lower; in other cases the reverse. The adjustment of rates upon these different raw materials is so made that when assembled at the different furnaces the aggregate cost is relatively the same. This illustrates the contention that such rates cannot be considered separately, but must be taken as a whole.

Bearing these facts in mind it is manifest that if an advance in rates is made and the protest of one shipper shall operate as a stay to the advance of a particular rate in which he may be interested the result would be to burden thousands of other shippers who have made no objection. The protesting shipper would thus secure an advantage, enjoying for a time, at least, a rate relatively lower than that to which he was entitled. It might be urged that it would be open to all other shippers to file similar protests, but under the provisions of the bill, or of the amendments suggested in committee, the protesting shipper might wait until the last day of the thirty-day period, thus giving no opportunity to other shippers, who would be ignorant of his purpose, to file their protest. It would be possible if this amendment became a law that many individual shippers would take advantage of their competitors by making contracts upon the basis of a lower rate and at the last moment file the protest, suspend the advance rate, and deliver their product under such contracts within the period of the suspension of the advanced rates and thus profit at the expense of their competitors.

The effect of this amendment becomes more serious where the relation of rates is between wide areas, and these relative rate adjustments cannot be made simultaneously. The rates upon grain for export, from the West to the Gulf, as compared with the Atlantic seaboard, will illustrate this statement. The protest of one shipper between two specific points would not only result in throwing out of relation the rates from all points in that section, but would also affect the competitive rates from other sections. Such a result would necessarily render the rate situation in reference to the grain rates "confusion worse confounded."

Rates in a country like the United States, which is comparatively young, and the development of which attracts the attention of the world, must, necessarily, be elastic, not only in the interest of the carrier, but of the shipping public. The principle is sound and has received the approval of the Interstate Commerce Commission, that rates must be fixed with regard to their relations one with the other, and not entirely upon the cost of service. This relation is because of the competition between shippers, between sections of shippers, and between localities, and as (because of the rapid development of our country in the production of new sources of supply, in the opening up of new grain fields, flour mills, mines, and factories, etc.) this competition is constantly changing. It is manifest that rates must constantly fluctuate, so as to be adjusted to the new condition; it is essential in the development of the country, even in the older sections, that rates must be elastic, which means constant reductions and advances.

This is in the interest of communities and the individual shipper. There must be elasticity for other reasons, in the interest of communities as of the railroads; in meeting changes in commercial conditions that necessitates reductions in rates for shorter or longer periods, as an illustration, to enable our grain and other products of the farm to reach foreign markets, which would be impossible in one period unless rates were lowered, whereas in other periods higher rates could be charged without injurious results. Understanding the conditions that surround this complex subject, it is manifest that if a single shipper, or even the Interstate Commerce Commission, is to have the power to prevent at any time that elasticity which involves an advance in rates, the natural result will be that reductions will not be made by the carrier, and the elasticity will be lost. The fear would be ever presented to the mind of the traffic official that the rate once reduced could not--at least, until after exhaustive and long-drawn-out hearings before the commission--be advanced.

The necessary fluctuation in rates to meet the changing conditions of commerce, when examined in the light of the reports of the Interstate Commerce Commission, is startling to one not familiar with the rapid change of commercial conditions in this country. There were 225,982 tariff publications filed with the commission in one year, all containing changes of rates, either reductions or increases, and rules governing transportation. These publications--many of them--contained a great number of different tariffs. The Pennsylvania lines, east of Pittsburg, issued 2,200 tariffs and 3,600 supplements. About 33-1/3 per cent of these covered advances, and 66-2/3 per cent were reductions. As the law exists today, there was no special inducement to the shipper to file protests against the advances. Suppose, however, that this amendment had been a part of the act to regulate commerce, how many protests would have been filed, and what length of time would it have taken the commission to have disposed of them? What uncertainty would have resulted to the commercial interests while waiting for the adjudication of these questions?

OPPORTUNITY FOR FRAUD AND DISCRIMINATION UNDER THE AMENDMENT.

7. One of the most serious objections urged to the passage of this amendment is the opportunity which such a law would present for the perpetration of frauds under it, and in the case of even honest protest to the advance of rates, where rates rest on a differential basis, in producing thousands of instances of unfair discrimination.

An example under the first proposition may be stated briefly, as follows: There are two men engaged in the same line of trade; they are both called upon to bid on a contract involving a large amount of a given commodity in which both deal. The carrier has given notice of an advance in rate, effective thirty days from the filing and publication of the schedule; the commodity is not to move for some days; one of the bidders files his bid, based upon the advanced rate, assuming that the notice of the carrier will be made effective; the other shipper and bidder waits until two or three days before the date the rate is to be made effective, files a protest, confident that it will take three or four months to have the matter adjudicated, files his bid against his competitor, based on the current rate, and being the lowest, secures the contract. An example under the second proposition would be in case of a rate published from St. Louis to be followed differentially from Chicago by a number of competing roads. A shipper on one of the lines, just prior to the taking effect of the rate, would file his protest as to the rate east of Chicago. The differential adjustment that has been made by all these roads will at once be destroyed, and the shipper on the road against which the protest was filed would have the advantage over all of his competitors on the other lines in shipping east.

These discriminations between shippers would be the direct result of the power placed by Congress in the hands of shippers and would have received the sanction of legislative approval, and, therefore, be lawful. The statute has taken it out of the power of the carrier to meet such a condition and to prevent the discrimination. It cannot change its rate under thirty days without a special order of the commission, and that order, it must be assumed, cannot be granted without a reasonable hearing. Congress since 1887 has sought by the most stringent measures of legislation to prevent discrimination and preserve equality among shippers. The original act was demanded more to accomplish that purpose than for any other. The Elkins Act was confined almost entirely to the subject, and the act of June 29, 1906, increased the penalties for the violation of these provisions. Should this policy, which has been followed for more than twenty years, be modified and an act passed, the tendency of which is to tempt the cupidity of the shipper to accomplish results which it has earnestly and vigorously fought to stamp out?

WOULD PREVENT REDUCTIONS, AS WELL AS ADVANCES, IN RATES, AND DESTROY THEIR FLEXIBILITY.

8. On the face of this amendment, it seems only to give to the commission the authority to prevent an increase in rates, but the practical result of such a law would be far more reaching. Such a law would mean a rigid freight tariff in place of the present flexible and elastic system of rates which exists alone in this country. Stability of freight rates is important, but not to the extent that the carrier shall not feel warranted in promptly applying remedies for the relief or assistance of shippers who find themselves no longer able to compete, due to advantages which other shippers have secured, or changes which have occurred in the conditions surrounding the marketing of their products.

A law which tends to minimize the commercial or competitive conditions existing at the present time will necessarily result to the disadvantage of shippers, to the carrier, and to the communities they serve. It is not necessary here to again refer to the presentation of the importance of the flexibility of rates, which is so clearly shown in the discussion of the influences which control in making reductions, as well as advances of rates by the chairman of the Southwestern Traffic Committee, as quoted under section 5 of this report. The more the committee has reflected upon the probable tendency of the principle announced by this amendment, if incorporated into the law, the more definite has become its conviction that it would ultimately result in destroying that important factor in American railroad management, "the flexibility of their tariffs--their adaptability to the changing commercial and economic conditions."

One of the most distinguished and skilled traffic officials in the country, Mr. Henry Fink, in considering this amendment uses the following language:

"Railroad officials are constantly engaged in the work of
adjusting rates so as to meet as far as practicable the
requirement of their patrons. In times of depression of
business they make reduction in rates in order to enable
shippers to send their commodities to certain markets, and
keep industrial establishments from being closed. These
reduced rates are often so low as to barely cover the cost of
transportation. But they are meant to be temporary in their
operation, and to be advanced when business conditions have
become more favorable.

"It must be obvious that when the restoration of such rates is
obstructed, so that railroad officials are not permitted to
advance rates except by permission of a government bureau after
an investigation which must consume considerable time, railroad
officials will naturally hesitate, and often decline, to make
reductions in rates which involve considerable loss of revenue
without any compensating benefits to their companies, either in
the present or future.

"It is easy to see the effect of this. Railroads would no
longer be able to afford the desired assistance to shippers,
however anxious they might be to do so. The rates would in a
large measure lose their elasticity, and become rigid, and a
condition similar to that existing in France would be created,
where state controlled rates prevent railroads from building up
the territory."

In considering this question, we must not forget that when we destroy elasticity and flexibility in our rates, we prevent reductions of rates, as well as the raising of rates. Its tendency is not only to prevent the reduction in particular instances that has resulted in great advantage to the shippers and the country in the past, but it prevents the lowering of the general average of rates. There have been comparatively few complaints, as to the unreasonableness of the rates of this country per se. The vast majority of complaints, against the reasonableness of rates, is the claim that they are relatively unreasonable. Under the American system of rate adjustment, with its freedom to meet commercial and economic conditions, the general average of rates per ton per mile has voluntarily been reduced by the carriers of the country from 1870; not so strikingly since 1896 as previously, but substantial reduction as follows:[J]

1896 802
1897 789
1898 753
1899 724
1900 729
1901 750
1902 757
1903 763
1904 780
1905 766
1906 748
1907 759

The leaders of railroad management and the ablest experts on railroad economics in foreign countries have approved in the most enthusiastic language, the wisdom which has preserved to the American railway system its freedom of management and its flexibility of rates, subject only to the limitations of reasonable rates, equality among shippers, and the avoiding of all devices that might result in discrimination among those who use these public means of transportation.

The view of M. Emile Heurteau, president of the Orleans Railroad, speaking of the American system of roads, said:

"We would be only too glad to adopt the American system
of fixing the lowest rates proper, and making up the loss
of profit on each shipment out of the increased volume of
business they make the railways available to, which is the
only economically and commercially right and sensible way
of doing. We would be glad to build up our territory as the
American railways do, by encouraging its industries, by opening
its markets, by enabling it to compete with other territory
contributing to the same markets.

"But we can not do that; the state-controlled rates prevent it,
however strong our desire or the people's may be.

* * * * *

"Railroads under government supervision must set their rates
close to the maxima then, and maintain them there, for their
own salvation. There are many times when, if it were possible,
we would like to lower freight charges to meet some special
emergency, such as the necessities of a district suffering from
a crop failure, for example.

"That is not philanthropy, but commercial sense, to help the
man who creates business for you, when he is hard pressed,
and to increase the volume of traffic that is falling because
people have not the money to pay the price they have been
accustomed to pay easily. But if we should once lower our
rates--possibly to the point of loss, as American railways have
done frequently in crises--we would not be allowed to restore
them later, when they could be fairly restored.

* * * * *

"The wonderful growth and development of the United States is
the admiration of the whole world. I have no doubt it is to be
attributed largely to the freedom you have always enjoyed in
your commercial and industrial life.

"Opportunity is given here for railways and communities to be
mutually helpful, and splendid use has been made and is being
made of it. The few cases of complaints against your railways,
the expansion of trade through the opening of European markets
to the producers of your Central and Western States, who
are enabled to deliver their products abroad, the low cost
of transportation that enables them to compete there with
the foreign producer near at hand, whose railways are in no
position to help him--all these things seem to me sufficient
evidence of the success and desirability of the American
practice in the management and regulation of railway matters.

"Any economist, any business man, any transportation manager
will tell you that the present American method of fixing
freight rates is the only logical and rational one."

In the investigation of railways by the Senate committee in 1905, Mr. W. M. Acworth, who is regarded as one of the leading experts in England on railroad transportation and railroad economics, was invited to appear before the committee, with the request to give a review of the historical facts bearing on the control and management of the railways of England. After complying with the request of the committee, certain questions were asked him that were of great importance at that time in the consideration of the questions then being investigated by the committee. One of these questions involved the effect of the provision of the new canal and traffic act of Parliament, which for the first time embodied the provision that "railway companies must make no increase except for good cause, if anybody objects," and which, as construed by the courts, prevented any increase of a rate where objection was made, until after hearing by the board of trade.

His examination will be found in the third volume of the hearings of that investigation, pages 1848, 1852, 1853 and 1854, and was as follows: