Another method, akin to this, is to give the local agent at the station of delivery power to correct the way-bill, or deduct a certain percentage from every bill presented to the favored shipper. The agent forwards the amount collected as full payment, correcting his accounts so as to give himself the necessary credit, which is O. K.’d by the auditor of the road on his next visit to the station.
Large payments are made by some railroads “to encourage new industries.” They have the example of cities and States and of the nation to justify appropriations for the establishment of infant industries and development of the country, but they abuse the principle by making it a cover for payments which are really rebates to favored shippers. Some of the “new industries,” or infant undertakings, which the Wisconsin investigators found were being “encouraged” by cash contributions from the railroads, have been established and prosperous for 25 or 30 years, one of them being founded away back in 1873 and others in the eighties.
Sometimes the railroads make a low rate, joint or single, on certain goods when intended for a specific purpose, thereby limiting the low rate to certain favored shippers. For example, in a recent case decided on complaint of the Capital City Gas Company the railroads had made a joint rate of 90 cents per ton on bituminous coal from Norwood, N. Y., to Montpelier, Vt., when intended for railroad supply, while the ordinary combination rate of $1.85 per ton applied to such coal carried between the same points and used for manufacturing or any other industrial or domestic purpose. This was held by the Commission to be an unlawful discrimination, on the ground that it is not permissible under the Interstate Commerce Act for two or more carriers to establish a joint through rate less than the sum of their locals, which shall be applicable only to a particular shipper, or class of shippers, while denying such low rate to other shippers of like traffic between the same points.[[250]]
A method of discrimination that has spread enormously in the last year is to pay large salaries or commissions to traffic agents located at important points, on the understanding that these traffic agents shall divide their salaries or commissions with favored shippers. This is much safer than paying rebates or commissions direct to the shipper, and is one of the most difficult forms of discrimination to overcome. In the recent investigations in Wisconsin and other States this method has been found in frequent use, along with underbilling and underweighing of freight, the allowance of cartage or switching charges to favored shippers, permission to hold cars as a means of storage for considerable time without demurrage, midnight tariffs, direct rebates, etc., etc.
CHAPTER XXV.
TERMINAL RAILROADS.
Another method of preference without departing from published rates is the division of rates with private terminal companies or mere switching roads, or roads existing only on paper. A man of large experience in railroad matters said to me not two years ago that “Since injunction suits were instituted by the Interstate Commerce Commission in 1900, published tariffs have been more generally followed. But big concerns build a mile or more of railroad of their own, or incorporate their switch tracks and sidings in a railroad company, and the division of the through rate permits any commission that may be desired. That is the new kind of discrimination that is spreading very rapidly. The effect is to concentrate discrimination and the advantages it gives more and more in the hands of the largest concerns. Formerly any big shipper could get a rebate. Now only those big enough to build a railroad or own an elevator get lower rates than others.” This is a little too strong. There are many other forms of preference still in prevalent use, as we have seen, but there is no doubt that the private railroad and the private car do tend to concentrate discrimination, giving greater and greater advantages to those who need them least.
They not only give the private railroads of some shippers a larger percentage of through rates than they give to the private railroads of other shippers, but they refuse to give the railroads of some shippers any division of rates while dividing rates in this way with other shippers in the same business.[[251]]
A few examples will make clear the private railroad or “fake terminal” method of discrimination. The first case of this kind came to light in 1903 through an investigation of the “Salt Trust” by the Interstate Commission. Hutchinson is the centre of the salt industry in Kansas. There are 16 mills, 9 of which are operated by the Hutchinson Salt Company, known as the “Salt Trust,” while each of the independent mills is operated by a different individual or company. In July, 1902, the Hutchinson and Arkansas River Railroad was organized under the laws of Kansas. It took possession of about 1 mile of side tracks which had been built by the Salt Trust in connection with its works. This new Lilliputian railroad company had no equipment of any kind. The president of the Salt Trust and the president of the railroad were one and the same man, Joy Morton, brother of Paul Morton, who was then at the head of the traffic department of the Santa Fe. The Santa Fe, the Rock Island, and the Missouri Pacific—all the railroads entering Hutchinson—made an agreement with the switch-track Salt railroad to give said little 1–mile Salt Trust railroad 25 percent of the rates on bulk salt to Missouri River points, not to exceed, however, 50 cents a ton on all the bulk salt shipped to such points. The rate to Omaha was 12 cents per hundred and the rate to Kansas City was 10 cents. The division was therefore equivalent to a rebate of 50 cents a ton, which is of itself an excellent profit in the manufacture of salt. The result was that without departing from published rates, or apparently violating any provision of law, the trust and the railroads drove the independents out of the bulk salt business on the Missouri River and elsewhere, and an extension of the arrangement to all markets and all kinds of salt would give the Trust a weapon with which it could at any time destroy the independents.[[252]]
Barton, one of the independents, had a contract to supply all the bulk salt used by Swift & Co., at Missouri River points. The contract expired April 1, 1903. Before asking renewal of the contract Barton went to the coal people and the railroad to see what his costs were to be for the coming year. He found that coal was to be advanced 25 cents a ton and freight on it 25 cents a ton, making 50 cents a ton more on coal. As it takes 1 ton of coal to produce 2 tons of salt, the increase in coal cost meant 25 cents added to the cost of each ton of salt. Barton’s former contract was on the basis of $2.25 at Hutchinson, now he must have $2.50. While Barton was negotiating a renewal of his contract with the Swifts, Hon. Frank Vincent, State Senator, manager of the Salt Trust, and director in the Salt Trust railroad at Hutchinson, took a vacation from the legislature, went to see the Swifts, and offered them salt on the basis of $2.10 at Hutchinson, or 40 cents less than the independents could afford to sell it. The Trust got the contract with Swift. This gives an idea of the extent to which the railway favoritism enabled the Trust to underbid the independents.
The owner of one of the independent salt plants was asked: “From where did you meet most competition, as far as you know?” “From the Santa Fe Railroad,” he replied.