So between 1870 and 1880 most of the railway managements were busy devising ways to stop a rate-cutting and competition that was ruinous. In many instances great trunk lines would have consolidated had not State laws prevented. They could not maintain rates because one or another of the weaker roads would be compelled to lower their rates in order to meet their operating expenses. Therefore they were compelled to do one of three things, namely, to divide the territory, to divide traffic, or to divide earnings. Either of the two latter plans is called a pool.
Of these two forms of pooling the division of the traffic is the easier, but it is often unsatisfactory to the patrons of the road. The second plan, the division of the earnings, is a more difficult matter to adjust because each road is usually dissatisfied with its proportion. As a matter of fact, however, the first plan of pooling is very apt to grow into the second.
In several instances pools have been declared illegal by the courts, but, in general, railway service has been more satisfactory under the pool system than under any other. They have always aroused popular suspicion, however, from the fact that they increase power of the railway itself. In various instances important trunk lines have formed a general company, each having its separate organization, because they could accomplish under a combined organization what they could not as independent companies. The restrictions against pooling have therefore encouraged combination of competing lines.
Because the railway is an absolute necessity, and because it has power given neither to individuals nor to other corporations, it is a settled policy that both the State and general Government should have the power to regulate its rates, and should in every way prevent unjust discrimination. Both problems are very difficult, however, and the unintelligent adjustment of rates has frequently resulted in injustice both to the roads and their patrons.
A rate per ton-mile for each class of freight is out of question, because a large part of the cost to the company consists in loading, handling, and storing the goods. Once aboard the car, it costs but little more to carry a ton of freight one hundred miles than to move it one mile. The rates per mile, therefore, are necessarily greater for short distances than for long runs. A mile-rate based on a ten-mile haul would be prohibitive to the shipper if applied to a run between Chicago and New York. On the other hand, were the charges based on the long run, the local rates would be far less than the cost of the service.[19]
As a result freight rates are based very largely on the cost of the service, and this is particularly true of local freights. This practice is also modified by charging what the traffic will bear, and, on the whole, a combination of the two ideas gives the most reasonable and the fairest method of basing charges. Thus, a car filled with fine, crated furniture, which is light and bulky, can afford a higher rate than one filled with scrap-iron. Cars filled with grain, lumber, coal, or ore are made up in train-loads, and form a part of the daily haul; they can afford to be taken at a lower rate than the stuffs of which only an occasional car-load is hauled. In order to adjust this problem it is customary to divide freights into six general classes.
THE PROBLEM OF FREIGHT RATES
In handling through freights the problems are many, and, if two or more roads have the same terminal points, a great deal of friction of necessity results. The longest roads must either make their through rates lower than local rates between distant points, or lose much of their through business. They cannot afford to do the latter and the statutory laws may forbid the former. As a result the laws most likely are evaded, or else openly disobeyed.[20]