THE TRANSCONTINENTAL TARIFF
Market and Railroad Competition
The chief difference between the local situation in California and the condition of affairs which prevailed in the case of through shipments to eastern points, lay in the fact that the competition of markets and the rivalry of competing carriers played a more important part in the through shipments than they did in local shipments. By market competition we mean the attempt of geographically distinct producing centers, each aided by a separate group of railroad lines, to sell in a common area of consumption. Such competition occurred, for instance, when California oranges sold in the Mississippi Valley in competition with oranges from Florida, or when California lemons sold in the same territory in competition with Sicilian lemons imported at New Orleans or at New York. We have already seen that cities competed with each other within California itself, but this competition was less important within the state than it was in the case of hauls across the continent.
It should be recalled that the Huntington interests possessed a virtual monopoly of local business, while the extent of the competition between carriers on through traffic may be briefly indicated by observing that the Central and Southern Pacific companies had direct relations with no less than six other transcontinental railroads, namely, the Union Pacific, completed in 1869; the Santa Fé, which reached the town of Deming and effected a connection with the Southern Pacific in 1881; the Texas Pacific, built to El Paso in 1882; the Northern Pacific, opened from St. Paul to Portland in 1883; the Canadian Pacific, completed in 1887; and the Great Northern, which was finished in 1893. None of these railroads reached San Francisco except the Santa Fé, which obtained an independent California connection in the late nineties. The Santa Fé entered Los Angeles, however, in 1885, and the Union Pacific enjoyed a connection with Portland through the Oregon Short Line and the Oregon Railway and Navigation Company as early as 1884. From Portland, Los Angeles, and Vancouver, freight could be distributed by water all up and down the Pacific Coast.[396] Moreover, the competitive relations which Pacific Coast cities bore to each other made it necessary to keep their rates from the East on an approximate parity, and caused the Central Pacific to be affected by charges which were not on their face applicable to any point in which that company had an interest. There were combinations in respect to transcontinental railroad business from time to time, but none sufficient to control rates except for short periods.
Transcontinental Rate Adjustment
These differences in conditions between state and interstate traffic doubtless influenced Mr. Huntington and his advisors when they came to establish what is known as the transcontinental rate adjustment. Yet any examination of the through rates charged by the Central Pacific will show that in their relation to each other, at least, these rates were built upon much the same principles as the local rates discussed in the previous chapter. There is no essential difference between a rate schedule which applies a lower rate between New York and San Francisco than it applies between New York and Denver, and one which provides a lower charge between San Francisco and Los Angeles than between San Francisco and Bakersfield.
The tendency in public discussion is to regard the transcontinental rate structure as different from all other structures. It is not different, either from the rate systems in force in some other parts of the country, such as the Southern classification territory, or from the general arrangement of rates in business local to California. The reason why transcontinental rates to Pacific terminals are low is that there is competition at terminal points. The reason why rates to intermediate stations are high is that competition is lacking at such places. The reason why local rates between San Francisco and Los Angeles are low is that shipments must be diverted from the water lines; while the rates from San Francisco to points in the upper San Joaquin Valley are high either because competition is absent or because it is less severe. Similar general causes in both cases produce similar results.
Rate Structure
It is necessary to describe the transcontinental system at this point in order that the reader may have before him the outlines of the rate scheme for which the Huntington-Stanford group were in part responsible; but in view of the very general understanding which the public has of the system, the description will be brief. A summary account is as follows:
The primary fact in transcontinental rate-making is that railroad rates between the Atlantic and the Pacific coasts of the United States were originally made, and have remained relatively low. The lowest rates quoted, however, have never until recently been available at all points in California, Oregon, and Washington, but only at certain selected cities. The towns to which low rates have been quoted under the transcontinental adjustment are called Pacific Coast terminals. Terminals, being mostly located on the seaboard, or within easy reach of it, enjoy rates low enough to induce their residents to patronize the rail lines rather than the water lines around the Horn or the combined rail and water routes across the Isthmus of Panama and the Isthmus of Tehuantepec. This does not mean, of course, that rail rates to terminals have been as low as water rates, but it does mean that, all conditions of shipment, including speed, safety, and regularity, being taken into account, the advantages of shipment have been equalized. The rates to and from all terminals have been uniformly the same.