Let A B and B C be two railroads connecting at B. Let the local rates A to B be 10 cents per 100 lbs. on grain, and B to C also 10 cents. Let the through rate A to C be 18, since longest hauls are usually cheapest per mile. Let A be a large grain market, such as Chicago. Now a merchant at C can save 2 cents per 100 lbs. by buying direct from A instead of buying from a merchant at B. For the grain will pay less for the single long haul than for the two short hauls. But perhaps the town of B has for many years enjoyed the trade of C, and there are large mills and warehouses erected there. B will then say it is "discriminated against," and will demand the privilege of "re-billing" or "milling in transit." That is to say, when a merchant or miller at B ships to C grain, or flour made of grain, which he received from A, the two roads consent to make a new way-bill and treat the shipment as a through shipment from A to C. The road B C charges but 8 cents, and the road A B gives B C one cent from the 10 it originally collected. This involves much trouble and a loss of revenue to the roads, and is, apparently, a discrimination against the home products of B, but roads frequently do it where there is competition at C by rival lines, and also at local points along their lines to build up mills, distilleries, and factories of all kinds in competition with those located elsewhere. As yet the Interstate Commerce Commission has not pronounced upon this practice.
The question of differentials is as follows: Suppose there are three lines, B, D, and E, between the cities A and C (Diagram, [page 176]). B, being the shortest, will get most of the business when rates are the same (10 cents, for instance) by each line. But D and E insist upon participating, so they demand that B shall allow them to operate lower or "differential" rates—that is, B must maintain his rate at 10 while allowing D to charge only 8 and E 6 cents, on account of their disadvantages. So that a differential is practically a premium offered for business by an inferior line.
The foregoing will illustrate how the rivalry of railroads with each other complicates the making of rates. But even more difficult to manage is the rivalry of markets, and of products, and of new methods which threaten property invested in old methods; as, for instance, the dressed-beef traffic from the West threatens the investments in slaughter-houses and stock-yards in the East.
As the roads have found it necessary to act together in establishing running rules and regulations, so, in spite of all rivalries, there must also be joint agreements reached in some way concerning rates. Usually the roads serving a certain territory form an "association," and their freight agents form "rate committees," which fix and publish joint rates. A tariff published by one of the trunk lines from the Eastern cities forms a good example. As the result of many long and bitter wars and many compromises, it has been agreed among these roads that the rates from New York to Chicago shall form a basis for all other rates, and a scale has been fixed showing the percentage of the Chicago rate to be used as the rate to each important point in the West. Thus Pittsburgh, Pa., is 60 per cent. of Chicago rate; Indianapolis is 93; Vandalia, 116. The tariff above referred to gives an alphabetical list of some 5,000 towns reached over these roads, and opposite each town the figure showing its percentage of the Chicago rate. The list begins with Abanaka, O., 90, and ends with Zoar, O., 74.
The tariff next gives what is called the "Trunk Line Classification," which is a list comprising every article known to commerce, in all the different conditions, shapes, and packages in which it is offered for transportation, and opposite each article is given its assigned "class." This particular classification assigns every article to one of six regular, or two special, classes, and the present rates to Chicago in cents per 100 lbs. are given as 75, 65, 50, 35, 30, 25, 26, 21. The list of articles begins with Acetate of Lime, in car-loads, 5th class; in less quantities, 4th; and ends with Zinc, in various forms from 1st to 6th—comprising in all nearly 6,000 articles. From these tables any desired rate readily appears. Thus, 500 pounds of acetate of lime would cost, from New York to Zoar, O., 74 per cent. of Chicago's 4th class rate, or 74 per cent. of 35—say, 26 cents per 100 lbs., or $1.30.
There is also given in the tariff pamphlet a list of some 300 manufacturing towns in New England, from each of which the same rates apply as from New York. So, on the whole, the pamphlet gives rates on about 6,000 articles from 300 points of origin to 5,000 destinations.
In different sections of the country different classifications are in use, some of them embracing twenty or more classes, and allowing finer shades of difference between articles according to their value, bulk, or many other varying conditions which determine the class into which each article is put.
Great efforts have been made to bring about a uniformity of classification over the whole United States, and the number of classifications in extensive use has been reduced from a very large number to perhaps a dozen.
But absolute uniformity cannot be obtained under the widely different conditions which prevail in different sections, without great loss and sacrifices somewhere. A road, for instance, competing with a river or canal must adjust the classification of the particular kinds of freight best adapted to river or canal transportation so as to secure the traffic in competition with boats. It must almost entirely disregard bulk, value, and all other conditions upon which a road not affected by this particular kind of competition arranges its classification. Uniformity would either force one of them to lose a legitimate business, or the other to reduce reasonable rates.