This simple situation has been complicated by the fact that all of the transcontinental lines, except the Southern Pacific with its eastern terminus at New Orleans, have had a particular interest in building up both manufacturing and jobbing business at their eastern terminals at Chicago or Missouri river points. For such a policy enabled them to secure the entire charge for the transportation of commodities to the Pacific coast, without the necessity of a pro-rating division, as when goods are hauled from the Atlantic seaboard cities. The situation then resolved itself practically into a competition of markets. Chicago, St. Louis, and St. Paul were pitted against New York, Philadelphia, and other Atlantic ports in rivalry for the trade of the Pacific coast. In order to benefit the cities in which they had a peculiar interest, the all-rail lines, therefore, gradually introduced what is known as the system of "postage-stamp rates."[465] That is to say, they gradually extended to one city after another east of the Mississippi river, the same rates to the Pacific coast as were enjoyed by the seaboard cities. As a consequence, for some years every city east of the Mississippi has been able to ship goods to San Francisco at the same rate which is paid from Boston and New York, which may be more than a thousand miles farther away.
This system is justified in theory, even for rates from Chicago and St. Louis, as due to water competition; and it has been said that commodities are sometimes shipped from as far inland as this to the Atlantic seaboard, and thence to San Francisco by water. The latest phase of the controversy reveals the weakness of this argument. The inland cities, such as Chicago and St. Louis, having been accorded the same rate to San Francisco as New York and Philadelphia, demand lower rates than the Atlantic cities in proportion to their relative nearness to San Francisco. In other words, they demand that the rates, instead of being made upon the "postage-stamp basis"—absolutely the same from all cities, however remote—shall be graded. This would give Chicago, St. Louis, and St. Paul an advantage in laying down manufactures or in distributing products secondarily, in competition with the older centres at the East. To this policy the jobbing interests of the Pacific coast strenuously object. From their point of view, any grading of rates will enable the western cities to compete with them directly in local distributive business. They do not object to the low rates from the eastern seaboard, nor would it avail to do so because the natural conditions of water competition are beyond control. Moreover, the low rates from Atlantic points are all, as above said, on carload lots, and such low carload rates operate distinctly to the advantage of the Pacific coast jobber, enabling him to obtain goods in wholesale lots, and then to break bulk in order to distribute them up and down the coast.
The intimate relationship between the carload question and the grading of rates to interior centres, is plain from the foregoing paragraph. Viewed by itself alone, the carload question is not dissimilar to that presented in the southern states. Rivalry between jobbers in the East and provincial middlemen in a little developed territory is in evidence in either case. The St. Louis Business Men's League case best exemplifies this issue.[466]
Trade interests in this interior city wished to abolish all distinction between carload and less-than-carload lots, for the patent purpose of enabling them to sell direct throughout the Pacific coast territory in competition with San Francisco jobbers. The latter, on the other hand, demanded that all less-than-carload ratings should be abolished on transcontinental shipments; so that they might purchase their goods by the carload and resell them in parcels. The Commission, after fully weighing the evidence, decided that, so far as carload differentials were concerned, the existing scheme in 1902 was not abnormal as compared with other portions of the country. On the other aspects of the matter, such as the relativity of rates to Rocky mountain and Pacific terminal points, no ruling was made. But the dissenting opinion upon this point is significant, as we shall see, in that it put forth the suggestion of a scheme of rates graded according to distance,—a plan ten years later to be enforced by the Commission under its amplified powers at law.
The welfare of the entire Rocky mountain belt of population, and particularly its commercial centres, constitutes a second phase of the problem of transcontinental rates.[467] The whole chain of cities from Spokane on the north to the Mexican border has been long and vitally interested in this matter. Rates to these cities, elsewhere described,[468] as well as from these cities out in either direction, are very much higher than the rates for longer distances through them and beyond. Thus, for instance, in the case of Pueblo, it has been shown that bar iron was hauled 2,400 miles from Chicago to San Francisco, for fifty cents per one hundred pounds, and rails were hauled the same distance for sixty cents; while for the haul from Pueblo, Colorado, to San Francisco, only 1,500 miles, the rate on both commodities was $1.60. Cotton piece goods were shipped from Boston to Omaha for fifty-two cents per one hundred pounds, with the added rate on to Denver of $1.25, giving an aggregate of $1.77. In face of this, the rate through Denver to California is only one dollar. The railways' defence for this situation was that the low through rates were compelled by water competition. But it is certainly difficult on this ground to justify lower rates to Missouri river points than to Denver or Salt Lake City. In other words, as urged in our chapter on local discrimination,[469] having once recognized the principle of blanket rates as far west as Kansas City, there seemed to be no reason why the limit should not be pushed further west. All of these allied cases, however, were left unsettled for years, owing to the lack of power on the part of the Interstate Commerce Commission to enforce its decisions under the law as then interpreted. With the new legislation since 1906, as will be shown,[470] a permanent and just solution of the matter is promised at last.
The relations between the Canadian railways and the transcontinental lines in the United States were for many years unsatisfactory; and were oftentimes a source of serious disturbance in the matter of rates. The Canadian Pacific claimed, and was in fact accorded for some years, a differential or a lower rate, in order to offset its disability in the matter of distance, extra-territoriality, etc. Thus, for instance, in 1888 the Canadian Pacific was allowed to quote rates thirty cents per one hundred pounds below those by the standard lines. The rates were afterwards increased on first-class traffic. The other roads refused, after a time, to continue differentials at this figure, and after a year the differential was reduced to twenty-eight cents from the Atlantic seaboard. The question was bitterly contested after that until 1892, when all agreements were abandoned.
Since that time the Canadian Pacific has acted independently, taking, as a rule, rates about ten per cent. less than its competitors in American territory. The whole question was submitted to arbitration in 1898, and by a divided opinion two out of three of the arbitrators decided that the Canadian Pacific Railway was not, nor should it be, entitled to a differential under the rates made by the United States lines.[471] The intricacy of the question is indicated by the non-concurrence in this conclusion of so well recognized an authority as J. W. Midgley. The railroads concerned having all agreed to acquiesce in this decision, the situation has been far more harmonious in this respect than for many years previous.