Railroads: Rates and Regulations

by William Zebina Ripley

Closely akin to the length of haul in affecting ton-mile revenue, is the proportion of local traffic. This also is in practice vital. Obviously it costs much more to handle local business, the terminal expenses being far greater in proportion. And at the same time a larger proportion of the freight moves in small lots locally. This difference between revenue per ton mile for local business and through traffic is very great. On the Louisville & Nashville, for example, in 1886, it was 1.48 cents for the former, as against .99 cents for through business.[496] The Illinois Central in 1900 reported an average revenue per ton mile on through freight of 0.48 cents, while for local freight the corresponding figure was 1.17 cents, the average of both being 0.56 cents. It is apparent, therefore, that any accurate determination of the level of charges in general must take account of such facts as these.

Any carrier like the Southern Pacific, the Chesapeake & Ohio or the Erie, with relatively little local traffic and a business dependent largely upon the long haul, will conduct transportation for a materially lower figure than roads in a densely settled territory. This consideration was recently illustrated in Massachusetts experience.[497] The Fitchburg Railroad, devoted to long distance, low-grade business by the Hoosac tunnel route, was consolidated with the Boston & Maine in 1900. Its revenue per ton mile was formerly .818 cents based upon such traffic. When it was merged with the Boston & Maine,—considerably blessed as it is with local traffic,—the latter's ton-mile revenue fell from 1.44 cents in 1900 to 1.158 cents in the following year. There had been no change whatever in freight rates.

A word may be interposed in this connection as to the peculiar movement of local as distinguished from through rates through a series of years. Local charges have decreased relatively little, probably because of the absence of competition in such cases. They have, moreover, decreased very unevenly in different parts of the country. Apparently one of the first and most beneficent results of the enactment of the Act to Regulate Commerce in 1887, was a reduction of local rates in various parts of the country, in order to bring the rate adjustment into conformity with the long and short haul clause. This was peculiarly the case in the northeastern or trunk line territory. It does not seem to have occurred in the southern states, where the long and short haul principle has never been accepted in its entirety. The most comprehensive report upon the subject concludes that local rates have in various parts of the country, during the last quarter century, been reduced from ten to fifty per cent.[498] Returns from various railway commissions interrogated by the Industrial Commission in 1900 upon the subject showed highly variable results. From Mississippi it appeared that "local freight rates in this state have been materially lowered in the last four years, especially in the lettered classes"; while in the adjoining state of Alabama "local rates on freight have decreased very little in the last five or six years, and have not decreased in proportion to the decrease made in interstate rates." In New England, comparison of actual freight rates did not indicate any very considerable reduction, the absence of competition in this section being, perhaps, in part responsible for this result. A comparison of published freight rates in southern territory, without making allowance for departures from such tariffs, apparently showed a very much smaller reduction than in other parts of the country. It is also apparently true that the reduction of cotton rates in this section, while considerable, had been much less rapid than that of the rates upon grain from Chicago to the seaboard in either direction. A few instances of an actual rise of local charges since 1900 may be cited.[499] But the fact that competition has been substantially eliminated in consequence of widespread consolidation since 1900, has rendered the movement of local and through freight rates more nearly alike all over the country than they were prior to that time.

The third consideration which must always be kept in mind in the interpretation of revenue per ton mile is the volume of the traffic handled. Any comparison of freight rates which is not made in the light of increase in the business transacted, is bound to be misleading. A reduction of cost of operation per unit, attending a growth in volume, has already been fully described in connection with the theory of rates. And it is but natural that a reduction in the rate should follow any lessening of cost. Moreover, a large volume of business usually implies a relatively greater amount of low-grade tonnage. In order to bring out this relationship the second column in the table on page [415] has been added. This permits a correlation between freight density—that is to say, ton miles per mile of line and revenue per unit of service. It will be noted that, in general, the revenue unit falls as the volume of traffic, measured by freight density, rises. This is strikingly shown by comparison of the groups of western and transcontinental roads with those concerned mainly with the carriage of coal and ore. The soft coal Hocking Valley road with its enormous density and very low revenue per ton mile, affords an excellent example. It is indubitable that the trunk lines and the coal roads are able to transact business for relatively low rates, not only because their tonnage is of low grade, long haul or both; but also because of its immense concentration per mile of line, permitting all of the economies incident to large-scale operation. In this connection, however, it should be noted as a general principle, that oftentimes it is not the mere increase in the traffic of a particular sort which is significant; but rather the growth in the total volume of business of all kinds.[500]

The foregoing criticism of the use of revenue per ton mile as a means of showing the course of freight rates in general has been mainly destructive. This figure, nevertheless, will in many cases be found highly serviceable in the examination of particular rates. It may properly be used to determine whether a given commodity is contributing its due proportion to the general budget of the carrier. Revenue per ton mile can, of course, be computed for each particular service; inasmuch as both the income and the volume of that service are matters of independent record. The table on page [421] brings out this point. Or take a division of the Illinois Central for 1900. Its revenue per ton mile was 0.136 cents on wheat, 0.79 cents on flour, 4.267 cents on sugar-cane, 0.309 cents on soft coal, 1.148 cents on stone and sand, 2.238 cents on furniture, 3.165 cents on merchandise. On this basis one may properly inquire as to whether under all the circumstances wheat, coal or merchandise are doing their part, in the light of the particular expenses attached to their carriage, in maintaining the general burden of indivisible costs. When copper yields a revenue per ton mile of only 0.285 cents, the rate being only 1.6 per cent. of its market value, while on wheat for the same haul the corresponding unit of return is 0.4 cents per ton mile—equal to one-fifth of its worth—there is evidently a maladjustment favoring one commodity over another.[501] In a number of recent cases questions of this sort have been rather satisfactorily answered by resort to this unit of measurement.[502]

The curve of revenue per ton mile, as shown by diagram at the head of this chapter, certainly gives no indication of the considerable increase of freight rates which has ensued since 1900. This follows from the fact that in at least two of the three respects, above mentioned, the trend of events, independent of any change in the level of freight rates, has operated to greatly dilute the revenue per ton mile. The growth of low-grade traffic and the immense augmentation in tonnage have both conspired to render this unit entirely useless for purposes of comparison year by year. The average length of haul alone seems to have remained much the same during the decade. Although the curve does not show it, there has been a notable upward movement all along the line, responsible, as we shall see, for much of the new Federal legislation. How may we, then, estimate the amount of these increases? Under such circumstances, it is necessary to turn to the movement of actual rates.[503] The course of these down to 1900 is best shown upon the same diagram above mentioned by means of the dotted curve, entitled Actual Rate Index, the scale for which is given at the right. This rate index is simply the average of the actual published rates for a number of specific commodities between certain given points. It differs in principle from the ton mileage revenue curve, in that it concerns merely the published rates, taking no account of rebates or departures from those rates in actual practice. A comparison of its course with that of the ton mileage curve shows a more abrupt decline from about 1878 to 1886, since which year the course of both lines is about parallel. Its irregularity is also significant as illustrating the violent fluctuations to which the published rates were subjected jected prior to 1887. Judged by this curve, the situation has been more settled since the enactment of the Act to Regulate Commerce in 1887.

Were data at hand for a continuation of this line to 1910 it would undoubtedly afford a fairly reliable measure, in general, of the substantial increase of rates which has taken place during the decade. The main objection to it would be that it did not weight the average according to the volume of the business carried for each of the thirty-seven concrete rates chosen.[504]

Tracing the rise of actual rates since 1900 is rendered peculiarly difficult, also, by reason of the fact that few of the changes took the form of an outright advance in charges. The end in view was more often accomplished surreptitiously. The substantial increases in 1900[505] which inaugurated the upward movement were mainly accomplished by changes of classification. Modification of the carload ratings brought about the same result. A notable instance appeared in the complaint of the dairy men in Wisconsin in 1909. An annual shipment of 38,000,000 lbs. of cheese to Chicago before 1899 moved at twenty cents per one hundred pounds, irrespective of the size of the consignment. Ten years later the rate had become twenty-eight cents for less-than-carload lots, and twenty-two and one-half cents for wholesale shipments. The relative disability of the small shipper under the new circumstances is as significant as the rise of rate for all.[506] The increase of charges might be brought about in another way without actually advancing rates by a withdrawal of commodity ratings, thereby subjecting the shipper to the higher scale of classified commodities. And, finally, a practical elimination of the rebate and the cessation of general rate wars has usually resulted in a very substantial increase in the revenue of the carriers as well as in the scale of charges imposed upon most shippers. Evidence upon this point is officially given in connection with the rate increases of 1903.[507] It thus appears that to follow step by step the movement of actual rates is an extremely complicated matter. Every factor entering into the determination of the charge must be considered; the distance tariff, the classification, minimum carload rules and a host of other specifications which enter into the final result. For our purposes it must suffice that the fact of a substantial rise of charges since the turning point in 1900 is beyond question.[508] On the other hand, it is indubitable that such increases as have occurred, arousing vehement protest among shippers, have been more widely advertised than changes in the opposite direction. Substantial reductions, especially on low-grade staples, have sometimes occurred. One is almost at a loss to strike a fair balance between the two, in the absence of dependable data.

The movement of passenger fares has been quite different from that of freight rates.[509] No marked decline during the last quarter of the nineteenth century took place. Growth in the volume of traffic was not accomplished by a reduction of charges. This is in consonance with the experience of foreign countries. Passenger business, while steadily growing, has increased less rapidly than freight tonnage. Generally, in other words, as measured by volume, freight business has become relatively more important with the progress of time. Fiscally the same thing is true. Only in New England does the revenue from this service approximate one-half of the total net earnings. The nature of railway competition explains why passenger fares have not decreased as rapidly as freight rates. Persons must necessarily be more or less directly transported from one point to another; while experience shows that competition in freight traffic may be exceedingly circuitous in route, goods even going hundreds of miles out of the direct line for transportation by water. This narrowing of the sphere of competition in the case of passengers has consequently operated to lessen the rate of decline. Another point to be considered in this connection is that no such increasing economies in the handling of passengers are possible as in the case of freight. Instead of decreasing the proportion of dead weight, which for passengers amounts to upward of ninety per cent., by any of the economies recently applied to freight traffic, it appears rather that the proportion of dead weight of equipment per passenger is increasing, owing to the necessity of providing more sumptuous accommodations. Bearing in mind all these facts, it appears not unreasonable that the progressive decline of passenger fares has continually lagged behind the decrease of freight rates. But the natural lethargy in the movement of passenger fares was rudely interrupted in 1908 in connection with the wave of legislation accompanying the Roosevelt campaign which culminated in the Mann-Elkins law. A widespread demand for lower passenger fares found expression in the passage by twenty-two states within five years of maximum fare laws. Eleven legislatures fixed the charge at two cents per mile, the others establishing it at less than three cents. Many appeals to the courts in connection with these statutes took place on the ground of confiscation, and sharp conflicts of authority between Federal and state governments arose.[510] Whether passenger rates would ever have declined without such exercise of authority is open to question, but the disturbance of established conditions at this time was extreme.

One further question with relation to the movement of rates merits consideration. In how far has the rise since 1900 been commensurate with the general upward movement of prices of other commodities than transportation—the particular commodity produced by railways? The evidence tends to show that prices in general have moved upward during the last ten years by approximately one-fourth, and it may be even one-third.[511] Have railway charges in general surpassed this rate or not?