Railroads: Rates and Regulations

by William Zebina Ripley

The frequency of complaints as to the supply of equipment needed for the regular operation of mills or mines, has already been noted. There may be enough cars; but they may be supplied too irregularly.[641] And petitions for the issuance of through rates or the opening of new routes became so common that a substantial amplification of the law in 1910, as we shall see, was effected in this regard. The carriers, of course, always prefer in case of a choice of routes, to take the longest possible haul over their own lines. This operates to close the more direct way. The northern transcontinental lines got more revenue from traffic which went east over their lines a thousand miles by way of Spokane, than when it was turned over to a rival line at Portland, Oregon, after a haul by them of only one hundred and fifty miles.[642] Even in 1907, at the time of extreme congestion of the Northern Pacific main line, when it was literally overwhelmed with business, the lumbermen complained that they could find no relief by these other routes.[643] Much the same question was raised in another way in 1909, by a complaint from growers and shippers of grain against the rate adjustment which forced or attracted Kansas grain to the Kansas City market, instead of permitting it to move on lower rates directly from the point of origin to the Gulf ports for export, and to Texas milling and consuming points.[644] In this instance, however, the shippers failed to make out a good case; so that the complaint was dismissed.

No grievance is too petty to receive consideration. A peachcanner in Martinsdale, Georgia, is awarded reparation of $8.91 on a shipment of three cars of his wares.[645] The sum of $11.84 is awarded to a complainant for an overcharge on eleven rolls of old worn-out canvas, assessed for freight rates as cotton goods instead of junk, which it properly was.[646] Or in another case, where a small boiler was shipped from Kalamazoo to Blue Mounds, Michigan, on a combination of local rates, when it was properly entitled to a joint through rate, an award of $6.87 to the shipper followed.[647] It makes no difference whether the welfare of a great territory or the smallest dealer is concerned. It is all one to the government. The Hope Cotton Seed Oil Company[648] in the South, shipped seventeen carloads of one season's product in 1907 out over a certain road, on a low through rate. The railroad agent was then informed that these shipments interfered with the policy of establishing new industries of this sort on another line; and the through rate was cancelled. This jumped the charges from seventeen and one-half cents per hundredweight to sixty-seven cents,—almost the entire worth of the cotton-seed. Since the new law went into effect, the Commission has prescribed a new rate of thirty cents; and industrial peace is the result.

Thus has the work of this tribunal gone on, with its daily grist of opinions on almost every conceivable phase of the transportation business. It might be to prescribe that, even though inflammable, small-lot shipments of petroleum must be accepted by a carrier at least twice every week, instead of on only one day; that structural iron might be stopped off en route at Indianapolis,[649] as it is at Chicago and St. Louis, to be sheared, fitted and punched, without losing the benefit of a low through rate, just as cotton is halted at the compressor, or grain is milled in transit; that a definite rate must be quoted on jewelers' sweepings,[650]—the dirt and waste laden with particles of gold destined to the smelter,—even though it expose the carrier to the risk of exorbitant claims for damage in case of accident; that the railroad was properly entitled to charge storage after six months on brewer's rice left on a wharf pending piecemeal shipment to purchasers;[651] or that two different rates were contemporaneously charged on nitrate of soda, according to whether it was to be used in the manufacture of fertilizer or gunpowder.[652] But whatever the issue, one has the satisfying conviction, after reading the pros and cons in the decisions, not only that the matter has been settled by a disinterested and supposedly impartial third party, but that the decision is endowed with the beneficent force of public authority. As one reads these decisions, there is no evidence of political log-rolling, or of legal quibbling. They go straight to the point on the economic and common-sense issues involved. It is gratifying, moreover, to note occasionally that the dispute has already been informally settled before the Commission has time to render its opinion.

By no means are all these decisions in favor of the shipper. In fact, during the first fourteen months, only forty-six out of one hundred and seven formal cases were thus settled. The railroads enjoy no monopoly of unfair practices. Indeed, many of the rules, the exceptional application of which works hardship, were originally provided to meet some attempt at fraud by shippers. They might be under-classifying; seeking free storage on wheels pending sale of their goods; claiming exorbitant damages; or perpetrating any one of a thousand petty meannesses to which human nature is liable. One or two instances of shippers' complaints set aside as unreasonable may not be out of place.

The Topeka banana dealers in 1908 complained that bananas en route from New Orleans were subject to an appreciable shrinkage in weight, amounting to about six hundred pounds per car.[653] Inasmuch as about fourteen thousand cars were being moved annually, it is clear that the aggregate loss of weight was considerable. The practice had been to weigh the bananas when transferred from the steamers at New Orleans to the cars, and to levy the freight rate upon this weight. To this the dealers objected, instancing among other things the practice, long prevalent in the cattle business where a similar loss of weight in transit occurs, of charging according to the weight of the shipments, not at the initial point, but at the point of delivery. At first sight the complaint appears to be well founded. Surely one should not be compelled to pay freight on a greater lading than is carried. But the Commission on examination decided in favor of the roads. It was shown that the service was most exceptional as to the shipment, handling and speed; and it was held that the charges were on the whole reasonable and just.

One of the most important issues in which the railroads have won their contention concerned the loading of lumber on flat cars.[654] For half a century the practice has been that the shipper should provide his own lumber-stakes and pay freight on them as on the lumber itself. In 1905 the National Lumbermen's Association tried to change all this, and to impose upon the carriers the legal duty of securing the loads in place as they do with many other commodities. The carriers offered a compromise, agreeing to allow five hundred pounds per car free for the weight of the stakes; but refused to accept responsibility for safely stowing the goods. The Commission, finally, after prolonged inquiry by experts, relieved the carriers of this care and expense.

It is undeniable also that the carriers have found solace in certain unforeseen ways under the amended law. The rigid prohibition of all favors and rebates has substantially raised the general level of charges, so general was the practice of cutting rates a few years ago. To be sure, this increase has affected principally the large shippers, thus tending to equalize opportunity between all grades of competitors. But over and above this, the prohibition of any act tainted with favoritism has enabled the carriers successfully to withstand many leakages of revenue. Claims for damages can be plausibly denied on the ground that their settlement might arouse suspicion, and possibly lead to prosecution for the grant of individual favors. Many roads have also actually augmented their revenues by this same line of argument. The custom of charging a merely nominal rental of one dollar for freight-sheds, other buildings or land used for side-tracks or elevators, was formerly general. It would have been awkward to place these contracts on a strictly commercial basis, especially where the tenants were shippers with the option of resorting to a rival line. But on the plea that a continuance of these nominal rentals might be considered a criminal act of favoritism, substantial increases of revenue have been obtained. On one road alone over three thousand of these nominal rentals have been raised to strictly commercial figures. The aggregate increase of revenue from this source has been by no means inconsiderable.

A very important group of cases brought before the Interstate Commerce Commission under the new law concerned the reasonableness of the various freight-rate advances which were occurring all along the line.[655] This raised a question as to the absolute fairness of the new rates as against the interest of the general public. One conclusion is certain. The new law did not prevent the carriers from persisting in a policy, adopted nearly ten years earlier, after a generation of steadily declining rates, of quite generally putting up their charges. Unfortunately, the law of 1906 was defective in making no provision for dealing adequately with such cases. The Interstate Commerce Commission was limited in its scope to the consideration only of specific complaints. It could not on its own initiative pass upon the reasonableness of an entire new schedule of rates in advance of its taking effect. It must take the matter up, if at all, bit by bit, as individual shippers chanced to complain, after the rates have become operative. This abridgment of its power to pass upon the reasonableness of tariffs as a whole was effected in the Senate. It was not contemplated either by President Roosevelt or by the House of Representatives. The result, as predicted, was that little protection was afforded to the public in any large way. Judging by results, the railroads were as free as they ever were, to increase their tariffs whenever they saw fit so to do.

The imperative need of amending the law, and of granting power to suspend such rate advances, not merely in particular cases on complaint, but as to entire schedules of rates prior to their taking effect, was in fact met by the next set of amendments in 1910. The experience of the intervening years amply proved the need of some such amendment.

The extent of the changes after the new law went into effect may be indicated by a few typical instances. Few commodities are of greater importance to the United States than chemical fertilizers, used in enormous quantities all over the country. The basis of these is phosphate rock. The freight rate on this from Tennessee to Chicago in 1907 was $3.40 per ton. It was increased to $3.95, until the Commission ordered its reduction to the old figure.[656] At the same time the Oregon lumbermen had their rates to the East increased about one quarter, after a period of quiescence of six years. From the Willamette valley to San Francisco—a test case soon to run a long course before the courts[657]—lumber rates were $3.10. In 1907 they were put up to five dollars. The Commission held that $3.40 was an adequate rate. The last general increase had occurred in January, 1909, particularly in transcontinental rates, where the fruit of the Harriman monopoly made itself felt. Not unduly great in the East, considering the increased cost of operation,—twenty-five cents per ton on pig iron and iron pipe, for instance,—the Pacific Coast rates from New York rose often as high as fifty per cent. The rate on dry goods went up by one-third. Therein lay a part of the motive power for Union Pacific speculative finance.[658] Among the most persistently contested schedules was that concerning rates from the southwestern cattle ranges to the markets of the Middle West.[659] In 1897 the rate on steers was twenty-seven cents per hundredweight. Step by step it went up to the level of thirty-six and one-half cents in 1903,—a rise of more than one-third within six years.