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Thus it appears that the height of the extreme upper level in our diagrammatic series of rates is fixed by the highest charge which that particular traffic will bear.[71] Beyond a certain point, no matter how great the distance, the rate cannot be increased above this level. This maximum varies, of course, with each commodity. On cotton it may be fifty-five cents per one hundred pounds; on grain or coal it will be much lower, and on sand or cement lower still. The problem of the traffic manager is to attain this highest rate as speedily as possible with increasing distance, and to grade his rates with distance up to this level as quickly as possible, consistent, of course, with maintenance of a full volume of business. But not only may the final limit of what the traffic will bear be different for each commodity; the steps or stages by which the rate progresses up to this maximum, are quite independently determined. The actual tariffs of local class rates in general are much simpler than the commercial conditions of rate making often warrant. Probably the major portion of tonnage on American railways moves under special or commodity rates. Even in Prussia over three-fifths of the traffic is of this exceptional sort. These special rates are made with a view to particular circumstances prevalent at the time. Bids from a quarryman in Vermont on stone for a public building in Chicago, may be dependent upon the grant of a low rate on his marble in competition with a quarry in North Carolina, also able to supply the particular stone required. The various ascending series of rates are thus rendered bewilderingly complex. This is also shown by the foregoing diagram of rates between St. Paul and Chicago.[72] The rate on a cheap, heavy commodity like coal, probably rises rapidly at first, and soon attains a maximum beyond which it can never go. On this diagram, for instance, the freight rate on soft coal for points up to 180 miles out is lower than that on flour. Beyond that point the coal rate in turn exceeds that on flour. Cement is higher than lumber for the first 150 miles; but after that point the relatively greater value of lumber holds it steadily above cement. On heavy cheap commodities the relatively high cost of cartage in competition enables the railway to reap the full measure of its advantage and to charge well up to the maximum of what the traffic will bear, within a comfortably short distance. Furthermore, variable costs for terminal charges have to be considered. Wherever they are high the rate must rise at once sufficiently to cover these, no matter how short the distance; but thereafter the rate may not need to be increased greatly for some time. On light higher-grade goods the wagon is an effective competitor for longer distances.[73] Moreover, the competitive points at which rates rise from stage to stage are seldom the same for all classes of goods. A river crossing brings competition for coal, lime, or cement, but does not affect the rates chargeable on high-class freight which seldom goes by water in any event. A railway specially interested in the development of some particular industry, wherever it crosses our hypothetical line, effectively holds down the rate on the product of that business. Junction points with other railways having no such interest may have no influence upon that rate, but may cause modifications in other directions. Another railway being in need of back loads over its line, as the result of a predominant movement, let us say, of beef cattle at certain seasons of the year, may introduce competition in all the tonnage capable of being carried on cattle cars. Such a road holds down the rates on this traffic wherever it happens to cross, but has no effect upon any other rate. Thus it comes about in practice, as the last diagram well illustrates, that the tariff lines cross and recross one another, generally rising with increasing distance, but at all sorts of different times and places.
Few generalizations are possible in this connection. Rate making must in a growing country ever be a matter of infinite detail. It is generally true, however, that beyond a certain point the tariff on different grades of commodities will separate more and more widely with increasing distance. For, obviously, after the low-grade goods have reached the maximum which they can bear—and this they tend to do speedily—they must remain practically constant; while those of higher grade continue progressively rising. And for very short distances the rate on the low-grade goods may even exceed that imposed upon higher-class tonnage. The coal rate for a ten-mile haul may exceed that upon some commodity worth twice as much; but for a 200-mile haul the coal rate may be only one-eighth of the rate on the other goods. Long experience on the part of the carriers has, however, enabled them to arrange their tonnage in classes; for each of which the conditions are more or less uniform. By reserving the exceptional traffic for special treatment under commodity rates, a fairly consistent scheme of charges, rising by stages with increasing distance may be evolved.
Few standard railway tariffs in the United States develop beyond the point covered by the preceding paragraph. Many of them are unable even to reach this stage of logical growth. In the South, for instance, they have never got beyond the stage of progressively rising local rates, with independent and often radically reduced charges at all large towns or competitive points.[74] Each traffic manager, particularly since the effective prohibition of working agreements between competing lines by the Trans-Missouri Freight Association decision of the Supreme Court in 1896, has been left to work out his own salvation, not aided by, but in spite of, the efforts of his rivals. There is, nevertheless, one example of further development in the so-called trunk line territory, lying east of the Mississippi and north of the Ohio and Potomac rivers. Conditions here, in general, are most favorable by comparison with the West and South. Both population and traffic are dense, and the state legislatures are conservative in making grants for the construction of new lines. The companies are historically mature. The good fruits of coöperation had already appeared in the evolution of a scientific and logical scheme, long before such coöperative action had been frowned upon by the law and the courts. All the railways in trunk line territory have worked in harmony, so far as general classified local tariffs are concerned—however much they may have fought one another over differentials to seaboard cities, or export and import rates. Their system is comparatively simple in principle, although it has required the experience of many years to work out in detail. Fully described elsewhere,[75] it will suffice for present purposes to say that all rates from intermediate points between Chicago and New York, are fixed at a definite proportion of the Chicago-New York rate both for east-and westbound shipments. Thus, for instance, as shown by the map of trunk line rate distribution, at page [365], the rate from Detroit to New York is seventy-two per cent. of the Chicago-New York rate. The percentages from the following points are as indicated, namely: Cincinnati, eighty-seven per cent.; Indianapolis, ninety-three per cent.; Grand Rapids, ninety-six per cent.; Peoria, Ill., one hundred and ten per cent.; Louisville, Ky., one hundred per cent.; Milwaukee, one hundred per cent.; and even points in Canada, such as Toronto, seventy-eight per cent., etc. Every place, no matter how small, has a certain percentage of the New York-Chicago rate assigned to it. This rate changes with any variation of the standard or basic charge. Thus when the Chicago-New York rate, first-class, is seventy-five cents, the rate from Indianapolis is ninety-three per cent. of that figure. Any change of Chicago-New York first-class rates modifies every intermediate rate in exactly the same proportion. This was well exemplified in the rate wars of 1893. These percentages have been fixed after a long process of compromise among conflicting interests. Another point of special interest is that these rates are adjusted on the basis strictly of the long and short haul principle, namely, that all intermediate points enjoy a somewhat lower rate than the terminal points, although the percentage may not be exactly upon a mileage basis. Consideration of the distribution of these percentages points to many apparent inequalities in the adjustment; but, as a matter of fact, it will be found that the existence of competing routes, of water transportation or of other factors, offers a partial explanation in most instances.
Such being the general character of this comprehensive trunk line system, the relation of it to the tariffs described heretofore is not difficult to demonstrate. Each separate railway having developed a well-ordered rate schedule, they have all met and agreed upon a unified scheme; which as far as possible harmonizes all conflicting interests. The gradation of rates rising with increasing distance from New York on each separate road, is adjusted to the corresponding gradation of rates of its neighbors on either side. The result is a series of rate zones, lying more or less concentrically about the terminal point. These zones are highly irregular in width and area, but possess one feature in common. Each remoter zone is one stage higher in rates than its predecessor. This relationship is indicated by the cross section diagram herewith. This cross section, of course, differs from the diagrams heretofore shown. It is purely geographical, being taken, not along one single railway but as the crow flies—straight across the whole trunk line territory. But in order to appreciate the significance of this elaborate scheme, one should imagine a whole series of such progressively rising rates, radiating out along the different lines of railway. Connecting the corresponding levels or stages upon each one with those of its neighbors, the concentric zones are immediately outlined. The advantage of such a broad scheme is that it generalizes the single line tariff; taking into view every place, no matter how small and irrespective of its location whether upon a through line or merely a local transverse one. Every town, no matter how insignificant, is assigned a place in a logically evolved plan. Such would seem to be the ideal of rate construction, toward which all traffic managers should strive.
The foregoing description of the development of a mileage tariff is applicable to only a part of the traffic. A very large volume of tonnage,—said to be not less than seventy-five per cent. in America, sixty-three per cent. in Prussia and fifty per cent. in the United Kingdom,—moves under special rates made in quite another way in response to the exigencies of commercial competition. The making of these freight rates in practice is an extremely complicated matter. No single road is independent of rates made by its rivals—rates applicable not only to competing commodities and markets, but also as affected by apparently the most remote and disconnected contingencies. Thus railway rates, as has well been said, are not a set of independent threads; they form a fabric. They are so interwoven everywhere that if one thread be shortened, it will cause a kink in the fabric that may run almost anywhere. In order to understand this it will be necessary to describe somewhat in detail the nature of competition as applied to transportation; and then to show by a few concrete illustrations, the various factors which actively enter into the determination of specific rates. Laymen and legislators do not sufficiently appreciate the extremely delicate nature of the work. Much discussion relative to railway competition seems to be based upon the assumption that it consists in the main of the competition of railway lines more or less parallel or else operating under substantially like conditions. As a matter of fact competition in transportation is to a large degree far more complex.
Railway competition is of three entirely distinct sorts. These may be denominated, respectively, competition of routes, competition in facilities and competition of markets.[76] The first of these, competition of routes, as the name suggests, is limited to the activities of the carriers alone. It occurs whenever two railways are exposed to identical commercial conditions both at the point of origin and of destination. The rivalry is direct and physical. The only competition possible is that concerning the route by which traffic may move between those two points. Such competition is most likely to arise between more or less parallel lines, as for instance between the various trunk roads from New York to Chicago. The classic instances in our history are of the rate wars due to the West Shore and the Nickel Plate, which were built for the express purpose of engendering competition with the then existing lines,—the New York Central and the Lake Shore, respectively. The same sort of simple competition prevails, of course, between a railway and a parallel canal or other waterway, as, for instance, between the Erie canal and the trunk lines, or the Illinois Central and the Mississippi river. Such simple competition as this, where confined to railways alone, almost inevitably leads to one of two results: the roads may remain independent, preventing ruinous rate wars by pooling; or else, as a result of long continued cut-throat competition, the bankrupt road may be bought up and merged with the solvent one. This was the fate of the old New York and New England railway, finally purchased by the New Haven system; of the West Shore and Nickel Plate lines; and of the Kansas Pacific, unloaded on the Union Pacific by Jay Gould. The nature of railway competition is indeed such that no other result than consolidation or pooling can ensue. Weyl is right in his observation that,—"Strictly speaking, permanent competition can exist, not between railroads struggling for the same traffic; but solely between those railroads which have no territory in common."
This first form of competition of routes or, as it has been called, of alternative routes, often obtains where conditions of competition are more obscure than in these simple instances above named. In the rivalry for the imported plate glass or crockery traffic between the trunk lines and the Gulf roads, the competition is none the less of routes between Liverpool and Chicago, although the water carriage by way of New Orleans or Galveston is so much more roundabout. Freight actually moves from Boston to Chicago by a line 1786 miles long, via Asheville, N. C., while the direct distance is only 1004 miles.[77] From St. Louis to Meridian, Miss., is 512 miles by direct rail line; yet traffic may move over 2000 miles going to New York and then around.[78] The map on p. [271], showing the various rail and water lines concerned in traffic between New York and the little town of Troy, Ala., shows how widespread are the ramifications of competition of this sort. Manifold instances of such roundabout carriage have been elsewhere described in full.[79] They differ from the competition of parallel routes, however, in the important regard that absorption of the long lines by the short ones becomes both physically and financially impossible. Whenever a large area like the Pacific slope is devoid of manufactures, and wherever the source of supplies is sufficiently concentrated, as, for instance, in the manufacture of agricultural implements which are almost exclusively made in or about Chicago, we still have to do with a clear case of competition of routes, although a great number of carriers may participate in the business. When molasses or rice are only to be had from New Orleans, the centre of such business, the carriers to all tributary consuming points compete for the routing of it over their own respective lines. These carriers may operate either by land or sea or by a combination of both; and they may transport commodities by the most roundabout ways.[80] The determinant feature, however, distinguishing this class of competition is neither the mode or carriage nor its length; but is found in the fact that the commercial conditions at both ends of the line, points of origin and destination, are identical for each participant in the business. Direct competition of routes, therefore, has to do with pure transportation,—the creation of place values,—and this being the case, the relative cost of service is always a factor of moment.