The Big Four road operating through Springfield answered that it was not responsible for the eighty cent rate to Columbus; that this was made by the direct line; and that it obviously must meet this rate or withdraw from the ice business. It alleged, moreover, that the rate of one dollar was reasonable in itself as compared with other rates in the same territory, and was in fact substantially less than it formerly was; nor would its withdrawal from Columbus ice business evidently be of any advantage whatever to Springfield, but would indeed deprive it of some small contribution to joint expenses of operation on all its tonnage. No evidence being offered that Springfield was positively injured by this adjustment, the Commission properly dismissed the complaint.
The distinctive feature of this class of cases, as has been said, is that the intermediate point preferring the complaint is always on a roundabout route.[206] St. Cloud, Minnesota, and Wichita, Kansas, whose contentions are described hereafter in detail, were thus situated. The so-called "rare and peculiar" case of Youngstown, Ohio, cited in the original Louisville and Nashville decision of 1889, was in no sense different. It was a case of pure competition of routes.[207] Traffic to New York was starting its journey from Pittsburg, over the rails of the same company, in exactly opposite directions. Some of it went east by the direct line; while other freight first moved due west, thence north, by way of Youngstown, Ohio, until it reached the main line at Erie, which took it on to New York. This traffic, therefore, described three sides of a rectangle in reaching its destination, traversing a route 172 miles longer than by the direct line. The issue was raised by a demand for as low a rate to New York from Youngstown as Pittsburg enjoyed, on the ground that it was nearer New York by this indirect line; Pittsburg traffic, in other words, passing through it en route to the seaboard. The reply, of course, was that, although nearer by an indirect road, it was more distant by the natural and shortest route, and consequently should pay more for the service. What the roundabout line was really demanding was permission to compete at Pittsburg for New York business, without being compelled to reduce its local rates from intermediate points like Youngstown. In other words, the long line was demanding exemption from the long and short haul clause, while the direct short line conformed to it. Without such exemption it could not continue to reach out for Pittsburg business, as the loss incident to reduction of its local rates would outweigh the profit in the competitive tonnage.
One side of the Savannah Freight Bureau Fertilizer case[208]—namely, the complaints of local stations on a roundabout road—brings it within our first category. The roundabout line from Charleston to Valdosta, shown upon the map at p. [648], was 413 miles long as against a direct route of only 273 miles. Kathleen, Georgia, is only 288 miles out from Charleston on this indirect line,—approximately the same distance as Valdosta, which thus corresponds to Y in the oyster case. Yet Kathleen paid a rate of $3.32 per ton on fertilizer from Charleston as against $2.48 charged to Valdosta, 125 miles beyond. But this excess distance is by an indirect route. Most of the notable English cases concerning local discrimination appear to be of the same stamp.[209] The complaints of a number of smaller places in the St. Paul-Milwaukee territory, like Cannon Falls, Lacrosse, and Northfield some years ago, reduce in part to the same thing.[210] Whether the Troy, Alabama, and Wichita, Kansas, cases belong here or in the next group is indeterminate, owing to the difficulty of comparing conditions of carriage by rail and by water, respectively.
On the other hand, the set of circumstances shown in diagram B (page [219], supra) is of quite a different sort. The justification for the local discrimination is much less clear. Here, as before, the distant point Y enjoys a lower rate than X because of the presence of competition; but it is important to inquire both as to the nature and the amount of it. In the first case, competitive traffic from Y was extra rather than normal in character, so far as the line serving X was concerned. It was relatively small in amount. Whatever surplus revenue resulted from it aided the local tariffs, including those at X, in supporting the burden of fixed expenses. This burden they were bound to bear entirely in the absence of competitive business picked up at Y. The distant point Y of course had no complaint in any event, and the chances are that X was benefited, as we have seen. But in the second case the great bulk of the traffic from Y belongs naturally to the direct line through X. It constitutes the mainstay of its business. The direct line, unlike the roundabout one, cannot withdraw from the field when rates become unremunerative. It is in this business passing directly through X to stay. Nine-tenths of the Y traffic, perhaps, moves through X in this latter case; in the former one, one-tenth would perhaps measure the proportion of the indirect line. Under this assumption, it is obvious that the question of the level of rates at Y, as determined by the presence of competition, assumes a ninefold greater importance in the eyes of X, so far as the effect upon local rates in supporting the fixed and joint expenses of the road is concerned. In any event, even the line operating under a disability supposedly earns some small net return on competitive traffic, else it would withdraw from the field. This it is in fact free to do at any time; and, however small the net return, it is at least all gain. On the other hand, when the net return on a large volume of its natural business becomes unduly small, the financial stability of the direct line is put in jeopardy. The danger of local rates (as at X) being actually enhanced or at least prevented from reduction, because of an unduly low level of competitive rates at more distant points, is thus much greater when X is a way station on a direct line than when, as in our first instance, it is an intermediate point on a roundabout route. For this reason the direct line through X is at the outset put to a justification of its local tariffs, as to whether they are inherently reasonable or not; first, by comparison with the general level throughout the surrounding territory; and, secondly, as yielding a return on the capital actually invested. This seems to have been the line of reasoning which the Interstate Commerce Commission adopted in the recent important Spokane, Washington, cases.[211] The low through rates to the Pacific coast were established as reasonable by the competition of sea routes round the Horn, and especially by the newly-opened Tehuantepec Railroad. The only ground for finding there was discrimination against Spokane was an inherent unreasonableness in its rate. This was, in fact, the outcome; the decision being rendered notable, further, by reason of the prominence given to the valuation of the railroads' property as a basis of judgment.
The first important point to be established, then, in this second variety of the oyster case was as to the relative distribution of traffic from the more distant competitive point by the several lines open to it. The next concerned the absolute reasonableness of the rate at the intermediate point. In the third place, we must inquire whether the rate at the more distant point may not be unreasonably low. This was a contingency not possible, as we have just seen, in the Spokane case. But others may be different in this regard. One is thus forced to consider the effect of the presence of roundabout competitive lines upon the level of rates at the more distant point. An indirect rival road may, as in the St. Cloud case, carry only seventy-three carloads a day as compared with a daily movement of one thousand cars by the direct lines. On the other hand, as in the Savannah Freight Bureau case, Valdosta, Georgia, may receive nine-tenths of its supply of fertilizer by indirect roads. But in any event it is the potential, not the actual, movement of tonnage, which may count in the long run. It is indisputable that the short line between two points never pares its rates down to an irreducible minimum except under compulsion. The presence of a roundabout route affords just this pressure to reduction. Even allowing that in the last analysis the long line will strike bed-rock of no profit first, it is indisputable that such lines frequently, instead of merely meeting rates made for them by the direct routes, seek to divert business by actually undercutting those rates. Having only a small share of the tonnage, they take risks which would be fatal to others. To transport at an absolute loss is of course no more defensible than the argument of the merchant that the only way to compensate for selling goods below cost was to enlarge the volume of his business. But, of course, there is always the chance that, by enlarging this volume sufficiently, operating expenses may be so far cut down that a loss may be transformed into a profit. The diversion of enough traffic from the direct railroad line to accomplish this end would, of course, reduce the volume of its traffic and thereby unduly burden it, to the manifest injury of all local points like X.
Suggestive illustrations of lower rates at the more distant point than are under the circumstances actually "compelled" by competition of routes are to be had. In a recent case[212] the rates on bananas from Charleston, South Carolina, to Danville and Lynchburg, Virginia, respectively, were called in question. The traffic moved through Danville on its way to Lynchburg, sixty-six miles beyond, at a rate of forty-three cents to Danville as compared with a rate of twenty cents to Lynchburg. The reason for the low rate at Lynchburg was the presence of a rival route,—bananas, coming in through Baltimore. But the lowest rate "compelled" by this competition was in fact thirteen cents higher than the Danville line charged at Lynchburg. In other words, the long-distance rate was that much lower than it need have been. This instance is analogous in another way to our oyster case, inasmuch as the demand at Danville being limited, one-half of the same carload paid the Danville rate of forty-three cents, while the other half went on at the lower rate of twenty cents enjoyed at the more distant point. It is in this connection, of rates unduly low at so-called competitive points, that the partial weakness in the railroad arguments in many of the southern basing point cases appears. Since the Supreme Court of the United States had held that competition at the more distant point justified its lower rates, the Interstate Commerce Commission was powerless to give effect to whatever opinion it might entertain that at times it is neither water nor commercial competition which actually brings about the low rate at the basing point; but merely a consensus of opinion among carriers that that place will respond quickly enough to favors granted, to make it worth while to try the experiment.[213] This conviction is vastly strengthened, of course, since entire monopoly among all the southern railroad lines has become an established fact. It is an absurdity to speak longer of any competition between rail carriers existing in a large part of this territory.[214]
