A distinct class of cases of local discrimination is suggested by the recent case of Montgomery, Ala., in the United States Commerce Court.[217] These like other cross line cases, akin to that of Wichita, Kansas, above-mentioned, arise in connection with practices as to the division of joint rates. They will be discussed in connection with pro-rating in our second volume.
The question has forced itself forward constantly as to whether the existence of the alleged discrimination in rates is merely a matter of relativity in cost of operation or whether it inflicts positive injury upon the nearer point. Would it benefit the nearer point if the lower rate beyond were withdrawn? It is here that the complexity of some of these cases of local discrimination becomes apparent. To understand this phase of the matter, the factor of commercial competition, as distinct from mere rivalry of routes, must be introduced. Hadley's analysis of the oyster case is quite inadequate on this point. Rates in that instance were on commodities (oysters) produced at practically uniform cost at both X and Y. They were, moreover, rates from two places out to a common market. Would it, however, make any difference if the controversy concerned the rates in the opposite direction; or, in other words, from a common centre of distribution out to two competing consuming points? Would it make any difference whether the goods were to be consumed at X and Y; or were to be used as raw material in manufactures at those two points; or were to be distributed throughout the countryside from X and Y as jobbing centres? It is at once evident that these issues are more complicated than in the first case. The two points X and Y being commercial and industrial rivals, is it not possible that the growth of one may take place at the expense of the other? At any given time there is only a fixed demand for the goods consumed, manufactured in or redistributed from the two places. Trade won by one is quite lost to the other. Of course, in a measure, this might also have been true of the oyster production. But, inasmuch as in that case the rate from Y was not affected by the entry of X, its prosperity would not probably be disturbed. The Hillsdale ice case, above described, is also one where the commodity (ice) is of relative unimportance for Columbus and Springfield, respectively. How would matters stand if the rates in question were on lumber or coal for manufacturing purposes? The difference, no doubt, is merely of degree and not of kind. Magnitudes, however, must not deceive us. The rights of Kathleen or Danville are just as sacred as those of Youngstown and Pittsburg.
St. Cloud, Minnesota, is located upon a line of the Northern Pacific Railroad, seventy-six miles northwest of St. Paul.[218] It is a competitor not only with St. Paul, but with other local centres in the vicinity, like Elk River, Princeton, and Anoka, either for flour milling or for distributive jobbing business. It is about the same distance as these other places from Duluth or Superior; through which the entire district obtains its supplies, such as coal from the East by lake boats; and by way of which its flour must be shipped to the Eastern markets and to Europe. And yet the rate on flour made at St. Cloud to New York in 1899 was twenty-eight and a half cents per hundredweight, as against a rate of twenty-one and a half cents from St. Paul, this latter rate being enjoyed also by Milaca, Princeton, Elk River, and Anoka. The rates on coal and other supplies from the East were likewise proportionately higher than to St. Paul and these neighboring towns. The specific complaint in this case is of local discrimination. The Northern Pacific Railroad operates the long line between St. Paul and the head of Lake Superior by way of Brainerd. On this business, passing through St. Cloud, it has to meet a rate compelled at St. Paul by the competition of no less than three direct lines to Duluth. It avers that this business, taken either way for longer distances and at lower rates than are accorded to St. Cloud, in no way affects the rates at that point; and that whatever it can earn as a contribution to joint expenses decreases the burden of these upon St. Cloud rates. This is all entirely true from the transportation point of view; but, viewed in a large way, the situation is altered. Wheat of local production about St. Cloud is rendered of less value by practically the excess of the St. Cloud rate per hundredweight over the rate enjoyed from St. Paul. The Interstate Commerce Commission found that this was equivalent to a difference of fully $1 per acre in the value of wheat lands tributary to St. Cloud. And on the other hand, of course, the cost of all its supplies is enhanced above the level of rival manufacturing centres. On soft coal this equalled no less than eighty-five cents per ton. To this the Northern Pacific replied that the discrimination against St. Cloud was not of its creation, but had existed before its entry into any St. Paul business by its indirect route. The Commission found, however, that in fact the participation of this indirect line on St. Paul-Duluth business did affect the short-line rate; and that its withdrawal would at least tend to prevent any further reduction of the St. Paul and related rates. If the withdrawal did not remove the discrimination against St Cloud it would not at all events aggravate it. The vital point, differentiating this case from that of the Savannah Freight Bureau, previously stated, was the actual damage to the intermediate point due to the existence of commercial competition between it and the place more distant.
An important feature in commercial competition is its entire dissociation from all considerations of cost of service by long or short routes. Neither strong nor weak lines make the rate. The business is there. Market conditions are fixed. The carriers are free to take traffic or leave it. Single-handed, at least they cannot rule the price of transportation. The price of sugar at Kansas City is made by competition of Louisiana sugar coming from New Orleans, of beet sugar and Hawaiian sugar from Colorado and San Francisco, and of the world's sugar from New York. This is why Kansas City, in the complaint stated in the opening paragraph, enjoys a lower rate on sugar from San Francisco than the transcontinental lines can accord to Denver. The only possible justification for the apparent anomaly in lumber rates from Texas points, cited in the same paragraph, is that, as the heart of the Middle West is approached, lumber supplies from every point of the compass converge upon common markets. As is so frequently averred in such cases, no carrier makes the rate. The rate is made for all of them by conditions beyond their control. The only rates, therefore, which it is in their power to fix in some accordance with average costs of operation, are the rates at local stations. For these rates alone can they be brought to book.
Just here another characteristic of commercial competition as distinct from rivalry of routes is to be noted. Local discrimination, wherever it is alleged to occur, frequently assumes the form of complaint against rates to various places, not on the same line but by different and often widely separated lines. Complaints of this class might arise, for instance, referring back to our diagrams of the oyster cases, between X and Z. Philadelphia, we will assume, as before, to be the common market. A multitude of different varieties of protest are distinguishable. Point X equally distant from Philadelphia with Z may pay a higher rate than Z. Or X may be less distant than Z, and yet be called upon to pay the same rate. It may even be less distant than Z and yet actually be charged a higher rate than Z. But in all these instances the two points (X and Z) are not on the same route, but on divergent routes. The issue remains the same. The conditions imposed at the point of convergence being fixed, each line must exercise its own ingenuity in conforming thereto. Methods in each case must differ, according to the length of line, the direction and composition of the traffic, and other factors.
Three general schemes of rate-making are distinguishable in American practice. The most satisfactory one is that which obtains in trunk line territory, of zone tariffs with a gradation in some degree corresponding to distance.[219] At the other extreme is the system of the flat or postage-stamp rate, exemplified in the Missouri-Mississippi river territory,[220] and in Pacific coast rates from all points east of the Mississippi.[221]
Intermediate between the two are the systems of basing lines and basing points. The first of these, the basing line system, prevails throughout the country west of the Missouri river. The second, the basing point system, is found throughout the southern states east of the Mississippi. In both the principle is the same. The two differ only in detail. Through rates are made to certain designated places; and from there on, a local rate to all other places, large or small, is added. This local charge rises, of course, with distance. Thus the first-class rate to Denver, Colorado, is made up of a rate of eighty cents from Chicago to the Missouri river, plus $1.25 for the balance of the haul. From Chicago to a point in central Nebraska the only difference would be a lower local. In southern territory the rate to Troy, Alabama, equals the sum of the through rate to the nearest basing point, Montgomery, and of the local rate from there on to destination. The only difference in detail between these two systems is that in the western territory, all competing lines being parallel (until the routes around by sea and back from the Pacific coast are met), rates rise in all cases progressively with distance. The complaint of local discrimination rests merely on the allegation that the rate of progression with increasing distance is too rapid. In the South, on the other hand, owing to the encircling seacoast with deeply penetrating navigable rivers, the competing routes from the East or North converge from different and even from directly opposite directions. Hence it is impossible to base rates upon extended boundary lines, like the Missouri river. Rates must be based upon certain designated points. This introduces a serious complication. Points, instead of lines, being used for basing purposes, in the South, local rates rise outward in every direction around each basing centre until the sphere of the next basing point is met. And local rates to points even back on the same line, through which the traffic has already passed to reach the basing point, are thus of necessity higher than rates to points beyond.