Constant rates applied over long distances on the same line almost inevitably tend to pass over into a system of equality of rates over different lines.[230] The necessity was evident enough in the Milk Rate case. This phase of the matter may theoretically best be discussed by reference to the following diagram. Suppose A, B, C, and D to represent any four inland "common points." It remains to show how it comes about that they all finally enjoy equal rates to all four seaports, regardless of location. Each appears to be naturally tributary to some one of the seaports by a dominant or short-line route. In each instance this route properly rules the rate. Moreover, the four seaports may be considered for traffic purposes as equally and interchangeably distant from one another without regard to location. This follows from the fact that, except in extreme instances, rates by water do not vary according to distance, so small is the cost of mere propulsion by comparison with the terminal costs. In other words, the rate is the same from Wilmington to Brunswick or Savannah as to its next neighbor Charleston. From this it follows, further, that Wilmington, Savannah, and Brunswick can all reach B—the point to which Charleston is nearest—on even terms. They may each have a direct line to B; but, as compared with a possible combined low water rate to Charleston and a low direct rail rate inland to B, the Charleston route may be at least able to hold its own. All three outside competitors, then, are on even terms with one another in respect of access to B. But how does Charleston stand towards B as against the field? We have already concluded that a roundabout route must be allowed to meet, though not to undercut, the ruling rate. Such a roundabout route from Wilmington on this diagram to its own natural tributary A could be, and as a matter of fact is, made by passing around by way of Charleston or any other seaport. Charleston wishes to share in this trade at A, and may reach it by similar tactics. It stands towards A precisely as Wilmington stands towards B. They finally agree to enjoy both A and B on even terms. But, as we have already seen, the admission of Wilmington to B is equivalent to the admission of all the rest. Whence it comes about that all four establish B as a "common point." And of course the same procedure fixes all the others, A, C, and D in the same way. In the Savannah Fertilizer case[231] it appeared that there were no fewer than 148 points in ten states from Louisiana to Kentucky, to which rates on fertilizers were absolutely the same from each of the four seaports. The degree of local discrimination of course was negligible at the remoter places; but it augmented in proportion as the immediate neighborhood of each seaport was approached. The apparent anomaly was greatest in a north and south direction along the seacoast. Thus Dinsmore, Florida, was 275 miles from Charleston and only 160 miles from Savannah, yet the rates from both points were the same. The governing feature usually was the entire equality of coastwise water rates, regardless of distance, which in turn compelled the land lines to follow suit.
The Cincinnati Freight Bureau case, otherwise known as the Maximum Freight Rate case,[232] affords the best example of the difficulty in practice of adjusting rates over different and widely separated lines on a distance basis, in order to satisfy the demands of commercial competition. Atlanta, Georgia, the key to the southern market, is 876 miles by rail from New York, but only 475 miles from Cincinnati and 733 from Chicago. In other words, Cincinnati is fifty-four per cent. as far from Atlanta as is New York; and even Chicago is only eighty-four per cent. as remote. In general, this valuable southern territory, on the basis of mere distance, is really nearer to the leading middle western cities than to those on the Atlantic seaboard. Yet this geographical situation is not reflected in the railway tariffs. Rates from the West, especially on manufactures, were much higher, always relatively and often absolutely. Thus first-class goods in 1894 paid $1.47 per hundred from Chicago (733 miles), while from New York (876 miles) the rate was only $1.14. At points like Chattanooga the disparity was even greater. This city is only 595 miles from Chicago as against 1,060 miles from Boston. Yet the rates were actually lower ($1.14) from New England than from Chicago ($1.16). The principal reason for this of course was the cheap coastwise water competition by way of Charleston and Savannah. The eastern all-rail routes could charge no more than the combined rail-and-water lines. The difference in relative cost of operation by water was recognized by means of so-called "constructive mileage." From New York to Savannah by sea is about 750 miles; yet the allowance to the steamers was proportioned upon a distance of only 250 miles. Water cost was thus fixed by comparison with rail cost in the proportion of one to three. Yet, even with this allowance in favor of eastern cities, New York remained more distant from Atlanta than Cincinnati; the "rate-making" distance from the former being 538 miles as against only 475 miles from Cincinnati. The arbitrary reduction of the New York distance left Chicago more remote (733 miles), but not in so great degree as its tariffs implied. These tariffs were also peculiar in another regard. The handicap against the western cities was much higher in respect of manufactures and high-class freight than upon foodstuffs and raw produce. This in turn was clearly due to a long-established agreement between the lines east and west of the Alleghanies, as to a division of the field. Originally each set of lines was harassed by roundabout competition from the other. Western foodstuffs and raw produce were reaching the South by way of the Atlantic seaboard; and eastern manufactures from New York, for instance, were rambling about over western lines in order to reach places like Atlanta and Augusta, naturally served by direct routes from the East. The agreement to divide the field, dating from 1878, steadily became more irksome, however, to the West, with the development of manufactures of its own. The problems raised by this change are too large to be considered here. The main question for the present inquiry is as to the relative fairness of rates from two widely separated centres to a common market, those rates not being proportioned to distance. The final settlement of this knotty question is suggestive of the extreme difficulty of attempting to apply mileage or distance rates over different railroads too rigidly. The complaint being as to relativity, there were only two possible solutions.[233] One was to increase the eastern rates, the other to order a reduction of the charges from the West. The former course was impossible, owing to the presence of water competition by sea, not under control. The latter alternative was, therefore, chosen by the Interstate Commerce Commission in its decision in 1894. The rates from western cities were always composed of two parts. The charge from the Ohio south was kept distinct as a local rate. The other portion of the rate applied from Chicago, for example, down to the Ohio river. Of these two parts, the trunk line portion appeared reasonable enough. It was the southern local, often one hundred per cent. higher than the other, which seemed most unreasonable; and which, according to all appearances, had been used to bring about a closure of the market to western manufactured goods. Consequently the Commission ordered a reduction of the southern local rates, cutting them drastically, but leaving the northern locals unchanged. This decision was never carried into effect; as the Supreme Court of the United States held the Commission to have no such rate-making power. Nothing was done apparently to remedy the disparity in charges against the West, although the railroads serving that territory urgently pressed for action. Every time they threatened a reduction of their western rates, the eastern line came down in proportion. This left the relative rates as before, although the general scale would be lower all round.
At last, in 1905, the eastern lines from Baltimore south agreed to permit a reduction of five cents in the rates from western cities by lines north of the Ohio river; but they refused to accede to any change in the rates from the Ohio south. This was the exact opposite of the Interstate Commerce Commission's proposition, although both plans were intended to compass the same object; namely, to place western shippers more nearly on a parity with the East. The Commission, in 1894, laid all reduction upon the southern portion of the rate; the railroads, in 1905, placed it all upon the northern part. This obviously afforded no relief to the original complainant, Cincinnati. In fact, it actually operated to its great disadvantage, inasmuch as it let its two powerful rivals, Chicago and St. Louis, into the southern field on distinctly more favorable terms. Such was the outcome as a result of the friction of railroad competition. The reasonableness of some reduction was clear. But to the layman, the fairness of laying the reduction entirely upon the northern locals, already relatively low, instead of upon the extremely high southern part of the rate is not by any means so clear.[234]
One further detail of this adjustment of southern rates raises a question:
"Rates between Richmond, Virginia, and Atlanta, Georgia, are less than the rates between Richmond, Virginia, and Greenwood, South Carolina (an intermediate point). This is due to indirect competition between Richmond and Western jobbing points; and in order to permit the jobber or manufacturer in Richmond to do business as against his competitor in Cincinnati, it has been necessary to fix the rates from Richmond to Atlanta with some reference to the rates from Cincinnati to Atlanta. At Greenwood, South Carolina, we find that the Cincinnati shipper pays a very much higher rate than to Atlanta, and that the rates from Richmond are already sufficiently low to enable the Richmond shipper to compete at Greenwood with the Cincinnati shipper."[235]
Is this not in a measure well described in the passage, "unto him that hath shall be given; but from him that hath not, shall be taken away even that which he hath"? This railway argument contains dangerous possibilities. In effect, upon the theory of charging what the traffic will bear, it means that a railway (in this case the Seaboard Air Line) may increase its own local rates, not in proportion to the length of its own haul (from Richmond to Greenwood), but according to the remoteness of that local point from another competing market. The inevitable effect of the general adoption of such a policy must be to erect arbitrary barriers to the free and widespread movement of commerce. The great advantage of the flat rate or of commodity rates is that, placing all competing centres upon an absolute parity irrespective of distance, they encourage the utmost freedom of trade.
Certain general conclusions seem to be warranted by the analysis of these cases of local discrimination. The first is that they all show the extreme delicacy of commercial adjustment and the existence of conditions well beyond the control of the carriers, jointly or singly. Trade jealousies in particular—the rivalry of producing and consuming centres—render relativity of rates of paramount importance to shippers. This class in the community is interested comparatively little in the absolute level of rates, that being more directly the concern of the general consuming public. To the public, as represented by State and Federal legislatures, it is difficult to make these complicated matters of commercial competition clear. The only basis of rate making that is easily understood is one founded in general upon the distance principle, or, in other words, correlated with considerations of cost of operation. Any departure from this basis is apt to breed suspicion, and at all events puts the carrier upon the defence. It is bad policy, in their own interest, for railroads to permit a continuance of such violations of the distance principle in their general tariffs (commodity rates as a special resource to meet the special needs of commercial competition may be set aside), except in extreme cases. This was recognized by the trunk lines when they almost unanimously acquiesced in the long and short haul provisions of the Act of 1887. The people of the United States have the same right that they had then, to expect that at the earliest possible moment the wise provisions of the trunk line rate adjustment shall be widely accepted in the West and South. Whether those regions, and the railways that reach them, have yet sufficiently developed to warrant the change is a matter requiring careful consideration in detail.
The necessity of some exercise of governmental control over these carriers of the country, in order to mitigate, if not to eliminate, local discrimination as far as possible, is evident. Many of the instances previously cited have clearly shown how impossible it often is for any railroad, single-handed, to deal with an involved situation in a large way. Take the Cincinnati Freight Bureau case, for instance. Conceding, as many would, the claim of western cities to some readjustment of tariffs in their favor, is it not an anomaly that the lines south from Baltimore, several hundred miles away, should finally dictate the means to be employed to remedy the situation at Cincinnati and Chicago? Who else but the Federal government could ever hope to disentangle the almost hopeless snarl of competition involved in the controversy over differentials to and from the Atlantic seaboard?[236] This controversy is at bottom one of local discrimination. And yet how is the Interstate Commerce Commission to aid in the solution of these intricate problems under present conditions? Its hands formerly doubly tied, are now in part freed by rehabilitation of the long and short haul clause. But it cannot yet deal with minimum rates, nor is it clear that it can prescribe differential rates.[237] True, the commission may, in some cases, accomplish by indirection its purpose of establishing a proper relativity between rates through the exercise of its newly granted power to fix maximum rates. This, as we shall see, was done in the recent Spokane and Denver decisions. Holding that the charges at interior points were out of line with through rates to the Pacific coast; and being unable to govern the long-distance tariffs, it simply ordered a reduction of certain rates at Spokane and Denver as inherently unreasonable. This solution is not, however, always practicable. Not infrequently the lower rate at the remoter point will drop as soon as the intermediate rate is lowered. Thus the former relativity of charges is re-established on a generally lower scale. The complaint in the Eau Claire lumber case required the exercise of such power over minimum rates, in order to remove the disability against a particular centre. And then, finally, it is indubitable that commercial competition as a "compelling" factor has been somewhat over-emphasized by the railroads. Too often conditions in part brought about by themselves, or in which at least they have acquiesced, have been set up as a defence for rates favoring certain points. This is especially true of the southern basing point cases.[238] Whether any further grant of powers to the Interstate Commerce Commission by Congress is necessary at this time in order to enable progress to be made in this connection, it is as yet too soon to predict. The course of affairs for the next few years will at all events bear attentive watching.