In one way the persistence of locally high rates in the South and West, irrespective of the low charges at competitive points, is defensible on the ground that local business is scanty.[244] The roads cannot live upon it. Their mainstay is the long-distance traffic from important points.[245] On the other hand, where there is no obligation to maintain a distance tariff, of course the road with rich local business enjoys a great advantage in making rates at competitive points. It can practically subsist upon its revenue from its own particular constituency, meeting all its fixed charges thereby; and can afford to cut rates on the competitive tonnage down to the bone. Such a road, quite irrespective of the length of its line, would obviously "control" the rate at competitive points, as against any rival without such a subsidiary and independent source of income.[246]
Volume of traffic is another fundamental element in the determination of cost of operation. No matter how short the line or how easy its curves and grades, unless it can handle its tonnage in large bulk it will operate at a disadvantage. Hence a most important factor to be reckoned with, in deciding which of two competing lines is in a commanding position as to rates, is the volume of traffic, both in gross and as susceptible of concentration on either line. In the notable Chattanooga case, for example, although the line from New York to Nashville, passing around to the south by way of Chattanooga, is 212 miles shorter than the lines via Cincinnati or Louisville, the latter, by reason of the density of traffic in trunk line territory, seem to stand at least on an even footing. On the other hand, the enjoyment of the bulk of the tonnage sometimes places its possessor at the mercy of a petty rival. The Fall River water line to New York, carrying an overwhelming preponderance of the business, obviously could not afford to cut rates to prevent the Joy Line from stealing a small portion of the traffic. The same principle holds good in other lines of business. The Standard Oil Company can better afford permanently to concede a small fraction of business to a small independent dealer, so long as he knows his place and refrains from ambition to enlarge, rather than to attempt to drive him out entirely by cutting prices on a huge volume of business. Occasionally independents are shrewd enough to take advantage of this; and so to distribute their business that they shall in no single place menace a powerful rival, and yet comfortably subsist on the gleanings over a wide area.[247] In no single locality are they important enough to exterminate, at the cost of cut rates applied to a large volume of business; and yet in the aggregate they may make quite a fair livelihood. The only difference between the status of a railway and other lines of business in this regard is that the railway may not be quite so free to deploy its forces. Its territory and tonnage are more definitely circumscribed by physical conditions of location.
A point to be noted in this same connection is the relative stability of the traffic. Is it concentrated in a few hands or does it arise from many scattered sources? In the former case either road by making a bold stroke may so entirely capture the business that, by reason of the enhanced volume, a handicap in operation may be overcome. Thus, in the notable instance of trunk line competition for the beef traffic some twenty years ago, the Grand Trunk, although much more roundabout, besides being handicapped in other ways, by securing all the business, could afford to make rates impossible under other circumstances.
Whether the business in question is natural or normal to a road, or is an extra, diverted from other more direct lines, is still another factor of importance affecting ability to compete successfully for any given traffic. The best statement of this is found in the argument of J. C. Stubbs before the Arbitration Board on Canadian Pacific Differentials in 1898.[248] "These are differentials in favor of weaker lines—lines which upon the merits of their service cannot successfully compete for the business, but claim a share of it as the reward of virtue, the price of maintaining reasonable rates.... For example, the Canadian Pacific road was not projected or built for the purpose of developing, fostering, or sharing the carrying trade between San Francisco and the eastern part of the United States.... After they were built and the various connections made, then, and not until then, it was seen that there was a business opened. The route having been opened, the newer and longer lines entered the field of competition against the older, shorter, and more direct lines by cutting the latter's rates.... In a fight of this kind, paradoxical as it may seem, the stronger line always got the worst of it.... The weaker or longer line, not having any business at the outset, had nothing to lose. Everything was gain to it, which appeared to show an earning above the actual cost of handling the particular lot of freight. Quite a distinction between that and the average cost of handling all business. Such an unequal warfare could not long continue, and the common result was that the stronger line sought for terms, and ultimately bought the weaker line off, ... this class of differentials is and always has been obnoxious."
Our final conclusion must therefore be that the outcome in cases of unequal competition in respect of cost of operation can seldom be predicted with certainty. Everything depends upon local circumstances and conditions. Sometimes the long line and sometimes the short line will dominate. Careful analysis of every feature of the business must be made before positive affirmation is possible. This result is at all events worth noting. A due appreciation of the complexity of the business of rate making may safeguard us against the cocksure statements of the novice, who has never closely examined into the subject. President Taft has recently emphasized the need of expert service in the field of customs and tariff legislation. It is greatly to be hoped that a similar appreciation of the care with which railway legislation should proceed may prevail at Washington during the present session of Congress.
FOOTNOTES:
[200] Cullom Committee, Report, Testimony, p. 532. Cf. instances in Hudson's Railways and the Republic; and Parson's Heart of the Railway Problem as showing popular misunderstanding.
[201] Senate (Elkins) Committee Report, 1905, p. 1892.