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3. That the charges so made shall be subject to the control of the Interstate Commerce Commission, which shall have power to determine whether such charges are reasonable, and if found unreasonable, to prescribe the amount which shall be charged.
4. When the owner of the commodity is also the owner of the car, the compensation for the use of the car shall be subject to the jurisdiction of the Commission.
Pending the enactment of such legislation as may be needed, the Commission will utilize every agency at its disposal to correct an evil of such grave proportions.
In our last report to Congress we referred to the manner in which the Hutchinson Salt Company obtained what was in effect a rebate upon the transportation of its product to certain points by organizing a railroad, publishing a joint through rate with and obtaining a division from the various railroads transporting that product. It was then suggested that this was an expedient for the granting of those preferences which had hitherto been given more openly, but which were cut off by the Elkins amendment of 1903; and the opinion was there expressed that similar expedients might be generally resorted to in the future. That opinion has been confirmed both by information informally received and by formal investigations of the Commission so far as they have been conducted into that subject. The terminal road is, in our judgment, one of the most dangerous means for the preferring of favored shippers at the present time, and we earnestly call the attention of Congress to this situation. One of two actual examples as developed in testimony before the Commission will best serve to show exactly what is meant.
ILLINOIS NORTHERN RAILROAD.
The International Harvester Company, popularly known as the harvester trust, was organized in 1902 for the apparent purpose of consolidating several organizations engaged in the manufacture of farm machinery. Among other companies absorbed was the McCormick Harvester Company, which had, among its works, an extensive plant near 26th street, in the city of Chicago. Within the private limits of this plant it had found it necessary to construct and operate 17 miles of railroad track. In 1901 three different lines of railway connected with these tracks of the McCormick Company, viz., the Burlington system, the Santa Fe system, and the Chicago Junction Railway, one of the switching lines in the city of Chicago, and by means of these three railways the McCormick Company delivered traffic to and received traffic from all the railways entering that city. No switching charge seems to have been collected from the McCormick Company on account of traffic handled in and out of its plant, but it was compelled to maintain, and for the most part to operate, the tracks within its own grounds.
The Illinois Northern Railroad Company was incorporated under the laws of Illinois in 1901 with a capital stock of $500,000. This stock stood originally in the names of certain individuals and probably still so stands, but the money which paid for it was entirely furnished by the McCormick Company and the capital stock is to-day entirely owned by that company or by the International Harvester Company. The original purpose in forming the Illinois Northern Railroad Company was to take over these 17 miles of track within the private grounds of the McCormick Company and this was the first track acquired. The Santa Fe system had made connection with the McCormick works at Twenty-sixth street by means of a switching track extending a distance of about 5 miles from Forty-ninth to Twenty-sixth street and the Illinois Northern Company now leased of the Santa Fe this track. It also acquired trackage rights as far as the Stickney yards at Seventyfifth street, and by virtue of the road leased from the Santa Fe and its trackage rights, thus obtained a connection with most of the railway systems centering at Chicago.
Its railroad consists, as will be seen, of the 17 miles of switch tracks within the private grounds of the McCormick Company, 5 miles of main track from Twenty-sixth to Forty-ninth street, and trackage rights for some 4 or 5 miles more. The company employs in the operations of this railroad several locomotives and an entire force of 85 to 100 men. It maintains a freight station at which it receives and delivers some less-than-carload freight, but its principal business is the work done within the McCormick yards and the moving of loaded cars to and from the McCormick yards and other industries which are situated along its line between Twenty-sixth and Forty-ninth streets, of which there appears to be a considerable number.
There is in and around the city of Chicago a certain territory known as the switching limits, within which the movement of cars is upon a switching basis. When the great number of industries located within these limits is considered it will be seen that such movement must be very extensive. All railroads which participate in this traffic, not merely belt lines and switching lines proper, but other railroads entering the city of Chicago, have in the past almost uniformly performed this service upon a switching basis, the charge being from $1 to $10 per car, according to the service rendered. The longest switching haul is apparently some 40 miles.
The Illinois Northern Railroad in making deliveries from the McCormick works to various railroads hauls the traffic from a few hundred feet to perhaps 8 miles. A fair average would probably be 4 miles. From the time of the organization of that company up to January 1, 1904, this service had been uniformly performed by it upon this switching basis, the maximum charge being $3.50 per car, the minimum, $1 per car. Beginning about January 1 certain railroads allowed the Illinois Northern Railroad, on business destined to the Missouri River and beyond, a division of 20 per cent of the through rate with the Missouri River as a maximum. The rate from Chicago to the Missouri River on the farm machinery manufactured by the McCormick Company is 30 cents with a minimum of 20,000, or $60 per car.
On this traffic, therefore, the Illinois Northern would receive $12 per car instead of the previous maximum charge of $3.50. This division might be greater or less according to the loading of the car, the destination of the traffic, and the kind of traffic. In fact, $3.50 per car is ample compensation for the service performed by the Illinois Northern Railroad in switching these cars to and from the McCormick works and the other industries along its line to various connecting railroads.
Since the International Harvester Company owns the Illinois Northern Railroad, a payment to the railroad is a payment to its owner, the International Harvester Company. When a line transporting a carload of traffic from Chicago to the Missouri River pays the Illinois Northern Railroad $12 for switching that car from the McCormick works to its iron it gives the International Harvester Company a preference of $8.50 over what any other shipper of that same carload would be obliged to pay; and this preference extends in the case before us not only to the traffic of the International Harvester Company, but to the traffic which originates with other industries along the line of the Illinois Northern Railway. Just what this preference would aggregate in dollars per year did not appear, but the sum must be large, and if by this device a preference of that amount can be given there is no limit in law to the extent to which this shipper may be preferred to other shippers.
CHICAGO, LAKE SHORE & EASTERN RAILWAY.
The length to which this evil may yo was even more strongly illustrated by the case of the Chicago, Lake Shore & Eastern Railway. This railway was originally organized in the interest of the Illinois Steel Company, and its capital stock is to-day entirely owned by the United States Steel Corporation, which some time ago absorbed the Illinois Steel Company and took over its various plants. The Illinois Steel Company, in the prosecution of its business, finds it necessary to construct, maintain, and operate within the private grounds of its various plants many miles of railroad track. It has of such tracks 62 miles at South Chicago, 18 miles at Joliet, 18 miles at Bay View, a suburb of Milwaukee, 10 miles at its Union Works, and 4 miles at its North Works. In addition to this it has a main line some 6 or 7 miles in length extending from the works of the Illinois Steel Company at South Chicago to Indiana Harbor, in the course of which connection is made with several important systems of railway entering Chicago. It also has short lines extending from some of its other plants to and connecting with the Elgin, Joliet & Eastern, one of the belt lines of Chicago, over which the Lake Shore & Eastern has secured trackage rights. It will be seen, therefore, that almost the entire mileage of the Chicago, Lake Shore & Eastern is made up of these private tracks of the Illinois Steel Company, and the function of that company is, first, to operate these switch tracks and, second, to transport traffic between these plants of the Illinois Steel Company and railroads bringing it to and carrying it from Chicago.
Since 1897 this railroad has been allowed a division with eastern lines of 10 per cent on business to New York and other seaboard destinations, and 15 per cent to Pittsburg, Buffalo, and points West, and of 20 per cent on business to the Missouri River. It also enjoys a division on business to the South, but the evidence before us did not clearly show what these divisions were. These various divisions range from $6 to $12 per car for the switching service, and are much in excess of fair compensation.
In addition to this certain special divisions have been in the past, and are apparently now, granted to this road. Upon coke from the Connellsville region, for example, a division of 70 cents per ton is allowed. This coke is carried in train loads in specially constructed cars, and these train loads will probably run from 1,000 to 1,500 tons net. For hauling one of these trains from Indiana Harbor to its plant at South Chicago, about 7 miles, the Lake Shore & Eastern Railway would receive from $700 to $1,000, while the actual cost would probably not exceed one-tenth of this sum.
Several instructive facts should be noticed in connection with this road. First, these divisions have been enjoyed since 1897, while those granted the International Harvester Company were first received within the year. Second, the International Harvester Company up to the present time has obtained no division whatever from eastern lines, and the testimony leaves it uncertain whether they are to any extent granted by southern lines. Upon the other hand, the Lake Shore & Eastern receives divisions from all eastern and southern lines. Third, the International Harvester Company operates as part of its works an iron plant at South Chicago, which is known as the South Chicago Furnace Company. This company has within its private grounds 7 or 8 miles of switch tracks upon which it employs three locomotives. This plant up to the present time has been granted no division, and is therefore obliged to maintain and operate, without assistance from the railways transporting its traffic, the switching tracks within its limits. Upon the other hand, the Illinois Steel Company, engaged in the same business but upon a much larger scale, secures from the railroad companies in the way of these divisions enough to maintain and operate the many miles of switching tracks within its private grounds without any expense whatever to that company. Exactly what these preferences amount to in dollars and cents to the United States Steel Corporation is, of course, not known, but it can be affirmed with certainty that the sum derived from this source has been in the past and is to-day sufficient to pay dividends upon several millions of dollars of capitalization.
The important thing to which we call attention is the growth of these practices. Until recently it is our impression that they have been largely confined to a few instances. To-day they are extending in all directions and unless checked must soon become general. The Commission has held that such practices are unlawful, but no effective effort has been made by the carriers, according to our information, to secure their discontinuance. All available means will be resorted to for the suppression of this species of wrongdoing, but further legislation may
be needed to furnish an adequate remedy. From every point of view this matter may well command the serious attention of the Congress.
VOLUNTARY SUBMISSION OF CONTROVERSIES.
In two instances during the past year the Commission has been asked by both shippers and carriers to adjudicate controversies between them concerning the adjustment of rates. In each case the questions involved are of manifest importance as affecting the business of competitive communities and the traffic of railway lines by which they are served. These questions had been the subject of prolonged contention between the parties and of unavailing efforts to harmonize by direct negotiation the conflicting interests of carriers and communities whose officers and representatives finally joined in invoking the friendly offices of the Commission.
While the Commission is not in express terms authorized to act as a board of arbitration in matters referred to it by consent of the parties concerned, the subject of controversy and the issues involved in both these requests presented such a state of facts as would have justified a proceeding upon formal complaint or of inquiry upon our own motion, and were thus clearly within the spirit of the statute which defines the functions of the Commission. Believing this view to be correct, as it has proved to be unquestioned, the Commission accepted the responsibilities which it was thus asked to assume. The proceedings in form are strictly in accordance with the provisions of the act, although the voluntary submission by the adverse parties gives them in fact the nature of an arbitration. Some account of these proceedings may be properly given in this report, not only because of the unusual circumstances under which the action of the Commission was invoked, but