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also because of the exceptional importance, in one case at least, of the questions to be determined.
The Differential Case.—The relative adjustment of rates from and to interior points in the United States and the great North Atlantic seaports, from Halifax on the north to Norfolk and Newport News on the south, and including Portland, Boston, New York, Philadelphia, and Baltimore, has been a prolific subject of discussion ever since the growth of the American railway system enabled the same or competitive groups of producers or consumers to choose between transportation routes reaching two or more of these seaports. These cities are important gateways through which the export trade of the United States finds outlet to European markets and through which imported articles of European origin obtain access to the United States. Neither the producer of grain in the Mississippi Valley nor the European consumer of American breadstuffs cares whether the route of communication is through one or the other of the outports, and their indifference is no greater than that of every other producer or consumer of exported or imported commodities. This question, however, is of extreme importance to the great communities which have gathered at these ports. At one time it might also have been said with truth that the interest of each of the several railway carriers reaching the outports was so closely allied to one or the other of them that it must suffer at least equally the consequences of any diminution in the traffic through such port. Now, however, the extension and consolidation of the great eastern railway systems have so far modified the situation that most of them are able to accept traffic for two or more of the ports, and are, in consequence, less acutely concerned in their struggles for position or supremacy.
Although similar adjustments have usually been in force concerning other classes of traffic, it is more than thirty years since an adjustment was reached by which the rates to New York were made the basis of those to the other ports, Boston being charged the New York rate, Philadelphia being allowed a rate 2 cents per 100 pounds lower than New York, and Baltimore a rate 3 cents lower. Norfolk and Newport News have been accorded the same rates as Baltimore.
These so-called differentials have been the subject of repeated controversy, and on several occasions demands for their discontinuance or modification have caused struggles between rival ports and the lines serving them, such as those commonly designated as rate wars."
As a result of one of these periods of conflict and demoralization the celebrated extra-legal tribunal of arbitration, consisting of Messrs. Allen G. Thurman, E. B. Washburn, and Thomas M. Cooley, was called into being, and, after hearing a large volume of testimony and weighing the arguments presented by the representatives of the different ports, rendered its decision on July 20, 1882, sustaining, with
regard to the circumstances and conditions of that period, the differentials then in force. In 1898 the reasonableness of these differentials was before this Commission on the complaint of the New York Produce Exchange, which alleged, as do the representatives of the commercial interests of the city of New York at the present time, that the lower rates accorded to Philadelphia and Baltimore subjected the commerce of the port of New York and the individuals engaged in it to unreasonable and unjust prejudice and disadvantage as compared with their Philadelphia and Baltimore competitors. That complaint was dismissed “ without prejudice,” the Commission being of the opinion that in recognizing competitive conditions of the character involved, railway carriers are properly allowed a certain latitude within which the Commission should not interfere. The record then before us did not, as the Commission then believed, show that in fixing these differentials the railways had exceeded the limit within which they are free to determine for themselves. In concluding our decision in that case it was expressly stated that, should the diversion of traffic from the port of New York that had characterized one of the years covered by the record continue during a period in which the tariff rates were properly maintained to all the ports, a different case might be presented, in which the disposition of the case then before the Commission would not have controlling force. This intimation was not dissimilar in spirit from a suggestion in the decision by Messrs. Thurman, Washburn, and Cooley, previously referred to, to the effect that with the lapse of time changed conditions might render unreasonable the rate adjustment which under the conditions existing in 1882 appeared to them as reasonable and just.
The controversy of 1904 apparently arose through the determination of a railway connecting the cities of Buffalo and Philadelphia to insist upon a differential of 4 mills per bushel upon grain delivered at the former point by lake vessels and transported to Philadelphia below the rate on grain of similar origin transported by rail to New York. Such a differential had formerly been in force, but the rate schedules on file in our office indicate that subsequent to 1898 this differential in favor of Philadelphia had been allowed to lapse, and that prior to January, 1904, ex-lake grain had been carried from Buffalo to New York and Philadelphia at substantially the same rates. The demand for the renewal of the differential was resisted by the carriers more closely identified with New York, and a struggle ensued, during which there were successive reductions that culminated in rates which, from any point of view, appear absurdly low.
The several carriers concerned in this controversy were urged on and sustained during its progress by the commercial organizations of the respective ports and, although the rate reduction was confined to ex-lake grain delivered to them at Buffalo, Erie, and Fairport, the
discussion extended to the whole question of seaboard differentials. Rates having finally fallen to a point at which they were lower than the differential claimed in favor of Philadelphia, and the time of heavy grain movement being near at hand, the obvious necessity for some adjustment coincided with the realization of the fact that the continuance of the struggle must result in a great loss of revenue on the part of all of the carriers.
While the Commission has no official information as to what transpired, it was a matter of common report that early negotiations for a settlement of the struggle clearly developed the impracticability of any solution which did not include a reopening of the entire question of seaboard differentials. Under these circumstances the Merchants' Association of the City of New York proposed to submit the whole matter to arbitration and suggested the Interstate Commerce Commission as a suitable tribunal to investigate and determine the proper relations among the rates to and from the seaboard cities. This suggestion received prompt acquiescence on the part of the Joint Committee on Maintenance of Freight Differentials, which had been created by the Commercial Exchange, the Maritime Exchange, the Board of Trade, and the Trades' League, of Philadelphia; the Merchants' Association and the Chamber of Commerce, of Boston, and the Chamber of Commerce, of Baltimore. It was also agreed to by the presidents or traffic officials of the principal trunk line railways. These facts were brought formally to the attention of the Commission in communications requesting its aid, which were duly filed by or on behalf of the commercial organizations named.
Thereupon, on April 11, 1904, the Commissioni entered its order providing for the proposed investigation, which has been prosecuted with all possible diligence. The case is still pending, voluminous testimony having heen introduced, and the commercial organizations of several western cities having asked and been accorded permission to intervene on behalf of the interests which they represent. Further testimony will be heard, and after proper argument and consideration the Commission will make known its determination.
The Memphis Case.—Another case in which the functions of the Commission are suggestively similar to those of a board of arbitration presents a second peculiar feature in that it arises as one of the results of the action of a State railroad commission which possesses ratemaking authority. During the month of April, 1901, the Railroad Commission of Arkansas promulgated a schedule of freight rates for the use of the railways of that State which was somewhat lower than the published rates formerly in force, and, under the laws of Arkansas, controls the rates on all freight traffic wholly within its boundaries. It is alleged that the promulgation of these rates had the effect of
reducing the charges between the cities of Pine Bluff and Little Rock, in the State of Arkansas, and numerous local stations on the railways of that State. Jobbers in the city of Memphis were in the habit of competing with jobbers in Little Rock and Pine Bluff for Arkansas business, and on behalf of the former it was asserted that these changes, if not offset by corresponding changes in the interstate rates from Memphis to the same destinations, would subject them to serious disadvantages in this competition and deprive them of a considerable volume of trade. It appears that this claim on the part of the city of Memphis was so far recognized by two of the railways doing business between that city and local points in Arkansas that they forthwith adjusted their interstate rates from Memphis so as to preserve sul)stantially the relations formerly existing between that city on the one hand and Little Rock and Pine Bluff on the other.
The Memphis Freight Bureau, a corporation existing for the protection of the commercial interests of that city, as they are affected by rate and traffic matters, endeavored to secure a similar adjustment from the St. Louis Southwestern Railway, over the lines of which Memphis merchants are able to reach customers in certain Arkansas towns. But after prolonged negotiation it was found impossible to reach a mutually satisfactory conclusion. On behalf of the St. Louis Southwestern it was alleged that it had formally protested against the rates prescribed by the Railroad Commission of Arkansas and that it could not afford to make the reductions in its interstate rates which would be required to adjust them to the relatively low level imposed upon its intrastate business in Arkansas. In support of this contention it was further alleged that a certain relation between rates from St. Louis, Cairo, and Memphis to Arkansas points had long prevailed and that the readjustment of the Memphis rates would perhaps involve a further sacrifice through reductions from the other cities.
The successive stages of this controversy occupied a period from early in 1901 to April 6, 1904, when the St. Louis Southwestern, appearing to anticipate local litigation which would involve its ally, the St. Louis, Iron Mountain & Southern, formally announced its withdrawal from all Memphis business. The result of this communication was a proposition on the part of the Memphis Freight Bureau to submit the questions involved to the arbitration of this Commission, which was promptly accepted by the chief traffic officer of the St. Louis Southwestern. A formal agreement of submission, signed by the principal officer of the freight bureau and the chief traffic officer of the railway, was drawn up and filed with the Commission. This agreement precisely defines the questions at issue and is further noteworthy in that it expressly requests the Commission, should it find the rates complained against to be unreasonable, to name the rates which shall
thereafter prevail, and contains a provision binding the railway to put in force any rates so named. This portion of the agreement reads as follows:
If the Commission shall decide that said rates are in any respect unjustly discriminatory and do in fact involve any undue or unreasonable preference or advantage to other localities, * as against the city of Memphis, the said Commission shall indicate what rates would be fair, just, reasonable, and not unjustly discriminatory and not involving undue preference or advantage as aforesaid, and thereupon the St. Louis Southwestern Railway Company shall and will put into effect at once, without controversy, any rates thus indicated.
On the other hand, it is provided that should the Commission approve of the rates complained against, the complainant, that is to say, the Memphis Freight Bureau, “shall acquiesce in the same and raise no further question in regard thereto.”
Pending the action of the Commission, the agreement provided that the St. Louis Southwestern should resume doing business from and to Memphis at the rates formerly in force. The agreement itself declared the purpose of the submission to beto submit the questions in controversy, as hereinbefore specified, to said Commission to the end that the same may be thus by arbitration disposed of without technicalities or formalities and to the end that the pending dispute between the parties will be finally settled and cordial, and friendly relations may be restored between them.
Certainly the purpose defined in the foregoing extract is a laudable one and deserving of the best efforts of any Government officials whom the parties in interest may consider especially qualified to bring about a satisfactory settlement.
The Commission has heard testimony introduced on behalf of both of the parties named, and the city of Little Rock was also represented before it by counsel, who introduced testimony and examined witnesses. Oral argument has been heard, briefs have been submitted, and the matter now awaits determination.
Although both of these cases involve questions of great importance, their recital in so much detail, while still pending, might not be justified were it not for the significance of this new feature of the Commission's activities. Without attempting to forecast the responsibilities which in future--even though the law should remain substantially unaltered—may devolve upon the Commission, it is worth observing that some at least of the most important controversies involving the rates and methods of railway carriers are rather between competing communities or producing regions than between rival lines of railway. Railway development has extended far beyond the point at which any of the greater systems finds its interests so identified with a single community as to feel wholly indifferent to the demands and needs of all competing communities. Indeed, there may be entire sincerity in the contention, on the part of the officers of a great system, that any adjustment which satisfies the rival communities that it serves