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appears that in recent years, under the influence of the rate complained of, the industries, both manufacturing and jobbing, of the Middle West have made steady gains upon the Pacific coast.

We also said that this decision would not in any way interfere with the rights of the transcontinental lines to put in effect, if they saw fit, such a system of graded rates as the complainant asked for, and that the carriers may or may not at their option meet the low water rate from New York. It is also for the manifest interest of those lines beginning at Chicago and points west to maintain lower rates from there than from the seaboard, and if in the future such rates are established they will not be in violation of the act to regulate commerce.

That branch of the complaint most discussed both in testimony and upon the argument was the alleged discrimination by the tariff of June 25, 1898, against the jobber of the Middle West in favor of the jobber upon the Pacific coast, which discrimination, according to the complainant, was accomplished by too wide a differential between carloads and less than carloads, by the application of improper varied commodity rates and by the refusal to permit shipment in mixed carloads. Of these three things the differential was by far the most prominent.

Most traffic from the East to the Pacific coast moves upon commodity rates. Of these rates nearly one-half name for the same commodity a carload and less than carload rate, about one-third apply in any quantity, making no distinction between carloads and less than carloads, while the remaining one-sixth apply to carloads only, leaving the less than carload shipments to move under the class rate. The differential between carload and less than carload is all the way from nothing to $1.50 per 100 pounds; perhaps in some instances even greater. Many of the differentials are exactly 50 cents, and this was found to be approximately the average differential.

In disposing of this branch of the case the Commission found the facts concerning, and in its conclusions discussed, the difference in the cost of handling carload and less than carload freight at the terminals and over the long distances involved in the proceeding, the history of railway rates to the Pacific coast as affected by rate wars and water competition, the influence of water competition upon carload freights and upon less than carload traffic, the situation and the relative advantages and disadvantages of the Pacific coast and Middle West jobbers in doing business under the rates in question, and the interests of consumers in Pacific coast territory. The case as submitted referred to the lawfulness of the tariff as a whole and the propriety of the general principles which underlie its construction. The complainant contended that these differentials, averaging 50 cents per 100 pounds, were too wide, that the motives which induced the tariff were wrong, and that the general effect of the tariff was to discriminate against the jobber of the Middle West and to injure the consumer upon the Pacific coast. Viewing the case in this broad sense, we found that the differentials are not abnormal when compared with others in different parts of the country at the present time; that they are not greater than those in effect under the west-bound transcontinental tariff of 1893, and not greatly disproportionate to the actual difference in cost of service. Considering them with respect to their bearing upon the parties immediately interested, namely, the carriers and the two classes of jobbers, we found that they conserve the interests of the carrier; that they give to the jobber upon the Pacific coast a measure of advantage to which he is perhaps entitled by his location, and which he must probably have if he is to continue to exist, while they permit the jobber of the Middle West to transact a considerable amount of business in this territory at a reasonable profit. Viewed as an economic problem, the tariff appeared to foster that method of distribution which is probably the cheapest upon the coast, and at the same time permits reasonable competition and thereby secures to the customer the full benefits of such competition. This situation is in some sense the outgrowth of past experience, it is satisfactory to most interests upon the Pacific coast, and we were not disposed to find fault with the adjustment of rates as a whole.

While, however, we could not condemn this tariff as a whole upon the grounds put forward by the complainant, we held that many

of its details were in violation of law. Over 400 commodity rates apply to carloads only, leaving the movement of these commodities in less than carloads to be governed by the class rates. This produces a differential which, even under the peculiar circumstances of this traffic, is in many cases excessive, provided there be any commercial reason for a corresponding less than carload rate. In some instances there is none. Coal, for example, moves usually in carloads and takes a low commodity rate. What little movement occurs in less than carload lots is not competitive with carload shipments, and may well be governed by the class rate, although the difference between the two would otherwise be undue. We were impressed, however, from an inspection of the schedules that there were still many other instances in which the difference was altogether too great. Still, it was impossible to fix any standard by which these differentials should be determined, for the reason that circumstances often render the application of a greater differential proper in one case and not in another. Many of the commodity rates showed a differential of 50 cents per 100 pounds as between carloads and less than carloads, and the cost of handling the less than carload traffic was found to exceed the cost of handling carload traffic by about 50 per cent. The Commission held that a differential which is at once more than 50 cents per 100 pounds and more than 50 per cent of the carload rate is prima facie excessive. This did not mean that every differential may lawfully equal this, nor

H Doc. 181-3

yet that every differential which exceeds this is unlawful, but that a differential exceeding this requires special justification. We also held that certain varied commodity rates, especially in the hardware schedule, were to some extent unlawful, and that the tariff under consideration unduly prevented in some instances the shipment of articles of the same class in carload lots at carload rates. For example, it was difficult to understand why sheet iron, all thicknesses, should not be shipped together in carloads.

It is one thing, however, to pronounce a tariff wrong and quite another to say what will be right. While we were clearly of the opinion that many of these differentials are too great, that the varied commodity rates in the hardware schedules, and perhaps in some others, should be readjusted, and that in some instances greater latitude should be given in the shipment of mixed carloads, we had no facts before us from which we could intelligently determine what ought to be done in specific instances. The great mass of testimony went to the general aspects of the controversy rather than to details. We concluded, therefore, to set the case down for further hearing at St. Louis on the second Tuesday of February, 1903. This will give the carriers time to readjust their tariffs in accordance with suggestions in the opinion, and we provided that if before that date the complainant should notify us that no further hearing is desired the complaint would be dismissed; otherwise we would at that time require the attendance of the traffic officials of the various transcontinental lines and endeavor to obtain such information from other sources as would enable us to make an intelligent order in the premises.

The question of the higher rate to intermediate than to terminal points in the Pacific coast territory was also kept open for further hearing if the complainants should so desire.

One member of the Commission filed a dissenting opinion.

RATES TO PACIFIC-COAST TERMINALS AND INTERMEDIATE TERRITORY.

In the case of Shippers' Union of Phoenix, Ariz., against the Atchison, Topeka and Santa Fe Railway Company and others (9 1. C. C. Rep., 250), the decision of the Commission was filed in May, 1902. The complaint was that freight rates between New York, Chicago, and St. Louis and other Eastern points and Phoenix were unjust and unreasonable in themselves, and relatively as compared with rates on like traffic between New York and such other Eastern points and Los Angeles. The Santa Fe and Southern Pacific systems reach Los Angeles, Cal., a point to which rates from the East are affected by water competition. Phoenix, Ariz., is not upon either of these through lines, but is connected therewith by two lateral lines, one on the north connecting with the Santa Fe at Ash Fork and one on the south connecting with the Southern Pacific at Maricopa.

The Commission held that when water competition permits the establishment of classifications and rates below the rates to noncompetitive points, such lower rates, while possessing value as standards of comparison, are not always conclusive in fixing rates to shorter distance points—like Phoenix-not affected by such competition, and that there is no evidence in this case upon the reasonableness of the rates to and from Phoenix, except comparison with Pacific coast rates.

It was also determined in this case that the evidence was insufficient to constitute the basis of a decision requiring the defendant carriers to modify their long-standing system of rate making, which also applied over other transcontinental lines throughout a great belt of territory and affected numerous localities and interests which had not been heard in the proceeding, and this being so, the relief sought by the complainant was for the present denied, but the case was retained for further consideration, pending the investigation and disposition of other cases involving the same general question.

CONTRACT RATES LOWER THAN THOSE SPECIFIED IN THE PUBLISHED TARIFFS.

In the case of Red Cloud Mining Company against the Southern Pacific Company (9 I. C. C. Rep., 216) it appeared that complainant shipped a carload of machinery from Erie, Pa., to Salton, Cal., and alleged an agreement with an agent of the Southern Pacific Company for a rate to Salton as low as any rate which would be charged by any other route or carrier from Erie to Los Angeles.

It is a rule of the carriers, appearing upon the transcontinental tariffs, to make rates to an interior and intermediate point like Salton by a combination of the special commodity rate to Los Angeles plus the local back to Salton, when that combination would make a lower charge to Salton than the class rate to that point. The charges on the carload of inachinery in question were made in this way—the commodity rate to Los Angeles was added to the local rate from Los Angeles to Salton. The rate actually applied, therefore, was the regular tariff rate in effect at the time this carload was transported.

It was claimed that the lower commodity rate to Los Angeles is forced upon the carriers by water competition between Atlantic coast points and Pacific coast terminals, and the fact of such competition was virtually admitted. The general fact respecting such competition has also been shown in various cases before the Commission. There was no evidence that the aggregate amount charged on the shipment was unreasonable, and it could not be so found in the absence of proof.

The decision of the Commission was that the rate imposed upon this shipment of machinery was the legally established tariff rate in force at the time on traffic of that description, that it was the duty of the carrier to apply that rate, and deviation therefrom would have been unlawful. The complainant's case rested wholly upon an alleged contract for a lower and unauthorized rate. Granting that a contract for a lower rate was made precisely as claimed by the complainant, it was not binding upon the defendant company, and its violation furnished no ground for redress under the act to regulate commerce. While upon the record in this proceeding the Salton rate must be presumed reasonable, the Commission said that nothing contained in its decision would preclude further consideration of that question should occasion therefor arise.

One member of the Commission dissented.

CLASSIFICATION OF HAY AND STRAW.

The case instituted by the National Hay Association against the principal carriers operating in Official Classification territory, in which an advance in the classification of hay and straw from sixth to fifth class rates made by such carriers on January 1, 1900, was challenged, was decided by the Commission on October 16, 1902, in favor of the complaining association (9 I. C. C. Rep., 264). The advance in the classification of these articles covered but 2 out of 818 items which were changed by these carriers from a lower to a higher class on the date mentioned. The Official Classification is used by practically all railroad carriers in the territory roughly described as lying east of the Mississippi and north of the Ohio and Potomac rivers. The defendants claimed in this case that the advanced rates on hay and straw were justified by greater cost of railway operation and construction, but it appeared that such increased rates were made effective at a time when, notwithstanding increased prices of railroad material and some additional cost of operation, an unprecedented volume of trade and railroad traffic had become established, when there were no indications that such commercial prosperity would not continue for an indefinite period, and after they had successfully inaugurated and adopted operating economies, through the use of larger and heavier equipment and improvement of roadbeds, which served to decrease the percentage cost of operation. The evidence abundantly proved that they were not then, nor at any subsequent period, in any such financial condition as to call for the large advances which were made by them, through concerted action, to apply throughout the whole length and breadth of Official Classification territory. Some of the companies were, and are, in much better condition than others, but the action under consideration was taken by all and intended to have beneficial effect upon all, through the increased profits accruing from general rate advances upon a great number of classified articles, including hay and straw.

Carriers are entitled under the act to regulate commerce to determine for themselves what are proper rates in the first instance, but the Commission held that when they, as in this case, make numerous

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