§ 475. Insufficiency of the principle of the cost of service.

But cost of service is not the decisive factor in determining a railroad rate, even if it could in all cases be fairly approximated. Indeed, it is doubtful whether it would of itself form any fair test for the fairness of a particular rate. For, in the first place, it must always be impossible to arrive at the cost of a particular carriage. No goods, as a practical matter, are carried by themselves under such circumstances that an exact computation can be made of the cost of carriage; all that can be said is that the carriage of some goods is known to be more expensive than that of others. In the second place, even if such a computation were possible it would not necessarily be fair to make a shipper pay the exact cost of carriage of each shipment. To do so would make the freight vary according to the circumstances of each journey; no man could know what he must pay for any particular shipment, and for similar carriages of the same article two shippers would pay very different charges. Fairness requires that the charge shall be uniform for a certain article carried over a certain route, although the exact cost of carriage may at one time be very much greater than at another. The exact cost of carriage, therefore, or such approximation to it as may be possible, can never be used as the sole or the determining factor in a particular rate. But while the cost of carriage cannot be used by itself to determine a particular rate, neither should it ever be neglected. Considered along with other factors, it should in a general way tend to raise or to lower a particular rate.

INTERSTATE COMMERCE COMMISSION.

Thurber & N. Y. C. & H. R. R. R., 2 Int. Com. 742, 3 Int. Com. 473 (1890); New Orleans Cotton Exchange v. Illinois C. R. R., 2 Int. Com. 777, 3 Int. Com. 534 (1890); Farrar v. East Tenn. V. & G. R. R., 1 Int. Com. 76; 1 Int. Com. 480 (1888); Brockway v. Ulster & D. R. R., 8 Int. Com. 21 (1898); Gustin v. Atchison T. & S. F. R. R., 8 Int. Com. 277 (1899); Hilton Lumber Co. v. Wilmington &. W. R. R., 9 Int. Com. 17 (1901); Re Proposed Advances in Freight Rates, 9 Int. Com. 437 (1901).

§ 476. Length of haul as a factor affecting a particular rate. The first and most obvious fact which affects the rate is the length of carriage. The further goods are carried, the less, generally speaking, the charge per mile will be, since certain fixed and terminal charges must be paid once and only once no matter how long the haul. As these charges must be paid out of the rate, it is clear that the more miles the goods are carried the less the amount of the fixed charges which must be added to the rate for each mile. "It is a familiar rule in the transportation of freight by railroads, and has become axiomatic, that while the aggregate charge is continually increasing the further the freight is carried, yet the rate per ton per mile is constantly growing less all the time, unless there be exceptional conditions modifying this rule. In consequence of the existence of this rule the increase of the aggregate charge continues to be less in proportion every hundred miles, arising out of the character and nature of the services performed and the cost of the service; and thus it is that staple commodities and merchandise are enabled to bear the charges of transportation from and to the most distant portions of our country.'

"3

3 Farrar v. East Tenn., V. & G. R. R., 1 Int. Com. Rep. 764, 1 Int. Com. 487 (1888).

Length of haul is plainly an important factor in establishing particular rates; in the following citations this point is emphasized:

UNITED STATES SUPREME COURT:

Texas & P. Ry. v. Interstate Com. Com., 162 U. S. 197, 40 L. Ed. 940, 16 Sup. Ct. 666 (1896); East Tenn., V. & G. Ry. v. Interstate Com. Com., 181 U. S. 45 L. Ed. 719, 21 Sup. Ct. 516 (1901).

FEDERAL COURTS:

Interstate Com. Com. v. Louisville & W. R. R., 73 Fed. 410 (1896); Matthews v. Board of Corp. Comm'rs., 106 Fed. 7 (1901); Interstate Com. Com. v. Louisville & N. R. R., 118 Fed. 613 (1902); Tift v. Southern Ry., 138 Fed. 753 (1905).

STATE COURTS:

Florida State v. Seaboard Air Line, 37 So. 658 (1904).

Kentucky Louisville & W. Ry. v. Com., 21 Ky. L. Rep. 232, 51 S. W. 154 (1899).

§ 477. Modification of the principle of the length of haul necessary.

In a case of this sort, Mr. Commissioner Bragg said: "The length of the haul is however only one factor in the problem; and its effect may be modified or entirely neutralized by other considerations. The natural check, so to speak, on the operation of length of haul is the difficult character of the country through which the longer haul is carried on, making operation more expensive, and thus neutralize the advantage derived from the longer haul.

"The conditions of transportation are very unfavorable. The cost of transportation is much greater. The volume of business is light. Local rates graded according to distance are largely a result of the situation. The subject of comparing rates in one portion of the country with rates in another, and rates upon one line with rates upon another operated under substantially different circumstances and conditions, has repeatedly been before us, and we have uniformly held that they do not constitute a fair basis of comparison."

For this or some similar reason, the rule that the rate per tonmile diminishes in proportion to the length of the haul must continually be modified by other circumstances of various sorts. "The rule that the rate per ton per mile must be less for the greater distance is one of the tests by which the rates can be carefully scanned in themselves. It is, however, like looking at them with a microscope. It ignores all other tests except that

Minnesota State v. Minneapolis & St. L. R. R., 80 Minn. 191, 83 N. W. 60 (1990).

Mississippi-Alabama & V. Ry. v. Com., 38 So. 356 (1905). INTERSTATE COMMERCE COMMISSION:

New Orleans Cotton Exch. v. Cincinnati, N. O. & T. P. R. R., 1 Int. Com. 764 (1888); Business Men's Assoc. v. Chicago & N. W. R. R. 2 Int. Com. 48, 2 Int. Com. Rep. 73 (1888); Trammell v. Clyde S. S. Co., 4 Int. Com. 120, 5 Int. Com. 324 (1893); Cordele Machine Shop v. Louisville & N. R. R., 6 Int. Com. 361 (1895); Hilton Lumber Co. v. Wilmington & W. R. R., 9 Int. Com. 17 (1901).

which it alone furnishes. It ignores all surrounding circumstances and conditions and every factor of every kind and description that enters into the making of the rate, no matter how compulsory or imperious that factor may be. It serves in itself a valuable purpose, not only as a close test of what a rate really is, but also as a basis in the cases to which it can be made to justly apply as a rule; but to determine the reasonableness and justness of a rate, all surrounding circumstances and conditions, and the factors which enter into the making of the rate, if there are any that are compulsory or imperious, must be considered as well as the rights of the shipper." 4

§ 478. Volume of traffic as a factor affecting the particular

rate.

As the volume of traffic increases, the particular rate tends to diminish. All fixed charges, and other expenses (like station expenses, salaries, and even to a certain extent wages, which are the same whether much or little freight is carried), must be paid largely out of the freight rates, and the greater the traffic, the less each separate article must bear. It is a general principle, therefore, that a large volume of traffic tends to lower the particular rate. This fact is the basis of a theory sometimes held, which may be described as the law of increasing returns. Traffic to a certain amount is necessary, at a given rate, to pay fixed charges and operating expenses; when that amount of traffic is obtained, further shipments will net a profit even if they pay a low rate. It is therefore inferred that fairness permits a higher charge upon the goods which must be carried, and a lower charge to attract additional traffic, which might not otherwise be obtained. This theory, however, if pressed to its logical result, will result in unfairness. Neither the cost to the carrier nor the value to the shipper is affected by such considerations. The

4 Bragg, Com. in Business Men's Assoc. v. Chicago, S. P., M. & O. R. R., 2 Int. Com. Rep. 41, 47, 2 I. C. C. Rep. 52 (1888).

unfairness is obvious of any rule which would result in an arbitrary difference of charge to two persons requiring identical service; it would not satisfy the shipper who had first offered goods for shipment to be told that his competitor, who had offered goods afterwards was given a lower rate because the law of diminishing costs justified the making of a lower rate to the second comer.5

$479. Limitation upon the law of increasing returns.

That the law of increasing returns cannot be carried too far in rate making has been pointed out many times by those who deal with this question from the legal standpoint. The general caution with which this principle is admitted may be seen by a quotation from the Interstate Commerce Commission: "In many parts of the country railways charge less for transporta

5 Volume of traffic as affecting rail making is mentioned oftentimes, see for examples:

UNITED STATES SUPREME COURT:

Lake Shore & M. S. v. Smith, 173 U. S. 684, 43 L. Ed. 858, 19 Sup. Ct. 565 (1899), reversing 114 Mich. 460, 72 N. W. 328; Minneapolis & St. L. R. R. v. Minnesota, 186 U. S. 257, 46 L. Ed. 1151, 22 Sup. Ct. 901 (1902), affirming 80 Minn. 191, 83 N. W. 601.

FEDERAL COURTS:

Interstate Com. Com. v. Lehigh V. Ry., 74 Fed. 784, appeal withdrawn 82 Fed. 1002, 27 C. C. A. 681 (1897); Atlantic & P. Ry. v. U. S., 76 Fed. 186 (1896); Metropolitan Trust Co. v. Houston & T. C. R. R., 90 Fed. 683, B. & W. 342 (1898); No. Pacific Ry. v. Keyes, 91 Fed. 47 (1898); Matthews v. Board of Corp. Comm'rs, 106 Fed. 7 (1901).

STATE COURTS:

Florida-Pensacola & A. R. R. v. Florida, 27 Fla. 403, 5 So. 833 (1889). Minnesota-Steenerson v. Gt. Northern Ry., 69 Minn. 353, 72 N. W. 713, B. & W. 333 (1897).

Mississippi-Alabama & V. Ry. v. Railroad Com. (Miss.), 38 So. 356

(1905).

North Carolina-No. Car. Corp Com. v. Atlantic C. L. Ry. (N. C.), 49 S. E. 191 (1904).

INTERSTATE COMMERCE COMMISSION:

National Hay Assn. v. Lake S. & M. S. Ry., 9 Int. Com. 264 (1902); Re Advances in Freight Rates, 9 Int. Com. Rep. 382 (1902).