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operations have reduced the cost of transportation, and that, owing to the enormous increase of traffic, the railway has obtained its full share of prosperity. Since 1897 the average railway gross receipts per mile have increased 53 per cent, net receipts 57 per cent, while railway capitalization has only increased 4.5 per cent. If the railway rate might be expected to decline in case the country became less able to pay it, the cause for alarm would not be as great. But the railway rate is not a commodity subject to the general law of prices applicable to other commodities, and we see little reason to expect that such rates would materially decline if a period of depression should ensue.
In the course of an inquiry into the reasonableness of a recent advance in lumber rates the general manager of an important system gave as a reason why such advance should be maintained, that he apprehended a marked decrease in traffic upon his line. In the inquiry into the advance of rates to the Southwest, already referred to, one of the Texas lines took the ground that these advances should be allowed to stand because of the ravages of the boll weevil. It was urged that since this pest had destroyed the cotton crop along the line of that road, not only had the road been deprived directly of a great amount of traffic, but that, owing to the impoverishment of the country thereby, the people as a whole would be less able to buy those commodities which the railway ordinarily transported, and this would cause an indirect loss of traffic. Here, therefore, not general prosperity but general poverty was relied upon as an excuse for an advance in rates.
Hard times would reduce certain rates. An illustration of this is the rate on pig iron from Southern furnaces to Northern points of production. The cost of transporting this to the point of consumption is greater than in case of other pig iron with which it comes in competition, and hence a most important factor in its price. Tariffs recently filed with the Commission make a reduction of 33} per cent in rates on iron articles for export. This assists the American producer to meet the price of his foreign competitor. But it should be noted that domestic rates upon these same commodities have not fallen; on the contrary, they were maintained at a higher level during the past season than for several years. So long as the relation of rates remains the same, so long as iron articles are compelled to pay the same relative rate, a reduction would not add materially to the consumption of such articles. So, too, with the great volume of traffic. The cost of transportation is not a sufficiently large factor in the total cost of the article to the consumer, so that a reduction of the freight rate would stimulate consumption to a sufficient degree to justify the reduction. If there were competition between different lines serving different markets so that the rate to one market or from a particular source of supply were reduced, this would of necessity lead to a corresponding reduction to other markets and from other sources of supply. This was the case ten years ago, but to-day relative rates have been pretty thoroughly adjusted between all parts of the country, and the unification of railway property is such that it is an easy matter to prevent a decrease in rates except under peculiar conditions and as applied to isolated communities.
We desire to repeat in this connection that there is to-day no way in which these advances can be prevented. If they are just and reasonable they ought not to be prevented; but it can not be assumed that they are in all cases, and it is impossible to contemplate with equanimity the fact that the result of all recent improvement in transportation facilities, that the consequence of financial prosperity and financial adversity alike, is an increase in the transportation charge, or to remember with indifference that this species of property is now in position to tax unjustly every other species of property. If these charges are unreasonable, they afford a most insidious means of taking unjustly from the general body of the public for the benefit of the few. At present this Commission can investigate and report. It has no power to determine what rate is reasonable, and such orders as it can make have no binding effect.
FAILURE TO MAKE STATISTICAL REPORTS.
One other thing is worthy of note. In order to determine whether railroad charges are reasonable or unreasonable it is necessary to know what measure of profit the carrier is deriving from the rate imposed, what amount of money is received, and in what way it is expended. It makes a wide difference whether the revenues of the carrier are used up in necessary cost of operation or are employed in adding to the permanent value of its property.
In this view the twentieth section of the act to regulate commerce provides that interstate carriers shall make financial reports to the Commission, giving such facts as may be called for, and in pursuance of this section the Commission has been accustomed to require a complete statement of income and expenditures. The section itself is perhaps sufficiently broad to enable the Commission to call for all the information needed, but there is no way of compelling compliance with its requirements. If carriers do not make report, or fail to make full report, no penalty is provided. As a result certain railways have habitually refused to state what permanent improvements are charged to operating expenses; others, while professing to distinguish, evidently do not. The result is that the net earnings given in our statistical reports do not show the actual net earnings of our railways as a whole, and this is especially so of the last few years, during which most extensive improvements have been made.
H. Doc. 253- -2
CONCESSIONS TO FAVORED SHIPPERS IN PUBLISHED TARIFFS.
While the Commission believes, as above indicated, that published rates have been generally maintained during the past year, the necessity under which carriers have felt in this respect has begotten a new crop of expedients for the purpose of favoring particular shippers. An illustration of this is seen by referring to the facts developed upon an inquiry into salt rates, recently held at Hutchinson, Kans.
Hutchinson is the center of the salt industry in Kansas, although factories are operated at several other points in that vicinity, the salt beds being of extensive area. The Kansas salt works at the present time are popularly known as “trust” and “independent.” The Commission has no information or knowledge as to the existence of any trust; but it did appear that the so-called “trust” mills, nine in number, with a producing capacity of some 3,500 barrels per day in the aggregate, were all owned or controlled by the Hutchinson, Kans., Salt Company, while the “independent” mills were operated each by a different individual or company. The number of these concerns is seven, with a capacity varying from 200 to 500 barrels each and a total of 2,500.
It was fairly indicated by the testimony that salt rates from Hutchinson and similar territory to the Missouri River were not generally maintained previous to the spring of 1902, although this was not gone into in detail. Since that time and at present, it was said, the published tariff was uniformly collected. The present rate to Kansas City and corresponding Missouri River points is 10 cents per 100 pounds on bulk salt and 12 cents on salt in barrels. By “bulk salt” is meant salt as it comes from the evaporating pan before it is put into barrels or packages, which is the ordinary mode of shipment. Packing houses use salt in very large quantities, and this is transported in bulk by the carload, thus saving the expense of barreling or otherwise packing it.
In July, 1902, a railroad corporation was organized under the laws of Kansas, known as the Hutchinson & Arkansas River Railroad Company. The avowed object of this company was to construct a railroad from Kechi to Hutchinson for the purpose of bringing the St. Louis & San Francisco Railroad into the latter town. A survey of this line was effected and estimates made of the amount of grading required, but nothing was ever done toward the construction of the road itself. Another purpose was, it was said, to reconstruct, combine, and connect the plants owned by the Hutchinson, Kans., Salt Company in such a way that cars could be conveniently handled in and out of its different mills.
The largest mill operated by the Hutchinson, Kans., Salt Company is known as the Morton mill, with a capacity of about 1,100 barrels per day. The tracks of the Atchison, Topeka & Santa Fe Railway Company run on one side and those of the Chicago, Rock Island & Pacific Railway Company on the other side of this mill, and there are two switches connecting both sides of the mill with these tracks. There is also what was called the "cinder" track, the use of which did not appear. The entire length of these sidings is between 4,000 and 5,000 feet. They had been constructed by the Morton company for the purpose of connecting its plant with both of these railroad systems, and also, apparently, for convenience in unloading the coal used in the operation of that mill, and had been in use for several years when, in July, 1902, this railroad company was organized. Soon after its organization the Hutchinson & Arkansas River Railroad Company bought of the Hutchinson, Kans., Salt Company these side tracks for about $7,000; and this was the only track which that company owned. It had no equipment of any kind.
. The capital stock of the Hutchinson & Arkansas River Railroad Company consists of 800 shares, of the par value of $100 each, of which 794 were originally subscribed and are still owned by one Joseph P. Tracy; the other 6 shares are held, 1 each, by the directors of the company. These directors are Joseph P. Tracy, D. Peterkin, Mark Morton, Joy Morton, J. C. Baddeley, Frank Vincent, and G. Phillips. The officers of the railroad company are: president, Joy Morton; vice-president, Frank Vincent; treasurer, Mark Morton; general manager, Joseph P. Tracy; assistant general manager, Frank Vincent. Joy Morton is the president and Mark Morton the treasurer of the Hutchinson, Kans., Salt Company, while Frank Vincent is the resident manager of its works at Hutchinson. It will be seen that all of the officers of the railroad company, except Mr. Tracy, are also officers or employees of the Hutchinson, Kans., Salt Company. The testimony did not show definitely who Mr. Tracy was. Baddeley and Phillips are clerks in the office of the Hutchinson, Kans., Salt Company, and Peterkin the private secretary of Joy Morton. Mr. Joy Morton testified that he and those whom he represented owned the entire capital stock of the Hutchinson, Kans., Salt Company.
Three railroad systems enter Hutchinson and transport salt from there to various markets. These are, the Atchison, Topeka & Santa Fe Railway; the Chicago, Rock Island & Pacific Railway, and the Missouri Pacific Railway. Soon after the organization of the Hutchinson & Arkansas River Railroad Company, and the purchase of the switches of the Morton plant from the Hutchinson, Kans., Salt Company, Mr. Tracy approached the traffic officials of the three
systems above named. It did not appear with which one he first negotiated, but his statements to all were identical. He represented that, owing to competitive conditions upon the Missouri River, both foreign salt and domestic salt from the East were being sold there in large quantities, and that if any bulk salt was to be moved from the Hutchinson field to the Missouri River packing houses some inducement must be held out to the producers; and he stated that if they would allow the Hutchinson & Arkansas River Railroad Company a division of the rate from Hutchinson to the Missouri River, a price would be named on that salt which would sell it in competition with other sources of supply, and which would at least continue the present movement of bulk salt from Hutchinson to various Missouri River points.
The rate at this time from Hutchinson to Kansas City was 10 cents12 cents to Omaha—and an agreement was entered into with Mr. Tracy that the Hutchinson & Arkansas River Railroad Company should be allowed a division of 25 per cent of this rate, which should, however, in no case exceed 50 cents per ton on all bulk salt shipped to Missouri River points. In accordance with this the Santa Fe Company and the Missouri Pacific Company issued in due form tariffs by which the Hutchinson & Arkansas River Railroad Company was made a party to all their salt rates from Hutchinson in every direction. The tariff of the Rock Island Company only named the Hutchinson & Arkansas River Railroad Company a party to tariffs on bulk salt.
The testimony showed that under these tariffs divisions were allowed by the Santa Fe on bulk salt transported from Hutchinson to the Missouri River, and on nothing else; that this was true of the Rock Island Company; but that the Missouri Pacific Company, in addition to allowing this division upon bulk salt, allowed the same division upon barrel salt when destined to certain points in Arkansas, and, perhaps, Oklahoma and Indian Territories. These divisions continued from about the 1st of August, 1902, down to the time of hearing, except that the practice seems to have been interrupted for a short time after the passage of the Elkins bill. The Commission has not yet obtained the exact amount so paid.
Assuming that the full tariff rate is paid on the coal used, the cost of producing salt at Hutchinson is, approximately, $2 per ton, not including office expenses and interest on plant. After the granting of this division the Hutchinson, Kans., Salt Company entered into contracts with various parties upon the Missouri River to furnish salt on the basis of $2.10 at Hutchinson, or at a delivered price of $4.10 per ton at Kansas City, St. Joseph, and other points taking the 10-cent rate; and $4.60 per ton at Omaha, which took the 12-cent rate. Previous to the granting of these divisions independent manufacturers at Hutchinson had shipped considerable quantities of bulk salt to the Missouri River, but since the expiration of the contracts which were then in force practically none has been sold there. The manager of one independent firm testified that he had a contract with the Swift Company to supply it with salt at Kansas City, St. Joseph, and Omaha, which expired in April, 1902; that this contract named a price