business in an unbusinesslike way with a resulting loss. If part is unprofitable it is neither good business nor justice to make it more so because the loss can be offset by profit on the rest. To concede that principle would, as the court below indicated, permit the legislature to compel the carriage of passengers practically for nothing though the inexorable result would be that freight must pay inequitable rates that passenger travel may be cheap."

Topic B. Factors Modifying Average Cost

§ 1203. Cost of service insufficient in itself.

1

To be entirely fair the cost of service is not always the decisive factor in determining a railroad rate, even if it could in all cases be fairly approximated. The ton-mile average cost in railroad transportation will always be found to be much modified by other factors in actual application. For, in the first place, it must always be impossible to arrive at the exact 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. 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. Practical convenience requires that the charge shall be uniform for a certain article carried over a certain route, although the exact cost of carriage

1 See further to the same effect: Texas.-Gulf C. & S. F. R. R. Co. v. Railroad Commission (Tex.), 116 S. W. 795 (1909).

West Virginia.-Coal & Coke Ry. Co. v. Conley (W. Va.), 67 S. E. 613 (1910).

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 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 must have a strong influence in raising or lowering the particular rate.

§ 1204. Current theories as to relative rates.

All the principles governing the fixing of rates which have ever been suggested may be seen in brief compass in a still recent opinion of Judge Bethea: "There are a great many factors and circumstances to be considered in fixing a rate. Among other things: (1) The value of the service to the shipper, including the value of the goods and the profit he could make out of them by shipment. This is considered an ideal method, when not interfered with by competition or other factors. It includes the theory so strenuously contended for by petitioners, the commission, and its attorneys, of making the finished product carry a higher rate than the raw material. This method is considered practical, and is based on an idea similar to taxation.3 (2) The cost of service to the carrier would be an ideal theory, but is not practical. Such cost can be reached approximately, but not accurately enough to make this factor controlling. It is worthy of consideration, however. (3) Weight, bulk, and conven

1 Interstate Commerce Commission v. Chicago Gt. Western_R. R. Co., 141 Fed. 1003 (1905).

2 Citing Noyes, Am. R. R. Rates, 61, 85-109.

3 Citing Interstate Commerce Commission v. B. & O. Ry. Co. (C. C.), 43 Fed. 37.

4 Citing Western Union Tel. Co. v. Call Publishing Co., 181 U. S. 92, 21 Sup. Ct. 561, 45 L. ed. 765; Interstate Commerce Commission v. Detroit, Grand Haven & Milwaukee R. R. Co., 167 U. S. 633, 17 Sup. Ct. 986, 42 L. ed. 306, etc.

ience of transportation. (4) The amount of the product or the commodity in the hands of a few persons to ship or compete for, recognizing the principle of selling cheaper at wholesale than at retail.1 (5) General public good, including good to the shipper, the railroad company and the different localities.2 (6) Competition, which the authorities, as well as the experts, in their testimony in these cases, recognize as a very important factor. None of the above factors alone are considered necessarily controlling by the authorities. Neither are they all controlling as a matter of law. It is a question of fact to be decided by the proper tribunal in each case as to what is controlling." 4

3

§ 1205. Amount of service asked as a factor.

As the amount of service asked at a particular time increases, the cost thereof tends in normal cases to fall below the average. This is a familiar rule in the transportation of freight by railroads; and it 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. In consequence of the existence of this rule the increase of the aggregate charge continues to be less in proportion every hundred miles after the first, arising out of the character and nature of the service performed and the cost

1 Citing Interstate Commerce Commission v. B. & O. Ry. Co., 145 U. S. 263, 12 Sup. Ct. 844, 36 L. ed. 699.

2 Citing Interstate Commerce Commission v. B. & O. Ry. Co., 145 U. S. 263, 12 Sup. Ct. 844, 36 L. ed. 699.

Citing Phipps v. London & Northwestern Ry. Co., 2 Q. B. D. 229 (1892).

• Citing Interstate Commerce Commission v. Alabama Midland

Ry. Co., 168 U. S. 144, 18 Sup. Ct. 45, 42 L. ed. 414; East Tennessee, Virginia & Georgia Railway Co. v. Interstate Commerce Commission, 181 U. S. 1, 21 Sup. Ct. 516, 45 L. ed. 719; Texas & Pac. Ry. Co. v. Interstate Commerce Commission, 162 U. S. 197, 16 Sup. Ct. 666, 40 L. ed. 940; Interstate Commerce Commission v. Louisville & Nashville R. R. Co., 190 U. S. 273, 23 Sup. Ct. 687, 47 L. ed. 1047, etc.

of 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 the country. The reason for this rule is that the cost of railway transportation is made up of the expense of the two terminals and the intermediate haul, and the terminal expenses are the same whether the haul be long or short. A few miles, or even a considerable number of miles, of additional haul may in some instances of long distance transportation be practically of very little importance, and the aggregate rate therefore may be very little affected by the additional mileage.

§ 1206. Local business peculiarly expensive.

Sometimes the cost of a particular service is peculiarly expensive. Thus local shipments are more expensive to handle in proportion to the mileage than long distance shipments, and a greater proportionate charge is therefore justified. "The operating expenses of a railroad consist of two principal items: (1) cost of maintenance of plant; (2) cost of conducting transportation. The former item is constant, and can justly be divided between the different kinds of traffic in proportion to their volume. As to the second item, however, such a division cannot properly be made; for it is agreed, by all who have had occasion to consider the subject, railroad commissioners as well as railroad officials, that the cost of conducting transportation is, relative to income, much higher for local business than for the general business of a road. The causes of this added cost are chiefly three: (1) the shortness of the haul; (2) the lightness of the train loads; (3) expense of billing and handling the traffic." But be

1 Northern Pacific Ry. Co. v. Keyes, 91 Fed. 47 (1898). See also Chicago, M. & St. P. Ry. Co. v.

Tompkins, 176 U. S. 167, 44 L. ed. 417, 20 Sup. Ct. 336 (1900).

cause a greater charge may be made on local than on through business, it by no means follows that all the charge of maintaining a station can be laid upon the business done at that station. If, for instance, a small amount of business is done at a station the rates cannot be made much greater at that station than at a neighboring way station, where three or four times as much business is done. Some particular losses are inseparable from the conduct of a general public service.1

§ 1207. Special conditions affecting cost.

There may be special circumstances connected with a particular transaction which increase or decrease the cost of service; and the effect of such circumstances on the rate must be considered. For instance, the expense of constructing a mountain branch may be very much greater than that of building the main line; or the population served by the company may in places be so sparse as to make the cost of operation very great in proportion to the service demanded. All these circumstances may properly affect the rate charged in those portions of the territory served by the company; yet it appears unjust to place the whole burden upon such territory, thus accentuate its poverty, and place another handicap upon it in the effort to become prosperous. Not all the extra cost of service should be placed upon the particular customers. Thus many things besides the mere mileage run must be considered in fixing the rates. A uniform mileage rate imposed upon all railroads would be in reality unequal and unjust. As Mr. Justice Morse said in Wellman v. Chicago & Grand Trunk Railway: 2 "If no clas

1 In Missouri, K. & T. Ry. Co. v. Love, 177 Fed. 493 (1910), the court considered elaborately the greater cost of local business in comparison with through business. See also

St. Louis & S. F. Ry. Co. v. Hadley, 168 Fed. 317 (1908).

283 Mich. 592, 47 N. W. 489 (1890).