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The work performed-viz., the movement of one ton of freight one mile in these two cases was precisely the same, and yet the cost of doing it was ten times greater on the branch than on the main line.
COST OF TRANSPORTATION NOT THE ONLY BASIS FOR THE CONSTRUCTION OF A JUST TARIFF.
It thus appears, (1) that the real cost of carrying freight varies widely on a given road, according to many conditions; so that it requires great skill to determine a just scale of fixed rates; and (2) that diversity of roads immensely increases the difficulty.
But it sometimes happens that the cost of carrying freight is considerably more than a particular kind of freight will warrant.
By "cost" is here meant the average cost per ton per mile for carrying; each ton carried bearing its proportion. For instance, it might occur that a given product, at a particular point, considering the price it would command in the distant market and the insufficiency of its amount in order to profitable handling, could not afford to pay its full share of the earnings in aggregate, which the road must have-in other words would not warrant transportation at full rates.
It is customary, in such cases, where the development of, the country and the future success of the road demands concessions in the interest of new enterprises, to make a rate below the ordinary and otherwise sufficiently low rate. With the railroad company, it is a question of something or nothing. Hence, tariffs cannot be based on the proper cost of transportation alone.
THE REMAINING ELEMENTS
are purely commercial, and hence even more incalculable in advance than the material condition heretofore considered. Briefly stated, they are
1. The worth of the service to the shipper.
If a greater charge should be made for carrying than the difference in values at the home market, the freight could not be shipped at all. The question of rates, then, is, to a good extent, a question of market values-a question the answer to which must vary with every considerable change in the prices current.
2. The element of competition.
This is an element which, as shown in our first report, was, at the beginning of railroad-building, greatly over-estimated, but which appears to us now to have been of late underrated. With the extensive net-work now covering this country, competition would indeed be a potent influence, if absorptions, combinations, and consolidations were prevented. As it is, the influence it exerts is very considerable. Of this statement the experience of the past season affords good confirmation; the struggle between the great trunk-line companies between the West and the seaboard having, as is credibly asserted, reduced the rates below the average proper cost of carrying.
Added to this competition between trunk railroad lines, there was energy of competition between water lines and between all water lines and the railroads bidding for the same freights. To such a degree was this carried during the first half of the summer that the lake and canal rates went down to a point they had never reached before, and below what had been supposed possible.
The following statistics, furnished to the public by the Buffalo Commercial and quoted by the Railroad Gazette, p. 480, vol. 1875, will illustrate this fact:
Lake and canal rates during October in the years named.
"The average for last month, it will be seen, was lower than that
for the same month in any preceding year. But low as is 3.7 cents on wheat from Chicago, that is an improvement as compared with the average for September, which was only 2.4 cents. The rates by canal last month were a trifle more than one-half of that paid in October, 1871, and a little over a third of the average for the same month in 1869. This surely is cheap transportation with a vengeance."
With the month of November there came a general improvement in transportation matters in all parts of the country. Shipments were heavier than for a long time before, and rates rose on trunk lines in consequence of the compromises affected and the advance of water rates under a pressure of shippers for facilities in anticipation of the necessarily higher winter rates. On a smaller scale, illustrations may be found all about us. In fact, wherever there are common points, and very often at places quite remote from competing points so-called, the influence is felt. In such cases, other things being equal, the shortest line governs the rates, and competing lines must come down to the rate fixed by the controling line or lose their share of the business. The average cost of transportation per ton-mile is no longer considered, and the question of cost of transportation is limited to the variable side of cost. The minimum cost takes its place in the calculation. If that is not known to the manager he must get as near as he can to it, and take the risk of absolute loss for the time, or decline the freight altogether. Having determined the minimum, he will get as much more as he can, deeming the balance clear gain to the corporation, and a great advantage to the shipper of the freight in question.
It is plain, however, that if the margin of profit be very small smaller than the company doing the business could live at - that fact must be taken into the account, and other kinds of freight that will bear higher rates must pay enough more than the fair average to make up the deficiency.
BUT A FIXED SPECIFIC TARIFF EXCLUDES THIS ELEMENT OF DIS
which is certainly a necessary prerogative of successful railroad management.
Such discriminations as have often been made in the days of irresponsible management between citizens and localities, on grounds
purely personal and selfish, cannot be too strongly denounced or too carefully guarded against. But any law that would take from railroad managers the right to make discriminations based on fixed facts in nature and on sound commercial principles would fetter the corporations to their own great injury and the public disad
THE EQUAL-MILEAGE THEORY IS A FALLACY,
long since abandoned. The doctrine that no corporation should, under any circumstances, be allowed to charge a lower rate from a competing point than is charged from any point on the same road less distant from the place of delivery is as yet unsettled.
It may be that if competitive offers of transportation were limited to the minimum of actual cost to the competing company of doing the extra business thus secured, so that intermediate points would not of necessity be compelled to make up for absolute losses entailed by doing such business at less than such cost, or pay higher than just rates on account of such competitive business being done at a price less than the regular, or average rate, nothing further would be necessary, save a general provision, faithfully and intelligently enforced, requiring,
1. That all persons and localities similarly circumstanced shall be treated in like manner, and
2. That all offers of special rates at a given place shall be publiely made, and open to all persons doing business at that point.
The foregoing presentation of facts and principles is deemed by your Commissioners a sufficient vindication of those general conclusions contained in their first report, and reiterated in this, which bear upon all attempts on the part of the State to provide fixed. tariffs of specific rates. It is also, in their judgement, a sufficient vindication of their views on the subject of a classification of roads on the simple basis of actual net earnings.
THE PRESENT LAW IN PART MISUNDERSTOOD, AS TO RATES.
Advocates of the law exactly as is now stands, in the matter of rates, will perhaps deny the relevancy of the foregoing points against a tariff of specific rates, on the ground that the "Potter-law" is not a law of fixed and specific rates, but a law of maximum rates.
In anticipating this possible criticism upon a general argument not framed for application to our State alone, we readily allow that the present is not a specific law in the strict sense, that it is in fact a maximum law, prohibiting charges exceeding the rates named in the law, but allowing any company so limited on the maximum side to charge as little as it pleases, provided that all patrons at the same point are treated equally.
We emphasize this statement for the reason that the managers of railroads have, in some instances, both as to passengers and freight, misled the traveling and shipping public by assuming and insisting that they were prohibited from accepting less than the rates named in the law.
It should be admitted on the other side that, though a maximum law in the letter, the intent in framing it seems to have been to get the rates as near as possible to what would be a low specific tariff if one could be formed. So that, in many cases, it has the effect of a specific law, fitting so close as to pinch the weaker roads, if not those in class A.
In this important respect, it differs from most maximum tariffs, which, as a rule, are framed with a scrupulous certainty not to wrong the corporations, while protecting the public from extortionate charges.
It was on this principle that such tariffs were incorporated in the charters of so many of the European railways as well as in those of several of the American States.
THE METHOD SET FORTH BY THE COMMISSIONERS,
in their conclusions, [see pages 37-8 of this report] amply affords, in connection with the other features of the plan, every needed security to the public, and possesses the advantage of reasonable certainty that neither party will suffer from deficiencies of knowledge and consequent errors of judgment, very liable to occur where other than maximum rates are determined in a direct manner by legislative enactments.
LIMITED POWER OF THE COMMISSIONERS TO REQUIRE REPAIR OF ROADS, improvement of roads or rolling stcck, and increased accommodations for passenger travel, which was also commended to the attention of the last legislature, is now a feature of most laws for the