of increasing and developing foreign trade, and these interests have developed the facilities for handling a great business, which, however, has not come. On the contrary, almost in the same proportion as facilities have been offered, business has fallen off, and what is the explanation? The cause, and the only cause, is the differential agreement, whereby the Boston railroads are obliged to charge a higher rate than the railroads serving the differential ports.

The port of Boston can give to the shipper as satisfactory service as any port, leaving out the element of rate, but the difference in the rate is so great that, even with superior facilities for the handling of business, it is not able to retain the proportion of business which six years ago was unsatisfactory to it, whereas the differential ports have gone beyond the proportion of business with which they were then not dissatisfied.

Under these circumstances Boston is being deprived of that to which she was entitled in the former compact of peace. If that compact is to continue to have binding moral force, she must be allowed, approximately, the same proportion of business as the original agreement contemplated, and she can only get that by her tributary railroads being put in a position where they can charge relatively lower

rates.

Respectfully submitted.

EDGAR J. RICH,

Counsel Boston and Maine Railroad.

BRIEF SUBMITTED BY THE BOSTON CHAMBER OF COMMERCE AND THE BOSTON MERCHANTS' ASSOCIATION.

[Charles S. Hamlin, of counsel.]

1. THE SUBJECT-MATTER OF THE PRESENT INQUIRY.

The subject-matter of this inquiry has to do with the transfer of the surplus raw products, food supplies, and manufactures of the interior of the United States to foreign countries. This transfer is made by the railroads of the United States in connection with the ocean carriers. As a result of this movement, the resources of the United States have been wonderfully developed, and equivalent benefit has accrued to European countries.

The problem is a national one and not in any sense local. It treats of the relation between the interior domestic producer and the foreign consumer. We should examine it not alone from the selfish standpoint of the railroads and commercial interests of either Boston, New York, Philadelphia, Baltimore, or Newport News, but as well from the point of view of the interior producers of the United States.

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The railroads constitute a single class only of the many whose interests may be affected, and it may appear, perhaps, that they are not the class most largely concerned. The people of the interior consider their interests to some extent involved in the question; and they certainly are concerned in having such tariffs of charges upon the roads over which their traffic is conducted as will give them the advantages of any or all the Atlantic markets without subjecting their dealings with any one of them to unfair conditions or burdens. (Report Thurman Commission, 1882, pp. 6, 7.)

The surplus cereal products are concentrated in the primary markets, so-called, and are carried thence to the seaboard and exported. The most important primary grain markets are Chicago, DuluthSuperior, Minneapolis, St. Louis, Milwaukee, Toledo, Kansas City, Omaha, Peoria, and Detroit; for provisions, dressed meats, etc., the export movement begins from St. Louis, Kansas City, Omaha, and Chicago; for live stock, Omaha, Chicago, and St. Louis may be called the primary markets; the manufactured exports come generally from the whole interior territory of the country.

These products, when starting from points outside of the Central Freight Association territory, take an arbitrary rate to the Mississippi River and thence a through rate to the port of export, based - upon a certain percentage of the rate from Chicago to New York.

This inquiry also concerns the exchange of the surplus raw products and manufactures of foreign countries between the foreign producer or manufacturer and the consumer in the interior of the United States. On imported products the rate to points within the Central Freight Association territory is fixed by the initial lines at the seaboard; beyond this territory rates are fixed according to the tariffs of the Western or Southern associations.

Not all the export products are carried all rail from the primary markets to the sea. An important part of this traffic, especially grain and flour, is concentrated at Chicago, Duluth-Superior, Milwaukee, and other lake cities, thence going by vessel through the Great Lakes to Detroit, Toledo, Cleveland, Fairport, Erie, Buffalo, Oswego, and Ogdensburg.

This lake service is carried on by lines owned or controlled by the trunk-line railroads, and also by independent carriers. The former are largely engaged in carrying package freight, while the bulk of the grain traffic is moved in tramp vessels.

From these latter lake ports final distribution is made to the point of destination, whether local or foreign, by rail or by canal.

Speaking generally, this through traffic goes from the interior to the foreign port not on one through rate or one through bill of lading, but on separate rates from points outside of the Central Freight Association territory to that territory, thence on a through rate from points in that territory to the seaboard, and finally by an independent rate on the ocean. On flour and provisions usually a through rate and through bill is given; likewise on many manufactured products; but on the most important part of the export trafficgrain-no through bills nor through rates are given.

II. RELATIVE ADVANTAGES OF THE PORTS.

Certain ports of export on the seaboard are much more favorably situated than others in view of their proximity to the interior distributing points of the country. For example, taking Chicago and St. Louis, representing the two extremes of competitive territory, as a basis the distance from Chicago to Boston by short line is 1,001 miles, while to New York it is 912 miles; to Philadelphia, 822 miles; to Baltimore, 801 miles. The ports of Baltimore and Philadelphia are thus nearer this part of the interior territory which is called competitive territory than are the ports of New York and Boston. From St. Louis we find that the distance to Boston, by the short line, is

1,206 miles; to New York, 1,064 miles; to Philadelphia, 974 miles; and to Baltimore, 931 miles. In this case also the ports of Baltimore and Philadelphia have a distinct advantage because of nearness to competitive territory.

On the other hand, the ports of Boston and New York, although having great disadvantages because of farther distance from competitive territory, yet are much nearer the foreign ports for which the export traffic is destined, and the distance is correspondingly less on the ocean. For example, Boston is 3,030 miles from Liverpool; New York is 3,194 miles; Philadelphia is 3,333 miles; Baltimore is 3,466 miles, and Newport News is 3,321 miles. Thus the disadvantages by land routes of Boston and New York are compensated by similar advantages over Philadelphia and Baltimore because of shorter ocean distance to foreign ports.

Similarly, if we take the total distance by land and sea from Chicago, for example, to Liverpool, we find that via Boston it is 4,031 miles; via New York, 4,106 miles; via Philadelphia, 4,155 miles, and via Baltimore, 4,267 miles.

III. FACTORS TO BE CONSIDERED.

In considering the carriage of this export traffic from the interior to foreign countries we have several important factors to consider: First. The cost of carriage by rail, or lake and rail, from the interior to the seaboard.

Second. The cost of transfer from the railroads to the ocean steamers, including storage and similar items.

Third. The cost of ocean transportation.
These will all be considered later in detail.

IV. THE ORIGIN OF PORT DIFFERENTIALS.

For the past thirty years a bitter controversy has been waged between the rival land carriers as to what freight rates should be charged for carrying this export traffic from the interior to the respective ports on the Atlantic seaboard. The trunk lines to Baltimore and Philadelphia have insisted on the right to charge a lower rate on similar traffic going, for example, from Chicago to Liverpool, when such traffic goes by way of Philadelphia or Baltimore than when the traffic goes to Liverpool by way of New York or Boston; or, to put it more accurately, the southern roads have insisted that the northern lines should charge more for carrying similar export traffic to New York and Boston on the way to Liverpool than they charge to Philadelphia and Baltimore on the way to Liverpool, notwithstanding the fact that these articles originated at the same interior point and are destined to the same foreign port, the land carriage constituting only part of the through distance.

This contention originally rested largely upon the admitted fact that ocean rates from the southern ports were much higher than from New York and Boston, and it was contended that in order to make the through rate from the interior to the foreign ports substantially the same by all the Atlantic seaports the railroads leading to the southern ports should have the right to charge less for the land carriage, or that the northern roads should be compelled to charge more for said carriage.

This contention was vigorously resisted, and as a result bitter rate wars arose, to the injury of all the ports and railroads alike. Out of these wars arose certain agreements entered into by the railroad companies providing for higher charges by the northern than the southern railroads.

These differences in rates are called differentials, and the territory from which exports are shipped at different rates is called differential or competitive territory. This differential territory comprises what is known as Central Freight Association territory, and all export shipments originating in this territory, or without, but passing through it for export, take the differential; that is, take higher rates when the products go through the ports of New York or Boston than through Philadelphia, Baltimore, or Newport News. These southern ports are known as differential ports. As between the three differential ports, Philadelphia, Baltimore, and Newport News, the Philadelphia lines are obliged also to charge slightly more when the products are exported through Philadelphia than through Baltimore or Newport News.

These so-called port differentials really represent restraints on com. petition by agreement among the competing railroads; they constitute a modification of the competitive system, and grew out of the keen and oftentimes disastrous competition for the traffic between the West and ports on the Atlantic seaboard.

V. HISTORY OF PORT DIFFERENTIALS.

ALL RAIL.

The following is a brief history of the differentials:

1842, the New York Central Railroad opened its line to Buffalo from Albany.

1852, the Michigan Central and Michigan Southern extended the New York line to Chicago.

1858, the Pennsylvania Railroad extended its line to Chicago by way of the Pittsburg, Fort Wayne and Chicago Railroad.

1858 to 1862, six different railroad lines completed between Chicago and the Mississippi River, touching the river at various points between St. Paul on the north and Alton on the south. Thus far only two trunk lines reached Chicago.

1869, differential on grain in favor of Baltimore fixed at 10 cents. per hundred pounds. Same differential on second and third class freight.

1870, as result of rate war differential reduced to 5 cents per hundred pounds on grain. Remained at 10 cents on second and third class freight.

1874, the Baltimore and Ohio Railroad reached Chicago over its own lines.

1876, the differential on grain in favor of Baltimore reduced to 3

cents.

1876, April 13, differentials were agreed upon based upon the relative distances of the four principal ports of the Atlantic seaboard from western common points, and the system of fixed differences in rates based upon the New York rate was abandoned. Under the sys

tem thus adopted, rates from Chicago to Baltimore were 13 per cent and to Philadelphia 10 per cent less than to New York; from Cincinnati to Baltimore the rates were 24 per cent, and to Philadelphia 12 per cent less than to New York. This lasted a month and a half, when the New York Central and Erie railroads withdrew. Then followed a rate war lasting until 1877.

1877, April 5, a new differential agreement was entered into between the New York Central, the Erie, the Pennsylvania, and the Baltimore and Ohio railroads fixing the differentials at 3 cents per hundred pounds to Baltimore and 2 cents to Philadelphia.

1880, June 3, the New York Central Railroad withdrew from the agreement on the ground that the differentials agreed upon in 1877 were based upon existing ocean rates so as to make equal through rates via all the ports; but that ocean rates had been so reduced at Baltimore and Philadelphia that they were nearly on the same level as from New York, thus giving to the southern ports a great advantage over the port of New York in having lower through rates from the West to Europe.

1882, the four trunk lines referred to the Thurman Advisory Commission the question of the differentials which should exist between the several Atlantic ports. This Commission, after due hearing, advised the continuance of the existing differentials, but intimated that changing conditions might demand in the future their modification or abolishment.

1889, representations were made by Philadelphia trade bodies to the Interstate Commerce Commission that secret allowances were being made on import and export traffic by the railroads at the port of Baltimore tending to divert trade from Philadelphia.

1890, a committee of the Philadelphia Commercial Exchange was appointed to examine into suspected discriminations in favor of Balti

more.

1897, Philadelphia regarded the 1-cent differential on grain given Baltimore over Philadelphia as a serious discrimination.'

1898, the New York Produce Exchange brought a complaint before the Interstate Commerce Commission against the trunk lines because of the existence of the differentials. The case soon developed into a complaint of the New York Produce Exchange against the Baltimore and Ohio Railroad. Philadelphia interests offered to join New York in having a common 2-cent differential for the southern ports, but New York declined. The Interstate Commerce Commission found that the existing differentials were not in violation of the interstate-commerce law; it refused to decide whether or not they violated the Sherman anti-trust law. The Commission stated that while perhaps there was evidence to indicate that the differentials should be modified, yet on the whole evidence they refused to disturb them. A similar finding was made as to the ex-lake differentials which were then 1 cent on grain in favor of both Philadelphia and Baltimore.

1899, February 1, the differentials on grain were reduced to 11 cents at Baltimore and 1 cent at Philadelphia.

1903, the differentials on export iron and steel were reduced similarly-one-half. (See testimony Mr. Guilford, Mr. Caldwell, and U. S. Summary Commerce and Finance, April, 1904.)