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sible that in the future it may become evident that Boston can not fairly compete for this traffic upon the present basis; but we do not feel that the record before us would justify that inference to-day. We desire to call especial attention to the fact that these differentials have not been fully observed for a sufficient length of time to indicate exactly what their effect may be when strictly maintained through a series of years.
The immediate cause of this investigation was the controversy over the differential on ex-lake grain. That question was incidentally referred to in the former case, but not much considered. It was there said that this grain originated at the same point, whether it reached the port of export by the all-rail or the lake-and-rail route, and that since the purpose of the differential was to distribute the traffic between the different ports, the same reason which justified a differential in one case would apply in the other. It would follow from this reasoning that the differential in both cases ought to be the same.
Further reflection leads to the conclusion that the position taken in that opinion is not altogether tenable. The origin of the grain is the same in both cases and the traffic is therefore strictly competitive. It should not be regarded as originating at Buffalo since it is only there temporarily in transit; but there is another feature of the case which deserves attention.
Distance is important, as already observed, only in so far as it affords a measure of the cost of transportation. One point may be nearer another in miles, but more distant in cost of carriage. Now, the cheapest route by which this grain can reach the seaboard from its point of origin in many cases is by rail to Chicago, by water from Chicago to Buffalo, and by rail from Buffalo to the port of export; and this is so if we entirely disregard the Erie Canal. It is a natural advantage of the port of New York to be located on this route. By this route the distance to New York, in cost of transportation, is no greater than to Philadelphia and Baltimore. When this grain arrives at Buffalo there is, therefore, no reason growing out of the greater proximity of Baltimore or Philadelphia to the grain fields which justifies or requires a lower rate to those ports. It has been seen, however, that the purpose of the differential is to distribute this competitive traffic between the different ports. It has also been seen that the ocean rate through Baltimore and Philadelphia is somewhat higher, except on cargo business, of which none is now done, than through the ports of New York and Boston. If this grain reaches the seaboard by the all-rail route, the advantage of Baltimore is taken away in favor of New York and Boston to the extent of one and one-half cents per hundred pounds, and we think that when the same grain arrives at Buffalo it is proper for the same reason to take away something from the ocean advantage of New York in favor of Baltimore.
This ex-lake grain may move through either Fairport, Erie, or Buffalo. Fairport and Erie are in differential territory, so that rates from these two points would be, upon the ordinary basis, lower to Philadelphia and Baltimore than to New York. But it was said in testimony that with respect to this ex-lake grain these three lake ports should be treated alike; and such is our opinion. To apply a lower rate to Fairport and Erie would be unjust to Buffalo. There is nov in effect, pending the disposition of this matter by the Commission, a differential on this traffic of four-tenths of 1 cent per bushel in favor of Baltimore. We are inclined to think that this should be modified a little, and so modified extended to Philadelphia, and we believe that if this is done the differential so enjoyed by those two ports upon this traffic will certainly not exceed the average for the last fifteen years.
It may be asked with some reason why a distinction should be made in the amount of this differential between this ex-lake traffic and that which reaches these ports by the all-rail routes. Our answer is: These four cities are all seaports. This is a fundamental advantage of location which entitles each and every one of them to participate in this export business, and the public interest requires that this right shall be recognized. But each has certain subsidiary advantages peculiar to itself which should be preserved in so far as is compatible with free competition. It may well be, therefore, that Baltimore should be given a somewhat more favorable rate on all-rail than on rail-and-water traffic, for it possesses an advantage in the former case which it has not in the latter.
New York insists that the effect of these differentials is to force traffic out of natural channels into unnatural and more expensive routes, and that the final effect is to impose an enormous burden upon the public. With respect to all-rail traffic this premise of fact is not well taken. The actual cost of delivering grain into the hold of a ship from the average point of origin is probably 3 cents per 100 pounds less at Baltimore than at New York. The cost of the ocean transportation from Baltimore may be somewhat greater, although New York and Boston have strenously affirmed the contrary. Hence, traffic which passes through New York and Boston under the operation of these differentials is forced into a more expensive route than as though it passed out through Baltimore.
With respect to this ex-lake grain, the assumption of New York may be correct, but we do not think this consideration should be controlling. To decree that traffic should always move by the cheapest route would be to entirely eliminate competition, which, within reasonable bounds, is for the interest of the general public.
It was also strongly urged upon the Commission by the representatives of New York and Boston that the desire of the lines serving those ports was to eliminate the present differentials by a reduction in the export rate to those ports, and it was said that this must, in the nature of things, be a permanent reduction, and that therefore it would result in a substantial saving to the public.
It seems probable that if the differentials were to be wiped out at the present time this would be done by applying at Boston, New York, and Philadelphia, upon export traffic, the domestic rate to Baltimore. It is also true that this export rate could not be advanced without advancing the Baltimore domestic rate, since it would be impossible to maintain at that port a higher rate on export than on domestic business. But what possible guaranty is there that the domestic rate at Baltimore would not be advanced ? In 1902 domestic rates to all these ports were raised, and although this Commission found that the advance was unjustifiable it has been kept in effect except during the season of lake navigation. The present export rate is 4 cents lower than the domestic rate at New York. If that domestic rate is too high it ought to be reduced, but we do not think it would be just to the communities affected nor to the lines serving those communities, nor that in the need it would benefit the general public to deprive the ports of Philadelphia and Baltimore of the ability to compete for this traffic.
We have not considered west-bound differentials applicable to import traffic, since there are no facts in this record upon which to base an opinion. With respect to export differentials we conclude: That the differential on flour, both all-rail and lake-and-rail, should be 2 cents per hundred pounds at Baltimore and 1 cent per hundred pounds at Philadelphia ; that there should be allowed both Baltimore and Philadelphia a differential of three-tenths of 1 cent per bushel on ex-lake grain; that otherwise the present differentials should remain in force. This is not a proceeding in which the Commission could make an order, nor do we intend to intimate that the facts appearing would justify an order in any proceeding. Our impression is that the above modifications would be fair to the various communities and lines of railway interested, and that it is in the public interest that these differentials should be so adjusted that all the ports and the various lines serving them may fairly compete for this traffic. CLEMENTS, Commissioner, dissenting:
I can not join in the suggestions of the majority, which are in effect recommendations for the avowed purpose of the fixing of differentials in freight rates on export traffic moving through the respective ports in question and between the competing railroads leading thereto. It is said in the report, “ It has been seen, however, that the purpose of the differential is to distribute this competitive traffic between the different ports; " also, " The real question is, On what basis shall rates be equalized through the various ports? ” Again it is said when the Commission examined this subject in the Produce Exchange case
its only function was to determine whether the act to regulate commerce had been violated. Our relation to the subject to-day is a broader one, certainly if we comply with the request of the petitioners, at whose instigation this proceeding was instituted. We are to say, not whether these differentials are lawful merely, but whether on the whole, considering the interests of all parties, they are fair.
If this were a proceeding against a carrier reaching by its lines all of the ports in question it would be within the jurisdiction of the Commission to deal with the differences in rates as discriminations between localties by such carrier and, if found undue, to condemn them. In the case of Kemble v. The Lake Shore and Michigan Southern Railway Company, referred to in the report, the complaint was against carriers making a through line both to Boston and to New York, so that the question presented was that of discrimination by the same line as between the two places, both being served by it. But there is a manifest and radical difference between a matter of discrimination like that by a carrier between places on its line, and which is clearly covered by the provisions of the third section of the act to regulate commerce and the fixing of differentials in rates to or through the various ports and over independent and competing railroads. In the latter case the law has undertaken to leave the free
play of competition to adjust rates, subject only to the requirements made of each carrier that its rates shall be reasonable and just and shall not unduly discriminate between commodities or between persons and localities reached or served by it, and that duly established and published rates be observed. The foregoing report proceeds upon the idea that there is some legitimate and ascertainable standard of fairness by which there can be fixed a limited and proper degree of competition and measure of distribution of the traffic between the ports and carriers other than that wrought by competition. The law undertakes to fix no such standard or limitation; nor does it authorize the Commission to do so even for the purpose of putting to rest these questions so long and so often involved in competitive contests between carriers. The futility of the undertaking of the Commission to do so is illustrated in the following admission contained in its conclusions:
We have endeavored to find some fundamental principle by the application of which this dispute might be laid at rest, but entirely without success. It is said that a fair differential is one which would give to these several ports the traffic to which they are entitled. It is also said that these several ports are entitled to what of this traffic they can obtain under a fair differential.
The findings declare there is no testimony in this record which attempts to show the relative cost of handling this traffic,” yet the question of a differential in rates is intimately connected with the question of the reasonableness of the rates involved, and cost of service is one factor of too much importance in connection therewith to be ignored. It is not enough to say that equalizing the export rates is but taking into account the carriage from origin to destination and taking from the inland rate as compensation the post-terminal charges from the outports, for on this point the findings are no more satisfactory. They say, “it is therefore impossible to find with any degree of confidence what the rates from these ports have been.” The higher insurance rates to be compensated are quite as elusive. These it is said " would be in the long run a real disadvantage against these ports, but there is no testimony in this case from which we can place any exact figure upon this disadvantage,” but the differentials are to be fixed to the fraction of a cent. The futility of the undertaking is further illustrated in the following declaration found in the opinion:
There is no just principle which would compel this company against its will to apply at New York the same rate as at Philadelphia, when the cost of rendering that service is distinctly greater. It might, as a matter of competition, see fit to do so, but it could not in justice be compelled to.
It is further said:
If, again, it can be properly done these rates should be so adjusted that this competitive traffic will be fairly distributed between the different lines of railway which serve these ports.
Thus it is seen the purpose and effect of the conclusions is to declare what differences in rates the railroads should make to the four ports for the purpose of distributing the business. Whether the carriers see fit to follow the suggestions
of the Commission, which they are, of course, in no sense bound to do, or decline to accede to the same will, in my opinion, leave the Commission in an embarrassing attitude. If they refuse we are powerless to enforce the recommendations, yet compromised in any subsequent proceeding against finding other as reasonable rates. If they acquiesce we will have gone beyond our authority to interfere in the course of trade, determining the direction and destination of commerce, a matter with which we are not charged. To-morrow we may be called upon to determine what share the Gulf ports may have, and the Gulf roads may carry; the next day to fix the proportion to which the Pacific coast is entitled.
While the situation justified the inquiry, the facts disclosed do not, in my judgment, justify the conclusions reached for the reason that I believe they do violence to the great principle of competition which the Congress and the Supreme Court have so jealously and consistently nourished us one of the fundamental rights of the public. In declaring as between competing lines and competing ports what differentials shall govern, assuming that they will govern, we hamper competition, and by this regulation of distribution effect in reality a division of territory, a division of traffic, and a division of earnings, which in substance and effect tend to defeat not only the purposes of the antitrust act against the restraint of trade, but the pooling provision of the interstate commerce act, with the enforcement of which the Commission is charged.
In this thirty years' contest over the traffic under consideration there have been truces and arbitrations before this; but when Mr. Fink was chosen it was by the carriers, and when Judge Cooley and his associates, the advisory commission, were called in 1882, it was by the carriers. When Judge Cooley was called in 1886 on western differentials, it was by the carriers. And these arbitrators did what? They left, as they were doubtless expected and as they were bound to do, conditions as they found them. The carriers by competition and every device in economy human ingenuity could invent had reached in these years of struggle, competition and the natural course of trade, results which were not satisfactory to all of the communities and to shippers, and to satisfy these, disinterested noncarriers were called in to give a lay opinion and pleading lack of information and substantial justice they approved what they found and the differentials were accordingly left undisturbed while the truce lasted.
May competing carriers lawfully effect through the agency of the Commission restraint of competition and trade by a division of traffic between themselves and the ports when to do the same thing through an agency of their own would be unlawful? I think not.
The expectation of putting these questions to ultimate rest could spring only from a Utopian dream. Their permanent rest is perhaps neither practicable in view of the interests of the ports and carriers nor desirable in the interest of the public.
The unmolested freedom of competition by lawful methods permitting the free course of traffic is more likely to give to each community and carrier the fair and just rewards of its enterprise and public spirit and just rates to the public than any devised plan of fixed differentials between competing carriers to compose conflicting interests by apportionment of the traffic and which in the nature of the case must be more or less arbitrary. It is at least safe to keep within both the spirit and letter of the law.