The voluntary action of the carriers and the exertion of this official pressure have together resulted in an extension of the transit privilege to a variety of commodities and to widely separated areas, simplifying the concentration of supplies, for storage, grading and marketing, and equalizing competitive conditions.1

1 See Transit Cases, 24 I. C. C. 340; 26 I. C. C. 204; In re Manganese Ore, 25 I. C. C. 663; Concentration of Cotton in Arkansas, 29 I. C. C. 106; Reconsignment and Storage of Lumber, 27 I. C. C. 451; Norman Lumber Co. v. L. & N. R. R. Co., 29 I. C. C. 565; In re Advances on Live Stock, 22 I. C. C. 160, 174; Hood & Sons v. B. & M. R. R., 49 I. C. C. 694. The last case has to do with a transit privilege for pasteurizing milk.

CHAPTER X

THE DISTANCE PRINCIPLE

Section 1. Distance as a Measure of Service, 139-Sec. 2. Passenger Rates, 139 Sec. 3. Terminal and Haulage Costs, 141-Sec. 4. The Tapering Principle, 142-Sec. 5. Logical Rate Scales, 146-Sec. 6. Distance Tables, 149-Sec. 7. Market Competition and Distance Rates, 150 -Sec. 8. The Rate Making of Desperation, 155.

§ 1. The distance which goods or passengers are transported measures railroad service. Passenger rates are almost exclusively built upon the principle that rates should increase with distance. The mile transported is the unit of charge. Non-competitive freight rates are usually established in general conformity to the same principle; competitive freights may be. Not only is the service performed greater, but the total costs incurred are greater as the distance increases. This additional service means that investment has been made in roadbed and permanent way, and that additional outlays for operating expense (the costs of way and equipment and of conducting transportation) must be incurred for its performance. It is a sound principle that the goods or persons which occasion the expense should (in so far as what the traffic will bear will permit) contribute to meeting that expense. Any other policy must throw a burden upon other users of the railroad, or upon the owners. The economic effects would be as though a subsidy had been paid. A prima facie case, then, can be made for rates based upon distance.1

§ 2. The publication of rates based upon increases in exact proportion to distance is typical of the passenger rate structure over the whole country. In the more thickly populated sections, where the "density of passenger traffic" (the number of passengers transported one mile, per mile of line) is heavy, the rate per passenger mile is usually lower than in the more thinly populated West. Where, as is the case of the narrow gauge lines of the

1 Green Bay Business Men's Asso. v. B. & O. R. R. Co., 15 I. C. C. 59, 63.

Denver & Rio Grande in southwestern Colorado, the passenger density is light, and, in addition, operating costs are high, the passenger rates are upon a higher per mile basis, in that instance 5.4 cents per mile, as compared with a 3.6 cents base rate for lines where these unfavorable conditions are not met. The individual railroad which is not exposed to competition has sometimes been permitted to charge higher rates than other lines in the same general vicinity, provided its financial situation warranted the higher level of rates. But, although the rate per passenger mile frequently is different in different sections of the country, upon different railroads in the same section, or even upon different divisions of the same system, the general method

of establishing rates is the same: rates increase with distance. If distances are plotted horizontally, and charges, vertically, the rates are plotted along a straight line.

Passenger rate adjustments have ignored the distinctions between terminal and line haul costs which have been emphasized in the construction of freight rate bases. In figuring passenger rates, on which the unit of service is the passenger mile, it has been assumed that the aim of the rates, as applied to the volume of traffic, must be a total revenue from passenger business covering haulage and terminal expenses for the passenger service as a whole, and contributing to the joint costs, including return on investment. Passenger service is most expensive in crowded urban centers-notably Chicago, New York and Boston-although whether more expensive, per unit of service, in view of the heavy density of suburban traffic, it is difficult to say. Allocation of many elements of cost would at best be arbitrary. Certainly, if

the Chicago railroads had no suburban traffic to handle in their station buildings, their interlocking and signal installations, and their whole passenger terminal personnel would be both simpler and cheaper. Not a few railroad managers insist that such service is performed below the actual costs readily assignable.

§ 3. In the establishment of freight rates, on the contrary, the assumption is that each freight shipment should pay its own terminal cost. When the heavy capital expenses in passenger traffic, occasioned by terminal plant installations, are ignored, the terminal expenses assignable to passenger traffic seem small indeed. The selling of a ticket seems a simple task as compared with the completion of the necessary freight papers. Passengers load and unload themselves. Freight cars must be spotted, switched, and reswitched, and made up into trains. Expensive interchange and classification yards are necessary at important terminals. The terminal costs for less than carload freight are greater than for carload freight, since the same clerical costs are involved whether the shipment is large or small. Carload shipments, furthermore, are usually loaded by the shipper; less than carload freight must be handled through the freight house.1 For either class of movement, moreover, these terminal costs are the same whether the shipment be for ten miles or a thousand. The "terminal" constitutes "overhead" which, being constant, regardless of the length of haul, is spread thinner and thinner per mile the greater the distance of the line haul.

Railroad accounts have not been perfected to an extent that

For this reason, convenience in loading and unloading is usually not a consideration in the classification of carload freight, since this is seldom handled by the railroad employees. Less than carload freight, on the other hand, is, unless requiring specialized loading machinery, usually loaded and unloaded by the carrier. This handling cost is one of the elements necessarily taken into account in assigning a L. C. L. rating. Commodities which may be shipped "loose" in carload lots, such as pottery packed in straw, must therefore be in boxes, barrels, or crates if shipped in L. C. L. lots. The size of the package is frequently of significance; heavy, clumsy packages are penalized; thus, unframed mirror glass (L. C. L.) is rated 1st class in boxes 10-15 feet long, and not more than 7% feet wide, whereas in boxes exceeding these dimensions the ratings are three times 1st class (3t1) in Official and Southern Territories and double 1st class (D1) in Western Territory. On carload business the ratings are the same (3d class) in Western and Southern Territories, and but slightly higher (R26 on smaller Foxes as compared with 3d class) in Official Territory. For discussion of this problem in some detail, see Minimum Charges on Bulky Articles, 33 I. C. C. 378; 38 I. C. C. 257.

general figures on the subject of terminal costs are available. Some striking results have been secured by special studies undertaken in connection with problems involving, in their solution, the establishment of tables of mileage rates. But these figures applied only to particular conditions at a particular time, and are now significant only because of the relative situation which they disclose. In the Southwestern Class Rate Case of 1918, estimates varying from 13.6 cents per 100 pounds to 18.2 cents were introduced as the two terminal costs for less than carload freight.1 In the Central Freight Association Class Scale Case (1917), figures averaging 8 to 12 cents per 100 pounds had been submitted by the Big Four, Wabash and Pennsylvania, previously selected as "typical" lines. The representative of the Chicago shipping interests, Mr. H. C. Barlow-"a man of many years' experience in traffic and transportation matters"-gave his opinion that the terminal costs on L.C.L. freight amounted to about 5 cents per 100 pounds at each end of the line. Comparable data for carload freight were not available. From the point of view which seeks sound rate making principles, however, the amount of these costs is less significant than the fact of their existence. They set an absolute minimum of "out of pocket" expense. The line haul expense must depend upon distance, the empty car movement, the extent to which the full pulling power of locomotives is being utilized.

§ 4. The line haul expenses tend to become less per ton mile, the greater the length of the haul. Long hauls are made in through trains, usually by locomotives pulling close to their maximum load. The costs per mile of journey are normally less

148. I. C. C. 379, 387.

45 I. C. C. 254, 271. Other significant data appear in the New England Case, 49 I. C. C. 421, 455, covering detailed investigations made by Eastern carriers in 1916.

The two factors in the construction of a distance scale are the terminal charge and the road haul charge. . . . The terminal charge at best is speculative, and no method has yet been found of exactly computing it. To determine the rate for a given distance there is added to the assumed terminal charge a certain amount to represent the road haul. Upon the rate of increase in the road haul charge for successive distances depends the level of the rates. If it be maintained that the policy of carriers should be to afford the widest possible latitude to competition which is consistent with any return short of actual loss, the proponents of a distance scale will favor a low rate of increase for unit progressions, and this will result in relatively low rates for long distances." Western Cement Rates, 48 I. C. C. 201, 233.