insistent against each other, those who are called upon to adjust the difficulty may finally resort to the strict mileage principle in order to insure absolute mathematical equality. Within the past few years in dealing with the grain rate adjustment in the Middle West, the Commission had occasion to comment on the difficulties which it faced in this respect. Shippers located at Des Moines, Iowa, complained of rates to Missouri, alleging that competitors located at St. Joseph and Kansas City had relatively lower rates so far as distance was concerned. In directing attention to the difficulties which would arise from an attempt to adjust this complaint upon the basis of the distance principle, the Commission said:

"It appears from the record that St. Joseph and Kansas City are at a disadvantage in shipping into southwestern Iowa, and it must be obvious to complainants that by pressing their claims for an extension of their jobbing territory they court similar action by their competitors in adjacent states who may challenge the fabric of Iowa state rates on grounds similar to those which prompted Council Bluffs and Sioux City to challenge the Nebraska state rates in Missouri River,Nebraska Cases, supra. This is not to say that a community suffering from unjust or discriminatory rates should be deterred from making complaint thereof because other places may be moved to take similar action resulting in disadvantage to the first-named community. But there is some force in the consideration that where conditions have measurably adjusted themselves to rate relationships, and where each community in turn has some advantages and some disabilities which on the whole do not compare unfavorably, each to each, a complete rate upheaval which eventually results in a redistribution of advantage and disadvantage not wholly dissimilar to that which existed when the readjustment was made may not in every case result in a marked betterment, and can in few and exceptional cases yield advantage alone to a particular community.""

The actual results of the cement rate adjustment illustrate workings similar to those here anticipated from an application of distance rates to a rate structure originally developed under a competitive method of rate making. Rival mills were located upon the rails of competing carriers and each carrier had sought to secure the largest possible volume of tonnage by providing rates that would enable the mill on its line to reach the principal

1 Greater Des Moines Committee v. C. St. P. M. & O. R. R. Co., 42 1. C. C. 65, 73.

markets in the territory. The situation which developed is illustrated by the location of a mill at Hannibal, Missouri, on the lines of the Burlington and the Wabash. An extremely low rate. was provided for transportation of cement from Hannibal to Chicago, with the result that the cement moved in solid trainloads. But complaints of unjust discrimination were filed, particularly by mills located in the Kansas Gas Belt, which had originally operated at very low costs by reason of the use of natural gas as fuel. With the exhaustion of this fuel supply these mills found themselves facing higher operating costs, and as a result sought to continue their business in distant markets by readjustment of freight rates. They filed complaint with the Interstate Commerce Commission. Other cement interests intervened and finally the Interstate Commerce Commission on its own motion inaugurated an investigation into all cement rates in the territory. As a result of this investigation it prescribed several different scales of rates based on mileage. These were frankly designed to place shippers upon a mathematical equality, although differences in the operating conditions in different parts of the territory were given consideration. The scales were designed to produce approximately the same carrier revenue on the assumption that the same volume of tonnage would continue to move.1

As a matter of fact the same tonnage did not continue to move. The old competitive equilibrium was broken up. The mileage basis of rate making dislocated the system of distributing a considerable portion of the product of the rival mills. Where trainloads of cement had moved from Hannibal to Chicago, scarcely a car moved under the mileage scale of rates, and the producer located at Hannibal dropped out of the Chicago market, leaving competition there to producers located within a shorter distance of that city. In order to dispose of its product the Hannibal mill then sought markets elsewhere, among other places, in Nebraska, where it had a distance advantage. The result was that complaints were soon filed by other mills, especially those located in Kansas and Oklahoma, alleging that the rates should be revised so that they could retain their markets in Nebraska. This effort to transform a competitive method of Western Cement Rates, 48 I. C. C. 201.

rate making on a highly competitive commodity to a mathematical method of rate making has not, therefore, attained unalloyed success. Numerous complaints have been filed against the adjustment and there seems to be little probability that general satisfaction will permanently result. The great consuming market is too far from mills with large capacity.

§ 8. Nevertheless there is no other satisfactory yard-stick for a regulatory body to use in measuring alleged unjust discrimination than that of distance, coupled with adjustments for difference in operating conditions. Under a plan of government ownership, it is quite probable that after a few years of preferential adjustment secured through political prestige, the government itself would ultimately be driven to set flat mileage scales with notice to the shippers that they must use them or not as they could. The distance scales offer the only method of attaining mathematical equality. But, if the rates are to be made with this mathematical precision, the function of the traffic manager under a system of private ownership has certainly been seriously curtailed. At the time of the passage of the original Act to Regulate Commerce in 1887, there was a great deal of discussion on the floor of both houses of Congress of the disaster which would result from rate making based on distance alone. Each section of the country was fearful that its producers would be shut off from distant markets and that its industries would be injured. The mileage scale method of rate making undoubtedly circumscribes the activities of producers who seek to market their goods in distant markets, in competition with competitors located closer at hand. It may be argued, as the Commission stated in dealing with the cement rates, that long distance competition tends to promote a wastage of transportation. Nevertheless the industries of the country and the traffic of the railroads have been built up on the idea of enabling competitors to reach markets

"Those who propose a system of rates, the avowed purpose of which is to promote long distance competition, confuse an economic problem with a transportation problem. Primarily it is not our concern to equalize market competition. A shipper who comes to us with a proposition of this character, urging that the difference in freight rate against him is what keeps him out of an important market near which a competitor is situated, implies to a greater or less extent that the difference in freight rates represents the amount of his handicap. But freight is only one of the factors in a shipper's selling price. . . . We cannot overlook the fact that though a cement mill is located at a distance from important markets, the location

as wide as possible, so long as the rates which they could pay contributed something more than out of pocket costs.

The future of the mileage scale, as applied to commodity rate adjustments, promises to be a serious problem to shippers and carriers alike. If successful resort to the rate making power of the Interstate Commerce Commission inevitably means the prescription of mileage scales on particular commodities within a certain territory, conceivably shippers may conclude that they will be better off under the competitive rate making system which may have in it minor difficulties, but which on the other hand has tended to build up their business. After all, considered in the light of the development of railroad rates and industrial centers in the United States, a strict application of the mileage principle appears to be the rate making of desperation.1

has presumably been selected advisedly, and that due consideration has been given to the question whether its remoteness from these markets is balanced by compensating economies not available nearer to the destinations. . . We must not be understood, however, as opposed to any plan which will result in the making of reasonable rates for long distances. What we do consider as unwarranted is the formulation of a scale for the expressed purpose of affording a long distance competition at rates which are unreasonably low." Western Cement Rates, 48 I. C. C. 201, 234.

"This proceeding is additional evidence that there has never been an adjustment that was satisfactory to the rival markets.' Perhaps only a uniform mileage scale would preclude claims of relative maladjustment, and while no market desires this system to be here applied or applied generally, eventual resort to this basis may possibly be the only outcome of reiterated complaint over a complex situation which we have repeatedly tried to adjust." Minneapolis Traffic Asso. v. C. M. & St. P. Ry. Co., 46 I. C. C. 685, 692.

CHAPTER XI

THE LONG AND SHORT HAUL PRINCIPLE

Section 1. The Long and Short Haul Clause, 157-Sec. 2. Departure from the Rule, 158-Sec. 3. Control of the Long Haul Rate, 158–Sec. 4. Circuitous Routes, 160-Sec. 5. The Fifteen Per Cent Rule, 162-Sec. 6. Group Rates, 164-Sec. 7. Short Lines, 164–Sec. 8. Potential Water Competition, 165--Sec. 9. Character of the Commodity, 168-Sec. 10. Controlling Market Competition, 169-Sec. 11. The Extent of Relief, 172-Sec. 12. Relative Reasonableness and the Rate Adjustment, 174.

§ 1. The principles that rates may not be so high as to divert profitable traffic to an alternate route and that rates by competitive routes must be the same if service conditions are the same together account for the importance of another principle of rate making, the long and short haul rule. The long and short haul rule may be simply stated in the words of the Interstate Commerce Act:

"It shall be unlawful . . . to charge or receive any greater compensation in the aggregate for the transportation of passengers or like kind of property for a shorter than for a longer distance over the same line or route in the same direction, the shorter being included within the longer distance."

When strictly enforced, the long and short haul rule requires that a carrier seeking to meet the rates of competitors must apply the competitive rates as maxima at intermediate points. Whether intermediate points shall be grouped with the competitive points, or whether the rates shall be graded back on the tapering basis must depend upon the particular facts of the individual situation.

The long and short haul clause of the Interstate Commerce Act is not a rigid requirement. After stating the general principle which establishes the usual governing policy, the Act provides further that the Commission may, in special cases, grant applications of the carriers asking permission to charge more for the shorter distance than for the longer distance. The burden