(Chicago, Indianapolis & Louisville) is seen in the equalization of Chicago and Louisville, and all points on the Chicago-Louisville line, on the 100 per cent basis; and the "back door" entrance of the "Soo Line" into Milwaukee accounts for the carrying of the 100 per cent basis at points on the old Wisconsin Central west of Milwaukee. When the "cross lake" routes equalized the Chicago rates at Milwaukee, the direct lines via Chicago had met the competition and had blanketed the rates at intermediate points. The car ferry routes have, however, been permitted to charge more at intermediate points in Michigan than at the west bank ports.2

This rate structure has been called a distance tariff. In its origins, and still, as considered for New York alone, it bears a very real relationship to a distance basis; but in its present condition, it is rather a typical group rate structure than a rate structure based strictly upon distance. The peculiarity is that the relations between the groups are expressed in terms of percentages of the New York-Chicago rates, rather than by fixed differentials, as in other group rate structures, such as, for example, the Texas rate structure.

The reason for the failure to mark the percentage adjustment as essentially a group rate structure rather than as a distance tariff lies in the fact that, in 1879, the carriers advanced rates. from points in Indiana and Ohio by a "distance principle" calculation. In 1876 an eastbound percentage basis had been established, using the New York-Chicago mileage of the Pennsylvania, 920 miles, as 100 per cent, the other important junction points being assigned the percentage which their distance to New 'The Monon problem is discussed in the Supplemental South Bend Case, 61 I. C. C. 67; the car ferry competition in the Wisconsin Rate Cases, 44 I. C. C. 602, 637.

Fourth Section Departures, Lake Michigan Ports, 57 I. C. C. 418, 422. Here the Commission says: "Cadillac would not be satisfied to have the Fourth Section departures removed by increasing the rates to and from the west-bank points; what it desires is a reduction of its basis to 100 per cent. . . . The reduction of Cadillac's percentage to 100 on all classes and commodities would tend to break down the whole rate adjustment in the northern part of the lower peninsula."

In C. F. A. Class Scale Case, 46 I. C. C. 475, 477, the carriers to and from Buffalo had been permitted to continue rates lower from and to the west bank ports than from or to the east bank ports, Ludington and Frankfort, intermediate on the car ferry routes.

* W. Z. Ripley, Railroads, Rates and Regulation, Chapter X, "The Trunk Line Rate System; a Distance Tariff," p. 356.

York bore to 920 miles. Distances from points not on the Pennsylvania were figured on the combination through the nearest Pennsylvania junction. The actual rates then published were the distance percentages of the New York-Chicago rates. In 1879, the roads sought to secure additional revenue by advancing the eastbound rate bases (and through this device advancing the rates) from points taking less than 100 per cent of the base scale.

A "percentage formula" was developed. The formula provided that 6 cents per 100 pounds be deducted from an assumed rate of 25 cents per 100 pounds, Chicago to New York, this deduction representing fixed charges at both ends of long or short hauls. The remainder, 19 cents, was then divided by the New York-Chicago distance, 920 miles, to give the "mileage factor," .0206 cents. To determine the percentage status of any "common point," the distance via the Pennsylvania lines to New York was multiplied by this factor, the product added to the 6 cent "terminal charge" and this sum divided by 25. Thus, Xenia, Ohio, a 76 per cent point on the straight mileage basis became an 82 per cent point: its distance, 700 miles, gave a haulage factor of 14.42 cents; and adding the terminal charge of 6 cents, this created a total of 20.40 cents, 81.7 per cent of 25 cents. The relative increase was, of course, proportionately greater as the eastern boundary of Percentage Territory was approached; and lesser as 100 per cent points were approached. The formula was not applied at points taking more than 100 per cent of the New York-Chicago rates, since to have done so would have resulted in net reductions; nor did it apply westbound. In its application, the result was to develop scales of rates at junction points which conformed to the tapering principle. The percentage rates did not, however, apply at intermediate points, where, on the contrary, the lowest combination on any one of the nearby junction points was effective. But the distance between junction points was considerable, and the "percentage formula" was much more a scheme for getting revenue than for developing rate bases. Subsequently other basing points were arbitrarily assigned the same percentage basis as those calculated on the formula, in order to give recognition to cross-country competition when new lines were pushed through to Chicago. Groups of basing points were created. With the passage of the Interstate Commerce Act, the system of estab

lishing rates at intermediate points on the combination basis was abolished, and the group system existing today was established. Such minor changes as have since been made by order of the Commission have sought to eliminate especially those discriminations due to the large size of groups. In essentials the rate structure is as it was established on the group basis in 1887. § 6. The new Southern rate structure, which is in process of development, illustrates also the evolution of a group rate system conforming in essentials to the distance principle. Prior to 1916, through rates in the South were published usually at the common points, or railroad junctions, and, at points intermediate, were calculated on the basis of the lowest combination. This was known as the Southern Basing Point System. On the line of the Nashville, Chattanooga & St. Louis to Atlanta, for example, combination class rates were effective from Louisville as follows:

Because of the general use of "any-quantity" rates it was possible for the line from the West to maintain the trade of

The scheme of rate making which existed in the South prior to 1916 is explained in detail, Fourth Section Violations in the Southeast, 30 I. C. C.

the Ohio River towns (on which they could control the long haul) in competition with jobbing interests located in the Southern cities, which could draw upon the Eastern seaboard for supplies in the transportation of which the Western lines could have no part. On business to the jobbing centers, through which, in an agricultural country, the bulk of the high class merchandise must flow, the aim was essentially to secure an equilibrium which would place goods from the Middle West into the hands of Southern distributors. The Western roads soon lined up with the distributing interests not located on a navigable stream. As far back as 1887, Mr. J. M. Culp, then General Freight Agent of the Louisville & Nashville, stated the basis of the competitive situation in clear language:

"Q. As a practical railroad man, would you not consider it a part of your duty to undertake to protect the business on the line of your road, whether terminal or local, against the competition of markets or cities located on other lines of roads or rivers? ...

"A. That has always been the rule.

"Q. If one point should be favored with water competition, and there was a line of railroad existing to another point, you would so adjust its rates to that point as to enable it, if it could, in reason, to undertake to compete with that point for business, being interested in building up its own, rather than a distant city? "A. Yes, sir." 1

1

Thus both river landings where competition by water, real or potential, was met and railroad junctions became basing points. The Western lines (those extending into the South from the Ohio River) in general found it to their advantage to place such cities as Atlanta and Birmingham upon substantially the same rate basis as nearby competitive river points such as Augusta or Montgomery, fixing the rate on a level, compromised in the case of Atlanta, by equalizing the Baltimore rail-and-water and Ohio River scales.

The competitive towns which became basing points developed as local jobbing centers serving the territory in their immediate vicinity on the same basis as the Ohio River towns (or the Eastern port cities) if rates were on the any-quantity basis, and, at an advantage, when they possessed carload rates inbound. Undoubtedly there were instances where the interests of the car1Testimony, original long and short haul hearing, 1 I. C. R. 76, 96.