TITLE II. REASONABLENESS OF PARTICULAR RATES. CHAPTER XVI. FACTORS OPERATING IN THE ESTABLISHMENT OF PARTICULAR RATES. § 471. Distribution of the burden of the schedule upon different articles carried. TOPIC A.-COST OF SERVICE AS THE BASIS OF RATE MAKING. § 472. Method of estimating cost of service. 473. Basis of proportionate rate the ton-mile cost. 474. Cost of carriage as a factor affecting particular rate. 475. Insufficiency of the principle of the cost of service. 476. Length of haul as a factor affecting a particular rate. 477. Modification of the principle of the length of haul necessary. 478. Volume of traffic as a factor affecting the particular rate. 479. Limitation upon the law of increasing returns. 480. Increased volume of traffic causing increase of cost. TOPIC B-VALUE OF THE SERVICE AS THE BASIS OF RATE MAKING. § 481. What the traffic will bear as a factor affecting particular rate. 482. Essential defects in the principle of charging what the traffic will bear. 483. Making rates compared with levying taxes. 484. Rates may be shown to be unreasonable in themselves. 485. Adjustment between the claims of the company and the patron. 486. Equalization of advantage as a factor affecting the particular rate. 487. Carriers not obliged to equalize disadvantages. 488. Competition as a factor affecting the particular rate. 489. Conclusion as to proportionate rate. 490. Classification the method of establishing the particular rate. 491. All factors enter into the determining of a particular rate. § 471. Distribution of the burden of the schedule upon different articles carried. From the point of view of the carrier, as has been seen, it is enough if the schedule as a whole yields a fair return by way of profit. To the individual shipper, however, the effect of the tariff as a whole is quite immaterial. He is interested in a single rate only, that upon the goods which he is shipping; and from his point of view the important thing is that such goods shall pay no more than a reasonable part of the whole necessary return to the carrier. It is necessary, therefore, to consider next the rules for the proper distribution of the whole burden of the charge upon the individual articles carried. To look at the problem from another point of view, the entire schedule of rates having been established, so that the proportion is properly fixed, it will be easy to test the validity of the rates. The amount to be raised by the entire schedule of rates having been determined, according to the principles already examined, the sum of all the particular rates must equal that amount; and this sum is determined by adding the rates received on account of the known traffic at each station. TOPIC A.-COST OF SERVICE AS THE BASIS OF RATE MAKING. § 472. Method of estimating cost of service. In the preceding chapters the total amount of annual receipts which the carrier is justified in taking from its whole business has been discussed. These were, in brief, all annual expenditures, including an allowance for depreciation requirements, and in addition the fair capital charges for the year, arrived at by determining what would be a reasonable return upon proper capitalization. A railroad must get this total from its passenger traffic and from its freight traffic. The first difficulty is to decide what proportion should be contributed by the passenger traffic and by the freight traffic respectively; then the same difficulties remain in apportioning to each item of traffic a fair share of the burden. It may be difficult, if not impossible, to apportion to each portion of the traffic its proportionate share of the fixed charges with any degree of accuracy, but at the same time, there are certain items in the cost of performing a particular service which should never be left out of account by a railway management in making its rate for that service. Thus an expert railway management ought to be able to estimate with some degree of accuracy the particular expenditures involved in moving a carload from one point to another-wages, coal, oil and the like. It would be wrong plainly to ignore the cost of service in so far as it may be estimated; for to serve some shippers for less than the special costs of serving them would be plainly unfair to other shippers who would be called upon to make up the deficiency. 473. Basis of proportionate rate the ton-mile cost. The division of the total charges among the various articles of traffic may be upon the basis of the ton-mile; that is, the number of tons carried multiplied in each case by the number of miles carried. If the sum of the whole amount of freight carried amounts to one hundred thousand ton-miles, and the gross revenue required from freight to two thousand dollars, the average rate of freight will be two cents per ton-mile. If there were no other factors in the problem, therefore, a fair proportionate rate would be the ton-mile average charge. Because, however, of other factors, which cause a difference between commodities with respect to the fair charge for carrying them, a uniform ton-mile rate applied to all cases would not result in reasonable particular rates. While it must remain the average rate, each particular rate is likely, in fact, to be pushed above or brought below the average by reason of one or more special circumstances, which must now be briefly considered. § 474. Cost of carriage as a factor affecting particular rate. The cost of carriage is a factor which must in fairness be considered in arriving at a particular rate, since it is obviously fair that for a carriage which is unusually expensive a higher than the average rate should be paid. But while a rough estimate of the cost of carriage is to be considered in fixing the particular rate, it will seldom be possible to apportion with any exactness the proportionate share of the burden upon that basis. alone. This general problem came up in a rather difficult form in a recent case before the Supreme Court of Tennessee.1 The facts in that case were these: A railroad company contracted with a newspaper publisher, agreeing to run a special early morning train carrying only the newspapers of the publisher, in consideration of the publishing company guarantying to it a certain revenue from the operation of the train. This train became one of its scheduled trains, and was advertised as such. It was controlled exclusively by the company, and all the revenue derived from its operation in the carrying of passengers and freight was its property. The court held that notwithstanding the provisions of the contract the railroad must accept the newspapers of the plaintiff. Upon the troublesome question as to how much the plaintiff must pay for the service, the court had interesting suggestions. The substance of what was decided on that point was that since the railroad company was bound, under its duty as a common carrier, to carry any freight properly tendered to it, neither the railroad nor the house contracting for the service could impose, as a condition of acceptance and delivery of goods tendered, an obligation to share the burden of establishing the service voluntarily assumed by the contracting house. 1 Memphis News Publishing Co. v. Southern Railway Co., 75 S. W. 941 (1904). Upon the point of the compensation to be required of the petitioning company, the court found it difficult to state certain rules, expressing their conclusions thus: First, we think it would be impracticable to state an account which would do equal justice to the parties. While it would be easy to ascertain the amount of money expended and the value of the service rendered in fostering this train by cross complainant, yet it would be impossible to ascertain the value of the advantages derived by it from this enterprise. Certainly the worth of this advantage should be taken into account. Second, If bound to contribute at all, we think the Morning News Publishing Company could only be required to do so to the extent of its proportional part of the same, all other shippers who had availed themselves thereof being equally liable to contribution.2 2 The cost of a particular service was held an important factor in making a particular rate in the following cases, among others: UNITED STATES SUPREME COURT: Chicago & G. T. Ry. v. Wellman, 143 U. S. 339, 36 L. Ed. 176, 12 Sup. Ct. 400 (1892), affirming 83 Mich. 592, 47 N. W. 489; Minneapolis & St. L. R. R. v. Minnesota, 186 U. S. 257, 46 L. Ed. 115, 22 Sup. Ct. 901 (1902), affirming 80 Minn. 191, 83 N. W. 60 (1900). FEDERAL COURTS: Chicago, St. P., M. & O. Ry. v. Becker, 35 Fed. 883 (1888); Interstate Com. Com. v. Leigh V. Ry., 49 Fed. 177 (1892); Interstate Com. Com. v. Leigh V. Ry., 74 Fed. 784, appeal withdrawn, 82 Fed. 1002, 27 C. C. A. 681 (1897); No. Pacific Ry. v. Keyes, 91 Fed. 47 (1898); Interstate Com. Com. v. Louisville & N. Ry., 118 Fed. 613 (1902); Louisville & W. Ry. v. Brown, 123 Fed. 946 (1903); Tift v. Southern Ry., 138 Fed. 753 (1905). STATE COURTS: California-Redlands L. & C. D. W. Co. v. Redlands, 121 Cal. 363, 53 Pac. 843 (1898). Florida-State v. Seaboard Air Line (Fla.), 37 So. 657 (1904). Maine-Kennebec Water Dist. v. Waterville, 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902). Massachusetts-Fitchburg Ry. v. Gage, 12 Gray (Mass.) 393, B. &. W. 350 (1859). Minnesota-Steenerson v. Gt. Northern Ry., 69 Minn. 353, 72 N. W. 713 B. & W. 333 (1897). See §§ 508-514 infra. |