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INTER-STATE COMMERCE LAW.-SOME OF ITS PRACTICAL
JOHN MCNULTA, OF BLOOMINGTON.
READ BEFORE THE ILLINOIS STATE BAR ASSOCIATION, JANUARY 15, 1890.
The Inter-State Commerce Law went into effect April 5, 1887. It was the first substantial exercise of the power delegated to Congress by the constitution.
“To regulate commerce among the several States," and the beginning of a new era in the management of the railroads of the country, and the transportation of all commodities thereon.
Until the passage of the Act of 1869, there was no statutory law in this State to limit, control or direct railroads in the transaction of their business as common carriers. The common law obligations and duties imposed upon them were rarely enforced, mainly owing to the inadequacy of the remedy or the insufficiency of the results compared with the costs and trouble that would be involved.
Even after the passage of the several acts in this State, and after nearly all of the States had enacted laws for the correction of the many abuses that had grown up in the management of the roads, no efficient remedy was found.
The Supreme Court of the United States in its earlier decisions, intimated, if it did not directly decide, that the power of control lay in the States, until the Federal government should act. In effect, that there was a concurrent State and Federal jurisdiction and that the former was potent on all questions until it appeared that there was a conflict, when the act of the latter should prevail as law.
Under this ruling the field for legislation was left open to the several State Legislatures, without uniformity of action on any point unless it be in an apparent purpose on the part of each to gain some advantage for itself over the others, and no satisfactory solution was reached. Later, that Court, in Wabash Railroad Co., vs. Illinois, 113 U. S. 557, modified its former ruling, and held in effect that the grant gave to Congress exclusive power, and until exercised by Congress, in the form of the passage of an act, it lay dormant, and that a State had no power beyond purely State commerce.
With the existence of this condition of affairs the law went into effect, and by reason of its practical workings, forced upon many managements a decision as to whether their res tive roads would adopt through or local rates, in practical effect, whether they would become Inter-State or State carriers.
If local rates were adhered to all through, traffic would necessarily be lost. If through rates were adopted, local rates must be brought down to a level with the through rates, resulting in a serious loss of revenue, unless this deficit could be made up by a relative increase in the volume of business gained by the reduction of the rate.
The law at once caused material changes in the currents of traffic. Although a period of prosperity followed, with large crops for movement to the seaboard, and an immense tonnage to the west for developement of the country, several roads were forced into, and many to the verge of, bankruptcy, while others, mainly the stronger ones or Trunk lines, harvested immense profits. During the year 1888, the losses of the roads entering at or tributary to Chicago, were estimated at forty millions of dollars, caused principally, if not wholly, by the operation of the law.
As a rule, the strong railway lines of the country have reaped a large profit, and the weak ones have suffered heavy losses by it. Seaboard ports and some large manufacturing cities, and cities forming the main gateways of commerce, have been benefitted. Interior and small jobbing and manufacturing centers have been injured, and under the strict construction at first given, and a rigid enforcement of the law, would, as such, have soon ceased to exist.
On all low priced commodities, such as coal, iron, grain, etc., a slight variation in the rates will determine the question of profit or loss to the shipper. One cent per hundred pounds on a haul of 1000 miles put on, will often operate as an absolute prohibition, while one-half of one cent per one hundred pounds taken off will open the blockade, and allow the shippers not only to compete in the market, but to do so at a fair profit.
The manager may arbitrarily put on the cent and block the traffic, but contrary to the general belief, which is here a common error, he never does so, as to do it would be to wantonly cause a loss to his road.
Neither can he always arbitrarily or even in the exercise of a sound judgment take off the half cent, for should he do so at one point, the law would compel bim to make a like deduction on all commodities of the same class, regardless of the existence of any necessity for it, at all intervening points on his line, thereby incurring a heavy loss, probably in the aggregate greater than the gross earnings derived from traffic moved by the reduced rates. In this way the law often operates to stop shipments and prevents the development of feeble industries at points distant from markets or places of consumption.
The interests of a railroad, and the interests of the people along its line, are one and the same,-what helps one will help the other. What hurts one will hurt the other. Every thrifty manager understands and acts upon this principle; a few only are disposed to grasp for temporary gain, disregarding the permanent injury that may be done. Their actions have caused great wrongs to individuals and communities, and create a necessity for a restrictive law.
It was supposed by the railroad restrictionists that the most potent principle would be found in what is known as the “Long and Short Haul Clause." Indeed, until practical experiments made me a skeptic, I had great faith in its fairness and efficiency. It is found in our Illinois act of 1869, and all subsequent acts, but more elaborately set out in the Inter-State Commerce Act, by the fourth section, by which it is made
to charge or receive any greater compensation
for the transportation of passengers, or like kinds of prop
erty under substantially similar circumstances and conditions for a shorter than for a longer distance over the same line, in the same direction, the shorter being included within the longer distance."
Apparently intending, when coupled with the clause against discrimination, to compel every one to pay in proportion to the service performed. Does this do so?
As the cost of transportation (to the seaboard) is intended by the law to be practically in proportion to the distance, the value of the grain would decrease as we recede inland from the port of the ocean shipment; and assuming all the land of equal productiveness, for like reasons, it will, for grain raising purposes, recede or rise in relative value as we leave or approach the seaboard. Such at least seems to have been, in a measure, the effect, and such would be the result, if the principle was literally carried out.
Inquire into the establishment of any large manufacturing industry in the interior, where the raw material was shipped in by rail, and it will be found that it was done hy some one or more railroads carrying this material in on a special low rate, and by the making of an out rate that would sustain competition in a given territory against all outside competitors. The road doing it got a low rate going in, a fair rate coming out, an increase in volume done at the cost of train service alone, resulting in a profit and a development of the country tributary to it. This the law now prohibits. The further development of such industries is stopped. In many cases the old ones are closed up with this result, the roads lose traffic, and the distant or large centers manufacture the commodity for a larger scope of country, and only such portion of it goes to any section as may be needed for consumption. The interior districts become buyers instead of being sellers, as before.
The community that gave the right of way, paid heavy taxes in liquidation of large subsidies to secure a number of competing lines of road, and the community that took the road that was forced upon it, and all the compensation and damages they could collect, have their business transacted on equal terms. The competition paid for by the cross-roaders is now prohibited by law, and the people who, by their money and their energy, secured competing roads, cannot be given the benefit of competition.
The people in the interior are secured the advantages of the low rates of the river, and given the benefits that were supposed to belong only to those whose homes were along the great waterways, viz.; Cheap water transportation, in consideration of which higher prices were paid by them for their lands. But the man away from the water who got his land cheap because there was no cheap water transportation, is secured all the benefits that could be derived from water transportation by the law, which in effect makes the river follow the rail.
Such at least is the construction quite generally given to the law, and such, in a great measure, is its practical effect. Yet I must say I cannot concur in this view of it. I do not think the language of the act warrants such an interpretation, nor do I think that the power delegated to Congress would authorize such a provision.
The unsettled condition and uncertainty as to the law on this point, and also on the question of an indirect line taking traffic from a competitive direct line at the low rate of the latter through the higher rate district of the former, without its lowering its intermediate rates, has resulted in diversity of action.
Except to meet competition in ocean rates, I do not now recall a case where lower rates were made at a water competing point, than the rates at intervening points less distani. Yet I do know where a Manager refrained from doing so only because to do it would bring on a rate war.
A case of the latter kind occurred at Peoria, where the rate was 110 per cent. of the Chicago rate, then 25 cents on grain to New York, or 27} cents per 100 pounds from Peoria to New York. On either of the direct lines this freight would not pass through any station from which a higher rate was charged, but by way of Jacksonville, Springfield and Decatur, it did so. The rate from Jacksonville was 120 per cent., or 30 cents per 100 pounds; from Springfield, 116 per cent., or 29 cents per 100 pounds, and from Decatur, 110 per cent., or 27} cents per 100 pounds. This freight was taken from Peoria through Jacksonville, Springfield and Decatur, to New York for 27} cents per 100 pounds, while 30 cents was being charged for like grain from Jacksonville and 28 cents from Springfield to New York.
There was much unfavorable criticism of this action at the time, but since, its validity in principle has been judicially determined and quite generally admitted; yet there are a considerable number of similar cases where like action has not been taken, evidently because of an apprehension of an unfavorable decision on the law.
I have said in substance that the tendency of the law was to greatly increase the earnings of some roads and to diminish the earnings of others. To this, let me add here, that the end hoped for by some to have one uniform terminal charge and rate per ton per mile on each class of commodities over all roads, or over all roads in large blocks or sections of the country, is practically impossible, until all the roads in any section where like terminal and milege rates prevail, belong to corporation. In that case only could it be done, as then the losses on part of a road could be made good by the profits from another part of it.
Let me explain why. The prorating of earnings, with here and there arbitraries or constructive mileage, especially between the Mississippi river and the seaboard, has practically become the rule. The increase of through traffic in through cars tends to strengthen this practice. The rule of prorating s a fountain of wealth for Trunk lines. The power of Trunk lines to enforce this prorating rule, or extend it territorially when they agree, is well nigh conceded, as by united action they can make or mar the fortunes of any road by diverting traffic to or from it.
Under this rule, from the gross earnings of each carload of freight is deducted a heavy terminal charge at New York, three cents per 100 pounds on grain, and the balance is divided among the roads in proportion to their mileage, over which the freight passed.
On account of the grea'er cost of some roads, and therefore the larger fixed charges, the steep gradients and the sharp curves of others, and therefore the more expensive operation, there must necessarily be a considerable variance in the cost to roads of doing their business.
There is, however, a more potent factor thar: these for consideration.
Two roads may be taken, each in all respects an exact duplicate of the other, and each having a management equal in skill and ability to the other. Yet with inequality in volume, a rate may be made the same for both roads, and on this fixed rate one road will declare a large dividend, while the other will fail to meet its fixed charges and become bankrupt. It may be laid down as an axiom, that rate and volume run together.
As the volume of traffic increases, the rate may be decreased proportionately to an unlimited extent, within the capacity of the road to do the business.
As the volume decreases, the rate must increase to or near the point of prohibition, or bankruptcy will ensue.
Fancy the business of one of our great lines falling off until there were but seven passengers and one car load of mixed freight each way daily, how far would the three cents per mile per passenger and the rates fixed by our State Commissioners for the freight, go towards paying the fixed charges and operating expenses? It would not meet one per cent of the gross liabilities of the road. Yet I am confident that every one within the sound of my voice knows of some road, some branch or side line, that is in just the condition I have described, and whose existence depends upon a total disregard of the principles of the letter of the long and short haul clause.
They are to be found in every State, mostly in new and undeveloped territory, and are the lines most essential to the development and success of the country.
Such roads live by the allowance of arbitraries, in this way: Say there is a given amount of grain for shipment on such a line at a point fifteen miles from a main line road, both points being within the same rate district. Please bear in mind that all through rates are based on the prevailing rate between Chicago and New York, and are fixed a per cent. above or below the Chicago and New York rate, changing with it, and that they are, generally speaking, higher or lower, as the line increases or diminishes in length. Not from station to station, as that would be practically impossible, but by blocks or sections of country, marked off on the map as compact as possible, traffic facilities considered, as they can be made. In the case given, the point of origin of the freight and of connection with the main line being in the same block of country or rate district, the rate to New York would be the same from both places, say 30 cents per 100 pounds. Assume the whole distance 1,000 miles: by prorating, the short line would get fifteen thousandths of the gross earnings, after deducting three cents per 100 pounds for New York terminal charges. The accounting would be substantially this:
DIVISION OF EARNINGS.
Blossom Creek to New York, 5 carloads corn, 40,000 each; 200,000 lbs., @ 30c. per 100 lbs..
$600 00 Less N. Y. lighterage, @ 3c. per 100 lbs..
Share of Grand Junction and Blossom Creek, fifteen thousandths of $540..
Railways, Grand Junction to N. Y.........
$531 90 $531.90 to be prorated among them on the basis of mileage.
This division of earnings would inevitably result in the bankruptcy of the Blossom Creek road, and its management would be compelled to cease to operate and wholly abandon it, or get better terms from its main line connection, which, to save the business, would be given by the main line in the form of an “arbitrary” of, say 25 per cent. These arbitraries, where given, usually run from 20 to 33} per cent.