1. Charging more for empty space than for loaded space in connection with shipments of iron and steel, in carloads, from various producing points

to Gulf ports and other destinations, found unreasonable.

2. Transit and substitution provisions permitting payment of refunds resulting in lower charges to interior fabricators on interstate carload shipments of iron and steel from various producing points to Gulf ports and other destinations, fabricated in transit, than exacted from fabricators at Gulf port destinations for transportation of similar shipments from and to the same points, fabricated or not fabricated in transit, found unduly prejudicial and preferential.

3. Assailed routes, rates, transit arrangements, rules, and charges not shown to be otherwise unlawful.

A. L. Reed, J. H. Todd, and C. E. Holloman for complainant.

Harry E. Boe, Martin L. Cassell, Jr., E. A. Tharp, B. F. Batts, H. B. Muller, W. W. Dalton, H. V. Cook, Fred L. Wallace, E. L. Walter, B. W. McLeod, G. A. Ryser, Robert Thompson, T. R. Ware, C. L. Butler, James G. Blaine, Henry J. Carr, G. C. Olcott, E. D. Grinnell, Wm. E. Davis, Theo. R. Schneider, W. H. Watts, and C. W. Waterman for defendants.

Frank A. Leffingwell, Ralph W. Currie, C. B. Bee, J. C. Murray, Homer J. Conley, Ed. P. Byars, W. W. Klingensmith, A. W. Jenkins, C. B. Turner, R. H. Lawson, Will E. Smith, A. R. Crouch, George W. Armstrong, Jr., George A. McElroy, Edwin F. Ledwidge, George H. Kinney, W. M. Dyer, H. E. Christopher, C. L. Williams, G. E. Flanders, P. D. Barziz, E. B. Wilson, and T. A. L. Loretz for interveners.

REPORT OF THE COMMISSION

DIVISION 3, COMMISSIONERS MAHAFFIE, ALLDREDGE, AND JOHNSON MAHAFFIE, Commissioner:

Exceptions to the examiner's report were filed by complainant, defendants (except the Texas and New Orleans Railroad Company), and certain interveners; complainant replied; and the issues were orally argued.

Complainant, Houston Chamber of Commerce, is an incorporated commercial organization, representing the business interests of the

city and port of Houston, Tex., including iron and steel fabricators there located, who are actively engaged in the buying, selling, receiving, shipping, fabrication, and distribution of iron and steel articles. By complaint filed December 4, 1939, it alleges that the routes, rates, transit arrangements, rules, and charges enforced and collected on iron and steel articles,1 in carloads, from numerous points of origin in Alabama, Colorado, Illinois, Missouri, Ohio, Indiana, West Virginia, Nebraska, Iowa, Kansas, Texas, Wisconsin, Tennessee, Oklahoma, Michigan, Pennsylvania, and New York to numerous points of destination in Arkansas, Louisiana, Oklahoma, and Texas, and fabricated in transit at numerous points in Oklahoma, Texas, Louisiana, Arkansas, Iowa, Kansas, Missouri, and Nebraska, are unreasonable, unjustly discriminatory, unduly prejudicial, inapplicable, and in violation of section 4 of the Interstate Commerce Act. The Commission is asked to prescribe lawful rates, routes, transit rules, and regulations for the future. Rates and charges herein are per 100 pounds.

The Texas Interior Steel Fabricators Association, the Corporation Commission of Oklahoma, the chambers of commerce of Tulsa, Okla., Shreveport, La., Wichita, Kans., Little Rock, Ark., and Fort Worth, Tex., the traffic bureau of Fort Smith, Ark., the freight bureau of Fort Worth, and iron and steel fabricators at St. Louis, Kansas City, North Kansas City, and St. Joseph, Mo., Kansas City and Leavenworth, Kans., Little Rock, Fort Worth, Granite City, Ill., Omaha, Nebr., and Des Moines, Iowa, intervened in opposition to the complaint. The Ceco Steel Products Corporation, operating fabrication plants at numerous points throughout the United States, including Houston, intervened in support of the complaint.

Generally, the defendants publish and maintain fabricating-intransit privileges on iron and steel articles for application at interior 3 fabrication points, and a transit rule in connection with such privileges which provides that the through charges or through rates to be applied will be under what is known as the three-way rule, namely, the through rate from origin to transit destination or the rate from origin to transit station or the rate from transit station to transit destination, whichever is highest.

1 As described in item 563-B of Southwestern Lines tariff, Agent J. R. Peel's I. C. C. No. 3145, and numerous items in other tariffs listed in the complaint.

Fabricated in transit, as used herein, generally comprehends the stopping in transit of iron and steel articles for one or all of the following purposes: Cutting to shape, cutting to length, bending, drilling, punching, fitting, reaming, assembling, riveting, welding, cleaning, and painting.

* Named as illustrative: Ardmore, Muskogee, Shawnee, Chickasha, Oklahoma City, Tulsa, Enid, McAlester, and Sand Springs, Okla.; Shreveport, La. ; Little Rock, Ark. ; Atchison and Kansas City, Kans.; Kansas City, St. Louis, and St. Joseph, Mo.; Omaha, Nebr.; Des Moines, Iowa; and Dallas, Fort Worth, Waco, Tyler, Abilene, and Wichita Falls, Tex.

Effective August 16, 1938, defendants amended their transit rules and made an exception to the three-way rule by providing that the rate to be protected is the rate from origin point through fabricating point to destination, which is known as the one-way rule. It applies only in connection with iron and steel articles from the origin territory to Gulf port destination territory when fabricated at an interior fabrication point.

Complainant more specifically alleges:

1. That such one-way rule when applied in connection with existing transit tariffs and rate tariffs produces relatively higher rates for fabrication at Gulf port points than are charged when fabrication in transit takes place at interior points, which is unreasonable. 2. That defendants grant lower freight rates and charges on iron and steel articles from the origin territory to the Gulf port destination territory when fabricated at interior points and reshipped to Gulf port destination territory than the rates applicable for direct movement without any stop for fabrication, which is unjustly discriminatory and unduly prejudicial.

3. That defendants charge higher rates on iron and steel articles from the origin territory to Gulf port destination territory when fabricated at Gulf port points and reshipped to Gulf port destination territory than when fabricated at interior points and reshipped to the same destinations, which is unreasonable and unduly prejudicial.

4. That defendants are directly, by special rates, rebates, drawbacks, and other devices, charging, demanding, and collecting from fabricators at Gulf port points greater compensation for the transportation of iron and steel articles than from fabricators at interior points for performance of a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions, which is unjustly discriminatory.

5. That the one-way rule results in rates which violate the longand-short-haul and aggregate-of-intermediates provisions of section 4 of the act.

6. That defendants under the one-way rule were and are transporting iron and steel articles over routes in connection with which there were and are no published rates or routes, in violation of section 6 of the act.

7. That defendants have failed and refused to publish the one-way rule for application to iron and steel articles from the origin terri

Lake Charles, La.; Houston, Galveston, Beaumont, Texas City, Orange, Port Arthur, and Port Neches, Tex., and all points grouped therewith in Southwestern Lines tariffs, Agent Peel's I. C. C. Nos. 3145, 3055, and 3011, which include Atreco, Baytown, Chaison, Fidelity, Galena, Magpetco, Fort Bolivar, Sinco, Smith's Bluff, Sun, and West Port Arthur, ΤΕΣ

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tory when fabricated at and reshipped from Gulf port points to interior destinations, which is unreasonable and unduly prejudicial.

8. That the one-way rule, as published by defendants, results in the failure of defendants to properly police, supervise, and safeguard published transit arrangements, including the operation of substitution-in-transit rules, and results in loose and unlawful practices with respect to the granting of transit and the readjustment of through charges at interior fabrication points, which are unreasonable, unjustly discriminatory, unduly prejudicial, and in violation of sections 4 and 6 of the act.

At the hearing, complainant limited the issues as to rates, routes, transit arrangements, and substitution-in-transit arrangements, to the extent that they were and are affected by operation of the one-way rule. Complainant explained that its complaint is not an attack upon substitution in transit, as substitution is conceded to be a commercial necessity, but it is an attack upon the failure of defendants properly to safeguard and supervise the refunds that result from substitution in transit by reason of the application of the one-way rule.

The specifically published commodity rates on iron and steel articles, in carloads, in effect at the time of the hearing from and to the origin and destination areas above described, and rates to and from transit points are shown. For example, the rates to the Texas Gulf port destinations are 45 cents from St. Louis, Mo., Alton, Federal, and Quincy, Ill., and Memphis, Tenn.; 55 cents from Minnequa, Colo., Atchison and Leavenworth, Kans., Aurora, Champaign, Chicago, Chicago Heights, Decatur, De Kalb, Elmhurst, Freeport, Havana, Jacksonville, Joliet, Kankakee, La Salle, North Chicago, Peoria, Peotone, Rock Falls, Rockford, Rock Island, South Chicago, Springfield, Sterling, and Streator, Ill., Burlington, Clinton, Davenport, Des Moines, Dubuque, and Manchester, Iowa, Gary, Hammond, and Indiana Harbor, Ind., Kansas City and St. Joseph, Mo., and Omaha, Nebr.; 57 cents from Milwaukee and Racine, Wis., and Waukegan, Ill.; 60 cents from stations on the line of The Baltimore and Ohio Railroad Company, Madeira to Loveland and Rockdale to Middletown, Ohio, on the line of The New York Central Railroad Company, Sharonville to Middletown, Ohio, and on the line of The Pennsylvania Railroad Company, Middletown Junction to Clare and McCullough to Middletown Junction, Ohio; and 70 cents from stations in Dayton, Ohio-South Bend, Ind., Detroit, Mich.-Cleveland, Ohio (except from certain stations named in specified items from which the rate is 62 cents), and Pittsburgh, Pa., territories.

Tariffs of the southwestern lines, in which the specific commodity rates, subject to a minimum of 60,000 pounds, are published, carry

1

an alternative-application rule which provides that if charges accruing under the class rates, subject to a minimum of 40,000 pounds, in the tariff specified in the rule, or under aggregate-of-intermediate rate rules published in those tariffs, make less than the published commodity rates, such lower rates will apply. Under these provisions, lower charges to a large territory in Texas and Louisiana are produced by the basis of 32.5 percent of first class and a minimum of 40,000 pounds than by the specific commodity rates and a minimum of 60,000 pounds.

Houston became a deep-sea and export port on November 15, 1919. Its deep-water transportation and facilities have attracted hundreds of substantial manufacturing establishments of wide diversity. Today it is second only to the port of New York in total deep-sea tonnage and third in the United States in total tonnage.

A company engaged in fabrication of iron and steel, with plants located at Houston, Dallas, and Tyler, Tex., established its plant at Dallas in 1885, which now has an investment of about $800,000, and 125 employees. The plant at Houston was opened in 1907, and now has an investment of about $1,000,000, and 325 employees. The investment in the plant at Tyler is about $10,000, with 3 employees. The investment in the plant at Houston was made because of the natural advantages of water transportation. Although there are advantages to interior locations under transit arrangements because of the proximity to consuming jobs, the relative advantages and disadvantages of interior versus port steel fabrication were materially altered in August 1938, by the publication of the one-way rule for application in connection with transit arrangements in lieu of the normal three-way rule that had theretofore been applicable in connection with all transit arrangements in this territory.

The three-way rule in connection with substitution of iron and steel articles operates to prevent a fabricator from selecting his longhaul freight bills to use for his advantage in connection with particular jobs where substitution would give the fabricator an opportunity to defeat rates and prices. By reason of the higher-rate clause in the three-way rule, the fabricator could not receive any advantage from the substitution of one article for another, because ultimately the highest rate on all of the steel must be paid in order to make deliveries on the job.

The one-way rule has changed this to the detriment of the port fabricators. As an illustration, the fabricator with plants at both Houston and Dallas, in meeting competition of interior fabricators in port destination territory, fabricated at its Dallas plant and hipped therefrom the steel for a project at Jasper, Tex., about 75 miles north of Beaumont, Tex. The steel for this project, consisting