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WASHINGTON, D. C., December 17, 1904.

To the Senate and House of Representatives:

The Interstate Commerce Commission has the honor to submit its eighteenth annual report for the consideration of the Congress.

The Preliminary Report on the Income Account of Railways in the United States for the year ending June 30, 1904, an abstract of which is given in this report, comprises returns from railway companies operating 209,002 miles of line, or very nearly 99 per cent of the mileage that will be covered by the final and complete statistical report for the year when published. From this advance report it appears that the gross earnings of the roads included in it amounted to $1,966,633,821, being equivalent to an average of $9,410 per mile of line. Their operating expenses were $1,332,382,948, or $6,375 per mile. Thus, the net earnings or income from operation were $634,250,873, or $3,035 per mile. The statement of operating expenses does not include the taxes of these operating companies, amounting to nearly $56,500,000. As compared with the year 1903, the net earnings of the roads for 1904 were approximately $6,400,000 less, but the dividends declared on stock in this year exceeded the amount declared in 1903 by $23,600,000, substantially. This must be regarded as a favorable showing, and indicates the continued prosperity of the reporting carriers.


The system of regulation established by the act to regulate commerce and its amendments provides, first, for the publication of rates on interstate traffic carried wholly by railroad, or partly by railroad and partly by water, and requires absolute observance of such rates by carriers and shippers; and, second, for regulation by the Commission of the


rates and charges published by the carriers. In other words, the rates must be made public and applied without exception to the traffic offered for carriage, and if any published rate is shown to be excessive or unjust, it must be made reasonable and just. It is evident that a scheme which merely provided for the regulation of unjust or excessive charges would be of little consequence if the carrier could charge one rate to one shipper and another rate to another shipper for the same service, or if the schedule of charges could be made by the carrier merely to be disregarded; and it is equally plain that the publication of established rates and constant adherence thereto would constitute no adequate means of relief to injured shippers and localities if the judgment of carriers in fixing their charges could not be corrected upon proof that a particular charge is greater than should in reason be exacted, or that a given relation of charges results in wrongful prejudice to a shipper or community.

As to that branch of regulation which deals with the publication and invariable application of tariff rates, the act, as amended by the Elkins law of February 19, 1903, appears to be operating successfully as applied to carriers subject to its provisions; but, as explained in another part of this report, it is believed that these provisions should be made somewhat more definite and extended to apply to other agencies connected with transportation which may now be used as a means of affording concessions to shippers which, in effect, reduce the cost of moving their products.

In that branch of regulation which pertains to the correction of established rates and charges, there has been no amendatory legislation conferring power over the rate and making orders of the Commission effective, although we have discussed at length in previous reports the weakness and inadequacy of the law, as from time to time defects have been disclosed under construction of its provisions by the courts, and have explained in detail the reasons for our urgent recommendations.

The Commission may find after careful and often extended investigation that a rate complained against is unreasonable, and order the carrier to desist from charging that rate for the future, but it can not, though the evidence may and usually does indicate it, find and order the reasonable rate to be substituted for that which has been found to be unlawful. It results that any reduction of the wrongful charge amounts to technical compliance, and frees the carrier from any legal obligation under the order. The Commission can issue its order only against the rate complained of; it can condemn the wrong, but it can not prescribe the remedy.

This is illustrated by two cases decided during the present year. A rate of $80 per car on peaches from New York to Boston, used as part of the through charge from Georgia, having been found unreasonable,

a reduction to $50 was deemed reasonable by the Commission and recommended. The carrier reduced the charge to $65 per car. A rate of $1.90 per ton on coal from Indian Territory to a point in Texas was declared excessive by the Commission, and a rate of $1.25 was recommended as reasonable upon the facts shown in the case. The rate was reduced to $1.50 per ton. The proof in each of these cases demanded, in our opinion, reductions to the extent recommended, but the carriers thought otherwise, and being under no compulsion to follow our recommendations they put in much higher charges.

These carriers could have refrained altogether from taking any action under the orders issued in the cases mentioned. They could, in the present condition of the law, have stood upon their legal right to await the direction of the Circuit Court upon a petition by the Commission and another trial of the issues in that court. In cases involving important rates the carriers often do take advantage of that right. The more important the case may be, the greater the benefit conferred upon shippers or communities, the less likely is the order of the Commission to be obeyed. The Commission must not only render a just decision, but one that is convincing to the carrier, in order to afford the relief from unlawful rates which is contemplated in the statute. If the carrier is not so convinced it merely ignores the order, and the time involved in enforcing the same generally covers a period of years, which amounts in most cases to a denial of justice.

If a decision by the Commission is right, the public is entitled to have it go into effect. If it is wrong if it would deprive the carrier of property without due process of law or invade any of its other rights or privileges under the Constitution or laws of the United States-its operation could be enjoined upon showing to that effect by the carrier in a suitable and summary proceeding in the Federal court. The amendments to the statute recommended by the Commission involve no fixing of whole tariffs of rates in the first instance or at any time, but simply the redressing of transportation wrongs shown to exist after full investigation, during which all affected interests have been heard, and when an order is issued against a carrier under such procedure it should, by operation of law, become effective upon the date therein specified.

In the fixing of rates upon all commodities for carriage in all directions and between all points reached by railroads it is inevitable that much injustice, unfairness, unreasonableness, preference and discrimination will be practiced, notwithstanding the greatest care and ripest judgment may be exercised by the railway officials charged with the duty of rate making. These errors of judgment on the part of railway officials, many of them occurring in the hasty exercise of the ratemaking function or in the effort to press on to the discharge of other urgent duties, constitute the reason for Federal regulation and the

basis of the present widespread demand for an amendment to the existing statute which will enable their speedy correction when the results of such errors are felt by the commercial public.

It seems appropriate to allude to what seems to us persistent misrepresentation on the part of many who are interested in opposing this legislation, that the amendments desired would confer upon this Commission the power to arbitrarily initiate or make rates for the railways, and that it would be most dangerous to place this vast authority in the hands of five men, especially five men who have had no experience as railway traffic managers. No such power has been asked by or is seriously sought to be conferred upon the Commission. Though the popular demand may eventually take that form under the stress of continued delay in remedying ascertained defects in the present plan of regulation, the amendment heretofore and now recommended by the Commission, as to authority to prescribe the reasonable rate upon complaint and after hearing, would confer in substance the same power that was actually exercised by the Commission from the date of its organization up to May, 1897, when the United States Supreme Court held that such power was not expressed in the statute. What the Commission could do if the authority so denied should be definitely conferred by the Congress is this: After service of complaint upon the carrier or carriers, after full hearing of each carrier and shipper interested, and after careful investigation, a report and opinion would be rendered, and if the decision should be against the carrier, an order would be entered directing it to cease and desist from charging the rate complained of, and to substitute therefor a rate found, upon the evidence before the Commission, to be reasonable and just. This procedure is essentially judicial in character and form and bears no resemblance in any degree to the arbitrary administrative action which would result under the authority to make tariffs of rates absolutely for the railways, either in the first instance or after some form of hearing or investigation.

We said in our reports to Congress for 1902 and 1903 and now repeat that in view of the rapid disappearance of railway competition and the maintenance of rates established by combination, attended as they are by substantial advances in the charges on many articles of household necessity, the Commission regards this matter as increasingly grave, and desires to emphasize its conviction that the safeguards required for the protection of the public will not be provided until the regulating statute is thoroughly revised.

The complaints which come before the Commission and which are discussed under another heading show that the grievances alleged reach from matters of trivial consequence to those which involve very large sums during the course of a year's business, and that the effect is not always confined to the mere amount of a given reduction from a

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