184

Opinion of the Court.

There was a limit to what the traffic would bear. A five per cent. increase had been granted in 1914, Five Per Cent. Case, 31 I. C. C. 351; 32 I. C. C. 325; fifteen per cent. in 1917, Fifteen Per Cent. Case, 45 I. C. 303; twenty-five per cent. in 1918, General Order of Director General, No. 28. Moreover, it was not clear that the people would tolerate greatly increased rates (although no higher than necessary to produce the required revenues of weak lines) if thereby prosperous competitors earned an unreasonably large return upon the value of their properties. The existence of the varying needs of the several lines and of their widely varying earning power was fully realized. It was necessary to avoid unduly burdensome rate increases and yet secure revenues adequate to satisfy the needs of the weak carriers. To accomplish this two new devices were adopted: the group system of rate making and the division of joint rates in the public interest. Through the former, weak roads were to be helped by recapture from prosperous competitors of surplus revenues. Through the latter, the weak were to be helped by preventing needed revenue from passing to prosperous connections. Thus, by marshalling the revenues, partly through capital account, it was planned to distribute augmented earnings, largely in proportion to the carrier's needs. This, it was hoped, would enable the whole transportation system to be maintained, without raising unduly any rate on any line. The provision concerning divisions was, therefore, an integral part of the machinery for distributing the funds expected to be raised by the new rate-fixing sections. It was, indeed, indispensable.

Raising joint rates for the benefit of the weak carriers might be the only feasible method of obtaining currently the needed revenues. Local rates might already be so high that further increase would kill the local traffic. The through joint rates might be so low that they could be raised without proving burdensome. On the other

Opinion of the Court.

261 U.S.

hand the revenues of connecting carriers might be ample; so that any increase of their earnings from joint rates would be unjustifiable. Where the through traffic would, under those circumstances, bear an increase of the joint rates, it might be proper to raise them, and give to the weak line the whole of the resulting increase in revenue. That, to some extent, may have been the situation in New England, when, in 1920, the Commission was confronted with the duty, under the new § 15a, of raising rates so as to yield a return of substantially 6 per cent. on the value of the property used in the transportation service. Ex parte 74, Increased Rates, 1920, 58 I. C. C. 220.

The deficiency in income of the New England lines in 1920 was so great that (even before the raise in wages ordered by the Railroad Labor Board) an increase in freight revenues of 47.40 per cent. was estimated to be necessary to secure to them a fair return. On a like estimate, the increased revenues required to give the same return to carriers in Trunk Line Territory was only 29.76 per cent. and to carriers in Central Freight Association Territory 24.31 per cent.10 To have raised the additional revenues needed by the New England lines wholly by raising the rates within New England-particularly when rates west of the Hudson were raised much less-might have killed New England traffic. Rates there had already been subjected (besides the three general increases mentioned above) to a special increase, applicable only to New England, of about ten per cent. in 1918. Proposed

'There is evidence that the rate per ton per mile received by the New Haven from freight local to its lines was four times as high as the rate per ton per mile, under existing divisions, on freight interchanged by it with carriers west of Hudson River.

10 What is known as Official Classification Territory comprises the three subdivisions, New England Freight Association Territory, Trunk Line Association Territory and Central Freight Association Territory. See map, Five Per Cent. Case, 31 I. C. C. 350.

Increases in New England, 49 I. C. C. 421. A further large increase in rates local to New England would, doubtless, have provoked more serious competition from auto trucks and water carriers. For hauls are short and the ocean is near. Instead of erecting New England into a separate rate group, the Commission placed it, with the other two subdivisions of Official Classification Territory, into the Eastern Group; and ordered that freight rates in that group be raised 40 per cent. At that rate level the revenues of the carriers in Trunk Line and Central Freight Association territories would, it was asserted, exceed by 1.48 per cent. what they would have received if they had been a separate group. It was estimated that the excess would be about $25,000,000. Substantially that amount (besides the additional revenue to be raised otherwise) was said to be necessary to meet the needs of the New England lines.

Plaintiffs insist that Transportation Act, 1920, did not, by its amendment of § 15(6) change, or add to, the factors to be considered by the Commission in passing upon divisions; that it had, theretofore, been the Commission's practice to consider all the factors enumerated in § 15(6); 12 that this enumeration merely put into statutory form the interpretation theretofore adopted; that the only new feature was the grant of authority to enter upon the enquiry into divisions on the Commission's initiative; that this authority was conferred in order to

"Estimated on the volume of traffic moving in 1919.

12

Citing Star Grain and Lumber Co. v. Atchison, Topeka & Santa Fe Ry. Co., 14 I. C. C. 364, 370; Manufacturers Ry. Co. v. St. Louis, Iron Mountain & Southern Ry. Co., 21 I. C. C. 304, 313; Investigation of Alleged Unreasonable Rates on Meats, 23 I. C. C. 656, 661; Class Rates from Chestnut Ridge Railway Stations, 41 I. C. C. 62; Western Pacific R. R. Co. v. Southern Pacific Co., 55 I. C. C. 71, 84. See Low Moor Iron Co. v. Chesapeake & Ohio Ry. Co., 42 I. C. C. 221.

Opinion of the Court.

14

261 U.S.

protect the short lines, which, because of their weakness, might refrain from making complaint, for fear of giving offence; 18 and that the power conferred upon the Commission is coextensive only with the duty imposed on the carriers by 400 of Transportation Act, 1920, which declares that they shall establish "in case of joint rates just, reasonable, and equitable divisions thereof as between the carriers subject to this Act participating therein which shall not unduly prefer or prejudice any of such participating carriers." It is true that § 12 of the Act of June 18, 1910, c. 309, 36 Stat. 539, 551, 552, which first conferred upon the Commission authority to establish or adjust divisions, did not, in terms, confer upon the Commission power to act on its own initiative. The language of the act seemed to indicate that the authority was to be exercised only when the parties failed to agree among themselves, and only in supplement to some order fixing the rates.15 The extent of the Commission's power was a subject of doubt; and Transportation Act, 1920, undertook by § 15(6) to remove doubts which had arisen. But Congress had, also, the broader purpose explained above. This is indicated, among other things, by expressions used in dealing with joint rates. By new § 15(6), p. 486, the Commission is directed to give due consideration, in determining divisions, to "the importance to the public of the transportation services of

13

Citing H. R. No. 456, pp. 9, 10, 66th Cong., 1st sess.; Conference Report No. 650, 66th Cong., 2d sess.; Mr. Esch, 59 Cong. Rec., part 4, p. 3268; Senator Robinson, 59 Cong. Rec., part 4, p. 3331.

14

Power to establish through routes and joint rates had been conferred by § 4 of the Hepburn Act, June 29, 1906, c. 3591, 34 Stat. 584, 590.

15

Compare Morgantown & Kingwood Divisions, 49 I. C. C. 540. The section was involved in Tap Line Cases, 234 U. S. 1, 28; O'Keefe v. United States, 240 U. S. 294, 300; Manufacturers Ry. Co. v. United States, 246 U. S. 457, 480, 483; Louisiana & Pine Bluff Ry. Co. v. United States, 257 U. S. 114, 118.

such carriers; " 16 just as by new § 15(3), page 485, the Commission is authorized upon its own initiative when "desirable in the public interest" to establish joint rates and "the divisions of such rates".

Second. It is contended that if the act be construed as authorizing such apportionment of a joint rate on the basis of the greater needs of particular carriers, it is unconstitutional. There is no claim that the apportionment results in confiscatory rates, nor is there in this record any basis for such a contention. The argument is that the division of a joint rate is essentially a partition of property; that the rate must be divided on the basis of the services rendered by the several carriers; that there is no difference between taking part of one's just share of a joint rate and taking from a carrier part of the cash in its treasury; and, thus, that apportionment according to needs is a taking of property without due process. But the argument begs the question. What is its just share?-It is the amount properly apportioned out of the joint rate. That amount is to be determined, not by an agreement of the parties or by mileage. It is to be fixed by the Commission; fixed at what that board finds to be just, reasonable and equitable. Cost of the service is one of the elements in rate making. It may be just to give the prosperous carrier a smaller proportion of the increased rate than of the original rate. Whether the rate is reasonable may depend largely upon the disposition which is to be made of the revenues derived therefrom.

16

** In thus making clear that in fixing divisions as well as rates the public interest should be considered, Congress doubtless had in mind expression to the contrary in opinions of the Commission. See Germain Co. v. New Orleans & Northeastern R. R. Co., 17 I. C. C. 22, 24; Board of Trade of Chicago v. Atlantic City R. R. Co., 20 I. C. C. 504, 508; In re Divisions of Joint Rates on Coal, 22 I. C. C. 51, 53; Morgantown & Kingwood Divisions, 49 I. C. C. 540, 550.