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178. Discriminations between Commodities"

BY ALBERT N. MERRITT

Many instances of sudden and arbitrary changes in the differentials upon competing classes of commodities might be given, and frequently the public has suffered severe loss in property values as the result of such actions. Take the case of the recent advance in the rate on corn-meal from Kansas points to Texas. For ten years the rate on corn-meal had been three cents higher than the rate on corn. On the basis of this differential the Kansas millers had found themselves able to compete with the Texas millers, and a large portion of the corn-meal used in Texas was ground in Kansas. In January, 1905, at the instigation of the millers of Texas, the Railroad Commission of that state announced a hearing for the purpose of determining whether intrastate grain rates should be reduced. In order to prevent this, the railroads went to the millers and made a bargain with them. If the millers would agree to drop their complaint before the Texas Commission, the railroads, on their part, would advance the rate on corn-meal so as to exclude the Kansas millers from the Texas market. The bargain was carried out to the letter. The millers failed to appear before the Commission upon the date set for the hearing, and the grain rates within the state were not reduced, while on the 19th of February, the railroads fulfilled their part of the contract by advancing the rate on corn-meal by an average of 52 cents per 100 lbs., without any corresponding increase in the rate on corn. The result was that the Kansas millers were practically prohibited from shipping any corn-meal into the State of Texas. Thus the principal market of a very important industry of Kansas was swept away by the stroke of a pen. Not only will the Kansas millers lose, but the Texas consumers will lose also. Texas is unsuited for carrying on the milling industry. Mills were introduced into Texas more than twenty years ago. Yet the Kansas mills, handicapped as they were by a differential of three cents per 100 lbs., found themselves able to compete with the millers of Texas in supplying that market. The Texas millers have now secured the monopoly which they desired, and the Texas consumers will pay for it in the price of meal.

On one occasion the railroads threatened to destroy the whole export flour industry of the Northwest. The rates on wheat and flour had been the same for many years. Suddenly the roads advanced the rate on flour till they exceeded those on wheat by from

Adapted from Federal Regulation of Railroad Rates, 34-36. Copyright by Hart, Schaffner & Marx (1907).

four to eleven cents per 100 lbs. The result was that the exports of flour instantly fell off as compared with those of wheat. As long as these rates prevailed, the Western millers were entirely excluded from any share in the export flour trade. Not only did the milling industry of that section suffer, but also the resources of the country were weakened. Experts have declared that a most important factor in maintaining the fertility of the soil is the consumption of the by-products of the grain near the point of production. But if the wheat is exported instead of being ground in the Northwest, such products as the bran and the shorts are consumed in Europe instead of in this country, as they would be if the wheat were ground at home.

Other cases of unjust discrimination between competing classes of commodities have been of frequent occurrence. Thus two kinds of soap, though substantially similar in price, bulk, and value, were carried at different rates. In another case, common soap was carried at 33 cents per 100 lbs., while 73 cents was charged for Pearline, a competitor of soap.

179. Discriminations in the Transportation of Oil

Discriminations in the transportation of oil embrace a variety of forms, the most important of which are enumerated below.

I. The most important form of discrimination is the use of secret or semisecret rates. The Standard Oil Company has repeatedly asserted that since the passage of the Interstate Commerce Act in 1887 it has received no rebate. The investigations of the Bureau have discovered no rebates in this technical sense. But discriminations fully as effective have been made in behalf of the Standard by means of secret rates concealed through other methods. The secret rates enjoyed by the Standard have almost all been made from points where the company is the only shipper. In such a case, however, it is just as discriminatory and just as injurious to the interests of competitors as if they were charged higher rates for the same hauls. The secrecy leaves the independent refiner in the dark as to the most important factor affecting competition in common markets. To consummate the unfairness it is obviously not necessary that the independent should actually ship at the higher rate while the Standard ships at the lower. The evil is accomplished even more effectively if the existence of the lower rate allows the Standard to get to a common market while the rate quoted to the independent is so high that he is absolutely prevented from shipping

"Adapted from Report of the Commissioner of Corporations on the Transportation of Petroleum, 1–31 (1906),

there. The secret rates already discovered by the Bureau represent a direct saving to the Standard of many hundreds of thousands of dollars annually. As a result the Standard has been able to sell oil, where necessary to meet competition, at prices which were profitable to itself, but which left no profit to a competitor. Having thus destroyed competition in large sections of the country, the Standard there charges prices several cents above the cost of manufacture. Thus the Standard has been able to obtain monopoly profits of large

amount.

Another device has been the use of secret state rates in combination with interstate rates, more or less open in character, to give a total rate much less than the through published rate from the initial point of shipment to the final destination. There are other cases in which interstate shipments of oil have been made on a single through rate which has not been published or filed. There is a further important class of cases where rates, technically filed in compliance with law, are not made effectively public, and cannot be ascertained by shippers with the exercise of reasonable diligence. There are two sources of information for the ordinary shipper: inquiry at the offices of the railroad company, and the files of the Interstate Commerce Commission. The local freight agent cannot be expected to have knowledge of all possible combinations of rates; or it may be the wilful intent of the railroad company to withhold information. The mass of tariffs filed by the railways with the Interstate Commerce Commission presents a problem so great as to be necessarily insoluble by the ordinary shipper. The matter is complicated by deliberate action on the part of the railroads. Tariffs are made to read from unexpected and improbable points, naming rates which conflict with those conspicuously named from the neighboring points as to which inquiry would ordinarily be made. In other cases unexpected and improbable combinations of local rates are made which are lower than the conspicuously published through rates from the point of origin to the point of destination. Circuitous and unusual routes are selected in some cases in order to make up these combinations. The concealment is made the more effective by the frequent republication of the higher rates by the expected routes, and the use of lower rates by improbable routes.

For the purpose of more effectively concealing the secret rates. given the Standard, railroads have frequently used peculiar methods of billing and accounting. In some cases oil has been "blind. billed," that is to say, the way-bills have been made out showing the kind of product transported and its weight, but without showing, as is the usual custom, any freight rate or the amount of freight

charges. In such instances, the collection of freight is ordinarily made, not by the local agent, but through the central office, by the presentation to the Standard of a summary bill showing the amount of freight charges at the secret rate. In other instances the oil is handled in the same manner as other shipments are ordinarily handled, the secret rate being used directly, instead of the published rate, in the way-bills and records of the railroads, and the collection of charges being made in the ordinary manner through the local freight agent. Of course there is danger in this case that the rate will leak out.

II. Secret discriminations are hardly more important than open discriminations in rates. Almost everywhere the rates from the shipping points used exclusively by the Standard are relatively lower than the rates from the shipping points of its competitors. Rates have been made low to let the Standard into markets, or they have been made high to keep their competitors out of markets. Trifling differences in distances have been made an excuse for large differences in rates favorable to the Standard, while large differences in distances are ignored where they are against the Standard. Sometimes connecting roads make through rates on oil which are lower than the combination of lower local rates; sometimes they refuse to do so; but in either case their policy favors the Standard.

III. There are in many parts of the country important discriminations with respect to the classification of petroleum and the rules under which it is transported. In many cases there are unreasonable differences between the rates on oil in carloads and less than carloads. There are also unreasonable rules with respect to charges on oil in different kinds of containers; and with respect to shipments of mixed carloads of different kinds of oil, rules which have been applied against independent refiners, but sometimes not against the Standard.

An important instance of discrimination in classification is found. with respect to the arbitrary rates fixed by the railroads in computing freight charges on the shipments of Kansas crude oil and the products derived therefrom. The eastern railroads have for years fixed the arbitrary weight on crude oil and all of its products alike at 6.4 pounds per gallon as a basis of freight charges. In 1902 the railroads in the West raised the arbitrary weight on Kansas crude oil to 7.4 pounds, while continuing to carry all products of the refinery at 6.4 pounds. Fuel oil, which is the residuum of the refining process, the railroads have carried on the basis of 6.4 pounds, although it actually weighs 7.6 pounds. This discrimination has tended seriously to injure the Kansas crude-oil producer.

IV. Still another discrimination is practiced in the treatment of private tank cars. Throughout the country the Union Tank Line Company, a Standard concern, obtains three-fourths cent per car per mile as rental on its cylinder tank cars, whether loaded or empty. Owing to the relatively slow movement of tank cars, this allowance does not appear to result in an excessive profit. In most sections of the country all refiners operating tank cars receive equal treatment. On the Pacific Coast, however, most independent refiners receive only six-tenths cent per mile, and this on the loaded movement only.

180. Recent Forms of Railway Discrimination'

BY WILLIAM Z. RIPLEY

With the passage of time, and especially since 1896, new and even more elaborate schemes for rebating have come to light. One of the most ingenious, which was discovered about 1904 to be very widespread, was the use of terminal or spur track railway companies. In Hutchinson, Kansas, for example, were salt works haying a capacity of some 6,000 barrels a day. Two railways were available for shipments. A new company was incorporated, all its stock being held by the salt works owners, which constructed sidings to both railroad lines. The spur track was less than a mile long and cost only about $8,000 to build. But the company was chartered as the Hutchinson & Arkansas River Railroad. Its officers were the owners of the salt mills. It owned neither engines nor cars. Yet it entered into a traffic agreement with the Atchison road for a division of the through rate to many important points, its share being about twenty-five per cent.

Obviously, rebates assuming the above-described form are open only to very large shippers, to whom it is worth while to incur the considerable expense. The International Harvester Company at Chicago had for years performed much of its own terminal service; and until 1904 was allowed as high as $3.50 per car for switching charges by connecting railroads. It then incorporated the Illinois Northern Railroad, which was promptly conceded twenty per cent of all through rates, with the Missouri river rate as a maximum. On this traffic it would be allowed as high as $12 per car, instead of $3.50 as before.

"Adapted from Railroads, Rates and Regulation, 195–209. Copyright by Longmans, Green & Co. (1912).

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