Part 11

The railroads make low rates on fertilizer to encourage its use by the farmers, it being, of course, to the interest of a railroad to encourage the production of larger crops that its traffic may be augmented. Fertilizer of different grades brings from $18 and $20 to $55 and $60 a ton. Typical rail rates from the places of manufacture are from Jersey City to Trenton, New Jersey, $1.10 per ton, and from Boston to Portland $1.20 per ton--both rates applying in carload lots. In the South, where fertilizer is extensively utilized, representative rates are from Atlanta to Thomasville $2.50, from Charleston to Columbia $2.00 per ton.

When allowance is made for the elimination of water from pulp and the shrinkage in its manufacture into paper, the average freight rate borne by the material entering into paper at the northern New England mill is about 13½ cents per 100 pounds. The manufacturers consider 17 cents per 100 pounds to be the average freight rate on the paper from the mill to places north of the Ohio and east of the Mississippi Rivers. The aggregate freight charge borne on the average by the 100 pounds of paper which sells at the factory for $2.50 is therefore 30 cents.

As with all things else, the rates on the ores of the far western region have been adjusted under the necessity of the transportation agencies to so serve the mines that their products may be marketed. The rate upon the ore from the mine to the smelter, upon the metal from the smelter to the refinery, and upon the refined lead or refined copper from Chicago to the seaboard market, are all determined by this prime factor. The freight charges, for example, from the Coeur d'Alene district in northern Idaho on the ores from which the extraneous material has been roughly separated, to the Puget Sound refineries, reach a maximum of $6 per ton for a distance of four or five hundred miles, and the rate from Puget Sound to New York is $14.50, the average transportation charge, therefore, being about $20 per ton. The value of a ton of copper at 12 cents a pound is $240, and a ton of lead at four cents a pound is $80. Copper passes through manifold and expensive processes and its extensive consumption has followed the development of electricity. Lead does not require so many or so expensive workings, and it has long been a great staple of general use. The mine farther from a smelter naturally has to pay a higher rate of freight than a mine nearer to it, receiving, therefore, a lesser net price for its product, _but the railroads are obliged to so adjust rates that practically every mine can reach a market_.

The rate on refined petroleum between New York and Chicago is 27½ cents per 100 pounds, the average rate paid north of the Ohio and east of the Mississippi Rivers being from eight to ten cents per 100 pounds. From Toledo to Atlanta the rate is 48 cents, from Whiting 46½ cents, from New Orleans 35 cents. The rate from Chicago to the Missouri River is 22 cents, to St. Louis 10 cents; while the rate from the Kansas field to St. Louis is 17 cents. One hundred pounds of refined oil contain approximately sixteen gallons which, at an average price of 12½ cents a gallon at the refinery, would aggregate $2. The price per gallon to the consumer is increased one cent with each increment of seven cents in the freight charge.

The principal biscuit company receives from $8 to $16 per 100 pounds for its crackers and cakes, averaging $10 per 100 pounds for its leading brand. From its New York plant to Boston the freight rates are 19 cents per 100 pounds, to Atlanta 62 cents. The rate from Chicago to Montgomery is 69 cents, to Houston 81 cents, to Denver 97 cents. From either New York or Chicago to the Pacific Coast the rate is $1.60. These rates apply to carload lots, all goods being sold delivered, the company absorbing the freight. The retail price is the same all over the United States as it is with shoes, cigars, soap, proprietary medicines and dozens of other familiar articles.

On cotton, the great staple product of the South, the freight rate structure has been in process of development even a longer time than that affecting the movement of grain from the West. From the plantation into Memphis, the largest inland cotton center of the United States, a typical rate is 30 cents per 100 pounds for one hundred and fifty miles. From Memphis to Boston the rate is 57½ cents, and from Memphis to the Gulf 30 cents per 100 pounds. From Augusta, Ga., a central market of the Eastern cotton growing district, the rate to Charleston and Savannah is 21 cents, to Brunswick 23 cents and to Norfolk 26 cents per 100 pounds. A bale of cotton contains five hundred pounds and is therefore worth, at 11 cents a pound, $55. The aggregate transportation charge on this bale from the plantation, one hundred and fifty miles from Memphis, to Boston, is $4.27.

Mainly because of the rapid shifting of the sources of supply, there has not yet been developed a stable structure of rates for the movement of lumber in all parts of the United States. By way of illustration, however, it may be said that a fair average rate on lumber into Memphis from the forests of Arkansas is six cents per 100 pounds, or $2.40 per 1,000 feet. Lumber going from Memphis to New Orleans for export will pay $4.80, or a total transportation charge from the forest of $7.20 per 1,000 feet. A fair average rate to the markets in Ohio and Indiana is $8 per 1,000 feet, a total transportation charge from the forest of $10.40. This is on the kind of lumber that in 1905 and 1906 sold at about $40. The rate on yellow pine from New Orleans to Chicago is 24 cents per 100 pounds.

There is an equalization of rates on the iron ore from the upper lakes in that the rates of the boat lines from the ore mines are the same to each of the Lake Erie ports. From thence to the furnaces they are adjusted under the policy of the railroads to make the transportation charge on the raw material required to make a ton of pig iron approximate the same amount at each of the competing furnaces of southern Ohio, Pittsburg, Wheeling, in the Mahoning and Shenango Valleys, and even as far as the Schuylkill Valley. How closely this equalization is effected is shown by the fact that the transportation charge on the ore, coke and limestone required to produce one ton of pig-iron is as follows in these respective districts: At the furnaces on the Monongahela River in the Pittsburg district, $5.82; at the furnaces of the Mahoning and Shenango Valleys, $5.57; at the furnaces of the Wheeling district, $5.78. These charges compare favorably with those at the furnaces on the Lake Shore in the Chicago district, which aggregate $5.63 per ton of pig-iron, but are higher than at the furnaces on the Lake Shore in the Cleveland district, where they aggregate but $4.72. The rates on coal, which gives return loads to the cars that take the ore south front the Lake Erie ports, are maintained at established differences between the coal fields of Ohio, Pittsburg and West Virginia. The rates in effect in the spring of 1908 were $1 per ton from southern Ohio, 90 cents from southeastern Ohio, $1 per ton from the Pittsburg field and $1.15 a ton from West Virginia.

The claim of the railroads that the rates on foodstuffs are not high enough to enter as a factor in fixing the selling price is fully substantiated by the statements of the dealers in such products. That is, the conditions are, with negligible exceptions, such that if the price obtainable in the markets be sufficient to encourage the growing of livestock, grains, dairy products, fruits or vegetables, the rate of freight, from whatever locality to whatever market, is sufficiently low to allow the producer to enter that market. His profits are, however, as a matter of course, diminished by the amount of freight which he pays, and, as a rule, the farther the place of production from the markets the greater is the freight charge. The differences in the net return to the producer are almost invariably reflected in the value of the land, which is lower as the distance from the markets is greater. Largely because of the defective system of mercantile distribution the grower of foodstuffs obtains a smaller proportion of the price paid by the consumer than accrues to the grower of any other agricultural product. Where, as in this country, the opportunity for the extension of cultivation is practically unlimited, a good market one season leads the farmers of any district to increase their production up to the point of minimum profit and the railroads are then besought for lower rates; when unfavorable weather or other conditions reduce their output they are also disgruntled. It therefore rarely happens that the grower, especially of the quickly perishable foodstuffs, is entirely satisfied with the freight rates.

A controversy, that it is scarcely an exaggeration to designate as typical, occurred several years ago between the growers of watermelons in a Southwestern State and the railroads conveying the melons to the primary markets. In comparatively a few years that region had become so productive that the shipments of watermelons over one road alone ranged from 1,400 to 1,800 cars during a watermelon season, deliveries being made all over Ohio and Indiana through dealers from those States who came down and bought the melons at the farms. The contention for lower rates had waxed so warm that a reduction in the watermelon rate became the issue upon which a legislative campaign was fought. The candidate pledged to secure a reduction in the rate was elected, and introduced a bill, which was enacted by the legislature, making the rate to the nearest primary market 7½ cents per 100 pounds. The railroad companies put this rate in effect and used it as a basis for the lowering of rates to the territory beyond. During the year of this rate reduction the traffic department of the railroad company referred to sent word to the farmers that the company had handled 1,500 cars of melons that season, the prompt shipment of which had been highly satisfactory to the growers. It furthermore said that the movement of these melons from that territory was a one-way traffic entirely, it being necessary to send special cars empty for the crop. These were necessarily stock cars that there might be ample ventilation, but they had to be supplied with extra slats in order that the melons might not fall out. It was necessary for them to be switched in requisite number on side tracks especially built adjoining the farms where the fruit was grown; that switching engines be kept at work, putting cars in and taking cars out all night and all day. The cars of melons, moreover, had to be hauled on special trains at a high rate of speed to get them to the markets before they spoiled. This reduced the tonnage per train fifteen or twenty per cent below the maximum that could be hauled at the normal freight train speed. A car with the average allowable load of 1,100 watermelons would contain but about twelve tons, although its capacity would be eighteen or twenty tons; the weight of the car exceeded the weight of the load. The switching and other special movements necessitated the employment of night telegraph operators and other extra help at the melon fields.

All of these conditions led the assistant to the general manager of the company to make an analysis of the expenditure as compared with the earnings. Waybills were abstracted and the receipts listed. A tabulation was made of the revenue tonnage, the gross tonnage, the tare weight, and the expenses incurred in behalf of the traffic. He found that the handling of the 1,500 cars of watermelons involved a loss to the company of $12,000 if the expenses of operation alone were considered.

The results of this investigation were brought to the attention of the traffic department and the next spring it sent a circular to the farmers in the truck region urging that the watermelon acreage be reduced, as the rates on that business were not remunerative, and stating that the railroad would not undertake to handle it except in the regular cars that were brought into the territory in the ordinary course of traffic; that there would be no special trains, nor special service of any character. The melon growers at once notified the State Railroad Commission, which, in turn, requested the railroad company and the melon growers to attend a meeting to discuss the whole subject. When the meeting convened the chairman called upon the railroads to say why they had caused so much trouble. The railroad representative, who was the aforesaid assistant to the general manager, stated that as he had been invited to attend the meeting it might be proper for whomsoever instigated it to open the discussion. Several shippers made statements of their complaints, all admitting, however, that the melon business had become very profitable,--one grower saying that $300 to $500 per car was being made out of a crop. The railroad representative then made a reply, showing the loss to the company from handling the business for the previous year, and stated that unless cost for the handling and something by way of profit could be obtained, the company would prefer to move other crops. He showed that it had been necessary to park 350 to 400 especially prepared stock cars in the melon territory; that it had taken a month or six weeks to gather these cars, which had to be hauled empty to the melon fields. He then pointed out that the rate per melon was less than a cent and a quarter, whereas it had cost the farmer four or five cents per melon to bring it by wagon the one or two or three miles to the railroad track. The chairman objected to some of the analyses, especially to the contrast of four or five cents per melon for the wagon haul from the farm with the cent or a cent and a half per melon for the railroad haul of two hundred miles. When the railroad man had finished, farmers from all over the room began to ask questions directly of him. They wanted to know how much they should pay to afford the railroad some slight profit. They were told 12 or 12½, cents. The chairman said: "The rate cannot be changed. It has been fixed by law at 7½ cents and that is the rate. I am here to protect the people of these counties." The railroad man suggested that his company might be willing in addition to affix the necessary slats to the stock cars and perform the switching for $5 to $6 per car. The farmers were willing to accept this, but the chairman insisted that it was contrary to law, and finally said in his wrath, "If you men here are going to deal with the railroad company you can do it without me. This meeting is adjourned."

With one exception the farmers remained in the hall and expressed a willingness to pay a rate of 12 cents per 100 pounds.

Returning to the main discussion, we have found that the rates on raw materials are so adjusted as to permit the manufacture of any staple article at any logical place of manufacture. On the raw material of wearing apparel the freight rate is entirely unimportant. On the lumber that enters into building material, on the ore, coke, and limestone used in the manufacture of iron and steel the freight rate is sufficient to become an appreciable factor in the cost of manufacture. On brick, coal and cement the selling price is the higher by the amount of the freight charge, which for distances sometimes not considerable exceeds the value of the commodity at the place of production. The freight charge, even on those heavier commodities, however, is far less in proportion to the wage of the day laborer as well as to the incomes and salaries received in the United States than in any other country. This is obviously a better test of comparison than that based upon rates of freight as expressed in money. To say that a specific rate is twenty cents in the United States, a shilling in Great Britain, a franc in France, or a mark in Germany, conveys an inadequate idea. When it is ascertained that the average wage of the day laborer in the United States is higher in comparison with the average rate of transportation than in any other country, the comparison is significant. In this country a continually increasing amount of railroad transportation can be purchased with the wage of the day laborer. With the sum of money representing the value of a given unit of any of the staple commodities of commerce, also can a continually increasing amount of railroad transportation be purchased.

That which makes possible the low freight rate of the American railroads is the magnitude of the scale upon which the transportation is conducted. The large cars, with a capacity of from thirty to fifty tons, and the powerful locomotives that draw a score or more of these loaded cars in one train, permit an almost infinitesimal freight charge per pound or per yard that, however, yields by the carload or by the trainload no inconsiderable revenue. For example, the average weight of the carload of food products is about 30,000 pounds. If the freight on such a carload be $300 the rate per pound would be only one cent, and there is scarcely a commodity upon which a freight rate of one cent per pound makes any difference in the retail price. As a matter of fact a carload of food products does not bring to the railroad so much revenue as $300 unless it has been moved from a far region; for instance, from the Dakotas or Texas to New York. Specific complaint in regard to the freight rates of the United States for many years has not, except in a small minority of cases, been based on the ground that they have prevented foodstuffs from finding a market, raw material from reaching places of manufacture, or finished products from distribution. While the difference of a cent or two in the rate of freight may not in the least interfere with the conduct of industry or commerce in the aggregate, such a slight difference, may perhaps determine whether a manufacturer obtain his raw material from this or that source of supply, whether a wholesale dealer obtain his stock from the manufacturer in one, or the manufacturer in another city, whether a retail dealer make his purchases from the wholesale dealer in this city or in that city. That is, for example, the prices of the products at the sources of supply being equal, a difference in the rate of freight may determine whether Cleveland, Ohio, obtain potatoes from Michigan or from upper New York; whether a factory in Louisville obtain coal from the fields of southern Indiana or central Kentucky. A carpenter in Des Moines may perhaps pay a dollar for twenty pounds of nails without knowing or caring what the freight rate may have been, or where they may have come from. A difference, however, of a few cents a hundred pounds in the rate of freight may have led the hardware dealer to have purchased the nails in Chicago or St. Louis or even directly from Pittsburg.

As the purchase of raw material tends toward the prosperity of the region where it is produced, as the operation of a factory tends to the increase of population, to appreciation in the value of real estate and the augmentation of business at the place of its location, so also does the growth of a wholesale business or of a retail business aid in the development of its surroundings. Producers, manufacturers, wholesalers and retailers naturally all desire to extend their sales, to reach further markets in competition with their rivals, and are supported in this desire by the communities to whose welfare they contribute. Any difference in freight rates that gives a producer of raw material, a manufacturer, a wholesale distributer, or a retail merchant an advantage over a competitor of another locality is therefore promptly made the subject of complaint.

The pressure brought upon the railroads by such competing producers, manufacturers and dealers has been a very important factor in the development of certain arrangements of freight rates, which we shall term the Regional Rate Structures, each of which has grown out of the various characteristics of a traffic region and has become adapted to those characteristics.

Other arrangements of freight rates which have grown out of the needs entailed by the production and marketing of certain of the principal articles entering into commerce we shall designate as the Commodity Rate Structures.

(End of Chapter VI.)

THE FREIGHT RATE PRIMER

Adapted from the Illustrated Pamphlet, So Entitled.

Issued by the New York Central and Hudson River Railroad Company.

THE A. B. C. OF THE MATTER.

"There has been much wild talk as to the extent of the over-capitalization of our railroads. The census reports on the commercial value of the railroads of the country, together with the reports made to the Interstate Commerce Commission by the railroads on their cost of construction, tend to show that, as a whole, the railroad property of the country is worth as much as the securities representing it, and that, in the consensus of opinion of investors, the total value of stock and bonds is greater than their total face value, notwithstanding the 'water' that has been injected in particular places. The huge value of terminals, the immense expenditures in recent years in double-tracking and improving grades, roadbeds and structures, have brought the total investments to a point where the opinion that the real value is greater than the face value is probably true."

(From President Roosevelt's Decoration-Day address at Indianapolis, May 30, 1907.)

THE X. Y. Z. OF THE SITUATION.

"An army of more than 1,500,000 men is employed directly in the operation and maintenance of the railroads in the United States, and millions of other men are furnished employment indirectly in the mines, the forests and the factories, supplying the railroads with approximately one and one-quarter billions of dollars' worth of material and equipment annually consumed.

"These are wonderfully interesting and impressive facts; but the fact of greater interest and worthy of the most careful thought of every citizen of this country is that this vast army of men engaged in producing the commodity of transportation at an average cost more than _40 per cent lower_ than is shown by any other country is paid an average wage more than _50 per cent higher_ than is paid in any other country where railroads exist."

(W. C. Brown, before the Michigan Manufacturers' Association, June 22, 1908.)

LESSON I.

FREIGHT RATES AND THE CLOTHES WE WEAR.

Whom have we here?

Eleven different types of American citizens, standing in a row, clad in the varied uniforms or togs of their several occupations or leisure from hod-carrier to the dude in dress suit and opera hat.

These men all live in the Mississippi Valley.

Their clothes were made in New England.

They paid the railroads _nine cents_ apiece for transporting their clothes, including shoes and hats, from the point of manufacture to the Mississippi Valley.

The combined freight charges on _all_ the clothes worn by the eleven men in the group, including shoes and hats, was _less than one dollar_.

If freight rates were advanced 10 per cent the increased price to these men on their entire wearing apparel would be _less than one cent each_.

If they have to pay more than that per cent it will not be because freight rates are advanced.

LESSON II.

FREIGHT RATES AND AGRICULTURAL IMPLEMENTS.

Consider the McCormick harvester. It mows, gathers, binds and stacks the bearded grain, while its proud possessor cracks his whip above the backs of his three-horse team. It has banished the nightmare of farm mortgages from the great prairies of the West.

This particular harvester we are considering is cutting grain one hundred miles west of the Mississippi River. It was built in Chicago and sold for $130.