Part 30

8. On the face of this amendment, it seems only to give to the commission the authority to prevent an increase in rates, but the practical result of such a law would be far more reaching. Such a law would mean a rigid freight tariff in place of the present flexible and elastic system of rates which exists alone in this country. Stability of freight rates is important, but not to the extent that the carrier shall not feel warranted in promptly applying remedies for the relief or assistance of shippers who find themselves no longer able to compete, due to advantages which other shippers have secured, or changes which have occurred in the conditions surrounding the marketing of their products.

A law which tends to minimize the commercial or competitive conditions existing at the present time will necessarily result to the disadvantage of shippers, to the carrier, and to the communities they serve. It is not necessary here to again refer to the presentation of the importance of the flexibility of rates, which is so clearly shown in the discussion of the influences which control in making reductions, as well as advances of rates by the chairman of the Southwestern Traffic Committee, as quoted under section 5 of this report. The more the committee has reflected upon the probable tendency of the principle announced by this amendment, if incorporated into the law, the more definite has become its conviction that it would ultimately result in destroying that important factor in American railroad management, "the flexibility of their tariffs--their adaptability to the changing commercial and economic conditions."

One of the most distinguished and skilled traffic officials in the country, Mr. Henry Fink, in considering this amendment uses the following language:

"Railroad officials are constantly engaged in the work of adjusting rates so as to meet as far as practicable the requirement of their patrons. In times of depression of business they make reduction in rates in order to enable shippers to send their commodities to certain markets, and keep industrial establishments from being closed. These reduced rates are often so low as to barely cover the cost of transportation. But they are meant to be temporary in their operation, and to be advanced when business conditions have become more favorable.

"It must be obvious that when the restoration of such rates is obstructed, so that railroad officials are not permitted to advance rates except by permission of a government bureau after an investigation which must consume considerable time, railroad officials will naturally hesitate, and often decline, to make reductions in rates which involve considerable loss of revenue without any compensating benefits to their companies, either in the present or future.

"It is easy to see the effect of this. Railroads would no longer be able to afford the desired assistance to shippers, however anxious they might be to do so. The rates would in a large measure lose their elasticity, and become rigid, and a condition similar to that existing in France would be created, where state controlled rates prevent railroads from building up the territory."

In considering this question, we must not forget that when we destroy elasticity and flexibility in our rates, we prevent reductions of rates, as well as the raising of rates. Its tendency is not only to prevent the reduction in particular instances that has resulted in great advantage to the shippers and the country in the past, but it prevents the lowering of the general average of rates. There have been comparatively few complaints, as to the unreasonableness of the rates of this country per se. The vast majority of complaints, against the reasonableness of rates, is the claim that they are relatively unreasonable. Under the American system of rate adjustment, with its freedom to meet commercial and economic conditions, the general average of rates per ton per mile has voluntarily been reduced by the carriers of the country from 1870; not so strikingly since 1896 as previously, but substantial reduction as follows:[J]

1896 802 1897 789 1898 753 1899 724 1900 729 1901 750 1902 757 1903 763 1904 780 1905 766 1906 748 1907 759

The leaders of railroad management and the ablest experts on railroad economics in foreign countries have approved in the most enthusiastic language, the wisdom which has preserved to the American railway system its freedom of management and its flexibility of rates, subject only to the limitations of reasonable rates, equality among shippers, and the avoiding of all devices that might result in discrimination among those who use these public means of transportation.

The view of M. Emile Heurteau, president of the Orleans Railroad, speaking of the American system of roads, said:

"We would be only too glad to adopt the American system of fixing the lowest rates proper, and making up the loss of profit on each shipment out of the increased volume of business they make the railways available to, which is the only economically and commercially right and sensible way of doing. We would be glad to build up our territory as the American railways do, by encouraging its industries, by opening its markets, by enabling it to compete with other territory contributing to the same markets.

"But we can not do that; the state-controlled rates prevent it, however strong our desire or the people's may be.

* * * * *

"Railroads under government supervision must set their rates close to the maxima then, and maintain them there, for their own salvation. There are many times when, if it were possible, we would like to lower freight charges to meet some special emergency, such as the necessities of a district suffering from a crop failure, for example.

"That is not philanthropy, but commercial sense, to help the man who creates business for you, when he is hard pressed, and to increase the volume of traffic that is falling because people have not the money to pay the price they have been accustomed to pay easily. But if we should once lower our rates--possibly to the point of loss, as American railways have done frequently in crises--we would not be allowed to restore them later, when they could be fairly restored.

* * * * *

"The wonderful growth and development of the United States is the admiration of the whole world. I have no doubt it is to be attributed largely to the freedom you have always enjoyed in your commercial and industrial life.

"Opportunity is given here for railways and communities to be mutually helpful, and splendid use has been made and is being made of it. The few cases of complaints against your railways, the expansion of trade through the opening of European markets to the producers of your Central and Western States, who are enabled to deliver their products abroad, the low cost of transportation that enables them to compete there with the foreign producer near at hand, whose railways are in no position to help him--all these things seem to me sufficient evidence of the success and desirability of the American practice in the management and regulation of railway matters.

"Any economist, any business man, any transportation manager will tell you that the present American method of fixing freight rates is the only logical and rational one."

In the investigation of railways by the Senate committee in 1905, Mr. W. M. Acworth, who is regarded as one of the leading experts in England on railroad transportation and railroad economics, was invited to appear before the committee, with the request to give a review of the historical facts bearing on the control and management of the railways of England. After complying with the request of the committee, certain questions were asked him that were of great importance at that time in the consideration of the questions then being investigated by the committee. One of these questions involved the effect of the provision of the new canal and traffic act of Parliament, which for the first time embodied the provision that "railway companies must make no increase except for good cause, if anybody objects," and which, as construed by the courts, prevented any increase of a rate where objection was made, until after hearing by the board of trade.

His examination will be found in the third volume of the hearings of that investigation, pages 1848, 1852, 1853 and 1854, and was as follows:

"Since it has been decided that no rate can be put up once it has been put down, without appeal to the law courts, the railway companies have practically arrived at the conclusion that they will not put them down because they do not know whether they will have an opportunity to put them up again.

"Senator CULLOM: Do you think it works to the advantage of the people that the railways will not put the rates down for fear they will not get a chance to put them up again?

"Mr. ACWORTH: Personally, I have no doubt it does not. It is fair to remember always that it may protect the weaker in commercial strife. It is rather hard on the weaker man to be crowded to the wall by a wholesale concern in any walk of life. But if it be true in ordinary business that, on the whole, the public gains by the wholesaling method, it is probably true in railway business also. I think that, so to speak, the heart has been taken out of the railway man. The railway men understand this business; they know how to manage it in their own way. The railway men think 'the responsibility has ceased to be ours; we must maintain the status quo,' and that is what they do.

"The CHAIRMAN: You think that dividing responsibility impairs the administrative power of the officials of the roads as well as the service they render to the public?

"Mr. ACWORTH: From the operating point of view, I do not think our railways have been sufficiently interfered with to prevent them developing the goodness of the service. But as to rate making, I have no doubt that the interference of Parliament, the courts, and the Executive has all tended to stereotype and keep rates at an unnecessarily high level.

"The CHAIRMAN: Would you say that, on the whole, the power to make rates generally and primarily should be left to the railroads and to the free play of the forces of the business world?

"Mr. ACWORTH: Speaking as an individual student, I have no doubt that that is the process that will arrive at the best results for the community, with this exception: That I fully think it is necessary that the community in some way should interfere to protect all customers from unfair treatment.

"The CHAIRMAN: You think that the power should reside somewhere to correct excessive and extortionate rates by summary and proper proceedings?

"Mr. ACWORTH: I am not sure that I should go so far as to say excessive rates regarded as excessive in themselves. I am myself inclined to think that excessive rates will correct themselves. The wise men will discover that it does not pay to charge excessive rates. But I think the law should interfere to prevent unfair rates to A as compared with the rates given to B. It seems to me that the State is bound to insist that the rates shall be public, and that practically will settle it, for if they are public they have got to be fair; I am inclined to think the law should confine itself to securing that, where there is a difference made as between A and B, the difference should be a difference for a commercial reason, and not for any reason of personal favoritism.

"Senator FORAKER: And I understand you to say that the effect of fixing maximum rates is to lessen the tendency to reduce rates, which railroads had practiced before this legislation was enacted?

"Mr. ACWORTH: I am not quite sure that the maxima have really had very much effect at all. It has been a tendency, but I do not think an important tendency. But the interpretation by the courts of the undue preference law, and the recent limitation that having once reduced you can not subsequently increase, have had that effect markedly, I believe.

"Senator FORAKER: So that the rates for the transportation of freight on railroads in England have not been declining, I take it from your statement, in recent years, but have remained practically stationary?

"Mr. ACWORTH: I do not know what the average rate is, because there are no statistics in England; but my own impression would be that it had probably not declined to an appreciable extent, whereas in an earlier period it certainly did decline pretty fast."

The effect of a similar law, passed in England, as shown by the testimony of Mr. Acworth, confirms the views of the committee which have been expressed in this report, that with such a provision embodied in the present interstate commerce law, there would be few reductions or advances in American rates. If it had the effect in England of destroying the flexibility of the rates of the carrier and interfered with the development of England's commerce, as well as her railroads, how much more serious would be the result in this country, that is in the process of rapid development, both as to its commerce and territory? It has been credibly stated that the Board of Trade of England is now seriously considering a recommendation for the repeal of that provision of the statute.

AN ANALYSIS OF THE COMMUNICATION TO THE COMMISSION--MANY OF ITS OBJECTIONS APPLY TO THE AMENDMENT OFFERED IN COMMITTEE.

9. When this bill was referred to your committee for its consideration the chairman addressed a letter to the Interstate Commerce Commission, inclosing the bill, and requested the opinion of the commission as to the wisdom of incorporating the amendment into the interstate commerce law.

The chairman replied in the following communication:

"INTERSTATE COMMERCE COMMISSION, "_Washington, January 29, 1908._

"HON. STEPHEN B. ELKINS, "_Chairman Committee on Interstate Commerce_, "_United States Senate, Washington, D. C._

"DEAR SIR: The Interstate Commerce Commission has the honor to submit the following in response to your communication of 24th instant, transmitting a bill (S. 423) to amend section 6 of the act to regulate commerce, introduced by Senator Fulton December 4, 1907, and requesting the commission to 'advise the committee before its next meeting, January 31, their opinion of said bill and what action they would suggest thereon.'

"Whilst the views of the entire commission can not be definitely ascertained within the time named, because of absences on official business, a majority of the commissioners and probably all of them would not be disposed to favor the enactment of this measure.

"To give to the protest of a single shipper the effect of preventing the advance of any rate until the reasonableness of that advance was affirmatively determined by the commission would establish a hard and fast rule of doubtful fairness to the railroads and questionable advantage to the public. Under existing conditions we are of the opinion that it would be unwise to adopt the arbitrary limitation which this bill proposes, whatever may be found desirable or necessary in this regard in the future.

"It is further to be observed that the passage of such a bill at this time would impose a burden upon the commission which it ought not to be asked to undertake. If every proposed advance had to be investigated by the commission and officially sanctioned before it could take effect, the number of cases to be considered would presumably be so great as to render their prompt disposition almost impossible. In instances of justifiable increase the necessary delay resulting from the probable volume of cases would work injustice to the carriers. Until conditions become more stable and the substantive provisions of the act are more completely observed in railway tariffs and practices we entertain the belief that a wider latitude of discretion on the part of carriers than this measure allows should be permitted.

"It is also suggested that the practical effect of the proposed amendment might be to prevent voluntary reductions of rates by the carriers. If no rate could be increased without the approval of the commission after affirmative showing by the carrier it might happen that many reductions now voluntarily accorded would not be made.

"This subject of rate advances was discussed in our recent annual report to the Congress, and that portion of the report is transmitted herewith for the information of your committee. It concludes with a recommendation relating to the matter in question in which the entire commission concurred, and that recommendation is now respectfully renewed.

"Very respectfully, "MARTIN A. KNAPP, _Chairman_."

It will be observed by an examination of this communication from the commission that it deemed it unwise to recommend the adoption of the amendment to the sixth section as offered in Senate bill 423, but the letter refers to its former report as expressive of its views upon this subject, which recommended a somewhat similar provision, but differing in this respect. In Senate bill 423 the filing of a protest would suspend the taking effect of the rate until after full hearing as to the merits of the advance. The recommendation of the commission in its former report, referred to in the communication, recommended the adoption of a provision that would confer upon the commission, upon the filing of a complaint, the discretion to suspend the rate until final hearing. The amendment to the bill before your committee offered during its consideration, and which has been fully discussed in this report, was in substance the recommendation of the commission.

An analysis of the letter of the chairman of the commission, stating the objections to the enactments of the proposed amendment into law, sustains many of the reasons which have been urged in this report against the approval of the principle announced by that amendment. The committee quotes from the letter, as follows:

"(a) To give to the protest of a single shipper the effect of preventing the advance of any rate until the reasonableness of that advance was affirmatively determined by the commission, would establish a hard and fast rule of doubtful fairness to the railroads and questionable advantage to the public.

"(b) Under existing conditions we are of the opinion that it would be unwise to adopt the arbitrary limitation which this bill proposes.

"(c) If every proposed advance had to be investigated by the commission and officially sanctioned before it could take effect the number of cases to be considered would presumably be so great as to render this prompt disposition almost impossible.

"(d) It is further to be observed that the passage of such a bill at this time would impose a burden upon the commission, which it should not be asked to undertake.

"(e) In instances of justifiable increase all necessary delay resulting from probable volume of cases would work injustice to the carriers.

"(f) Until conditions become more stable and the substantive operations of the act are more completely observed in railway tariffs and practices, we entertain the belief that a wider latitude of discretion on the part of carriers than this measure allows would be permitted.

"(g) It is also suggested that the practical effect of a proposed amendment might be to prevent voluntary reductions of rates by the carriers.

"(h) If no rate could be increased without the approval of the commission after affirmative showing by the carrier, it might happen that many reductions now voluntarily accorded would not be made."

The nine reasons suggested by the commission why the original amendment offered to section 6 should not be adopted, fully sustain the committee in reporting the bill adversely, and to a great extent, fully justify the views which it has expressed in this report as influencing the actions of the committee in its adverse report upon the amendment proposed in the committee.

The committee is unable to appreciate the force of the suggestion of the modification proposed to the original amendment, as in any way changing the principle embodied in it, or the practical results which would flow from its adoption. If the power was conferred upon the commission, when a rate was advanced, upon complaint to suspend the going into effect of that rate until a final hearing, every objection urged by the commission to the adoption of the bill, but the first two, would be applicable to the modification proposed by the commission to the original amendment.

Under the modification suggested by the commission the burden imposed upon it would be greater, if possible, than under the original amendment. Under the original amendment, by force of the statute, the filing of the protest would suspend the advanced rate, and the hearing upon the merits would take place after the thirty days had expired. Under the suggestion of the commission conferring upon it the discretionary authority upon complaint to determine whether the rate should go into effect at the time prescribed by law or be suspended, there is imposed an official quasi judicial duty upon the commission, which it should not perform except upon proof that probably the rate sought to be advanced would ultimately be determined to be unreasonable. Remembering the large number of changes of rates daily, and the fact that under the law the complaint could be filed at any time within the thirty days, would it not be an impossible undertaking for the commission to hope to perform this official act with justice to the public or to the carrier? In the multiplicity of duties now demanding its most earnest attention, would not the practical operation of such a law compel it to enter a pro forma order of suspension until the final hearing, when the commission, upon an examination of the complaint, is satisfied that it presented a prima facie case of unreasonable advance?

An official tribunal charged with the duty of preventing an unreasonable advance in rates would be constrained, on the presentation of such a complaint, to issue the order of suspension. If the slightest doubt was raised in its mind as to the reasonableness of the advance, its official obligation would require it to enter the order of suspension. Is there any question that such a prima facie case could be made where the consideration of the protest would, of necessity, be ex parte?

The committee is not, therefore, able to draw a distinction between the original amendment and that proposed in committee. In the opinion of the committee the reasons stated in the letter of the chairman of the commission, and the reasons given in this report, not only justify it but compel an adverse report.

CONDITIONS CONFRONTING CONGRESS.