to the shipper who does not get the benefit of the competition to consider competition as a factor in reducing the rate."7 § 454. Policy for permitting competitive rates. The policy of this matter seems to be to permit the making of rates to meet competition even if proportionately they seem preferential, in order that competition may be possible, which it could not be without this permission. This is very acutely said by Lord Herschell in Phipps v. London & North Western Railway Company: 78 "Suppose that to insist on absolutely equal rates would practically exclude one of the two railways from the traffic, it is obvious that those members of the public who are in the neighborhood where they can have the benefit of this competition would be prejudiced by any such proceedings. And further, inasmuch as competition undoubtedly tends to diminution of charge, and the charge of carriage is one which ultimately falls upon the consumer, it is obvious that the public have an interest in the proceedings under this Act of Parliament not being so used as to destroy a traffic which can never be secured, but by some such reduction of charge, and the destruction of which would be prejudicial to the public by tending to increase prices." 79 § 455. Rates low enough to hold business. Without going into the many problems as to local discrimination, the result largely of statutory provisions and their construction, which are discussed later, it may be pointed out briefly that it is a general principle recognized in all of those cases that it is permissible to make the competitive rate low enough to get business and to hold it. "Revenue derived from divisions on through business makes it possible to reduce rates on other traffic, which would not be possible otherwise. New Pittsburgh Coal Co. v. H. V. Ry., 26 I. C. C. 121. 78 (1892) 2 Q. B. 229. 79 Circumstances tending to negative presumption of unreasonableness of greater charge to shorterdistance points. Fisk & Sons v. B. & M. R. R., 19 I. C. C. 299. It may be true, as will appear later in this book, that the number of carriers actually competing for traffic, and a constantly open water route present to take a large part of it whenever the railroad rates rise up to the mark of profitable water carriage, seem to the Commission to constitute circumstances and conditions at one point substantially dissimilar from those at another point where no such conditions exist. But a rule that, whenever all-rail carriers establish rates to a given point, they must take notice of the independent water rates from that point, and of the territory that can be reached thereunder, and must make such adjustment as will prevent the use of the water rates from that point to another point, resulting in discrimination against that other point by reason of its allrail rate adjustment, has no support in law.80 As the law stands, in the absence of actual and effective competition compelling the carriers to make rates upon traffic upon a competitive basis, the Commission is called upon to fix reasonable rates which shall be used as maxima, which, however, the carriers may reduce to meet competition with other carriers and between themselves, as they may deem advisable, so long as they do not discriminate.81 $ 456. Reduction below a remunerative basis. This principle permitting the carrier to make in particular instances low rates to meet competition has its limitations; it will not justify the making of rates which will not be remunerative, as that must result in throwing undue burdens upon others. The principle of relative justice applied is that when a carrier, by reason of competitive conditions, or for other reasons, serves certain localities at very low rates, the concessions made must not subject other localities or other patrons dependent on the same carrier to undue or unreasonable prejudice or disadvantage, but there must be an equitable adjustment of rates 80 Bainbridge Board of Trade v. L. H. & St. L. Ry., 15 I. C. C. 506. 81 Okla. & Ark. Coal Traffic Bu. v. C., R. I. & P., 14 I. C. C. 216. so that there is no unjust discrimination between competitors in like pursuits.82 "There may be cases in which a carrier legitimately engaged in serving some territory is compelled by some new and aggressive competition to reduce normal and reasonable rates to retain business for its line, and where corresponding reductions at points not affected, or less affected, by destructive competition, might be unreasonable. But when a carrier voluntarily enters a field of competition where, by reason of a disadvantageous route, or the rigor of the competitive conditions, remunerative rates cannot be charged, and its service to a portion of its patrons is unprofitable, it accepts the legal obligation that its service shall be impartial to all who sustain similar relations to the traffic, and from whom the service itself is not substantially dissimilar.” 83 § 457. Standard rate among competing lines. Where a competitive situation has become established by presence of various competing lines performing the same service to the community, it tends to become settled between the competitors what shall be the standard rates and what differentials shall be allowed from these rates. The standard rate might be that established by the shortest and otherwise best located road, but it would not be fair in reducing rates all over the territory involved to reduce all rates to the lowest margin of profit fair to that particular road, for other roads could not meet that rate without On the other hand, it would be bad public policy to permit as an artificial standard what the most ruin, it may be. 82 Re Chicago S. P. & K. C. Ry., 2 Int. Com. Rep. 137, 2 I. C. C. Rep. 231. The fact that there is competition between communities for the purchase of a commodity does not justify the carrier transporting the same to levy an unreasonable rate on one community. Nebraska State Railway Commission v. U. P. R. R., 13 I. 83 Manufacturers & Jobbers' Union v. Minneapolis & S. L. R. R., 3 Int. Com. Rep. 115, 1 I. C. C. Rep. 227. That carriers may meet water competition at whatever point and to whatever extent they see fit cannot be admitted. City of Spokane v. N. P. Ry., 19 I. C. C. 162. circuitous and worst located road might need to make a good profit. As in most problems of rate making the result must be some compromise. This was pointed out by the Commission in one of its investigations,84 the Commission saying that it might be manifestly unfair to select a single advantageous line and make that the standard. For example, a rate to the seaboard on grain which upon any fair basis of compensation to investment would be reasonable for the southerly lines would be extravagantly high for the trunk lines. To permit such a rate would be to impose upon the general public the payment of an exorbitant charge. It should be noted, however, that, in the days of the Commerce Court, that tribunal took judicial notice of the fact that the interstate rates prescribed for the transportation of freight by a common carrier must necessarily be more or less interdependent, or at least be so related to each other, that the rate-making power will not, simply because it has the power, fix a rate upon a single line of railroad which will necessarily disorganize established and reasonable rates on other railroads in the same territory.85 § 458. Competition not a ground for raising rates. There are occasional cases where a road has urged the presence of competition as a ground for raising rates. To put one case 86 in the language of the Commission in passing upon it: "Previous to the summer of 1887, grain and other freights destined to Portland from points further 84 Re Proposed Advances in Freight Rates, 9 I. C. C. Rep. 382. Rates not as a matter of fact are fixed solely with reference to weaker competing line; cost of handling traffic over short and easy line largely influences rates. Commercial Club of Salt Lake City v. A., T. & S. F. Ry., 19 I. C. C. 218. 85 Hooker v. Interstate Commerce Commission, 188 Fed. 242. In determining the reasonableness of rates from the West to southern territory, the interests of all competing lines must be considered, and not merely that line which can handle the business cheapest. Receivers' & Shippers' Ass'n of Cincinnati v. C., N. O. & T. P. Ry., 18 I. C. C. 440. 86 Morrell v. Union Pacific Ry., 8 Int. Com. Rep. 181, 6 I. C. C. Rep. 121. See also Lumber Rates from Memphis, 27 I. C. C. 471. east, including Pullman, passed over the lines of the Oregon Railway & Navigation Company. In 1887 and 1888 the Northern Pacific Railroad Company extended its lines west to Tacoma, thence to Portland, and east to Pullman and other points in the grain growing region in southeastern Washington, and over its lines so extended the Northern Pacific Company took from Pullman and other points a considerable part of the wheat and other freights which would otherwise have been carried over the road of the Oregon Railway & Navigation Company. The defendants urge this diversion of Pullman and other traffic from their lines in justification of higher transportation charges than would be reasonable if there was no competition for Pullman business. Competition, or a division of business as the result of building a second road where previously but one existed, should justify lower rather than higher charges." The conclusion of the Commission is undoubtedly the proper way of dealing with such a case, but the reason is not quite obvious. It is plain that there is always some waste in all competition which makes a certain additional cost to be borne by the traffic because of the additional fixed charges by reason of unnecessary duplication of plant. But more than this, perhaps, is the increased cost of transportation by reason of decrease in the volume of traffic, consequent upon the division of the business among the competing lines. And yet the principle of value of the service to the shipper seems to come into play here; for the service is worth no more to the shipper whether there be one line or three.87 § 459. Absence of competition does not justify increase. To the extent that competition becomes more remote the power to raise rates to any amount that the traffic will bear increases until a point is reached where there is no 87 That the business of the express companies has been cut into by the parcel post to such an extent as to increase its operating ratio very sharply is no justification for not putting express rates upon a basis which otherwise is reasonable. In re Express Rates, 24 I. C. C. 380. |