Note 20 — Chapter VI

Thus, A, B, and C are roads whose chief terminal points are Chicago and New York City. The road C is the shortest of the three lines, but its grades are very heavy. B is, say, one hundred miles longer, but has no heavy grades. A is a very indirect route, and its New York traffic must be trans-shipped at Boston, or perhaps at New London, and sent a part of the way by water. If now an absolute ton-mile rate is fixed for either road, it is evident that neither of the others can carry through freight without altering rates. If C fixes a rate, then A and B must either charge higher rates between Chicago and Montreal, or Chicago and Albany, than between their terminals. And although this is illegal in most States, the laws are evaded by "rebate," or repayment of a certain sum to the shipper. Of the three roads B, on account of easy grades, is in the best position to fix rates. It therefore makes, not the lowest rate, but the one that will yield the best returns. C conforms to this, and A takes what it can get, hauling at a very small profit. But if A happens to be outside of the limits of the United States, it may openly cut rates, because pretty nearly all the through freight it gets is clear profit, and inasmuch as none of the laws of a State apply to the Canadian portion of the road, it may do what the others cannot. And while B is struggling with A, the three roads X, Y, and Z are perhaps endeavoring to have some of the freight sent from Buffalo eastward over their own lines. In instances similar to the foregoing it is customary for B and C to divide the through business and to allow a "differential" to A—that is, on account of its slower delivery of through freight, to carry it at a slightly lower rate. B then adjusts its traffic with X, Y, and Z in a similar manner; and on the whole this is the fairest way to all concerned.

The following, one of many instances, shows the difficulties in fixing rates that will not be unjust to either party: Danville and Lynchburg compete for a certain trade. The Southern Railway passes through both cities, but the Chesapeake & Ohio makes Lynchburg by another route; Danville, therefore, is not a competing point, while Lynchburg is. As a result, the Southern Railway charged $1.08 for a certain traffic from Chicago to Danville and only 72 cents to Lynchburg, some distance beyond, this being the rate over the other road. The matter finally reached the Court of Appeals, and the latter sustained the Southern Railway. The rate to Danville was shown to be not excessive, but if the railway were required to maintain a rate to Lynchburg higher than 72 cents, it would lose all its traffic to that point, amounting to $433,000 yearly. In a case of this kind there can be no help except by a consolidation of the two roads; by virtue of the consolidation all the Lynchburg freight will then go over the line having the easiest haul.