While it is strictly true that a decrease in transportation charges causes, as a rule, an increased demand for the products shipped, nevertheless this rule is not an invariable one. There are commodities which form a partial exception, and if considerable reductions in cost were made, the volume of business would be but slightly augmented. For example, rates on boots, shoes, clothing and household utensils, if reduced would not materially increase consumption, since people are inclined to purchase such articles as they are needed. The same could be said of coffee, tea, salt and those articles which are consumed in small proportion to the total value of the requirements of consumers. In making rates then for freight traffic, it would be useless for an association to reduce the tariff on those articles which have a fixed and uniform demand, and would not be influenced by a reduction.

♦Between Chicago and New York there are over twenty routes varying in length from 912 to 1,376 miles, which compete for traffic. Between St. Paul and Chicago the short line distance is 373 miles and traffic is carried by a line 734 miles in length. Between Omaha and San Francisco five roads Complete, varying in length from 1,865 to 2,765 miles.

Differential Rates

Almost an infinite variety of commodities is offered to the railroad companies for transportation. If all articles were embraced under a single schedule and charged according to bulk or weight, irrespective of value, those articles having large bulk with small value would be charged exorbitantly, while articles having small bulk would escape their just portion of transportation charges. Thus coal, grain and lumber would be subjected to a charge which would be prohibitive, and would place them beyond the ordinary uses for which they are now produced. The problem in the classification of freight is to so fix the tariff as to produce the greatest amount of revenue for the railroad and at the same time not fetter or hinder the transportation of products by excessive charges. The tariff rates upon transportation lines have an important bearing upon the prosperity of the communities through which they run, by stimulating or retarding production of commodities. The earliest freight tariffs involved a very imperfect classification, and each railroad had its own system, but as the through business developed, this multiplicity of freight rates was found inconvenient and cumbersome, making it difficult for shippers or buyers to ascertain in advance what the freight charges upon a long-distance shipment would be.

Railroads divide their freight into four or more general classes, according to bulk and value. Goods having great value and small bulk, such as dry goods and groceries, are placed in the first class. Lumber, fuel, grain, ore and other bulky but low priced commodities are placed in the fourth or a lower class. Goods of the first class are charged two or three times as much for transportation as those embraced in the fourth class. It is true that the greater risk assumed in carrying goods of high value, together with the extra care and labor in handling or storing them, will in a measure justify a higher freight charge, but this is very slight in comparison with the difference between the rates upon the two classes. The carrying charges upon different classes of freight are not based upon the cost of the service, but upon what traffic will bear. If a ton of lumber were subjected to the same freight charge as a ton of dry goods, no lumber would be shipped. The freight rate would be practically prohibitive. Thus by means of a wise classification of freight the cheap traffic is made possible, and the high-class traffic is not seriously hampered, the railroad revenues are increased by a large volume of business and the public wants are satisfied. Sometimes a commodity is placed in two or more classes depending upon the quantity shipped. Thus car load lots receive a lower rate than is allowed to the same commodities in less quantities. In former years railroad companies sometimes placed certain commodities in a lower class temporarily in order to stimulate new industries or develop traffic in certain directions. Large shippers were given special advantages over small ones in the form of rebates against their freight bills, and competing points were accorded lower rates than non-competing points. An extensive system of favoritism and discrimination thus grew up which abounded in injustice to the public, and interfered with the natural operations of trade. To remedy the evil, Congress, in 1887, enacted the Interstate Commerce Law, designed to prevent unreasonable rates and unjust discrimination between persons, places and classes of traffic.

Unjust Discriminations

Object in Classification of Freight

At first impression it would seem that the charge for carrying freight should depend wholly upon what it costs the company to perform the service, and include a fair profit for the capital employed in the business. But freight rates are not usually fixed in this way. Three factors must be taken into account in determining rates. The first is, what will it cost the company to furnish such service? Second, what will the shipper be willing to pay, or what can he afford to pay? Third, what competition among other transportation lines, by eithe land or water, must be met or overcome in order to secure tie business. These three factors in the problem must be considered in arriving at the freight rate.

It is not practicable to fix rates on a basis of cost of service, because it is not possible to determine in any particular case what the actual cost of the service has been. Thousands of items must be taken into consideration in arriving at the total expenses of running the road, and no official can say just what proportion of these expenses should be chargeable against any particular shipment. Again, as previously stated, it is only by charging certain commodities of high value a large profit over the cost of service, that commodities of low value can be carried at a very low rate.*