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TABLE XIII A.-West-bound water rates via Panama and Tehuantepec routes, New York to Pacific coast terminals.

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TABLE XIII B.-East-bound water rates via Panama and Tehuantepec routes, Pacific coast terminals to New York.

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As is shown by Table XIII A and B, the coast-to-coast rates via the Panama and Tehuantepec routes, while similar, are not absolutely alike. Some are identical by both routes and others less via Panama, but the greater number are slightly lower via Tehuantepec. In shipments to and from the interior, however, the rates of the Panama lines are lower because of its absorption of part or all of the rail rate. There is no traffic agreement covering the rates by the two routes; but naturally, the rates over the two routes are made with reference to each other and to the rates of the transcontinental railroads. The general level of charges by each of the water routes is so fixed as to enable each of the water lines to obtain sufficient traffic in competition with the other and with the rail lines.

(c) INTERRELATION OF INTERCOASTAL WATER RATES AND TRANSCON

TINENTAL RAIL RATES.

The extent to which the transcontinental railroad tariffs are affected by the coast-to-coast water rates has long been a disputed question; but it is indisputable that the rail charges are influenced by water competition. The Interstate Commerce Commission in 1911 reiterated its former findings as follows (City of Spokane et al. v. Northern Pacific Railway, 21 I. C. C. Repts., 416):

This question of fact has been often considered in the past and with but one unvarying result. The circuit court of the United States has twice found, once in a proceeding concerning these very rates to Spokane, that active water competition does exist which controls the coast rates.

The manifests of steamships

says the commission

prove more conclusively than any mere statement that almost every article which is the subject of ordinary commerce between the coasts can and does move from New York to San Francisco by water at rates materially lower than those mentioned

by the defendants by rail. We have used San Francisco as the destination, port upon the Pacific coast, and in some instances rates from New York to San Francisco are a trifle lower than to the other coast cities; but, generally speaking, the San Francisco rate is maintained at Los Angeles, Portland, Seattle, Tacoma, and other points on the coast. Passing for the time being the extent and effect of this competition at interior points, it must be found as a fact that there is real and active water competition between New York and San Francisco, between the Atlantic and the Pacific coasts, which does limit the rate of transportation which can be charged by rail between those points upon nearly every article which moves by rail.

The fact that the water lines have been at times controlled by the rail carriers, does not alter the conclusion that water competition is a factor influencing the transcontinental rail rates. The traffic by water is now increasing, and the water rates are materially lower than the rail tariffs. Moreover, potential ocean competition influences the charges fixed by the railways. As was stated by Commissioner Prouty in the Spokane decision:

It is said that the amount of the movement by water is so insignificant that it should be disregarded. The amount is not insignificant. If reference be had to the traffic which actually originates upon the Atlantic seaboard a considerable percentage moves by water, but the significant thing is not the amount of the movement, but the everpresent possibility of that movement. As was said by the Supreme Court in the Alabama Midland case, speaking of the effect produced upon rail rates to Montgomery by the Alabama River:

16* * * When the rates to Montgomery were higher a few years ago than now, actual, active water-line competition by the river came in, and the rates were reduced to the level of the lowest practicable paying water rates, and the volume of carriage by the river is now comparatively small; but the controlling power of that water line remains in full force, and must ever remain in force as long as the river remains navigable to its present capacity."

So here the ocean is ever present. The possibility of using it as an avenue of transportation is ever open, and the fact that it will be used, if for any considerable length of time the defendants maintain rates which are so high, or so adjusted as to render it profitable for shippers to resort to that means of transportation, is never doubtful.

The system of blanketing the transcontinental rates from points east of the Missouri River is the result of this water competition, active and potential; and so, too, is the difference between the through rates to and from the Pacific coast terminals as compared with the charges to and from the intermediate points in the West. The rate percentages established in the Reno and Spokane dicisions by the Interstate Commerce Commission, to apply upon west-bound transcontinental traffic, express the judgment of the Commission as to the force that may well be allowed water competition in controlling the railroad tariffs.1

As the evidence just presented clearly indicates, the transcontinental railroad tariff's have been, and now are, influenced by the rates charged by the coast-to-coast water lines; but it is equally true that the rates of the steamship lines operating via Tehuantepec and Panama are to a large extent made with reference to the tariffs of the transcontinental railroads. The competition of the water routes with the rail lines and the recurring rate wars have in the past forced the transcontinental railroads to adopt the system of ratemaking now in force, but during recent years rate wars have been avoided; the transcontinental railroads have not been under pressure to fight against the water lines for traffic; the tonnage moving by rail has been large and has rapidly increased; and the policy of the railroads has been to maintain, and where practicable, to raise the established level of rail tariffs.

Since 1907, when the American-Hawaiian Line began its service via Tehuantepec, there has been a large increase in the water-borne intercoastal tonnage, but there has been no consequent general decline in the charges by the transcontinental railroads. It was stated by the Interstate Commerce Commission, in 1911, in the Reno decision 1 that "Out of 1,535 commodity rates compared by the carriers, it appears that no change has taken place since December 1, 1906, as to 696 of such commodities, reductions have been effected in 287, advances and reductions as to 132, and advances as to 418. Of the items increased, the rates on 318 commodities were increased from the whole eastern blanket."

The relation that has recently prevailed between the rates of the intercoastal water lines and the transcontinental rail tariffs is indicated by a statement made by the assistant to the vice president of the Southern Pacific in the testimony taken by the Interstate Commerce Commission in the Reno case. The statement, which was an answer to the question whether the water lines controlled the transcontinental rates, was: "I believe the rail lines control the making of of their own rates, and when we say to-day that we do not wish to go any lower, that indicates our disposition in that regard in making the rates." The same official also stated, "I have never seen a tariff of the American-Hawaiian Line, because they have never been. published. They are simply based on our rates as the basis of theirs."

The president of the American-Hawaiian Line, in testifying before the Senate Committee on Interoceanic Canals, in 1910, spoke as folfows: "We are friendly with them (the railroad traffic managers). We discuss rates. I don't know of any other business in the world where competitors don't get together and talk matters over. We are not tied up; we are not committed. We do as we please, absolutely untrammeled * * *. Our traffic manager doesn't attend the conferences of the railroads, but he goes to Chicago and gets his ear pretty close to the ground. That's his business." In answer to the question "To-day, as I understand it, you frankly admit that you follow more or less what the transcontinental railroads determine?" he said: "Certainly," but expressed the view that the water lines would dominate rates after the canal is open and after they carry the bulk of the strictly transcontinental traffic. It is also the opinion of the Interstate Commerce Commission, expressed in the Spokane decision, that "Since the advent of the American-Hawaiian Line there has been, not perhaps a definite agreement between it and the rail lines, but a general understanding that such rates should be maintained by water, as compared with rates by rail, as would give to the vessels a reasonable amount of traffic from the immediate vicinity of New York."

That the intercoastal water lines should now tend to adjust their rates with reference to the established level of railroad tariffs is in accordance with a general economic law. In any business or industry where the major share of the business is handled by one group of concerns the smaller individual competitors normally make their charges with reference to the prices established by the concerns doing

1 Railroad Commission of Nevada v. Southern Pacific Co. et al., 21 I. C. C. Reps., 354.

2 Senate hearings on bill 3428, Feb. 10, 1910, p. 90.

3

Ibid., p. 97.

the larger share of the business. More than four-fifths of the transcontinental traffic westbound and eastbound, until 1911, was handled by rail and less than one-fifth by the water carriers; and it naturally follows that the level of rail rates influences the charges of the carriers by water.

Though the fact may seem paradoxical, it is not to be inferred from the preceding analysis either that the railroad rates are not or are not to be influenced by the charges of the water lines or that there is now or is to be no effective competition among the intercoastal carriers by water. The transcontinental rail and intercoastal water rates are and will be made with reference to each other. There will probably be no fixed percentage or general differential relation between the rail and water charges. Under present conditions the rates via Panama and Tehuantepec are from 20 to 60 per cent below the transcontinental rail tariffs, and the opening of the canal will so reduce the costs of transportation by the water lines and will so increase the number of carriers and the volume of coastwise shipping as to make a still greater difference between the rail and water rates. The future level of rail tariffs must necessarily be established with reference to the rates charged by water.

Moreover, while it is to be expected that the competition among the coast-to-coast steamship lines will be regulated by conferences, formal or informal, of the interested lines, there will none the less be an incentive on the part of each steamship company to increase its tonnage. There will be the regulated competition among the steamship lines that generally exists among rival carriers, and rates will thereby be kept below the maximum charges that the traffic will bear. For a part of the water-borne traffic, the cost of shipping by chartered vessels will regulate the rates charged by the regular steamship lines; but, for most of the traffic shipped by water, the rates will be such as the regulated competition of the steamship lines, or as Government control (if the coast-to-coast water carriers should be made subject to the Interstate Commerce Commission), may establish. The level below which, and with reference to which, the rates charged by the coast-to-coast steamship lines will be fixed, will be the stable tariffs of the transcontinental railroads.

IV. TRANSCONTINENTAL RATES TO AND FROM INTERIOR POINTS: EFFECT OF WATER COMPETITION.

(A) RATES BY RAIL AND WATER TO AND FROM INTERIOR POINTS IN

THE EAST AND WEST.

The steamship lines now engaged in the coast-to-coast business obtain a part of their freight from interior points in the Eastern States for shipment to the Pacific coast. The manifests of cargo show that a small tonnage is obtained from places as far west as Chicago and St. Louis, and also state that some of the west-bound freight shipped by water is destined to interior points in the western part of the United States. The great bulk of west-bound freight, however, originates at the eastern terminals of the water lines at New York and points not far distant therefrom-and is destined to the Pacific-coast terminals and to places not far inland. The evidence

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