COMMISSION CHARGES.-As pointed out in Volume II (Chap. V, sec. 10), the commission charges have been reduced to a uniform schedule of rates in each terminal market, frequently on a percentage basis, with maximum and minimum limits in cents per bushel. It should be noted that for wheat the Chicago commission rate for nonmembers was 1 per cent with a minimum of 1 cent per bushel in 1918; whereas Minneapolis and Duluth had flat minimum rates of 14 cents per bushel for the same service (see Vol. II, Table 68). On wheat selling at $2 the Minneapolis rate would net $15 on a 1,000-bushel car as compared with a return of $20 on the 1 per cent rate at Chicago. With wheat at $1, the Chicago rate would net $10 and the Minneapolis rate $15. It is an open question whether the percentage basis materially affects competition or the flow of shipments as compared with the other method. Section 4. Employment of solicitors. A large item of expense incurred in the cash commission business, especially in the Northwest territory, is for the employment of solicitors. A majority of the commission houses in Minneapolis employ from 2 to 4, and a few firms have maintained as many as 6 solicitors at salaries ranging from $200 to $350 or more per month. One firm reported to the Commission that it had at one time 10 men building up its business in the country (infra). As pointed out in Volume II,20 the employment of solicitors and their methods of procuring business are closely supervised by the exchanges in the larger primary markets, especially with reference to the enforcement of the so-called uniform commission rules. At some of the primary-markets commission houses are forbidden to employ solicitors on a brokerage basis, regular salaries being required (Vol. II, Chap. V, sec. 11). FUNCTIONS OF THE SOLICITOR.21-The commission-house solicitor endeavors to secure regular business from country elevators and may also solicit the consignment of individual cars loaded by farmers in cases where the local elevators are not the solicitor's regular customers. He is usually selected because of an intimate knowledge of the country grain business and the operating problems of local elevators. Frequently he has been manager of a country elevator himself. A knowledge of bookkeeping is often necessary, since his duties may include the auditing of the accounts of shippers to whom the commission house has advanced funds. The solicitor must understand grades and dockage and country prices, and be able to assist the country elevator buyer in rush seasons. Such attainments as the ability to handle a stubborn gas engine, a knowledge of carpentry, and information of the rights of shippers in securing cars, aid him in obtaining the good will of the local manager. Financing on open account plays an important part in competitive activities in some sections. Where possible the solicitor obtains direct contact with the stockholders or proprietors of country 10 Chap. V, sec. 11. See Vol. II, p. 238. elevators with a view to securing their accounts." Some firms require regular reports on visits to prospects. The work of the solicitor in the Northwest is described in the following interview: Q. To what extent are traveling solicitors used?-A. My business is practically all built up by traveling solicitors. We get the best class of men that we can and their business is to go out and help organize, if necessary, farmers where they need it, tell them how to do business, what they can do, and where they are organized, to arrange to furnish them the money necessary to handle their business and to see that they have the right kind of a manager and to check them up and see that they are not doing business wrong. * * Q. In normal times how many of those men do you have out?-A. I had, a year ago, 10 traveling men. The traveling solicitor is, in my judgment, of as much or more value in protecting the farmers' organization from losses and in creating new business and in keeping them from speculation; in fact, last year probably my most valuable man brought in very little if any new business but was of great value in checking up farmers' organizations, and by doing so, protecting them and us from losses that otherwise would have been sure to have occurred. Auditing the books of country elevators is characteristic of territory where such shippers are financed by commission houses and is not so prevalent elsewhere. But even in the former area (the Northwest) some concerns will not audit country elevators' books, since they do not care to finance open accounts where so much supervision is required. One commission merchant stated that he assured himself that elevators which he financed were fully insured and gave the solicitors instructions to "take a peep at the bins" and size up the situation where a shipper had drawn heavily and was sending in grain slowly; but that he believed in leaving the elevator man free to manage his business without commission-house supervision. Many country elevator managers have not been competent bookkeepers and the financing commission houses have frequently felt obliged to make "audits" in self protection.23 22 See Vol. I, pp. 235-237. The following letter also illustrates this practice: The VAN DUSEN-HARRINGTON CO., Minneapolis, Minn. DEVILS LAKE, N. DAK., July 16, 1916. GENTLEMEN: I attended the annual meeting of the Josephine Farmers Grain and Elev. Co., and figure that my old Studebaker paid for itself yesterday. The Equity crowd had worked up a strong organization, to get two more members elected on the board, which would give them a majority and would mean our death knell. There are five or six stockholders who live in Oberon, but have their lands out near Josephine. When it rained so hard Friday night, I found four or five stockholders had decided not to attend the meeting, as the roads were too bad for a car, they thought, and did not want to hire a team, so I got after them, agreeing to take them out and back. I got five directors in my car and got 9 proxies, which gave us 14 votes, and we elected our man, Mr. Thomas, who is right for the chamber, also for us; it leaves the board now, 2 Equity and 5 who are right. Jack Getchell of Andrews Grain Co. was there and made a strong play for half of the account, owing to the fact that they rent their house which they use mostly for coarse grains he told them, they would have to give them half of the account or they would tear down their house and move it elsewhere. Last year they only asked for enough grain to make them $150 in commissions which they got, but they are getting more greedy now, and Mr. Getchell says Mr. Andrews thinks he should have all of the account. I told them if they had to have the Andrews elevator, and had to give the Andrews Grain Co. a share of the business, in order to get it I did not see as we could object, providing Andrews Grain Co. furnished their share of the financing funds. They were so late in getting through with their general meeting that it was too late for the board to meet, so they decided to hold another meeting next Saturday, the 22d, when I will fix up the contract for the coming year, as five of the directors told me they were in favor of giving us the business outside of what they had to give Andrews Grain Co. The Equity members of the board wanted to give half to the Andrews Grain Co. and the other half to the Equity, but the rest of the board would not stand for it. Yours truly, E. O. DILLING. 23 Some commission houses in the Northwest, primarily as an advertisement, have prepared uniform sets of books covering all necessary transactions connected with the operation of a country elevator. These books are distributed to elevators free of cost. Such books or records were encountered by the Commission's agents at a number of places, and where they had been intelligently used very good results were shown. In some instances the books were kept by commission houses, so that an organization was maintained similar to that of a line company. (See Vol. II, p. 230.) A Duluth firm reported that they kept the books of nine independent elevators in order to determine their financial condition, charging them usually $100 per year. The Bureau of Markets, Department of Agriculture, has prepared a uniform system of bookkeeping for the use of country elevators. This system was encountered by the Commission's agents at several stations. ADVANTAGES AND DISADVANTAGES OF EMPLOYING SOLICITORS. Data obtained from 23 representative firms in Chicago, Minneapolis, and Duluth indicate that the monthly expense of maintaining one solicitor would absorb the commissions realized in handling over 15 cars of wheat (1,000 bushels to the car). The following are claimed by the trade as the advantages of employing solicitors: (1) That they stimulate competition in the country markets, thereby raising country prices. (2) That they accelerate the flow of grain from the country.24 (3) That they promote good seeds movements and better operating methods. (4) That they discourage farmers from speculating and save farmers' elevator companies from losses. (5) That they keep the receivers in the terminal market informed as to country conditions, so that they can more ably represent country interests on the exchange floor. (6) That solicitors are necessary as auditors under a system whereby commission men finance the farmers' elevators (as in the Northwest). (7) That they conduct advertising operations during the quiet season and maintain a useful supervision over country marketing. The commission men who oppose the employment of solicitors cite the following objections: (1) That employment of solicitors increases overhead expense unduly and is only possible under a high minimum commission rate. A Minneapolis firm which has always opposed such soliciting methods stated that the practice constituted one of the largest expense items in the cash commission business and was an economic waste. They had kept two men on the road only because others did so-to meet this competition. (2) It is argued that the only function which a solicitor performs is to persuade a shipper to send his grain to one house rather than to another, which may be equally as good for his (the shipper's) purposes; and that he performs no useful function in directing the grain into proper channels, sending it to the best market, improving the grade or increasing the volume of grain raised or shipped. (3) It is also maintained that some solicitors provide entertainment to shippers to such an extent that their salesmanship operations offset any economies effected. Section 5. Wire-house competition. The use of private wires for soliciting consignments and shipments "to-arrive" is recognized by the Chicago Board of Trade as a legitimate method of competition, and free telegraphic communication has been construed not to be a violation of the commission rule.25 The reverse of this ruling obtains in Minneapolis, where the practice An Indianapolis dealer was asked whether it paid to employ solicitors. He showed from his records that his average yearly receipts from 1910 to 1915 had been about 3,000 cars. In 1915 he began using traveling solicitors, and his consignments jumped from 3,000 to 5,000 cars per year, which he attributed to his two solicitors. Since he averaged about $15 a car in commission, this indicated an increased revenue of approximately $30,000. The expense of maintaining the solicitors was about $10,000 a year, so that the firm claimed to have realized an additional profit of about $20,000. See Vol. II, p. 231. of soliciting consignments through private wires is not permitted. On August 2, 1910, the board of directors ruled it to be a direct violation of section 11 of Rule VIII for members of the chamber of commerce to furnish free telephone quotation service to country shippers (Circular No. 192). At a meeting of the board of directors held May 9, 1911, the following resolution was adopted: Resolved, That the board of directors deems it a violation of the Commission rules for members to assume the expense of telegraph messages sent collect by customers, or reversed telephone calls from customers, the assumption of these charges by a member of the chamber of commerce amounting, in the opinion of the board of directors, to a rebate of a portion of the commission charge, making the member subject to the penalties provided in section 11 of Rule VIII of the general rules of this asso ciation. This resolution applies to all messages received by members, or their agents, at any of their offices outside of Minneapolis as well as those received at Minneapolis. 26 The Milwaukee rule is practically the same as that at Minneapolis." In Kansas City the commission men have been forbidden by the board of trade to send market information to country elevators via telephone or telegraph at the expense of the sender. Grain receivers in Chicago, St. Louis,28 and Milwaukee have complained against houses which solicit consignments by telephone and telegraph furnishing quotations and market advice over the wires." A Chicago concern, which has been one of the largest receivers of cash grain at that point, has branch offices in Iowa so located as to cover the territory and keep in direct wire communication with the main office. In this way they can reach practically every grain shipping town in the State, usually in less than 10 minutes. They can keep a shipper constantly informed of price fluctuations upon which to base his purchases as well as advise him immediately on the sale of his consignments in the terminal. On the other hand, it is asserted that when a country elevator receives market news, market advice, baseball scores, and other information over a private wire it is influenced to consign to the house giving such service. The receivers not equipped with private wires in Chicago, St. Louis, and Milwaukee hold that this is an unfair competitive advantage, and that private wires restrict the general wire facilities for other members of the trade. It is stated that the private-wire systems were established primarily for future trading, that they have infringed upon the cash business in recent years, and that a firm carrying on a purely cash business can not afford such an investment. The statement relative to cost of investment is undoubtedly true. A private-wire system of 500 miles of line extending into Iowa, for example, would be a comparatively small system. Assuming $20 per mile as the cost of the lease and $20 per mile additional for operators' salaries and other additional overhead expense, the expense of this 500-mile line would reach at least $20,000 a year. The following illustration of private-wire 31 26 Circular No. 249. 32 27 Ruling of the board of directors Jan. 4, 1910, on rule 32, sec. 11. For text see Vol. II, p. 232. 30 28 It is reported that a rule has been considered by the Merchants Exchange of St. Louis which would prohibit private wire operators from serving that exchange so long as their wires were also used to receive orders from country merchants. 29 The use of private wires for cash trading is discussed in Vol. V, Chap. III, sec. 7. 20 Since about 1910. See I. C. C. Doc. No. 5421, Evidence, p. 1957. al See Table 16, Vol. V. These are conservative figures. See Vol. V, Chap. III, sec. 4. cost appears in the recent decision of the Interstate Commerce Commission on Private Wire Contracts:33 The record shows the details of two days' operations of a broker's wire from Chicago to Kansas City, Mo., with drops at Davenport, Iowa, and St. Joseph, Mo. The expenses of this operation were as follows: Rental of wire, including two drops, per annum. Salaries of four operators.... Total allocated expenses... Incidental expenses, estimated.. Total expenses, per annum. $11,000.00 5,720.00 16,720.00 5, 720.00 22, 440. 00 71.90 Certain Chicago receivers point to the case of a cash commission firm which set up a branch office at Pontiac, Ill. By public telephone it took from 20 to 60 minutes for the main office to call the Pontiac branch. There were three private-wire branches already operating at Pontiac enjoying practically continuous communication with the head offices at Chicago, and it became impossible for the commission firm not so equipped to do business. Because of the network of private wires" extending out of Chicago the hedging orders of country dealers are frequently executed by private-wire operators even when the grain is to be consigned to firms not so equipped. It is alleged that this use of wire houses by country shippers for hedging grain places strictly cash commission firms at a further disadvantage in competition, although the hedging of grain by country elevators is not so extensively practiced in Chicago territory as in the Northwest. Apparently the fact that private-wire systems are already established leads to marked economies in using the equipment for a cash commission business, since the futures business can be relied on in general to take care of the expense. At the Interstate Commerce Commission hearing in 191735 it was testified that the cash grain business in Iowa going to Chicago firms had become concentrated in the hands of six private-wire concerns. Others say that the solicitation of consignments by wire houses at Chicago offsets to a certain extent the efforts of terminal elevators to buy direct and thereby tends to sustain the volume of sample selling on the floor. So far as the conduct of the cash grain commission business is concerned the private wire is necessarily an expensive facility. Generally speaking there is not in this business any such necessity for promptness and speed in the transactions involved as in the case of futures operations, and this is also true even of the hedging transactions of country elevators. While, therefore, it may be that this is an economical method of handling grain so long as cash and future business is combined and the speculative futures business takes care of the largest share of the expense, it by no means follows that this would be true if private wires were employed for the transaction of only the cash commission business, including hedges. This would necessarily involve sufficiently high commission rates to cover the expense of Doc. No. 5421, decided Aug. 3, 1918, pp. 751-752. "See Vol. V, chart facing p. 126. *Private Wire Contracts, Docket 5421. |