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the so-called Eastman water bill which gives the Interstate Commerce Commission jurisdiction over water-borne traffic.

Coordinator Eastman has denied repeatedly that the Interstate Commerce Commission would measure water rates by rail rates. Yet here is the latest decision by that august body where every rail-water rate is made a fixed relation to the rail rates. Even the Coordinator's own decision in the Eastern Class Rate case made the rail-water rates from New York to Chicago 90 percent of the all-rail rates from New York to Chicago.

The National Industrial Traffic League fears very strongly that it would be a serious blunder on the part of Congress to vest the control of water rates in the hands of the Interstate Commerce Commission and decisions such as the one we are sending herewith fully justify the fear as to what the Commission will do with our water traffic.

If your committee has been in any doubt as to whether water rates will be measured by rail rates by the Interstate Commerce Commission, this decision certainly will dissipate any such idea, Mr. Eastman to the contrary notwithstanding. The situation would be laughable, if it were not so pathetic.

INTERSTATE COMMERCE COMMISSION

INVESTIGATION AND SUSPENSION DOCKET NO. 3662', LAKE AND RAIL CLASS AND

COMMODITY RATES

Submitted June 27, 1935. Decided February 10, 1936.

Upon reargument and reconsideration, findings in prior report, 205 I. C. C. 101,

prescribing bases for maximum reasonable joint lake-rail class rates, and rate on certain articles related thereto, between official territory and western trunk-line-Illinois territories, via Lake Superior and Lake Michigan ports, affirmed

E. H. Burgess, D. P. Connell, R. C. Fyfe, and A. H. Lossow for rail respondents and defendants.

Ernest S. Ballard and Frank W. Sullivan for lake-line respondents and defendants.

Herman L. Bode for complainant.

B. J. Drummond, A. H. Ferguson, Karl Knox Gartner, Fred S. Keiser, R. J. Laubenstein, A. H. Schwietert, Frank B. Townsend, and Neal E. Williams for protestants or also interveners.

SUPPLEMENTAL REPORT OF THE COMMISSION, ON REARGUMENT

McMANAMY, Commissioner:

In our original report, 205 I. C. C. 101, we found not justified, as a whole, the revised adjustment of joint lake-rail class rates, and rates on certain articles related thereto, between defined portions of official territory and western trunk-line-Illinois territories, via Lake Superior and Lake Michigan ports, proposed by respondents in schedules suspended in I. and S. No. 2662, and after shortened suspension period permitted to become effective March 20, 1932. The

i This report also embraces No. 24913, Board of Railroad Commissioners of State of South Dakota v. Baltimore & Ohio Railroad Co. et al.; and Investigation and Suspension Docket No. 3805, Class Rates via Rail-Lake-Rail Routes.

same finding was made with respect to the modification of certain of those rates proposed in I. and S. No. 3805. Respondents were required to establish, in lieu of those they had proposed, joint rates over standard lake-rail routes not in excess of the maximum reasonable bases prescribed, or specific differentials below corresponding all-rail rates. We found the rates in issue in no. 24913, between South Dakota and official territory, unreasonable to the extent that they exceeded the bases above described.

A map outlining the territorial scope of the proceeding and the eastern and western areas as defined for rate-making purposes appears as page 199 of the prior report.

Rates and differentials given herein are stated in cents per 100 pounds, and apply to class 1 unless otherwise specified. They do not include authorized emergency charges.

Among the more important changes produced by the bases prescribed in the original report, when contrasted with the situation that existed prior to respondents' revised adjustment, the following may be mentioned: Disruption of parity of Duluth, Minn., with Chicago, Ill., in westbound class rates from New England and most of trunk-line territory, but to a lesser degree than proposed by respondents; lake-rail rates to the Twin Cities (Minneapolis and St. Paul, Minn.) made differentially below corresponding all-rail rates instead of arbitrarily over Duluth; and joint lake-rail rates to and from all western trunkine territory instead of combinations. Changes to and from Lake Michigan ports were less marked. Lake-rail rates were made subject to the same classifications as fixed in the sixth supplemental report in Western class-rate case to govern interterritorial all-rail rates. A special basis was provided for dairy products moving from the producing region (western areas A and B) using lake-rail routes to the heavy consuming territory (eastern area A).

Upon petitions filed by Duluth Chamber of Commerce, jointly by Minneapolis Traffic Association and Saint Paul Association of Commerce, and by rail respondents, seeking modification of the original report as to particular phases, we reopened these proceedings for reargument and reconsideration upon all issues. We thereby recognized the possibility that any action upon matters presented in the petitions might entail review also of related parts of the readjustment previously prescribed. Reopening was not allowed to delay establishment of that readjustment on August 20, 1935, simultaneously with the readjustment of interritorial all-rail rates required by the sixth supplemental report in Western class-rate case, because of close relation to the latter in which substantial changes, especially as to governing classifications, were to become effective on that date.

Duluth-Chicago parity.Again of paramount importance is the question of disruption of Duluth's rate parity with Chicago on westbound traffic from eastern territory. Parity never existed in eastbound rates.

The Duluth cases are again cited by Duluth Chamber of Commerce and heavily relied upon. In the first of them we found that westbound lake-rail class rates from trunk-line territory to Duluth in excess of those to Chicago were unduly prejudicial to Duluth and preferential of Chicago. We prescribed rates maintained at that time from New York, N. Y., to Chicago as reasonable to Duluth. From other eastern points to Duluth rates were required to be reduced so as to bear about the same relation to rates from New York as then existed.

Conceding that we are not bound by the rule of stare decisis, Duluth declares our practice to be opposed to changing a decision unless there is a change in conditions, and emphatically denies that there has been any such change insofar as westbound rates to Duluth are concerned. Reference is made to the opinion expressed by the chief witness for the one boat line that operates in both Lake Michigan and Lake Superior services, Great Lakes Transit," that if there is any advantage it is at Duluth, because absorptions compelled at Chicago in order to meet competition of ocean-rail routes largely offset expenses incurred by reason of 93 miles greater water distance to Duluth. Attention is directed to the attitude of the principal lake lines, Great Lakes Transit and MinnesotaAtlantic Transit, of willingness to restore parity with Chicago's present $1.37

2 Western Trunk-Line Class Rates. Citations of the original and supplemental reports therein are : 164 I. C. C. 1, 173 I. C. C. 637, 178 I. C. C. 619, 181 I. C. C. 301, 196 1. C. C. 494, 197 I. C. C. 57, 204 1. C. C. 595 (the sixth supplemental report), and 210 I. C. C. 312.

3 Commercial Club of Duluth v. Baltimore if 0. R. CO., 27 I. C. C. 639, decided June 9, 1913; and Second Duluth Case, 46 I. C. C. 585, decided June 21, 1917.

4 The shortened terms used herein for the names of lake-boat lines and railroads are the same as given in footnote 6 to p. 104 of the prior report.

rate from New York founded upon similarity of service and an experience with parity for 18 years extending from the first decision in Duluth cases in 1913 until 1931; and to the lake lines' assertion that the $1.37 rate would be reason able to Duluth.

Duluth contends that eastern rail respondents have failed to prove that the increased lake-rail rates to Duluth are reasonable; and stresses the fact that no western railroad had objected to the parity because of fear that resulting reduced rates to Duluth would jeopardize, interritorial all-rail rates to western trunk-line territory. It is urged that the measure of lake-rail rates to Duluth is of no concern to eastern railroads inasmuch as their divisions would not be affected and would continue the same in amounts as received on their all-rail traffic to Chicago interchanged at Buffalo, N. Y. If parity is restored the lake lines, which agree thereto, would absorb the entire reduction in rates.

Counsel for Duluth characterizes as unusual from any standpoint the varying differences in lake-rail rates from eastern points, Duluth over Chicago, when the difference in distance is always 93 miles. He gives the average difference in rates on class 1 as 25 cents, and the range as from 15 to 52 cents"; hut the correct range in these west-bound rates is from 12 to 40 cents, and the average would be less than 25 cents. The average difference is only 18.7 cents from all 27 points in eastern area A used in Duluth's petition. That area embraces New England and nearly all trunk-line territory, and thus includes the bulk and most important part of the eastern territory served under these joint lake-rail rates.

As conclusive proof that the Chicago basis of rates to Duluth is reasonable and remunerative, Duluth relies upon the comparative net operating revenue, gross revenues less gross expenses, from all freight transported by Great Lakes Transit. It is shown that during the 9 years from 1922 to 1930, inclusive, the annual average in Lake Superior service was $77.38 for each dollar in Lake Michigan service. Extremely wide fluctuations appear. Although Lake Michigan operations suffered deficits in five of those years, in 1930 the net operating revenue was $3.35 for each dollar in Lake Superior operations.

The Twin Cities still are joined with Duluth in asking for an equality of the latter with Chicago in west-bound lake-rail rates from the east.

North Dakota interests strongly urge rates to Duluth, as well as to inland western points, on their equated mileage basis described in the prior report, pages 144-145, yielding $1.67 between New York and Duluth instead of the present rate of $1.52. They fear that parity of Duluth with Chicago would ultimately undermine interritorial all-rail rates.

On behalf of shippers in its State the South Dakota Commission reiterates its opposition to Duluth-Chicago parity. Believing that the resulting 80-cent differential below all-rail would not be reflected in rates to South Dakota, it asserts that the latter therefore would be unduly prejudiced. Attention is directed to the lake-rail rate of $1.37 found justified between Chicago and New York, presumably to harmonize with the all-rail rate of $1.52 for transportation in the most favorable section of the country. With that in mind, if we are of opinion that the 93 miles greater water distances to Duluth warrants prescription of the Chicago rates, and that such action would be accompanied by the same differential for South Dakota as for the Twin Cities, would not break down interterritorial all-rail rates, and would not offer an opening wedge for carriers to seek restoration of combinations to South Dakota, this party says its position on the question of parity is no different from that of Duluth.

Mason City, Iowa, is in western area C and competes with the Twin Cities and Albert Lea, Minn., the latter in western area B. It is apprehensive that if Duluth-Chicago parity is restored, and the Twin Cities are accorded the arbitrary they seek over Duluth, the resulting reductions would be reflected in rates from the east to its competitors but not to Mason City.

Competition from Duluth encountered under present rates by Green Bay, Wis., in its natural trade territory in northern Wisconsin and upper Michigan is found very hard to meet. Duluth is 285 miles northwest of Green Bay, but their inbound lake-rail rates do not differ greatly, being from New York $1.52 and $1.44, respectively. Aided by commodity rates to upper Michigan and Wisconsin on less-than-carload traffic rated classes 1 to 4, inclusive, relatively

5 The 52-cent difference here referred to is produced by use of a 98-cent rate from Grafton, W. Va., to Chicago; but respondents did not establish that rate for application west-bound.

lower than class rates from Green Bay, Duluth can penetrate Wisconsin to within 72 miles of Green Bay, a back haul for inbound lake traffic, before reaching an equality of aggregates based on these ports of inbound lake-rail and outbound rail rates. If Duluth is granted the parity, or 80 cents below its all-rail rates, Green Bay feels that an intolerable competitive situation would be created in its trade territory.

Departing from the neutral position as to Duluth-Chicago parity taken at the outset of this proceeding, Chicago Association of Commerce now declares that, in view of existing circumstances, even the present relation between these points is unduly prejudicial to Chicago shippers, and that competitive conditions may no longer be ascribed as a reason for such parity. Revision of entire rail-rate structures required in Eastern and Western class-rate cases, supplanting former competitive rates with increased rates from Chicago and other Illinois points to destinations north and west thereof, as well as greater value of services rendered on Duluth's lake traffic, are deemed adequate grounds for higher lake-rail rates to and from the latter port. Since 1915 the increase in the all-rail rate from New York to Chicago has been 102.7 percent, whereas to Duluth it has been 88.7 percent; and the rate from Chicago to Duluth has been increased by 110 percent.

As indicative of the commanding advantage presently enjoyed by Duluth in its own trade territory, Chicago points out that prior to December 3, 1931, from New York the joint lake-rail rate to Duluth was 99 cents less than the aggregate of the lake-rail rate to Chicago plus the rail rate beyond to Duluth, that under present rates it is $1.22 less, and that it would become $1.37 less under a parity. By similar computation Duluth's advantage is relatively more striking on the important articles, including machinery, rated class A (45 percent) in western classification and mostly class 5 (35 percent) in official, as to Duluth's advantage is now 57 cents and would become 62 cents under parity. Comparisons are also made of Chicago's rail rates to Duluth with present lake-rail rates from the East to Duluth, showing that the latter are not greatly more, and in some instances less, than the former, especially when compared with Duluth's rates from the western portion of trunk-line territory and particularly its class 5 rates contrasted with class A rates from Chicago.

New England interests adhere to the position originally taken, namely, that there should be parity as between Duluth and Chicago in lake-rail rates from and to New England. They contend that little if any justification exists for rates to Duluth higher than to Chicago from a cost standpoint, but show no costs. They urge that desirability of relating lake-rail to all-rail rates should not prevail to destroy parity merely because the territory beyond Duluth is sparsely settled and rail carriers operating therein are given a rate level higher than in territory just west of Chicago; and that transportation circumstances and conditions surrounding lake-rail traffic to Duluth alone should be considered. They urge further that Duluth should be treated as a port and not as an interior western railroad station; but this overlooks the recognition we gave to Duluth's status and location when we prescribed from New Eng. land a differential below all-rail of 65 cents to that port and generally 30 or 22 cents to inland western points via Duluth.

Western rail respondents, as heretofore, maintain strict silence respecting the question of Duluth-Chicago parity, although as to the proper basis for lake-rail rates generally they strongly advocate the principle of relating them differentially below all-rail rates.

The position of the lake-line respondents is that they are still willing to participate in rates to Duluth equaling present rates to Chicago. They do not endorse parity irrespective of the measure of Chicago rates.

Rail respondents in trunk-line and New England territories, which throughout the proceeding have held to the proposition that there is no justification or necessity for Duluth-Chicago parity, and that the sound basis for all lake-rail rates is a differential relation below all-rail rates, now argue only that the maximum rate level resulting from the differentials prescribed for Duluth is not as high as the evidence warrants. They think that the differential should be 50 instead of 65 cents to and from eastern area A. They contend that parity advocates are actuated solely by competitive reasons. They stress the fact that the lake lines merely express willingness to join in rates to Duluth no higher than present rates to Chicago. They perceive in this a clear

6 Eastern Class Rate Investigation, 164 I. C. C. 314, decided May 13, 1930. Supplemental reports thereto are : 171 I. C. C. 481, 177 I. C. C. 156, and 203 1. C. C. 357.

admission that what such advocates seek is not maximum reasonable rates, but rates dictated by their necessities.

Regarding reliance upon rate history by those suggesting parity, eastern rail lines contend that conditions have vitally changed since the Duluth and Twin Cities cases. Foremost among the changes is complete reorganization of all-rail rate structures within and between the East and West. When parity was first prescribed the rail rate between Chicago and Duluth was 65 cents, now it is $1.37; the all-rail rate from New York to Duluth was then 40 cents higher than to Chicago, now it is 65 cents higher. In other words, in the processes of all-rail rate making Duluth has been pulled farther from Chicago. From this it is argued that, accepting relations thus produced as meeting requirements of sections 1 and 3 of the Interstate Commerce Act, there must be a similar relation between all-rail and lake-rail rates. Parity in lake-rail rates cannot stand with disparity in all-rail rates, they say. Unless these two competing kinds of routes are related so as to maintain the services it is contended that they cannot be dealt with even-handedly.

Eastern lines again point to evidence indicating that transfer costs between boat and car at Duluth are higher than at Chicago and Milwaukee; and to the greater distances by lake from Buffalo to Duluth of 93 and 158 miles than to Chicago and Milwaukee, Wis., respectively. They vigorously dispute that this additional water distance properly may be equated to rail distance on a 3-to-1 or any other ratio, and so become inconsequential from a rate standpoint for these long hauls, from New York to Duluth approximately 1,239 miles all-rail or 1,376 miles lake-rail. They also point out that, while expressing willingness to join in lake-rail rate parity, the lake lines' port-to-port rates are now from Buffalo to Chicago 81 cents 8 and to Duluth 99 cents.

As pertinent to the value-of-service element, attention is directed to the relatively lesser disadvantages to Duluth. From New York to Chicago the shortest route by lake-rail is 45 percent more circuitous than all-rail, whereas to Duluth it is only 12 percent. Despite Duluth's smaller handicap, respondents proposed a differential of 50 cents and we prescribed 65 cents, compared with 15 cents for Chicago. Time in transit from New York to Chicago by lake-rail is stated as 3 days longer than all-rail," while to Duluth it is only 2 days.

Respecting the argument that eastern rail lines have no interest in the measure of rates to Duluth because they would obtain the same amount in divisions east of Buffalo as on all-rail traffic to Chicago, these lines reply that this is poor solace to all-rail carriers between the East and West for being deprived of the traffic west of Buffalo and the greater revenues that would result therefrom. They add that this is not a matter of divisions, but of balancing traffic, and of relating rates over the two kinds of routes in a manner that will not permit one to unduly impose upon the other.

We are not persuaded by the reargument that unlawfulness exists in lakerail rates prescribed to Duluth because higher than to Chicago from the affected portion of eastern territory. Nor do we believe that a parity producing lakerail rates from New York, for example, representing for Duluth a differential of 80 cents below its all-rail rate and 15 cents for Chicago would now establish a lawful and proper adjustment. Rates to Duluth the same as those to Chicago, the latter a percentage of their own all-rail rates, would run counter to the principle we regard as sound for application throughout this adjustment; namely, that lawful bases for lake-rail rates are appropriate relations to corresponding all-rail rates.

Circumstances and conditions presented in this proceeding differ greatly from those prevailing in 1913 when the first of the Duluth cases was decided. Only west-bound rates were then under consideration, and the issues concerned Duluth and its relation with the Twin Cities and Chicago. It was stated that Duluth's "primary demand is that the alleged discrimination against Duluth and preference in favor of the Twin Cities shall be corrected by establishing to the latter points higher rates than are now in effect" (27 I. C. C. 642). The

? As shown in discussions of North Dakota's equated mileage basis, which employs a ratio of 3 lake-miles to 1 rail-mile and applies the western trunk-line formula in connection with scales of distance rates and zone differentials prescribed in the sixth supplemental report in Western Cla88 Rate case, the present rate from New York to Duluth would be increased from $1.52 to $1.67 and to Chicago would be reduced from $1.37 to $1.35. 8 Filed with United States Shipping Board Bureau.

Witness for Chicago shippers testified that from New York to Chicago the time in transit over the lake-rail route is about 8 or 9 days; over all-rail route, third-morning delivery with regularity; and over ocean-rail route, fifth-morning delivery.

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