Duluth alone of the points named in table in western areas A and B would have had rates on the 60-percent basis lower than under the specific differentials, or 39 cents below maximum all-rail rate to New York.

Western trunk-line respondents, except Great Northern and Northern Pacific, think that the only serious error we committed was in giving special treatment by means of the 22- and 17-cent differentials, and profess difficulty in understanding why we singled out dairy products, the most important traffic in the case, for departing from the normal 60-percent basis. They contend that the falling off in tonnage transported by lake lines in 1932 and 1933 as compared with 1931 was entirely due to severe drought conditions in the producing region, which affected other agricultural products as well, and not to the reduced differentials of 18 and 7 cents reflected in respondents' rates effective March 20, 1932.

The question presented, according to the lake lines, is that of determining what differential will permit them to continue in the business of handling dairy products, as they have been doing since 1914 in compliance with our requirement in Lake-and-Rail Butter and Egg Rates (29 I. C. C. 45). They assert, and earnestly urge, that rates in excess of 25 cents below all-rail are unreasonable. In support, after emphasizing the perishability of this traffic, they refer to evidence showing that time in transit from Duluth to New York by lake-rail route is from 1 to 2 days longer than by all-rail; that two transfers and consequent risks are incurred by lake-rail routes between western and eastern inland points and none by all-rail; and that the valuable privilege of reconsignment when shipping over lake-rail routes is available only at Buffalo and east, whereas all-rail shipments from the west can, if the market is favorable therefor, be diverted in transit to Chicago or other points.

Under combination rates applicable prior to December 3, 1931, the difference, lake-rail below all-rail, varied from 10 or 12 cents to about 65 cents, the average in 1931 for shipments handled by Great Lakes Transit being 38.5 cents and by Minnesota-Atlantic Transit 35 cents when compared with all-rail combinations on Chicago through which most all-rail traffic moved, although lower combinations were maintained via other gateways.

Lake lines are gravely concerned with the falling off in 1932 and 1933 in dairy-products tonnage handled by them. In refutation of the contention that drought conditions were entirely responsible, it is stated that the percentage of decline in total tonnage of dairy products shipped during those years from North and South Dakota to Philadelphia, Pa., and Boston, Mass., by all transportation agencies was much less than suffered by the lake lines. While the latter charge this to the unattractiveness to shippers of the 18- and 7-cent differentials from roughly western areas A and B, respectively, which embrace the dairy-producing region using lake-rail routes, and believe that as a result the tonnage shifted to rail lines, they admit having no knowledge of the extent of movement by motor trucks. They argue that this shift would have been even greater except that shippers seemingly considered the 18- and 7-cent differentials as only temporary, excepting more favorable differentials to flow

55638-PT. 2-36-12

from this proceeding, and therefore continued in large measure their usual routing of shipments.

Likewise demanding a 25-cent differential is a firm handling, manufacturing, and shipping dairy products of all kinds in large volume. Its main plant is at Duluth, but it also operates from 11 to 14 branch plants in Minnesota and the Dakotas. The price of dairy products at Duluth is the New York price minus the lake-rail rate to New York; and the price received by the western producer is the Duluth price minus the transportation cost from producing point to Duluth. Nevertheless, one of the necessities advanced for a 25-cent differential is that it represents the usual price fluctuation of 0.25 cent per pound on butter, constituting the bulk of dairy products moving, and therefore would insure shippers against a falling market due to longer transit time; but obviously the price might rise in that time, despite which 100-percent premium is solicited for insurance against reduction.

Alluding to the wide differences represented by the former combinations, lake-rail below all-rail, this firm declares that unless a substantial saving accrues lake-rail routes will not be used extensively. Although emphatically opposing definite relation of lake-rail to all-rail rates, urging that each form of transportation should stand on its own bottom, it is asserted that irrespective of the principle adopted the minimum differential must be 25 cents, at least from western area A. Mention is made of the fact that respondent Great Northern and Northern Pacific advocate such a minimum.

Replying, eastern railroads dispute that lake-rail routes are handicapped on dairy-products business to the extent of 25 cents as compared with all-rail routes. They point out that testimony indicates very little deterioration occurring in the products because of 1 or 2 days longer in transit; and that the difference in the percentage of damage claims over the two routes is inconsequential. They contend that the argument as to deprivation of opportunity to reconsign on lake-rail routes west of Buffalo, lacks merit because the real consuming territory comprises the populous Atlantic seaboard cities. A lake-line advantage instanced is absence of refrigeration charges whereas railroads assess them.

We decided upon the measure of differentials deemed proper to yield maximum reasonable lake-rail rates on these articles to eastern area A from western areas A and B, or 22 and 17 cents, respectively, after full consideration of all pertinent evidence. Since 1914 a substantial volume of dairy-products tonnage has developed over lake-rail routes, but undoubtedly it was greatly encouraged by the wide, favorable differences afforded by former combination rates. Clearly differentials material in amount must be provided, or shippers will move practically no traffic over those routes, but they need not be as large as accidentally occurring under former combinations.

Producers of dairy products are entitled to rates lower than maintained over all-rail routes when using this somewhat less desirable mode of transportation. While service over them is adequate, reliable, and otherwise satisfactory to shippers, lake-rail routes incur some disadvantages which must be compensated by a saving in rates, thus presenting an appropriate factor entering into the determination of maximum reasonable rates. Revenues from this traffic are of utmost importance to the lake lines, the record showing that in recent years their operations would have resulted in deficits except for those revenues. These and all other factors and elements were duly weighed in arriving at the specific differentials, including evidence of lake-rail shipments in the past on rate differences below all-rail as small as 10 cents.

Although not a part of this record, except to extent imported by petition of Duluth Chamber of Commerce dated August 28, 1935, hereinafter discussed, mention should be made of some notable changes which have taken place subsequently to the hearings, in fact mostly after the reargument, in the rail rates utilized as the foundation for these lake-rail rates. As adverted to, rates were not established on the maximum bases authorized for dairy products and related articles, because prior to effective date (Aug. 20, 1935) of order accompanying the original report rail rates had been successively reduced by carriers, and emergency charges omitted, in efforts to meet motor-truck competition. Instead of the bases approved for rail rates on dairy products in National Poultry, Butter & Egg Assn. v. Aberdeen & R. R. Co. (192 I. C. C. 13), by division 4, namely, column 60 (60 percent of class 1) between points within western trunk-line territory and from that territory to official territory, and column 65 within official territory, carriers reduced on June 1 and July 15, 1935, respectively, (a) to substantially column 35 the rates within western trunk-line terri

tory and from that territory to Chicago, and (b) to column 50 the rates from eastern gateways of that territory (west-bank Lake Michigan ports, Chicago, and Mississippi River crossings) to trunk-line and New England territories (embracing eastern area A). Aggregates thereof being less than column 60 interterritorial rates, they became the applicable all-rail rates from which the prescribed differentials were deducted in computing lake-rail rates established in compliance with the order herein.

Rail rates to west-bank Lake Michigan ports so used in combinations to the East from Duluth are often the same as from the Twin Cities and other inland points, and higher than from stations in northwestern Wisconsin. Deduction of the 22-cent differential from the reduced all-rail combinations on dairy products from western area A, embracing Duluth and such interior points, carried into the lake-rail adjustment the relations appearing in all-rail rates, or rates from Duluth the same as or higher than from those interior points. Shortly after that adjustment became effective, Duluth Chamber of Commerce filed its petition herein asking us to require respondents to observe a minimum arbitrary of 10 cents over Duluth in lake-rail rates on dairy products between other western points and eastern territory, applicable via Duluth. Since carriers had complied with finding 14, which did not specify relations between points, the rates had become effective, and the situation provoking the petition having arisen after close of hearings and, therefore, not in the record, the matter seemed one for presentation by formal complaint so the petition was denied.

Truck competition making itself felt also on interterritorial traffic, carriers published substantially column 50 joint rates for application to dairy products moving all-rail from the West to trunk-line and New England territories in place of the somewhat higher combinations described above, to become effective October 1, 1935. Again the 22-cent differential was deducted for making lake-rail rates from western area A, creating relations, as between Duluth and interior points, only slightly less disadvantageous to Duluth than existed under the adjustment made with regard to the all-rail combinations. Duluth Chamber of Commerce therefore protested, as did also the Live Poultry Shippers Association because rates on live poultry were not correspondingly reduced, whereupon the new schedules of all-rail and lake-rail rates were suspended in Investigation and Suspension Docket No. 4143, Dairy Products from W. T. L. to Official Territory. In order to permit establishment on November 10, 1935, upon our authority, of the reduced rates thus suspended, and to offer something in which Duluth would acquiesce as meeting in slight degree its principle of rates from the port lower than from the interior but only as a temporary expedient, respondents reduced the lake-rail rates from Duluth to reflect 1 cent below Ladysmith, Wis., the inland point with lowest rates. However, investigation into the lawfulness of rates in the new schedules was continued, hearing therein has been had, and it is now awaiting our decision. We deem it appropriate here to comment upon that matter, although it was not presented in the original record but came to our attention in the manner just stated. When our prior decision was rendered there appeared no intimation of need for fixation of nonprejudicial relations between western points, so that prescription of maximum reasonable bases seemingly provided for all necessities. From the inception of this proceeding, in fact as late as the reargument, parties impressed upon us that, while empowered by the act to prescribe only maximum rates because a water carrier participates in every through route, we would be virtually fixing minima for rail respondents would join in nothing lower. Regarding one kind of traffic it has since proven otherwise and the same may happen to other kinds.

In their singleness of purpose to meet motor-truck competition on dairy products encountered primarily by railroads, carriers lost sight of other essentials except the requirements of finding 14. Consequently lake-rail rates were published on those articles to important eastern seaboard cities, for example, from Duluth docks the same as from the Twin Cities and higher than from certain interior Wisconsin points. The possibility of such a situation was neither forecast by the record nor contemplated in our prior report. As stated, that particular situation is now before us in I. and S. No. 4143, supra.

It should not be necessary to remind respondents that when maximum reasonable bases are prescribed for use in connection with a particular rate structure which is also maximum, and they reduce either bases or structure for any reason, they may not violate other sections of the act, section 3 for

instance. Certainly the plain import of the lake-rail bases prescribed for Duluth docks in contrast to those for interior western points was to recognize Duluth's status as a port. Although we do not think that the record enables us definitely to fix nonprejudicial relations between that port and western inland points for every kind of traffic, it is our view that in principle lakerail rates from and to inland points, entailing unconnected additional rail transportation and one more transfer between car and boat, should be somewhat higher than from Duluth docks, save only in extraordinary circumstances. In the exercise of their managerial discretion rail carriers have a legitimate right to meet competition encountered from other transportation agencies, but this must be done in a lawful manner.

Nothing has been presented either in the petitions or reargument which leads us to conclude that any changes in the bases for maximum lake-rail rates on dairy products prescribed in the original report are necessary. Therefore, upon reconsideration in the light of this record we conclude that those bases provide maximum reasonable lake-rail rates on the articles described. This conclusion is without prejudice to any finding which may be made in I and S. No. 4143, supra, now pending.

Upon reargument and reconsideration, we affirm our findings in the original report.

Meyer, Commissioner, dissenting:

In Commercial Club of Duluth v. B. & O. R. R. Co. (27 I. C. C. 640), decided June 9, 1913, and known as the first Duluth case, we opened our report with these words: "In the proceeding before us here the city of Duluth is demanding the same position on the rate map that it has on the geographical map of the northwest." We began our report in the Second Duluth case (46 I. C. C. 585), decided June 21, 1917, with similar words. As a result of these proceedings Duluth was accorded equality in westbound rail-lake rates with Chicago. That equality was destroyed by our original decision herein, January 7, 1935, 205 I. C. C. 101. In a brief concurring expression I said:

"I am not persuaded that the equality in westbound rates between Chicago and Duluth established by us in 1913 should now be destroyed. From a purely transportation standpoint, keeping in mind primarily westbound movements rail and lake from New York and related points to Chicago and Duluth, respectively, the equality in the rates seems to find peculiar justification. Even abstract consideration of the primary facts of geography relating to land and water give support to this view. As I understand this report in its entirety, however, justification for disruption of this long-existing equality is predicated upon broader grounds in the light of the rate structure as a whole. The practical work of establishing a rate structure appears to be made easier and, from the standpoint of the wider field, the results more equitable when the superstructure can be built upon the differential of 15 cents first class, Duluth over Chicago. This differential will be a burden, but it should not be an unduly heavy or unjust burden. The scheme of rates here prescribed should be given a trial. If experience should show that injustice will result therefrom, further proceedings may be had to eliminate unlawful features which time may develop."

The case has been reargued and Duluth is asking for restoration of the rate parity with Chicago first established by orders issued in the cases referred to above. In my judgment disruption of this parity results in injustice to Duluth and impedes a sound development of west-bound transportation routes, as I shall endeavor to indicate briefly in what follows.

Generally speaking, it is proper that rail-water rate adjustments should be related to the rail-rate structure. However, such a relation assumes and is predicated upon a substantial parallelism between the rail routes and rail-water routes in question. In the instant case this rough parallelism ceases when the Straits are reached and one stream of traffic moves south into Lake Michigan and the other north and northwest into Lake Superior. The stress laid upon the water distance to Duluth, 93 miles greater than that to Chicago, is out of proportion to its transportation importance. For total hauls as long as those involved here a difference in distance of 93 water-miles, equivalent to 31 rail-miles, by almost universal practice should be disregarded. Milwaukee is about 85 miles nearer by water than Chicago, and Manitowoc and other west-bank Lake Michigan ports are many miles nearer still. I do not suggest that the lesser water mileage to these ports should necessarily be given effect through corresponding

rences in the amount of the rates, but I am unable to understand why that

should not be done if the 93 additional water-miles to Duluth is to be given practically decisive effect in attempted justification of the destruction of parity between Duluth and Chicago. The routes across Lake Michigan are the shortest routes between large producing areas west of the Great Lakes and large consuming areas to the east of them. These routes and the people served by them are entitled to their use and development on terms of equality with the major routes through Duluth and Chicago. It is not clear to me why all of the west-bank Lake Michigan ports should not stand on a basis of equality with Chicago so that all may participate in the traffic on equal terms to the advantage of carriers and patrons alike. Not only should parity between Chicago and Duluth be continued, but this parity should be extended to all Lake Michigan and Lake Superior ports that have facilities to participate in the traffic.

The instant proceeding relating to Duluth is only one relatively small section of a large and difficult case. In order to meet the just requirements of Duluth the satisfactory accomplishments of the larger proceeding should not be sacrificed or prejudiced unnecessarily. In the larger proceeding we have established class rates based upon distance. The needs and just claims of Duluth in the instant proceeding can be met by another distance scale of class rates without disturbing the normal operations of the other scale. The additional scale I have in mind is a scale of proportional class rates restricted in its application to ex-lake and ex-rail-lake traffic westbound from all the ports in question. My attention has not been directed to anything which would make impracticable the application of such a scale. If practically applied it would afford all Lake Michigan and Lake Superior ports an equal opportunity to participate in this west-bound traffic and thus benefit the respective ports, the rail and water carriers serving them, and all the individuals interested in the commodities transported, whether as producer, distributor, or consumer.

Commissioners Aitchison and Lee authorize me to state that they are in accord with the conclusions reached in this separate expression.

Commissioners Porter, Tate, and Caskie did not participate in the consideration of this report.

By the Commission.

[SEAL]

GEORGE B. MCGINTY, Secretary.