Long vs. Short

The Senate passed its first important piece of railroad legislation--the Gooding long and short haul bill. The bill has to do with a phase of railroad rate-making usually referred to by the words "Charge whatever the traffic will bear." This does not necessarily mean, as it is sometimes interpreted, to raise rates as high as possible. The object of the Gooding bill is to prevent the railroads from lowering certain rates. The problem came up in 1887 and was referred to the Interstate Commerce Commission. The existence of the Panama Canal has put a new twist in it. The essence of the problem is that under certain conditions it pays the railroads to give cheaper rates on long haul than on short haul freight. The case in question has to do with shipments to the East from the Pacific Coast. In this case the railroads have to compete with cheap water freight rates for shipment through the Panama Canal. To get traffic on many classes of goods, the railroads must cut their rates for the long haul. In general and in theory, rates are fixed on such a basis as will pay: 1) for the actual cost of moving freight, plus 2) fixed charges (interest on bonded indebtedness, etc.). If the total freight rates of a railroad do not cover these two costs it must go into bankruptcy. It may happen, as in this case, where there is water competition, that the railroads cannot secure long haul freight on rates fixed uniformly. Accordingly, it pays them to secure freight at any rate greater than the actual cost of moving the freight, even if the rate does not pay a pro-rated share of the fixed charge. By such a procedure the railways are able to increase their net revenue. That is what the railroads now do in many cases. The railways have applied for a further reduction, so as to compete with the seaborne trade through the Panama Canal. But there are objectors. Coast ports do not object; they have railway and water carriers competing and cutting rates. The intermountain I region does object. It has no water carriers to compete with the railways; consequently it pays the full rate. It sees its competitors on the coast getting cheaper rates, and cries out loudly against the discrimination.

To satisfy these objectors, the Gooding bill was passed. It forbids the Interstate Commerce Commission to grant lower long haul rates than short haul rates except under specific conditions: 1) where the freight transported is for export or from import and 2) where two railroads compete in the same territory, but one has a circuitous route to a given destination (that is, the road with the circuitous route is allowed to make its rate as low as that of the line with the straight route; 3) for block express.

The bill forbidding lower long haul rates except under these conditions was passed by the Senate, 54 to 23. It is extremely dubious whether it will come before the House at this session. The question is important, because on long and short haul rates depend the geographical distribution of many industries, and the industrial growth of communities and of entire sections of the country.