Prices & Bases

A good steelman can think of nothing more unpleasant in his industry than a rip-roaring price war. Such a thing has never happened in the U.S. since the Elder Morgan promoted U.S. Steel Corp. in 1901. On the subject of prices the typical 1936 steelman feels that the best status is the status quo.

Beneath this surface tranquillity, most frequently manifest in competitive bids which, when opened, turn out to be identical down to the last decimal, there has lately been distressing agitation. To get business from their big customers, steel companies have had to shade their published price lists. In theory, all customers have paid the same price per ton of steel, irrespective of the size of the order. In practice, big buyers like the automobile companies have beaten down quotations as much as $8 per ton.* Last week in an attempt to waft away the dense cigar smoke that envelops this practice, Chairman-President Tom Mercer Girdler of Republic Steel Corp. made a bold move... Opening its books for second-quarter business, the No. 3 steel company of the 'land issued price lists with fixed discounts for quantity orders ranging from $1 per ton on lots of 25 to 50 tons to $3 on lots over 150 tons. With a few minor exceptions, it was the first time in modern U. S. Steel history that a steelmaker publicly admitted that the size of an order had something to do with its price. With the usual verbal gestures toward the Public Interest, tough-thewed Steelman Girdler declared:

"The new method of issuing price has been adopted by Republic in the expectation that it will lead to the elimination of unfair trade practices which have grown up in the steel industry. These unfair practices have included secret concessions, discriminatory prices as between customers, rebates and other methods harmful alike to producer and consumer. The steel industry has become notorious for such practices and for its inability to earn a fair profit."

Though Mr. Girdler's base prices were generally unchanged from the previous quarter, net effect of fixed discounts may be a rise in average steel prices, for the public discounts are probably less than buyers formerly chiseled in secret. Jones & Laughlin followed the Girdler example on certain products, and other companies were expected to fall in line.

Meantime the steel industry was concerned with another and more fundamental aspect of steel prices -- the basing point system of quotations. This system is a modification of the old "Pittsburgh Plus" plan. Carefully nurtured by U.S. Steel's late Elbert Gary, Pittsburgh Plus worked on the simple principle of charging every buyer the price of steel in Pittsburgh, plus freight to his door, regardless of where the steel was made. Thus in one classic example soon after the War, when the Pittsburgh price was $40 per ton, a Chicago concern was paying $47.60 for steel made by its next door neighbor. The additional $7.60 represented freight charges on a ton of steel from Pittsburgh to Chicago. The steel actually purchased was trundled through a door in the wall between the buyer and seller.

Having put up with this exaction of "phantom" freight charges for some 20 years, steel consumers finally revolted. After prolonged proceedings, the Federal Trade Commission issued a cease & desist order in 1924. Pittsburgh Plus was then replaced by the basing point system, which substituted a number of cities for Pittsburgh. Other industries now using basing point prices, which may also, include "phantom" freight charges, are cement, lumber, paper, flour, sugar.

A natural object for New Deal reform, the basing point was thoroughly damned by the Federal Trade Commission in a special study in 1934. A special NRA report urged modifications so drastic that they would mean virtual abolition of the system. Montana's Senator Burton Kendall Wheeler is earnestly trying to end the basing point once & for all with a bill introduced last month.

Part of the steel industry's bitter opposition to any & all efforts to upset the basing-point apple cart is founded in the fact that many plants are geographically obsolete. The steel consuming centre of the U. S. has shifted westward toward Detroit and Chicago, and f. o. b. prices would put the Pittsburgh and Youngstown districts at even more of a disadvantage than they now are. But the real cause is the steelmen's desire to preserve a system whose avowed purpose is to permit any steel company to compete for any business anywhere in the land. It is a "competitive" system by which they can arrive at a united price front.

* Average price of a ton of steel: $28.

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