RATE MAKING IN DOMESTIC WATER TRANSPORTATION BY E. O. MERCHANT, PH.D., Water traffic falls naturally into two quite distinct classes: (1) high grade, package or miscellaneous freight, such as is transported in barrels, boxes and other forms of containers, and (2) low grade, coarse, heavy freight, such as is generally transported in bulk in ship-load lots. The latter class greatly predominates in tonnage, while the former predominates in value on most of the domestic water routes of the United States. There is an equally marked distinction in the type of carriers handling these two kinds of traffic, and in the character of service which they render. Package freight is carried almost entirely by steamship lines operating upon regular schedules between fixed terminals, while bulk freight is handled largely by freight steamers, sailing vessels and barges which have no regular schedule, and often no regular route. This is especially true of the tramp vessel, which goes from port to port, carrying any kind of a cargo it can obtain. While there are exceptions to the above classification of water traffic and water carriers, the distinction made is sufficiently clear to deserve recognition in any discussion of water rates, or in the framing of measures for the regulation of water carriers. The methods of rate making in water transportation are quite different for the two types of carriers, due to the two classes of traffic distinguisbed above. Regularly established lines, in so far as traffic conditions will permit, follow methods developed by rail carriers. Their rates tend to become, like rail rates, certain published charges applicable alike to all shippers. They often coöperate with railroads in making classifications, publishing joint rates and exchanging freight. The rates of bulk carriers, on the other hand, and the methods of determining them, are essentially different, owing to the character of their business and the more competitive conditions encountered. Bulk freight rates are generally a matter of bargain or agreement between the shipper and the shipowner or agent. They are not published, nor are they the same for all shippers. The general principle upon which water rates are made is to charge "what the traffic will bear." The cost-of-service principle is less prominent in making water rates than rail rates, because the former are less subject to regulation. When entirely free from restriction, a carrier either by rail or by water will fix its charges primarily in accordance with the value of the service, and only secondarily with reference to the cost of service. In determining the reasonableness of rates, however, any governing body is more apt to emphasize the latter principle than the former. The Interstate Commerce Commission, in numerous instances, has based its decision as to the reasonableness of railroad rates upon the cost-of-service principle.' In the following pages are presented in some detail the methods of rate making of regular steamship lines, and of bulk freight carriers. The peculiarities of the two kinds of water rates are also described, and some illustrations given of the practical application of the general principle on which water rates are made. The discussion is confined entirely to freight traffic and to domestic water carriers. I. Class and Commodity Rates of Regular Steamship Lines For convenience in making charges, regular steamship lines usually classify their traffic and publish tariffs of class and commodity rates just as railroads do. The more developed and better organized the service, the more completely are railroad methods adopted. Regular lines also, as a rule, exchange freight with connecting railroads. The proportion of their traffic so exchanged is usually larger than that carried from one port to another. In the case of port-toport traffic, a water line affords but a single route, whereas, in connection with railroads, a water line may be a link in a large number of routes. Where coöperation exists between railroads and steamship lines, physical connection is, if possible, established and traffic transferred from one to the other on through rates and through bills of lading. Where coöperation does not exist, both carriers usually charge the full local rates, and the traffic exchanged must be rebilled at the transfer port. The shipper may also be subject to the further inconvenience, as well as expense, of conveying his consignment from the terminal of one carrier to that of the other. 1 M. B. Hammond, Railway Rate Theories of the Interstate Commerce Commission, p. 42. Coastwise steamship lines sometimes exchange freight with one another, and with river lines, as well as with railroads. Where there is coöperation between the connecting lines such exchange is made on through rates and through bills of lading, thereby affording the shipper in many instances an all-water service where no single through line exists. In accordance with the foregoing facts, the rates of regular steamship lines may be divided into class and commodity rates as regards the kinds of traffic transported, and into joint rail-and-water rates, port-to-port rates, and joint water rates as regards the character of the route. Classification. In classifying their traffic, regular steamship lines make use of the classifications developed by railroads serving the same general territory. The more important lines are represented on railroad classification committees and participate in the preparation of classifications. Steamship lines operating on the Atlantic coast between New England and middle Atlantic ports, as well as lines on the Great Lakes operating between Lake Erie and western lake ports, use the official classification. Steamship lines operating to the south Atlantic ports use the southern classification, while the lines operating to Galveston and other Texas ports use the western classification. The western classification is also used by regular steamship lines on the Great Lakes, operating between Lake Michigan and Lake Superior ports, and by Pacific coast lines operating to ports south of San Francisco. Lines operating north of San Francisco do not publish class rates, owing to the unsettled conditions in that region, and the lines operating between the Atlantic and Pacific coasts via the Isthmian routes do not use any classification, following the practice of transcontinental railroads on shipments between the Atlantic seaboard territory and Pacific coast terminals. Although, as just stated, most steamship lines publish class rates, following the practice of railroads, the proportion of their traffic carried on such rates is often very small. Classified freight, however, is carried in important quantities by steamship lines operating between north Atlantic and middle Atlantic ports, and also southbound from these ports to south Atlantic and Gulf ports. Classified freight is also transported in important quantities westbound on the Great Lakes from Lake Erie ports to Chicago, Duluth and other western lake ports. Terminal and Insurance Charges.-The class and commodity rates of regular steamship lines on package freight usually absorb all terminal charges as do rail rates on such traffic. All the charges incidental to the transfer of freight from one carrier to another are also, as a rule, absorbed in the through or joint rates. For small consignments, such charges may be additional to the rates. Wharfage charges are also absorbed at a large majority of ports. Important exceptions are Savannah and Key West on the Atlantic coast and San Pedro on the Pacific coast. For demurrage, storage, warehousing and other services of like nature, steamship lines generally make extra charges, following the practice of railroads. Special charges, such as the state toll of five cents per ton which is collected upon all traffic at the port of San Francisco, are paid by the shipper in addition to the water rate. Water lines do not have the same liability for damage to freight carried as do railroads. Therefore cargoes shipped by water are usually insured. Some regular steamship lines absorb the charge for marine insurance in their rates. This is especially true of the lines operating between north Atlantic and middle Atlantic ports, and also of the standard lake lines on westbound traffic since 1907. In the case of joint rail-and-water rates, the charge for marine insurance is also absorbed in some cases. Steamship lines whose rates do not include marine insurance will usually insure goods for the shipper for an additional charge. On shipments to south Atlantic and Gulf ports this charge amounts to 15 cents per $100.00 valuation, and on northbound shipments from Texas ports the charge is 20 cents. A shipper may insure his consignment with an insurance company, instead of the steamship company, if he prefers. Large shippers sometimes insure all of their consignments between certain ports for a year with some company, taking out what is known as a blanket policy. By this means they are able to effect a considerable saving. Publication of Tariffs.-The port-to-port business of steamship lines is not under the jurisdiction of the Interstate Commerce Commission. Therefore, the rates on such traffic need not be published and filed with the commission. The same is true of joint water rates. The more important lines, however, publish such tariffs and supplements for the convenience of the shipper, and in a number of cases voluntarily file such rates with the Interstate Commerce Commission. Joint rail-and-water rates are subject to the jurisdiction of the commission, and must be published and filed in the same manner as rail rates. The preparation and publication of such tariffs is much more complicated and expensive than is the case with tariffs of port-to-port rates. The latter tariffs may embrace but a comparatively few ports, while the former may contain rates for several thousand points of origin, and as many more points of destination. Joint tariffs of rail-and-water rates are usually published in one of three ways: (1) by a water line with the participating rail lines concurring; (2) by a railroad with the participating water lines concurring; (3) by an agent representing either a number of rail lines or water lines, or both. A good example of the publication of tariffs of joint rail-and-water rates by a water line is that of the Ocean Steamship Company of Savannah, which publishes and files with the Interstate Commerce Commission joint freight tariffs of class and commodity rates, southbound from north Atlantic ports and interior points to Savannah and Jacksonville. One of these tariffs (I. C. C. No. 315) applies to shipments from some 2,400 interior points in New England via Boston, and another to shipments from a large number of points in the territory east of the Pittsburgh and Buffalo line via New York. In making the joint rates from the New England territory, the various interior points are grouped and the rates from each group are made by adding certain arbitraries to the water rates from Boston. There are some ten groups in all, but group number 1 includes more than 90 per cent of all interior points covered by the tariff on Savannah shipments. The joint class rates for this group are higher than the Boston rates by the following arbitraries, which in almost all cases are considerably less than the local rates: The railroads connecting with the Ocean Steamship Company at Boston do not concur in the tariff and will not accept less than the full local rates on this through traffic. The Ocean Steamship Company, therefore, in order to publish through rates is obliged to absorb the difference between the above arbitraries and the local rates. In some instances this leaves as compensation for the water haul less than half the Boston rates. In other words, the company |