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Freight Rates and Regionalism*
Published online by Cambridge University Press: 07 November 2014
Extract
The freight rate structure is the price list at which railways sell their services. It is distinguished from the pricing systems of businesses other than public utilities by the degree of its differentiation or discrimination. Freight tolls are not based on cost except in a general way but on value of service. The carriers charge low rates on raw materials and basic commodities, the products of farm, forest, mine, and sea which will not stand higher rates and still move in volume, and they collect relatively heavier tolls on manufactured articles and general merchandise which are better able to bear such tolls. This differentiated pricing arrangement was devised to enlarge railway revenue by encouraging the movement of freight, the widening of market opportunities, and the settlement of the country. Though calculated chiefly to meet the financial requirements of the railways, the system aided business and advanced national interests. During the last twenty years, however, the conditions of transportation have so altered that a complete re-examination of the entire pricing system of railways is now required.
The need for this re-examination can be seen most clearly in terms of the historical development of the Canadian freight rate structure. During the period 1885 to 1915 railways benefited from improved technological efficiency, rapid growth in the volume of their traffic, and increasing density per mile of line. The gains from these changes went chiefly toward generous dividends on Canadian Pacific stock and capital re-investment in railway property. In addition, some important reductions in rates were granted. For the most part, these did not take the form of scaling down substantially all rates but of cutting the tolls on basic commodities and the rates to various sections of the Dominion.
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- Information
- Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 14 , Issue 4 , November 1948 , pp. 427 - 440
- Copyright
- Copyright © Canadian Political Science Association 1948
Footnotes
*
This paper was presented at the annual meeting of the Canadian Political Science Association in Vancouver, June 18, 1948.
The author acted as economic advisor to the Province of Saskatchewan in the General Increase Case, 1946-8. The views expressed in this article are his own and are not necessarily those of the province by which he was employed.
References
1 In 1874 the Grand Trunk introduced a tariff with four classes for merchandise and special columns for carloads of flour, grain, lumber, livestock, and a few other items. In 1884 the ancestor of the present classification with its ten classes and six multiples of first was devised by the railways in Ontario and Quebec. It was adopted by the Canadian Pacific north of Lake Superior in 1885 and west of Fort William in 1894. Meanwhile, in 1889, it was accepted by the Intercolonial, replacing an older four-class tariff, though the mileage scale was lower.
2 “Effective October 1st, 1888, to assist the milling trade to secure local Ontario and Quebec grain for milling, a low scale of Mileage rates was published on a level of from 40 per cent to 60 per cent less than the ‘Eighth Class’ rates [the standard classification for grain] in the Maximum Standard Tariff of January 1st, 1884.” Wells, C. W., Domestic Freight Rate Structure: A Verbatim Report of the Lectures in the Course on Traffic (Toronto, 1945).Google Scholar
3 Regina Tolls Case, (1912) 11 C.R.C. 380 at pp. 387-9.
4 Statutes of Canada, 1897, 60-1 Vict., c. 5.
5 Manitoba Statutes, 1901, c. 39; Statutes of Canada, 1901, c. 53.
6 The original total reduction on the Canadian Northern was 4 cents but when the Canadian Pacific agreed to be bound by the scale the reduction was limited to 3 cents.
7 “The result of the [Manitoba] agreement was that, although the operations of the Canadian Northern at that time were comparatively small, for competitive reasons the Canadian Pacific was compelled to accept the scale of rates that the Canadian Northern had been paid to adopt and to put in decreases which … the Canadian Pacific thought could but result in the insolvency of the Canadian Northern.” Western Rates Case, (1914) 17 C.R.C. 123 at p. 215.Google Scholar
8 The Crow's Nest Pass Agreement legally applied only to the Canadian Pacific lines as they existed in 1897 but that carrier voluntarily extended the rates to other parts of its line as extensions were built. Furthermore, complementary to accepting the Manitoba agreement, the Canadian Pacific voluntarily cut all its rates in what is now the provinces of Alberta and Saskatchewan by 7½ per cent.
9 “When the statute was passed and when the [Crow's Nest Pass] agreement was made, the law prohibited unjust discrimination between localities and while Parliament did not stipulate for similar reductions over the western portions of the company's railway, it should not, in my opinion, be considered as having authorized what would, if done otherwise, have produced unjust discrimination.” Coast Cities Case, (1908) 7 C.R.C. 125 at p. 146.Google Scholar For similar reasons reductions were ordered in Regina Tolls Case, 11 C.R.C. 380 and Western Rates Case, 17 C.R.C. 123.
10 The same reduction applied, to a less extent, to rates on coal oil and apples. Tolls … Increase, (1917) 22 C.R.C. 49 at pp. 58-9.
11 Jackman, W. T., Economic Principles of Transportation (Toronto, 1935), pp. 245–6.Google Scholar
12 Debates of the House of Commons, 1886, pp. 585–99Google Scholar, passim, the reports of Dr.McLean, S. J. (Rate Grievances on Canadian Railways, Canada, Sessional Papers, 1902, no. 20a)Google Scholar and the cases before the Board (e.g., Sydenham Glass Co., (1904) 3 C.R.C. 409; Brant Milling Co., (1904) 4 C.R.C. 259; Kennedy v. Quebec and Lake St. John Ry. Co., (1911) 14 C.R.C. 161) indicate that unreasonably preferential treatment was not uncommon. It is, of course, impossible at this late date to ascertain the extent, if any, to which the railways surreptitiously allowed departures from the published rates before the Board was able to curb the practice.
13 Wells, , “Domestic Freight Rate Structure,” pp. 72–3.Google Scholar
14 The canal on the Canadian side of the St. Mary's River between Lakes Superior and Huron was completed in 1895 and the Welland was deepened to 14 feet in 1887.
15 Canadian Pacific Railway, Annual Report to the Shareholders, 1913.Google Scholar
16 International Rates Case, Third Annual Report, (1908) B.R.C. 5.
17 Maritime Freight Rates Act, (1927) 17 Geo. V, c. 44, preamble.
18 In 1914 about one-third of the ton-miles on the Atlantic division of the Canadian Pacific (lines in New Brunswick and Maine) consisted of grain and flour.
19 Eastern Rates Case, 22 C.R.C. 4; Western Rates Case, 17 C.R.C. 123; Tolls … Increase, (1917) 22 C.R.C. 49; Twenty-Five Per Cent, (1918) 8 J.O.R.R. 277; Forty Per Cent, (1920) 26 C.R.C. 130; Re Freight Tolls, (1922) 27 C.R.C. 153.
20 Forty Per Cent, 26 C.R.C. 130 at pp. 142-3.
21 “The Committee of the Privy Council therefore further recommend that … an inquiry by the Board be directed to be held … with a view to the establishment of rates meeting to the utmost extent possible the … requirement as to equalization.” P.C. 2434, Oct. 6, 1920, reprinted in (1920) 26 C.R.C. 147 at p. 151. “The Committee are of the opinion that the policy of equalization of freight rates should be recognized to the fullest possible extent as being the only means of dealing equitably with all parts of Canada and as being the method best calculated to facilitate the interchange of commodities between the various portions of the Dominion, as well as the encouragement of industry and agriculture and the development of export trade.” P.C. 886, June 5,1925, reprinted in (1927) 33 C.R.C. 127 at pp. 131-2.
22 Currie, A. W., “Freight Rates on Grain in Western Canada” (Canadian Historical Review, vol. XXI, no. 1, 03, 1940, pp. 40–55).CrossRefGoogle Scholar
23 The rates from Calgary and points east are based not on the actual mileage (642) from that city to Vancouver, but on an assumed mileage of 766, the distance from Edmonton to Vancouver.
24 Originally rates under the Pacific standard tariff were twice as high per mile as the standard mileage rate under the Prairie scale. Under the Western Rates Case, 17 C.R.C. 123, the basis was changed to one and a half and under Freight Tolls, (1922) 27 C.R.C. 153, to one and a quarter. Equality was denied in General Investigation, (1925–1927) 33 C.R.C. 127 at pp. 137–53.Google Scholar
25 Statutes of Canada, 1922, 12-13 Geo. V, c. 41; 1925, 15-16 Geo. V, c. 52.
26 In 1927 the rates on export wheat to Quebec from Armstrong, Ont., which is the same distance from Winnipeg on the National Transcontinental as Fort William on the Canadian Pacific, were put on the same basis per ton-mile as the Crow's Nest Pass rates, being reduced from 34½ to 18.34 cents a hundred pounds. The Board, and subsequently the Cabinet, refused to reduce the rates on export grain from Armstrong to Halifax from 35½ to 19.34 cents, thus retaining the long recognized differential of 1 cent a hundred pounds of Halifax above Quebec city. In 1929 and again in 1931 the export rate on grain from Georgian Bay to Atlantic ports was cut to meet corresponding reductions made by United States roads. Jackman, , Economic Principles of Transportation, pp. 478–88.Google Scholar
27 By P.C. 886, quoted, in part, in n. 2, supra.
28 “As a result of special attention to design, English builders began to turn out in 1923 and 1924 a highly economical lower lake steamer capable of carrying 15 to 30 per cent more wheat at the same daily operating costs.” Brown, F. H., “Canadian Lake Shipping,” in Innis, H. A. and Plumptre, A. F. W., The Canadian Economy and Its Problems (Toronto, 1934), pp. 92–3.Google Scholar
29 No. 17, issued in 1925, was a more or less complete revision and took a number of years to accomplish. It was changed but only in minor respects by no. 18, 1929.
30 Nova Scotia, Royal Commission of Inquiry, Report (Halifax, 1934), pp. 58–68.Google Scholar
31 This becomes rampant at times when traffic is declining in volume. The current agitation of the Canadian Automotive Truckers Association for rate control in Ontario indicates that it rarely disappears entirely.
32 Jones, Eliot, Principles of Railway Transportation (New York, 1924), pp. 171–82.Google Scholar
33 Application of the Railway Association for a General Increase, (1948) 38 J.O.R.R. 1 at pp. 18-22.
34 Ibid., at pp. 35-6.
35 The shabby treatment by Canada of shareholders in the Grand Trunk in comparison with its solicitude for the owners of the Canadian Pacific who also lived in Britain, has often been commented upon. It may be significant that the head office of the one was in London and the other in Montreal.
36 Though Sir John Macdonald contemplated disallowing the agreement of Manitoba with the Northern Pacific. SirPope, Joseph (ed.), Correspondence of Sir John Macdonald (Toronto, 1924), pp. 403–4.Google Scholar
37 “We all recognize that rapidity, efficiency and cheapness in transport are just as vital to a new country as that the products it creates shall be high enough in quality and low enough in cost to satisfy the markets of the world.… [We] cannot study the commercial development of our country without concluding that what we are, apart from the natural richness of our country and the energy of our people, we owe mainly to the aid given our governments to facilitate transportation.” General Manager, Canadian Bank of Commerce, Address at the Annual Meeting, 1900.Google Scholar
38 The Conservatives, most of whom were from Ontario, fought the restoration of the Crow's Nest Pass rates in 1922 and one Liberal from Ontario bolted his party. Also both large railways warned of the danger of reductions made without full realization of their financial position. “Were rates in Canada to be determined for reasons of political expediency or as the result of political pressure, Canada … would take a backward step. In public discussions of the subject the value of the work of the transport companies … is frankly recognized, but the fact that the work can only be carried on successfully under a fair scale of rates is sometimes overlooked.” Canadian Pacific Railway. Annual Report, 1924.Google Scholar
39 Statement of the Honourable M. F. Hepburn to the Royal Commission on Dominion-Provincial Relations (Toronto, 1938), p. 38. Before the House of Commons Committee on Railways, 1938, Mr. S. W. Fairweather, then head of the Bureau of Economics of the Canadian National, stated that a reasonable average crop (400 million bushels) would give an increase in net revenue of about $12 million over a crop failure (165 million bushels) while a bumper crop (560 million) would give $20 million net.
40 The pipeline from Portland, Maine, to Montreal competes in normal times only with water, not rail, carriers. The one from Turner valley and the projected ones from Calgary and Leduc to Moose Jaw and Regina will displace rail traffic. On account of the potential competition from Calgary to Regina the railways in 1936 cut their rates on crude petroleum in carloads from 68 to 27 cents a hundred pounds and later to 19 cents for single shipments of twenty-five cars or more. The latter rate was cancelled by the Board as being unjustly discriminatory against smaller refineries which could not buy in such large quantities. Consumers Co-operative Refineries Ltd. v. C.N.R. and C.P.R., (1937) 47 C.R.C. 321. See also Re Freight Rates on Crude Petroleum Oil Carloads, (1934) 42 C.R.C. 287. Imperial Oil Ltd. estimates that the proposed pipe-line from Leduc to Regina will cost $36 million and will cut the present rail rate of nearly $1.00 a barrel (80 cents before the recent increase) to 30 cents.
41 “Secondary power generated in the Saguenay district is currently displacing about 540,000 tons of coal per year.” Royal Commission on Coal, Report (Ottawa, 1946), p. 391.Google Scholar For many reasons this project did not rob the rails of this amount of business but the figure given indicates the extent to which the use of hydro-electricity reduces the traffic in solid fuel. “If the same amount and kind of energy as was obtained from water power had been obtained from coal, it is estimated that it would have required about 15 million tons of bituminous coal in 1937 and about 25 million tons in 1943.” Ibid., p. 380.
42 The recent erection of yeast factories in the West has deprived the express companies of some profitable business.
43 This may be a matter of dispute because the war led to the abandonment of many coastal and intercoastal routes while higher wage costs and shorter hours owing to unionization of seamen have raised the costs of ship operation.
44 In accordance with (1945) 262 I.C.C. 447, United States railways and the Commission are abolishing commodity rates or exceptions as they are often called in that country and installing thirty classes ranging from 13 to 400 per cent of the present first. This will restore the classification to its original status of covering all freight. Simultaneously the classification is to be made uniform all across the country replacing the three or more currently in effect. In Canada it might be easier to adopt a classification similar to the American one. Our classification is already uniform (except on the White Pass and Yukon and in regard to mixing) but the relationship between the rates is different in eastern than in western Canada. Also our commodity rates, though related in a general way to the corresponding class rate, are rarely quoted as a percentage of the latter as is common in the United States. That country is also eliminating all differences in regional rate levels.
45 The Canadian Pacific Transport Co. owns a series of franchises for highway trucking services for the entire distance from Winnipeg to Princeton, B.C., 225 miles east of Vancouver, except for a gap of about 150 miles between Creston and Osoyoos, B.C. It is understood that additional purchases in Ontario have been discussed but not yet consummated.
46 Fairweather, S. W., “A Transportation Paradox” (Engineering Journal, 01, 1948, pp. 11–14).Google Scholar
47 The current application of United States railroads for materially increased rates on small lots may indicate that they are slowly withdrawing from the field which trucks have claimed they can serve more economically than the rails. See also Transportation Investigation and Research Board, Comparison of Rail, Motor, and Water Carrier Costs, H. Doc. 84, 79th Cong., 1st Sess. (1945).
48 According to the freight traffic manager of the Canadian National not more than 5 per cent of the traffic now moves under standard mileage rates. The rest is handled under a variety of tolls—commodity mileage scales, special commodity, water and truck compelled, agreed charges and so on.