Januarj 



VJ22 



HARDWOOD RECORD 



19 



war, but this Is not true of the lower grades, and the average log-ruu price 

 nt the mills appears to be approximately at the pre-war level. 



To meet the changed market conditions complainants have made sub- 

 stantial reductions in their operating costs. Wages, which constitute a 

 large part o£ these costs, have been reduced 50 per cent in the past year. 

 Production costs generally are now very near the pre-war basis, and it is 

 said that no further economies in this direction are practicable. Com- 

 plainants admit that transportation cliarges can not be said to have caused 

 their present condition, and this admission is confirmed by the fact that 

 prices of hardwood lumber at such a destination point as Cincinnati, Ohio, 

 were, generally speaking, materially lower after the freight increases of 

 August 26, 1920, than immediately prior thereto, but they point out that 

 such charges now constitute the only element of cost which has not been 

 reduced. 



The plea for the removal of the 1920 increases is based primarily on the 

 effect of those increases on the long-haul traffic. The center of production 

 has gradually shifted southward, first to the southern Appalachian region 

 and latterly to the lower Mississippi Valley, which includes Arkansas, Mis- 

 sippi. Louisiana, eastern Texas, and eastern Oklahoma, and is the last great 

 reserve of hardwoods in this country. On the other hand, the great con- 

 suming markets are still in the northern states of Illinois, Indiana, Michi- 

 gan, Ohio, New York and Pennsylvania, and a large part of the southern 

 output must be disposed of there, if at all. 



Complainants do not contend that the rates from the south have ever 

 been related to those from the north by fixed differentials, but say that 

 the differences actually existing August 25, 1920, were the outgrowth of 

 long experience and represented an adjustment which permitted the move- 

 ment of the long-haul traffic from the south. General order No. 28, because 

 of its maximum provision, did not disrupt materially this relationship, but 

 the percentage increases of 1920 naturally increased the long-haul rates 

 by greater amounts per unit than the short-haul rates. Representative 

 lumbermen testified that if they were put back on the differences formerly 

 in effect between the north and the south, they could and would resume 

 operation ; that the readjustment asked would not necessarily stimulate 

 the consumption of lumber but would enable the southern hardwood deal- 

 ers to enjoy a greater market in a large part of the consuming territory, 

 and that if the former relationship were restored, "but on a higher level, 

 we will take our chances so far as the rate is concerned." 



Changes in Eelationsliip 



The changes in relationship which have resulted from the 1920 increases 

 are illustrated by the following table of rates on hardwood lumber in cents 

 per 100 pounds : 



To Chicago, 111. To Detroit, Mich. To Buffalo, N. T. 

 Aug. 25, Aug. 20, Aug. 25. Aug. 2G, Aug. 25, Aug. 26, 



From — 1920 1920 1920 1920 1920 1920 



Cents Cents Cents Cents Cents Cents 



Wausau, Wis 12.5 17 25.5 34 29.5 39.5 



Memphis, Tenn 24.5 32.5 2.S.5 38 29.5 39.5 



Campbellsville. Ky. . . 26.5 ' 35 26.5 35.5 26 34.5 



Salt Lick, Ky 23.5 33 19.5 27.5 22 31 



Charleston, Miss 28.5 38 32.5 43.5 33.5 44.5 



Little Rock, Ark 29.5 40 33.5 44.5 38 50.5 



lirewton, Ala 31.5 42 35.5 47.5 38 50.5 



Alexandria. La 32.5 44 36.5 48.5 41 54.5 



' In effect Dec. 1, 1920. 



Complainants' principal northern competition comes from the Wisconsin 

 and Michigan mills. Chicago is the largest hardwood consuming point in 

 the country. The Augtist, 1920, increase in rate from Wausau, Wis., to 

 Chicago was 4.5 cents, as compared with an increase to the same point from 

 Memphis of 8 cents, from Campbellsville of 8.5 cents, from Salt Lick and 

 Charleston of 9.5 cents, from Little Rock and Brewton of 10.5 cents, and 

 from Alexandria of 11.5 cents. Applied to rough seasoned oak lumber the 

 increase from Wausau would amount to .?2.02 per 1,000 feet, or $24.75 

 per car of 55,000 pounds, whereas the increases from the southern points 

 range from $3.60 to $5.18 per 1,000 feet and from $44 to $63.25 per car. 



The burden of the rate increases did not, of course, affect equall.v all 

 grades of lumber. Approximately 50 per cent of the lumber produced from 

 the ordinary run of logs is known as low-grade lumber. While the high 

 and medium grades can still be marketed to a considerable extent, it is 

 claimed that the low-grade lumber, which is now selling at the mill at pre- 

 war prices or less, can not under existing business conditions bear the 

 transportation charges to the markets where it was formerly sold. As 

 much of the low-grade lumber can not move except at an actual loss it is 

 accumulating at the mills, where it rapidly deteriorates. Low-grade lumber 

 has never yielded large profits, but its production is a necessary accom- 

 paniment of the production of the higher grades, and it must bring some- 

 thing in excess of the transportation charges if the business as a wdiole 

 is to be successfully carried on. 



Increased Movement Explained 



Defendants oppose the reductions sftught primarily because of their own 

 unfavorable financial condition and secondarily because, in their judgment, 

 the rates assailed are not unreasonable and are not responsible for the 

 present plight of complainants. The testimony shows that more hardwood 

 moved from certain points in the south during selectetl periods of 1921 

 than moved during corresponding periods in 1920. As previously indicated, 

 however, the increased movement dtiring 1921 may be attributed, at least 

 in part, to the fact that large stocks of lumber were on hand at the begin- 

 ning of the year and also to unexpired contracts previously entered into. 



During the period of eight months ended August 31, 1921, the net rail- 

 way operating income of class-I railroads for the continental United States 



yielded a return of 2.G4 per cent. In that period the return In the eastern 

 district was 2.35 per cent, in the Pocahontas district 4.36 per cent, and 

 in the southern district 1.58 per cent. For August, 1921, the returns were 

 5.02 per cent for all class-I railroads, 4.02 for the eastern district, 5.01 

 per cent for the Pocahontas district, 0.47 per cent for the western district, 

 and 2.80 per cent for the southern district. For September, 1921, the re- 

 turn for all class! railroads was 4.28 per cent, a decrease of 0.14 per cent 

 under August, while the return for the southern district was 3.77 per cent, 

 an increase of 0.97 per cent over August. The operating ratio was prac- 

 tically the same in the two n;onths. The above returns arc based upon the 

 value of the property used in the service of transportation, as found by us 

 in Increased Rates, 1920, supra, with certain adjustments reflecting subse- 

 quent additions and betterments. 



The statement is made that the increase in recent months In net railway 

 operating income is more apparent than real and has been acompllshed 

 to a large extent at the expense of maintalnance. However, from car- 

 riers' reports on file with us it appears that the expenditure for mainte- 

 nance in recent months has exceeded the expenditure tor maintenance dur- 

 ing comparable months in the test period of 1914 to 1917. The expendi- 

 ture for maintenance in September, 1921, was 2.13 times the average for 

 September in the test period. But in this connection we do not overlook 

 the fact that during these periods equal expenditures did not result In 

 equal amounts of work accomplished, due to the increased cost of materials, 

 the higher level of wages, and other causes prevalent during and since the 

 war. It is also apparent from the record that the expenditure for mainte- 

 nance of certain of the defendants in recent months is below normal. 



While the above figures reflect a rather unfavorable financial condition 

 of the defendants for the periods named, this fact does not preclude us 

 from finding particular rates or rates on particular commodities to be un- 

 reasonable when the facts arc sufticient to justify such a finding. 

 Lumber Outlook Discouraging 



The present financial condition and business outlook of the southern 

 hardwood industry are far from encouraging. Defendants Insist that this 

 condition has resulted largely from stagnation in building and general busi- 

 ness depression as well as from the increased use in recent years of cement 

 and other lumber substitutes and is not the result of increased freight 

 rates. On the other hand, as already pointed out, there is conshlerable 

 testimony to the effect that if the reductions sought are established many 

 of the lumber mills would resume operations. Complainants urge that the 

 situation here is similar to that in Rates on Grain, Grain Products, and 

 Hay, 64 I. C. C, 85. Our conclusions herein make extended comment upon 

 this contention unnecessary, but the fact must not be overlooked that the 

 carriers in the western district, which was principally affected by our de- 

 cision in the Grain Case, were earning, as a whole, during a period shortly 

 before our report in that case was issued, a return somewhat in excess of 

 the return to which they were entitled under the transportation act, 1920, 

 whereas the carriers principally affected in the present case are and have 

 been earning as a whole substantially less than the return to which they 

 are entitled under the law. Nevertheless it does not necessarily follow that 

 the present earnings on hardwood lumber are properly adjusted to the 

 aggregate earnings of the region, or that some readjustment may not be 

 reasonable. 



Complainants emphasize the fact that, because of the relatively long 

 haul of hardwood lumber from southern points to consuming points in 

 central and eastern trunk line territory, the percentage increase has had 

 a peculiarly disturbing effect upon their business. We are convinced that 

 there is merit in this point. In Increased Rates. 1920, supra, we recognized 

 the probability that the percentjige increases therein authorized might 

 require readjustments both in the level of the rates and in their relation- 

 ship. We there said : 



Most of the factors with which we are dealing are constantly changing. 

 It is impossible to forecast with any degree of certainty what the volume 

 of tralBc will be. The general price level is changing from month to month 

 anil from day to day. It is impracticable at this time to adjust all of the 

 rates on individual commodities. The rates to he established on the basis 

 hereinbefore approved must necessarily be subject to such readjustments as 

 the facts may warrant. It is conceded by the carriers that readjustments 

 will be necessary. It is expected that shippers will take these matters up 

 in the first instance with the carriers, and the latter will be expecteil to 

 deal promptly and effectively therewith, to the end that necessary readjust- 

 ments may be made in as many instances as practicable without appeal 

 to us. 



Following that admonition, complainants .sought to induce defendants 

 voluntarily to readjust their rates, and with that object In view several 

 conferences were held. These conferences failed to bring about a result 

 satisfactory to complainants. 



Relationship Disturhed 



The percentage Increases, as applied to rates on hardwood lumber from 

 points on defendants' lines to points in western trunk line, central freight, 

 and eastern trunk line territories have to a considerable extent disttirbed 

 the relationship of rates between the more distant hanlwood-producing 

 points of the South and the comparatively near-by producing points of 

 Michigan, Wisconsin and other northern states. Manifestly this disturb- 

 ance has been greater at some points than at others and the present record 

 is inadequate for determination of the precise extent to which this dis- 

 turbance has resulted at all destination points involved. In the basis which 

 we prescribe herein, a consideration has been given to the measure of the 

 rates and also to a contraction of the spread between the rates from north- 

 ern and southern pr(iducinK points to common markets, with a view to 

 making the spread for the future bear a closer relationship to that which 



