Full text of "Work materials ..."

iiiiiftl

3 9999 06317 o»o

OFFICE OF NATIONAL RECOVERY ADMINISTRATION
DIVISION OF REVIEW

,, E. A. RECORDo
:)EPARTMEH^ 0^_

THE CONTROL OF GEOGRAPHIC PRICE RELATIONS UNDER
CODES OF FAIR COMPETITION

Gustav Seidler, Jr.

WORK MATERIALS NO. 86

TRADE PRACTICE STUDIES SECTION
MARCH, 1936

Ci'PI^3E OF A'ATICWaL -.ZCO'i;rlY ADIaiyiSTRATIGrT
DIVISIOF GF :.iEVIEV,'

TiS CClvTI^OL CF GEOGRAPHIC PRICE :ELaTIONS tji\teER

ccnss GP Fair cg;;petitign
By

C-ustav Se idler, Jr.

TRADE practice 3TTJDIE3 SECTION

March, 1936

9864

This re-oort on Control of Geo-^ra-ohic Price Relftions was prep?>red
by Mr. Gustav Seidler, Jr., of the Tr-^de Practice Studies Section,
Mr. Cor' in D. Ed',v.'^rds in cl-iar.r-'.e. Under Mr. Seidler' s general super-
vision, llr. G. P. Dougherty'" wrote the chapter on the lumber and timber
products industries, and kr. v;. C. 7rench, Jr., prepared the materials
relating- to the ironpnd steel industry.

The main objective of the report is to contribute to a clarification
of the character and effects of tmoe practices ^^hich bear on the
geographic differentiation of prices. It is shor?n that the widely held
opinion according to '^hich all and any price discrimination is
monopolistic does not do justice to the matter and is insufficient for
an understanding of the real -oroblems involved. Any appraisal in terms
of public policy must be based en the compatibility of the iDricing
practices reviewed with specific and well-defined objectives of public
policy such as, for instance, the maximization of the real national in-
come, economic development of geographic districts in conformity with
shifts in the population, and a number of others.

Due to limitations of time and personnel, the present report does
not represent a complete and finished treatment of the matter. Only
two of the major industries in which geographic pricing devices such as
basing points and zoning systems played a significant role under iIRA,
could be afforded a somewhat detailed treatment. These industries are
the iron and steel industry and the lumber and timber products industries.
Other interesting cases such as the cement industry, the lime industry,
the salt industry and a niiraber of other industries could be given only
passing attention. But even the lumber industries and the iron and
steel industry, to which the second and third chapters of this study are
devoted, have not been covered in all their pertinent aspects.

In the chapter on lumber, emphasis is placed on the intricate adjnin-
istrative aspects of the implementation of delivered price equalization
according to a general plan. In the steel chapter the pre-code develop-
ment of the elaborate ba sing-point system which the code sanctioned in
substantially unchanged form, and the structural bsc^<:ground of the in-
dustry have been afforded the most detailed treatment.

The anti-dumping provision of the ice industry code is briefly
dealt '"'ith in a special appendix.

The author of this report assume?, personal responsibility for all
conclusions reached. These conclusions are not to be taken as an
official statement of any Government agency.

At the back of this report will be found a brief statement of the
studies -undertaken by the Division of Review. Particularly worthy of
mention in connection with the present study are 7/orl- Materials i-Jo. 63,
the Fertilizer Industry Study.

9864

Production and Capacity Control in the Ice Industry; Y'o. 64 and No. 79.
Zconomic Problems of the Lumber aari Timber Products Industry.

L. C. ilsrsliall
Director, Division of HevisT

Liarch 26, 1936

9864

TAELi O F COKTEIITS

Paffe

iPorevrord i

Table of Contents

List of Tables

List of Ciirrts and lia^ps

Surn^nary ;

Chapter I. Trade Practice and Sconomic Issues Involved 5

I. Gsof^raoliic Pricing- provisionri in I'3A Codes 5

II. Geographic pricing practices "efined 6

A. Pra.ctices Hegarding Transportation G^iarges 5

1. 1.0.3. Pricing 5

2. Delivered Pricing 7

a. Based on Actual Transportation Charges. ... 7

b. Uniform for Zones 8

c. ";>"itri freight "Equalization 8

d. j'ith Basing points 9

B. Practices ilegarding the price risking Process within

Certain Areas 10

1. price Piling Zones 10

2. Anti-Luraping Zones. ( "jiar^-e-t Areas'') 11

III. possible Criteria as to tue Coraparabilit)'- of Geographic

Price Discrimination vitn KRii. policy 12

A. The Case against Geogrspiiic price Discrinination:

The Law of Competitive iviarket Areas 13

B. Factors Inducing Geographic Price Discriraination;

Patterns of Industry Structure and Patterns of
Geographic Price Structure 15

C. The Developnent of IPlA Policy with Hespect to

Geographic Pricing Practices 22

9864

IV. 3rief Analysis of Some Inoortant Aspects of the Operation

of C-eographic Pricing Letliods 26

A. Introductory Zemnrkc _;egarding Locr.tion of Industries

end Transportation Goi;t 26

3. Analysis of the Operation of Virious Geographic

Pricing liethods 28

1. P.O. 3. Liill Pricing- 29

2. Eelivered pricing (based upon other than actual

freight darges) 31

e. Basing points pna Preight Equalization ... 32
"b. Unifor.^ Delivered Prices 39

3. Anti-Diiinping Zones end price Piling Zones. ... 42

V. Conclusions as to the Econonic Chcracter of the

G-eographic price Practices 3.eviev.-ed 43

Chapter II. Basing Point, Preight "Xiualizj^ting and Zoning Systems
in the Lurnter and Timber products Industries ....

I. Brief Statement of tl.e Condition of the Lu-nber Industries

Prior to the Code 51

A. Description of the Industry 51

B. Chief Problems of the Industry 55

II. Cost ProtectiOi Prices and Their Ad;"jinistrr.tion under

the code 59

A. Chief provisions of the Code for the Lvunber and

Timber Products Industries 59

B. Article IX: Cost Protection prices 59

0. The Institution of Cost Protection Prices, and the

Pirst Series of Price Bulletins 60

D. Cost Iietermiaetion Attempted: The Second Series of

Price B'alletins 70

Z. Interspecie ojid Interdivisional price

Coordina.tion 79

P. The Problem of Belancing Total Preight Charges
Paid the Carriers and Preight Included in De-
livered prices in Each Division 90

9864

G. Emergency Prices and Fieasonnble Costs: The Third

Series of Price Bvillctins 92

III. Geographic Pricing Practices in the Lumber and Timber

Proclacts Industries 98

A. Basinti' Point Systems 107

1. Soutnern Pine Division 107

a. Delivered pricin^; in tne Industry Before

tnc Code 107

b. The Original Lules end Regulations for De-

livered pricing under the Code 108

c. .?Levisions in the Regulations 112

d. lurther Revisions in the He,.;;;ulations .... 121

e. Conclusions Aespectin^ Delivered Price

"Equalization in the Southern Pine Division. 129

2. The Llaple, Eeecn and Birch Flooring Division . . 134

3. Oak flooring Division 146

4. h'estern pine Division 154

5. Cypress Division 156

6. northern Plardwooa Sub-division 158

7. ilorthern Hemlock Division 159

8. Korthern pine Division 161

9. Hedr,'ood Division 162

10. Special Woodi7ork Sub-division 154

11. '.Tirebound Box Sub-division 15S

12. SjE-g Case Sub-division 167

13. Stained Siiingle Sub-division 158

B. liiill Group and Delivered Price Group Adjustments . . 169

1. The Appalachian pnd Southern Eard'ijood Sub-

division 169

2. The ITorth Central Hardv.ood Sub-division 178

9864

Paige

C. Delivered Price Zones 185

1. The walnut Sub-division 185

2. Tl.e i'iaiiogany Sub-aivision 187

3. The Southern Rotary Cut Lunfcer Sub-division . . . 190

4. Stock Manufacturers (Woodwork) Sub-division , . . 194

5. Sawed-Box, Shook, Crate ana Trry Sub-division . . 195

6. Pljrwood Package Sub-division 196

7. The American Veneer Package Sub-division .... 197

8. The Pacific Veneer Package Sub-division 198

9. The Standard Container Sub-division 199

10. pl;y.vood Sub-division 199

11. Commercial Veneer Sub-division 200

12. The Douglas Pir plyivood Sub-division 202

D. F.O.B. Llill Pricing 202

1. The '"Jest Coast Logging and Lumber Division. . . . 202

2. The Northeastern Softwood Division 208

3. The Northeastern Hardwood Division 209

4. The Philippine Llaiiogany Sub-division 210

5. Tae Hed Cedar Shingle Division 211

6. The Broom and Lion Handle Division 212

IV. Conclusions 214

Exhibit A 219

Exhibit B 223

Exhibit C ■ 228

Exhibit D 230

9864

page
Ciiapter III. Preli.ainary Haterirls Relating to the Basing Point

System in the Iron and Steal Industry 232

I. Brief Statement of the FroLleas Involved 232

II. Structural and Economic Background of the Iron and Steel

Industry 234

A. products and processes 234

1. Products 234

2. Pi-ocesses 236

B. Structure and Location of the Industry 237

1. General Survey 237

2. Analysis of Product Groups 239

C. Cost Structui-e of production 239

ID. DistriDution and Mar]t:ets 242

1. Channels of Distribution 242

2. Trans-|7ortation 242

3. Markets 243

S. Production and Prices 244

1. Production 244

2. Prices 244

III. The Pre-Code Basing point System 249

A. The Pittsburgh-Plus System 249

1. Inception of ths Pi ttsburgh-Plus System 249

2. Pricing Policies Following the Organization

of the Ui. S. Steel Corporation 251

3. Effects of the Pitt sburgh -Plus System 253

4. The Abrogation of the Pitt sburgh -Plus System . . 254

B. The Pre-Code Multiple Basing Point System 257

IV. The Code of Piar Competition 263

A. Code Provisions and Administration 263

985§

-VI 1-

1. Code Provisions 263

2. AdTiinistration ii67

3. Protesto and Co^n-oln.ints 2G8

2.. Effecos of the Code wita respect to the Basing

Point System 278

1. Character of the Pricing System 273

2. ITuiTiber of Basing- Points 280

V. Conclusions 281

Ap-oendix I. Methods Employed in the Report on Control of
Geographic Price P.elations and Further Lines

of Aiir.lysis Hecessary to Complete tae Stud^'' . . . 252

Ap-iendix II. The Anti-Dumping Provision in the Code for

the Ice Industry 2P6

Appeiadix III. Tahles 314

Ap;oeadix IV. Charts and Maps 420

9864

[■..ILE jC,

and Basing Point Areas, IS

1 Production of Softwoods by Principal Producing:; Regions, 19'^9-193.3.

2 Production of Hardwjods " " " " , 1939-1931.

3 PercantaA'o Distribution of Luiiber Production, bv Regions, 1849-193-'i-.

4 Comparison of yearly Lumber Production, 1919-1935, and estimated

Capacit:/ of the Industry in 19';'.9.

5 Per Capita consumption of Lumber and Timber Products, 1309-1934.
5 ilet Income of Sav/mill and Planning, kill Corporations.

7 Sales of Southern Yellow Pine from Virginia and 'Jorth Carolina to Indiana,

;achigan and Ohio, February aaid harch, 1934.

8 Pi-oduction and Shipments by Members of the Ma'ole, .Beecxi and Birch Plooring

Division of the Luiviber ci Timber Products Industries Code, 1934.

9 Comparison of 19-^,9-19.';P Shipments of l.iaple, Beech .and Bircn floorin;i into

each State in the U. S. arran.jed in GeOfjjrapnic-- 1 G-roups.

10 Distribution of Oak Flooring '^j States, Selected Periods, 1932 to 1935.

11 Oal: Flooring: Uumber and Capacity of I'lills and Production Uixits by States,

r.s of Fovember, 1935.
13 Productive Capacity for Pi,; Iron by Co.-rnanies

13 " » ' "Blooms, Billets c. Slabs " " " " "

14 " " "Si.eec c. ■ in Plpte Bars ^ •' " " " "
lo " " " Plates " " " ■'' "

16 » " " Sheets " " " " "

17 " » " Tin i.;iill Black Plate " " " " "

18 " " I' ;iot Polled Strips " '' " " "

19 " " " Cold P.olled Strips " " » " ''
30 " " " Merchant cc Concrete

Reinforcing Bars " " " " "
21 " " "...Structural Shapes " " " " "

23 " " " Skelp " " " " "
33 " " " Pipe & Tubular Products" " " " "

24 " " » Tin Plate ^• Terne Plate" " " " "

35 " " " w'ire Hods " " " " ''

36 " " " Plain-Dra,wn '.7ire '' " " " "

27 " '" " '.71 re Products " " " "

28 I.iedian Average Size of Capacities and Percentage of Industry Capacity of

Iron £: Steel Companies.

29 Distribution of Iron and Steel Comrpanies by percentage of Industry Capacitj

193-..

30 Comparative Ixidustry Position of i.-iultiple iiill and Single Mill Comrpanies.

31 Distribution of Principal Iron L Steel Gompaiiies by ruinber of Major

Products Produced: 1934.

32 IndustrT Position of the Five Largest Steel Con^janies: 1934.

33 Average size of Blast Furnace Establishments: 1899-1933.

34 Average Sizes of Steel Works and Polling Mill Establishments, 1G99-1933.

35 Production of all Kinds of Pig Iron.

36 Indexes of Seasonal Variation for Aggregate Montnly production of Pig Iron

in each of several Districts and in tne entire U. S.

37 Steel Capacity, Production and Per cent Operations (ingots and Steel for

Castings). 1919-1934.

986f--

-I]

TABLE NO.

38
39
40
41

4?.

57
58
59
60
61
62
63
54

65
65

Production of -lot Rolled Iron and Steel Products, 1919-1934.

Location of Basing Points for Iron and Steel Products.

Distri'Dution of Capacity with Respect to Basing Points.

Interstate Distribution of Iron and Steel Products for all mills v/ithii

50 miles of Pittsburgh (3 months ending June 30, 1934).
Comparr.tive Geographical price Movements of Iron and Steel Products -

Pig Iron (Sasic) 1925-1936.
Comparative Geographical Price Movements of Iron and Steel Products -

Pig Iron (Bessemer) 1926-1935.
Comparative Geographical Price Movements of Iron and Steel Products -

Pig Iron (Malleable) 1925-1935.
Comparative Geographical Price Movements of Iron and Steel Products -

Pig Iron (Ho. 2 Foundry) 1925-1935.
Comparative Geographical Price Movements of Iron and Steel Products -

Billets and Blooms 1920-1935.
Comparative Geograr^hical Price iiovements of Iron and Steel Products -

Sheet Bars 1920-1935.
Comparative Geographical Price Movements of Iron and Steel Products -

Soft Steel Bars 1920-1935.
Comparative GeograDuical Price Movements of Iron and Steel Products -

Tank Plates 1920-1935.
Compara.tive Geographical Price Movements of Iron and Steel Products -

Tin Lill Black Plates 1920-1935.
Comparative Geographical Price Movements of Iron and Steel Products -

Cold Polled Strips 1920-1935.
Comparative Geographical Price Movements of Iron and Steel Products -

Structural Shapes 1920-1936.
Comparative Geographical Price Movements of Iron and Steel Products -

Galvanized Sheets 1920-1936.
Comparative Geographical Price Movements of Iron fsnd Steel Products -

Skelp 1920-1935.
Comparative Geographical Price Movements of Iron and Steel Products -

Tin Plate 1920-1936.
Comparative Geographical Price Movements of Iron and Steel Prodacts -

Wire Hods 1920-1935.
Prices of Major Rolled and Further Finished Products: 1919-1935.
Composite Finished Steel Products - Prices, 1919-1935.
Composite Price No. 1 Heavy Melting Steel Scrap (monthly), 1919-1935.
Composite Price Pig Iron " , 1919-1935.

General Price Level - Index (Monthly), 1919-1935.
Finished Products Price Index (Monthly), 1919-1935.
Com.posite Finished Steel Price Index (Monthly) , 1919-1935.
Cost of Production in the U. S. of Foundry Iron by Producing .Districts

for 18 mo. period, Jan. 1, 1929 - June 30, 1930.
Swnmary of Costs of Production in the U. S. by Grades and Districts, 1<
Manufacturing and Transportation Costs of Foiuidrj'- and Malleable Iron

plus Costs of Moving to Pnila. , ilew York and Boston, 1924.
Industry Position and Location of Plants of the Ten Largest Portland

Cement Companies in U. S.

9864

-X-

XA3LE KO

58 Estimated Manufac tearing and Selling- Cost of Portland Cement in
a Representative Plaint, at various operating CaiDacities,
classified by Items of Cost, August, 1932.

9864 _^j.

C HARTS .Aim MA PS

IvIAFS

Iron and Steel Capacity Map s

Map 1 - Pig Iron and Ferro-Alloys

Map 2 - Steel Ingots and Stnel for Castings

Map 3 - Blooms, Billets and Slabs

Ma-Q 4 - Structural Shapes

Map 5 - Steel Rails

Map 5 - Hot-Rolled Strip

Map 7 - Cold-Rolled Strir)

Ma:p 8 - Skelp

Ma,-D 9 - Pipe and Tubular Products

Mai:i 10- Plates

Man 11- Sheet Bars

Map 12- Sheets

Map 13- Tin Mill Black Plate

Mao 14- Tin Plate and Terne Plate

Map 16- Merchant and Concrete Reinforcing Bars

Ma'o 16- Cold Drawn Bars

Map 17- Wire Rods

Map 18- Plain Wire

Map 19- Wire Products

Lumber Zone Map

Map 20- Destination Zones for Walnut Industry

PRICE CHART S

Chart 1 - Composite Indexes of Finished Steel and

General Prices, 1919-1935.
Chart 2 - Composite Iron and Steel Prices, 1919-1935.

9864

-XII-

-1-

In th-^ firr.t chor^t^r of this r.tuc'v'- t,h-= dif-^-^r^nt t^-D^-n of ,r-0'^ra--)"nio
pricing -nra'^ti'^.es ar" c'c-fin'=^rT an'-", a-.^lysis of th^ =n,r.-io"iir oro'bT'^nr. to
'-hich tlT^.ir r-^ration "iv^s ric- is oif'^r^d.

All of the -or-a.ctices r^^vi^'-^i'' ai-= olassifi'^d into t'^o nain ^v^n-ns,
no.n^l:/, "oractio.os r°-,'~arfiln,T th^- anoiint and in'7.id='no,'? of trans^oortation
ohji.r.'^es, ano. Torrctic^^s r^pulatini!; th*' -pric^-makin^o: -Troc^sa ^ithin th'^ d=!-
fin'=^c', r°.frion.s. Tithin thi^. 'laln cIp.s -ifioation tli«N varlovi.s T)ri':*.iix2; prao-
ti'^°.s ?r° s'^"'iarrtRl''/ '"^if in'^^d.

lit'.: r^s-o^ot to th^ co-roatihilit;;' of th°s° •ora'^.tic^s (^STo^ciall^'- th<^
on-^s invoTvir." ■orio'^ 'lisorininrtion ''-)«t"'="=>n ar^as.' "ith ■ -i- -oo] in-", it is
su]3-ittpd thrt th=> fo— lal crit°.ri-n of "MO-io-T-listio." -mT "non-non'^-orliG-
tio" -oraotic^-s is rot a satisfactory "ba-iis for an"- ?-^^raisal. In o"den
to "'^ach r, tiTi^^ a-o-ir^^ciation of th=^ vario-as t:'7r)Ps of .?"^0:'-:ra-ohio, -orioin"
methods, it is n<^o.oo,g£.j"r to int°roret th'^n as sp'^cia.l forns o-" nofUf i^d —
or "i'To^rf-^ct" — oo'-Tn°tition and as th= consistent '=::^mr'='ssicn of ~T°c:\liar-
iti^s in th'. s'crn.i>:tur^ of th=i indM.Etri=:s and ■ir.r'r'^ts ^h°.r'=» th'^:'r =!::ist.
Their ^^val-oation in t'=?rns of -oT-^-hlic -oolicy cannot 'b°. hased on th-^ standard
of fr^!'^ and <?oual corTo=5tition '-^hich is too -onr^aliGtic an a.'bstraf.tion to
T3<3 r.s^ful for the a-roi-aisal of real conditions, ""c^-o-ii- an.alysis snp:-
gests that the geof:raphic pvicin-^ -ornctices str/i^d con'-ii"''^ in nost cases
desirahle and less desirable features. In ord^r to °li-ii"'.ate these less
desiraljle as-oects, .ju'-Ticial decre'=s or rdninistrative orders "'ill scarce-
l-''- siiffice, hilt --leac-ares directed tc-ard a chan-^e in th-^ -mderlTin" °co-
nonic strrctv.r-' ::i.st "'^e -imci-^rtaJten,

The stmct^iral in'^'istr- characteristics to '-'hich r°fer°nce Ib nade
are defined a.s -ori-'.r.ril"'' relatinr to th-^ n"i'"foer and si^e of ccn^anies,
their horiz'-ntal and vertical i-nt°:':rrtion, their cost structure of pro-
d-action ch?.ract^riz°d h-"- heav- overhead, the geographical distri'b-ation of
proc'ij.cing -:)0ints a.nr the histo-icrl -oa.tt^rn of -orofits of the industries
re-v-ieT-d.

""^it:! r°:'^ard to th'^ reogr"."ohic location of -orodixcin^ "anilities, it is
shr^-n that factors su'^li as occurr^nc or ch^a-o ass^nhl"'" of ra,'-' nat^rials
have hee-n the lair. def=n"iinants, '"hil-^ the ij.se of certa.i-". reO:""ra-nhic -oric-
ing Tractions svchi as haci?!'^- Tioint or zoning s''-stens ni'-ht ha.v^ had so'ie
'-.odi ""ing inf l\-!.°nce,

A distinction It 'n-'^de ■bet'-'=en those ^^ractices '"hich. are fle^iihl^
enou-h to --ler'it r=ad,jnstn^nts as frenii^ntlj'- as cha,nges in the economic
conditions necessitate the-i, and tiose '--hich tend to fr^^z^the geographic
pric^ structure. In. th" latt'-n- grouo helong rigid iDasing -ooint and zone
S3''st'^:-!s, "hide th^ use of fr=>ight. eoualiza-tion rnr'_ of th= fl^riihle "basing
point foriula "belongs to the for";er class.

In th^ cojiclusion of this •""=neral anadg'-sis rri atte-nt is nad° to shor'
that th^ soundness rf th<^ -nractices i-.-^vie-'-'ed sh'^uld Ije jud~ed according to
a t'-^o-fold criterion. ?irst is the ou-'stion a.s to '-'h'^th^r the-"- siiJO-Tort a,
geo'^ra.i^hic ciistrihution of -irodu'^tion -hioi^i tends to nah-^ th° total "oro-
duction, distri'bii.tion a.n^'' trans-oortation costs as Ic^ as -Tossihle, As a

S864

s^'^cnd crit^:.-ion is r.uTDnitt.°c. th^ t^^nd^nc^ of th°s^ prs/^.tic^G tr fcoi;'i-
trt^ ■o:'ic'= co-To^^titim or to ind.vr.^. pric<? a.?;r'?"''i^nts "nci pric'^ rigidit'^
"b^' r'=^gulatin:<^ o^^rtain '^=!0':;rn,r)hic- asp^^-ts of t h'=i ■nri'^-'=!-np.^'ini'^ process.

Th^' lain topics of tli^ s^oond ohnnot^r, -hioh d.'^pls --ith th« Ivno^r
inrinstri^^Tj, is, first, tli^ ".los^ relation '-'hioh '^r'ist'^d 'b^t'^'^'^.n "nir-i'T."!:!
pries fiid d^liv^r'=!d -^ric^ ^nnaliza.tiop n='asnr'^'", in this indiistry, d:\C.,
s<='Cond, tli^' intricate -oro'bl°.ns of ad-iinistratio-. '-'hicli aooo ripni^-d th^
irTol°n^nt?,tion of syst'^natic 6.=iliv^red T)rio,° °qv.a ligation,

Th° first part of th^ ohprot^.v att'^nots to s'^c-'- th= critical c^^-idi-
tion of tli= lunljar indiistri°.s a.t th'' ti.n th^ cod'^.^as forrTO.?t"d. ^h^-
•^sta'clislTi'^nt of nininun ""ost prot'^ction" -oriels '-r-'s a 'ipjor •olif's^ o:"
the indv.str^r' s a.ttenipt to find a solixtion to its difficulties thr^u-^h codi-
fication. Th-^ rininuj". -orio^s r^i.thoris'^^d in Articl-= 111 of th^ cod^ '-^r^
S"oecif icallj'" ota,ted to h= f.o.h. "lill oriels. Th'='-e "ps 'r.o provision for
"basing -00 ints, d=;1 iv^rec" ..iric^ zon^s, cr fr^^ir-ht en\ializatiOj^ of any t^'^",
ITevertheless, th=) first "orice hnlletins "ouhlish^d, in ->v°n"'o'-'r, !19''7, co:-'-
tained for a 'najority of the divisions and subdivisions, re^ula-ti^nn r^^-
quiring tin eaualization of deliv<='rer' -:>ric^s through the \\s°- of "basin"
points, delivered price zon°5 rn6. other devices r.do-^ted or invented t"
th° industry according to the needs of "larticular hran'"-hes of the industr^',
Sone kinc^ of eoualization of delivered ■oric='s —as, it ir- concluded, neces-
sary for the -laintenfeince of the nini-ru ■■. -oriceg, iT^cruse, in an induf.tr^'-
for Thich freif-ht charges ar= so lar^^e a. :oro-ocrtion of r>rice ,-^ -^liv^r^d to
the consrij^er and the T^roducts- of --hich are so hi.'rhl'"' standa/rdized, imless
all producers a.re ahl-'^ to n°et the -Dreva.ilin.p; de''^ivered price at c'estina-
tion, the lon,vhaul or f reight^-'ise distant nills are er-clucle''' fro"-! the
marhet. This eciua.lization ni-^ht conceivably have h^^n securer!, •-'ithout
regulations estahlishin.g hasing: points and price zones in the various di-
visions, had denanr^ for lumh^r increa.sec'' suff ici^ntl3'' and 'larhet nrices
"been enouf;h a.hove the ■:inina tr u'^rnit the lonf-har:! shiri-oers to a.osoro
fr°i.?ht "ithout sacrif icin,^, for ea.ch division a,s a Thol^, the -lininun
prices; hut since the ninina tended to function also as na:^ina, and since
the ■■a:').li:ut^d ahsorotion of frei^^ht i-'on.lc' h^ave neant th^' negation of the
principle of nini"nvT i^rices, control over the ciiota-tion of d^liv^re-'' -oriels
proved an intef^ral -oart of the cost -orotection nrice stracture.

Of chief si"nificance in this phas^- of the a.c'-'inistra.tion of Article
IX is corsidi=red to he the failiire' of the ITationa.l ?-°cove""- Adninistration
(^::ce-ot in isola,ter ca.sen) to re-rio-T p-.-^fi investigate th'^ eff'^^ct of the re-
gulations uoon th' nini;iun T^rii^es, since it -'a,s clearl''' -oossihle fn:.- a di-
vision to devise an ecualization s-"-ste:.i '-'hich •■'^"ild circuiv^-it th^ ^stah-
lished "liniraa, and ha.ve the effect of nainta^inin,': the aver8<?:^e n^t ■'■i°ld
(or price realization) at the 'lill for all its ■■i^nhers p''30v°- or helo'- tlie
'Tei'^hted average cost protection -orices. Tn '-r>at e::tent t'.is ^DOssihilit-
nateria.lized najr not he ]rj\o'-'n heca-use there ^-yo.-r'^ no c^ji-rent s'arve-"s co--—
■oleted sho'7ing the total of actual freight char-^es paid and the total of
freight anounts incl.ur'ed' in delivered "orices for all the -lenhers of a 'prv—
ticular division.

In the third part of th'^ cha;ot'r a cuj've^- is ■'.inc''^"^ta,':°n of th° -ora-c-
tices in the industries hrought -ander the li'.'iher and ti".her nroducts ir.'fus-
tries cod= '■dth res-oect to th^ ov.otation of deliv^r=d and f.o.h, ■■'.ill ■orices

9864

-3-

'3=for^., rMTinr rrfT sino^ th^ nod^. On th=! "basis of a necessarily incon-
pl^te inv=>sti,Tr>.tion, th? findinp is that in n'=tp.:rl-r oil th^s" infVstri'^r,
in th= ■or=.-'^cd'^ t)^: iod d^.livered i^ri^^is v-oi-p, ci\iot'^d rl'irst °.::crar,iv=*l'"'';
in onl""" four, ho'-^ev^r, are thes'? -orin^s ^rno'Tti to hav° "b^°n r=>lat^d to 'cas-
ing "ooints or -oYif.°. zones, adhered to -ar.d^r th^. I'^ad^rship of trade asso-
ciations.

Und^r the code, the divisional s^'-ste-ns for '^livered -orice eounli-
zation varied, includ.er! nu-ierons special nodif ications and adrritations,
hut thev are classified for th° -ourooses of this rev,ort under four gener-
al headings^ IJ'irst are oa.sing r)oint sj'-stens, --hich, in siT;ole or -lodified.
form -^'ere estahlished in sui'-h imortant divisions as the Southern Pin°
Division, ^est-^rn Pine Division, Cypress Division, Hed.-'ood Division and
the t'-^o floori^f-; divisions. In all, 13 divisions and subdivisions v.til-
ized one or nore hasing i^oints. Second, delivered, -orice zones '-•^r° =str.h-
lished in 12 divisions and suhdivisions; a majority'- of these '-ere -rod
fabricating indf.stries, hut the ^-'.-^Iniit and "lahopr^n-^'- industries retained
theii' pre-code uniforn delivered pricinf^ nractices. Th_ird., a special in-
str^ament for delivered lorice eoualization, to -hich th^ A-yoalachian a.nd.
Southern Hard^-ood. Subdivision gave the nan^ 'Till C-roUp and Delivered
Price G-rouo Adjustnent" '"as used in that subdivision and in the adjoining
ITorth C°ntrc.l iord'-'ood Subdivision, fourth, sir: divisions ?nd subdivisions
throiighout the -oeriod. of cost -orotection -oriceg naintained a -oractice of
f.o.b. nill -oricing, but in three of these, including the najor ^est Coast
Logging and Luiber Division, deliver°d i^rice ^o;ialization "as achieved for
special reasons without regulations, anr only thre^ ninor branches of the
industry -oresent gemiine erraTol^s of tha.t t'ro°. c'f -oricin.":.

'Tith th= sxis-o^nsif^n of cost -protection -oric~s on D°c"nber 22, 19"4,
the basing '00 ints and -orice zon°s ^established, to suoTOort the miniTun
prices ^e-r-^ aba.nd.oned, and the various lunber industries reverted, to ir-
regular delivered- -oricing, er^ce-ot tha.t th^ four industries vrhich had used
basing -looints and uniforn delive:.-=d -orici;!;- in the -ore-code T)=>riod in con-
nection "ith -orice re^oorting by trade associations retained those practices.
These -'ere th"^ -irTol" a,nd oah flooring and ■"aln^^t and. nshogan;"- ind.ustries.

In vie-' of th° linitaticns of tine and -oerscnnel un'^er "hich the study
"as conducted, the conclusions -oresented in this -oa.rt of th'^ chatjter pre
necessarily fev; and tenta.tive.'

In th=> establishment of basing ^loint, -orico zoning, and other systens,
the divisional agencies in nea.rly all cases tor'- care tc do nothi/ig -rrhich
-light depri-^T-e any group of -oroducers, ho"°ver distantly located, "ith re-
sioect to a. given na.r':^t, fron th^ share in that nar'tet "hich the-r had -ore—
viouslj' ejijoyed.. This '-'as loroba-bly a ToracticaT necessity, since aliena,.-
tion of the suo-oort of i~roortant grouos of "orodixc^rs "ould have resulted
in s. breahdc'-n of the nini^Ttin prices. Had' enforcenent of the prices be°n
nore effective, it -'.iTht, however, ha.ve b<='=n -oossibl-^ to utilize the equal-
ization syste^.s fo]- the --ra.r.ual r'^duction of cross- hauling, by setting lin-
itations upon the absorotion of freij-dit "hich, '-hile not necessita^ting sud-
den, major r°a.d.justnents in markets and sources of s\i.-0T)ly, "ould, from tine
to tine, ha.ve eli^unated. "hat -:[P.^r be called 'th° fr.inge of the long-haul
shiiopers.

9864

Th^ -ori"ia:-Y '^onsid'^iratioiT of fi'^ tjiirr cLarot^r is nn pnal^'^fjis cf t/.T
si-rii'^t-u.ra.i f'^atuns of th^^ iron rvA st-"=^l in^xstr"" '-'hich, ar<^ funritionall-'
r^lat^d to t"n^ ^r.ta'j?Lisiiment of a 'basi-ir ■:)oi"it s'"'st'?n Icri'- "b^^for^ tji=
adoption of th^ '^O'-''^*, Th'^ characteristics of tho industr-"- disc:i.ss=!d ir.
this connection ircliid^ th° nr-fo^r and siz° of firns, the ii-nortance r>f
. h.orizontpll-'- and verticall-' inte-rrated co'-T:)ani°.s, th^ --.ost s'tjructii.re cf
th<= industry, an'" the location, o-"" its ^roducin:" vr.its. Th-^ I'i "f ^r-^nc-^r,
in the stmctura.l character of eo,ch of th= nain -oroduct divisions o"" th^
industry e.re hriefl^ indicated* ,

Th^ pricin.^ -nractic^s ^'hiph ex-isted in th<^' steel ino.'-.ntr^'' in th= -ny^-
code -iieriod ar'^ d'^scrib'^d at cc^.^ length. The -or^sent •r.iltip^'.e hasing
"00 int s"',''Gte7i i-^as -or'=ceded ^oy t"0 geogra-ohicp.l Torlcinf; institutions, na-'el--,
the zoning and the Pittshiargh-rilus systens. The-"- -^o^o r-i;^inrll,7 estab-
lished hj'- -ooo ling a.ssociations and- agr^e-ia-i.ts, Th-^ Pittsh\''xgh--olirs s""sten
"O-s definitel-i/ ter'iina.ted V"" a ceose r-v'. desist or-d-r :^rc-i the j^e^^errl
Trade Connission in 1S?4.

The codif icp.tio'i of t"i= st°=l industr;'''' s ""TjJ.trol^ "basin-"' -icint s"''-,te'-i
under II5A hod in the na.in a fcnr— folr] efi'='ct, first, the hp-sin/^; -ooint
pra.ctice -as given legal sanction and ther^h^"- npde strictly enf'irc^ahle.
Second, a.s p. list of all casing -i^rints for all "orodiLcts '-p.s •iad'=? ^art of
th= code, all douht '"'as re-noved as to "]iether a si^iecific -ooint — ps c'T •-'^s
not to he rega.rde-''. as a. basing point. The ba-sing 'ooint stru.cture '-ras nade
rigid, since onl^?- the fornal orocedare of anending t2ie code could affect
changes in the nui.iber of basing -ooints. At the spne ti-i°, the nunb^r of
basing points '■'as increased for "oracticall-"- all ind"'.str:'^ -iroducts as co^.-
pared '"-ith the -u.se of ba.srng "ooints before the code, (though no anite Pc^^,--^^
ninate infornation exists '"dth resT)'=ct to the -ore-cor'e sit-ipa.ticn) . Third,
th^ combination of the basing point -oractic^ ■■'ith -orice filin," -oroved to
be of greatest i-rportance for the i:Tole'-ientrtion of the ^ra.ctice. It
practically guaranteec^ the general ariher^nce to the s^ste-i, thrnu.q:h indu:?-
tr----ide publicity of th-^ -orice quoted b'- rny industr"' n°nber, roiirtli,
the code provision "preventing int^ustrv -.-■'-iberc; fron njid'=r cut ting the lo''-
est price on file at an" basing -ooint oth^r tha-i th°ir O'-ni basing "ooint
(that is, the basing point freight'-ise nearest to the lolant in qri°stion)
eli-'iina.t°d "du'-Tping" into :iore distant nar^i-ets anc' ther^b'^ greatly contri-
buted to stability of th° "orice l°vel.

Since li-iita,tion of ti'-ie i^reyented the conoletion of the stii.dy of the
st=el basing "00 int s''"steii, no att°"'nt '-'as !iade to r<=>ach -^.^ternina.te co?-i-
clusions as to th'^ soun.-''n'=ss of the s"sten.

A-op'endix I contains a short -ores°ntation o.^ th° -;ieth.ods e-r-jlo^'-ed . in
the present ■re;oort and indicates the lin°s of furthe:- analysis necessa-y
to co-Tolet'^ th'^ studv, A-^-oendix II discusses the O'oeration of the enti-
duToing ^i-ovision imder the Cod= of Tair CorTOe-tition for th^ Ice Inoustr".
It is shO'"Ti ho'-' overcapacity'' in shrinhi?ig nar]:ets b^cavie pr inc^ucen^nt for
th^ inc'ustr^' to regulate cometition b''- confining th= iDric<=-nahing process
'■'ithin narrow ■local 'bo-mdaries. Su.ch restriction of nar::=t a.reas b-"- cod^"
authority regi.ilation or ad.ninist native ord^r "oaved the '-r^.-- in a nu'iber of
cas°s for the adoption of elaborate plans of rjroriri.ctio:! conti-ol and allot-
•lent of -iroduction auotas.

9854

CEAPTSR I

THiffli] PRACTICES AlID ECGWGHIC ISSa:i:S IlIYOLVED

I. GECGPJiPMiC PRICIuC- P^.OVISIO::S IT HPA CODES.

Dui-inf< the code-mrking period Mlien hundreds of industries suLmitted
their codes of fair competition to the ifetional Recovery Administration,
a sulDstcaitial portion of all of them proposed to incorporate in these
codes some t;;^oe of trade practice riile relating to the charging: of
traiispcrtation costs and other problems of geographic pricing. A suj."-
ve3'' of thi") first 554 codes (including 750 amendments and 195 supple-
ments) shows that 155 codes have some provision of this character (*).
Of these 155 codes 98 were concerned vith the question of f.o.b. or
delivered pricing, 52 out of the latter nmnoer providing for f.o.h.
point of origin selling, 29 providin!^: for selling on a delivered "basis
and 21 permitting sales on either an f.o.h. cr delivered "basis. A
group of 90 codes deals v/ith different kinds of transportation allow-
ances and prepayment of freight, 44 of them prohi'oiting such prepayment
or sxiy discriminatory allowances, v/hile 43 permit some form of freight
equali':ation or similar concession. Only 4 codes contain explicit
"basing point provisions, wnile 3 other codes provide for freight equa,lizatio
points which resem"ble "basing points in certaj.n respects, though the
functional differences are su"bstantial. A num'ber of industries, at
least 3 of them of fair size and importance, have no "basing point provi-
sions in their codes, alt'iiou^^i it is knovm that "basing point systems
esta"blished in pre-code days continu.ed to "be in operation under their
codes. These instances are of interest from the point of view of KRA
pro"blems, "because certain ot!ier code provisions, not e>cpressly referr-
ing to the "basing point practice, apparentl;r were devised, among other
purposes, to support in an indirect way, the functioning of this prac-
tice. In addition, geographic pricing devices, other than the trans-
portation provisions mentioned a'bove, v;ere incorporated in some sixteen
codes in the form, of zones for price, filing ajid anti-dumping. Finally,
there is a grouro of codes, some twelv? in nuiLi"ber, which contain provi-
sions enabling or directing the Code Authority to set up some form of
transportation provision ofter the approval of t"ne code.

The IIRA, faced with the task of sanctioning or rejecting these
provisions in accordance with their compatibility wit"n the purposes of
the ITaotional Industrial Recover;'- Act, encountered the serious diffi-
culty fnat vers'- little information, existed regarding their economic
character and operation. This lack of faictoal information prevented
the formulration of any ?rell-def ined principles of evaluation from the
point of viev of public policy. ■ The following pages attempt to contri-
bute to an understanding oi" the act^ual operation of the trade practices
mentioned and to their appra,isal in terms of public policy. A brief
definition of the various practices and systems is given first. A
consideration of the "oossible criteria as to their com-oatibility with

(*) See "riPA, Research and Planning Division, Post Code
Analysis Unit, Reports ilumbers 6S and 66-A.

9864

-6-

MA policy follows next. Then, in order to thro\7 li.^ht on ;;he ap.pli-
ca'bilitj- of these criteria to actual conditions, a short description
of relevant industry characteristics' and of the operation of the practiTT'^nr
examined is undertalcen. A final section siimmarizes the chief conclu-
sions regarding the soiindness of the reviet/ed practices fron the point
of vievf of puhlic policy.

II. GEOGRAPHIC PHICIHG PRACTICES DEFINED.

The practices here considered caii he classified into two nain
groups, viz., first, those vrhich regulate the amount and incidence cf
transportation charges and, second, those which define the geographical
area, in- which certain phases of the price making process are re-elated.
It should he noted that this dichotomy is hased on the immediate in-
strumentality hy v/hich geogra:phic differentiation of prices is effected
rather than upon the ultimate results. The effects of the two method's
on the geographic differentiation of prices are generally not clearly
distinguishahle, hut fuse into one another. The regulation of trans-
portation charges affects hoth directly and indirectly, practically all
aspects of the geographic price structure. Price filing and anti-
durapiric zones, on the other hand, were in practice usually comhined vith
provisions regarding trar.sportation charges.

A. Practices Regarding Transportation Charges .

1. F.O.B. Pricing

The ahbreviation f.o.o. stands for "free on Board" and has refer-
ence to an arrangement wherehy the goods sold are delivered free of
cha,rge to the means of conveyance (train, vessel, truck, etc.) (*)
Accordingly, "by literal interpretation f. o.h. is identical with "f.o.hT
points of origin" or "f.o.t. shipping point" and is so used in the
present report. A less accurate, hut not infrequent use (which is
avoided in the following pages) , is the term "f.o.h. destination" mean-
ing free of charge to the point of destination, v/hich is in fact the
method of delivered pricing. From a legal point of view the -distinc-
tion hetween f.o.h. and delivered prices is hased on the fact that in
the first case the transfer of title (together v/ith risk of loss in
transit) taices place at the shipping point at the time when the goods
are given to the shipper (railway, trucking conipan;r, etc.), while in
the latter case it does not occur until the goods are delivered at
their final destination as determined hy the tuyer. From an economic.
standiDoint the signif icajice of the distinction lies in the more com-
prehensive service to he rendered in the case of a delivered sale,
which includes the procurement of the goods themselves as well as thair
deliverj- at -a certain tine and place; and particularly in the pa^^Tient

(*) Cf . the ahle presentation of the matter in the Report of the
Federal Trade Commission on Price Bases Inquiry, March, 1933,
p. 5 ff.

9864

'if a tot;l price 'b.y the "oiiyer, the fornation of ',7hich does not need
to oe and very frequently is not the sojie as the formation of an f.o.o.
■price pliiG actual cost of trgjisportation';

So.'.e industries and trades use f.o.b. prices mth full freight
allo'..-ed or with freight partiall:'" allo'Ted or v.dth freight equalization.
These terr.is indicate^ that a certain amount is deducted from the f.r.'b.
price, in order thus to talte care of either the entire transportation cost
or soue 'oart of it. These cases are. economicallj'' much more closely
related to thn practice of delivered pricing and, therefore, '.vill he
treated in that connection. Under f.o.h. pricing i.7ith frei:'--;ht equali-
zation it hioy seem at first glaiice that those individual transactions
where no shipping occurs orrfor other reasons no price deduction for
equalization ■ouri:)Oses talies place, res-alt in pure ,and genuine f.o.h.
prices. This interpretation, hoi,7ever, is economically inaccurate,
since even in individual instances of the ahove mentioned nature the
price quoted must contain some element irhich corresponds to the average
per miit arao-'ant of freight allowances on the total sales. Strictly
speal-ing, therefore, f*^^. pricing exists in consisten^tly pure form
onl;'- vhen all ■b-uo''ers tolce possession of the goods bought at the point
of origin piid all of them ps;;^ a price regardless of any shipping of
the goods v/hich the^'- ma;;'" or nny not under taJ^e.

As mentioned above, 52 of the industries which vrere codified hy
IIRA. ox'.o-oted the practice of selling f.o.h. shipping point, while 21
peri'.iitted sales on either an f.o.h. or delivered pricing hasis. For
most of these industries the problem of charging trcuisportation costs
is of no great importance, either because of the predominantly local
character of their businesses or because of thfe small arao-ont, even of
long-haul freight charges, in proportion to the per unit value of their
products. Liiiitations of tine and personnel have precluded an exami-
nation of the geographic price structure of any of these industries
for the purposes of the present report.

2. Delivered Pricing

A delivered price has been described above as a price paid by the
bu;.''er for both the goods themselves a.hd their transportation to a
desired point of ..'destination. Delivered pricing differs in its eco-
nomic significance from f.o.b. pricing chiefly because of the oppor-
tunity for price discrimination between sales regions which it offers.
Such discrihiination becomes evident only when the delivered price
quotations are broken- do\7n into their constituent elements. This fact
is an obstacle in the wa]" of perfect market information. The method
of delivered pricing can be combined with anj?- of a, number of special-
devices which are briefly defined as follows.

(a) First are delivered, prices which vary in direct propor-
tion to actual transportation charges. The seller. adds his actual
freight e:cpense to his basic mill price. The difference between this
method and f.o.b. pricing lies in the fact that the buyer defrays the
cost of transporta,tion oy pa;>''ing a proportionately higher amount to
the vendor instead of paj'^ing directly to the transportation agency.

9864

The nethod has advantafies foi- the "b-u^j'-er in that it sparns hira the
trouDle of rasJcing freight computations and comparisons as betv/een
different bidders and frees hin of the risk of loss in transit. For
the seller this tjnpe of delivered selling has no particular advantage,
but is technically more complicated than the simple f .o.b. quotation.
On the v/hole, it does not seern to be a 'nid.ely used practice.

:(b) ■ Delivered prices of another type are those imiform for all
destinations either in the entire country or \7ithin certain zones into
which the countrj'- is divided. The former t^^e (-uniform for the entire
countrjO is frequently referred to 3,s a "postage stamp" price. In the
case of commodities of small bulk and high value per unit of weight,
with correspondingly lov; cost of transportation, the postage stamp or
uniform zone delivered price does not raise any problems of great sig-
nificance. But even some bullcj^ and heav;"- commodities such as, for
instance, ijaerican and African raaJiogany under the ilEA code, i;/ere sold
on this basis. (*) It is clear that the imiform delivered price must
contain an element conforraing to the ^ler tuiit average of the freight
cha,rges incurred on all shipments. This method of averaging tends to
favor certain bu^rers ajid sellers suiCi to put others at a comparative
di sad vanta,ge' except in the highly improbable case of a geographical
distribution of sales and purchases yfhich baZaJices the advantages aiid
disoxl vantages of individual transactions in the saiae proportion for all
buyers and sellers.

(c) It has been pointed out above that f.o.b. prices with full
or partial freight allowed are, in their economic significaJice, closely
aliin to delivered prices v/ith freight equalization. The idea under-
lying this method, of pricing is that while inclusion in the delivered
price of the full amoTaiit of freight incurred is regarded as the theo-
retically'' normal condition, an arao-unt lower than actual freight will
be included by ea^y seller who has to compete with another seller who
is freight\dse more favorably located than the former. In this manner
all prospective vendors competing for business at a given place equal-
ize tho.t element in their delivered prices which represents freight
by reducing it to the lowest freight rate actually paid by anj- of them.
The difference between the amount recovered as part of the delivered
price and the ajnount defraj'-ed is absorbed by the seller.

A nfinber of industries have in their codes specific provisions
authorizing freight equalization to meet competition. The following
are the more important ones in tnis group:

Wallpaper J.ianufacturing (Approved Code Ho. IS)

TTiiolesale V/allpaper Trade (Approved Code ilo.201, Supplement 2)

Laundr;^ and Dry Cleaning liachinery Kanufacturing, (Approved

Code xJo.34)
Furniture Manufacturing (certain products) (Approved Code iTo.145)
Fnolesale Automotive Trade (Approved Code iTo.165)

(*) For details see- Chapter II, infra.

S864

-9-

Sa-. and Sterl Proiaicts lipnulacturing (^proved Code Ijo.274)
Eailroad S-oecial Tracl: Equipment Manuf acturiri;'^ (Ap'oroved

■i Code ITo. 385)

Thei-i^ ;vre in the group o. fe^7 other industries of ninor sifnif icajice,

(d) Similar to the freight oqualization scheme in certain resijects,
though I'rjidpjnentally differin^:; from it in others, is the system of
"basing point delivered prices. Under this system prices for the cnm-
modity in question ai*e quoted e'xlusively as of a certain tasinf; point
or basing points, and all sellers, regardless of their actual shipping
points and the distances over r/hich thoir goods are ^,ct^^al].y transport-
ed, charge the "basing point price plus freight from the basing point
of destination. In the case cf one basing point for the uhole coujitry
the scheme is designated as a single basing point system, as contrasted
with a multiple basing point system which provides for a number of bas-
ing points. Under the latter arrraigement the so-called basing point
formula establishes the rule for a.scertaining which basing point governs
the price of any given transaction. The lovrest .sun of basing point
price plus freight from basing point to destination, all basing points
considered, determines the choice of the basing point and the delivered,
price for any destination.

The four industries, the codes of which contain e:cplicit basing
point provisions, are the follorring:

Iroil and Steel Industry (Approved Code lie 11)

Line Industry (Approved Code IIo. 31)

Reinforcing i.'aterials Fabricating Industry (Approved Code ilo.lS?)

Steel Joist Industry (Approved Code !Io.495).

The ].iu.iber and timber products incustry (Approved Code lTo.9) is
another indiistry which adopted basing points for some .of its subdivi-
sions (prominently the maple and oa'*: flooring divisions), thoiigh not
on the bc,sis of anjr explicit code provision, but by code authority
regulation ba.sed on a very 'genera,! enabling provision; in the code. The
two follovdng industries, 'which have neither in their codes nor code
authority regulations any reference to basing points, continued under
WRA. the operation of basing looint systems established in pre-code
daj^s:

Cast Iron Soil Pipe Industry (Approved Code ilo.lS)
Cement Industry (ipproved Code Ho. 128).

Three industries provided in their codes for equalization of freight
rates with a number of e;:pressl;'' designated points. fach exclusive
freight equalization points -resemble basing points in that their freight
rates ai-e substituted for the actual rates from shipping point to des-
tination whenever a lower delivered price will result thereby, but
they differ from basing points in other essential respects, conspicuous
among v/hich is the fact that their freight rates are never applied when
the3^ are higher than the rate for the a.ptual haul. The industries in
question eve the following:

3864

. ■ - -ir-

Lamidrj^ apd Dry Cle,an.ing Machine i-j'- Mnjiuf acturing

(Approved Code Ho. 54)
I?urniture Manufacturing (Cedar Cliest Division) (ipr)roved

Code Ho, 145)
Cotton Ginning Machinery Manufac tarring (Approved Code Ho. 485)

Anotlier industry, the salt producinr ino.uctrj'- (Approved Code Ho. 20),
incoi-porated in its code aJi elaborate system of marketing regions and
regional price filing, in the actual operation of vfhich freight equali-
zation vith certain prooucing points vfas of importance.

yiiile the iron and steel and the lumter and timber products in-
dustries are dealt with in special chapters of this report and the lime,
cement, cast iron soil pipe' and salt industries are referred to for
the purpose of e::emplifying general prohlems expounded in subsequent
sections of the present chapter, limitations of time and personnel have
rendered impossible the treatment of any of the others of the above men-
tioned industries.

B. P ractices Regarding the Price Halting Process nithin
Certain iU'eas .

1. Price Filing Zones

It is not intended to treat in this report any of the problems
surroiuiding the practice of price filing or open price posting. For
present purposes suffice it to saj'- tnat certain price filing indus-
tries, instead of arranging for the filing of one set of prices for the
whole co-ontrj'-, established price filing by zones, either through one
single national agency or tlirough a number of regional agencies which
handled the recording and distributing of the prices filed. Some
industries provided for price filing by industry members in the zones
where their pla.ces of business are located, while others adopted the
system of filing prices in all zones where an industry member intends
to sell. Under the latter system the same firm f reqxientlj'- filed in
different zones different prices for its products. Different systems
of regulating the incidence of transportation charges can be combined
with the zone price filing scheme. In some cases the regional agency
was vested -.rith the authority'- to prescribe a uniform regulation of
transportation charges for the whole zone; in others everj"- member was
free to file his own terms together with his filed prices. But even
in these latter cases a tendency towards the adoption of a \iniform
system bjr all industry members filing within the same zone obtained
quite., generally.

The codes' of the following industries contained provisions for
price filing by zones:

Salt Producing Industry (as mentioned above)

Ice Industry (Approved Code Ho. 43)

Fertilizer Industry (Approved Code Ho, 67)

Vitrified Clay Sewer Pipe Llanufacturing (Approved Code Ho. 136)

9864

-11- ~

Paper distributing Trade (Approved Code lTo.176)

Caroon Dioxide Industry (Approved Code lTo.2G5, Suoplenent B)

neady-Iiixed Concrete Iniustry (Approved Code ITo.Sll)

and a ie\i other industries.

Comparable to price filinc by zones is the inclusion of delivery
points in the filed price lists, as practiced under the Farm Equip-
ment Ilanufacturins and Road Machiner^r Lianuf acturing Codes (Ho. 39^ and
68 respectively). In this co:iriection it is of interest to note that
in all basing- 'pointrindustries, inc?-uding the cast iron soil pipe in-
dustry (which did not have ,auy exp.l^icit basing point provision in its
code), but excepting the .cement industry (vMch filed delivered prices
for all points of destination), the filing of prices as of the recog-
nised basing point or basixig points was adopted as a supplement to the
basing point system itself.

2. Anti-Dumping Zones ("Larket Areas")

These zones constituted a much npre direct and effective regula-
tion of.; the price malting process than, did the price filing zones^ The
anti-6.unping zones can be compared with the erection of a^tariff wall
around the markets of a country. The?,r underlying intention was to
exclude producers and sellers -/ho are, located outside a certain area
from participating in the forraation of. the price level for this area.
The reason most freqLiently advanced for this arrangement was the danger
that outside producers would easily be tempted to dump their surplus
production', at -a destructive price in markets distant from their home
market. , Theoretically the setting-up of anti-duinping zones can taJce
place without prejudice to the competitive formation of prices within
the zones. Practically, hoY/ever, there was a distinct tendency to
combine the establishment of ajiti-duraping zones (sometimes referred to
as "natta-al market areas") -with some scheme to intra-zone control of
competition. Tliis was sometimes mere price filing 'oy all sellers in
the zone; sometimes it. was some form of coat protection or minimum
price (5-etermination. The. restrictions on sales by outsiders can also
be of various types. In same industries outsiders were not permitted
to sell below the lowest price quoted oy so^e seller within the zone.
In otner cases they had to quote prices not lower than their home
pi'ices or cost of production plus f-ull transportation charges. In a
few instances (in sub-divisions of the lumber and timber products
industries) the addition of a flat aiiw-ant over and above mill quota-
tion plus freight charge was provided for, in an attemnt to counter-
balance some special geographic advantage which certain groups of
sellers otherwise would enjoy when shipping to a certain zone or area.

The ^outstanding exaniples of anti-dumping zone provisions were
furnished ^oy the codes for the salt producing and ice industries. The
provision adopted by the iron and steel industry and the lime industrv,
which prohibited industry members from quoting a price below the lowest
filed price whenever selling as of a basing point other than their home
basing point, was in its. nn.ture and effects closely, comparable to the
anti-dumping zone provision. ' In one respect most instances of price
filing zones resembled the anti-dumping zones in that they limited the

9864

-12-

niora'ber of industry members who participated in the price makinrj pro-
cess for each individual zone.-: ■ •

III. POSSIBLE CRITERIA AS TO THE COMPARABILITY OF GEOGRAPHIC
PRICE DISCRIiilNATIOlI iTITH IIRA POLICY.

Ill sanctioning codes of fair competition which provided for sell-
ing on anf.o.b,- basis, NEA clearly dealt vith a simple matter involving
no problems of fundamental significance. The situation was different
in the case of those forms of delivered celling vhidh imply discrimi-
nation in price between customers differently'' located, such as basing
point delivered selling and certain ty;.-)es of zone delivered selling oiid
delivered, selling with freight equalization. In these cases apparently
an important question of public policy was involved. The Clayton Act of IC
declared price discrimination between customers under like conditions
to be unlawful where the effect of such discrimination may be to sub-
stajitially lessen competition or tend to create a monopoly, unless such
discrimination is based, among other things, on the cost of selling or
tranap^ortation. However, the legal situation with respect to the appli-
cation of this part of the Clayton Act to matters of geographic price /
differcm elation was far from being entirely clear. It vras most unfor-
tunate- for the shaping of 'iJRA policy that contradictory interpretations
of the subject could be drawn- from court decisions and Federal Trade
Commission orders. The decisions handed down by the United States
Supreme Court in the Kaple Flooring piid Cement cases of 1925 implied
that systems of delivered pricing and the use of basing points were not I
to be regarded as unlawful, at least under the special conditions- of
these two cases. (*) The Federal Trade Commission, on the other hsjid,
had issued a cease and desist order in 1924 enjoining the United States
Steel Corporation sjid a n\Bnber of its subsidiaries from the use of a t
single basing point system with. Pitt sbixrgh as the pricing base for the ■
whole coiuitry (the so-called Pittsburgh-Plus system). The corporo.tion
did not appeal to the courts, btit e:>rpressed its V7illingness to comply
with the order, its statement, however, being couched in somewhat un-
certain language and with certain reservations attached. What followed
in practice was a change from the Pittsburgh -single basing point system
to a multiple basing point system. As the Federal Trade Coinmission \
failed to talce any further steps in the matter, it remained an open
question whether the objections raised against the single basing point
system did apply also in the case of the multiple basing point system.
Another case which promised to shed much light on the question of the
lego-lit2' of geographic pricing practices, viz, , the case of the United
States of America v. The Sugar Institute et al . , was pending before
the United States District Court in the Southern District of New York,
but the court's decision was not available during the first nine months
of ilRA when the most important codes were made and approved. TThen the
court finally issued its decree, in March, 1934, it went so far as to
enjoin the defendants (that is, The Sugar Institute and fourteen cor-
poration members of the Institute) from engaging or attempting to en-
gage directly or indirectly with one another or with any competitor

(*) Cf. 268 U.S. and .5(53 iic£.268--U. S. 588.

9864

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throucii rmy prof;raia in, cunone other things, "selling only on delivel-ed
prices or refusin,^ to sell f.o.h. refinery" and, furthermore, from
"effectuating; any freneral plan to give the same terms, conditions, or
freight applications to customers, regard]f5ss of the varying circum-
stances of -narticular transactions or classes of transactions or re-
gardless of the varying situation of particular * * * customers or
classes thereof;" and from "selling only upon or adhering to prices,
terms, conditions or freight applications announced, reported or re-
layed in advfijice of sale or refraining from deviating therefrom; . !'(*)
This apparently meixns tl^at the planned, methodical and general use of
an;'- sj^-stera of geographic pricing is regarded as unlawful. However,
appeal has been made to the United Stn.tes Supreme Court and up to the
date of the writing of this report the latter had not handed down its
decision. In view of the attitude tal<:en hy the Supreme Court in the
Maple Flooring and Cement cases above referred to, it is not possible
that the opinion of the lower court may be modified in various res-
pects. Under these circumstances of imcertpinty regarding the matter
of geographic pricing practices, it is especially important to examine
the reasons set forth by the opponents of the basing point system and
related delivered pricing systems.

A. The Case Ai?ainst Geoo'a'ohic Price Discriminatio n;
The Law of Com'oetitive Lla rk et Areas .

The economic reasons which determined the Federal Trade Commis-
sion in issuing the cease and desist order against the United States
Steel Corporation in 1924, have been clearly e:ja)Ounded by two prominent
econonists, Pranl: A. Fetter and John E. Comraons (**).who appeared as
important witnesses before the Comni scion in the proceedings against
the Steel Corporation. The basis of this economic philosophy can be
seen in the conviction that competition is positive ar.d crea.tive, not
destructive, while monopoly implies waste, and leads to exploitation
of the consuming public. It is, therefore, an important objective of
public policy to preserve as far as possible truly free and equal com-
petitive markets. This is believed to be feasible by the method of
adopting rules and regulations \7hich will prevent unfair trade prac-
tices r;id thereby bring actiial markets as close to the ideal of free
competitive conditions as the circumstances of individual industries
allow. As a standard for appraising actual market conditions the

(*) United States of America v. The Sugar Institute, Inc., et al. ,
Final Decree issued Vf the United. States District Court in the
Southern District of Hew York, 1934.

(**) Cf. F. A. Fetter, " Masquerade of Monopol y". Hew York, 1931, and
J. H. Commons, " The Delivered Price Practice in The Steel
Market " American Econonic Review XIV, 3, September 1924. See
also G. C. Means' Review of Fetter's book in Columbia Law
Heview, Vol. XXSII.

9864

-14-

"flcononi-c Lav7 of" Market Areas" lias teen developed l)y Dr. better. liarkets
v/lilcli appror.ima-tely conform to the pattern laio. cTovm hy this la'7 of
marhet' areas can be regarded as realizing the competitive principle,
while deviations from this pe„ttern indica.te monopolistic conditions. In
Chapter 20 of Dr. Fetter's at'ove mentioned book, the territory surroiuu-
ing a producing' center is designated as the market area f '.or this produc-
ing center pjid'it is' claimed that free conpetition r/ill bring about a
unifoi'm price to all buyers at the place of production. This price
will' be' the lowest bne charged at any place for the commodity in ques-
tion,- \7hile prices chsxged at places distant from the producer will
rise in exact proportion to the cost of transportation. This natural
•adjiistnent of prices throughout the' market territory can be compared to
an inverted cone with the producing center as the low point and prices
'rising v.dth the cone in all directions away from the producing center.
If " there' are two or more producing centers, each of them has its sur-
'roimding market area and its cone of geographical price distribution.
The line of demarcation between two adjacent market areas will talce
the form of a hj'perbola which is so located that the difference in
transportation costs from the two producing centers to any point on
this hj/perbola will just counterbalance differences between the prices
prevailing 'at the places of the two pro6.ucing centers. A basic assuiap-
tion is that the competition among sellers for the business offered
by the prospective bu;j-ers will tend to bring the prices at the differ-
ent centers of production nearer and nearer towards the low point of
actuei cost of production. Competition will induce the producers to
strive continuously for improved methods of production in order to
bring down thei-r costs as much as possible and gain an advantage over
competing producers. Thus the best possible use will be made of the
available natural resources and, at the same time, the cost economies
brought a,bout by improved prcdaction methods will be passed on to the
general consuming public.

Dr. Fetter claims that any method of discrimination among buj'-ers
in different localities distorts the natural adjustment of prices towards
the low level of cost production plus actual transportation charges
and. must be regarded as a monopolistic abuse. According to his opinion
such a situation can be simply and easily remedied by prohibiting the
use of the basing point practice under the existing anti-trust laws and
by enforcing publicity for all prices at the point of origin of the
goods. Open quotation of prices on a mill-price basis will be accom-
pamed by -the conditions characterizing the ideal market as delineated
bj- the theory of free and eqxial competition.

The Federal Trade Coiiimi ssion accepted the economic reasoning, laid
do^Tn bj'- fetter, Commons and other economists and based *on rt the ces.se
and desist order of 1924 enjoining the steel industry from usiTig the
Pittsburgh single basing point system.. It spears, however, tiia.t tMs
line of economic interpretation of ' market' phenomena- does not do justice
to certain factors of f-ondamental signif icsaice. Before considering the
policy adopted by KRA wit'n respect to basing points and related pricing
practices, it is therefore, necessary to examine those aspects of modern
industrial conditions which seen to malce inevitable a certain degree of
geographic price discrimination.

9864

-15-

B. fac tors Inducir-"-: ' eo'Tr;hic Pri pe Jisc ri minr tion; P attern s Of
Industry St ructur '"j_ ,;-:d Fp.ttern s'Of C- eo^r ^/oliic Price Stinic ture.

Conditions in t'le iiost importpnt TDp.ning point cnC. zoning industries
above referred to (tli-t is, the iron rnd steel, cer.ent, lirne, cast iron
soil pipe, and salt industries) sugrcest that the pricin/^ pr-ctices in use
are the effect and e::precsion of :Tach more "ba,sic industr:," frctors and that
the prohihition "by judiciiil or pdministrptive decree of basing point or
zone pricing would be insr.fficient to bring abov\t the state of free and
equal price conpetitior. ■'l:.ich is theoretically pictiired as the most de-
sirable industrial order. The main aspects of the discrepancy between
the assumptions ra.de 'o'j the theory of price conpetition ?Jid the fundr.-
mental factors rrhich r.ctr.ally charrct arise the industries under review,
msy be sumnarized under che three headings of cost structure of product-
ion, excess cppacity, and unequal size of prodi\cers.

As to the probleiG of cost of production , it is -.'ell knorrn tha.t
stability both of prices and of volume of production is of r.iuch more
vital importance to incUistries with heav^' overhead char.';es than to in-
dustries the costs of T:"-.ich consist chiefly of c'lrect out-of-pocket ex-
penses, '"hen markets shrinl:, the latter automatically reduce the volume
of their operating; erzpenses in proportion to the redaction in their
voliime of business, and- -hen price's fall,' their costs go down as '^ell as
the prices received for their iDrodiicts (though possibly not to the s^jne
degree). This, ho'.-ever, is hot time of industries -jith heavy overhead
charges. A substcjitial portion of their totsl cost is fixed regardless
of whether they run their fa,ctories full blast or only at a rate of 10
or 20 per cent of capacity* These fixed costs constitute a rigid item
in their accounts ever, in the fa.ce of a general, frll of £?11 flexible
econoriic values. Therefore, the greater the a^aount of fixed capital which
is invested in an inc'ustry, the more vital becones the interest in capac-
ity volume of business and in' stable prices for .the uenbers of the indus-
try.

In the light of this characteristic of overher.d costs the fpct of
cyclical excess capr.city, an inevitable concoviitajit of the recurring de-
pressions of our indastrial system,- gains special significance. As long
as an industry runs at less than full capacity, it is operating under con-
ditions of o.irainisliing cost, since each incre^,se in the vol"ume of pro-
duction will lov;er the per unit cost of the product. Under such con-
ditions it is an established fact that prices v/ill displa,y a strong tend-
ency to fall' as long as any producer can hope to r-ise his operating ratio
by bringing his price do-vn toward the low point of :;.ere out-of-pocket ex-
penses. Corisidering the f : ct that the cyclical shrinl-age of demand for
basic products such as steel, cement, or lime has been so severe during
the last depression that a very few large producers covld well supply the
purchases of the whole coiuitry, it becomes clear that the competitive
logic of the situation tends towards ruthless price-cutting, which may
not come to an end "Oiitil the financially strongest cor.pany has absorbed
the capacity of its cor.pctitors. In- these circnxistrjices consistent com-
petition tends to ler.d to its own n-egation, that is, to the rise of
monopoly.

986U

"16-

The lo,.;:ic of concir/cent conrpetition having; "been led r.d p.bsurduua in
the fi'iven circumstrnces, rll of the industries here considered have de-

. veloped a modi fico.t ion of the coinpebitive principle, rliich is gene ml 17'-

. known as price lec.ders-iip,(*) The "behavior of prices in these indus-
tries(**) ler.ds to the conclusion thr.t price lecdersl'dp c^Anot be con-
strued as the negation of price competition, but rxist be londerstood
rather as a principle b^ \7hich price corapetition is confined within cer-
tain limits. Gencrr.ll]'- spealcing, it can be defineo. r.s the conviction on

._ the part of the menbers of r.n industry that to ptirsue price corapetition
to its logical end .v/or.ld iiean economic ruin for the i.ir.jority of them and,
in accordance with this conviction, the general -jillineness to accerjt
.the level of prices r.s set oy the strongest coirpciv-- or co-ipmies as a

.ruling standard and the relu.ctance to deviate from this level except
within narrow limits or u.nless compelled by the force of very unusual
conditions such as, for instance, extreme shrinl:ac:G! of ua-rkets in a o.e-
pression.

.. As a rule, price lep.t.ership results in relative stabilization of

. price levels. The apprcisrl of price leadership frov-i the point of view

of public policy depends chiefly on the degree of such stabilizatM.on,

Rigid stabilization in the face of s,ccentuated chon:";es in the general

level of prices will be harmful in many respects. Attei:.pts at judging

-:the phenomenon of price leadership v/ithout reference to the degree of
price stability effected o ■ it do not seem to do Justice to the real
significance of the natter.

Turning bach to the subject of control of fjeographic price relations
after this digression into the field of structural industry characteris-
tics such as heav7/ overher-d, cyclical excess ca.pacit;''j expanding scale
of production, a,nd price ler,dership, it can be stated that devices of the
nature of basing point o'r sone delivered pricing constitute the consistent
application of the principle of price leadership to certain conditions of
geographic distribution of production and markets.

As the railvray systen of the United States was built up during the
latter .part of the nineteenth century, markets 1 ocated in distant parts
of the country v^ere riovod into economic proxiniit;.' and for the industries
here reviewed the errpr^iision of the geographic area over which it became

{*) It is beyond the scope of the present report to atteript a full
treeitraent of the si^-bject of price leadership. Por our purposes
reference to this special pattern of co'roetition is necessary only
in order to gain the correct understanding of the significance of
geographic price controls in industries such as iron and steel,
cast iron soil pipe, cement, lime and salt. As to some of the
broader implications of price leadership -.-ith respect to modifi-
cations of the old theory of price co-ipetition, cf.: Edward
Chi\mberlin, Theory o f Tonop o list i c Co mpetition, Harvpa'd University
Press, 1933 > f'-'^i^- Joan P.obinson, Econo mics of Ir.roerfect Competiti on.
London, Maciiill.an and Co», 1933 •

(**) Limit.'^tions of tine and personnel hrve precl"aded the completion of

price analyses rj^x". the conclusions set foi-th in the text are, there-
fore, entirely tentative,

9S6U

-17-

possible to do 'busincnn •■'.c very subst?.ntial rel-.tivc to the gro\7th in
the size of productive iriits. However, rapic. tGCMiololcal progress and
rr.pid increase in the '"a:.'.cnsions of producing luiits continued after the
modern transportr.tion system of the country hr.d prr.cti cclly been complet-
ed. The process of di•.:i:^ishing the economic v/ei^ht of distances and
therebj'- extending the geographic '.vidth of markets cc. ic to an end, while
the grov/th of large-sccle production and the .pressure of heavy over-
head costs still becr;ie r.ore intensive ajid cp.rried the fierce struggle
for business vol\ir.ie fro:.: the East, ^rtiich had been the first center of
industrialization, to the '"est and South. 7ith this intensification of
interregional competition the same situation j,roGe as is described above
without reference to ■eo,;jraphic areas. The stiiv^.'jle for volume and the
increased interest in price stability, both effects of the pressure of
heavy overhead costs but in irreconcilable conflict r;ith one another,
led eventually to the establishment and general acceptance of price
leadership on an interregional basis.

In this connection it is important to note that an;-' interregional
price policy involves - in a.ddition to the general problem of price
levels - the further fandaxiental problem of price differentials between
regions. 'Thile in a ::arl-et which is assumed to be i.-'ithout geographic
dimensions the deterr:ination of prices has to deal r/ith only one set of
causes relating to one level of prices, the determination of prices in
the national market v.hich covers the geographic area of the whole country
necessarily deals v.lth as na-ny specific sets of causes a.s there are
localities in which s-les contracts are made. In the case of commodities,
the cost of production of v;hich differs materially as betveen different
producing districts or the shipping costs for uhich crc hif-:h relative to
their per unit vnlue, the -reight of the forces irlring for viarked price
differentials betv-een regions and 1 ocalities is great. These differen-
tials can be set in i.iaiv different wa;;/s. One ver;^ siaple hypothetical
pattern is laid doT.n in Jr. S'etter's law of market a.reas, above referred
to, which, however, is consistent only vath the unrealistic assumptions
of atomistic competition aad exclusively direct costs of production.
Under the conditions of price 'le.adership here dealt "ith, sxiy number of
other patterns of geographic price- differentiation :ia.y ;.rise, dependent
upon the individual circ\'.:':stpnces in the industries in cuestion.

It must be enphasized that it is not vaJ.ir. to regard the pattern
\?hich is based on price r,t factory door plus actual freight charges as
the only natural one because of its direct relation to costs. Such an
assumption certainl3' v.'oiild be in conflict with the ell established prin-
ciples of freight rate policy ahich determine the rate structure not
according to costs of individual hauls (if these were at oil calculable),
but according to a, conprehensive set of econor.ic considerations. Like-
wise a pattern of :-eographic' price differentiation e;-.bracing delivered
prices which include : '.ore than actual freight charges for some destina-
tions and less than that for others night be fullj- justifiable. Prom the
point of view of the consuxiers' interest, a syster. which liy relative dis-
crimination between areas nakes possible greater concentration of pro-
duction at one point ajid thereby lower per unit costs, :iay be acceptable,
as long as discrii^lnation does not become arbitra.rj'' and -unfounded. From
the point of view of the producers' interests several economic factors
may press towards che adoption of discrimination between -^reas. A

-18-

sienificmt example is : anguished by the case of inoiistries the fixed in-
vectTnents of which (c"ach c.r. steel making invesor.c;it c r.t Fittshurgh) are
so heavily concentrr, '.;ec. r.t one point of productioi'. r.c conp.'.red -Tith
other producing points t>.c:c the r-'^tio of overher.d cocts r.t this pro-
ducing center to r.verr>je Ghi;'ping costs from thin canter even to distant
destinations is very hi:'jh. This condition inplies a '"efinite urge to-
\7ards the est.ahlislr^ent of a, geographic price Btn.ictv.i-e which makes long-
dist-^nce shipments relatively easier from the one cer-^ter of production
than from other prodf.cinf; points. The flooring; divisions of the lu'aber
and timber products indvistries raaj'' serve e.s another cr.: e in point. It
is one of the pecili-rities of the building mp,rket th-.t certain cities
habitually use only a certain size of floorings. Each flooring manu-
-facturer, however, is forced "bj the nature of his production to cut out
of a log an assortv.ent of different sizes of floorin;^. lie, therefore,
must cater to different iiarhets in order to find buyers for the varied
portions of his produce. Some of these mprkets r.ight be and in a-ctual
fact are located p,t gre^t distances from the producing nills, and the
latter can hardly avoid resorting to some scheme of geographic price
discrimination. Still pjnother instr^nce can be found in the cement in-
dustry. Major cerent rising projects, such as highwry or c^-sjh- construct-
ions, are entirely irregular as to the place of their occurrence and
many important mills cm therefore not afford to restrict their solici-
tation of business to 'iheir immediate vicinity, .=.3 constiniction projects
appear at different pi, .cec in different years, they have to reach out for
business and make shij./.ents over an area of widely altering radius. This,
as a rule, cannot be done v/ithout some degree of discrinination in price
as between regions wid points of destination.

The significance of geographic price discririiir.tion can briefly be
summarized as follows. Price cutting in interregional conpetition takes
typicallj' the form of r,bsorption. of freight by the seller down to the
point where his net 3"ield approaches his mere out-of-pocket expenses for
the products sold or, in other vrcrds, "^here he has absorbed freight up
to the amount of ovei-head cost imputable to the respective sale. In the
case of locally concentrated large-scale production \.'ith hervy fixed
overhead charges the c:.i0Lint of freight which cvJi be rosorbed by the pro-
ducer in qaestion is so high that the eventual result of his consistent
competition would be the buying-up of other producers over a wide area,
or, in other words, horizontal integration on a :.'.onopolistic r-cale. ?or
■reasons above discussed, the .modification of conpetition through the emer-
gence of price leadership lias prevented this result in the industries re-
viewed. The geographic articula.tion of price leadership is effected
through basing point or izone delivered pricing systems or similar prac-
tices. In attempting to Judge these practices interns of public policy
the main consideration is that they are mere instrumentalities needed and
used to implement desired pa/cterns of geographic price structure. The
fact that an industr-^ ai'.is a.t substituting some plriined pa.ttern of geo-
graphic price differenti:\tion for the free play of interregional price
competition does not appear to be damnable as such. JUi appraisal of the
geographic pricing pr-,ctices under review must be based on the character-
dstics of the pattern of geographic price differentiation resulting for
each industry rather thrn, on the formal criterion of pla.nned controls
versus the free play of conpetition,

9S6I4

-19-

In t)rief s"ann'^,ry, ';lio butst^nding structui'rl fer^t/ares of the indust-
ries reviewed can oe c.eliiicated ;s follows:

(l) The "prA.tej'n" of competition in the incr.stries under re-
view is far removed iron the theory of "atomistic" co'ipetition which
underlies the theory 6;1" free coinpetitive price fornr-tion and which as-
sumes a sufficiently l/rye iToralDer of producers, er.ch of them contribut-
ing a sufficiently si'.cll part ' of the total supply of yoods, so that, none
of them can expect to iaflriehce the market price "by ••lis actions "but can
hope only to realise the fjreatest prof it* under the e.-i sting market con-
ditions. On the cont:; r;r, the -industries examined t-!^:;>icr'lly contain a
relatively small nuifoer of producers, each of then sup-flying a relative-
ly rdgnificant portion of the total vbluiae and a few greatlj'' excelling
in size. Thus in the steel industry' the number of competing companies
varies from H in rails rn-'. 10 in skelp to Gf in merchaJit a.nd reinforcing
bars and 71 in crude steel (ingots and steel for castings). In these .
lines of production the pronounced lep.dership of the United States Steel
Corporation manifests itself in percentages of total na.tional production
ranging from 30 in -bars to 55 i^^ rails, while bhe powerful positions of
the Bethlehem Steel Goi3)oration, the Republic Steel Corpor?.tion and the
Jones and Laughlin Steel Corporation are expressed in percentages between
7 and 27, 6 and 11, r\iC. 5 and 11 respectiveljr.C*) In the cement indust-
ry we find a total nuiuber of 77 companies in the countiv the five largest
of which account for about HO per cent -of the nationa.1 volume of business,
that is, approximatel:" 12, 11, 9, k and k per cent respectively. (**) In
the lime industry the :iu:.:ber of companies was 3OS i^ ^S^l with the six
largest producers suppl^^in.';: 25 per cent of total inc.ustr;','' sales. (***)
The salt industry'- sliows a picture of 35 companies with 53 plants engaged
in the production of s It for spJle. Of these 35 companies two are of
outstanding size, owniny 6it:;ht lar/Te plants and si:: larye plants respect-
ively. (****) ■ Similarly the cast iron soil pipe industry- comprises about
UO manufactures, one o"f ■..uom controls a.pproximateljr kO per cent of the
entire industry outjmt( '''*"=**) .

(*) ?or further ■ '.et ails see tables in the Ai^pencix and in Chapter III,
Section 1.

(**) See Senate Docuj-ent :"o. 71, 73rd Congress, let Session, "Cement
Industry", p. 12.

(***) See Preli-iinr.ry T.e^oort on the Opera.tion of the yultiple Basing
Point Provisions in the Lime Industry, division of Review,
I'^pecial Studies Section, "'ork Iia.terials I'o.

(****) See the chapter on the Salt Industr;'-, section I, S, in the Report
on "Manufacturers' Control of ristrib-ation", Tr: de Practice
Studies Section, division of Review. T7ork iiaterials llo.

(*****) See the Report on the' Cast Iron 'Soil Pipe Code of ?ebruary 1,
I93U, containing Report of the ?ederal Trade Coiiiission on the
same code, KU consolidated files. Cast Iron Soil Pipe Industry'.
See also Transcript of Hearings on the -Code of .xUgust 3, 1933*

9S61+

"20-

(2) In close fti.nctional connection -.Tith tlie feet observed
under (l) a three-irolc. net of factors appears further to chaxacterize
the production of i;he sr-.ie industries. First, their products are highly
stanidardizcd, are not sold upon any real Ordained difference in quality.
Second,- these products are of a heavy and hullcj'' nature so that cost of
transportation is an inportant element in the ultinate cost to the con-
sumer'. This point /yains farther '■'eight if production is concentrated
(because of the necescit;' of 'extracting natural resources, or for other
reasons) in certain lir.ited districts(*) , while consuxv-jtion is spread
more v/idely throughout the country. Third, an elenent of heavj; over-
head cost, be it beccuse -Sf heavy fixed equipment, or of raining proper-
ties or other circtu.istrJices,' is generally significrjit in the processes

of production under roviev;. This overhead elenent vrorhs in the direction
of intensifying bbth the tirge for a steaidy and high rate of operation
and the resistance to the lov/ering of prices in a:i^' local market by any
producer. " It has not been possible, to obtain rmch cost accounting data
relative to the proportion of overhead costs to direct costs in the in-
dustries examined. Jlo'.rever, in Section I , C of the third chapter of
this report some pertinent, though not quite satisfactory, information
regarding steel is given, vrhich indicates tha,t 17 per cent of total steel
making cost in I933 consisted of overhead, (it is probable that this
percentage is too Ion)* ;-.s to cement. Table 6S in the Appendix shows
that the manufactu.ring and selling cost per barrel of Portland cement in
1932 amounted to $.3S, Ol»25 ^^^ $1.60 respective!'/, dependent upon
whether a representative plant was operated at 100, 50 or 25 per cent of
practical capacity-. In the salt industry from hO to 50 per cent of the
cost of manufacturing vaci^iT:: ;oan evaporated salt is estimated to be gen-
eral overhead cost.(**)

(3) Another feature is the connection bet-jeen basing point
Sj'-stems and the prevclence of multiple mill conprjiies. Such companies
are na,turally driven to establishing some system which. nckes it possible
to differentiate prices for the different disti-icts where their mills
are located in conforuity v;ith some business policy which pays regard to
the desired intrsr-cor.raa:iy relations of the single mills. Thus the United

■States Steel Corporation, through its various subsidi-ries, owns mills
in most of the steel prodf.cing districts of the entire country'- and both
the Bethlehem and the P.epviblic Steel Corporations have ;.:ills in a number
©f different locations. The largest cement producer, the Universal-
Atlas Cement Company, has 9 mills located in 2 str.tes, the second largest

(*) Such districts c-i-e, in the case of steel, chiefly the Pitt sburgh-

Youngstown-Clevelcnd region and, secondly, the .Chicago, and thirdly,
the Birminghan region; in the case of cast iron soil pioe predomi-
nantly the northern Alabama district; for salt the seven iproducing
fields in iiichigcn, ITew York, Kansas-Oklahor'.a, Louisiana, Califor-
nia, Ohio-7est -Virginia and Texas; for the different species of
lumber the \7ell c.efined regions where the respective species grow,
as shown in Chapter II, infra; while for cer.ent and lime producing
points do not shov; the same degree of concentration.

(**) Op. cit., Section I, P.
9S6U

-21-

(the Lehigh PortlrJid Cei-'.ent Company) has I5 mills in 10 stp.tes, the third
(international Cement Corporation as holding coiTorJij'' for the different
Lone Star companies) follo'.TS --ith 10 plants in S str.tes, the fourth with
9 plants in S st-^tec, cnC. the fifth with J units located in five states. (*)
In the salt industry' one coi-ipany o^ns eight plants; one owns six plants;
one owns three plonts; and five own -two plants each.(**) In the lime in-
dustry v/e find inl331 3^3 companies owning 3^5 plraats,(***) Likewise
in the cast iron soil pipe industry multiple mill ownership is of signi-
ficance, one import-jit company, for instance,- operating eleven factories
in the State of ^Uahrj'.a and twelve warehouse's tlirou/;;hout the United
States. (****)

(k) The clir.rr ctcristics delineated under (l), (2) and (3) are
aspects of the present strj.cture of industry. There is pjiother a.spect of
i:Tportance relating to the historical pattern of growth. of some of the
major basing point indastries. Somewhat over-si: :plified in order to
accentuate the main lines, the historical development of these industries
shows the following picture. During an early str^.;e production was con-
centrated in a limited area such as the Pittslurgh tastrict for steel or
the Lehigh Valley for ce::ent. In connection with movements of the popu-
lation and with the industrialization of an ever growing pc\rt of the
whole country, new production facilities were set up in regions distant
from the original procuction districts. At first these new production
points enjoyed a '-u.rli price level determined hy the prices in the indust-
ry's old center plus freight rates from this area. Dut as the productive
capacity of the new Clstricts grew, especially -.There .favorable conditions
of raw mpterial assembly, cheap labor, or. the lil:.e,pro::oted their easy
expansion (Great Lakes region. South, etc.), the drjiger of over-capacity
and ruthless straggle for markets arose. ?rom the point of view of a
nationally planned economy the solution clearlj' wou.ld have been to divide
markets in order to avoid cross hauling afiA save trrjisportation cost. In
the absence of any industry-wide planning and in connection with the
chp.racteri sties of competition among a small number of relatively large
■producers (as indicated above), the inherent forces of the situation drove
industry members to develop some scheme of controlled rather than un-
bridled competition bet-.'.-een the old and the new production districts. In
the industries under review, where transportation cost constitutes a large
part of the ultimate pi'ice of commodities and therefore is a determining
factor in limiting marketing areas, o-asing point s3"stems or uniform tra.ns-
portation charge zones ■. -ere the result of this development, since they
facilitate price leadership and reduce the importance of freight charges
a,s a competitive factor.

(*) See Table 67 in the Appendix.

{**) Loc. cit,

(***) Op. cit.

(****) See the report above referred to.

9864

-28-

C, The Development of NRA. Policy with Respect to &oop:ra"phic
Pricing Practice s

In rcvieiT'inif; the development of NPA policj'- \yith respect to geogrL^phic
pricini'i' practices, it must bo said that the two years' of NRA.' s duration,
from the enactment of the National Industrial Recoverj'" Act to the Suprerae
Court decision in the Schechter case, were not sufficient for the foiTnu-
lation of a clear, consistent and unequivocal policy. Considering the
extremely complicated nature of the matter, the wide scope and intricacy
of the economic problems involved, pnd the fr.ct that available court de-
cisions did not furnish the guidance needed, it is not surprising that
the process of formulating bases for administrative and economic policy
in these matters was a very slO'j one.

At the time when public hearings were held on the iron and steel code,
one of the first major codes to be ap'oroved by NRA, the interest of the
Administration focussed on the labor provisions of the code, ance the in-
crease of national purchasing power by raising wage rates and spreading
emplojTnent was regarded as the most important part of the li^ole NRA pro-
gram. The transcripts of these hearings show that only passing attention
was given to the basing point provision of the code.

Only a few months later, the steel barring point system came to the
fore when the Federal Trade Commission, in response to Senate Resolution
No, 165, prepared a report on the "Practices of the Steel Industry Under
the Coin" (*). In this report the Federal Trade Commission expressed the
view tl'i-^t the multiple basing point system as incorporated in the steel
code v.as hardly less objectionable than the Pittsburgh single basing
poii:.t system which the Commission's Order of 1924 hrd declared to be in
viola'. :Lrin of the anti-trust la,ws. This stand taken hy the Federal Tra,de
Comr.iir.F. Ion did not lead to any immediate change in NRA' s attitude toward
the riieil/ceTc However, -fri e steel code had originally been approved for s.
tria/i "on-iod of 90 days only, had then been extended for another trial
period of about six months, and came up for final approval on May 31, 1934,
In copiic'C-'i.lcn with this final approval of the code, the matter of basing
points •.jy.ij. in the focus of attention. Amendments to the code increc.sed
the nic:b„i' of basing points for several iron and steel products. At the
same tiic "ho Executive Order of approval, singled hj the President on ilay
30, 193'1-; .i;:.Oe the following statement:

"Co:ii": ^vjns of economic eraergencj'' make necessary the retention
in .fi;'- '."led form of the multiple basing point system adopted in,
th*: r,v^■.,T\.■■^':l code r,nd effective in the industry for many years,
Ijv/.' :i--.\- ■..:.:■'.>. -IS made in this Code, increasing substantially the
n\T..ibe:-r of Vasing points, ajid modifications in practice under the
CovLOj, -.;;iri ? alleviating some of the inequities in the existing
s;;"fii-tv.U: i L'.ustrate the desirability of working toward the end
of hc.vlcsc prices quoted on the basis of areas of .production and
the eventual establishment of basing points coincident with all
such areas, as well as the eilimination of artificial transporta-
tion charges in price quotations. Therefore, I have directed

(*) Cf, Senate Document No. 159, 73rd Congress, Second Session, Practices
of the Steel Industry Under the Dode, March 30, 1934,

9864

-23-

the jTederal Tx-ade Commission pnd the National Recovery Adminis-
tration to study further aaid jointly the operation of the basing
iDoint system and its effect on prices to oonsuiers, and any ef-
fects of the existing system in either peiTiittine or encourair?^-
ing price fixing, or providing unfair competitive advantages
■ for pi-oducers, or disadvantages for consumers not hased on no.tural
causes. I have requested that the Results of this study be re-
ported to me rithin six months, together vith any recommendations
for revisions of the Code, in eccordance vdth the conclusions .
reached. " (*)

On the basis of this Presidential Order, the Federal Trade Commission
an.d a special committee of investigators appointed by KRA. made preparations
for a joint study of the basing point matter, Hoi''ever, the differences
in point of view between the Federal Trade Commission and NEA were so
material that the only feasible line of api roach proved to be separate
continuance and completion of the studies undertaken by the two agencies.
The results of the two studies differed substantially. In its "Report
to the President V.'ith P.espect to the Basing Point System in the Iron
and Steel Industry", submitted November 30,, 1934, tiie Federal Trade Com-
mission made the follOTring statement: (**)

"The Commission is profoundl\^ of the opinion that there is no
sound, economic foundation for the system of price fixing,
whether it resiilts from the cooioerat ive activities of industry,'-
or I'hether it be imposed upon industry bj/ governmental action."

The basing point system was considered by the Commission to be es—
sentia.ll3r a device for price fixing. The Commission therefore reconaend-
ed that the iron and steel code be changed to eliminate provisions falling
within the follotjing classifications:

(a) Provisions giving expire ss sanction to the multiple basing
point system;

(b) Provisions in aid of price fixing; and

The results reached by the Committee of the National Recover^"- Acijnin-
istration upon the study of the operation of the basing point system in
the Iron and Steel Industry can be summarized as follovs: (***)

(*) Cf. :r.eport of the National Recovery Administration on the Operation
of the Basing Point System in the Iron and Steel Industry, NoveBiber
30, 1954, page 1,

(**) 2e230rt of the Federal Trade Commission to the President In Res^oonse
to Executive Order of May 30, 1934, 'Jith Respect to the Basing
Point System in the Steel Industry, ITovember 30, 1934, pages 38
to 42.

(***) Op. cit. , pages D^^gi,

9864

-24-

ITot ?.l!i= the critic isMT- of tlie 'orsinj point syste.i "ere Justified '
in tJic terns in -.•hich tlie;' '-'ere -..is.clc. It '-r.s, liovrever, founc'. to ''oe
true tlirt the 'br.si-.ic -point G;"sten Lie not tenc. to rs serviceaole a for-n
of coiToetition ^s -. system in viiich there is uoi'e incentive for a -:ro-
ducer to lo-.'or his "base "price c.r a r.eans of e::tendin.." his sales area,
and that certain purchrsc'S -ere ourdened ■'•'ith o.rtificial frei^';hts. On
the other hand, radical chan/jes, such as tr..j introduction of f.o.'). riill
sellin-:;:, see !ed to he too uncertrin and distu-roini:; i^ their effects to
he seriousl;/ considerec- 'ithout e-haustive in'^ixiry.

Therefore, the incorporation in the Code of a frorvD riill-hase sj'aten '.7as
recoianondec . This f;roup nill-ocse s:/ste-. iiiplied the estahlishment of a
■basin-; point for each rTov:p of -ills or single lar-e mill in such a -ay
that no nill of an an-nual production capacity of 20,000 tons or ncre . '
vjould he no re than 50 niles distant fro:: a hasing point. At the sane
tine it "ts reconnended that, in order to co-pe '.7ith the -prohleii of unnec-
essary cross hauli-n^2, the -per lissihl^ aio-ont 0:" freijjht aosorption
should he United to s^|;.00 per ton.

l"o final decision ps to further action on the- steel code had heen
reached "hen the Schechter deci':ion aoroc^.tec all l':IuV codes.

In the c?se of the line incur;', tr', the code for v-hich -rras approved
on October 3> ^533) P- nultiple hasin'; -joint svsten had oeen estaolished
and sanctioned 07 h~A. Provisions '-as -lade that the Trade Relations
Connittee of the Code Authorit3', prior to the expiration of a four month
period, shoxild n£>l:e to the President a report and reconmendations as to
the effect of the "basin,-; point sjrsten upon ;-rices and other industry
conditions.

0"n Tehruar^' 7i ISo'^* 't^^e Code Autliority suhnitted such a report, in
Thich it errpresf^ed the conviction that the oasin^' point systera had -proved
highly oeneficial for the line industry/, llo-'ever, on April 1, 1535» ^^^
Adni-nistration, in rpprovin^- certain inporto.nt aiiendnents to the line
code, directed the flesea.rch and Planning; Division of l^ISA pnc. the Trac^.e
Zelations Connittee of the national Li:ie Association to nal:e a -further
study and report fu.lly to the ITatio-nal Industria,l Hecovery Board as to
the effects of the nultiple hasin;';: -point systorj. This report ',7as not
finished at the tine "hen the Surorene Court decision terminated the
vE.lidity of N?A codes. The report is available at the present tine as
one of the ;oiihli cat ions of tho Division of f.evie'-' and sho'7S that the
?-esea:ch a,nd Planning Division hac" concluded that the hasint^ -point sys-
ten, in conhination •■i-fcli other larhetin,';-; practices \ised hy the line in-
dustry, tended to sone ertent to favor the erprjision of the larf;er pro-
ducers, to frcilitate the freezin-f^ of line prices at a hif;h, level, and
to discrininate in sone cases fv;rinst certain q'±ov:^s- of coiisuiiers. At
the srme tine, it '/ar. oelieved that a discontinuation of the hasin;'-;
point s-'stem nould not represent r sol-'ition of the prohlens of the in-
dustry, T'hich i7e-'e found to he too con-;].e:: to he solved "o'j any sinple
remedy. Therefore, fwrther investi^atio-n of the indxistry and its -nain
production and distribution proolens vas reconnended in order to shed
light nore fully on action -'hich ■'70-o.ld reconcile the interests of the

industr'- -71 th the -orincrolos of -ouhlic -.olic". (* )

(*) Cf. the 2eport on the Operation of tlie ;ialtipl(j .Barinj:; Point Provi-
sions in the Line Industr--, Division of .levie-^. ■.'orh Materials llo.
9S6U

«25-

In the cases of the cast iron soil pipe industry end. the cenent in-
cUistr:', the attitiidc o" 1T?lA \'ac that the hasin/,- point systems used hy.
these industries did not rest unon any code provisions and if they •fere
iller-^al the co'^ernraent had itr; 1c"p.1 reiiedies else'^here, outside the
National Tiecovery AcUiinistrrtion,

In all oi" these case^, as ''ell as -'ith respect to hasinc point
systens ectr^olished jy so::ie of the suodivisions under the Lunher and
Timber Products Industries' Code, it appears that no f-all s.-jree!.ient e::-
isted oet-feen the different branches of the Acnihistration. In several
instances, the Consur;iers' Advisory Ijoard er'oressed the vie'7 that "basing'
■ooint s;'stens tended to increase the pricer. vrhich the consumer had to pay,
and recommended that the Aouinistration, a,c a minimum requirement, insist
on a nujiioer of "basing; points 3\?.f "icient to prevent the inclusion of a
su'ostantial amount of fictitious freight in final delivered prices. At
the sa^ie time, some of the deputy Administrators in chari;^e of industries
nith ha-^inc point systems i,7ere inclined to re;;ard these systems as neces-
sary for a solution of the marhetin..;; prohlec-.is of the industries in Ques-
tion, or at least as not in conflict '.-'ith the puolic interest. Tor in-
stance, the deputy administrator in charrje of the cast iron soil pipe
industry, iir. Kin;';, in reply to a nomoranOuji- sufomitted 'oy the Tederal
Trade Commission in re.^ard to the Birminchrixi oasing point sj'stem used
"by this indu-stry, nex'.e tlie state: lent:

"In any event, I an not saticfied that the jasing point system is
an evil." (*)

Under these circumstances of substantial uncertainty as to the
fundamentrl as;oects of the jiatter, the course tahen hy the Research and
Plrnnin;; Division in undertahin;:; thoroufjh statistical and economic anal-
yses of the conditions in ei-.c]i of the industries in question seems to
have oeen desirahle. The ahove-mentioned Heport on the Iron and Steel
Basing- Point System ^-ith its coTorehensive statistical appendices and
the Report on the ilultiple 3asin;S' Point System in the Lime Industry rrere
steps toward clarification of the "basin:;; point prohlem.

(*) Cf. hemorandum suhmitted to ISA hy Tederal Trade Commission on
January 2o, I93U, anc" reply of 1:12a, HllA Consolidated Tiles, Cast
Iron Soil Fi"oe Sicur.tr'".

obSH

IV. BRIEF ANALYSIS OF 30M3 ILiPO.'TAl^T ASPECTS CF THE 0PE?ATI01T OF
GEOCRAPHIC PRICIlTr I.2TiI0DS .

A. Introc'xictor.v Honiarks ?.o ?-rdin,v Location of Inca^stries and
Trans'oort-3 tion Cost .

Conditions in the v8.rioiis oasinj-i: points and uniform
zone pricing industries su^,;,cst that, first, the occurence or cheap
assembly of raw materials and, second, the proximity to markets, were
the hasic fa.ctors in determining the location of producing units.
The pricing practices in use in these industries, such as "basing point
or-zon in,:: systems, :appcar to. have modified the geographic location of
producing facilities hut little. They lie.ve not "been the cause hut
rather the effect of the geographic distribution of production and
markets and must be understood as methods adopted by the industries
in question b ccause of their suitability to structural industry con-
ditions v,'hich had developed for iudep«no.ent reasons.

In the ca,se of the salt and the lumber industries, it is self-
evident that the natural occurence of salt mines and timber lands
determined the geographic loca.tion of the places v/here production could
talre place. In the iron and steel industrj' it Yjas predominantly the
combination of iron ore and coking coal supplies which v.'as decisive
for the choice of blast furnace sites and, as the continuous process
of crude iron and steel making and steal rolling, bccaxise of the heat
economics effected., began to replace odder methods, the tendency was to
concentrate steel convertjars and furha-ces and rolling mills in the
same location i--ith blast furnaces. At the same time, specialized
finishing mills, the markets of v/hich are in the main concentrated in
certa.in areas, displayed a tendency to select locations in proximity
to their chief markets. -The Pitt sb-argh single basin^ point system
which was in use vjitil 1S24- undoubtedly placed non-integrated steel
fabricators in districts dista.nt from Pittsbtirgh -under a serious handi-
cap as compared with their comrpetitors located freightv/ise nearer to
Pittsburgh and their integrated conr^ctitors. It is probably that the
abolition of the Pittsburgh single ba,sin~ point system caused an increase
in the nunber of independent fabricators in districts outside the Pitts-
burgh area, yot the extent of this d.evelopmcnt seems to ha.ve been limit-
ed, Cxxe to factors which promoted the grov/th of integrated ra.ther than
non-integrated est?.blis>jnents. (*)

The location of mills in the cement industr7/ was, in the early
stage of the industry's development, determined by raw material re-
sources, since only the cement rock found in the Lehigh Valley was
thought to be suitable for Portland cement making. Subsequent ex-
perimenting, hov-ever, established the fact that limestone deposits
of a kind, together ^Ith other raw materials, v.'hich aggregate assembly
are to be fouad in certain sections through the coimtry, a're capable

(*) Limitation of time lias prevented a full investigation of this point,
hence the statement in the text is set forth as merely a probably hy-
pothesis. For fvirthcr inforraa.tion ;.ert?.ining to this matter see
Chapter III, Section II, infra.

9864

-27-

of serving as raw material for Portl-aid cement. Since that time
proximity to consiunin-; centers and favorable transi^ortation facilities
nave oeen. at least, as innortant as the availahility of limer.tone -nd
cheap fuel. The raiiltiple basin- point system ps v.sed by the indust-^ '
coes not ap-^ear to tove contributed a-yoreciably, if at ^ai to tne
shaping of the -eo raphic pattern of scatter of cement mills. Similar-
ly, tne location of plants in the lirae industry has been aetermined by
tne occurruce of a certain type of limestone in combinatibii ■■-ith
cneap fuel, sitpplies and strategic position with rcs^^ect to railroad
or water^rray connections and proximity to large markets. (*)

In general economic term.s, the geo^ra^ihic location best
suitea for a producing unit in any industry is one at which the
aggregate oi raw ma.terial assembly, ^^roduction and distribution
costs will be the lowest possible. The imioortance of geogra-ohic
locationis accentxmted or diminished as the unit freight cost of the
proauct isgreater or lower, defending u^on its bulh and wei.-ht. If
tnis cost is relatively high, its' i.m.ortance as an element in celiv-
ereo price to tne constuner will, of course, be greater, and the -prob-
lem ox geographic -.tricing practice more difficult and conrolex. If
tms cost is_ relatively low, its effect uoon delivered -orices will
DC to estaolisn, if any, only negligible -orice differentials which
may oe aisregarded by bvyers (particularly buyers of fabric led con-
s-omers goods) whether they buy f.o.b. ..ills or delivered- or the
producer ma.y be able to establish a Li.iifo.Tn delivered -.ri^e to all

WatM''?''"'n- '°'"''' "'''^'^"' resistance from the more favorably
located (as witn magazines, cigarettes, etc.); or, finally brand
preference and difference in ouality of the p;oducts "Jf ;r :^
vices rendered my and often do outweigh considerations of higher cost
"ffer^tSr V^' consu:.ers buy without regard to a geogrSS^ ^r o
dilxerantial x.o.o. mill or delivered. On the whole, freight costs
assume a lesser importanco where a product is not highly TtLZt

^n.iv ^^^''''- tT'"^''^' '■ standardised product which, beca.use of its
0U1.C or weigh., incurs relatively heavy unit freight charges; .Iven
secondly, an maustny situation as described, with concentraUo. of'-oro-
T:^^":^. ^'' °^° °\'- "-^^"^^^ °f ^^°as desirable as a result of the
Tr^^^Tj sf^--ces 01 s-up;oly, and with heavy overhead costs, tnere
arised tne proolem of wlmt ma.rkets a loarticular producer as distinguished
from other .reducers in the industry is economically equi.,-oed to se^e
- ro^bl^f' ^fr^^-^--'^- -^ ti- ----ts of such producers- can beco."
.- pioblea-i first because of the excess of their ..reductive capacity
(at opt™ size) over demand in their immediate (sui^lus) m^rtets-
second because of the excess of consimr.tion over sur^.ly in other
ioc'ulll'^^rl^ (These deficit markets exist, of course, precisely
because ox tne concentration of producers at certain points.) Its

(*)

5864

See the above quoted Jeport on the Pasing Point Provisions ir
tne Lime Incus try, l^^orl: Ifeterials ITo.

solution v.ill dc;_-!enc'. upou so.ne deten.iinctioii of relative aTsility to
deliver :Tror'.ucts in non-ioroducin^; anc, to £•. certain extent, in other
producing areas at lov/ cost snc" lor price. Such a determination
must ta'zc i:ito account not only tlie cost of transportion from mill
to consumer (vaiying ^vith res-ject to frei lit tariffs - "blanlcct and oth-
er - in effect 3.T.C different modes of trrns-^ortation oraployed, as
well as distance of shipment), but also the producer's cost at the
mill i."hen oneratinf; at an optimum size Virhich ms-y or ms-y not require
shipment over an extended area.

In short, relatively high freight costs per unit of reight
and shipment do' not alone warrant the exclusion of r.ny producer
from any market; there may "be an offsetting.; lower f.c.b. mill
price, which in turn mB.y be the res"alt of operation at a volume
of production vhich v'ould be inroossible v-ithout shrr.ent to dis-
tant markets at relatively heavy transportation expense.

The sounchiess of any of these factors, of mill location,
transportation distance and costs, r:e.rhets served by -larticular
mills, etc., is to be judged 'b'j the extent to which each contributes
to a minimum total cost and price of the industr;;.'-'s products to all
consumers in all markets. Certain suborcdnate considerations are in-
volved, but an ejs^mination of these later in the ?nalysis v/ill show
no essential conflict betv,-een them and the -principle here stated.

Methods of pricing products, f.o.b, mill and delivered v/ith
various modifications, have the effect of determining wlie.t part of
transportation costs individual buyers variously located must bear
in the delivered cost, or price, of the commodity. Since, as em-cloyed
''oy individua.1 producers or by members of an industry generally, these ■
methods also to a large extent detei'iTiine the markets to which a pro-
ducer may ship, his share in those niarkets and the degree to which he
can expand his me.nufacturing operations and capacitj^ they are subject
to the same test of soundness a-s the other factors mentioned. This
vdll be clear from the follovring analysis of the uperatio.". of of the
various pricing methods.

B. Analysis of the pBe ration of Various CTeo;ra-:ihic Pricin,.'.;
I.iethods

All geogra-ohic pricing methods, as stated above, determine
what freight costs each b"aj''cr must bear in securing the product.
A price f.o.b, the selling mill means tliat the buyer pays in freight
the precise, actua.l transportation cost from mill to destination
point upon each transaction. This is also the effect of delivered
prices Txhich are comoositc of f.o.b, mill price plus actua.l freight.
Other methods of delivered pricing lead either to the pajonent of an
average freight cost by all buyers or by bi^^'-ers within defined zones,
or to the -payment of freight based on distance from some i^i'oduction
or distribution point or center, whatever the actua.l distance from
prodxicer tc consumer may be, or to the -^a- ment of an ooualized freight
from the nearest selling mill regardless of tlis location of the mill

S864

-29-

from which tho nvrclis-sc is actiia-ll-' made. All of the latter methods
of clclivercc'. -^ricin;^ result in a niajroity of cors-oraers myin^: not
the act-ual frei.-ht ccsts upon tue -^articulr-.r transaction, hut some
araoimt more or less than actual tr^.n3^^oration cost.

1. r.0.3. rdll Pricin.:.

A nurater of coe.es as a-TM~oved hy T?A "provided for
•oricin-: on an f.o.h, nill basis. ITone of these -provisions a_TTears to
have ijiven rise to problems cornpa-rable in inroortance to tho problems
surro\indin^- basing point, zoninj: and freight equalization provisions.
Hence, a study of industries T;ith f.o.b. pricin,:, lis.s not been included
in tne r^resent re-iort, the -o reparation of vrhich hsis been hs-iripGred
severely by li.uitations of ti;;ie and -personnel. Ilovever, a fev/ re-
marks re^ardin^ some basic aspects of f.o.b. i.ull Tricin_ v/ill serve
to contribute to a better understanding of the matter of ^eographic
pricing pi-actices in _eneral.

Under this method identical prices arc oaoted at the mill to
all bxiycrs v-horevor located; the buyers then bear the precise actual
freight chaiges on each transaction to destinr-tioi^ point.

•(7ith prices set thus, a .nill can sell i"'. its ijiiraodiate market
and in contiguous :;.arkets only to the point v.'here its mill price
plus freight does not er.ceed the mill price plus frei^;ht of some
other prodv.cer selling in that mc'.r?cet.

If tho capacity (in production) of a mill in addition to the
operatirig capacities of all other mills at t;~.G same point is less
tlian sufficient to sxip-^ly the demand a.t that point, tne mill (and
other mills there located) vdll sell at the ms.rket price as sot by
some outside marginal siipplier, representing tlia.t supplier's mill
price plus freight to the market. The home mill vdll thus take a-d-
vantage of its ;50sitionat the market in one of t?;o v/a^'s. If it is a
relatively high-cost mill, its mill cost dise.dvantage \-ill be elimi-
nated, thus permitting it to remain in the me^rket; if it is a low-
cost mill it rdll reap the benefit of correspondingly high profits.
There is the further possibility tliat a. liome mill has a mill cost in
excess of the mill prices of outside prodiiccrs plus freight into
the market, in '"jhich case sxich a. hone mill mi^st sell at a loss and
\;ltimately retire from the industry.

In any casu, \-ij:;der such circumstances, vdnore a.n cu'^side mill
establishes the price in any deficit uar];et, it is obvious that no
advanta.ges accro.e to tho consumer from tl.e locatior of certain
producers at the market, whether these -iroduccrs bo high or low
cost producers. F.O.B. mill prices for tho home prodticcrs will

either contain an excess pre fit element equivalent to the freight
from the mills of the outside liiarginal suppliers or will contadn
an element of cost which approxima.tos this andi represents, in effect,
a subsidy to the relative inefficiency of the home mill.

Cn the other hand, if a mill, with ether mills located at the

9364

-30-

snme ^oint, is atle to sunyly in excess of tlie demand "t that ^5oint,
it will liave to ship a •-.-si-t of its -orodi^ct into other rnarl-iets. Un-
der f.o.h. mill pricing, it can ship only co far as its mill price
pltis freight does not exceed the mill price -nlus freight of some
other --jrodacer sellin{- at tlip.t point. This rnectir.^'; v/ith the prodvicts
of cor.Toetitors sets at any one time rijid limits i-rpon the mill's
market in ever;/' direction.

In order to extend its market the mill has no alternative
to a reduction in its f.o."b. mill price, barring increases in
f.o.h. mill pi'ices oi' its conrpetitorst The possibility of such a
reduction without loss hin:;,es upon (l) excess of previous mill price
over cost, (3) extent of economies obtainable throu^jh increased vol-
ume. Z^ven if the f.o.b, mill price is oririnally in escess of cost,
successive reolxictions in the process of extendiniv; the market will
finally brini' it dov/n to the level of cost. l.Ioreover, economies
obtainable thrcu^rh incveased volume re-ach a point of diminishinj^ re-
turn and eventual cessation. For these reasons it is innossible for
a mill to extend its market upon an f.o.b. mill price basis beyond
certain not too flexible limits, even by reducing:; its f.o.b, mill
Trice, imless" th'-.t price is reduced to less, t-:a.n cost and the mill
sells at a loss. A:i industry.' condition \7hich incites or forces
sale at a loss by many producers, as in a declining market, of course
destroys these limits, and resu.lts "oy a spiral process in x^jirestrained
crosp-hauling and wide-spread mutual invasion of markets. However,
reductions in mill prices for the purpose of extending the market
ordinarily will not be made, if the net i?icome derived from additional
sales is not greater tha.n the net income sacrificed in the mill's in-
mediate market.

The practice of pricing f.o.b. mill mry, in sumnH:.-^,^ be said
to have several sifnificant effects. First, if any market in which
the mill or grou/T of mills there located is able only to su.pply the
demand or a part of the demand, and ships none (or a negligible
amount) of its outpu.t to other consurjiinj. ^areas, there are present
conditions which may foster a loc?l monopoly, a price striicture in-
flated much above cost, or the continued er.istcnce of inefficient,
uneconomic producing units. This is ^iarticularly true where the
market is relatively distant from other production centers, since
producers from these centers cannot enter into effective ccmoetition
with the local producers until the price established by the latter
reaches the oti.tsidc producer's; mill price -plus freight . If the
home mills are able to supply consxTjnption in their own market, they
need only set the price just under this composite of outside mill
price plus freight in oraer to effectively exclude the outside pro-
ducer, , regardless of the relation of that price to. cost.

Secon , where a mill or t^roup cf mills at a certain point
produces in excess of consuniption at tha.t point any effort to find
a market,, for the surilus is restricted cj the inrjossiblity of ab-
sorbing freight upon any shipment; thus, the mill cannot hope to
extend its mark.et beyong a roxvyh circle at the circumference of
which other mills will be sellin^- at a lesser aggregate of mill price

98S4

-31-

plus freight. Only vdllin.-ness of the mill to sell at -.- f.o.b. mill
T.lce below cost removes these limitations and permits shi-oment to
more extended markets.

Finally,, with the fixation of f.o.b. mill minimworices on
the t)asis of some industrj^ average cost protection scheme it is
possible tioat in certain industries individu£3.1 mills ras.v not. vjidor
these restrictions upon market ex,>ansion, be able to achieve o-otiim.™
capacity and output and lowest u^it cost. iXxrthermore, it is^-oossible
that tno economies obtainable from increased volume may not keep td^cg
Tf t . ?*^: """^^ ■f"'''' reductions necessary to obtain that volume
m more distant markets. In such a case only the absorotion of frei^-ht
on sales to the more distant markets would -oermit the mill to adjust
Its operation to the attaiioment of the optimum voluxne of production
ana the lovrest per unit cost.

.,,,,i° general conclusion as to the soundness of this method for any

examiuation of other pricing methods. Tenativelv, it my be de-
n^S f r '^'■^f "" industries to put such restrictions upon extension
of markets, vmile undesirable in others.

It is important to note that the o^Dcration of f.o.b. mill -nric-
mg IS seriously modified by established blanket freight rates by
tS ef'erf '/"^''^ "" °'^'' "'"'^^ °' transportation. Such rat^s Lvo
lt^f.CH °/ ^^°^^S^"S the freight costs of gro^os of shippers or
conoignees from origin zones or to destination zones, of shifting
.eal freight cost abso-i^.tion on certain shimients to the carriers '
which ot course, receive excess freight uoon others. ^^^^^°^^.

2. Delivered Pricing (based upon other than act-os.l frci^-ht
cha rge s ) °

mentalitv fn-. . ^^^ ""^^^"^ ?^ delivered pricing can become an instru--
Tiftlli n ^^1^"^^°^^- Pi^ice cutting and discrimination between

croc?q-h-.iiTi-... , -+1 r^ . responsible for extensive and wasteful

It i "fficSlt fo/''°"'""' increased freight costs to the industry.

Probib f ^^o^age Lt7e!l1r:r"n.' such circomstances to gauge Ms

With an^ degree ^Ic^^^l^^J:^' ^^^^^TlV' T'' ''"^^
delivered -oricinf with fv^L^lf P-otit or loss in total sales. Such

disorganize" c^JtorSiTof''""" "' '''""" '^ vaisystematic,

which is beiL marketed i-! 1 " ^^^Prossed industrj^ the product of
at a net less! '"^'^^-"^^'^ ^^^ "'"^^^ °r l^^s cnaotic fashion very frequently

The pScmetSJ^?;/^'J:^^^°^T '''-' "^^ °^^° °^ ^-^-^ ^--.
following/ in^'u^lf^^ ^■•^?'' °' '^"^-^^'^ cdualizations is the
ov.i..,. In quoting delivered prices to any distinatio:- point all

9864 . . • -

-33-

producors yirherever located are to 'De on a basis of equality vdth.
respect to freight cliar^es as an element of price, this equality
bein;, achieved throu^^'h the quotation of all prices delivered at
tliat point on the basis of frei^ght from some conraon point. Thus
in selling to any distination producers at a ^jreater distance than
the point from which freight is figured rau.st absorb the actual
excess freight incurred from their own mill or shipping point.
The absorption reduces the mill net yield received (which is deliver-
ed price less freight cljarges paid) by the amount of this excess. On
the other ha,nd, if the mill is located closer to destination than
the point fmm vhich freight is figured, its delivered price v/ill in-
clude an element of "fictitious" freight in excess of freight costs
actually incurred in shipment.

(a) La-sing Points and Freight Zlqualization,

As has been discussed above, the point from which freight is
figured in arriving at delivered prices is the "basing point" for
that destination and for all destinations a-t which price is similarly
reckoned. In any indu.stry the n-omber of basing points may be equal
to or even larger tl'ian the n^omber of points at which mills are lo-
cated, or it may be less, or there ma.y be only one such point. The
basing point systems in such indtistries are l:nov,':i as "multiple" or "single"
accordingly.

The significance of codification under i'TRA. was very different for
the various basing point indu.stries here considered. In the iron and
steel indii.stry a multiple baling point system had been in use ever since
the Federal Trade Comrhission Order of 1924 md directed the inti^istry to
cease and desist from the use jf the Pittsburgh single point basing
system. The incorporatior of the multiple basing point system in the
stell code had, in the main, a fourfold effect. First, the basing point
practice was given legal sanction and thereby made strictly enforceable.
Second, as a list of all basing points for all products was made part
of the code, all doubt was removed as to whether a specific point was
or was not to be regarded as basing point. The basing point structure
was made rigid, since only the formal procedxire of amending the code
could effect changes in the number of basing points. At the same time,
the m-mibcr of basing points was inci-eascd for practically all industry
products as coiimarcd with the use of basing points before the code
(though no quite determinate infoi^mation exists with res-cct to the
pre-code sittiation). Third, the combination of the basin,.^ point prac-
tice with price filing proved to be of greatest inrportance for the
implementation of the practice. It practically sguarantecd. the general
adherence to the system, through indAistrj^-^-ide pu.blicity of the prices
quotes by any industry member. Fourth, the code provisions preventing
industry members from "caider cut ting the lowest price on file at sTi.y
basing point other than their o'mi basing point (tliat is, the basing point
freightwise nearest to the plant in question) eliminated "dumping" into
more distant markets and thereby greatly contributed to stability of the
price level. (*)

(*) For further information as to the iron and steel incVastry see Chapter III,

infra,

9864

-33-

In the case of the liTie industry NBA sanctioned the estatlishuent
of a tasing point system which had not existed "before the code. Certain
lime producing points (as, for instance, York, Pennsylvania, and a few
others) could be coraparecj to bas^-ng points for a restricted area in the
pre-code period, as the railroad freight structure had instituted
blanket rates for the district surrounding them. The practice of
equalizing freight with competitors located freight;"ise nearer to the
customer had been in use in pre-code days, but the adoption of a general
basing point system was aduiittedly an innovation. • The code empowered
the District Control Committees (one of them being established for each
of the thirteen districts into which the country was divided) to set up
basing points for their re_spective districts, thereby making the basing
point structure less rigid than the steel code which made the basing
points themselves part of the law. A later amendment to the code pro-
vided that any industry member was authorized, to establish his 0¥m plant
as a basing point, if he so chose. This amendment seemed to inject
further flexibility into the system. However, no lime producer availed
himself of this privilege during the entire code period. Quite similar
to the steel code, the lime basing point practice was effectively im-
plemented through price filing; likewise a provision prohibiting "dump-
ing" into basing point areas outside the producer's own area was in force.
A provision restricting freight absorption on sales to distant basing
point areas (at a price there on file) to 20 per cent of the seller's
own basing point price was stayed by the Administration. (*)

The cement industry and the cast iron soil pipe industry used basing
point systems (and for raodif ications thereof) for a long time prior to
KEA and continued to use them under NBA though r/ithout incorporating them
in their respective codes. In both cases, however, the price filing
adopted by the code contributed to an effective implementation of the
basing point practice through publicity of the prices filed by industry
members, in the cast iron soil pipe industry as of the single basing
point Birmingham, in the cement industry as delivered prices for each
individual destination. As to the latter arrangement, freight rate books
indicating the rates in force between the different basing points and
destinations make it easy to ascertain upon vjhat base price aay quoted
delivered price is built.

The multiple basing point system in the cement industry is
interesting because of a combination of traits of flexibility'- and of
rigidity which it displays. There are 77 companies with 165 mills in
the industry. Out of these 165 mills 50 are owned by the five largest
compa.nies. (**) The number of basing points

(*) Cf. the above quoted Eeport on the Lime Industry.
(**) Of. Table 67 in the Appendix.

9864

-34-

is not laid c.o-;n in any lir.t or rule, "but any industry nei.ibcr is
free to use cither his ov.ti or another cement mill as "basini^ point
for his transactions or to discontinue such use and chan^-e to
another hasin,^ point at any time he cliooses. Practically, how-
ever, the 2-reat majority of the hasihg points .arc at locations
whei-e one of the five largest conrpanie& has a mj.ll, 3i»i?.ller
conrpanicr. are relucta-nt to maize their mills hasin^; points bc-
cav-se of the increased exposure to -price competition which accom-
panies such a step. It is interesting- to -note tliat duo to the in-
tensified inducement to price cutting' in the depression, the per-
centage of smaJler .aills among all hs-sing point mills was greater
tlian either "before or after the depression. In Aui;uF,t, 1931, 65
basing points were laiovra to the trade vdth 100 mills located at
these points. Of those hundred 34 belonged to con^oanies other than
the five largest. In August, 1934, the number of basing points had
been reduced to 52 vdth 83 mills at basin,^; point locations. Of
these mills only 38 vere owned ''o-/ qompanies other, thian the five
largest. In both years the number of basing point mills controlled,
by. these five largest conroanics .l:iad rema.ined u:icli?.nged at 45.(*)
.Approximately 75 per cent of all cement .is produced at basing
points.

All the basing point industries here discu.ssed hs-ve a sig-
nificant set of problems in common. Because of the great iiir.Tortance
of freight in delivered prices (du.e to the heav:/, bul]-:^'- character
of their products) freight absorcption on sales to mere distant
destinations was a -frequently used focus of price conioetition.
Especially in times of shrinj.:in^ markets ar.d overprodiiction such
absonptions mounted high, brou.ght prodiiccr^ i;nto. remote iTiai-lrets
?/herc they scaircely had sold before, intensified- the struggle for
business volume everj"/vhore and contributed greatly to demoraliza-
tion of prices. ",/horever a company or group of companies liad
grown to a position sufficiently powerful to exercise some control
over industry conditions and prices, they found .the best erqiedient
to cope with price cutting based on freight absorptions in the
aodption of a basing point system. If all producers quoted their
basic prices as of a certain point or a limited number of points
and liad to apply the freight rates from this point or points, control
over the pr.ice structure become tecliiiically much sinpler. The price
structure for- the country as a v/hole was necessarily the highest
whenever a single basing point system w~s in. operation (cuch as
Pittsbv.rgh-Plu.s in the steel, industry) dv.c to the addition, of freight
calculated from this one point to all destinations 'in the country''.
Unless too high prices reacted unfavorably on the volume of sales.

(*) Based on information submitted to the aTA :^.esearch

and Planning Division by the Cement Cod-n Authority,
ITBA consolidated files. Cement Industry.

9864

-35-

all industry menibers proiited fror.i such a system. The ones located
at the basing point gained primarily in business volume, since they
could ship everywhere without ha.vin^ to ah sorb freight. The ones
in outlyin-^ districts gained primarily in pi-ice, since they cliarged
"fictitiotis" freight on all sales in thoir location or in locations
away from the basing point. If they sold to destinatio. s closed to
the basing -^oint tiia.n to themselves, they liad to content themselves
with decreasing mill net yields. It ^^^as, therefore, mostly the in-
crease in size of produ.cing establishments in outl^'^in,,, districts
(the Great Lakes region and northern Alabama for steel, all dis-
tricts outside the Lehi^^h Valley for cement),, the pressure exerted
by heavy overhead for more volume rather than for a better price
on a restricted volume, which aroused the interest of those outlying
producers in additional basing points. After such new basing points
were established, two different consiclerations entered into the price
'■^olicy of the producers located at the different basing points. They
desired high base prices in order to obtain high net yields on the
sales based on their o\Tn respective basing -ooints, but they were
afraid to make the base prices too high, .lest they invite shipments
from outsiders into their home territories. Again, non-basing point
mills were favored through "fictitious" freight cliarges on sales to
destinations closer to themselves tlian to the governing b»asing point,
and were at a disadvantage with respect to sales. in the vicinity of
basing points where they liad to absorb freight. From their point
of view the basing point system was desirable or undesirable, de-
pendent uoon whether the greater proportio.i of their sales took place
in territory freightwise nearer to themselves. 6r to the governing
basing point, and accordinglj^ fell under the category of high or low
net yield transactions.

In attempting to appraise any given basing point system a
number of different points of view must clearly be distinguished.
From the ;ooint of view of the consrjner it is of primary importa.nce
that not more transportation cost is saddled upon him tr^n is consistent
with the attainment of the lowest possible sum of total production costs
(of plants at optimum size and optimiun rates of operation) pljis total
freight cimrges. From the point of view of producers it is important
tliat basing points are so distributed that the- large-scale producers
can obtain sufficient volume and tl.e smaller producers do not have to
absorb freight ancT content themselves with relatively low net yields
on a great proportion of their sales. As to tho absolvto level of the
prices prevailing under a basing point system and their degree of rigid-
ity, it should be borne in mind that the abuse of the leadership position
of companies ezcelling by size and fin?.ncial streng.th is responsible for
too high or too rigid prices and thr>t this position could be abused
even v/ithout any basing point system. If stich abuse occurs, the
abolition of practices such ae basing poi:/c ;;'ricin„ cannot successfully
cope with the situation. Only measures more fundamental in character
and aiming at reforms in the structure of the industry situation could
be regarded as appropriate remedies. An orderly basing "loint system
does not need to be in conflict with the basic Intererts of consumers
and the different classes of producers and can iiave the advantage of

9854

-36-

introc.ucin.i si^licity o.nd clr.rity into the "prico structure.

A fev additional ^oncral renie.rlcs .may contribute to a- further
elucidation of the charactcristicfj of basing ;;ioint -?xid frcirjht
equalizatio}! systems.

The cstablislaaent of a multiple tasint^- point system under
competitive conditions and without the ii-.nosition of rigid rales
and regulations -by a controllini, . roup in the indtistr^^ vdll ordin-
arily follov/ whr.t is laibv/n as the "basing point formula". According
to this formula (which in its theoretical pureness is nothing more
than the expression of -b. principle of competitive economic activity)
the delivered price at any destination point will be the lov/es.t
composite of mill price plun freight to that point, and the loca-
tion of the mill which is a.ble to quote this .price becomes the bas-
ing point for th^t destination and for any other destination at v;hich
it likevrisie sets delivered orice. Any other mill in order to sell
in the raarlret embracing all of those destination points must, meet
this basing point -mill 's delivered prices there.- In the. same nanner,
the mill T.'hich is a basing point for one :Tiarket miist, in selling out-
side that martetj meet the lover delivered prices set by other bas-
ing points. If the basing point formula operates without artificial
restrictions, the structiire of casing points will be flexible, timt
is, when at any destination point the mill price plus freight of a
non-basing point mill becomes lower tlian the delivered price of the
basing' point mill, the latter is superseded, unless it sufficiently
reduces its crn mill price. ITew basing points and new delivered
prices are established with a. ireqtiency which bears a nearly direct
relation to ciiangec in the cost and price structure of the industry
and the freight rate strcctv-re applicable to. the industrj^'s pro-
ducts.

This formcila ("oes not operate where the number and location of
basing points is fixed hy indtistry agreement, by a. controlling ^rcup
within the' incus tr:>", or by law (in the form of an indiis trial code
or othenTise) , and. is enforced by tho; cpplication o.f sanctions,
legal or non-legal. In this, case delivered prices for all producers
at all destinations are calc\i.lated at a t-jiifon;! mill price at the
established basing y.'oint for anj^ given territory (or from a single
basing point for all markets) plus freight to destination. Co^.t
reductions effected by p.roducers at or away from t?ie basing points
have no effect xipon the basing -"oint stracture; this is fixed until
altered, by the controlling group which esta.blished. and enforces it.
The system is frozen, is not stisceptible to and may not be modified
by the action of free price ccnrpctition. The principle of freight
eq\i».lization is applied, but cqpia.lization with certain mills, pro-
du.cing or basing -^oints if; required, without av-tomatic adjustment to
changes in the relative cost position of these mills or centers in
the industry. Y/'herc basing points are mai,ntaincd artificially under
industry or goverrunent control, ■nrach- obviously depends, on thjD efficiency
and elasticity of tli£?.t control..

'7lTa.tever tlic mctllo'^ of freight equalization in use," its essential

9864

-37-

principles and fiinctior.s will 1)0 the follov/in^. It v/ill operate
primarily to permit mills to enter certain raa.rirets, vhicii would be
closed to them -under a method of f.o.b, mill px-icin^, and to compete
therein on a delivered price "basis rhich makes ineffective trans-
•5ortation cost as an impef.iment to geot>raphical cxten'oiou of compe-
tion. It v.dll do this, ar. stated, "by establishing all mills sell-
ing in these markets on a basis of eq-ciality to the buyer ir.'ith res-
pect to freight charges as an el'-ment of delivered price. It
cannot eliminate geographical or transportation cost disadvantages,
but it removes thern as a bar to extension of markets. In this process
mills will necessarily obtain varj'ing mill not prices from bti^yers
variously located. Some of those mill nets will be higher than act-ual
\mit cost at the mill, some rna.y be lower; the average should equal unit
cost or exceed it, unless t>-e mill is selling at a loss. As mills
extend their markets and ship at greater distances through the use
of equalization, fi-eight absorptions necessarily increase; the greater
the absorptions, the greater th^ cost of the system to the industry.
If such increased shipping cost is not offset by cost economies at-
tendant tipon large-scale produ-ction, but its recovery is attempted
through the charging of higher base prices, the possibility of impos-
ing this inflated cost upon consumers will depend largely upon whether
the market for the industry's products is a buyer's market or a seller's
market.

Difference between the several ty;nes of basiiv; point and freight
equalization methods lead to the following analysis of their relative
advantages and disadvantages.

A primary consideration is the economical location of the basing
uoint. As we have seen, a system, of multiple points established,
maintained and adjusted to changed industry" conditions by the spontaneous
or calculated application of the so-called basing point formula, will
locate a basing point wherever there is a mill which is able to quote
lowest delivered prices at surroi-uiding destination points. i-To mill can
hope to enter a market or to sell at any destination point for ^^hich
its f.o.b, mill price plus freight is higher than the delivered price
in effect there, Uailess (excluding the possibility of a mill price re-
duction) it overcomes its net freight cost disadvantage by freight ab-
sorption. It, therefore, api-^ears tliS-t all mills mast cqup.lize with
these mills which establish the loYfest delivered prices at various
destination points. The locations of the latter mills, must be basing
points. All points so detennincd by the free application of the formula
may be considered to be economical.

VJhere the number and location of the points is fixed and maintained
artifically by some controlling agency the question a rises as to whether
such a rigid basing point stru-cture is justifiable. The formula is
inoperative; in the absence of competitive selection of the basing
points much obvioi^sly depends on the wisdom and efficiency of the ad-
ministrators of the system. If they force equalization with a point
at which it is economically unnecessary and fail to permit equalization
where it would otherwise occur, tl.us ignoring a natural basing point

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and requiria- mills at that -..oint to sell at dolivered prices

^ut S;"V ;'''-'' '^°^^ -- °^-- ^---^ point, they th^rc^
put the celivered prices of oconoraically differentiatecS .-.o4.s

relievo consmers m one area from.'oart of their freight costs
while saddling uoon consumers in other areas equalizingcSr'es
in addition to their actml cost of tmns^oortat^on. "^

9864

uZ9-

In view of this danger it na,y be considered of doiiTDtful soundness
to fix or freeze the "basing point structijre irnder artificial control,
however conpetent those in control may be. Vfeniu-st recognize, however^
that in c/irtain industries circumstances nay make it impracticable for
the forces of free competition to operate, where their operations vvould
he apt to result in dislocation of the basic struct'ore of the industry
and, it may be, of important related industries as v/ell. This possibility
is a paramount consideration where a large basic industry, in the pros-
perity of which nan;'' lesser industries are involved, is established and
built upon an aftificial basing point system. It is well to remember
that although the application of the basing point formula may usually be
considered satisfactory when freight equalization is required, it assumes
the existence of free competitive formation of prices and selection of
basing points; in certain ind\istries free com-oetition may be non-existent
and for practical purposes unattainable.

The foregoing analysis leads to the following conclusions about the
location of basing points. In general, the points should be located at
producing centers, the mills at vhich are fully a.ble to supply consumption
needs in the iminediate trade areas and characteristically ship in volume
into adjoining and distant markets. No mill location should, ordinarily,
be a basing point if the mill or laills there situated are relatively high
cost mills which a,re unable to sur^oly more than a part of the demand at
that point, . ' •

Another consideration of great imroortajice in weighing the relative
advantages and disadvantages of the various methods of freight equaliza-
tion is the extent to which each contributes to uneconomic distribution
of shipments and- excessive trajisportation costs in the industry. By un-
economic distribution of shipments (of which "crossh?.uling" is a special
case) is meant the supplying of a market with products from other markets
which precisely as demanded might have been obtained at lower delivered
cost either in the home market or from freightwise less distant markets,
as evidenced by shipment in sufficient quantities of the same product
out of the home market or the less distant markets. Such uneconomic haul-
ing will be very little impeded under any 'method of equalization (without
mandatory limitation uoon freight absorptions) , but is apt to be moat
extensive where equalization is not applied upon econonica,lly located
basing points. Under this condition artificially high delivered prices
at certain points are -possible for mills which otherwise would never sell
there; these markets are invaded by forei,;^ mills, absorptions a^re in-
creased, uneconomic long-distance hauling incited, the industry's trans-
portation costs raised. Tlie extent to which this may proceed is undeter-
minable in theory and depends largely upon circumstances in particular
industries,

(b) Uniform Delivered Prices,

Other methods of delivered jricing establish uniform delivered prices
for all consumers and destination looints either in the entire country or
in defined zones and destination groups. Among the industries studied
only the Mahogany Division under the Lumber P-nd Timber Products Industries

9864

-4C.-

Code employed this method. (*) All such methods are based upon some deter-
mination of a weighted freight cost upon all shipments into the territory
from all producers supplying the territory. The "basis for the calculation
of the avera^;e will not be touched upon in this analysis, since it is
essentially a statistical and mathematical problem. It is sufficient
to say tliat unless the averaf^-e be accurately calculated and exactly weighted
such a method will create one maladjustment after another and will eventually
collapse of its own weight.

A system of uniform delivered prices is improbable as the outcome
of free competition; it will ordinarily be the product of industry agree-
ment or of group domination within an industry. (Here again a- standardized
product incurring relatively heavy freight costs per unit of weight and
measurement is assumed. ) Under free competition it is unlikely that the
advantage of all producers at all times will be secured by the quotation
of one price to all buyers either within zones or wherever located; some
producers are certain to find it more profitable to confine the greater
part of their sales to local or sectional markets, the limits of which
do not conform to the limits of the zones. * In doing so they will find it
undesirable to quote a uniform delivered price based upon an average
freight cost to all consumers and destination points, for the reason that
they will not ship to many of these points. Lov7er delivered prices which
are in some way related to trai^sportation costs to the less extended
markets which they wish to cultivate, will much better promote their
interest in those markets. And, where uniform delivered prices break
down locally and sectionally by the action of certain producers, it becomes
unprofitable and impracticable for other producers to attempt to maintain
prices on this basis, because if they do this, prices will contain an
element of freight cost to markets from which they are excluded by the
departure of producers in those markets from uniform delivered pricing.
Protection of the markets in which they themselves have a freight cost
advantage then requires reciprocal abandonment of uniform delivered prices,
making possible lower prices to these markets.

Where free competition exists these factors should ordinarily either
prevent the establishment of uniform delivered pricing or cause its
abandonment shortly after adoption. In the absence of such competition,
where collective action imposes the method upon the industry, the same
considerations should operate to induce repeated and widespread departures
from it and its eventual collapse, unless powerful sanctions are invoked
by the controlling groups.

Where Toniform delivered prices are set by zones obviously the precise
definition of the zones is required, according to what those in control
consider their proper limits to be. An accurate determination of average
transportation costs to all destination points from mills supplying these
points, weighted b.y quantities shipped, is necessary. Each of these
problems presents great iiractical difficulties; each is subject to the
criticism that any solution, however wise, is necessarily static and
cannot be rapidly adjusted to shifts in production and cons\imption, shifts

in quantities supplied various markets by various producers.

(* ) The same method was employed teraproarily by two minor sub-divisions of

the same code which were not included in the scope of this report. For

further information as to the Maliogany Division see Chapter 110,

Section III, infra.

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-41i-

Uniform delivered t)ricing more than any other method of delivered
pricing nullified the effect of fe'eooTaphical location and transportation
costs in establishing price differentials "between consumers. To a
uniform mill price is added a uniform freight cost, to obtain a composite
uniform delivered price. This means that, as was the case with the
several methods of freight equalization, absorptions of freight are
necessary in selling to some buyers, additions of fictitious freight in
selling to others. If these absorptions and additions do not balance,
the mill (or the industry) is either operating at a loss or receiving
excess profits.

Uniform delivered pricing has further the following important
effects. Like other methods of delivered pricing, examined, it permits
producers to -extend their markets beyond the limits permitted by f.o.b.
mill pricing. , Like them it does this by allov/inc^: freight absorption
which in most practical cases will be restricted to that portion of
delivered price which, represents fixed (overhead) costs as opposed to
out-of-pocket expenses. This privilege is ,necessar?.ly accompanied by
thg possibility of extended uneconomic hauling, waste in the transportation
of the industry's products, and increased freight cost which consumers
must bear unless the industry is so depressed as to be unable to obtain
prices equivalent to costs. If producers in any one zone may sell in
all other zones at the delivered prices for those zones, uneconomic long-
distance hauling may be restricted by the impossibility of absorbing suf-
ficient freight to permit entering the more distant zones; such interzone
sales as are made will involve heavy absorptions. Where producers in one
zone ma;'' not meet delivered jprices in other zones, but are required to
add freight to their own zone delivered price, they are in effect excluded
from those markets. In either case uneconomic liauling is likely to be
less extensive than under a system of uniform delivered prices for the
entire country.

Uniform delivered pricing by zones or to all buyers whereever located,
is open to another f-undamental criticism. When an average freight cost
to all consumers has once been established and is used as a basis for
selling a delivered price, that average clearly must not be rigid, but
must be adjusted to changes in actual transportation costs. With uniform
prices to all destinations, considerations of advantageous location
with respect to sources of supply and delivered prices of raw materials
no longer influence capital in consuming industries in the choice of
sites for new production facilities. Thus, it may happen that certain
new producing units are set up in such industries at points which are
\aneconomic at least with respect to sources of raw material supply and
necessitate transportation of materials at higher cost. It this possibility
is realized, it is inevitable that total transportation costs for the
supplying industry will rise to- a related extent. This will necessitate
a revision of the average freight cost upward, a similar increase in
uniform delivered prices. Wliilo the process continues, the average and
the uniform price will be constantly pushed upward, with increasingly
wasteful transportation of the industry's products and possible retarda-
tion of demand (if elastic). Tiiether the tendency will be realized and
attain any significance will, of course, depend upon factors and circum-
stances in the particular industry involved, especially with reference
to the rapidity with which new production capacity is set up in the

9864

-43-

ccnsuming industries, the relative importance of these consuming indus-
tries as markets to the supplying industry raid general inter-industry
relations.

In summary, this method of delivered pricing has dintinctly unecon-
omic potentialities and is hampered by serious adiiiinistrative difficulties
which may easil;/ "become impracticabilities; nevertheless, its soundness
or unsoundness may only be decided with reference to circumstances in
particular industries, in some of which these potentialities and imprac-
ticabilities r.iay not materialize.

3. Anti-Durapin.:^ Zones and Price Piling Zones

Jinti-dumping zones and price filing zones differ in their economic
significance fun dainent ally from those geographic pricing practices which
bear on the amount and incidence of transportation charges. An analysis
of the problems involved in the establislxient of sucxi zones leads
immedii^tely to the problem of price fixing, a treatment of which is not
here intended. (* ) However, as an interesting example of anti-dumping
zones, the case of the ice industry is presented in Appendix II below.

Regarding the matter of price filing zones, limitation of time
and personnel has prevented any study of the industries which adopted
this device under iiRA. Reference may be made to the report on "Price
Piling Under NRA Codes"(*'*) which suggests that in many of the industries
which provide for price filing on a regional basis, the effects v/ere
comparable to those of ant i- dump ing zones. Such filing of prices fre-
quently amoxuited to a restriction of p^rice competition within the
bounda,ries of the, price filing zones aiid thereby facilitated the stabili-
zation of prices within these zones.

(*) See the Report on "MiniuTUii Price Regulations Under Codes of Fair
Competition", Trade Practice Studies Section, Division of Review.
Work Materials ¥.0 .

(**) Price Filing Under IIPA Codes, Chapter 5, Price Filing and

G-eographic Price Arrangements, Trade Practice Studies Section,
Division of Review. Work Materials ITo.

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-.43-

V. CONCLUSIONS A3 TO THE EGOIJOLIC CHAR.A.CTSR OF THE GEOGRAi^HIC FRICIUG
PRACTICES HEVIEraD.

Often the question of the so-andness of syste.ns of delivered pricing
with freight ahsorption is approached from a point of view vmich asswnes
that there is something essentially evil and -onsound in the calculation
of delivered prices on the basis of other than actual transportation cost
on each shipment. That this unsupported assumption may not properly "be
made will "be evident, first, from a consid©- it'ion of established rates
by rail, water, and other carriers, which are often blanketed, zoned or
built about certain gateways and not set at actual cost of the individual
haul, in recognition of the greater importance of market structure or
competitive relations between producers; second, from an examination of
the character of manufacturing costs, which often vary considerably be-
tween units produced at different times or with different machinery and
labor, in the same mill, so that even in the theoretical case of prices
being determined by cost, buyers pay in price not the actual cost of the
unit purchased, but an estimated average cost for all units (of that tjnpe,
grade, etc., or frequently even of different tj'pes and grades) manu-
factured by the selling plant.

In recent economic thinking possibilities of monopoly and monopolistic
practices have been emphasized frequently in connection with delivered
pricing and geographic price discrimination but often loosely and not
dispassionately. It must be borne in mind that there are possibilities
of local monopoly and excessive local prices under f.o.b. mill pricing
which, if they materialize, may be as serious and. uneconomic as a quasi-
monopolistic condition proceeding from control of an industry by some
dominating group within it. It is possible that prices will go higher
under a local monopoly than as a result of group action, since the
larger members of an industry'- often, out of an understanding of demand
factors in the marke};s for their products, are unwilling to permit ex-
cessive prices which might lead to rec'uced consumption.

One advantage of delivered pricing often stressed by industries ad-
hering to freight equalization is that it facilitates comparison of
prices of competing mills by cons^omers, who are, of course, interested
not in the base but in the delivered price. Tnere prices are quoted
f.o.b. mill such a comparison will often be different even for a company
which has an efficient traffic departm^ent, because shipments frequently
may be routed over alternative lines and combinations of lines. Con-
sumers lacking these facilities will find the problem of routing particu-
larly troublesome and may be expected to err occasionally in the deter;ni-
nation of lowest delivered price, except as company prevent this by
assisting them in the calculations. The v/rong judgment of the consumer
will to this extent result in higher delivered prices and higher trans-
portation costs than would be established under delivered pricing. This
contention probably has a certain validity, but its importance is
relatively minor.

The character of the mechanism which functions in the distribution
of an industry's products must be taken seriously into account.

9864

-44-

No freight equalization or similar systera can "be established or long
operate, once estahlished, if certain intermediaries (as wholesalers,
joD'oers, hrokers) in the distributive process huy at the mill and ship
to destination at delivered prices lower than those estahlished under
the producers' system of freight equalization, -uniform delivered pricing,
etc. This is, of course, true particularly where a fixed basing point
system or uniform, delivered pricins is in use. The delivered prices
quoted hy wholesalers willconfrom to the "basing point or other equalized
prices only if these wholesalers are willing to maintain the mill's base
prices; "but the wholesalers "buy at a discoiont from the "base prices and
have varying distribution costs.

Similarly-, vmere several modes of transportation are available at
vai^ying freight rates and where the use of more than, one is practica"ble,
the maintenance of systematic freight equalisation or uniform delivered
pricing is extremely difficult. Where rates by all carriers are fixed
and stable, it is possible, since the effect should be simply to establish
delivered prices at particular points on the basis of one method of
transportation to .that point (the most economical method for the mill
setting the price there) , or a uniform delivered price based on the most
economical raode of transportation to each market. Where the rates of
certain types of carriers are not fixed, vary between hauling companies,
are arrived at by bargaining, or are subject to violent fluctuations in
time, systematically eqiialized delivered pricing cannot well be maintained.
This is particu-larly true where trucking offers an alternative to rail .
transportation at widely varying, rapidly changing rates, and to a lesser
extent where cargo or inl.and waterway shipment is possible at rates vmich
(even where there is "a conference agreement) are not fixed rigidly and
universally adhered to.

The number of producers operating in the industry is a factor of im-
portance affecting the practicability of systematic delivered pricing.
Where there are a few relatively large, mills, planned methods of pricing
and distribution of an industry's products are, on the whole, much more
apt to be adopted and adhered to, than where there are many producing
units and the bulk of production is accounted for by small operators who
have been able to enter the industry by reason of the small amount of
capital required, and have found it possible to stay in it, because their .
size does not put them at too great a cost disadvantage. With the latter
condition, if delivered prices are quoted, they will probably bear no
fixed relation to freight cost, but will be determined by supply and
demand factors in each market (as in many divisions of the lumber industry).

The point has frequently been made that delivered pricing with freight
equalization, to the extent that it establishes destination prices which
are identical for all producers selling to a particular destination, is
necessarily accompanied by an absence of price competition. .But such
competition is not evidenced by ■unequal prices for all producers in a
market at any one time. Where a product is standardized and prices are
openly quoted, it is impossible for a producer to sell in a market at -any
price other than the one which the conipetition of a num'ber of sellers
establishes there. The essential aiid significaiit competition occurs
in the formation of the price level and in its responsiveness to ch.anges
in market aiid cost conditions, and has nothing to do with the fact that

9864

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all producers must meet it, once it is set.

From the foregoing analysis it caimot fail to be evident that in i-.ixo
prolDlem of the sounojiess' of the several ^eOi^raphic' pricing methods
certain considerations have a parajnount importance. One of the chief
of these concerns \meconomic hauling, as previously defined. Any
method of delivered pricing hased on freight equalization or an average
transportation cost mal'es possible the extension of markets far "beyond
the relatively rigid limits set by f.o.b. mill pricing and enables a mill
to ship at a great distance from what is otherwise its normal market.
It thereby facilitates but does not necessarily involve the uneconomical
transportation of an industry's products, with resultant higher costs
borne by the consumer in higher prices or by members of the industry in
net losses. On the other hand f.o.b. inill pricing restricts a mill to
surrouiiding, nearby markets, excludes it from more distant ones, except
that as it is willing to lower its f.o.b. mill price even below cost it
may extend its market sub st .ant i ally beyond these limits. In an industry
the production units of vvhich are large and have heav;' fixed overhead
charges (the type of industry to which, as shown, freight equalization
is best adapted), pressure in a declining market to reduce price doym
toward the floor established by actual out-of-pocket expenses is severe
and effective in inducing many producers to quote lower and lower prices
to secure greater volume. Action by one seller almost inevitably means
retaliatory action by another whose market has been invaded; in this way
the effect is cumulative, throughout the industry. Under such conditions
mills in an industry selling on an f.o.b. mill basis will be forced to
invade outside markets, ship at long distances, and contribute to general
uneconomic hauling. Tlie principal difference between the, conditions of
these mills and that of producers in axj. industry- which practices delivered
pricing with equalization is that the latter, in order to extend their
markets and ship long distances, need not reduce their f.o.b. mill prices.
On the other hand, in a rising market, there is under any system of
pricing, a real incentive for a mill to distribute its products in its
imraediate surrounding territory, v/here the highest base price can be
obtained, or the greatest mill net yield (vdth the. least absorption) . ' ■

Both of these tendencies operate and are of great importance. It is,
nevertheless, true that uiieconomic long-distance hauling is possible
on a much wider scale with delivered pricing and freight equalization
than v/ith f.o.b. mill pricing. The extent to which the potentiality is
realized varies of course in individiial industries.

Efforts to control uneconimic hauling under systems of freight
equalization center upon the use of limitations upon the absorption of
freight. The theory behind. this obviously is that the benefits to be
derived from freight equalization maj'' be secured without the attciidant
abuses. The soundness and efficacy of such limitations will depend,
first of all, upon how well thej^ are set and how well they are adjusted
to changes in the market and cost. , conditions on the basis of which they
were set. Their existence and maintenance assumes absolute control and
effective enforcenent either by government or by a dominating group in
the industry. They postulate the abilitj^ of^ tlie administrators to define
economic markets for the producers in an industry, to accurately antici-
pate and allow for the effect of the market restrictions imposed (in the

9864

-46-

form of limitations) ij.pon costs, prices, iutermill relations, etc. The
administrative aaicl enforcenient difficulties are on the whole such as to
mrJte the use of limitations upon freigiat absorption impracticable in
most, if not all, industries.

It is important to note in connection with uneconomic hauling that
its v;rstes and excessive costs are not confined to trcaisportation but
ma2" also involve a corollary increase in selling costs es a result of the
duplication and diffusion of sales activity by mills over extended areas.

Tile practice of delivered pricing, unifor.-i or with freight equalization.
...^j in certain industries tend to encourage over-expansion of productive
capacity by mills v/hich are attracted by the opportunity it offers to
extend markets by shipping to distant destinations. With over-capacity
and heavy fixed overhead charges the incentive to uneconomic hauling

dependable conclusions can be reached as to the soundness of its pricing
methods.

The interests which are chiefly concerned in the operation of a pricing
practice must be clearly understood and kept in mind while working toward ,
a solution of the problem for a particular industry. These interests
are, first, consumers generally, v/hose primary concern is that total sales
shall be at lowest possible total delivered price; second, the industry
itself, which expects gross sales to recover cost (including an element of
profit) on as large a volujne of goods as is consistent with ma:cimuin
total profits; finally, special groups of consuming industries fabricating
and further processing the industry's produ.cts as rav/ materials, which
groups demand low prices and may object to any pricing practice which in
permitting uneconomic hauling increases traiisportation costs and prices
of the products purchased, unless compensating advantages and economies
are secured. Tiie effect of a pricing practice in one industry upon costs
and prices in a second, consuming industry iTiust be given primary considera-
tion, since where a product passes through a number of stages in the
production process, it is the final cost and price of the finished product
v/hich is more significant than costs and prices at any particular stage.
An inquiry into the soundness of a method in a fabricating or supplying
industry must be made from this point of view.

A fundamental question in an evaluation of any pricing practice is:
Are high cost operators obtaining business which other operators could
supply at lower cost and price under another method?

The soundness of geograimic pricing methods in any particular industry
ma^^ be determined only t^ an exhaustive inquiry into the net effect of
each method upon total costs of production and distribution in the in-
dustry. Are the excessive costs of uneconomic long-distance hauling, to
the extent to which they are attributable to a given pricing method and
not inescapable by reason of the character of the industry, greater or
less than economies obtained through the ability of mills freely to extend
markets and attain optiimm production size and through a widening of the

9864

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''i-eo^rapiiic field of competition to permit the entrance of a larger numter
of producers at every destination point? F-arthermore, even if it appears
theoretically sound to adopt a new pricing method in a certain industry,
is it practicable to do so in the light of a possible serious dislocation
of the structure of the industry (with respect to prod^iction and distri-
hution facilities, capital invested, etc.) and of related industries as
developed under existin,?; methods?

For the purpose of a final suin;-r:.ary evaluation it is advisable to
separate two main aspects of the operation of geographic pricing practicesi
The first is concerned Tdth the question a? to how these practices tend
to affect the general price level and other economic conditions aside
from any differences between localities and geographic regions. The
second addresses itself to an analysis of these regional differences or,
in other words, of the relative advantages and disadvantages obtaining
for localities and areas within the fra:ne\¥Ork of the general price and
other economic tendencies referred to as the first topic of investigation.

As to the first point, the most significaiit distinction appears to be
between practices tending to sharpen price competition and thus to force
price levels do\im and prr.ctices tending to curb price competition and to
facilitate price leadership and agreements as to price fixing and other
control measures. In the former group belong all freight allowances
(they maj'" be coupled v/ith f.o.b. or delivered' pricing) , the equalisation
of freight with more favorably located competitors, as well as unlimited
absorptions of freight. Under the latter category fall the limitations
on freight absorption and basing point systems ?dth a rigidly controlled
number of basing points. Flexible basing point systems with substantially
free choice of new basing x>oints as frequently as circuir.stances necessi-
tate have an intermediate position. F.b.b. and delivered pricing as such
are not quite determinate in their effects and- can differ in their
character under different accompanying conditions. Anti-dumping zones,
price filing zones aiid uniform price zones belong in the second group of
practices tending to curb price competition. On the basis of what has
been said about these practices in preceding sections of this chapter,
the reasons for this classif ica.tion '.vill readily be xmderstood.

The essence of freight equalii^ation is that all comrietitors, not
willing to acquiesce in a loss of business merely because of freightwise
greater distance from the market, charge instead of actual cost of
transportation the lowest freight rate incurred by any of them. This
has frequently the effect , especiall;" in times of shrinking markets,
that the sellers most favorably locatted and now deprived of this comr-
petitive advantage of location resort to price cutting which they can
do more easily than other sellers whose net yields are already curtailed
by freight absorptions. In short, freight absorption "by some induces
price cutting by others ajid this, in turn, induces more price cutting by
the first, Tlie dovmT/ard spiral of falling prices is effectively kept in
motion by freight equalization and similar freight allowances. Flexible
basing point systems come close to the effects of freight equalization,
if changes in the list of basing points ( abandonjTient of old one and
adoption of new ones) occur as frequentlj'- as is necessary in order to
assure the lowest delivered basing point prices for all markets. Under
the operation of the basing point formula in conjunction with the right

QRfi^

-48-

of any industry member to establish at anj'' time a new basing point this
is theoretically possible. Practically, however, there is a cotinteracting
tendency in the fact that the notoriety of basing point changes and
changes of basing point prices imposes restraint on firms who otherwise
might be inclined to choose a new basing point with a lower basic price.
Generally, though not without exceptions, freight equalization exists
under competitive conditions with a great number of points of. supply,
while the basing point forumla is more often found under conditions which
bear traits of price leadership.

As freight absorption frequently becomes the lever setting in motion
the spiral of downward price movements, so the enforcement of limitations
on freight absorption is the first step curbing competitive price cutting
and introducing an element of control into the situation. The nature of
such enforcement is to put a floor under this kind of lowering of prices
by fixing (either in percentage terms or in dollars and cents) the maxi-
mum amoTint of actual freight cost that may be absorbed by the seller. A
rigid basing point system tackles the situation again in a different way.
It does not involve any. limitation on freight absorptions (although this
might be added to the system as a new and extraneous feature) . On the
contrary, high freight absorptions are rather frequent. But different
from the freight equalization scheme, these freight absorptions are not
the chief characteristic of the system. Fnile they occur in cases when
a mill sells in the territory closer to its basing point (or in the case
of a basing point mill, closer to another basing point) than to itself,
the very opposite, that is, the charging of imaginary freight, takes
place in all instances when a non-basing point mill sells to points closer
to itself than to its basing point. Whether the one or the other carries
greater weight, is a question of fact and cannot be derived from the
nature of the basing point system. It is, however, highly significant
of the system that its rigidity prevents the setting-up of new basing
points for individual transactions when thereby a lower price could be
achieved for some locality than is possible under the existing basing
point structure. Talcen in conjunction with the fact, that the smaller
and the more rigidly established the list of acknowledged basing points is,
the greater becomes the notoriety of all changes in the basic prices and,
accordingly, the better the setting for price leadership, this feature
justifies the conclusion that rigid basing point systems are in all prac-
tical cases indicative of some kind of controlled formation of prices
rather than free competition. It must, however, be stated v;ith all
possible emphasis that the mere form of a basing point system with the
same delivered prices quoted at any delivery point by differently located
sellers is as such not identical with price control. Uniform delivered
prices in the same market are a possibility whenever standardized commodi-
ties are sold aiid are the outcome of competition as well as of control.
The question as to whether the formation of prices is competitive, or con-
trolled, relates exclusively to a stage of the process which precedes any
filing or publishing of prices at a basing point. It is true that the
existence of basing points facilitates price leadership, if such exists,
but nothing in the matter, neither any theoretical aspect nor any obser-
vation of practical experience, suggests that the institution of basing
points alone can bring about price leadership or any other form of price
control, ^here is a fiuictional interrelationship between basing points
and measures tending to maintain high and stable prices, but no necessary

9864

sequence rtcis fron the 'basin;^' point practice as a cause to price control
as effect.

As regards anti-dumping zones, it is clear that they belong in the
group of measures devised to sup;r:ort prices. 'J^heir essence is the
exclusion of additional outside competition (wnich in the nature of
the case is vigorous price competition) sjid that "by itself tends to
stabilize the :narl:et. This stabilization is intensified in most prac-
tical cases by further price control ^neasures \7hich frequently follow
the establisiiiTient of anti-dumping zones.

As to f.o.b. and delivered pricing without further specification,
it has been said above that their effects, whether shaprening or con-
trolling price competition, are not q-aite determinate. F.o.b. pricing
does not add to or detract from the relative coi^etitive position of
sellers in the same locality. It liuiits the geographic radius over
v.-hich competition crn extend in proportion to the vreight of freight
charges. Consequently strict adiierences to f.o.b. pricing by all in-
dustry members can contribute to the preservation of a local raonopoly
i.vhich is able to raise its prices to the level of its nearest com-
petitor's prices plus freight from the latter' s place of business. In
such a case only freight absorption practiced by the distant competitors
of the local monopolist will strengthen comoetition and tend to breal:
the monopoly. Delivered pricing based on a uniform mill price for all
bjayers plus actual cost of transportation does not differ from f.o.b.
pricing. In some cases delivered pricing might facilitate adoption of
the practice of freight absorption (for reasons indicated in a pre-
ceding section of this chapter) . Delivered selling with freiglit equal-
ization and delivered basing point selling have been discussed. It
remains to point out that uniform delivered prices for the whole country
or for certain geographic zones have to be classified among the measures
tending to maintain price stability. Such uniformity of prices at
delivery points greatly distant from each other is necessarily indi-
cative of a controlled situation. In all practical cases price sta-
bility is the main objective of the operation of the control mechanism.

The classification of geographic pricing practices into two main
groups with respect to their effect on price competition has been for
the purpose of reducing one aspect of our special problem to the more
general problem of price rigidity and price fle::ibility. Tlie scope
of any satisfactory treatment of this latter problem Y/ould be vast.
The functional position of the price malcing process in the whole frame-
work of a competitive econom;;'-, the different institutional featoores
conditioning the working of the price mechanism and the peculiarity of
price movements under the influence of the different phases of the busi-
ness cycle would have to be taken into consideration. It is intended
here only to indicate these broader connections of our porblems. No
attempt to deal mth them can be undertaken within the scope of this
report.

It has been stated above that a judgment of geographic pricing
practices in terms of public policy has to distinguish between the
effect of these practices on price levels and competitive conditions
in general and on the economic conditions in different specific localities

J9864

-50-

and areas. Import;uit points of view, interiaediate in enphasis "between
the ti70 .1-jpects of this distinction, are concarned -.vith economy in
transportation costs and v.dth the most economic location of production
facilities. As a .•juidin.'^ principle for further investii^ation these
points can he formulated into the question: What system of £,eogra;ohic
pricin,^- will achieve in a given industry lowest total or avera;:^e trans-
portation costs from mill to consumer, while permitting the producir;^
units to operate at optimvjn size relative to demand conditions am', cost
of production? This question, sug^^estin;; a static analysis of the
matter, would have to he supplemented hy another question emphasiziii-v
the djmaraic perspective of change, transition, evolution: If the system
theoretically proved to he the most economic is not now in use, Cf^n it
he estahlished without dislocating existing production -and distrihution
facilities in this and other related industries which might nullify the
value of any economies ohtained through its introduction? Prom this
stage of the anaJyaia -i fui'ther step would have to he taken leading to aji
examination of the rel.avj.ve advantages and disadv;mtages wrought for
different localities tnd regions. The development of principles satis-
f-act-ir^' for deterriihii'g puhlic policy with respect to these matters
.nec3.-;'.'^r-'.''y presents serious diff icxilties due to the eriitremely complex
natui of Ihe p.rohlem. It should he home in mind that regarding the
development of interregional economic relations at least two hasically
different lines of policy are possihle. First, the highest degree of
specialization in the field of its heso natural equipment can he encour-
aged for each region; second, a balanced development- of as many different
lines of economic activity as possihle can he regarded as preferable to
specialization. Tlie amount of total transportation cost to he home under
either system is one of the decisive factors in determining a course of
action. I^arthermore, it woiild he necessary to examine, in addition to
the amount of transportation costs defrayed hy each re-fion under each
system, the effect of the different methods of geographic pricing on the
rate of growth and the stability of production and on the prices paid
hjr consumers, the net yields 'received hy producers and the ratios between
cost of production and net price (indicating the prevailing profit
margins) in each region as compared vdth the corresponding state of
things in other regions or, on an average, in the country as a whole.
Tile balajacing of the interests of consumers and producers a:id of the
interests of different regions where they are in conflict, are tasks
th© relevance of which for our problem must be emphasized. However,
they lie beyond the scope of this report.

9864

• -51-

CHAPTES II

BASING POINT, FRi:iGHT EQ.UaLIZATIOi' AND ZONING SYSTHIS IM

T HE LUI/iBER AND rilvSEa PROgUCTS IKgJSTRIES

I. BRIEF STATE! 'ENT 0? THE CONDITION OF THE LUuBKi INDUSTRIES PRIOR
TO THE CODE.

The 1-umlDer industries, logging, milling and faliricatin/r, trought
to the "orocess of code for'n''jlation. under the National Industrial Re-
covery Act in 1933 orohlens which were at that time critical in the
exact sense of the word. These Trohlems were rooted in causes which
had "been developing since the Great "var or hefore, had largely deprived
the industry of its share in the prosperity of the twenties, and were
only intensified hy the deoression which oegan in 1929. Declining
markets and a considerable overexr^ailsion of prodtictive capacity were hut
two of the causes; heav^'' local taxes uoon large comiuitments in standing
timher, destructii'-e i^rice com-oetition between s-oecies, wasteful and ex-
tensive cross-hauling of products, and inefficient and disorderly distri-
bution all contributed to net incomes and nrices which allowed the indus-
try as a whole only meager i^rofits in the best, years of the r)Ost-war boom,
and in 1932 resulted in a net loss for the industry approximately equiva-
lent to 32;o of gross sales.

A. Description of the Industry

The term lumber industry admits of no precise definition, but for
the purposes of this stud^y will be taken to incl^ade the several wood
TDroduct industries which were brought under the jurisdiction of the code
for the lumber and timber "oroducts industries.. .Thus it comprehends log-
ging and sawmill oi^erations, lat'i and shingle production, woodwork and
mill work manufacturers end fabricators of flooring, veneers, plywood,
kiln-dried hardwood dimension, sawed bo-.es, shook and crates, wooden
packages and containers, cross-arms, crosS-ties, poles and piling and
various other products of minor importance. ,' The characteristics and prob-
lems of these industries are in certain respects dissimilar and unrelated;
for this reason the opinion has often oeen advanced that their grouping
under one code was unsound and imr)ract i caol e . However, the -irosperitv
of each is, in general, denendent upon similar basic causes and condi-
tions, and the code forced u-ooh most of them the necessity for meeting a
common problem, the problem of determining cost i^rotection prices and of
devising geogra'ohic -Dricing methods which woijld permit the maintenance of
such minimum prices. Few of them had oreviously been able to establish
any systematic practice with resuect to the incliision of freight costs in
delivered prices, and crosshauling wa,3 at a. peak; transportation costs
were excessive, and there was no' orderly division of maricets, either be-
tween species or bet'^een areas oroducing the same species. For these
reasons it has be^^n thoij.ght desirable to extend the present inquiry to
include those industries, broviffnt u;-ider the code by definition, in which
price ontrol was attem-oted, snd, oarticxilarly, to inquire into methods
and practices ado-oted by ea-ca to meet similar and dissimilar needs which
arose, however, directlv from a common code situation.

9864

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Com'nercial i^roduction of lumber takes ^lace in significant quanti-
ties in thirtv-tv70 states (*) , Log^^ing and sawmill activity, as dis-
tinguished from fabricating, falls into two main -oroduct classificationr, ,
viz. , softwood and hardwood, of which the former accounts for the greater
TDercentage of total -oroduction. Thus in 1929 total softwood oroduction
reached 28,926,000,000 hoard feet and in 1932, 8,746,000,000 hoard feet;
while the total of hardwood production in 1929 was 7,073,000,000 hoard
feet, snd in 1932 only 1,405,000,000 hoard feet. (**)

Princinal -oroducing regions for softwoods are, in order of imTDor-=-
tance, the '.Test Coast, which produces Douglas fir chiefly on the western
sloTDe of the Cascade Mountains in Washington P.nd Oregon (south to within
aho^^t 100 miles of the California state line); the South (including
Texas, Oklahoma, Arkansas, Louisiana, Ilississropi, Alaharaa, G-aorgia,
Florida, South Carolina, ITorth CpTolina i.nd Virginia, with a limited
prodiiction in Missoiuri, lestern Tennessee and Western Kentucky), -oro-
ducing southern -^inein volume s oDroximately equal to that of -fir and
other 'Test Coast softwoods; finally,, that section of the interraountain
west which embraces the eastern slorje of the Cascades and thr western
slope of the Hockies (in the states of Washington, Oregon,- Idaho ,
Uontana, California, Arizona, Colorado, Utah and ITevada), rjroducing
Ponderosa pine, sugar -oine, white fir, laz^ch and cedar, the total out-
nut of these species being considerably less than that for -either fir
or southern pine. Table I in the Aijpendix sets forth the production
of softwoods in thousands of board feet by Tjrincioal -oroducing regions
for the years 1929 and 1932. ..'■.."'

Other sources of softwood su-ot)ly are the southern c-nDress region
lying in, -principally, Louisiana, Florida end the southern part of
Georgia, with a limited output in South Carolina, and the. redwood
district in the northern oart of California. Hemlock production is
not confined to any specific region; Washington and Wisconsin furnish
about sixty-eight percent of the total. (***) Northern white pine,
another important softwood, is produced chiefly in Minnesota. The
IJew Zngland states, dominant lumber ;oroducing area throughout much of
the nineteenth century, continue to produce a relatively small volume
of pine, spruce and other softwoods.

Hardwoods of many species are produced in a large number of states,
the -Drincipal -oroducing region being the southern and Appalachian,
lying chiefly in West Virginia and Pennsylvania (the Aioualachian area)

(* ) Table 3, in the A'Toendix sho'-rs the percentage distribution of
lunber -oroduction, by regions, from 1849-1934.

(**) Source: National Lumber Manufacturers Association, Statistical
Denartnent, compiled from data of the United States Bureau of
the Census, 1923 to 1933.

(***)Cf. Bulletin No. 30, L\miber . Bureau of Hailwav Economics, 1927^
TO. 12.

9864

• -53-

and Tennessee, Kentucky, Arkansas, Louisiana, llississia-ni, Alabama and
lexas (the southern area). Other districts ■oroducinf; hardvroods in nuch
smaller volume are the north central states (Ohio, Indiana, Illinoiti,
Wisconsin, I.iichipan and Minnesota) tnd the northeastern states, chiefly
those in New :Eiigland. The southern and Ao-oalachian arec-.s together are
resDonsihle "•'or aoout seven ty-tvro percent of total domestic hardwood
■oroduction. Tahle 2 in the Appendix sets forth the riroduction of hard-
woods in thousands of hoard feet hv principal producing rej-^ions for the
years 1929 ;.nd 1933.

Lumber is fabricated into woodwork, veneer, ol^nwood, oackager. , con-
tainers, boxes, etc., in nearly ever:/' state in r^hich it is comrnercia'. ly
"produced. Ploorin?? iDroduction is concentrated, for maple, beech r^nd
birch, in Michigan and Wisconsin (the output of these two states is
estimated at eighty-fo'or percent (*) or more of the T.otal for this tyrie),
and for oak, in Louisiana, Arkansas, Tennessee, Missoiori, Texas, Test
Virginia and Virginia. The former accounts roughly for SSi'o to 33 1/3^5
of all hardwood flooring, the latter for 6S 2/3;^ to 75;3. {''^)\

These producing areas for the most na,rt find extended markets for
their products, des-oite heav?/ transportation costs -oer \mit of weight
s.nd measurement. Hius Douglas fir moves to five orincipal markets:
first and largest, the Pacific Coast (TVashington, Oregon and California),
w.iich in 1929 took '66.3)o, in 1934, 32,5;i) of total fir shipments; Cali- , •■
fornia alone accounting for between 21 f.nd 2270 in each of these years,
A large proportion of this Pacific Coast volume reaches final consumers
in other markets, since nearly all Douglas fir is maniufactured in this
area, partly because of the heavy transportation costs upon the raw
lumber, partly because the large mills are integrated, manufacturing
raillwork and other fabricated -oroducts.

Second largest fir market is the liid-Atlantic area (embracing the
states of JTew York, iTew Jersey, Pennsylvania, Maryland and DelaT/are)
"fhich is reached by intercoastal water movement throU:-^h the Panama
Canal, to Norfolk and northern Atlantic ports, -rith shipment by rail as
far inland as Pittsburgh and Cincinnati. This 8.rea consumed 17. 2:3 in
1929, 20. 6^-. in 1934, of total fir shir>raents.

Third in irauortance as a market for Douglas fir is the Lalce states
area, including ilichigan, Minnesota, TTisconsin, North Dakota. In 1929
this region absorbed 16.2;o of total fir shipm-nts, in 1934, 13.6^,:. The
mid-western stn.tes of Illinois, Indiana, Iowa, Xentuclcy, Missouri, Ohio,
Tennessee and West Virginia, constituting an R.ll-rail market and bompeti
tive battleground for fir and southern ^^ine (the two species meeting on
an approximate delivered ;orice oaritv at Chicago), consume an anproXi-
mately eq-oal amount,- the uorcentage being 14.3 in 1929 and 13.6 in 1^4.

( *) Source: Maole Flooring l.ianufactrirers ' Association, Chicago,
Illinois .

( **) Source: Estim.'ite of the National Oak Flooring Manufacturers
Associeition, Memohis, Tenn.

9864

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An export market, lar^^elv in Asia and Australia, talcen up to Ic^o of
total shipments of fir, "but has teen noticea-blv declining since 1932 ■-
as a result of foraii^n tariff barriers and ?LUsr,ian competition. (*)

Southern oine mills ship north and west to four ^rinciT^al markets,
first, the Lake states, 'vhich in 1929 consixiaed 22.1fo of total shipments
of this soecies, and, in 1934, 27.2;c; second, the south'vest (Arkansas,
Oklahoina, Texas, Louisr-na) -Vnich took 13.b;o in 1939 r.nd 25.4;r ir 193'i;
third, the southeast (Alahama, I'issisp.ior)!, 71orida, Georgia, the
Carolinas and Virginia), consumption by iTJiich arao-onted to 28.6io in 1929
and 21,9'fO in 1934, t.nd, finallv, the iiid-Atlantic States, absorbing
22.0;;) of total :oine shipments in 1929, 15. 4> in 1934. The limits of
the markets for southern -oine had been rapidly contra.cting since the
war as cargo a.nd rail-shipped r^'ir emcroached more and more upon its
established sales territorj;" in, respectivel-'-, the east ('-Eastern Trunk
Line Territory) and the middle west (','estern Trunk Line and Central
Freight Association Territories). In 1934, this trend aopears to have
been at least temioorarily reversed, with pine increasing its pro-ooJf-^
tion of shipments to states in these rnarlrets '7ith the assistance of a
protracted Icngshoremen' s strike on the '.'est Coast.

As western pine is limited to rail trans-Qortation at high rates
save for a small loroportion of tota,l shipments, its lower grades, fab-
rica.ted into boxes and other containers, tend to be consumed within
and adjacent to the "oroducing area. The princroal markets for these
grades and products aie, accordinglv, the Pacific Coast and inter-
mountain areas. The upper grades, which are of exce-:)tionally hij-^h
quality, are used ":5rimaril7 for millwork and similar fabricated pro-
ducts, and these, consumed in large vol^ime by fabricating industries
on the Pacific Coast, also are shiio-oad to T)rincipal markets in the Lake
states and iiid-Atlantic areas. The ?a,cific Coast, enjoying low freight
rates, is by far the largest consiimer of ti;is species of t>ine, account-
ing for 4:0,0 of total shirjments in 192? and 35.8fo in 1934. The 'other
markets are closel-r grouped, the Lake states talcing 16.1}o in 1929 and
19.0-;.o in 1934, the internountain areas absorbing 14. 670 in 1929 and 16.070
in 1934, and the liid-Atlantic region consuming 13.7-^ in 1929 ajid 12.0-;o
in 1934.

Hardwoods also tend to be fabricated near sources of su-oplv, but
reach national markets both as lumber and as manufactured wood ^tiroducts.

Source: "Rei:iort on the "cononic Problems of the Lumber end Timber
Products Indi.istries", -orenared by the Basic J'aterials
Unit of the Industrj'- Studies Section, Division of jleview,
Fational Recovery Administration, I'arch 1936, Section IV,
Chaoter XIII, "Interstate ■ ovement"; "ork Haterials No.
Figures based on data of the Forest Service, U. S. Depart-
ment of Agricixlture. The grouping of states used above
is that adooted in the re-oort of the Basic Haterials Unit.

9864

-55-

The totsl n-'oin'ber of esta"blis'aiaents 'i'lcladin^ planing mills, and
tox and coooera^e mannfacturers) operating in the I'onber industries has
(in the f8.ce of declinin,<; cons"um-otion) always been lar^e, increasing
from 14,961 in 1921 to ITsl'iS in 1929 r.nd, droDping to 7,095 in 1933,
for mills rjr-oducing lumber of a minimum value of $5,000 annually. On
the same basis the number of lopping and sa^vmill operators, etc., alone,
ranged from 12,915 in 1929 to 3,7B3 in 1933. (*); The total number of
operations of all sizes and caoacities comirw; within the definition of
the code and including fabricators and 'orocessors of lumber was -rat at
35,775 in 1934, by the l^Tational Lumber Ivk.nuf acturers Association.

In certain of the divisions (notably Southern Pine and Southern
and Appalachian Kardwood), as recognized under the code, the number of
establishments is relatively large, in consequence of the small amount
of caioital required to engage in "oroduction; in others characterized
(for reasons which are chiefly -ohysical) by large-scale production and the
use of costly mechanical equipment the number is, as might be exoected,
small. Natural concentration of standing timber of a ryurticular species
in very restricted areas and control of large holdings of strategicallv
located stumriage b"'' a fe'?? interests also,' of course, tend to kee^ down
the n^omber of Toroducei's. For one or more of these reasons the number
of mills OTjerating in the southern cyriress, northern pine, flooring,
mahogany, 'Test Coast and certain other branches of the industry has not,
relatively, been large.

3. Chief Problems of the Industr y

For some time -orior to the code the lumber industry had been faced
with a steadil:r declining demsnd for its products. Substitutes were
encroaching upon established uses for iLimber, more, than offsetting
certain new uses which had been developed. In the construction industry,
cement, brick, tile and steel tended to displace lumber in many important
uses. Since construction absorbs 65 to Ih-p of the total lumber output,
this shift in demand vitally affected the industry', -^--^.rtiGularly with
respect to consuraTjtion of softwoods. Substitutes fo:.- Jabr;iL"ated wood
x)roducts rlso were numerous and successful, as, for exaaple, fibre board,
ua^aer boxes and metal containers, the in-roads of which were seriously
felt in the wooden TDackage industries. In the furnittire industry the
use of metal as a material was growing. All substitutes took advantage
of relatively high lumber lorices in the middle twenties to extend their
uses. As a consequence, the tremendous activity in. the construction in-
dustry in the middle r-nd late twenties tended only to offset temporarily
the effect of a long-term' trend of • declining lumber consumption. This
vitally im.port ant market for lumber had bej-^m to weaken in the later
years of the boom with a decline in the volume of residential building,
and fell off precinitately with the .sharp cyclical downturn of construc-
tion activity after 1929. So sharo a cyclical decrease in consum-otion
of its TDroducts bv an industr?r taking two-thirds of its total volixne was

(*) Cf. Census of Manufactures, Bureau of the Census, 1929, Princiual
Lumber Industries.

9864

-56-

in itself sufficient to denress the lumber industry'-, even in the
absence of a downward tretid in general consurantion of its products. (" * )

Imported lumber, oarticularly spruce from eastern C."nada, and high
^:;^ade shin.'rles from western Canada, was invading American markets, the
spruce particularly in i>Iew llngland and the shingles nationally. This
foreign coraioetition had been checked to ascertain extent by tariff
restrictions at the time the code was adopted. In the decade from 1923
to 1933 total im-oorts of lumber never exceedad two billion board feet
in any ■"'ear.

Seduced demand for its oroducts and overexoajision of -oroduction
facilities left the industry with considerable over-ca-oacity. Total
capacity for all mills in all brnjich^a of the industry in 1929 was
variously estimated at 66 billion board feet (*^) and 82 billion board
feet (**-•) , Of this, even in the ;oealc ye;:r of 1925, only 41 billion
board feet were in oroduction. In 1932 this total dropped to 1*0
billion board feet, ond the industry/ was said to have a capacity
roughly 6-g- times production (****)^ . Large holdings of standing
timber acquired for soeculative purposss by operators t)articularly
on the West Coast were subject to local taxes which had increased
rapidly especially from 1920 to 1930. With declining demand for lumber,
stum'oage values also decreased and speculative profits were no longer
able to carry the burden imposed by heav?'- taxation, at rates which are
based on estimated orooertv value rather than annual yield or income
from conversion of the asset. As a result there was constant pressure
to liquidate holdings, and lacking a bu,ver for the stunpage, to convert
the timber and thro'-' it u-oon the market at almost any -orice, many new
mills being established for this purriose. Thus, the pressure of heavy
taxes uoon excessive contoitments in standing timber acted as another
de-oressing influence uoon lumber prices.

Heavy fixed overher d costs lor large mills '•'ith exnensive mechein-
ical equipment ( oarticularly in the West Coast region) also exerted
loressure uioon certain orod\icers to maintain voluiae in the face of de-
clining deragnd bv cutting prices do™n to for below) out-of-nocket ex-
penses and to extend markets by heav:/' absorption of freight and un-
economic cross -hauling.

('*) Moreover, farm rnd railroad building, two sections of the con-
striction industry which had ^oeen principal outlets for lumber
products, had been relatively inactive even during the boom -oeriod;
few new farms were being developed, ;ind the life of ties had been
extended by chemical preservation. See Table 5 in the Appendix
for per capita consuiaption of lu;iber and timber products in board
feet for the years 1309-1934.

^*^ Source: Lumber Code Authority

(**•*) United States Timber Conservation Board.

(****) Of. Table 4, "Comparison of Yearly Lumber Production, 1929-1933,
and Estimated Capacity of the Industry in 1929 in i.M Board Feet".

9864

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Inter-soecie com-oetition for lumber markets as consianotion dim-
inished became more and more keen, particiilarly "betT^een Douglas fir and
so^ithern -nine. The former had steadily increased in volume of ^Droduc-
tion after the war, when intensive railroad tiuilding activity ^ th the
construction of hundreds of miles' of main and "branch lines in the far
west opened up vast new areas for production. The Panpioa Canal find low
intercoastal shipping ratws enabled western t)roducers to find a nrin-
cipal market for this greatly increased outnut in the western United
States, where fir soon came to set the "orice on southern pine. Shipped
"by rail to the middle west it also was forcing southern pine to withdraw
from much of that territory. In nearly all divisions of the lumber in-
dustry inter-STDecie competition set delivered r)rices at contested markets
and destinations which shippers scarcely hesitated to meet regardless of
higher -oroduction and distribution costs and freight charges: price bore,
as a result, no very close relation to any of these elements of cost.
("Actual production cost is, moreover, often not Brecisely known because
stumpage values are flexible. )

In addition, distribution of the industry's products had long been
disorganized, with the functions of the several classes of distributors,
wholesalers, retailers, brokers and commission men, never clearly de-
fined in "oractice. 7irst, the number of retail liimber yards (now
23,000) had not been adequately ad.justed to decreased per cariita con-
sumption, and an excess number of such outlets made for high costs of
distribution. High lorices to consumers existed in localities where
there were retail mono-oolies or concerted action by distributors; ruin-
ously low, less than cost trices existed where comr)etition was free.
Second, these retailers were selling in large quantities, often carload
lots or greater, at a discount from retail "orice, to master camenters
and contractors; in so doing they directly coraueted with the whole-
salers, who found it "orofitable to sell directl^'- to contractors upon
carload orders. ''*) Third, there had been severe comoetition between
large mills, selling direct to the retailer, and wholesalers, who, as
a result, increasina:ly purchased from smaller mills (often contracting
for the entire outnut of such mills) at very low prices which enabled
them on resale from time to time to disrupt the raar-cet. ?ourth, the
retailers themselves in many cases took the initiative in establishing
purchasing relations directly with the mills, thus avoiding the '"hole-
sal er and contributing to the severe competition bet'-'een the latter and
the mill. All these conditions made for inefficiency, instability and
a lack of uniformity in the distributive process. Rou'^ily, 40)0 of all
lumber is sold through wholesalers, another 40}j directly to and through
retailers, and 2Q)o direct to large industrial users, including the
railroads .

(* ) On such business the essential retail functions and services had
been eliminated; no handling at the retailer's yard was required
and often shipment was direct from mill to contractor, neverthe-
less, retailers and wholesalers were com-oeting vigorously for trade
which formerly, while such purchases were in small volume, had been
almost exclusively within the snhere of retail distribution.

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With the exceiDtion of a few divisions acting with var-'^in'; degrees
of success at different times (outstanding among; which ■■jro'ba'bly is
maple, teech and tirch floorijig) the industry has never shown any real
capacity to accomodate production to demand. Consequently, stocks have
usioally oeen excessive ^''hen consuia-ot ion is reduced. Thuc by Januar"/ 1,
1933, when construction volume had dropped 80^0 from -ore-de-oression
levels, stocks were down onl^/ 25)o' (*) . The necessity for liquidating
a large part of these manufactured stocks "became a factor further de-
pressing the market. The general inability to adjust butiout to con-
sum-otion is, of course, ottrihutahle -oriraarily to over-e:cnanded capacity
and the pressiu-e to convert standing timber, hut there was also no suc-
cessful, lasting effort on the. pg-rt of najor divisions of the industry,
through trade associations, to. achieve a balance through voluntary
action on the oart of each mill on the basis of data as to stocks, ship-
ments and ririces. An a"opareHt fear of possible citation under the anti-
trust laws seems to have inhibited many branches of the industry from
makin.^ the attemot.

In conclusion, it is desir.able to indicate the importance which the
problem of crosshauling and uneconomical transoortation had asp'.uraed for
the industry. The National l^etail Lumbermen's xissociation has estimated
that transportation cost accounts for 4Cr,o o" the ret3,il price of lumber.
A lower, perhaps more accurate estimate as contained in a report by the
Porest Service of the De-oartment of A.griculture (**) -outs the railroad
freight cost of lumber at $383 for every ''^l.OOO value, ^hich comioares
with $263 for cement, $198 for com:non brick, $79 for iron and steel and
$58 for wallboard, materials competin,g with lumber for use in the con-
struction industry, ''In the, decade 1914-1924", the same report states,
"the average len.gth of ha'iil from mill to place of use increased from 360
miles to 725, as the nearer sources of supply approached exhE.ustion".
Of the industry's total annual freight bill of half a billion dollars,
the National Lumber I.Iinuf acturers ' Associs-tion estimates tha.t one-tenth
is for crossha.ulingthat is unnecessary.

The depressed condition of the lumber industries is well indicated
in Table 6 in the Aopendix showing net profits end losses during the
period from 1919 to 1933. From t>iis it may be seen that many producers
experienced losses even during .the late twenties, when construction
activity was at a pealc and lumber consumjition at a fairly high level.

A demoralized ^rice struct-ire, great over-expansion of capacity, de-
clining markets, wasteful sacrifice of timber resources in conversion,
crosshauling rnd widespread mutual invasion of markets, inefficient dis-
..tribution, heavy taxes and other carr^ring chnrges on excessive commit-
ments in stumnage, all of these problems confronted the industry, combined
to make. its position critical, when in May, 1933, its leaders took up the
business of formulating a code for -oresentation to the ■National Recovery
Administration.

(*)Based on data prepared by the Lumber Code Authority, quoted from the
"Preliminairy Re-oort on the Lumber end. Timber Products Industrv, Research
and Planning Division, National Recovery Administration, J.iarcli, 1935,
V. 24."

(**)a National Plan for American Forestry, i.larch 13, 1933, pp. 1358-1359.
Senate Document No. 12, 73rd Congress, 1st Session.

9864

—53—
II. COST PHOTECTION PRICES AND THEIR ADM I IT I ST RAT I ON UNDER THfi CODE.

A. Chief Provisions of the Code for the Lumti r and Timber Products
Industries .

The Code of Fair Competition for the Lumber and Timber Products
Industry'-, as approved by the President on August 19, 1833, approached the
solution of the industry's most critical problems in the following way.
In the first place, the industry undertook, as its contribution to general
economic recovery, to raise wage rates to pre-depression levels or higher
and to reduce hours of employment by 20 to 33 l/3fo to a standard 40 hour
week, for the purpose of restoring purchasing power and spreading employ-
ment. Second, in order to enable its members to carr;'/' so great a burden
in increased costs and at the same time to put a stop to the marketing; of
lumber products at prices which did not permit even the more efiicient op-
erators to recover costs, minimum "cost protection" prices on the various
items and classifications of products were to be set, on the basis of an
accurate determination of weighted average costs for producers in each
divirion. Beneath these prices, no producer in the particular division
might sell. Supplementing and strengthening this provision, the code
authorised the allocation of production among divisions and among producers
within divisions, -by quotas based on estimates of futute consumption and
certa:n approved methods of allotment, it being recognized that no mininum
price structure could be upheld, if the industry continued tn produce
greatly in excess of demand. Binally, in consideration of an • -an i vers ally
ackno\'led-'-jed need for conservation of timber resources, the industry in-
corporated in its code a provision in which it stated this need and in
effect expressed its willingness to do everything practicable to promote
the interests of the conservation movement. Later through Schedule C
the code provided for divisional adoption of mandatory forest practices
and grcaated a quasi-subsidy to producers who '-ould. go on a sustained yield
basis, by permitting them a 10^^ increase in production allotments.

3, A rticle IX: Cost Protection Prices .

Under Atticle IX, the code provided (*) for the establishment of cost
protection prices, also provided a method for their determination, involv-
ing the inclusion of certain costs aJid the exclusion (under certain con-
ditions) of others. The establishment of such prices and their revision
"from time tc time" was authorized "whenever and so long as the Authority
determines that it will contribute to accomplishment of the declared pur-
poses of the code, and whenever it is satisfied that it is able to detei^
mine cost of production as defined in this section (a)". The prices au-
thorized were "minimum prices 'f. o.b, mill", and they were to be established
"with due regard to the maintenance of free competition among species,
Divisions and Subdivisions, and with the products of other industries and
other countries, and to the encouragement of the use of said products".
Except for export sale, prices were to conform to the current weighted
average cost of production of persons in opera,tion in the Division or S'o.b-
division (or, where necessary, group within the Division), as deterrain'^d
by "uniform accounting practices". A cla.ssification of • costs which v/ei-e
to be included in the current weighted average cost of production 'Tg.s given,
(*) See Article IX, of the Code for Lumber and Timber Products Industiy,
Codes of JTair Competition, Volume 1, page 98,

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The cost of production for each species, detennined as provided, was .to.
be a,llocatec". by the Authority t© the several items or classifications of
products for which minimum prices were established, in prooortion to their
relative market prices over a representative period, 'Such allocation
was to be changed by the Authority from time to teme, as mifht be found
necessai-^'' to avoid shortages or excess accumulations within any Division
or Subdivision of particular items or classifications of lumber and tim-
ber products; but the weighted average minimum price of all items and
cle.ssifications for each species "shall not be more than cost of pro-
duction as determined in section (a) nor less than said cost after de-
ducting the capital charges specif ied" (*).

Auxiliary provisions incorporated in Article IX authorized "equi-
table" price differentials for products below accepted standard of quality'-
(to be defined by the Authority), forbade evasion of the minimum prices
by the sale of non-standaTd grades and. sizes, and made possible restric-
tions upon the importation and sale of foreign lumber at prices which
mij^ht threaten the code-created domestic price structure.

It is important to note that under the code as adopted the Authority
was empowered to establish only "minimum prices f.o.b, mill". In no place
either in Article IX or elsewhere in the code is the authority to set
delivered jsrices or to make rules for the addition of frei^t charges to
f. 0, b, mill prices specifically granted. The following provision is,
however, inserted as paragraph (i) of Article IX: "The Authority shall
issue interpretations and shall promulgate rules and regulations necessary
fox- the enforcement of this Article, to prevent evasion and secure equal
application thereof". Examination of transcripts (**) of the public
hearings which preceded adoption of the code failed to disclose evidence
that this provision '-'as intended to serve anj'' specific purpose, or other
than as a broad, supplement arj"- clause '"hich might be used in the event '>f
some unforscen, practical administrative or enforcement necessity.

C» The Institution of Cost Protection Prices, and the First Series
of Price Bulletins ,

Approval of the code by the President on August 19, 1933 opened the
way to the fixing of minimum prices by the Lumber Code Authority, upon _
its Own discretion and without provision for review by the National P.e-
covery Administration or any other agency of the government. That there
were still serious difficulties confronting the Authority, difficulties
which the mere legalization of price-fixing and a virtual carte-blanche
on administration from the government cruld not remove, was soon, if not
immediatelj-, apparent. First, there was the problem of detenninini; average
costs of production in the various divisions in the face of the primary

(*) Depreciation on plant and equipment and charges on standing timber
carried in the capital account, "cut for operations", are the "cap-
ital charges specified", Cf. Code for the Lumber and Timber Products
Industry, Codes of Jair Competition, Volume 1, page 98, Article IX,
section (c),

(**) Cf, Transcripts of Code Hearings, Lumber and Timber Products In-
dustry, National Recovery Administration, July, 1933,

9864

-61^

fact that relatively few ooerators in any division kept accounting
records comiDlete enough or sufficiently standardized to -orovide data
adequate for the daterroination of costs. Second, there was the dif-
ficulty of allocating weighted average costs, once determined, to the
variety of items and -oroduct classifications majnufactured. "by each
division. This was an intricate task which had to be accomplished
without the assistajice of data as to the brealcdown of item costs,
with extreme care to avoid creating maladjustments in price relation-
ships as between items, and, finally, in such a way as tc secure a
net average realization upon all items neither above nor below weight-
ed average costs(*). Thitd, there was an artificial price eq-oality
•created at the point of shi'oraent by the establishment of minimum
prices f.o.b. mill based uoon the theoretical conpept of weighted
average cost, and this artificial parity had to be carried over to
the market in the form of equal delivered prices (despite varying
distances of shitiment) arrived ct through the apDlics-tion of rules
and regulations governing the addition of freight charges to the
minimum prices(**). Fourth, the "orices to be established for the
products of anj'' division must somehow be coordinated ^ith the prices

(*) The code allowed the range between floor and ceiling costs as
leeway in the allocation,

(**) The establishment of minimum prices f.o.b, mill without regula-
tions for systematic delivered jrice equalization was theoretical-
ly, practicable given certain conditions. Had the demand for lum-
ber products .been sufficiently strong, and the minimum prices
relatively low, the- market might have supoorted delivered prices
which would include (in addition to the minima) freight from
the most distant mills supplying each trade or consuming area.
In fact, however, demand did not increase sufficiently; the
result was that the minima tended to operate also as maxima in
the market. Under these circumstances the practice of f.o,b.
mill pricing without control over delivered prices would have
meant unlimited absorption of freight by mills wherever located
with respect to any destination; since this would have nullified
the meaning and effect of "cost .Totection" prices (the punsose
of which was to secure recovery of the specified costs of opera-
tion for each division as a whole), it was out of the question.
If, however, the Authority had reo^uired simply the addition of
actual freight from mill to destination, the effect would have
been in nearly all cases to exclude the long-haul shiiTOers from
any market until shippers relatively near (freightwise) the
market had exhausted their stocks; lumber products for the
most part are so highly standardized and freight is so large
a proportion of final cost delivered to the consumer that the
addition of actual freight charges and the resulting differentials
in delivered prices must have had this effect. And the effect
of excluding distant mills from the market would have been high-
ly important because the short-haul shippers were known to be
able to supply the lumber needs of most markets, a situation
which it was impracticable to correct by the exact adjustment
of production allotments to consumption because this would have
(Contiaued on ne:;t pa^;ci)
9864

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of jroducts of competing divisiorxs, and kept in line with' the current
prices of substitute materials.

ITo one of these tasks '.7as under any circumstances easy of accomplish-
ment, tut the industry through the Lumber Code Authority v/as forced to
underteJce each with entirely inadequate prer)aration. Cost protection
prices were to be established as soon as possible after ap'oroval of the
code; since the nev/ wage rates and maximum hours v/ent into effect
immediately, it was considered vital to have the ptotection of minimum
prices vrith the least possible lapse of time after approval of the code (*)
As events proved, the rjrocess of establishing minimum prices in the
several divisions reqmred two to three months, or the period from raid-
August to No.veraber 7, 1933. On the latter date and thereafter in the same
month prices became effective in a number of divisions and subdivisions.

The scope of this inquiry does not include a study of cost dete-rmina-
tion of item price allocation, except as they bear upon the subject of
geographic -orice relations. The remainder of this section of Chapter II
will therefore be given over r)riraarily to that phase of the administra-
tion of cost protection -orices which concerns the divisional rules and
regulations for delivered price equalization, pther aspects of minimum
price administration must, necessarily, be discussed onlj'' incidentally.

The heterogeneous character of the industries brought under the
Jurisdiction of the code made the work of cost determination and item
price allocation for each division necessarily beyond the capacity of the
central code administrative body, the Lumber Code Authority. First step
in the establishment of minimum prices was, therefore, the delegating of
these functions to the divisional code agencies', as soon as the trade
associations which were to fionction as code administrative agencies had

(Continued from pre se ding page - (**)

resulted (in view of the continuing lag in lumber consumption) in a
reduction in employment calcula.ted, it was thought, to threaten the entire
recovery program in the lumber industry. And, in fact, for this reason,
so accurate an adjustment of production quoto.s to demand was not attempted
by the various divisions snd subdivisions. Again, complete delivered price
equalization was theoretically not necessary; it conceivably v/as possible
to restrict the. sources of supply for given markets to mills within a
certain distance from those markets by imi-josing limitations U"Don the
absonotion of freight; but (as will be seen later) this also TDrocoe.i
impracticable because it would have meant the alienation of important
groups of shippers who had always served distant nar!:ets by absorbing
freight heavily; the support of t/iese groups ?.'as necessary because en-
forcement of the code provisions was weak and compliance was largely
voluntary. Thus the conditions under which minimum 'orices f.o.b. mill
might have been established without control over transportation charges
and delivered -orices were not present in the lumber indiistries under the
code; mandatory delivered price eq'ualization was a practical necessity.

(*) This was desirable also from the point of view of securing the

fullest possible benefit from the mass enthusiasm which supported
the codes in the early months of the National Recovery Administra-
tion.

9864

gotten -uiider wa:'. E.-ch division, follov/ing upon the completion of the
work of determination, was to submit its cost data o.nd item price list
to the Lmnher Code Authority, meeting in October, 19C3, for arj-oroval,
upon receipt of vfhich the -orices vjould tnke effect.

This shifting of the fnnction of cost determination rnd allocation
of costs to minimum prices to the divisional code agencies carried with
it the responsihility for devising adequate delivered -orice eq-oalization
systems, s3''stems designed to meet the peculiar needs created hy the rail
rate structure in effect for each division's ship'oers, the location of
timber resources and -oroduCtion fp,cilities in each division, and other
circuDistsJices affecting the i-jroblem v/hich n: shall descuss later in this
Cha:3ter. Even in those divisions which had or recognized no problem of
freight equalization, there was still, concomitaiit to the setting of
minimum ;orices at the mill, the necessity for establishing some control
over freight charges from mill to destination; without, if nothing else,
the requirement that the actual charges be "oaid by the buj'-er, unlimited
absorption of freight was obviously possible for all shippers, and the
net incomes of members of all divisions laight well be Liuch below the
level established by cost "orotection prices.' In rn indListry for which
freight charges are so large a proportion of delivered "orice and so
heavy per unit of weight ai:'.d neasttrement , it was not sufficient to pro-
tect costs to the point of shipment; strict control over- the handling of
transportation costs w-as essential.

The procedure, by which the divisional rules and regulations
governing the spplics.tion of freight to f.o.b. Mill minimum orices were
developed, coordinated (as betv/een divisions) and finally approved will
never be fully or definitely laionn. llust of the data on the basis of
which intricate freight rate adjustments or delivered "orice zones vrere
deVised has imnfortunately been destroyed by the divisional agencies, as
have many records of the hearings, meetings and conferences held, where,
indeed, anj'- such records were kept.

However, on the basis of a complete examination of files of the
National Recover^'' Administration and of the niinutes of the Lunber Code
Authority eoid its National Control, and Resident Cor.mittees, -supplemented
by interviews with traffic risinagers and administrative officials of the
divisional agencies, it is possible to give a reasonably dependable,
general acco-'jnt of the -orocedure follov/ed in most of the divisiono.

In each principal (*) division for which cost protection prices
v/ere to be established the code administrative organization included a

(*) In a few minor subdivisions, partic^olarly the Southern Rotary Cut
Lumber Subdivision of the Southern Pine Division and the Ilorth
Central Subdivision of the Hardwood Division, the absence of an
established, efficient trade association to taice over the admin-
istration of the Code upon its inception made it necessary for
other divisioii-s to assume the cost determination and certain other
administrative functions; in the case of the Southern Rotary Cut
Jjumber Subdivision, the Southern Pine Division undertook the respon-
sibility, and in the North Central Subdivision, its sister hard-
wood subdivj-sion,, the Appalachian ajid Southern.

9864

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costs rJid prices comnittee, as one of the major permanent committees,
and a cost and prices •department to imdert-al-re the research and account-
ing work upon which the committee night base its action (*).

The committee tj'-oically was corat)Osed of members of the industry
whose mills were variously located and who, theoretically, might be ex-
pected to represent all interests which might affected by the weighted
average costs and rules and regulations adopted. The department was under
the direction of • ah officer of the old trade association (now the code
administrative agency) and' usually included, perhaps in a subdepartraent,
the association's traffic manager (in an important capacity) and the staff
of tariff experts and clerks. There might also be (in addition to the
subdepartment) , as in the case of the Southern Pine Division, a sub-conn
mittee of the costs and prices committee, a "committee on freight equaliza-
tion", composed of sales, mansigers and traffic experts of representta-
tive companies (**)

In September and October, 1933, these divisional committees, faced
with the problem of calculating orices and devising delivered price re^
ulations for -oresentation at the October meeting of the Authority, found
the time too short and the d£),ta too imcoinplete to permit of an accurate cost
determination, so submitted prices (which were later a'O'oroved) based
largely on estimates of what could be secured for thair products and. the
general expectation that 1929 prices might be approached (***), Similarly,
the rules and regulations for freight equalization were makeshift and in-
complete, and later had- to be radically revised in a number of cases.

TJithin each division the v.-ork.of devising delivered pricing regula-
tions apparently was t"'jrned over by the committee having jurisdiction to
the appropriate costs and -orices or freight equalization department, with
more- or less complete instructions as to what kind of system was thought
desirable. The traffic manager and staff of tariff experts then developed
a set of regulations which, with strict reference to the rail and water
rate structure in effect for shippers of their species and to the pre-
vailing division of markets between mills located in the .various produc-
ing areas, might secure delivered price equalization without ajiy
maladjustment of the status quo: that is, -v/ithout exacting a dispro-
portionate sacrifice from any group of manufacturers.

The plan or set of regulations so devised by the divisional costs
and prices, tra,ffic, or freight equalization department, was submitted

(*) The names adopted by the several divisions to describe these com-
mittees and departments varied, those used in the present analysis
being among the more common. '

(**) In the Southern Pine Division the committee had two members from
every important producing state within the dj-vision, there being
no representatives from such states of limited output as Liissouri,
Tennessee, West Virginia, Maryland and Delaware.

(***) Cf. "Cost Protection Prices and Cost Substantiation Data of the
Divisions and Subdivisions of the Luraber Code Authority", pre-
pared by p. N. Burnham, C.P.A., Research and Planning Division,
National Recovery Administration, May 6"-, 1935.

9864

-65-

to the committee and approved v/ith, ordinaril-/, only such minor changes
as might be obtained by influential groups of shippers who were p.ble to
plead discrimination in their established markets. Ctner changes Might
might be introduced if it wa,s agreed that a certain arbitrary or regula-
tion might handicap the division in competition with another species.

Once a-0T3roved "by the committee highest in authoritv within the
division, the cost deternination data available, the alloc?-tion of costs
to item prices, and the regulations for delivered ^rice equalization vrere
submitted to the National Lumber Code Authority for approval . On October
26, 1933, the Authority, meeting in Washington, loroceeded to a discussion
of the first current weighted averai^e costs filed and the accompanying
prices oro'oosed ''oy a nuiober of divisions. One of these was the Southern
Pine Division; when its cost data -jas presented to the Authority "repre-
sentatives of the Division indicated that the' proposed allocation to
items and classifications of lumber would produce an average realiza-
tion of $25.75 (per thousand boajrd feet).' -The Autnority '7as also advised
that the Division had in consultation \7ith the West Coast Division
established item ;orices which would maintain competition" (*).

After excm.ining the data filed ty a number of other divisions the
Authority ?/as able to reach the following-conclusion, as eyoressed a
resolution adopted on October 27, 1933:

"Resolved, that the Lumber Code Authority is satisfied
that it is 3-lile to determine the cost of oroduction of the
products of the following named Divisions and Subdivisions
in accorcLance v^ith the orovisions of Article IX of the code
and finds that the establishment of minimum prices thereon
will contribute to the accomolishment of the nurooses of the
code." (**)

Adoption of tliis resolution mb.s accompaiiied by the approval (on the same
day) of minimum prices in two Divisions, Oak Flooring and Llaple, Beech
pjid Birch Flooring, and in two Subdivisions, the Commercial Veneer and
the Plywood,

Thereafte;r, and until adj-ournment n November 2, 1933, the Authority-
was busy approving, for a number of divisions, first, the cost data, and
prices submitted, second, the rules ixnd regulations for delivered price
equalization prcp&sed. Usually ap'-iroval of prices and regulations was
granted separately and a standard resolution was used for each t^^^e of
approvR,l» The form used, in voting approval of the rules and regulations^
made it quite clear- that paragraph (i) of Article IX was considered- not
only to authorize mandatory delivered :pric9s, but s-lso to malce them

(*) Cf. Minutes, Lumber Code Authorit"-, October 26, 1953, ps,ragraphs

7, 8, Consolidated Files for the L-a:iber and Timber Products

Industries, National Recovery Administration*
(**) Cf. iiinutes. Lumber Code Atithority, October 27, 19-73, paragraph

10, Consolidated Files for the LujTiber nnd Timber Prod-iocts

Industries, Fational Recovery Administration.

9364

-66-
necessary "to secure equal application of the snid Article IX".(*)

The delivered pricing riales and regiilations had been apDroved for
certain divisions in advance of approval of the minim-dm orices; thus the
methods proposed for the West Coast, Southern Pine, Western Pine,
Appalachian and Southern Hardwood and flooring divisions were approved
on Octoher 25, 1933 (**.).

Tv70 considerations seem to have heen held of oriraary iraiDortance "by
the Authority at this time in granting approval, to the prices and regula-
tions proposed "by the Divisions: the first, that the item -orice alloca-
tion of weighted average cost produce an average realization sonowhere
between the floor and the ceiling cost (***) and neither above the latter
nor below the former; second, that it be estahlished that the divisional
authorities had conferred vdth and reached an agreement with representa-
tives of competing species and divisions so that the orices- of all such
divisions might be coordinpted and competition maintained. Each of these
conditions had to be complied as a prerequisite to Authority approval.

Unfortunately, neither the minutes of the Authority nor the records
of its National Control and Resident Committees ordinarilj'' report the
discussions which must have preceded approval of costs, prices and reg-
ulations for ea,ch division. Consequently, we are without knowledge of
the reasons advanced for and against specific proposals by groups within
the division, information which would be of value in learning what each
plan was expected and designed by its proponents to accomplish, and what
maladjustments adversaries feared it might -oroduce.

The coordination of the original minimum prices in the three
principal divisions was achieved through conferences between Southern
Pine, West Coast and Western Pine Division representatives, held at the

(*) The standard form of the resolution follows:

"Resolved Further, that pursuant to the requirements of
Article IX (a) and to secure equal application of the said
Article IX as required "by sub-section (i) thereof, the fol-
lowing rules and regulations in respect to the application
by all persons of the ests.blished prices in the sale of
lumber of the Division are hereby promulgated."

Cf. I.Iinutes of the Lumber Code Authority, October 27, 1933, Paragraph
9. Consolidated Piles for the Lumber and Timber Products Industries,
National Recovery Administration.

(**) Cf. Hinutes of the Lumber Code Authority, October 25, 26, 1933,
Consolidated Files for the L^iraber and Timber Products Industries,
National Recovery A^-ministration.

(***) The. floor cost was the weighted average cost exclusive of capi-
tal charges siDecified; the ceiling cost included these charges.

9864

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direction of tue Axithority,' g National Control Committee (*), uhich met in
October prior to tlie meeting of the Lumoer Code Authority frori October
16, to iJovember 2, 1953,

The Liomber Code Authority v;o,s in session from October 15 to llovember
2, inclusive. The first rules and regulations had been aj;oroved on
October 26, the 'first minimirm prices on October 27, the latter effective
on riovember 7. After October 26, the Lumber Code Authority was active in
approving the prices and regulations submitted by the various divisions;
following its adj oiirnment on Koveraber 2, the VTork of reviev/ and approval
was taken over first by the national Control Committee and following the
adjournment of this pc/erful comi;iittee, by ;he Resident Coraraittee,

These prices and rules and regiilations were promulgated through b.
series of bulletins (**) '(for the iiost part,, one for each division and
subdivision in which prices became effective) issued by the Lumber Code
Authority, -By December 2, 1933, thirty b^xLletins had been published and
by December 12 prices \7ere effective in twenty-^five divisions and sub-
divisions, including all of the logging and milling branches and a number
of wood fabricating industries*

With only a few exceptions these bulletins contained, in addition to
schedules of minimum prices f.o.b, mill on a varietj'^ of item:S and product
classifications, rules and regulations for the application of the minima
as delivered prices including, in addition to the established prices, a
fixed gjnount of transiDortation cost reioresenting on a majority of trans-
actions other than actual freight charges inciorred. In only six divisions
8,nd subdivisions,' for' which cost protection price s becarae effective dur-
ing this period, were transportation costs, as included in delivered prices
or as borne by the buyfer strictlj'- equivalent to the freight charged by the
carrier. In each of these cases sale was required to be at delivered
prices. These six v-ere: first and most important, the TJest Coast Logging
and Lumber Division (only upon shipments outside the division); second,
the Philippine lialiogany Subdivision of the Hardrraod Division, the products
of which were' priced' f.o.b. cars at Pacific ports .ilus freight to e
destination; third, the Hed Cedar Shingle" Division; fourth, the Southern
Rotary Cut Lumber Subdivision; fifth, the Commercial Veneer Subdivision,
the members of which raaniofac ture veneer from Southern Hotary Cut pine
lumber; sixth, the Plywood Subdivision. The Last three subdivisions all
abandoned the practice of adding actual freight to f->o.b. mill prices in
order to arrive at delivered prices after several months y 3^^bstituting
zone-deliverfed prieesi uniform at all destinations within each consuming
zone. Only the first three retained delivered "orices based on actual

(*) Cf» liinutes of the Hational Contl-ol Committee, October 14, 1933,

paragraph 5, Consolidated Piles for the Limber and Timber Products
Industries, National Recovery Administration.

(**) An "Index of Prica Bulletins" i? contained in Exiiibit A at the end
of this cha.-oter. ' See also Exhibit C, "T^rpical general Regiilatj.ons
Included in Ttie Price Bulletins of .the .Divisions ajid Subdivisions,"
end of this chapter. , ' ...

9864

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freight charges throughout tlie .aeriod of cost protection "rices (*).

T7ith these exce'jtions, limited in number and includiiig onlj^ one
major division, the establishment of cost r)rotectibn -jrices in the
various divisions and subdivisions of the lumber industry was accoraplanied
hy the introduction of mandatory -oricing practices, requiring delivered
prices formed by the addition of other than actual freight to ef;tablished
minimum prices by many or all shippers on all or a majority of transac-
tions.

Ilie methods by which the amount of freight to be added rras calculated
varied. Fixed basing points, single and multiple, v/ere er-rployed by a
number of divisions, a few of which had had experience with basing points
prior to the code. Zone-delivered prices, uniform at all destinations
within defined areas, were used by other divisions, and vrere particularly
in favor with the fabricati'ng branches of the industry. Equ^.lization of
freight with more favorably located mills v;as authorized by a few. A
mamber of modifications of these standard methods of securing com-oetitive
delivered prices at all destinations for shippers wherever located were
devised; some of these modificationg. were highly complex, elaborate,
Nearly. all tj'pes of geographic oricing practice for \7hich there were
precedents in the experience of other industries were e:cperimented with;
several highly complex modifications, thought to be adopted to the weighted
average cost protection minimum price principle and to the peciiliar
problems of particular divisions vyere devised.

In seven divisions and subdivisions no f.o.b. niii nr boae trices
v;ere established; mihiraum delivered -orices only vrere issued in the
bulletins and became effective for all mills. Thus, the Mahogany Sub-
division published only delivered prices on American t'jid African mahogany,
required their quotation unclianged at all destinations within the conti- •
nental United States, On© other subdivision of the Hardwood Division,
the Walnut Subdivision, established delivered orices by consujning zones
and published no f.o.b, mill prices. Other divisions, oublishing only
delivered prices by zones, were the Pljiwood Package, Savved Box, Shook
Crate knd Tray, Standard Container, and American Veneer Package Sub-
divisions of the Wooden Package Division and the Stock Manufacturers
Subdivision of the Woodwork Division,

The first period in the administration of cost protection prices
under the lumber code came to an end in December, 1933. By December 12,
prices and pricing regulations were (as has been stated) effective in
25 divisions and subdivisions. The Lumber Code Authority had, hovrever,
with the publication of the first orice bulletins, issued instructions
to the -divisions respecting the collection of cost data for specified
periods, (.the months of July, August, September and October, 1933),
This data was to be available for December 10, for examination by the

(*) One other minor division, for T/hich orices becai-e effective at a

later date, the Broom and Mop Handle Division, a"o-oears to have be-
gun with strict f.o.b, mill TDricing (the bu;i,''er taking title to the
shipment f.o.b. the mill, paying all freight charges to destina-
tion), and continued with it during the whole of the period of cost
protection prices,

9864

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Costs and Prices Department of the Authority. The data secured would,
presumably, remedy the "basic deficiency in minim-uim prices as estatlished,
nnd he used to make any revisions necessary to hring the minima into
agreement vdth costs as determined. Puhlication of amended prices
and regulations v/as to be^iin as so.m as possible after roviov/ of the
data.

Before j^assing to a, consideration of the adininistr-ition of prices
in the second period it may he v/ell to consider in v-hat respects the
first period v/as nota.'ble.

In this period there had been no accur-ate determination of v/ei.2hted
average costs of production as defined explicitly in Article IX.
"fevertheless, in 25 divisions minimum price? had been established.
Obviously, without accurate l-mov:ledge of costs, it -.vas impossible to
a,llocate costs to item prices, as directed by Article IX, "in proportion
to relative market prices over s. representative period" (*). As a re-
sult prices were based lo,rgely upon estima.tes of vrtiat the market v/o^old
bear. The coordination ''.f prices as hetvfeen divisions had been informal,
the primary concern of the Authoritj' being to correlate the principal
softv/ood divisions, the '.'est Coa,st, ".7cstern Pine and Southern Fine,
Basic coordination of r'.inimu3i 'orices on these v'oods was a.chieved by re-
presentatives of the three divisions nentint; in "'Jashington in October,
and in Portland, Oregon, in Deceanber, and tae coordinated prices for
each division v/ere presented to the. Authority for approval. Beyond the
fixing; of minimum r.rices at tae mill, the Lninber Code Authority h^.d
interpreted subsection (i) of .-article IX as authorizing (rand even, un-
der certain circumst-ances , requiring) rules .and regulations for uelivered
prices which would include freight cliarges (actuo,l or arrived at accord-
ing to some formula) from ;iiill to destination. Accordingly, such rules
had been established in every uivisi:n for which prices had been set
and in only six divisions, as we Jiave seen, die' they require simply the
addition of actual freijlit. Tliat subsection (i), vaguely, generally
phrased, liad been intended at the outset to play so important a part in
the structure of cost protection "prices seems at least doubtful. The
attitude of the lla.tijnal Recovery Administration is likewise not clear.
Tlia-t the necessity for such re£-:ulr.ti:ns T/as not foreseen by government
officials seems to be indicated by the a.bsence of .any specific provision
or authorization for their estahlishment , and also by the following re-
commendation c":nta,ined in a report (**) on the iTjmber industry prepared
by the (then) division i-f "conomic Tiesoarch .:.nd Planning and antedating
the esta-blisliment of m.iniraLim prices,:.- "Althoug:h ninimuu "oriccs or a
series of rainimuM prices, as described above, might be applied in various
ways, the preponc'erance of evidence indicates th£Lt such prices should
be f.o.h. mill." IIj ex^Tlana^tion of wh;r this is so or indication of
what the preponder.?.nce of evidence might liavo been is given in the re-
port. The recommendation ho.d no weight with the Code Authority, a,nd the
attitude of the administration y-faew the time came for the prices t:. bo
applied v^/as passive.

(*) Of. ...rticle I'l, Code of "'•■.ir Competition f or t he Lmibnr and Timber
Products Industries, Codes of lair Coj'ipctition, Vol-umc I, page 98,
lif.tional Recover"^ A'.hninis bration.

(**) Cf. Sachs,,. Alexanr-.er, " Statistical an'.: "conomic './'.terial le u-ing on
u:'^e Lunbcr and Timber Pro.'.ucts Industries ", p-ge 33, September, 1953.
division of Economic "csearch and planning, 'Tational Recovery Ac"iin-
istration. (In _TJl files, Lumber o.nd Timber Products In'^ustries. )

S854

-7C-

~j. Cost eterr.iination Attera":''ted; The SgcdjiC. Serici- if Prico
Lulj-etiiiG .

The secon.d perioid of the three into v/nicii the a'^^'rdni strati on of
cost protection -orices -unc-cr tne code niay crnvenientlv' be divided begins
on Janur.ry rl, l'?r'.4, the aif active cate of aruende^l prices o.nd rules -n'.
t-e':;ulations in the 'Jestem Pine ." i vis ion ("jublishe':" in Ln.lletin no, 3r ,
yol-ume I of the Lmiber Code Authority). This is the ^irst division for
which -Araendea prices s.p;oep.rec'. . 7rom that do,te until -J-jnc, 56, 1934, a
series of Lunter Code ^-uthority Price BulLetins v/cre publishe;. (fro:7i
7o. 33 to I'o. 135 of Volijme l), one or r.iore for each of the .55 divisions
in .v'hich prices liad boen established o.nd one or more for each of 9
Xabri.catinf divisions and subdivisions (*) in V7hich cost protection
prices vere instituted during the 'oeriod.

In December, 1933, the national • Tiecovery .^cjninist ration had
announced a [^eneral hearing on bhe Code for the Lumber and Timber Pro-
ducts Industries for the piu-pose ^.f he'^rin^; complaints a,nd other testi-
mony relative to the operation of tne code provisions. ..,. niij'ioer of cor.-
plaints lia."- been received from members in certain divisions anf. sub-
divisions against the operation of the divisional delivered price ecuali-
zation sj^steras. Producers, particularly in the oak flooring; in^'ustry,
who before the c:ce had enjoyed a frei^^'lit rate p.dvanta|K:e in shipping to
certaan mtxrhets and noiv foxmd tnemsolves required to equalize freight
with producers not so favorably loc.ted, protested vdiat they termed
discrimination.

The hearing on the subject of the pricing rules and regulations
opened on Janu:'r-- 9, 1934 and continued until January 13, 1934. There
were three general classes of vdtnesses: first, the complainants, for
the most part, as lias been stj,ted, members of the industry who objected
to delivered price equalization as enforced in their respective divi-
sions because they vrere required to give uio natural freight rate
advantages. Second, there v/ere representatives of the Authority and its
divisional agencies '-'ho a ef ended the equalization rules established
stating, first, tliat it was iiqoossible to sustain v/eignted average cost
protection prices v/ithout them and second, th.at the particule^r rules in
effect preserved the established pre-code division of m.-rkets and -oro-
duced a net realiza.tion' (for each division) neither above nor below
weighted average costs. Third, and finally, there were representatives
of tne adonini strati on, economists a,ssocia.ted vdth the national Recovery
Administration's Consuniers' Advisory Poard, who analysed certain of the
eqtialization methods in effect from the point of view of ecommdc theory,
found, s.gainst the use of basing points and other methods involving the
addition of non-existent freight to form delivered -orice as uneconomic

C*) Incltiding the manufacture of vnod.en paclcages and containers ,
veneers, •olywood, etc.

3B64

■ - -71-

p.nd vxl'-.i'^ to the consumer, rncV Cii?.lle:-i^ec. the existence of authority
for sxi.ch re^^uletions in the code. (*)

Tone of this testimony ■rrodxicet". sny conclusive or si,_,nifics.nt
evidenca of the soundness or unsouaidness of the methods. v2\Cjiv discus-
sion. The comple.inin:, niencers of the industr;' vere a:pparently unaole
to see beyond "their local situations, failed connletely to up/erstrnd
the cconoi.iic -robleras involved and alleged little that v.-as not obvious
fro.a an examination of the rei;^,til?tions in question. Thus it -as -luitc
clear that shippers located freii-htrice near markets '-ere required under
the r-ales in effect in nearly all divisions to add non-existent freit;^ht
or otheriiTise ea^ua.lize delivered prices Y.-ith raills located freij^htvise
distant (:.-elatively) from the same markets. Similarly the Code Au.th-
ority re"oresentativcs presented the obvious reasons '.-hich made delivored
price eofp.lization necessary to the ma.intenance of v/ei^hted avera^,e cost
protection 'oriccs; they did not present d-?ta conclusively demonstrating
the soi^jidness of the "oarticular methods of equalization in use, such
data bein;;;, beyond a doubt, .not ?vailable. They thus defended the
principle sxiccessfully, failed to defend their applic?tion of it as
adecroaite. The argument of the representative of the Consumers' Advisory
Board v:as clearly based upon a pre-conceived opinion that the v.se of
basini\; points or any other eqita.lization method which involved the
chia.rji^ini of non-existent freight by certain mills in shipping to certain
destinations \7as u:isovJid. This premise v-as not supported; the v:itneGS
confined Iximself to shoving, that the r'ules and rc^xilations in effect
v/ere characterized by this practice; rhich, again, ras clear from an
exajnination of the rules e.nd re^^ulations.

The January hearint:s brought inescapably' to the attention of the
administration the a.-oplication of the minimum prices as delivered prices
by the L"oinber Code Authority, UTider the ass^omed aaithority of subsection
(i) of Article- IX. Despite the recommendation of the Consumers' Advisory
Bor.rd thr.t shippers be allo^-ed to Include only actual f rei<-,ht chari^es
in delivered price, no effort appears to he.vo been m?de by the iTational
Recovery Administration to have the Authority modify any of the divisional
rejpulations as a consequence of this hearing, (**) or to depart from the
practice of delivered -oricc equalization. Ey this inaction, the admiiis-
tration may be said to have ^^.'iven implicit approval to the practice and
to the loose interpretation of subsection (i) on A/hich it ras based.
The Lumber Code Authority ha.d, i:.i fact, shifted the responsibility to
the "National P.ecovery Acimini strati on ■vhcn A. C-. T. I.Ioore, Traffic ?anagsr

(*) li^ests of the testimony of the 5.av'itnes see imy be found among
the v-orl- sheets filed vith this report and ? conrclete record of
their testimony is included in' the Transcripts of Code ?Iearin^s,
Lumber and Timber Products Industries, national r.ecovorrj- Ac'minis-
tration, January T to IZ, inclxisive, 1034.

(**) The i.aple Flooring Division is an exception; Cf. Part III of
this Cliapter, Section A, 2.

':854

-72-

of tlie Sou.thern Pine Association in defending the so-called "Virginia
Cities Ar^justraent" established in his Division and in presenting the c?-/
for an extension of the principle of tliat adjustment thro-ughov.t the Divi-
sion, said "At this hearing exceptions h3.ve teen filed to the hasis
authorized oy the Code Authority to be ermloyed in figuring 'delivered'
prices ... on the grounds that the Code Ai^-thority was not aaithorized
under the code to in tura authorize the Southern Pine Division to
effect-ua.te such a system of delivered prices; and second, on the gro^aiids
that the public interest v/as injured in the process. If the first
objection be v/ell-founded the lumber cod.e shou-ld be amended ■unequivocally
to clothe the Code Authority with such pov/ers" (*). This clearly meant
that if the interpretation of subsection (i) were incorrect, the fact
should be brought to the attention of the Axithority by the Administraticn,
\7hose business it was to decide stich things, so that the process of
amendment might begin.

The Administration di.d not find it necessary to correct the Auth-
ority's interpretation of subsection (i) . Opinion within the national
Recovery Administration aj^pears to have been divided. On the one hand
hand there was the opposition of the Consumers' Advisory Board, conveyed
in no imccrtain terms at the Januaiy hearing. (**) In this position,
economist Worth Shoults had the partial support of the Legal Division.

A conference on Janur.ry 3, 1934- betv/een Blacli^./ell Smith, C-cncral
Counsel, iliss Bernice Lotwin, assistant covmsel assigned to the lumber
code throughout much of the code period, and lir. Shoults had resulted in
agrcement on the following points:

1. There is no express provision in the code authorizing the
u-se of basing points.

2. Utilization of basing points "fair to all parties concerned"
might be justified under Article IX, section 13, subsection
(i), providing for rules and regulations necessary to se-
cure eqxial application of the prices, if the facts required
basing points for this purpose.

3. Fixa.tion of minimiim prices on a r-.ingle basing point for the
entire United States is a violation of the code and of the
Act since it is a repetition of "Pittsburgh plus" and consti-
t\ites a monopolistic practice, in the absence of facts sub-

(*) Cf. Statement of A. G. T. i,;oore. Transcript of Code Hearing, Liirnb^r
rnd Timber Products Industries, Fstional Tiecovery Acjninistration,
■."ashington, D. C, January 12, 1^34, pp. 760-802.

(**) Cf. Transcript of Code Hearing, Statement of VJorth Shoults, Liomber
and Timber Products Industry, Hational Recovery Administration,
Jamiary 10, 1934, pp. 309-r'O.

9864

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stp.ntiatin/-; the necessity of the iiractice. (*)

In this three point agreement there is an apparent use of the term
""basin>i, -joints" tu refer loor.ely to delivered price coua.lization in
general', as applied under the code; the question itself and this dis-
cussion of it was much broader tlian v,'ou.ld be indicated by the use of
the -phrase ii->. its ordinary/ nieanins. About the first tv/o points in the
a£;roemcnt it vai: scarcely to be expected that there vould be any serious
difference of opinion; the wording- is cautious. VJith respect to the
third point it is difficult to sept.rate the le^al reasonin;:, from the
economic. The ilational Industrial Recovery Act did not expressly forbid
"a repetition of Pittsburgh plus" or a single basing point system, nor
did the code. The legal ret.soning and the economic alil-e, back of this
point, ma.y very possibly derive' from the Federal Trade Commission's
disposition of the Pittsburgh r)lus case in the iron and steel indu.stry
and an identification of all single basing point systems with "Pittsbu.rgh
plus". The strength of this point of the agreement is reduxed by the
aua,lifi cation "in the aJbsence of facts substantiating,, the necessity
thereof". ■. .

The Legal Division's oriiaion that a single basing point system
constituted a violation of the code --^nd of the Act (in the absence of
conclusive evidence of necessity) ras eventuo.lly applied ''oy the Adminis-
tration to the most ira-:)ortant case in point, that of the C?.dilla.c basing
point system in the I.iaple Flooring Division. The finding yss, presujnably,
important enough and the possibility of a violation of code and Act alihe
sufficiently grave to varrant ?n investigation of the necessity for any
and all single basing -^oint system under the lumber code. V,q such in-
vestigation T/as ma.de.

VJithin the ilrtional r.ecovery AJ^jniMistration' & Division of IJ^conomic
Research and Planning there ras disagreement as to the economic soundness
of the eciialization practices esta.blished. a report (**) issued, by the
Division on Janua.ry 3, 1934 a. fevr da,ys prior to the opening of the j5Xivs.ry
hearings vigorously criticized the methods follored in setting minimum
prices (particularly the inclusion of certain items of cost representing
fixed ch.a.ri_^es on over e:-panded "orod.uction facilities and standing timber),
recognized the necessity, once miniiaiom f.o.b. mill prices V'-ere established,
of minimum delivered prices 7.'hich ."v/ill permit all producers within a
division to market their lumbar on a more or less oqua.l footing", if

(*) Cf. Kemorand"am T.'ritten by "ernice Lotv.ln, Janua.ry 3, 1954,

Consolidated Files of the Lumber a.nd Timber ?rod"0-Cts Indtistries,
JTational Recovery Admi-.^istration, folder entitled "Prices - 3asing
Points".

(**) Cf. "An Appraisa,l of the l.iniiTum Prices as Rstablished by the

Lumber Code Authority", by Y. S. Leong, Division of Dconomic Re-
search and Planning, Rrtional Recovery Ac-jninistration, JanuF.ry 3,
1934, in the Consolidcted Files for the Lumber and Timber Products
Industries.

9864

-74-

procVacers disadvantageously located freii_;htv/ise v;itii r oc^-iec v t.) pi'i :c,i--. i
iiipi-ketirg areas v/ere not to he excluded from the ma.rkets; 'out concluded
tliat "oDviously 'basinf^' point prices are liarmful to the interest of the
consumers. They are coitiDelled to }iay the full cost of transportation
from the hasin^- point even though ho transportation is involved". ^HJ^-i"^!.
"the estahlisliment of hasing point prices iarplies an absence of price
competition", axid "the maintenance of non-cornpetitive basing point price;:
vfill tend to reenforce the effect of established ninirnma f.o.b. mill
pri.ces or cost protection prices to perpetuate the -uneconomical ly locateT.
and inefficient mills", with consumers footing the bill of the resultr-.t
higher costs. The economic effects of group point and other delivered
prices the author considered "sinilar to those of basing point nrices" C'*; ■

Lumber specialists in the Division of Econo:nic P.esearch and Planning,
closer to the administration of the code, v/ere not prepared to recoira.iend
abolition of delivered price equalization; they found that "adoption
of . . . minimum fixed prices made it necessary to add another restraint
on this industry, namely, basing points. It vras found that existing
frei^.,ht rates added to a set lumber price made it imoossible for many
operators to reach markets in which they had formerly sold on a parity
with their conpetitors, vrho , due to a shorter haul or better freight
rate, v;ere now able to undersell them . . . Federal Trade Commission
and court cr.ses in the past wliich have involved basing points aiid price
fixing were the outcome of voluntary price fixing and competitive
methods devised for puroose of additional gain or trade advantafje; v/hile
the same methods under this Act and under these conditions are -ourely
for the --luroose of carrying business along on a stoip-loss basis until
conditions iirrprove". (**)

This opinion, that cost protection prices ^vere an integral p.-i't
of the code strr.cture v/nich it wo'old be iiTTiiracti cable to eliminate ajid
that tlie necessity for delivered price equalization followed, seems to
have been shared by the 'JationaJ Recovery Administr 'tion' s deputy

(*) Tlie Lijjaber Code Authority atterrrpted to ansv/er Leong's criticism
in the course of the Januaiv hearings, thus: Although the use
of basing points does mean that consumers near a non-basing -^oint
mill must pay freight charges froia the basing point and in excess
of actual transportation costs, other consumers b\iying from millc.
beyond the basing point (i.e. farther from the destinr-tion than
the basing point) pay less than actual freight costs: if the
system is properly administered, "the excesses and differences
will balance and basing points neither burden the consumer or ad",
to industry -orofits; eiccept that stability and fair coimnetition
will convert economic waste into profits or lower prices or both."

(**) Cf . "Report on Lumber and Timber Products Code, "Jith 2ecoi.imenc.a--
tions and in Reply to Report by the .Tederal Trade Coi.imission",
prepared hy Uilliain 3. Yost, aoproved by Peter A. Stone, Chief,
jasic h'aterials Unit, Division of Dconomlc Research and Planning,
national Recovery Administration, February 18, 1934.

9864

-75-

on of

ninim^. price deliie?ed 'ric t wUW ^ '"^'''' "f^^'^= ^'^^"^ ^° ^^^-
use Of basin,- points if neceLary: ^'"' ^^^^^^^^^i- --<! possible

rthpt"?! \' ''°* tae intent of the code to introduce a new basis

-0- icL .; ■"'■"''"':' "^'''^ ^^°" ^^^*i^^^- competitive delivered
o.xces at varxous destinations) .-.ui dislocation of cor^emion."

Basing -joints must, ho'vever, where used, bp,:

aSaildor any of ^^,1^? ', " '"= ^™*"" <=">*= Authority to

Of an/„r(:.fpS t : ":"t e'u^'j^:? °J '° ^"-="'^='= tl« so..,c>:.es.

^b _n t..e light of uhe criticisns advanced.

u„der1hffo'de"*i„' "L'tL'nl'ivlSo''''"^''''"^""^ =^'---='^ estaMisned
cases their scope ,ls "tet Id^ ^t' '=°f "?'-'-^* i^' effect and in sor»
tection „rioes ^r.„'l^^t;^:Z::^-^^;:S^^^ =-' --

ad,niaSr:t!on1f'':i:r-,?o°t;oti:'-"' ■'""^'"^ '^"^ =^=°-^ -=--^ i" "«
>vei,-hted average costs in eLi divi:','f ' "'". ""'^^^'^ '° "' '="-* -P«
secured in response to qSe ? "nn, I "^^nrout 'o-'f .'"°" ''" *^'=

o::s:rrx?i-^s -:::ss - »-=^^ -lrA^strs:pSers
c.« to the A.fnoritr:ndt:e°t;';"::d'::: ^r ?ou„\:f --^-^^^ -^-=

Eie Lumber Code A^ithority reco'iv-npH /'f„n •
-Tovember 2 on January 29 .J .Z T^^ (following- adjournment on
Pebruarv 16. On Ja^ia^^ '9''^ tt ado t1 " T''''' "^'^^ ^^^ including,
(-.less the rule were ;ai;!d H ^S^^ '"'^ of .procedure under ...ic^,
^oefore the Authority ^or cotidP^^t ^^^^^ent) all matters couin,;

Propriate comittee f ;r.x^ inat io^- '°^^ ""^! '° ^^ ^^^^^-^^^d to aai ap-
r-nttee to "hold such publtc hea^i^^ : '"^''' ^"^^ ^ ecor.uaendation, the coi..
■ ^ neaiia,,s as may oe necessary". (**)

(*) Cf. "ieport on'LuirfoVr cVd'e"" V' 7C --:^""""^- "T

national Secove-y :'dmi,ni «t.o • °''''' -^^"^7 Administrator,

•^ -'•"^^ii.istracion. i.-^rrh op 10-7,1 n ■, ■ .

■•Cod""ir::?;;^" ^i.*er Produce liSstrlesri^iL'^S'S: '^^^-

'"' £"iMrJ:».°';„t„,^-^-/^^= Authority, Jan-r:-29, 1934.

. InoustriP. ^T ^"-'^°l^^^^e^ -^iles for the L^ja.iber and Timber P-v
1-ic.ustries, Ja.ional ._^scovery Administration.

'oaucts

9364

-76-

Accordingly the cLetoriainations ox" v/ei^jiited avpi-aj;:e -cost ,^ncl the
it-^in -^rice allocations siibiAitted to the Authority for apT^roval oy t>.o
various divisions v/ere referred immediately to a "Coix.ittee on Costs
and Prices". This conxiittee held hearin;."_,-s at mien it reviewed the
cost statements submitted and the joroposed minimum prices, pjicI i.iade a
f indin^' as to their adequacy and accuracy. It then re-oorted its re-
commendations to the Lurnber Code Authority'' in the form of a "dochet".

Tnis docket rejjort filed fnllov/ed a standard form coverin;^- the
follov/intj points:

1. The representativeness of the data as shov.'n "bj 'the nuraber
of mills in the division, the numoer of mills to vv'hich
questionnaires were sent, the numher represented in the re-
-Torts used, their status an Ir^r^e or small mills, the ;i-i -r-
centa^'e of total divisional volume represented.

2. The ceilinj cost and the floor cost determined, (per 1000
oosrd feet), and the "-^jnount of cost (per 1000 board feet)
ahsorhed "by the proposed cost -protection -prices".

3. A schedule breakin/;; down or allocatin,;; total cost to items
re-present in;^- 100 j of production.

4. The method by which the f .ch. mill ririces 'vere translated
to delivered prices.

5. The b?sis uiDon '.yjiich stmirpage was valued.

5.' 'Tlae relation of tlie prices proposed to tlie prevnilin-^;
m-rket -irices (percentage higher or lovrer) .

7. The price differential established for products of sub-
standard quality or produced by siaall mills.

8. The coordination of the minimum prices vrith those in ef-
fect for coi.Toetint^,; divisions.

9. The auditing of the cost reports on v/hich -irices were based,

by the Costs aiid Prices Department of the Lumber Code Authority;
also whether these reports had been audited by the division in
the field.

If the costs a.id prices submitted were adjudgec^. satisfactory in all
of these respects, the coniiittee recommended their en-oroval by the

Authority and the publication of the prices.

Tile report of the committee then came before the Atithority; tlie
latter' ij. acceptance of the recovmaendation contained in the docket -..'as
virtually a matter of course and the minutes contain, ordinarily, no
record of any discussioii of the prices or accompanying, rules and re-
gulations for delivered pricing (*).

(*) Following the adjournment of the Lxuaber Code Authority on February
15 (and before it convened on Janiiary 29) the consideration aaid a-.v
Footnote continued on next page.
9864-

-77-

Tlv/o-Ui-^hout the life of cost -jrotcction lorices imder the code, the
divisional "chninistrative at^e/icieG -v^re responsible for collecti:-ig the
cost J.ata, allocating costs to item nrices and develo-oinc delivered
•orice equalization methods. The -nroced-ore rvitliin the divisions did not
differ materially from that "oreviously described.

Althou^jh prices as rj.iended or nov/ly established durinij this second
period v/ere to be based. upon cost data secured by the divisional
agencies for the uionths froia July to October, 1D33, and v/ere, therefore,
to be accurately adjusted to \/ei^hted av':.rai^e costs, actually the drta
obtained vras for nearly every division incomplete and unrepresentative.
Lari^'e nillc kept adeq_uate acco^ontin^ records and accordingly supplied
a disproportionate amount of the data used in arriving at the weii^hted
avera;^;e cost fi^jures. IDven the data secured frou such nills v/as not in
thoro-atjhly standardized, cor/iparable form. The result was that miniraum
prices a;^,■ain v/ere based upon more or less successfiol estimates and ap-
prorcinations of cost and item --irice allocations, the realizations from
which were largely uiipredictable. Again the prevailing level of prices
and v/hat the industry thought the state of the market would justify were
called upon to resolve the uncertainty about costs. (*)

The rules and regulations issued v/iththe new price schedules in-
volved, for certain divisions, drastic revisions; for otliers, a major-
ity, moderate changes v/hich did not alter fundamentally the plan as
originally developed, aiad for a few, no revisions .'it all. In the case
of some of the divisions (notably the Southern P.otary Cut Lumber Sub-
division) it seems clear that the divisional code atithority had given
little thought tO' the consequences of fixed minimum -orices f.o.b. i.iill,
when the original prices and rules were issued;' as a result it later v/a.s
confronted with a practical necessity for radical revision.

?or the most part, hov/ever, the modifications and amendments intro-
duced represented a process of growth, of achieving the cornpletion ajid
expansion of systems of delivered pricing the foundations for which had
been laid with the original rules and regulations. Changes made v/ere for
the purpose of adjusting coi.TTetition at the market betvreen shippers of
two or more areas (within a division) and involved no essential altera-

(*) Cf. "Report on Project Cost Protection Prices aaid Cost Substcin-
'tiation Data of the Lui.iber Code Authority", itirepared by D. IT.
3urnhajn, P.esearch and Planning Division, national Tiecovery Adininis-
t rat ion, Hay S, 1935.

Pootnote -continued froi.r preceding page.
(*) proval of cost data submitted and prices proposed by the division
devolved upon its national Control Coiximittee (while that body v/as
in session) and upon the Resident Comnittee at all other times.
Tliese couimittees acted upon the recommendation of the Costs and
Prices Der)artraent of the Lumber Code Authority.

9864

-78"

• tion in nolicy or principle. Tliis does not nean that c'll o.;' tho divi-
sions ior which this was ti-ae fo-und the nlans and Methods which they
initially adopted exactly suited to the freight eq-aalization needs of
the industry. It is prohahle that once one method (as, for exarrple,
delivered -prices calculated to incltide freight from hasint:; -ooints)
was in use it would ap-oear to th(5 industry that defects and maladjust-
ments in the method mi;r;ht "best "oe corrected hy altering," specific rules
and reriUlations, (referrinij to the location of the -joints, the amount
of the limitations upon aosorption, etc.) . The time -i/as too short and
the industry's experience rdth these methods too brief to mahe feasible,
in most cases, the discardin,:; of one method and the adoption of rnothe".-.
A^ain, there were but inadequate criteria by which to judge that one
method Avould operate more satisfactorily than another.

A number of divisions rnd subdivisions during the second period
issued tv/o or more price bulletins, (published by the Lmnber Code Auth-
ority) the additional bulletins containing revisions in the basic prices
or in the rules and reg^olations , or in both. The last price bulletin
published during the period bore the number 133 of Volume I; appeared
June 16, 1934,. a:id was effective on June 25. From that date until
July 16, 1934, no bulletins v;ere published, the Lumber Code Authority
presumably awaiting the approval of Amendment 15 by the llational "iecovery
Administration. In all, 102 bulletins had been issued during the
period (10 of which, llos. 117 to 126, inclusive, concerned conservation
regulations)'.

The broad interpretation uiider which subsection (i) of Article IX
was held to justify delivered price equalization appears to have
occasioned some misgivings even within the Authority. J. C ITickcliffe,
Assistant Deputy Administrator of the llational Recovery Adi'ninistration,
reported an informal discusoion (unrecorded in the minutes) during a
meeting of the Zlesident Coni.dttee as having provoked Dr. Wilson Comoton,
Counsellor of the Authority, and member of the President Committee, to
question whether the Authority had, in mjildng certain price "set-ups
and applications," kept within the real intent of this section of the
code. (*)

Tlae administration of cost protection prices during the first six
months of 1934 (roughly the second period into which the history may
conveniently be divided) was notable chiefly for the follo\/ing. The
i.iinimum prices which had been institixted under Article IX in 25 divisions
and subdivisions were revised and numerous corrections and additions
made; prices were established for the first time in nine divisions; the
new as well as the revised prices were determined with the assistmce,

r*) Cf. iiemora-dum f rom "j . C. '•liclzciiffe'to'Ay'iy'Siancir~''mYision

AdjniniEi-rator, National ?.ecovery Administration, April 25, 1934, in
the fold'?^ entitled "Code A.uthority Committees — President —
Minutes, January to July, 1934". Consolidated Files for the Lmiber
and Timber Products Industries, Jational Recovery Administration.

9364

-79-

altliOUt.'h quite inadequate, of cost data, collected in each division
from a s:Aall nwriber oi (for the most -oart) relatively l-r-jo firi.:o.
An orderly, worka'ole process for securintj coordination of -.-rices oetvfeen
divisions was put in o-oeration,; replacint^ the hao-hazard, informal
procedure which had 'O'^en used ;-5reviousiy. ' "he rules and reculntions
for delivered price equalLza'tion in the various divisions underwent
many chantjes. In certain cases these changes were su.ch as to involve
a Gonolete departure from the essential principles of the plan
ori-^'inally established; in other cases the modifications introduced
served rather to develop those principles and secure the evolution of
the original plan, than to effect any "basic readjustment in its nature.

S . .In.'fcer^sp.e c i.e_ _an d Jjlt_,ex'l iX i_si.oji a 1 _P.r i_c_e _Go.qr_d i_n a t i qii .

During the January-?eoruary meeting of the Lui.iDer Code Authority
the process of coordinating prices as. hetv^een species and divisions
was greatly developed. The whole history of price coordination luider
the code is shroude-' in -uncertainty because much of the work v/as ac-
coiTTDlished at meetings of . the .proceedings of which no record v^as kept.
It is possible, however, to give the following reasonably dependable
acco^ont of coordination. (*),

From the incerjtion oi cost protection prices in October and
November, 1933, a guiding principle in effecting coordination had been
to remove conflicts of .opinion between divisions respecting interspecie
price levels before -the submission of divisional cost dr.ta and miniimim
prices to the Committee on (or Department of) Costs and Prices of the
Lumber Code Authority.

Prior to Tebruary, 1934, this. was accomolished (except in the
Hardwood Division and in the Veneer ai-jd VlywooA Division) through in-
formal conferences betv^een representatives of the administrative
agencies of the divisions for which price coordination was necessary'-.
Thus in October, 1933, representatives of the two principal softwood
divisions, '"'est Coast and SoutheriV Pine, were able after a series of
meetings (**) to reach an agreement founded unon correlation of the two

(*) This is based upon (i) -a .careful examination of the national r'.e-
covery Administration files, and minutes of the Lumber Code Auth-
ority, its national Control, ."^.esident , Interdivisional Coordinating
and Hardv/ood Coordinating Cdi.iinittees; (2) interviews vath code
.authority officials and with members of the Interdivisional Coor-
dinating Committee, such sS Halph 3. Hill, its Chairman, A. S.
Doisfontaine, member froi.i the Southern Pine Division, E. C.
Singler, member froa the h'aple, 3eech and Dirch Flooring Division.

(**) Tlie I'rtional Control Coi.niiittee- of the LTOinber Code Authority on

October 13, 1933 had officially requested the 'Test Coas'", 'Jestern
Pine and Southerh Pine Divisions "to confer with each other in re-
spect of correlation of. tlieir post and price schedules". Cf.
liinutes of the national Control Co,.]].iittee, October 13, 133,
paragraph 5, in the Consolidated Piles for the Lmaber and Timber
Products Industries, "J -.tional Recovery Adiainistration.

9864

species at Chicago, kej^oint of the great Central Freight Association
territory, competitive ■battlegroujid fiercely disputed "between pine ,-.:id
fir for a decade or more. F.o.l). mill minimum prices for the two species
were to be adjusted so that delivered prices (including rail freight
charges) at Chicago v/ould te at a parity.

The range between floor and ceiling costs (at any point within which
weighted average costs might he set) made it possible for the two divi-
sions to effect this coordination, apart from the fact, previously in-
dicated, that it was scarcely possible to do more than approximate costs.
The Southern Pine, West Coast and Western Pine Divisions had, hov/ever,
cost figures which, in the words of one of the officials, "v/ere not
identical with the formula, biit wQre complete" .

Tlais correlation at Chicago determined the general character of
softwood coordination. In so far as it was necessary to do so, Western
Pine prices f.o.b. Seattle were adjusted so .that delivered prices at
Chicago met the parity. Other minor soft^^oods also adjusted their prices ^
to conform. However, little attention was originally paid to coordination \|
of other than the 3 chief softwood divisions and as a result redvraod
prices proved to be initially too low relative to the other species and
had later to be adjusted upward.

In these first few months the coordination of hardwood prices was /
not quite so informal; there was a Hardwood Coordinati;-.g Comaittee
functioning from September, 1933. This committee not only undertook
from the outset to obtain cost protection price correlation between the
various subdivisions of the Hardwood Division, but also as code admini-
strative agency was given jurisdiction over other hardwood intra- I
divisional affairs; production quotas were .allotted by it to the Hard-
wood Subdivisions after the Lurnber Code Authority so voted on October
21, 1933. (*)

A "Coordinating comm.ittee" for the Veneer and. Plywood Division was
established by the National Control Coi^-.-iittee on October. 9, 1933, prior ."j
to the establisliment of minimum prices. (**) It was founded to act as '
agent for the Authority, in the administration of the code in the Veneer
and Plywood Division, and not primarily for purposes of price correlation.
Its activity in the latter field is unknown.

During its February session there was proposed to the Lumber Code
Authority the institution of a permanent "Coordinating Committee on
Established Minim'om Prices". On February 7, a temporary committee was
appointed under this name by the Chair, coraprisiaing representatives from

(*) Cf. Minutes of the Lumber Code Authority, October 21, 1933, in the
Consolidated Files for the Lumber and Timber Products Industries,
National Hecovery Administration.
(**) Cf. Minutes of the National Control Committee, Lumber Code Author-
ity, October 9, 1933, pp. 3, paragraph 34; Consolidated Files for
the Lumber and Timber Products Industries, National Hecovery Administra-
tion.

9864

-81-

the i.Torthern Pine (3), Woo Sen Package ( y) , Hedwood (2), C.^/press (l),
Hardwood (2), Uorthern Hemlock ( 1) , Red Cedfir Shingle (l), Oak Flooring
(l), Southern Pine (2), Western Fine (2), Northeastern Softwood ( l) ,
West Coast (l), and Maple, Beech and Birch Flooring (l) Divisions(*) .
A Chairman v/as to he appointed b.^' the committee and was to report to
the Costs and Prices Cor.imittee.

On Fehruary 15, vhile the Authority was still in session this com-
mittee was set up as a permanent committee under the name "The Committee
on Inter-Divisional Coordination of Established I'inimum Prices", composed
of one representative and one alternate from each division to he appointed
by the division. The diities of the corami + tee were stated as follows:
to secure proper coordination of prices between divisions; to secure from
divisions acknowledgements of coordination ancl to certify to the Committee
on Costs and Prices that price changes have in fact been coordinated be-
tween all divisions; to refetits recominendations to the Coi-reaittee on
Costs and Prices, through which they might reach the Authority.

The Authority relieved the Inter-Divisional Committee, however, of
responsibility for the Hardwood Division, stating that "the Hardvrood
Coordinating Committee can perform the described functions as betv/een
the (Hardwood) Subdivisions" . (**)

Ralph E. Hill, previously secretary-manager of the National dale
Flooring Manufacturers Association and in charge of code administration
in that division, was made chairman of the new committee. The comjnittee
had begun to act immediately. The Code Authority instructed each divi-
sion (***) submitting prices to have those prices coordinated with
prices for competing divisions under the direction of the Inter-Divisional
Coranittee, the coordinated prices then to be filed with the Costs and
Prices Com-.^ittee. Tliis became standard procediire preliminary to the
securing of Lumber Code Authority approval for the prices and regulations.

(*) Cf. Minutes of the Lumber Code Authority, February 7, 1934, para-

^■raph 5, in the Consolidated ^iles for the L-omber and Timber Products
Industries, National Recovery Administration, folder entitled "Code
Authority Meetings — Minutes, January 29, - February 17, 1934."
(**) A.S. Boisfontaine, representative of the Southern Pine Division on
the Com.mittee, says that the Con; ittee' s only concern with respect
to hardwood prices was to see that they had the approval of the Hardwood
Coordinating Committee. Nothing like this latter agency ever functioned
in the coordination of softwood prices, which coordination, after February,
was always the responsibility of the Inter-Divisional Coordinatiiir
Comir\ittee. ■ . . ,

(***) Cf. Minutes of the Lumber Code Authority, February 7, 1934,

paragraph 5, in the folder entitled "Code Authority Meetings —
Minutes, January 29, - February 17, 1934", Consolidated Files of the
Lumber and Timber Products Industries, National Recovery Administration.

9864

-.83-

Throughout' its I'ehmiBry session the Authority was approving minimiiT.
prices .ui'd 'reijalations for delivered price equalization; in each case, as
previously stated, these came to it in a report from the Costs and Prices
Coirnittee in the course of which the corn.Tiittee always stated that coordi-
nation of prices with conpeting divisions had "been accomplished end certi-
fied to "by the Inter-Divisional (or Hardwood) Coordinating Committee.

The Inter -Divisional Coordinati^^g Co-^:aittee on Estehlished !--inirnun
Prices continued to function under the chairraanship of Ralph E. Eill
until the siispension of cost protection prices oy Administrative Oruer
No. 9-297 on December 22, 1934.

On June 14, 1934 it met ,and agreed to a flat reduction of $2.00 per

thousand feet hoard meastire on all softv/ood itens chiefly used for house

corstruction, the reduction maintaining, it was said, "present competitive
relationships as between species and divisions" (*) .

The coordination of prices of western pine, redwood, fir ajid northern
pine at one time offered serious difficulties. The National Control Com-
mittee of the Lu^nber Code Authority at its February 17, 1934, meeting
had directed the TJestern Pine and other interested divisions to confer
upon the business of coordination and report not later than Karch 19,
1934. (**) Accordingly representatives of the Northern Pine, Redwood,
West Coast Logging and Lumber and Western Pine Divisions met, as the
"Inter-Species Correlating Committee" , on llarch 12, 13, 14, 1934, at
Portland, Oregon, for the purriose of effecting a better coordination of
prices established upon those softwoods.

At the end of this time all divisions concerned were able to report
to the Authority's Costs and Prices Department that coordination had been
accomplished. In each division the net result of this was said to be a
small reduction in the average price realization. The Costs and Prices
Department reported accordingly to the National Control Committee, which
unanimously approved the report and the revised minimum prices proposed.

(*) Cf. Minutes of th.e Inter-Divisional Coordinating CoT^ittee, June

14, 1934, Consolidated Piles for the LuiTiber and Timber Products
Industries, National Recovery Administration, folder entitled "Code
Authority Committees."

(**) Cf. Minutes of the National Control Cominittee, Liomber Code Author-
ity, February 17, 1934, paragraph 21, Consolidated Files for the
Lumber and Timber Prodacts Industries, National Recovery Administration.
(***) Cf. Minuten Minutes of Meeting, National Control Com-^ittee,

March 27, 1934, paragraph 13, Consolidated Files for the Lumber
and Timijer Frodiicts Industries, National Recovery Adm.inistration.

9864

-83-

During the course of the Portland couferences Hepresentative Boyd
of the Northern Pine Division had offered a resolution which, aclnaov.'ledging
fault;,' coordination the prices established for that division, o'pened the
war ■tc a revrmpin.-; of northern pine prices tut vith no hasic price changes,
except that "prices on I'orthern Spnj.ce "be correlated with En-jlemann spruce
on a delivered Chicaii'o "brsis, ^JSI.OO allowance being made when inferior
species (Balsam, Balm of Gilead, etc.) are sold nixed with Northern 3oruce".
(*)

Later, on April P,0, 1934, the Southern Fine A'jsociation jjrotested to
the ilesident Co.nittee of the Authority against the National Control Cora-
::iittee's approval of the price coordination effected at the Fortlaaid con-
ferences. The Resident Cornnittee, however, upheld the prices and price
coordination established, since the Southern Pine Division aiid all "in-
terested divisions" had been invited to participate in the meetings; and
as the Southern Pine Division's protest had already been presented to the
National Control Co::^. .it bee, the Resident Coraiiittee felt that fxirther action,
if any, should be taken "by either the National Control Corajittee or the
Lu.mber Code Authority (**). Although at a later meeting it was agreed to
reopen the business at some time in the future, it does not appear that
this v.ras ever done (***).

Tlie correlation of Southern Pine and West Coast prices was always
the primary c:)ordination proble.Ti. On June 25, 1934, after the Authority
had been in session a number of days, there were still certain items
about vfhich representatives of the two divisions were unable to agree.
At the request of the chairman of the Inter-Divisional Coordinating Com-
mittee ?j.id with the approval of the Authority, the chairman appointed a
comiittee of four to effect the Jiecessary coordi:'.ation. (****)

The com'.Tiittee reported on the following day, unanimously agreed on
the following points:

1. Tliat the tvio divisions coordinate their dimension prices on
rail shipments at Chicago; "both parties have agreed to do
this."

(*) Cf. lanutes of the Inter-Species Correlating Comi-nittee, l.'ipxch 12
to 14 inclusive, p. 7 et seq. , in the Consolidated Files for the
Lumber aiid Timber Products Industries, Naticnal Recovery Administration,
(**) Cf. kinutes of Meeting, Resident Com;:iittee (RC-A) , April 20, 1954,
prj-agraph 12, Consolidated Piles for the Lumber and Timber Products
Industries, National Recovery Administration.
(***) Cf. Minutes of Meeting, Resident Corn-nittee (RC-12) , April 27,

1934, paragraph 6, Consolidated Files, for the Lumber and Timber
Products Industries, National Recovery Administration.
(****) Cf. iJinutes, LuiTiber Code Authority, Jtme 25, 1934, paragraph 4,
in folder entitled "Code Authority Meetings — Minutes, June
1934", Consolidated Files for the Lumber a:id Timber Products In-
dustries, National Recovery Administration.

9864

-84-

2. That to Eastern Tgrritor;,'-, s-applied iDy vrter shipment
from the West Coast, all No. 1 co.-nr,ion rnd lower r'^rodes
of "boards be coordinated on the "basis of en approximate
redxiction of 'pi. 00 per thousand feet on Uest Coe.st "borxds.
That on all other j^Tades, includin;?: diraension, prices "be
coordinated on the "basis of no ch;:>nge from the present
status of coordination.

3. That on vfater shipments of Southern Fine from the Atlantic
Coast to eastern ports, specific delivered prices "be es-
tablished on the "basis of 60/3 of the rail rate (as calcu-
lated according to the re.j'j.latioriS of the division).

Tile committee also recommended that in all future coordination,
facts he presented to the coordinating committee b^,' all divisions, set-
ting forth statistics as to shipments euio stocks on hand of the dif-
ferent grades and species, and that this data be given full considera-
tion. "In the absence of such statistics it is impractical to coordi-
nate prices on an equitable basis. (*) This report ivvas accepted by the
Authority and the coordination effected accordingly.

As late as October, 1S34, tv;o months before suspension, the pro-
cedure for coordination of prices was not satisfactory. A more definite
procedure during the long intervals between sessions of the Authority
and of its Inter-Divisional Comi'.iittee was iirged at a meeting of the
Resident Committee, which decided that the Costs and Prices Department
was responsible, where a price change was req^uested, for initiating and
determining v/hether necessary coordination had been effected; it was to
impose time limits upon the divisions concerned, within -'/hich limits
some response was to be made. (**)

On October 24 arji 25, 1934, t"ne Hardwood Coorcinating Com.ittee met
at Liemphis and coordinated the prices of other hardwood subdivisions with
those previo'asly approved by the ITational Control Com ^ittee for the
Appalachian and Southern Siibdivision. This action was approved by the
Resident Committee of the. Authority on November 3, 1934, although the
Costs and Prices Department reported that "perfect coordination has not
been effected and should not ba expected immediately." (***)

(*) Cx". ; inutes of the Luiiiber Code Authority, June 26, 1934, paragraph
23, Consolidated Files for the Lijunber .and Timber Proc^ucts Industries,
National Recovery Administration.

(**) Cf. i.iinutes of Meeting, Resident Cora-.dttee (RC-43) , Lumber Code
Authority, October 19, 1934, paragraph 18, Consolidated Files for
the Lumber and Timber Products Indiistries, National Recovery
Adm.ini s tr at ioii .

(***) Cf. Minutes of the Resident Committee (RC-45) , Lumber Code Auth-
ority, November 3, 1934, Consolidated Files for the Lvmiber and
Timber Products Industries, National Recovery Administration.

9864

-85-

On one occasion, in Se-o.tejn'ber and Octoter, 1934, a "Snecial Board
of Revie'-'" was auT30inted liythe I^Tational Control Com littee to studv and
renort on the coordination of -orices on sipruce and pine vegetable
crates, in the California market. The' report of this "board, if one
were published, was not available for this stud;'/.

There was also the protlem of coordinating Tjrices on so-called
Tnattress lumher. This lumher is used in the iniTDrovement of the chan-
nels of navigable rivers, t^rincipally in' the middle west; much of it
h?s gone into the construction of revetements in the Missouri, Wissis-
si-Qoi, Ohio and tributary rivers. Hardwoods of several species, fir,
western and southern oine all are used, comoete directly and vigorously
for this river market. Coordination of ha.rd'voods and softwoods used
as raa.ttress lumber was therefore a matter of some imiDortance, present-
ing unusual circumstances. The central market or consumption point
decided upon as a basis for T)rice correlation was Kansas City, to which
much mattress lumber destined for 'use on the liissouri River was shipped.
First, coordination of tjrices of hardwood mattress shipped from Appa-
lachian, Southern and VJorth Central mills was effected. Then the Resi-
dent Committee of the Lumber Code Authority ' (*') voted to permit western
pine, West Coast a.nd southern pine mills to meet the competition of
.oroducers of hard'vood mattress lumber "when offered in good faith at
■orices not below the minimum prices established for mattress Lumber of
the Southern and Aiopalachian hardwood srjecies", as published in Bulle-
tin No. 41 ("Volume II) of the Lumber Code Authority. The action was
taken "to maintain free comoetition among species" londer section (a)
of Article IX, and was effective upon the committee's aporoval.

In December, 1934, trices on mattress lumber for the Mississippi,
Ohio and Missouri Rivers were reduced. The Resident Committee found
that "hardwood and softwood mattress limber is interchangeable. There-
fore, in order to maintain competition, it is necessary to establish
the same schedule of delivered prices for the West Coast, Western Pine
and Southern Pine Divisions as those to be included in the hardwood
bulletins now being published". Tliess delivered prices were by zones,
which were purely arbitrary.''; it was "impossible to ascertain either
weighted average costs or weighted average freight on the competing
species". (**), The new schedule of prices and their apnlication to
West Coast, Southern Pine and Western Pine mattress T3roducts was recom-
mended to the National Industrial Recovery Board.

Cf. i!inutes of Meeting of the Resident Committee (RC-9), Lumber
Code Authority, A'oril 20, 1934, rtavagraoih 13/ in folder entitled
"Code Authority — Committees — Resident, Januai:;;'- July , 1934",
Consolidated Files for the Lumber -and Timber Products Industries,
National Recovery Administration.

Cf. Minutes of 'the Resident Committee, (RC-51), Lumber Code
Authority, De6etnber 3, 1934, paragra^^h 9, Consolidated Files for
the Lumber and Timber Products Industries, National Recovery
Administration.

9864

-86-

Two other divisional coordinating committees functioned, (in
addition to those mentioned). .The 'Topden. Package Coordinating Com-
mittee, as Code administrative agency .in the, 'Tooden Package Division,
undertook the coordination of the minira-ura prices and rules and regula-
tions of its seven, subdivisions, functioning during the June, 1934
meetings of the Lumber Code Authority and thereafter during the life .
of cost nrotection ;orices (*) . Its certification to the coordination
of the Torices of a subdivision was required by the. Costs and Prices
Com littee of the Lumber Code Authority as a condition for aoxirova-l.
There was a similar committee for the Woodwork Division, during the
same period; this committee also certified to the coordination of the
■orices and regulations established in each of its subdivisions (■**) ,

In response to complaints by West Coast shi.opers of fir to Atlantic
coastal markets against the -onregulated water shipment of southern pine,
the Inter-Divisional Committee brought about adoption of a regulation
requiring southern pine cargo shippers from Gulf a.nd south Atlantic to
eastern ports to add 60;^ of the transportation charges which would apr)ly
under code rules if the mill shipped bv rail.

This matter of coordina.tion between southern pine shipped by rail
and water and Douglas fir shioped through the canal by water to Atlantic
coastal markets was never satisfactorily determined /See Chapter II,
Part III, section A 1). . ,,.

The end of the oeriod of cost. protection prices on December 22
found the 60fo rule in effect only^a few months, but, according to re-
sponsible members of both divisions,, obviously inadequs-te. Some streng-
thening of the transportation charge requirements in effect for water-
shipped pine was ■orobably inevitable, had. 'prices continued in effect
( *** ) .

The correlation of delivered prices of fir and southern pine struck
another unlocked for snag shortly before Administrative Order No. 9-297
put an end to cost protection nrices.

* Cf. For example, liinutes of the Lumber Code Authority, June 26,
1934, Exhibit "...", Docket 90, Consolidated T^iles for the Lumber
and Timber Products Industries, National Hecovery Administration,
and other similar reports during, the same period,

** Cf, 7or exam-ole. Minutes of the Lumber Code Authority, June 27,
1934, IBxhibit "T", Docket 85, Consolidated Files for the Lumber
Timber Products Industries, National Recovery Administration.

*** Thus A. G, T. Moore, Traffic Manager, Southern Pine Association,
thinks that the freight addition to minimum prices f.o.b. mill
upon water shipments might have been advanced from 60;,; to 80-/3
or 90fo of the addition required b-y the Division's regulations
a^olying to rail shipments. . ,

9864

,..-87-

The correlation of delivered orices of fir and southern pine :
struck another unlocked for snag shortly tefore Administrative Order
No.. 9.-297 -out. an ..end .to cost, lor.otection: ■i^rices/ ' '

AS has been previously state.d; the .coordination of r)rices for these
species in Cent-ral..Freae;iit A&spc-iation and V/estern Trunk Line territories
from- tjie outset had' b^en pn the basis of all-rail rates.- There was no
showin,.?^ then of any water movement of fir or other "/est Coast, softwoods
through'thi? Can^l.and by barge-up the ^'Ississippi River or by the Great
Lakes to- those territories. ,: .In March, 1934, however, the- Southern Pine
Association had called, the, attention of the .Lumber Code Authority to the
possibility of ,a disturbajice of the- coordination of the two species in
these- competitive territories .through the shipment of fir at water rates.
Then, in October, there was, in fact, a movement of fir throughthe
Canal and up the Mississippi Hiver to Chicago; this was said to total
.5,500,00 feet. ...A considerable movement of "fir through the Canal, up
the Hudson Hiver. and through, the Great Lakes to Cleveland, Ohio, also
was reported, , -In 'ooti^- cases; deliveries were at water freight , rates,
thereby vio^-ating the -coordination.

■ .TlieWest Coast ■ Division argued for the right to use rail or water
.rates as It -chose, because (l). other -divisions mry also ship by water,
..(.2) only through the-ufee of wat-er -carriffge can an industry secure relief

from excessive rail charges, (3) the lower the delivered cost of lumber

the better were-. its chances of success against competing materials.

nevertheless,, the ''fest, Coast had, -oreviously objected, successfully, to
■the use of water rates bv southern :oine in shipping to eastern raorts;

as a result, of this protest the rule requiring addition of .60-,3 of a,d-

justed. rail.; rates was adopted.

The Costs and Prices Committee of the Code Authority reported on
December 14 in the matter that the coordination of delivered prices be-
tween Qomoeting species had from, the inception of the code been considered
et3senti.al, and had been on a rail rate basis. A de-oarture from the prin-
ciple of coordination ^irould "develo"o monooolies of markets for different
sections of the country." It recognized, however, a. question as to
whether coordination should be on the basis of the lowest possible de-
livery charges or, "as applies at present, on the basis of rail charges".
And the National Control Com.rnittee after considering the report, decided
that, "since the coordination of iDrices is a prime requisite of the code
the executive -off icer be dir-ected -to -effect a joint consideration by all
interested divisions on the subject of lumber movements by inland water-
ways to maintain pro-oer coordination between competing species" (*) .
At this TDOint the matter rested, ^^hen prices were suspended on

Cf. Minutes of the Ilatianal Control Committee, December 16, 1*34,
paragre-pn 16, in the folder entitled "Code Authority Meetings,
Minutes, December, 1934-'', ';Con.sol,idat:ed. Files for the Lumber and
Timber Products Industries,. National -Hecovery Administration.

9864

December 22, 1934 (*) . " '

DifferentialK for substandard products .and the products of small
mills seem to have occasioned maladjustments in coordinated nrices.
In June, 1954, i^ was agreed bv the Authority that "the present method
of dealing with, price differentials in many of the subdivisions results
in the establishment of two or' more -orices for the same quality of
oroducts in the same' market at the same time", "Whereas, this is
economically unsound and any system of marketing based on it bound to
be unsatisfactory and involve inequities between competitors", and
since "it is felt that a thoro-ogh study sho-.xld be made of the entire
problem of differentials, including differences in quality", a rep-
resentative committee wris apoointed by the chairman to study the
question (**) .

Again, at a'ouroximatelv the same time it was pronosed that the
inter-Divisional Coordinating Committee submit a list of key softwood
items, adequate to provide representative current -orice data correla-
ted as between species, and that it consider the feasibility of con-
structing 'orice indices or averages for soecies from 1926, to be
continued thereafter (***) . l]o effective action appears to have been
taken in this direction. The a'bsence of any record of the oroceedings
of the early price coordination conferences (nrior to the aiDpointraent
of- the Inter-Divisional Conraittee) and the fact that (according to
men prominent in the wbrk of coordination) the basic coordination was
accomplished at such conferences in the course of the Lumber Code
Authority's October (1933) meetings and the meetings of the Fational
Control Committee at Portland, Oregon, in December, 1933 — these two
circumstances have made it necessary -to construct .a major uart of the
history of coordination from the oral accounts of the oarticinants.

* It was clear to all concerned that coordination and. intra-divi -
sional delivered 'orice equalization alike necessaxiiy had to be
on the basis, in any given market, of fixed freight charges on
one mode of transportation. Otherwise, there would be two or
more delivered ■'trices for the same or competing' species at a
single destination, To-- this reason William S. Yost of the Divi-
sion of Eesearch and Pl^.nning in a memorandum to Leon Henderson,
Director of the Division, on September 25, 1934, held it "im-
practicable to -oro\ide for truck transportation rates in deliver-
ing pricing".

*^ Cf. Minute? of the Lumber Code Authority, June 27 , 1934, para-
graph 3]., Consoi^dacsi Pr.'^.es- for ■ the Lruuber and Timber Products
Industries, Nat lona,! Recovery Admini.atrat ion.

*** In nn aoproved report- of a Suecial Committee on Statistical

rorms, dated June 5, 1934. p. 3; cf. Minutes of the' LLimber and
TiDc-r Code Aml.-.or: t^'•. jv.r^e 28, 1934, Sr-hildt "a", Ccniiolidated
File'- for the L-jmber -T'd Tinber Prod-jcts Industries, National
Recorery A'ininistration.

9364

-89-

"..'itli resnect to th^; following there ao^-ears to be general atiree-
ment: Coordination of orices between competini'j divisions v/as effected
primarily by the adjustment of the minimum prices f.o.b. mill (tne base
■oricos) and not by changes in the regulations governini^ delivered price
equalization. Thus, where, two divisions were to be coordinated ^'.t a
central point in the principal competitive) market, the f.o.b. mill or
base prices might be adjus^jed do',7nward or upward to secure a parity of
delivered prices after established freight rates had been added (*).

Because coordination between cora-neting divisions might thus be ef-
fected by adjustment of the minimum bfse prices, the interest of one
division in another's regulations for delivered price equalization was
primarily to see that the regulations adopted did not in some way cir-
ciuaveiit the coordination agreed unon.

Accordingly each division's (and subdivisioa' s) equalization system
and regulations (after adoption by the industry members tnrough the a,p-
propriate committee of the divisional agency) were submitted with the
minimvan prices, to the Inter-Divisional Coordinating Comm-ittee, thence,
with its approval, to the Authority's Costs and Prices Committee and,
finally, to the Lumber Code Authority (or one of its executive committees)
for the approval upon receipt of which the prices and regulations went
into effect.

It should, however, be remembered, that the provisions for delivered
price equalization set up in each division were aimed principally at
securing intradivisional equalization: equalization of delivered prices
between shippers variously located v/ithin the division. I'hey were sub-
mitted to the Inter-Divisional Coordinating Committee, as has been stated,
to prevent misuse of the rules to defeat the purposes of coordination
and also to assure adequate regulations respecting the inclusion of
freight charges in delivered prices so that one division might not as
a division deliberately absorb transportation charges out of weighted
average costs (in this way indirectly cut prices below costs as deter-
mined). But with the precise nature of the divisional rules, the Com-
mittee was not otherwise concerned.

It was not the oractice of the Authority or its committees ordinarily
to alter the regulations submitted to it; differences between divisions,
Wiiere tiiere were any, weie in a.lmost every case appa.rently threshed out

As a purely hypotnetical example, if Southern pine and V/est Co^st
fir were in process of coordination at Caicago as the competitive
market center, and tiie lat.ter were found with the addition of rail
rates to item prices as allocated from ceiling costs to exceed de-
livered prices on pine as allocated from floor costs, the base prices
on the former might be reduced down toward a realization approaching
the floor wnile the base orices on the latter v/ere increased toward
e realization approaching the ceiling, until parity was reached. In
fact, as has been stated, the indefiniteness of the cost data aJid of
tne item price allotment made the process of coordination simpler than
it otherwise m.ight h^.ve been.

9834

■,...-9.0-

in adv?.iice. Little discussion accom-oanying a'o^roval is recorded in the
minutes of the Authority or of its committees. The reiDort of the Costs
and Prices Committee on the prices and regulations submitted "by each di-
vision simply notes' the nature of the equalization plan in use, and fails
(ordinarily) to comment upon it. -

Tnere was one fundamental ririnciTole which, according to persons
prominent in code administration, governed the coordination of prices
betvi-een all comneting divisions and producing areas. Cost protection
prices, delivered, were intended to secure an equitable basis of compe-
tition between species in the markets shared by those species in the past,
on the princi-ole that each was to obtain ap'oroximately the pro-oortion of
total consumption of that type of lumber in that market which it had pre-
viously enjoyed. With respect to the division of markets between species
and between mills -oroducing the same species, the theory followed was,
it ap'oears, foianded strictly upon a preservation of the status quo. ¥,o
division or group of mills witnin a division was to be -oermitted to en-
croach UDon the established sales territory of another group.

F . The Pr obl em of Ba lancing T ota l Freight Charges Paid the Carriers
and Freight Included in Delivered P ri ces in Each Division.

Efforts at improving methods of cost accounting and reporting to pro-
vide a stronger basis for cost protection i^rices began early in the code
period. These efforts for the most part recognized the importance of
securing data on freight charges and freight income in all divisions
which practiced some type of equalization. (*)

The Resident Committee of the Lumber Code Authority, meeting on
November 13, 1933, authorized the collection of figures showing
for the monthly o-oeration of each company the volume of lijinber
shipped, the amount of freight paid and the amount of freight
charged. Collection of this and other cost data was authorized
beginning November 1. On November .23, the committee ap^Droved a
resolution to be sent to all divisions, "so that there may be no
hitch in the cost program" rnd "in order to provide a supporting
method of treating freight, it is recommended that you advise
your operators to keep their accounts in a manner that will show
on the one hajid the freight charges to customers and on the other
the freight or other delivery expense actually paid. This informa-
tion will be Called for in cost reports. If there is not a substan-
tial balance the extent of the variation will provide a means of
determining the freight adjustment required in the minimum price
schedule". Cf. Minutes of the Resident Committee, Lumber Code Au-
thority, Consolidated Files for the Liimber and Timber Products In-
dustries, National Recovery- Administration.

9864

-9^-

lyio things v/ere -oossible wliere a division was not checked in the •
application of its freight equalization iii';tnods as well as in its cost
detei-mination, even though base or f.o.h. mill prices conformed strictly
to v/eighted average costs: the first, that the division as a wnole re-
ceive a greater income for freight (out of delivered prices) than was
paid to the carriers, and.tnus force consumers to ^ay exoroitant -irices;
the second, that the division receive in income, net of actual freight
charges, less than cost protection -orices, and to that extent indirectly
cut prices below cost (*).

The national Control Committee moved to solve tiiis riroolem when on
February 17, 1934 it resolved to require divisions, in connection with
cost reports, to furnish information on freight and delivery costs and
charges 'cherefor, "so as to establisn v^hether or not there is any profit
in such freight and delivery charges" (*).

?he divisional code agencies v/ere instrucced to provide separate
schedules to be sent to the operator covering freight or delivery expen-
ses to determine;

"1. Do the charges for freight in coxinection with the use of bas-
ing points or delivery zones result in a gain or loss when com-
pared with actual freight and delivery charges paid?

".^. Wha.t is the amount of freight and delivery ejci:)ense absorbed by
the individual operators?

"3. Wliat is the amount of any g^in or loss due to over or under
weights on delivery charges?"

(*) I'he problem was put very clearly in a report, of the Committee on
Costs and Prices containing recommendations for improved cost re-
porting metaods, under the heading "Freight", thus:

"Very, fev/, if any, of the minimum prices are on a strict f.o.b.
basis. The practical necessity for avoiding that basis has been es-
tablished. Instead, -.basing points, zoning, uniform delivered prices,
etc., have been allied vi-ith minimum prices. In all of these effect
has been given to a delivered cost the accuracy of which ^ should be
subject to current ascertainment. Txiis can readily be done by re-
quiring, in connection with the cost reports, data showing the amount
charged customers for delivery as compared with the actual delivery
cost. Individual adaptations will have to be made to take care of
handling particular cases where such matters as l.c.l., pool and
mixed car shipments, rail, v/ater or truck- shipments, etc., involve
different treatment. It is therefore recommended thr.t in connection
with the cost reports, information as to freight and delivery be re-
quired so as to estf'blish the actual cost relationship to the method
of haiidling freight presented in the respective minimum price bul-
letins." Cf. Minutes: of the llational Control Committee, February
17, 1934, Exiiibit A, p. 4; in the Consolidated Files for the Lumber
and Timber Products Industries, National Recoverv Administration.

(*) Cf. Minutes of the National Control Committee, -^ eoTuary 17, 1934,

Exiiibit "A", p. 4; in the Consolidated Files for the Lunaber and Timber
Products Industries, national Recovery Administration.

9864

-92-

This data proved, however, quite as difficult to obtain as other
cost data. By the time minirauni prices were suspended no division (as
far as is known) had obtained complete freight cost data for any repre-
sentative period or h-^d conroleted a study of the effect of its delivered
pricing regulations uobn^ total freight income , and totsl freight expense.

G . TT^niorf^ftncv Prics s mid Reasonable Costs : ?hp Tni rd Series of Price
B ulletins.

Up to chis time, (as will be apparent from the above), the L^ombcr
Code Authority had had virtually a free hand in the aiTiinisiration of ■
cost prices, from the collection find determination of weighted average
costs" to their allocation to item prices and their application delivered
at destinptions. In eaca sta^e of the Process the restrictions placed
by the code upon the Authority rere neither so precise nor so specific
as to hamper it in practice.

With all this., enforcement was becoming more and more difficult; in-
creasing quantities of lumber were being sold in violation, of tne mini-
mum prices or the rules governing their application. The interpretation
of suosection (i) of Article IX of the code was still widely controverted,
and the regulations established under its authority accordingly disputed.

To remove these difficulties, the Authority first sought to secure
Administrption approval for all minimum prices hitherto established. m
all divisions and subdivisions. Persistent efforts in tnis direction_
met with success; on June 9, 1954, the Adirdxiistrator of the National re-
covery Ad^Binistration issued Administrative Order llo . 9-34. m whicn he
approved the minimum prices as established, for a period ending July i.
this was followed on June 27 by Order No. 9-41, in wnich the approval
was reaffirmed and extended until further order. This action ivas. taken,
the orders stated, because required by "justice and the public :interest ,
the existence of an emergency in the industries "threatening tne ^^^ir-
ment of entployment and wage scales therein, threatening particularly tne
existence of small enterprises therein' and threatening the demoraliza
tioh of the entire industries as well as general recovery" having been
shown to the satisfaction of the Administrator.

Eius, for tne first time (*), the National Recovery Administration
confirmed the action of the Authority . .not only in the establishmentol
cose protection prices under Article IX, but also in fixing and requiring
other than f.o.b. mill minimum prices. Altnough the rules and regula-
tions for delivered price equalization were not specifically sanctioned,
the general approval.. of prices as establisned amounted to an implicit
approval of -the accqmpanj'-ing rules.

(*) It was taen (ou June 9). seven months and two days after tne fust
cost protection prices had been established, in the Oak flooring
Plywood. Veneer and Maple Flooring Divisions, on November 7, iy.i^.

9854

-93-

The practical importance of the api:;roval was ^irobably far lees thaji
v/as antici-oated. Vtoatever effect it may have had upon compliance (and
informed opinion in the industry suprjorts the belief that -orices were
actually strengthened during June and July) , was short-lived; comoli3,nce
began to be poor a^gain in Au^TUSt and September.

Prom another -ooiBt of view these adjninistrative orders amear of
somev/hat less importance.' Had there been a thorogoing inq;airy into the
accuracy of the cost determination and tne item price allocation and into
the soundness of the delivered "orice equalization methods, and had ap-
proval then been possible (all things considered) on the basis of this
inquiry, they would have possessed a considerable si.gnificance. In the
absence of such, an inq-.jiry it is difficult to' see that anyti.ing more is
involved here than an unnecessary affirmation of njov/ers clearly given the
Authority under Article IX, and sxi imolicit affirmation of certain pov/ers
only indirectly vested, in the Authority under ae'ction (i) of Article IX.

The procedure created by the code did not contemplate or make neces-
sary any such au"roval. It was entirely 'superfluous as a statement that
an emergency existed, since it v;as the" business of the Authority to de-
termine such, an emergency. Its, net value waS as a temporary stimulant
to the structure of cost rirotection prices,' virenicened by non-observance.

On July 15, 1934, Ainendment No. 15 to the Code of ?air Competition
for the Lumber and Timber Products Industries was approved* This amend-
ment radically altered the orovi.sions of Article IX, relieving the Code
Authority of the power to determine costs and establish minimum prices,
and vesting it in the Administrator, and provided a pre-requisite, the
Code Authority must determine the existence of an emergency serious enough
to "render ineffective or to seriously endanger the maintenance of the
purposes and provisions of this code or of the Act" and certify its con-
clusions to the Administrator, or "nc must determine "on his own initia-
tive" that such an emergency existed. Under ^'such circumstances, the
Administrator might, upon application of" the Authority, but only if he
found it necessary to the maintenance "of tlie provisions and purposes of
the Act" , determine or cause to be determined in accordance with such
rules rnd. regulations as he might prescribe, the f.o.b. mill ahd/or de-
livered reasonable cost of any or all itoiiis and classifications of lum-
ber and timber products and rules and re^yuJations for the aprilication
thereof (*). Notice of Such reasonable coses and rules and regulations

(*) It should be noted that in a report dated June 3, 1934, and entitled
"Text of Recommended Cnanges in flie Liomber Code", W. S. Yost, lumber
specialist of the Basic M.^terials Unit of the Division of Research
and Planning, had suggested that to Article IX (a-) there be added
after "nor less than such cost, of production after deducting capi-
tal charges specified in items II and 1'2 (b) of the section (a)"
the follov/ing: "provided that, for the purpose of establishing
rainimuiTi delivered prices to any market and/or priCete at basing points
there may be added to such cost of production an 'amount of freight
reflecting the average cost of delivery from points of production
reasonably appurtenant to said market or basing point.

9864

-94-

was then to be given to the industry "in sucn reasonable manner as the
Administrator may direct"; tnereafter, until the Administrator declared
x,he emergency to have, ceased, "such reasonable costs and such rules and
regulations for the application thereof shall constitute the minimum
prices for such items and classifications of lumber and timber products
for which such costs and rules and regulations have been determined".
No person subject to the jurisdiction of the code migjit then sell at "a
price less ohan such reasonable cost so established, or otherwise than
in accordance with such rules and regulations" . Revisions in the -orices
or in the rules and regulations were also to be at the discretion of the
Administrator.

This amendment made two potentially important changes; it made the
determination of reasonable costs (still to be, in fact, the function of
the Code Authority as the agent of the Administrator) subject to the
examination and approval of the latter who alone might establish those
costs as minimum prices. Second, it placed the selection of rules for
mandatory freight equalization and delivered pricing directly under his
supervision and dependent upon his approval, in addition to providing
explicit authority for such rules. These changes might have resulted,
first, in a much more careful, more exact determination of costs and
prices, second, in the establishment of sounder and more equitable freight
equalization and delivered pricing practices, had the Administrator been
able to do other than simply approve the findings and proposals of the
Code Authority.. As it was, the cost substantiation data was so meagre
and the complexity of the divisional pricing problems so great that the
Administration apparently found it impracticable either to supplement
tiie data and arrive at a new determination of costs, or to investigate
the soundness of the rules and regulations. The Research and Planning
Division of the National Recovery Administration analysed the cost data
submitted in substantiation of prices as published in the third series
of bulletins (from July 15, 193"±) , found it, as before, inadequate for
any sound determination of "reasonable" or average cost, but does not
appear to hn.ve inquired. into the delivered pricing practices established
(*). Tiie length of time from the date of this amendment to the suspen-
sion of cost protection prices was, however, short (about five months)
and did not provide a. reliable test of tne new procedure, particularly
since compliance with minimum prices was steadily getting worse.

Amendment No. 15 had necessitated a new determination of costs
and orices, new rules and regulations for their application (**). The
Lumber Code Authority, which had originally presented the amendment,
was prepared for tnis and had submitted revised scnedales for a niimber
of divisions to the Administrator. On July 15 (the day the amendment
was approved and effective) he issued an order. No. 9-46, approving
these prices and regulations. This begins the third period in the ad-
ministration of cost protection prices under the code, and the third
series of price bulletins, appearing as Volume II.

(*) Cf, "Report on Project Cost Protection Prices and Cost Substan-
tiation Data of the Lumber Code Authority" , prepared by D. W.
Burnhara,. Research and Planning Division, National Recovery Admin-
istration., May 6, 193v5.

OOC4

-95-

i'he order v/as entitled "Dcclaratio.i of Zmergency and Determination
of Reasonable Cost of Items and Clf^ssificationr, of L\iinb'->r nnd Timber

(**) Tne Lumber Code Authority on July 15, 1934, through its Resident

Committee, aT)"oroved and transmitted to the Ifetional Recovery Admin-
isiiration a "certificate of Emergency for one Lumber and Timber
Products Industrie^;" and a "Findiug--of Pact'' -prep-ired in supoort
of it. 3otn had been provisionally 'ap'oroved and aUtnorized on
July 10 by the National Control Committee. In the certificate,
C. 0. Snep-oard, Chairman of the National Contr'ol Committee and Carl
Vif. Balir, its Secretary/, reported that their Committee had investi-
gated the condition of the industry, considering all available
facts and data, and as a result had found that an emergency existed,
rendering • ineffective or endangering the maintenance of the Act
and of the Code; that it was necessary to the maintenance of the
purposes and provisions of Act and code that reasonable costs of
1-umber items and classifications and rules and regulations for
their aroplication be determined and established by the Administrator
during the period of the emergency; that tne Committee, acting for
the Authority, declared the existence of the emergency -and made
ap"'jlication for tne determination and establishment by him of rea-
sonable costs on items and classifications of lumber -oroducts and
of rules and regulations for their application as minimum prices
for such products.

In the attached "Finding of Fact" tue iMation^l Control Committee
reported ti.a.t it aad investigated tne condition of the industry and
found that:

1. Present .-Droductive cat)aci,ty in tne manufacture of lumber was
greatly in excess of current c' emand (domestic and export); so
much so ti^at operation at 35,'^ of ca'')acity throughout the in-
dustry vYould 'oroduce a current surolus.

3. In the absence of minimum- prices this would result in sale of
liamber products at less than reasonable costs of production,
depletion of fixed and working capital, v/aste and destruction
of the country's timber resources.

3. Such control of ■^:)roduction as has been established has been
insufficient to eliminate tne competitive condition described,
and has not b e'en mcide more drastic because of resultant tinemuloy-
ment . •

4. This cuttnroat ccmiDetition can be -orevented only by the deter-
mination and establishment by governmental authority, of rea-
sonable costs both f.o.b. mill and delivered, and rules and
regulations for their B,x)plication. Without them, the industries
will be-.unable to continue their orierations on a -oermanent
basis, to pay the wages and maintain the working hours required
by the code .

Cf. Minutes of tne Resident Committee, Lumber Code Authority,
July 15, 1934, Exiiibits "a" and "3", Consolidated Files for the
Lumber and Timber Products Industries, 'Jational Recovery Ad-
mlaistri^tion,

9854

Products and Rules and Eegulqtions for the Application Tnereof " . It
cited the revised Article IX of the code, stated that pursuant thereto
tlxe code authority had certified to the existence of an emergency of
sufficient gravity and the Administrator had determined that one existed;
that it was, further, necessary to the maintenance of the code and the
Act that reasonable costs of lumber products and rules and regulations
for their application be established; that the costs set forth in ex-
hibits (Lumber Code Autnority Bulletins 3 to 47 inclusive of Volume II,
except 13, 15, 19, 43) attached conformed to the reasonable costs of all
grades of the products sold in com-oetition with one another, were in rea-
sonable proportion to the market prices of such grades during a repre-
sentative period and met all other conditions established under the code;
that the rules and regulations contained in the exhibits were reasonable
and necessary to the equitable anplication of the reasonable costs; that,
therefore, tiie Administrator ordered announcement of the determination
to oersons subject to the jurisdiction of the code, effective four days
after the date of the order, but subject to suspension or modification
on good cause within 15 days after effective date.

The order also, as corrected by the issuance of an errata sheet on
August .;, 1934, directed the Research and Planning Division "to immediately
make full study of the operation of the reasonable costs and rules and
regulations hereby approved by me and to advise the Administrator with
respect tnereto from time to time as the results of such study and as
conditions and exioerience may indicate to be necessary under the terms
nf this order and said code". It also authorized the Division Adminis-
trator, upon recommendation of the Deputy Administrator and the Research
and Planning Division, to determine the reasonable cost of unlisted iocms
where necessary, to make any revisions necessary to bring about proper
coordination (except that where this resulted in a -orice for any item in
excess of that set under the order the approval of the Research and Plan-
ning Division of the National Recovery Administration was to be obtained),
to grant necessary exceptions, for special circumstances, to m-ike typo-
graphical corrections, to determine and establish /-orices at/ unlisted
destinations, omitted from- the rules and .regulations in the exhibits,
and to revise the rules and regulations, wherever necessary to accomplish
the purposes of the order.

All of the divisions and subdivisions in which cost protection prices
had been in effect issued new price bulletins, through the Liimber Code
Authority, either on July 16 (effective July ?.G) or subsequently. These
bulletins were all aT)-)roVed, in groups, by Administrative Orders similar
to No. 9-45 (*). They involved a general downward revision in prices of
S-/o and, in certain divisions, important modifications in geographic
pricing regulations.

On all bulletins published on July 18 and thereafter, during the
life of cost protection price's, the following statement appeared (usually
on the cover); "The minimurii prices and rules for their ap-olication as

(*) Cf. Administrative Orders Nos. 9-58, 90, 91, 94, 104, 134 to 131,

141-143, 196-199, et seq. In National Recovery Administration files.
Lumber and Timber Products Industries.

98 S4

-97-

published in tnis Bulletin have been apnrovcd by the Administra.tor for
Industrial Recovery (as Exhibit iJo . ) attacned to his order of " .

The structure of cose •oi'otection -prices wnicn had shown -signs of
breaking down in May and Jvne , 1934, seemed at least to be holding its
own during July, and August, when fifty-two of the bulletins in Volume
II appeared. The month of SeTjtember, however, saw a. further substan-
tial weoJcening of minimum prices, with, in many divisions, particularly
the logging and sawmill divisio-ns, non-com-nliance becoming more and .
more widespread. The -ctivity of the divisions in revising prices and
pricing regulations slackened correspondingly from' that time on. The
last price bulletins (Nos. 58 to 71 inclusive) a'TOeared on November
22, 1934, effective on December 8, and were issued in behalf of the
Southern and Appalachian, Northern, North Central and Northeastern
Subdivisions of the Hardwood Division, respectively. Fourteen days
after they were effective, on December 22, 1934, Administrative Order
No. 9-297 was issued, suspending cost protection prices in all branches
of the lumber industry.

9864

Ill GEOCrRAP-nC PHICIilCr PIIA.CTICES Hi THE LUHEEH A!1D
TliSEE PnODUCTS IlIDUSTHIES. (*). •

The Ju'^i'ber and tii-nber products of the industries which were grouped
under the code bearing tlmt. name vrere sold "before the entahlishmcnt of
uiiniraui?. "cos t protection" prices for the, most part at delivered prices.
(**) With Iranspdrtat'ioh chart'ie's , "by reason of the hulk and v;eight of
lumher, so 'large an element of final cost to the consu:ner and the product
so largely Gtandarclized as to quantity, huyers were typically interested
only in price delivered at destination. Under these circumstances, low
f.o.b, mill prices might "be of little significance, if a mill v/ere located
freightwise distant, relative to the position, of competing mills, from a
particular ms.rket. The complexity of the rail rate structure was such
that only 'bu;>-ers viith adequate traffic departments were equipped to compare
the cost, delivered, of Iximhcr products shipped from variously located or-
igin points, if they v;ere sold a,t f.o.h, mill prices. Concentration of
timber resovirces in certain areas v;hich produced greatly in excess of the
consumption in those areas, coaled v/ith extensive crosshauling, made it
necessary for nearly all operators to ship to _extended markets. If they
were to compete at destinations throughout those markets, it was necessary
for them to meet competitive prices at those destinations, and this, in
turn, necessitated their accepting widely varying net yields at the mill.
Per all these reasons prices were characteristically quoted, not f.o.b,
mill, but delivered at destination. (***)

These delivered prices wer« determined not alone by the competition
of all operators producing lumber from the same species but also by a vig-
orous coiirpetition between species and producing regions. Declining demand
in the decade before the code was approved joined with a number of other
factors to induce severe price competition. This manifested itself primar-
ily in lov,' delivered prices, but it was accompanied by net yields, at the
mill, which v/ere often belovr cost for a majority of producers, Crosshaul-
ing and vfidespread mutual invasion of markets increased the inevitably
high cost of lumber transportation, reduced net j'-ields still more, and
weakened the already unfavorable competitive position of lumber products
with respect to substitutes.

(*) The price bulletins issued by the Lumber Code Authority on behalf
of the severa,! divisions and sub-divisions will be referred to
from time to time in the course of this Chapter. These bulletins
may be consulted in the files of the National Recovery Administra-
tion, Lumber a,nd Timber Products Industries C ode History,
Exhibits E-1 to E-4, inclusive.

(**) The limitations of time and personnel which vrere imposed upon this
study made impossible an extensive investigation into the pre-code
and post-code pricing practices of more tiian a few branches of the
Lumber Industry. Accordingly, the account and conclusions present-
ed in this section must be considered wholly tentative,

(***) Wiere prices v/ere quoted f.o.b, m.ill there vras no attempt to
r.aintain one pjricc for all.bu^-.ers v/h'crcvcr located";. p_rie.o9
v/ere reduced to meet oompetition at any destination at which
the operator's f.o.b. mill price plus freight exceeded the
delivered price (or f.o.b. mill price plus freight) of other
operators.

-99-

In nearly all branches of the industry, 1-umber and fabricating alike,
delivered pricer mere not calc-dated by the addition of freight at fixed
rater, from any origin ]ioint' or ■■ointc. nor were they imiforra for all des-
tinations within defined territories. Basing; points were in established
use only in the flooring; industries, niaple flooring producers adhering
fairly closely to a single basing point at Cadillac, Uichican, and oal:
flooring mills observing a. single, base a.t Lleniphis, Tennessee with much
less fidelity; two brs.nches of the hardv/ood industry, the valnut and the
mahogany, producing the highest quality, highest priced domestic and
foreign v/oods, had old-established practices of quoting delivered prices
which tended to be uniform at all destinationa; in the case of walnut,
prices varied between defined consuming zones, and for mahogany, they were
the same at all destinations in the vast territory east of the jlississippi
River, to which the "bu.ll: of i'nahogany consumed in the United States is
shipped.

When minim^im prices vere established londcr the code, the divisions
and subdivisions of the industry v;ith few exceptions found it necessary
to institute delivered price eq-oalization on a systematic basis, because,
if weighted average cost protection prices wore to be maintained, their
members could ho longer meet coirr-ietitive delivered prices by absorbirg
at will any amoimt of freight, (*) ;

The systems devised by the divisions and subdivisions of the indu?try
to meet this need for equalization were -of three general types: first,
basing points, single and multiple; second, n:ill and destination price
group adjustments (as far a,s is laiovm, as invention of the code adminis-
trative agency, without precedent in the .experience of other industries),
and, finally, delivered price zones. There were, in addition', several
divisions and subdivisions in which f,o,b, mill pricing was practiced
throughout the code period.

Fourteen divisions and subdivisions utilized one or more basing
points in accomplishing delivered price equalization under the code. Of
these, seven were logging and lumber divisions; tv/o were the hardwood
flooring industries, m.aple anc. oak, and the renmining five were vifood
fabricating industries.

The two flooring industries with little difficulty adapted their
pre-code basing' point practices for use with cost protection prices. In
the other division's, v\rith the exception of the ?festern Pine Division, the
systems were created to meet the necessities of the sittia,tion which grew
out of the setting of minimum prices, and the selection of the basing
points was v/ithout benefit of previous ejqperience in their use,

The two flooring divisions h-a-d been ?ble before the code to main-
tain basing points at Cadillac o,nd Memphis because production is concen-

■ trated to a relatively high degree in those areas and because there is a
small number of mills in each industr;^, a majority of which controlling
the b-uLk of total production, cooperated very successfully through strong
trade a.ssociations. The Maple Flooring Division's single basing point

"at Cadillac v/as more strongly established tlmn tha.t of the Oalc Flooring

(*) The reasons which made some form of delivered price equalization a
practical necessity fcr most of the divisions under the code have
been discussed in Part II of tiiis clmpter,

9864

-100-

Division c.t reiaphlB, precisoly 'because it vra,s favored to a hi;^her dc.'jrec
v/itli the Tjirescnce of , each of .these factors.

In each case, however, the single basing ";:)Oint practice v;as modified.
Immediately iroon the inception of minimijrn ;orices the Oak Flooring Division
added tvra "basing points to form a multi^jle basing "point system. These
two additiongj "ooints vrarc at approximate centers of iiTiiTortant oal: flooring
producing .areas; mills in these areas liad not for the most part adhered
to the liemphis base* hqf ore the code. The code administrative agency re-
alized tlia.t these other areas v/ere important eno"Ugh as sources of sunply
to m.'il:e imposition of a single "basing point system upon the industry as
a whole im.practica"ble.

The ma.ple flooring industry retained its single "b-sing point system
until late in the period of cost protection prices when the national .Re-
covery Acjxiinistration forced, its modification to provide for two nejf
"basing points. These points were, as in the ca.se of the oak flooring
industry, £• t the center of producing areas, "but these areas (unlike the
eastern Tennessee-¥est "Virginia and Arl/smsas-Lotiisiana area.s in the Oal:
Flooring Division) v;ere not imjortant soiirces of supply. Their creation
forced, mo.ple flooring mills in the Wisconsin-LIichigan territory, supply-
ing 8'l-^i of the total of sxich flooring, to alssorls frei.ght in shipping to im-
portant northeastei'n and middlevrostern raar]:ets, as they would not have done
under condations of free competition. It pro"b3."bly Imd the additional ef-
fect of reducing aversige net yields for the division as a v/holc "below the
level of v/eixghted average cost protection prices; this may "be consid.ered
undesira"ble "because, if it vfere sound to esta'blish price minima (a point
not under consideration here), the minima, accurately calculated, should
not liave "been nullified, circumvented^ or reduced "by other regulations adopt-
ed. The creation of the additional "basing -points occurred so late in the
minimum price period tha-t their effect upon the pricing practice of the
division was "unimportant and not permanent.

It may "be concluded tlmt, while the creation of tvio new "basing points
in the .oak flooring industry was "both sound and practica"ble, the attempt
to establish adddtiona,l poi'nts in the maple flooring ind.ustry was demon-
strably tmso"und and impracticable. Of some significance is the fact that
while, in tlie case of the former, the new bases ha.ve been retained in the
post-code period, in the case of the latter they were abanduoned sira"ulta,n-
eously with the suspension of cost protection prices,

Qf the five principa,l softvrood species (in point of vol"ume of output),
four vrore. sold "under the codue at delivered prices based on freight from
one or more basing points. Only the West Coast Logging and Lunber Division,
chief sourcQ of softvrood s"UiTply in the- United States, failed to utilize
basing points to effect delivered price eq."ua.lization, the device (not
the eq."ualization) as vail be seen later, bei"ng "unnecessary in this case.

The Southern Fine Divisio"n evolved. d"aring the period of cost protec-
tion prices an equalization system \vhich for the p"urposes of this study we
siiall describe a.s a modified basing point system, Althou,sh this classi- ,
fication is loiown to be in disagreement with the opinioi} of executives of
the Soxitherii Pine Association, former code administrative agcncj'" for the
division, it is used in the belief that the essence of their disagreement
is largely terminological,'' In this chapter, "basing point" and the basing
point practice are considered to signify only that certain producers, in

• -101-

ship-nine; to certain destinations, quote delivered prices based upon the
addition of freight not from the point of ori£<in hut from cone other or
"hasini2: --oint", and in so doin^; ahsorh or add freight according as their
o\m rate to destination is greater or less tlian the "base rate, nothing
else is meant or inplied in the present classification, and (as in the whole
approach to the investigation of geocrarihic pricii\'^ prohlcms talcen "by
the unit) no preconceived opinions are held as to the souiulness of the
"basing point practice in this cr other industries.

The modified hasing point system of the Southern Pine Division in-
volved the use of multiple haces. There \7ere three principal "bases (v/ith
one alternate at Alexandria, Loiiisiana), at Goldshoro, iT, C, "Hatties'Durg,
I.Iiss., and Eliza'beth, Louisiana; each of these is approximately at the
center of producing territory in the southeast, south and soxithwest respec-
tively. Each was designed to serve one of the three large consuming terri-
tories into which, "by reason of the existing luiiiber rail freight rate
structure, the division's principal markets may conveniently "be divided,
E astern Truiilc Line (and ITew England Freight Association Territory), Cen-
tral Freight Association Ter^-itory and Western Trunl: Line Territory. There
v/ere several other suToplementory. "basing points of relatively minor L-Tport-
ance. The division's system may "be termed a modified basing point system
primarily because absorption of freight to eq."aalize with the base rates
was United to s-oecified araounts per cwt., although the absorption limits
a,re laiovm to have been set liberally enough to avoid excluding from any
marlcet mills which had previ.jv.sly supplied that mitrket in any considerable
volume.

Basing "loints were also established by the Western Pine Division (in
v;hich for a number of years the trade association had been sponsorin,^; the
use of a single "basing point ?.t Spol:ane, Washington), vwich secured delivered
price eq.ualization in ill markets 'beyond the limits of the producing area
by req.uiring addition to minimum prices f .o.b. ■mill rf freight from the
lower rated of two basing points, one in each of the two principal western
pine producing states, Washiiigton and Oregon, The CyiTress Division set 1:5)
three basing points, one in each of the three states in which the bulk of
tidewater red dypress is produced. In the Hedwood Division, split products
shipped by rail were to be priced to include freight from a single basing
point; other products were to be at delivered prices based on lowest freight
from water or rail shipping points (depending on the method of transporta-
tion used) in the producing area., which is limited to a fev countries in
northern California.

Basing points Y/ore also employed in the delivered pricing of other
softwood species and producing regions. The northern Pine and Horthern
Hemlock Divisions establis"iied single basing points in the two states in
which production of these woods is concentrated, llinnesota and Wisconsin--,
respectivelj'-. These points vrer.e effective o-nly upon shipments bej'Oiid the
limits of the divisions (to points outside t"ncse two states). The northern
pine Division also set up six basing points effective upon intradivisional
shipments, the lov/cst rated point a^rplying at p.ny destination.

In sharp contrast with the practice of the principal softwood divisions,
only one subdivision of the hardv/ood industry chose this v/ay of equalizing
delivered prices. The ilorthem Iferdwood Subdivision, members of which are
in large part also producers of northern hemlock, established a single basing

9864

-10 y-

point t the same v^lr.ce selected o.g the sirii Ic iDasing point for hcmloclr,
Wausau, Wisconsin, in the subdivic ion's -nrincipal producinc^ state,

ITivc v.'ood fatricatinii; industries, the 2c',ii Case and Wiretotond Box
Suhdivisii'^ns of the Wooden Pac'':xi.i;c Division, the Special Woodwork Sub-
division, the Douglas For Door SulDdivision, and the Stained Shingle Sub-
division, established basin^- points. The last named had a single 'basing
point, at Sea.ttle (the production of red cedar shingles is concentrated in
the Pi,cific l^orthwest) ; the others used multiple "basing points sca.ttered
throughout the United States and ranging from three to eighteen in numbrr.
In the other three subdivisions modified basing 'loint systems were used.

The so-called "mill and delivered price (or destination) i^ro-up ad-
justment" v?as devised by the ode adaiiinistrative agency for the Appalachian
and Southern Eard',TOod Subdivision to meet the peculiar needs of that Sub-
division. It V7S.S founded urpon the principle of eqioalizing delivered prices
by establishing varying minimum prices f.o.b, mill for mills at various
distances freightvdse from a base destination in a principal consuining
territory: The minintim 2'rice plus rail freight to the destination base to
be identical for all groups of mills. Delivered prices at all other desti-
nations were to be eqtiivalent to the lov/cst sum of minimijm price for any
mill group plus freight from a rdll in tiiat group to destination. The
mill and destina.tion group adjustyaent plan v/as used also by the llorth
Central Hardwood Gubdivision. The_ plan as practiced rras so complex and'

difficult to understand that few operators were 'lell enough inforned-as

to^its nporation t'"' follov/ it intelligently.

The two lio.rdwood subdivisions described as having practiced uniform
delivered pricing in the ]pre-code period retained these practices in the
code period, with certain modifications. The mahogany industry extended
the scope of the uniform delivared prices to cover the whole of the con-
tinental United States. The Tfelnut Subdivision m''.de only an unii^iportant
change in the boundaries of "several of its zones. The Southern Hotary
Gut Lumber Subdivision of the Southern Pino Division adopted zone delivered
prices only after other regulations experimented with ha,d created serious
price laalad jus traent s .

Other branches of the industry which created delivered price zones
were wood fabricating divisions and subdivisions, five of them subdivisions
of the Wooden Paclro.ge Division; viz., the Plywood Package, Sawed Box,
Shook, Crate and Tray, Araerican Veneer Paclca-ge, Standard Container and
Pacific Veneer Pacl:age Subdivisions. Zones created for these industries
ranged from tvra for plywood pacl:agc fabricators to 70 for sawed box makers.
The Stock manufacturers' Subdivision of the Woodwork Division divided tlie
United States into six zones for veneered hardv/ood doors, thirteen zones
for its other products. Two sTibdivisions of the Veneer and Plywood Di-
vision, the Commercial Veneer and the Tlyvfoot Subdivisions and the Douglas
Pir Plyv/ood Subdivision of the West C oast Division, also established de-
livered prices effective for market zones.

Delivered prices uniform for all domestic markets were in effect
throU(-;hout the code period for the stock screen products of the Stock
I'anufacturers Subdivision of the Woodwork Division; also for the products
of the S tandard Container and American Veneer Package Subdivisions of
the Wooden Paclcage Division until (in each case) July 20, 1934, when they

-103-

v;ere su-ocrseded "by zone delivered pricec.

Of tlie zix divinions -xnd. GXiTadivisionG v;liich. tiiro-a,f;hout the period
of cost protection prices maintained a practice of f .cIj. mill pricing,
only three (each a minor "branch of the l-Uiiiher inci.ustry) present ^;enmne
exanmles of that tyjoe of pricing, withoitt delivered- price eq.'ualization.
These are the Nor j:heae tern Softwood Division and the related lIorthecGtem
Hardv/ood Subdivision, and the Broom and Mop ^landle Division.

The West Coast Log;;;in£; and L^umher Division (as v/ill "be seen in the
section follwoini'5 v/hich troa.ts of the Division) v;as-a'ble to achieve
eCLTialization without the enforcement of regulations requiring the -use of
"basing "Toints emd without price zones or other devices hy reason of the
fact that the "blanketed rail rate structf.re equalized rates on the rail
movenent of lTjin"bcr ot the division's principal marlcetc in the eastern
half of the United States and in California, Water rates also were uni-
form for all shiiipers, with Pacific Coast LiJinher Conference rates in effect,
Water aiid rail movenent were equalized "by coordination of "base prices and
"by permitting, where necessary (in northern California) shippers "by one
transportation modium to meet the delivered prices of shippers using the
other medium.

Within the producing territory, where t"he rail rate structure could
not be relied upon to sec-ore eq'ioaJization, the division did not attempt
to ma.intain f.o."l"j. mill pricing. The minimum prices were sat as minimum
prices delivered at all' destin'^.tions within the divisionr all shippers,
whatever the distance of shipment, might quote these prices.

The Red Cedrir Shingle Division achieved equa.lization in the same
way, without jirovision for it in pricing regulations, hy reason of "blanlret-
ed. rail rates from the producing territory in the Pacific 'Northwest, In
this division, as in the Tifest Coast Division, the minimum prices f,o,"b,
mill were miniraian prices delivered at all destin-ations within the producing
territory. The Philippine Mahogany Subdivision priced its products f.o.h,
cars Paxific jorts; this practice itself put all shippers on a party, with
respect to transportation costs to a.ny domestic destination, 'hy rail or
water. Any Philippine imijorter, if shiijping hy- rail, might arrange to
"bring the lumhsr into the coujitry at the loYrest rated port to any desti-
nation.

This leaves, as llt^s "been stated, only throe irdnor divisions and su"b-
.divisions with f.o.'b, mill pricing v;hich did not liermit delivered price
equalizatj.on. Even in the northeastern hardwood and softwood industry,
the practice of f.o.'b. mill pricing was modified, since mills in shipping
"beyond a certain distance freightwise from the mill might ahsor'b freight
to meet competitive delivered prices. This a"bsor-ption permitted equaliza-
tion in the industry's iiq-.ortant Middle Atlantic Coast ma.rl:ets; in the Hew
England producing; area no equalization was possi'ble. The Broom and Mop
Handle Division practiced unmodified, f.o.'b. mill pricing tiiroughout the
period of minim-um prices.

Fnether this proved practicable in these three divisions and, if so,
wha,t v/ere the conditions, pec-.xLiar to these divisions, which ma.de it
practica.hle, is not laiovm. It v;as not possible, for rea,sons hitherto in
dicated, to conduct a special investigation of these divisions,

9864

-104-

Two other tjOTOG of pricing; ;oractice u'tilized ty the liamlDer industry
to Buopler.ient t]ie three hasie instriL.iehts of delivered price eci.ua,liz.',tion
are deserving of rAcntion. The first, the provision that all mills might
equalize vdth the frei(r:ht rate from the "nearest conrpeting mill" to meet
a lov/er delivered 'price at any destination v/as relied upon "by three
divisions to 'ricfcure delivered 'price equalization within the limits of the
producing territories. These divisions were the Western Pine and northern
Eemlocl; Divisions and the IvTorthern Hardwood Suhdivision. All of these
divisions .employed hasini; points on shipments to na.r]:et5 outside divisional
territor.y; "but they were imi-iracticahlo within the producing area primarily
"because there the movement of traffic has no general direction; trans-
shipment predominates. The Southern itotary Cut Lumber Subdivision for a
short period relied exclusively upon the practice of eq.'ualization with
nearest corqieting mill to secure delivered price equalization in all mar-
kets. The device proved inroracticahle for this purpose "because it entail-
ed heavy t'sneral freight ahsorDtion which "undermined the 'minimijm cost pro-
tection price structure. Only one fa"bricatin,p; industry, the Stained Shingle
Subdivision, practiced equalization with nearest' corri>oeting mill; and, in
this cc'Se, it wa,s restricted to less t"han carload shipments..

The 'second t^'pe of supplementary practice referred to was the limit-
ing of freight absorption allov/ed to meet lower delivered' prices. Eight
logging and 1-umber divisions placed such restrictions upon absorption,
and, to the extent to v/nich the limitations were operative, so restricted
delivered, price eqrialization* These were the Southern Pine Division, The
Appala.chian and Southern and Horth Central Plardvrood Subdivisions, the
Cyi^ress Division, the Northern Pine Division, the Western Pine Division,
the Northeastern Hardwood Subdivision and iTortiieastern Softwood Division,

Of these, in three divisions, Southern Pine, Appalachian and Southern
and North Central, the absorption limits were either so liberally set or
so .generally'' disregarded as to lose any possible force they might have had
in .restricting the shipment of limber from uneconomical (long-haul) sources
of supply. That the saiae thing v;as true of the other divisions erriplqying
the practice ' is considered likely, but the information obtained in the
cqurse of the study does not permit a, definite statement to this effect.
In the Northern Pine and Western Pine the absorption limits applied only to
intra-divisional shipments. None of the fabricating industries attem.pted
to limit freight absorption in delivered price equalization,

Trnatever the theoretical possibilities of limitations on the absorp-
tion of freight in reducing crossliauling and restricting the sources of
supply for any given market to those determined b/ res'earch to be economi-
cal sources, they v/ere not realized under cost protection prices. This
was true, first, because the code e,dministrative agericies lia.d the general
objective of recovery rather than reform; second, because the maintenance
of minimuTi prices depended to a very high degree ijjpon the voluntary co-
operation of industry members; this cooperation might not be expected if
large (_roups v/ere alienated by regula,tions which shut them out of marl^ets
to which they hsA shipped in large quantities in the past. And, because
crossliauling vras so extensive in the 1-umber intlustry, a prograjn of limi-
tation of freight absorption, if it were to be of a.ny consequence, would
inevitably have had this effect.

-105-

It does not appear that the selection of a nc-rtic-olar type of pricing
practice "by any division of the Itimtcr industry under the code v/as on the
■basis of the suitability of t o ;oractice to the economic clmractcristics
of tliat "branch of the industry or tliat producing region. The- primary con-
sideration in the development of the equalization systeuis v;as whether or
not a po.rticular system (or practice) would sii^jport the structure of cost
protection prices, assist the maintenance of tliose itirices. The industry's
first question with respect to any method proposed might he phrased as ,
"is it wor^rahle?"

The consideration of pra,cticahility led, hoxrever, to the adoption
hy grouos v/ithin the 1-umber industry of sip.ilp.r tj^-^pcs of practices. Thus,
we have noted an apparent preference of the softwood divisions for basing
point pricing. This type of pricing may be said to have been practicable
only whore there v/as a relatively high degree of concentration of produc-
tion and, secondly, v/herc as a result of that concentration the movement
of traffic in the particular species or product ha.d a definite general
direction or directions. It wa.s not possible ¥/xacre producers (of the
particular species or i-jroduct) and producing areas viero widely scattered,
where they approached cominon marl'ets from a number of directions and par-
ticularly \7here the freight rate structure did not recognize any direction
in the movement of Iraiibcr from -oroducing territory to principal marl:ets»

The softwood divisions met these conditions because production is
concentrated to a very high degree (except in the southern pine industry,
where however, it is concentrated in a line of 'states s,long the Atlantic
and Gulf Coast), and because there is a definite direction to the bulk of
the traffic from the producing areas in oasta.l 'or border states to prin-
cipal m:.rhets in the inland states of the middle v/est, the north Atlantic
States, and Cp.lifornia.

The hardwood subdivisions did not meet these conditions because
hardwood i^roduction bf all species is widely dispersed tliroughout the
States ea=;t of the Ti'ssis'sippi Hiver (and adjoining the river on the
west), in southern, Aiopalachian, central, northern and northeastern states
It cannot be said that there is any definite direction to the bull: of
hardwood traffic for this reason; the degree of trans-shipment is very
high, For this reason the principal liardwood producing region, the Appa-
lachian and southern, \/as forced to resort to a highly complex and artifi-
cial equalization system vfhich involved the setting of a varj'^ing schedule
of minimum prices at the mill and a fixrther determination of minimum deliv-
ered prices at all destinations in cons-uming territory. It proved iirriDossibl
for this branch of the industry to devise a set of regulations from which
price at destination might be readily determined by the shijoper (as in the
use of bc.sing points). The _same tippe of adjustment system was used b3'' the
North Central Subdivision, the equalisation problems of which were com-
parably difficult.

Of the three other subdivisions having jui'isdiction over domestic
production of hrardwood species, one used zone-delivered pricing, one f,o,b,
mill pricing, and only one (the Northern I-'ardwood) , where there was a rel-
atively high degree of conccntra.tion of ^iroduction, \itilized a basing
point.

The fabricating divisions of the industry were prevented from
establishing basing points for similar reasons; in these industries for

9864

-106-

the most part, production facilitic;s are ridel^ scattered, liost of them
used f'clivered price zoncr. in offocting eoua.lization.

Zonc-deliverad prices necessitated, first, a c.efinition of the zones,
second, C: determino.tion of the element of freight cost to he included in
the delivered prices imiforn at all destinations within these zones, r.iis
process of definition and detorminption nould he ver;-'- difficult in any case;
in the divisions of the lumber industry under the code it ^.'as im'ooscible of;
sound and accu-rate accomplishment because the necessar"/ data, particularly
data as to volmne of shipments of species and products moving to various
mar!:ets from each -oroducing area and the average cost of tra.nsporta.tion ins-
volved, '.ere not available,

Thile in the selection of basing points other divisions und.er the
code ^fere Eimila.rl3'' handicapped "hy an absence of data as to distribution,
sources of supply for each market, and costs of trans;oortation of lumber
to various markets from all producing, areas supplying those markets, on
the TOiole it :7ar, probrbly less difficult to establisli an adeqiia-te basing
point system because the tra,ffic raan.agers of the code acijninistrative agen-
cies \".'ere thoroughly familiar \;ith the ra,il rate structure and T7ore able to
Ciioose points a'oproxime.tel]/- t production centers, the average rates from.
uhich uere more apt to be equivalent to a rough average transportation cost
on all chipments to the markets they served than the element of transpor-
tation cost included in zone delivered prices.

TJith the suspension of cost protection prices on December ~2, 1934,
nep.rly all the divisions and subdivisions of the industry abandoned the
basing points, mill groups adjustments and delivered price zones Tihich
had been established to sec\\re delivered price equTilization under the code,
and reverted to the irre£;ular, unrystematic delivered pricing characteris~
tic of the pre-code period. Tlie flooring industries, maple and oak, main-
tained the basing points rhich had been in itse before the code (the rational
Oak flooring I.'anufacturers Association has also continued the use of the
tno code-created brsing 'ooints at Alexandria, La., and Johnson City, Tenn.);
the American TJalnut Manufacturers Apspciation (trade association for the
vraln^it industry) retained the consuning zonesin use before the code; ajid
mehoQany continues to be sold at delivej-ed prices uniform rt all desti-
natio::s in domestic mar!:ets.

-107-

A.' Basing Point Synter.s.

1, Soutiaern Pine division

This divisi"on incJ.uf.ed all producers and nr,nii:r.-cturers of iTiinber
and timber products of tlie^ several species of sov-tliern pine, in the
states of Alabama; Arltrjisr-s, Delaware, 71orida, Ceor.'jir., "Kentucky, Louis-
iana, Maryland, ilissiscippi, Missouri, North Caroline, Ohlahoma, South
Carolina, Tennessee, Tc::as, Virginia and "est VirrHnir,, Products con-
sisted of logs, poles rnd piling, sawn lumber rnu products of planing
r'.iills opera.ted in conjunction nith sawmills, shin-les, l;-,ths, boxes and
crates. (*)

The division inc''.v.;"-eC about nine to eleven tnous-^nd nills, a large
majority of which -ei-e gp-cII units. The second nor.t i::^ort:nt softwood
producing region in the Unibed States, in point of vor^ne of production,
the South' s annual output of southern pine exceeds that of any other
single softwood species, including Douglas fir. .'.s stated in Part I of
this 'chapter, the produ.ctc of the division are shipped to principal mar-
kets ih the mid-v/er/oern end northeastern states, -dicre they. compete vig-
orously with Doxigl.v.s fir.

The general econo::ic chrrrcteristics and background of this division
and bf other i^nportrnt divisions of the lumber industry will not be treat-
ed in this report, not only because they "hrve been given adequate present-
ation in other studies of the Division of Eeview(**) but because of limi-
tations of time cjxO- po:;sonnel in the conduct of the present study.

a. leliver.'oc'. Px-icing in the Industr-'^ before the Code.

Before the code, southern pine was rcg-alarly priced and sold
delivered at destination. There was not, however, any system of freight
eoualization involving the use bf basing points, nor \ere there price
zones. Kembers of the industry, if they wished to sell in any market.

(*) Cf. Schedule .x. Section lU the Code for th.e' Lu: '.ber and Timber
Products Industries, 'Codes of i^air Co v.etition. Volume I,
prge I3S.

(**) Cf. particular!;-, "P.eport of the :;"cono-nic Proolens of the Lumber
and Timber Piofucts Industry", by the Basic Laterials Unit of
the Incustries Studies Section, Division of D.ei'-iew, National
Hecovery J.frdnistrrtion, i.Iarch, 193^. "^ork Materials Ho.

9g6U

-108-

net the current delivcrec. ;irice(*) in that m?,rl:et of tlie prrticular item,
gr-de and size, ^T'ror. tir.e to tine ;\ mill felt it necer-sary or desirable
to cut the prevailin.-; price at a certain point, thereh:;', perhaps, estat-
lishing a new price there. Some mills, producing -pine of exceptional
nuality, commanded pre::iu;-.i prices. But, on the r^hole, delivered price
equalization prevailed, unsystematic and disorderly} rjid nills relatively
distant (freight-nise) fron principal consuming territories necessarily
a'csorhed freight in orO.er to meet the delivered ;orices of the ndarer
mills. In the southern pine industry this freight :i?ate disadvantage of
mills in the far south v.'as largely if not \7hoIly conroensated for by lower
production and sturrp;.v:e costs.

b. The Original Lules rmd Regulations for Delivered Pricing
under the Code,

liininru'n cost protection prices under the code for the Lviraber
and Timber Products InOuctries were effective in the Southern Pine Divi-
sion on November 9» 1S33 "-■•i^l- were promulgated in the Lumber Code Author-
ity's Bulletin Ivo« 5 (Volume l). The prices established v/ere f.Oib, mill
prices, as authorized 'oy Article IX of the code. In the rules and regu-
lations v/hich i-'ere published with the prices in LtLlletin I'o. 5» under the
authority of subsection (i) of Article Ia, the division reruired the sale
of its products at delivered prices, not less, on cll-rail shipments,
than f.o.b, mill rdninxn prices plus actual freight charges from point
of origin to destinc.tion, I<o equalization of freight rates as between
mills variously located wa-s provided for, except in the case of all-rail
shipments from certain southeastern str.tes to deGtina,tions in the north-
east and in New Eng'land,

This exception in the original regulations coxie to be knovm as
the "Virginia Cities Adjustment" and was retained in substance throughout
the period of cost protection prices. Its central principles were these:
mills in Virginia, ITorth Carolina, South' Carolina, C-eorgia and eastern
Alabama (C-rcup "1") \7ere to sell for delivery to destinations in Eastern

(*) It is well to rerieuber throughout this Chapter on the lumbor indus-
try that the price at vrhich a particular item of a certain species will
sell in a given market in t;p)ically not uniform for all transactions in
that item at the soue ti;ie. The delivered price at which one shipment
of lumber will sell n!:;j vary to a marked extent frou the prices at which
other shipments of the snae species, grade, etc., sell at the same place
and approximately the sc:,ie time. There is no "current" or prevailing
price in any ma.rket er.cept in this restricted sense. The generalization
is, of course, subject to exceptions. Some of the factors accounting
for this lack of uiiifomity are imperfect product standardization with
respect to -quality (despite adequate grading and inspection), the var:/ing
size of the orders raid chipnents, confusion in c'lstribution (as between
wholesaler, retriler, broker), and the presence of distressed lumber on
the market.

3SGk

-109-

Trunk Line and New England Freight Association territories (* ) at
delivered iDrices only. These prices were to be not less than estab-
lished minimum prices f.o.b. mill, plus freight from Goldshoro, ITorth
Carolina, to the Virginia Cities (principally Norfolk, Suffolk, Rich-
mond, Petersburg, Lynchburg and Roanoke, but including intermediate
points on the Atlantic Coast Line, Seaboard Air Line, Norfolk and South--
ern and Norfolk and T7estern Railroads) at isi^^ per cwt., plus freight
to destination point from the Virginia city freightwise nearest that
point.

Prom origin points in eastern Alabama' (on and east of the Louis-
ville and Nashville Railroad) the freight rate as calculated from
Goldsboro through the Virginia Cities v/as to be increased by 2(f:
per cwt.; thus mills in this area were given a 2^ per cwt. higher
delivered price in eastern and New England markets (**).

Finally, mills in the state of Florida, (known as G-roup "2"),
were recjaired to sell -to destinations in the same territories at de-
livered prices (on rail shipments) not less than f.o.b. mill prices
plus freight from Jacksonville, Florida, to destination.

The effect of this Virginia Cities Adjustment was, clearly,
to equalize delivered prices of southern pine, shipped by mills in
the southeast to northeastern markets, at amounts which necessitated
the absorption of freight (so that net yields averaged less
than cost protection prices) by many operators, the charging of
freight in excess of the carrier's charges by many others. Mills
in Virginia, North Carolina, South Carolina and Georgia were thus
to be permitted to serve these markets without disadvantage. Mills
in other southern pine producing states, however, might not meet
these prices if actual freight rates from point of origin to desti-
nation were in excess of the Goldsboro- Virginia Cities ratp; they
were allowed no absorption wiiatever. This meant, probably, that only
pine shipped from Delaware, l-Iaryland and West Virginia (and possibly
some from Kentucky), in negligible quantities, could be quoted at
prices competitive with the Virginia Cities Adjustment prices. Such
shipments might move at less than the adjustment prices: no equal-
ization was required (the volume was so snail tlia.t no maladjustment
in the equalization system would be likely to result). On the other
hand, although pine from eastern Alabama and Florida was included in
the scope of the adjustment, the former obviously was placed under a
severe if not insuperable competitive handicap, in, the form of the
added freight at 2rf per cwt. In a price market, as the lumber market
proved to be under the code, such a 2ip differential could scarcely
fail to exclude the disadvantaged mills from the markets affected.

(*) Cf. Exhibit B, end of this Chapter, for the definition of the
origin and destination territories used, as ~iven in the price
bulletins.

(** ) This was, it is stated by representatives of the Southern Pine
Association, the existing rail rate differential_,for eastern
Alabama shippers, over the rates from Georgia points to the
northeast.

9864

-no-
Similar ly, ./ith respect to the latter (Florida pine), although all mills
south of Jac'csonviile on the peninsula were pernitted to. absor'o freight
up to Jacksonville, they \7ere not permitted the "re'ally yital equali-
zation v/ith- the Gold's boro-Virg'inia Cities rate. _ Tlriis meant a delivered
price differential in northeastern markets 00,lculated to be, if possible,
more effective than the eastern Alabama 2(/- pej- cwt. .:jddition in shutting
Florida mills out oi those markets, v/ore it hot for t\,'o factors: a
difference in the qualitj'-, characteristics and uses of the slash and
Cuban loine species grown in Florida and the southern pine varieties
found in the more northerly states; second, the opportunity to ship by
v.ater coastv/ise to North Atlantic ports, at delivered prices nhich at
this time (under Bulletin 5) included only the published water rates and
delivery costs, plus rail freight to final destination beyond port, the
regulations oermitting absorption of freight from mill to port of em-
barlcation. Florida mills able to ship by v;ater (as v/ell as other
southern pine producers for whom this was possible) doubtless were easily
to meet the Virginia. Cities Adjustment delivered prices.

But the division' conspicuously made no provision for delivered price
equalization by members in other southern pine producing states (from
vrestern Alabama, Tennessee and Xentuckj'- west) in shipping to Eastern
Trunlc Line -and "Jew England Freight Association points, nor did it pro-
vide for any type of eo^ualization in midwestern end north central con-
suming states (Western Trunlc Line emd Central Preight Association terri-
tories). All mills, wherever located, in shipping to these markets,
added actiial freight charges to the f.o.b. mill minima. Freightwise
distant mills (mills in the far south and the Southwestern Yellow Pine
Blanket) found themselves required to quote delivered prices in their
principal markets -.ihich were in excess of those quoted by competitors
nearer destinations. • .

Water shipments, coastwise, as noted, '..ere to be at delivered prices
including published water rates (as applicable for the time and shipment
agreed on), insurance and other incidental delivery costs (as per
published schedules) and freight charges to final destination beyond port.
There was no provision for the application of the minimun prices to
shipments by truck or inland waterv/ay.

The Southern Pine Division's initial plan for delivered price equali-
zation was conspicuously incomplete. It was reasonable to except from
such a plan serious price maladjustments. Full compliance with the prices
and regulations could not fail to prevent high freight-rated mills from
sharing in markets (*) in which they had secured the bulk of their volume.
Another outstanding deficiency v/a's the failure to bring truck and inland
waterway -shipments within the scope of' the r egulat ions; as a result there
was nothing to prevent -such movement from reaching the market at de-
livered prices identical with the f.o.b. mill' minimum prices: the possi-
bility of absorption v/as unlimited. A further defect was that no pro-
vision was made for the eq-aalization of prices on shipments within and be-
tween the producing states.

(*) This is true aespite tne allocation of production, because the
allotment was consistently in excess of demand.

Perscnp intiiTTitely f.amili:,r v.dtli tlic o/ministr.\tion of cost pro-
tect! n ;-irices o:.i' r'.\-u.lati ..:-_s j.n tlic J.iviGiii eirolain there deficiencies
thLic: mills in the southeast aslcet'. for '^.-clivered price eqajaliza.tion at the
outset. These ;nills vere pp.rticul'!.rl2. conf^cious, even at this tine, of
whiit fixe'" :.iini:v'.ui. prices at the I'ill voulf'' involve in the direction of
exclucin ; the less f;?.vor,".bl" l')Co.ted mills frorn conr.io . narltets, in the
absence of s one syctoni of equalization. This consciousness inay very possibly
h?,ve derive:' froi- the iact that the I'reii^jht rate {-xovr'S in this territory
,,'(:oarticulr.rly in the Caruinac .-Jid Virj,inia) are snaller (clian^'jcs in the
rates no' e freq.ue:;tt relj.ti.'e to distance), thus hrin/^ing the effect of
frei';ht ra.te dif ferrfentials nor? strj-i;:! • t- the r'.ttcntion of industry
mciahors iv. this area. ?urt]ier, the":--? was ;.'.n ir.yo3rt..nt war-tine precedent
for the Vir^'cinia Cities Adjustuent, "Jhen urxinuui prices v/ere in effect
for soTitlijern pine lunher under the 'Tar Industries 3or.rd, actual prices veve
at t-ie ;iia.xina --.nd ireirf.it equ?,li7,ati.:n ^7as necessary: it v.o,? 'brou<'"jht
about throUi;_,h an ..■." justment bo.sed on the ac^'Mtion 3f frei|2;ht fron Golds- ,
boro, North Carolina, through the Viri'rinia Cities to Cestiiiiation, In
essentilc, it is salt to iiave corresponded to the Yir;;;inia Cities Adjustnent
set "0^3 ■'Oiider the cole (*). This provided a ready r.odel for imitation when
fixed f,"^.b. cost protection prices v;hich actuE-.lj.j" were; at jr near riar?tet
prices (v.lth n:: spread to allov/ for absorption oi frci-';ht) made it once
more necesp rv to ii^s so'Uc way to oflset th., freight CDst disaxlvanta/^'c of
dist-^nt jaills and pex'mit then to t?nter their csto.blished narhets.

"No such afjusti.icnt v,-3,s cevisec" lor other nrof'ucin.j or consuMin^'^ areas;
opero.tor<^ in che :'tiicr states tenced to be optiriistic in the belief that
market prices (delivered) vraulO. be in excess if the rdnimuni iirices , per-
mitting absorption if frei;ht by frei ':^rtwise distant .;ills. Also, .there
were not as nany origin groups in the rate structure; smaller freight
differentials for mills shipping la,rgely -to Centra.! Freight Association
and V/psbern Trunj; Line territory hept the problem of freight equalization
in the bachground. The psychology if industry nembers in these areas
ap;'.arcnt!y differed, -Lit-fc-l-e-- -tlw;agla.t ..c.'.7,n ,..i.pve . been . ::iven to the conse-
quences .'f the maiic'atory addition of actual freight charges to the min-
imum prices. It was nit foreseen that eastern Alabajna and Florida nills
would be at a cirpetitive diisa.dvantage under tho Virginia Cities Adjust, innt.

Optimism was c.issipatec. v;hen under the code the lumber market became
a price ua/rket; lui'aber executives stp.te that old-established trade friend-
ships an'd reput'tions for high quality were largely disregarded. There
are, if course, specialtj- items and wo -do (a.s Arkansas soft pine, long-le^f
structural items,' edge-grain hc.,rt ^floiring, all produced in Liississip'oi
and the southwest) which j.ir special uses coniaanded a delivered price
preminaTi in eastern and other nark-ets; ?uch items were n^t excluded by
the Virginia Cities Adjust...!ent.

Failure to provide for traffic by inland T/ater"ay and truck is acco anted
for by the relative!" smcall (in fact, negligible) qua.ntities of southern

{*) Time lias not permitted an inM-S^ry into the character of this war-tinff>-
ad justment.

9364

"113- ■
pine v.'hich 'i:-.d uer n tr^nsportec "by these necia 'bof:>rc tlie code (*)

It M,-.z uot '■ utici;outec. tlij't ;;?.' Virginia Citie? Adjusti.ient might "be
distui-'beC. "by :iillf; ship inL,' lay v/ater (co;;.stv.'isc) , ::t r^.tes peiimittinr much
l:)v/er '."clivercu -rices, '".r tliat other mills ni^:ht avoir', the effect of the
re ul ti no icqidriUr;' ac'/.iti .:;•'. of rctw.l r 11 freight hy chip-.ing "by trucl:
(**) ir i--.lr.nd vaterway.

•The ceiiciencies in the ori.:;in..i.l eqiL'i,li station system soor. C:-.ne to the
attention ^;1 officers of the ^.ivision.-:,! code a:,ency, Co!:nla,ints fro: • the
disaJ.v.vat -.^ ;t!i.". menucrs v/ere nioneroiis and. tigoro-as. r.astern Alab-ina milic
called i\ttention to their .■' ' 'ler c't. higher delivered virices iijide'^ the
Vir^fiini.:. Citier- .<' just lent , which Iv^x. ;-!rove a :,ccisive cor^etitive hc>,ndica,T3.
Jlorido. &hip'-'ers (despite the difierc-"-ce in the v": -ds and the availability
of ''atcr tr ns-iortation facilities (***^ as'ted lor a ^rt.,-,ter "base frei£;ht
rate ■'/:. the Vii',.inia Cities A: just .. nt than the C-oldstoro rate; this mis
refuoed allcrcclp Recuse th; divisi:n v/as adhering to the -o-'inciple that
the total :f frei,';ht iacludce ^n delivered prices (for the division as a.
v/hole) i.iUGo not er.cced the tot;.:.l of freight clT;o.r/;eG a.ctually -laic" to the
carriers.

C. Revisions in the Regulations.

When it heca^'ie apparent '.Imt the original regU-lat ions vrere unsa.tis-
factory am' u.iv;or'' able the rivisi^n set about revising them, constructing
a CO rplete system of equalized freight rates from producing areas to three
principal constmiing ter\-itories. This "as not, however, ready at the time
the -ivisi'n's first revised prices were "aihlished, in Lulletin Ilo. S"-!- of
Voluic I, directive January 9-, 19r.4. Accoringly the revised ^Tices op'eo.red
v/ith no 'ignificant changes i'l th.. ■•I'ules .n." re;,ulations for c'elive^ed

(*) "Vith the exce;oci:n of l-uinocr iv ule " b; tr.icl: for short distances.

pThere is no data jinjvni to oe avo.ilable showing the relative vol-umes
of pine siii;v ed by rail, v/ater, trucl:, now, during or before the code.

(**) In Ul efiort portiall; to correct the o;.'.issi:in an "interpretation"
v/as issued by the division's Cost Frotectiui CoiTiittee on Lccieoer
11, d9C3, in which mills shiioping by trucJ: or v/ater an'^ lualring de-
livery to their customers thus \/ere required to aed to f.o.b. mill
price the cost of the truclcing, or the oarriers' charges. In the
interpretation the Com. Ittee v;ent beyond the sco^iC of the regulations
approved by the Authority. i.Iills off railroad lines v/erc permitted
to absorb cost of hrj.uling to the ne trest ship;-iing poi.-t by another
interpreteti .';i issued on the sa^ae date. Of. Bulletin lie. IS, Vol-ume
I, of theSo\ithern Pine L-ivision (in the lIationE,l Recovery Ac'-ninis-
tration Files, Lvunber anc Tiuiber Products Industries Code, Code I-Iistory
Exhibit K-3'-"').

(-**) Flori'.'.a pine competes directly with Virginia-Carolina -linc on boarc!,s
and roofers am' certain other items; )n tho^.e the northern mills were
given a distinct advant.age by the original Virginia Cities Adjustment,
higher delivered prices on Florida -Tine were not so inT[oortant on other
items; indirectly competitive,

9RR4

priGia^'ft -

Tlirei; d?ys later, on J'^.nui.ry 1-, 127A , the cavision's Traffic iian-^cer,
a.p"ieareL. 'it th<s c^o.e aeai'iUL; "a t.ir lw..'ber eaiC. tiiwer products iucustries
liel:'- "by tlic Hation.-jJ. xlocover" A'"mir.istrr.t ion in Washington D. C. (*)
He •presented an intric: te, an'", c^m-olex- '^lan for c.eli^cre'.' price equalif'-ation
which was, in subs':ance, approved l)y the' Lumber Cod.e Authority two months
later, heconing ef'Tective on Karch 13, 1934 (**)

The procediu^-; "by which thip plan v/ap developed axiC: ap'^^rovod by the
division and by the Lu.nbc" Co-'.e Auithority, was essentially that described
in Sccuion II of this Chapter,

The (ivisim's "Si^eci.^l GoLii'uttee on Trr.ns;''ortr„tion Cost Equa-lizati on" ,
a subcomaittce :a' its Cocc Protection Cormv.it tee , v/as composed of co rpany
sales anc tr ific i.iana!.''-:ers, two from each principal producing state
(Dela"iirG, i'iaryland, j'est Vir inia, iCentuclq-/' and Tennessee v,'ere not rep-
resented). The Southern Pi2ie Association's st-if of tariff experts wor'rcd
under this subcor.a'iiit tee , devising regulations.,, arbitro.ries , etc., calculated
to realise its objectives. The coiupleted pia-n was submitted to the Cost
Protection Col; ittee for approval , thence it v/ent to the Control Coiaraittee,
governing body of the code administrative a'.'ency oi the division, for ap'-roval
thence (with the, cost protection prices pj'oposed) to the Costs and Prices
Department (and to the committee of the same narae if in 'session) of the
Luaber Code Authority, and finally to the Authority itself (or, if the
Authority were n.-.t in session, to the National Control or Hesident Conv.iittee)
following ap'oroval of which tho re^^'iJ-lati ons aaid ;:.irices became eficctive.

According to a represent-.tive of tho Southern Pine Association (***),
considerable research was undertaken by -the Trans' ortation Cost Equalization
Subco;iii,\ittee and by theTraffic ^e-iar*. leint , in the --reparation of the plan.
This rcsef^rch enbr"ced relative amouiits ' sup""^lied destinations in. each con-
suming territory by mills ship"'ing at vaTying freight rates and fr'^.i the

(*) Cf. Statement of. A. G. T. Moore ,' Traffic Manager, Southern Fine
Associa.tion., representing the Soutiiern Fine division of tne
Code Authority (in- the National Hecovery Administration Piles,
Lumber i.nd Timber Product's Industries Code, Transcript of Code
Hearing, Jani-L.^ry 13, 1934, p-o. 760-802).

(**) The representative of the Southern Pine Division ap-neared at
this hearing also to defend the Virginia Cities Adjustment
and the princiiole of freight, equalization against the att.^elc
of the Consuraers' Advi-sory Foard. (Ci. Statement of '..'. E.
Shoults, Cons-omerS ' Advisory Boa.rd, in the National Recovery
Admininistration Piles, Lumber snd' Timber Products Industries
Code, Transcript oi Code Hearing, Janu^iry 10, 1934, pp. 323-
335.) Shoults' criticism was directed against the use of the
Jacksonville and Goldsboro basing points , as discussed in
Section II of this Chs.pter.

(**Hc) This is based upon a conversation betvjeen the writer oi tliis
Chapter and Mr, Moore, Traffic i'anager of the Associf.tion,
in Hev; Orleans, Louisiana.

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-114-

several origin groups. Unfortunately, however, the data collc^cted and
computations involved heve been destroyed. (*)

The' complex mechanism for delivered price equalization Phich was
effective on March 13, 1934 continued tan Virginia Cities Adjustment
(vi^ith important changes to remove inequitiec) and set up trio other
principal adjustments governing, shipments to destinations (**) in, first,
Central Freight Association Territory, and second, "Testern Trunk Line
Territory.

Three principal destination territories V7ere recognized and made
the "bases for three integrated delivered price adjustments, applying to
all rail and truck shipments of southern piue.

( 1 ) To Eastern Trunl-c Line and 11 ev.- England jTeight Association
Territories ; (***)

The Virginia Cities Adjustment as previoiisly established was re-
tained, with a more complete equalization stnicture built upon it. Thus
all mills in Virginia, i'Jorth Carolina, South Carolina, Georgia and
eastern Alabama, shipping by rail or truck (contract, conL-aon or orivate
carrier), sold at delivered prices based on freight from Goldsboro to
destination through the Virginia city or point within the switching, car
ferry (except Cape Charles, Virginia) and lighterage limits thereof,
freightwise nearest the destinp.tion 'ooint (v.dth freight from Q-oldsboro
to the Virginia Cities at loj- cents per cwt. ) The tv/o cents per cwt.
differential for mills in eastern Alabama over the Goldsboro rate was
eliminated.

Iviills in Florida, also were to sell at delivered prices, equal to
f.o.b. mill prices plus rail freight (on rail and truck shipments alike)
from Jacksonville to destination. However, in order to make it possible
for these mills to meet the lo';/er delivered prices on the Goldsboro
base, absorption ox .not, more than ori per 100 pounds of the rail rate
from Jacksonville to destination "toward equalizing 'jith the Virginia
cities formula" was permitted. From points in Floridd:to destinations
v.'here through rates v;ere lower than the Virginia, cities formula rates,
an addition to freight up to 5^ per cwt. was required "toward equalizing
with the Virginia cities formula".

(*) It Was also iaoossible to locate the data and exliibits sub-
mitted by Mr. lioore in connection v;ith his testimony at the
National Recovery Administration code hearing on January 12, 1934,

(**) The term "destinE,tion" as hr-reafter used in this section on the
Southern Pine Division includes "points within the switching,
. car ferry and lightercge limits" of the destina-tion.

(***) As defined by the Division, Cf. E'chibit I? end of this Chapter.

oftr4

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Ot.ier sovctlxr:!. ::i.i.nc rtiills, in v.-cste^n Al"-b;-.rn3, , ;Ii?sissip-ii , TcniiGSEee,
■'.entucV:;', ris'- Dxiri , Ar".?.ns;^=, Ljuisipaa cv.u Texap, "crc to continue to
rsell at . elivqrec' ■■■rices, iv^t le^r than f.o.'b, mill p^'iccs plus rail
freit;Iit to c'estinatio:-. , Liut they Vre'-'-e' pernit cec". to atsorb freight uro to
5'f- --.er cv.'t, -/here the r il r^te \?.s hij;her tiri-n the Viri;inir.. cities
f?rmula rate and reqtiirc..': to ac. xrei:;ht up to the same ano-ont \7here the
rate \7a,s lower. In any event, the lowor-t combination "i' rates on the
Vir/'jinia cities formula was •e-r;. c-- as the lowest rate "basis vdth which
all other r'tes to these ter"'itories \/ere to ue eou£:lized. These rules
a.-'^lied to .:11 r".il, truclc cUid inland 'Vciterweay shipments.

Ship./ients uetv/eea northei-n Vir/.lnia yioints in L'^.stern iruil^: Line
territory (on an;' north y£ the :io.i-.i line "■!' the ITorfol]-' and Western
Hailv/o-y vere bo oe, o'oti -.v.all^ , cit ix-livered -^rices includ-ing f .o.t.
mill mininrar;. ■■•rices, the 13 -fi frei^;"it rate froi-i C-oldshoro to' the
Vir::ini... cities, -":iC. r il frei ht fro : the mill to destination; or in
shi-voi__/; to certain district? arhitra- ier of G^,; and ll-^^ per cwt respective;
might be -..ddcd, in liei?. of actu .1 frsi^fnt, tc the 15-j-d' Goldshoro rate,
These oj^tioiial a:^ jus t.-;en t s ,.'.cr.nt that at any -^oirt the lovest of tlie
several rates would prevail,

( 2 ) To Ce ntral ?reii;at As p oci-.ti a-i t erritory ( * )

i,;ills in s xithern pi^ne -i.-)rodTj.cini; states (in Southern and South-
v/cstrrn irei^^ht Associ tion Territories and th': state "f i'isr-ouri),
in shi;rinjj h;- rail, inland waterway, or trucl; to destinations in this
territory, were req^uired to f. ell at >^clivered prices, not less tlmn
the f.o.'b. -.'ill prices plus r^il frei^jht, excc/ot thr-.t absor-otion vcp
to 3^ per cv't . ra.s allo'^/ed mills i^n South Car:ilina, G-eor^^ia, Alabama,
iiississip;i rnd the soathwr-stem yellovf -;)ine bl,,n;':et, shipping to
destin-.tio-as in this territory -.,t r.-ces higher than the rate from
Hat ciesburg, Mississi" "i .

Similarly, riills (**) cnjoyiig a lo-'er tiica-. Hattiesburg rate to
a give-n destination ho.d t ■:^ a.-d not to exceed 3,': per c-'t . "tovord
e 0113.11 sing vdth the Hat.ies'burg ra.tc".

Hills in Plorid^-, ^ere corroelled to sell o'n the basis of rates from
Jaclcsaivilie to CJA destinations, but were also ;oermitted to a.bsorb
up to 7)<i per cv;t to meet the Hattiesburg rate.

Tnus, tne rates fr,m Hat'^iesbur , IIi3sisci;"ri , were y^eQ ed as the
lowest frei; at ra-te basis v/ith which all other rater v/cre to be equalized
on shiprie-nts to Central freight AssociatiTn territory.

:,'ills in Yir^ i-ni ■ and Worth Carolina were not reiuirec tc add
freight in shi;--dng to de;-tinati ■as in central territory, nor, if it should
in o.ny ca.sc have been -.ecessary, '■'ere they pemdtted absorption in selling
to these .•■T.r.ets, for the pxirijose of ecpializing v.dth the I-Iattierburg rate.

(*) As definer"' , cf, Ealiibit B e'ad of this Chapter.

(**) idsGora-i mills v;err not included i-n this provisijn.

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(?) T'j WeFt^rn Tnon:: Line Territory: (*)

Deliverer -iriccs, eqiial to,f..^.'t). mill pricec .^tIug rail frcir;l'it to
destination, v.-ere also required TOon all rail, truclcand inland, water
r.hijiraentc f r \.i nills.in- southern •^'ine proclucin;^ str.tes (in Missouri,
Southeastern and. Southwestern j^reight Associatiai Territories) to this •
territory. Absorption u..) to 5 ; per cwt. of rail froif.-ht was authorized
to i.ierruit r.^iiJs to c^-ualize rdth the Ilizaboth, Louisiana rate, v/here frei,:;ht
fr)i:i tlie r.iil.i to dertination v&s Mi.';hor than tliat rate. Sinilarly, mills
enjoyi/.£ a nor^ f.o.voraole rate tlian the Elizabeth rate were to aCC. up to
3(i -per c\7t. :,f freii::ht, to achieve eqiialization. Excepted fron these
regulations v'ero i-iills in Virrinia anc. llirth C-irolina, to which no ab-
sorptions were ...llowe;"- aiu" by hich no additions -vere required, and i.iil .s
in riorid;-., . '..hich wero roquxreu to sell on the basis of rail freight from
Jacksonville to cestinc.tion, with aos?rption up to 3(5 per 10- pounds of
the r-il ratec permitted tov/ard enpp.lization with the Elizabeth rate. In
any c:ioe, the rate from Elizabeth was peggea as the lovrast rate basis with
which all ptlier rates to Western Tr\i:i:: Line Territory were to be equ^alized.

General rules and refulations issued permit i^ed mil"i-s and concentration
yards not located on brun!: line railroads to absorb trucking costs (up to
5(^ ;-er cwt.) to railrop.d, (if n.:t loc.ted on any line), or absorb published
locals, arbii-.T ■rie'; and -thor charges over tr-'jiil: line rate bases (if located
on a chort line), -.roYided that such absorption did not reduce the dLClivered
price to lov/er than t.i,at set by tne bases pe^^ged as lowest rates for gen-
eral ecualization. (at:, t.ic lia.t ciesbur:; or &oldsboro rates, for exanmle).

The regulations "ere definitely stated to sjy 1"^ to all concent rat,; on
yards as v/ell as ^^.n lis - to all ne. 'berc }f the civisi^n.

Water shipiaents coast\7ise werf^ to be on t}ie same delivered price
basis as bcfjre, v/ith pxiDlished ?/f-J:er rates ap'Tlico.ble for time and
shipment agreed on, insur; ncc and.dt.livery costs (as per "oublished
schedules) aad rail freight charges to final destination beyond dis-
charging port a'-'.- cd to the estiblishou minipuim ;orices f.o.b. mill. Ab-
sorpti.n of freight civarges from mill t.o' port was permitted^

The regulations, efiective inarch 13, 1934, gave tho Southern Pine
Division a. corrrplete delivered price equalization .oystem embracing all
doiaestic msa-hets into which pine is ship- ed in any significanc voluine (**)

Basic deficic .cies in and maladjustrients created by the original
regulations were remedied. Mills in eastern Alabama were placed under
the Virginia Cities Adjustment without q-ualification, without rate differ-
ential. WcYi England Freight As?'ocirtion and Eastern Trunlr Line Territories

(*) A.S defined, of. Exhibit E enu of this Chanter.

(**/ West ;f Testern Trunh Line Territory and the southwestern yellow

pine blanlcet, \/est of Oklahoma and Texas, is hori^las fir o.r.d Western
pine territor--, Onl:. -negligible quantities of southern pine liad been
s/ii-oped there; at any rate , the -Division v;ould naturr 11;- wish ifcs .
members to be xtLiencijjnbered, "stripped for action" in selling to such
markets.

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were o-oeued to soatncm pine mills m all othe" -orovaicing states fron
which hi^fner frei^:ht rates 'vcrc in ef:oct, Dy pcrinittin^- eq'ualization
v/ith the C-3lc.s"Doro-Virginia Cities rate: provided thro the e.osorption
necessary to eq'oaiize didnot exceed five cents per cv/t. This meant that,
\7ith ros-"'Cct to these iiarkets, the ddvisicn Iv.C. decided to extend
greatlv the ap'^-'liciiti >n of the -'rinciple of delivered price equalization,
hut nDt CO include the whole of the divicivn, since the effect of the
five cent absorption limit v;as definitely to e::c].-ude ne.-nbers freightvdse
diistr.,iifc frou these territories froi.i ship;dni;. there.

The equrJizati :n of prices in C?A :ind Western Trunli Line Territories
"based xa, respectively, the Hattieshur;; 3.n6. Elizabeth rates openecL these
markets to frei;|,htv/ise distant mil. .s, allov/ed then to ^leet the competitive
prices esta-hlished there hy the lov/er~rated r.iills, out here a,2ain the
three cent limit on absorption indicated that the civ_sion liad decided
not to extend the equalization indefinitely^. Anj" mill which required a
higher absorption -was placed at a coiTipetitive disad.vantage tending;, in
the absence :>f offsetting circujnstances , to b3,r it fr;;? the market.

This v'ould indicate a definite policy on the part of the division to
utilize the cost protection -irice structuj-e to reduce crosshauling, and
to reserve certain markets and consTjiUing area,s to mills within an economic
distance freightwise frovi these mar]:ets. The suggestion is supported by
the division's action in limiting, on the other li-rnc'' , the adr'ition of
freight requires of short-haul ship "e rp , near tlic riarket, in equalizing
with the base rates (these lir/lts r;erc five cents for the Virginia Cities
Adjustment ?nc three cents for the Hattiesburg ajid Elizabeth adjustnentsj .
This vacant th'.t any mills shipping to point? in these areas at difier-
entials of six cents or four cents, respective!"', under the base rates
were given a competitive advanta,ge (in the form ;.f delivered prices lower
by excess of the differential over three cents or five cents) there,
presumably- to promote the i.i.se of lumber from the short-iiaul mills.

Tri\c"_: and inland. W3,terway shipments were brought within the eq\:ial-
ization system, on precisely the same basis as rail shipments; the system
was founded, on the rail rate striicture, and/ wliat ever the mode of trans-
portation (*) delivered prices were to include equalized rail rates. Any
other method would, of course, ^la.ve meant the nullifica.ti on of delivered,
price eqiiilizati on: it war- v;holly imroraeti cable to have in the 'sane market
one eq'oalized price f^r rail shipments, another for truck shipments.

Water siiipnentt- coastwise were still not within the sco^->e of the
equalization system, since formation of deliverec -prices based on
publishec v/rter r?tes mea'nt delivered prices lower than the rail
shippers could quote.

By vhat method.s the points emr)loyed as b?,s"'s or basing points were-
selected is not loio^'m. As has been stated, the d-ata and computations
used are said to mve been destroyed, li.osf of wiTat is loaown was obtained
from executives of the code a'fjnini strati on agency. Information received
from this source is to the effect that the base points were chosen in
each case uecause the freight ra.tes from the point to destinations in
its respective -.destination territory on the ave:"agc ap'^roximated the

(*) E::cept water shipments coastwise, moving at published water rates.

-118-

■.eighted average freight ra-te of all mills normally supplying those
destinations; the weighted a-verage was computed from the data collected
or available for the purpose, showing volume of shipments from origin
groups to destination groups over a limited period of years. How ade-
quately this procedure \7as carried out will, of course, never be known,
but it appears probable that lack of the requisite deta as to the source
and destination of shipments prevented anything other theoi a rough ap-
proximation of the points calculated to secufe this desired precise balance
between total freight income and actual freight expense for the division.

Be that as it may, the contention of officers of the division is
that the proper average freight rate was arrived at first and the selec-
tion of a group or base point made to conform to this rate. The average
net yield for all mills would thus be equal to the v/eighted average cost
and maintain cost protection prices, if the calculations v/ere correct and
there 'jvere no change in relative amoixiits supplied each market by the re-
spective areas. Application of this process logically meant that each
base point selected v.'ould be at what was roughly a geographic center of
production for its origin group. But such a point was not necessarily
itself a production point; thus there is (according to Southern Pine
Association representatives) no southern pine mill in Kattiesburg, although
there are mills about Hattiesburg shipping at Hattiesburg rates.

Information received from the same sources makes it clear that the
limitations on addition and absorption of freight were not intended to
effect any considerable reduction of crosshauling, although this would
siiperf Lcially (without kno\?ledge of the rail rate structure in effect for
pine) appear to be the case.

As a matter of fact, according to persons active in affairs of the
division, the limits were intended to permit all mills and producing
districts which had previously shipped to each destination territory in
any volLime to continue to ship there (in the case of the absorption maxima;
and the maximum additions required were large enough to bring within the
scope of the equalization all short-haul mills or groups of mills able to
supply any considerable part of the demand in each territory: these mills
v/ere hot permitted to expand at the expense of the freightwise distant
shippers. Thus (as the division's Traffic Manager estimated in the course
of an interview with the writer) the five cents and three cents per cwt.
maxima had tho effect of equalizing deliv.-red prices for fully 95)o of the
established pre-code supply of southern pine (in volume of shipments) for
efcch destination territory, por practical purposes the equalization of
freight rates for nearly all mills shipping to each market in quantity
v/as accomplished. Wo change in the status quo with respect to sources of
supply was envisioned, or, in fact, restilted. However, the fa,ct that
limits were set is evidence, representatives of the division say, that
the code administrative agency successfully resisted pressure to permit
unlimited freight absorption, and sought to eliminate from each market at
least the fringe of uneconomic long-haul sources of supply; these would
be producers v;ho had ncft in the past established themselves there.

It is to be noted that Virginia, and North Carolina operaturs were
at this time not required to equalize with the base rates in Central
Freight Association and Western Truiik Line Territories; thus their de-

°B6^

-.119-

livered prices v/ould include the 1.0.13. mill ;i.-.nina and freight to
destination. These -aills compete with Douglas fir moving intercoastal
via the Panama Ctnal and Kampton Heads and "by rail to CJTA territory in
the interior. The division did not care to handicap its Virginia and
ITorth Carolina i.ulls (enjoying lo'.? rates to CFA territory) in this
important inter-specie competition. These reasons could not, however,
have applied to the 'Hestern Trun.k Line Territory Adjustment, since fir
moves to \,estern ...i&rkets by rail and the volume of Virginia and North
Carolina-pine shipped there is small. What lay behind this exception is
not known. ' .

The regulations effective March 13, 1934, had not orovided for
intra-divisional equalization. This problem had presented serious dif-
ficulties. At the National f.ecovery Administration Code Hearing in
January, i/ir. Ivloore (in the testimony previously referred to) had said
that there wa,s then no necessity for placing mills on a common delivered
price basis vithin producing territory, nor v/as it advisable, because
relatively short hauls '.vdre involved and trucks were an important com-
petitive transportation factor: equalization such as that proposed for
more distant markets would, he thought, drive the short haul business
from the rails (large buyers of luiaber) to the trucks. Again, if
absorption were limited, the determination of the limits, with rate dif-
ferentials higher for short hauls m proportion to distance, would be
impr&cticable; "soue .aills would always be across the border line; cost
recovery price disintegration would be imminent". And as things were,
the possibility of local monopoly 'oy any single short-haul lowest rail
rate mill in a locel market v.as obviated by available tnicking facilities
at low rates. Finally, equalization \7c"s not essential, since without it
disadvantages to a mill (resulting from high freight rates) in one local
market tended to be largely offset by its advantages in another.

Nevertheless, the division later decided to attempt it. A special
sub-committee under the Cost Protection Committee of the division was
appointed to consider the problem. It met on March 13, 1934, and de-
vised a plan founded upon a ten. cent per cwt. ■rainimura freight rate.
Transactions within and between the principal producing states were to
be at delivered prices composite of f.o.b. mill ninim-um prices and
freight of at Ibl st ten cents per c-t., whatever the actual cost of
transportation by rail, truck or inland v-aterway. Mills from which rail
rates to certain destinations exceeded this minimum were permitted to
absorb up to five cents per cwt. in meeting competition within and be-
tween the specified states. No absorption of or addition to freight
rates was to be peruitted in Texas because "the situation there is different
from that of any other southern state in that the 'Texas rail rate structure
now in effect (a group adjustment) equalizes practically all normal com-
petition between mills therein and thereto. " An independent solu-
tion also was recognized to be necessax'y for the stetes of Ke'ntucky and
Tennessee, producing states but more important as "common consuming
markets for the aanaf acturers of southern pine in the entire southern
pine producing area. An adjustment along the lines of the adjustment
worked out to Central Freight Association Territory .■i.'ill be evolved ■

9864

-12C-

thereto." (*)

The sub-cora;nittee' s plan for intra-divisional eqar.lization and other
less significant aevi provisions vi^ere approved by the Authority in April
and May, appearing in Bulletins No. 101 and 107 of Volume I, effective,
respectively, on April 20 end May 8, 1934. The intra-divisional reg-
ulations governed shipments hy rail, truck or inland waterway (except —
on direct sale to railroads) v/ithin and between Alabaiua, Arkansas,
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina, Tennessee and Virginia south of the main line of the
Norfold and Western Railway. Prices in Oklalioma and Texas were, as in-
dicated, to be on a delivered basis at not less than f.o.b. mill prices
plus rail freight, whatever the origin of the l\imber. Moreover, on the
shipments to points in border territory in western Louisiana and western
Arkansas, where rates from Texas and Oklahoma mills were less than the
ten cent minimum, the lowest such ra.te was to aoply; Louisiana and
Arkansas mills were permitted to absorb up to five cents per cwt, to
equalize with it .

This ten cent minimum rate for intra-divisional shipments was not
selected on the basis of computations by the division's Traffic Depart-
ment, data collected by it, or othor research. It was, rather, "picked ■
out of the air". (**) Here, again, the limiting of freight absorption
to five cents per cv;t. v.'ould seem to indicate a policy on the part of
the Association to define the limits of the producing area which,
economically, should serve a given market: within the division, no
mill more than 15(^ f reign twise from any destination was to be permitted
to serve that destination. In the grert majority of cases, say executives
of the former code administrative agency, it v;as unnecessary for a mill
to absorb as much as five cents in shipping to places to which it had
normally shipped before the code. As a result, fev; complaints are said
to have been received concerning the operation of this provision.

These bulletins did not, hov/cver, make provision for the Kentucky
and Tennessee a.djustraent suggested by the sub-committee.

Other changes effected by these bulletins established an alternative
base at Alexandria, Louisiana, on shipments to Western Trunk Line
Territory points to which no through rates from Elizabeth, Louisiana,

(*) Cf. Code Bulletins cf the Southern pine Division, Volume I.

No. 27, March 21, 1934 (In IIEA files. Code History of the Lujnber
and Timber Products Industries, Exhibits K-cS). This bulletin also
recognized that in the delivered bases effective March 13, "100;o
perfection is not achieved", and that "-.'here supported by satisfactory
facts, relief should be (granted in individual instances" if certified
to by the District Committees and if the hardship was worked "in
markets normally served. "

(**) Again, this is based upon information received by the writer from
executives of the division.

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applied; (*) and divided the state of Florida into U.'o origin groups,
that east of the Apalachicola lliver (including the peninsula) taking
Jacksonville rated to each of three destination territories, that west
of the river required to add lawful rail freight rates to rainimum prices
on shipments to all three territories. However, absorption of as much
as five cents per cwt. toward equalising with the Hattiesburg and
Elizabeth (or Alexandria) rates was permitted all Florida mills, vhere-
ever loca.ted. Similarl3'-, Florida mills were required to add up to the
same amount in any case to './hich lo'/er than the applicable base rate applied.
The division of Florida is possibly explainable thus: the western part
of the state was found to be more competitive with western Alabama than
with the Florida peninsala. Also, the Jacksonville base had been set
up primarily to permit the peninsular mills to absorb the excess freight
(1 to 5 cents per cwt.) up to Jacksonville. The v;oste.rn Alabama mills
were at no such disadvantage; they were better off on the basis of adding
actual freight than tied to (in many cases) higher Jacksonville rates;
the former allowed greater absorption to CFA and T7TL territories,

D. Further ilevisions In The Regulations.

The revised equalization system (as it was on iviay IB, 1934', the
effective date of Bulletin 107) vivs not yet adequcJvte. The Special Com-
mittee on Transportation Cost Equalization met on May 21 and 22; its
findings were approved by the Cost Protection Committee on May 24 and by
the Control Committee of the division on the same date. (**) Certain
important modifications were approved, but it was decided that once these
were in operation the system should "stand unchanged in fundamental aspects
for a period of at least six months", b:/ mandate (if it could be secured)
of the Code Authority. What was then greatly needed, it was thought, was
stabilization. "All posr.ible (***) methods" of trejisportation cost
equalization had been studied and considered during the period since the
establishment of cost protection prices, and that finally developed and
perfected seemed to be tne only one adequate for the needs of the division.

(*) Rates from Alexandria to certain destination points on the

Missouri Pacific Railroad are lower; in nearly all cases the
rates from the t".7o points are the same, since both are in the
Southwestern Yellow pine Blanket,

(**) CP, Code Bulletins of the Southern Pine Division, Vol-orae I, No.
37, May 31, 1934 (In FRA files, Liunber and Timber Products In-
dustries, Code Historj'-, Exhibit K-33)

(***) The basing point system had been rejected, it was said, because
of past condemnation by the courts. Open prices with unlimited
freight absorption were rejected because not adaptable -to the
division's internal or inter-specie competiti6n, or in any other
respect. The so-called "equated f.o.b. mill 'price and trans-
portation cost equalization" was 'also rejected as similarly not
adaptable and destructive of cost protection. Subdivision of
destination territory into zones to which average rates would
apply was considered "impractical and productive of discord as
between dealers at destination."

QR(S4

-123-

The industry's position was declared to be that the principle of -har-
monizing hich, low and. in'terraediute costs through a '..eighted average should
be maintained through the' luedium of transportation equalization so that,
"in the aggregate, cost protection- realization should neither be augmented
nor decruascd, nor should transportation equalization operate to a point
v;here dcuaping by lowcpst or any other types of operation in markets not
normally served by, them be encouraged". The completed system was . •-
recommended to the. Resident Committee as likely to achieve "these ob-
jectives. The division emphatically wished to be retained unchanged
fundamontally for at least six months. (*)

A basic change proposed concerned the treatment of shipments from
Virginia and North Carolina points to Central Freight Association
Territory, Under Lumber Code Authority Bulletin. No. 82 and 107, mills
in these states had not been required to equalize with other southern
pine mills; the exception was intended to assist these mills in their
competition with intercoastal Douglas fir, backhauled by rail from port
to destinations in GPA territory. A large number of complaints had been
received, from the trade and from manufacturers. The exception had given
Virginia and iforth Carolina mills an effective price advantage in many
CPA markets. Tonnage shipped from these states into "central markets not
normally served by them" had increased gret.tly, far in excess of the
seasonal, an investigation by the division disclosed. Data reported to
the division by Virginia - Carolina mills in Janiiary, J'ebruary and March,
1934, showing shipments to 3 CIA states, Indiana, Michigan and Ohio, was
presented in support of this (**)

For these reasons the Committee proposed and the division approved
"transportation cost equalization" for Virginia and North Carolina mills
shipping into CFA and TifTL territories, on the terms and conditions in
effect for southern pine producers in other states.

Another important change approved was the abolition of the limits
upon additions required of short-haul mills toward equalizing with the
base rates. The effect of these limits in "innumerable situations" was
to equalize the rates of certain mills, adding not to exceed thrde cents
per hundred pounds, while failing to equalize the rates of their im-
mediate competitors. The latter, upper bracket (short-haul) mills with
a better than three cents rate advantage, retained the full amount of
the differential in excess of 3^. Thus intermediate mills were forced
to give up prior advantages over long-haul competing milLs, while other
shippers, some of them "important mills with large and diversified
capacities", continued to enjoy differentials.

If only five percent or less of total shipments \Yere not equalized,
as executives of the division estimated, it appears unlikely that a major

(*) Cf L etter from A. G. T. i..oore, Traffic Manager, Southern Pine
Association, to J. W. McClure, Chief, Department of Costs and
Prices, Lumber Code Authority, May 26, 1934, (Copy in NRA files,
L-amber and Timber Products Industries, "Prices - Basing Points"
folder.

(**) Cf. Table 7, Appendix,

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-l23-

raal adjustment vas here inv^.lved. It has been irai30Gsible to determine
the volume of so\ithern oine raovin;^ at the unequalized rates. That the
estimate of five -oercent may "be somewhat lo^r is indicated, but by no
means conclusively, by the orotests received by the code administrative
agency, in sufficient vol-ame to motivate a revision in the regulations.

These two changes would achieve complete "short-hrul transportation
cost equalization", with the Tlizabeth, Hattiesburg and Virginia Cities
formula rates the minimum rates to their respective territories from all
southern oine oroducing points, on rail, track and inland watervray shit)-
ments. They were not, of course, effective until the a r^roval of the
Authority had been sec-ored.

Limits on freight absorption were not to be removed; the division
wished "to eqijalize all mills in their normal markets and yet to prevent
dumping in markets not ordinarily served by them". The limits were,
however, to be increased to bi tier cwt. for mills meeting the lllizabeth
(or Alexandria) and Hattiesbui'g rates. Pressure from the long-haul
mills is the logical explanation for this action although the subcommittee,
did not renort this as the rea.son. On the other hand, maximum absorption
for eastern Florida mills shipping to eastern Trunk Line and New England
Freight Association Territories was reduced to 3fJ "oer 100 lbs. of the
Jacksonville (proper'! rates (neninsular mills still to absorb the excess
over Jacksonville); this was to correct a "present inequality "fith
res-oect to the T7est ?lorida grouo".

The mandatory equalization with the Elizabeth ra.te was not to apply
to mills st the western border line of competition between southern pine
and Douglas fir; southwestern mills (in Arkansas, Oklalioma and i.'issouri)
were not to be handicaoToed in this territory. Since Douglas fir shippers
en.joyed uniform rail rates (by reason of a blanlceted rate structure) to
these territories, the division decided to Tjut its southwestern members
on the same basis by permitting them to add actual rail rates in shipping
to TDOints in TJTL territory -^here transcontinental lumber rail rates were
less than 72.f per hundred -oounds . At all other xjoints the regijlar addi-
tion was req.uired. Kills "'ith higher than the Elizabeth rates might, of
course, equalize with those rates. The 72^ rate was used to define the
limit of this 'no-man's land of interspecie competition because pine and
fir had been coordinated on the basis of the 72^* transcontinental fir
rate, centering at Chicago. Iowa, northwestern I.!issoui'i (including Kansrs
City, the state of .[ansas end territory north and west enjoyed lower
rates on fir which ga.ve that species an advantage on the basis of the
existing coordination.

The division also approved at this time the Special Committee's
proposal for equalization in Tennessee and Kentixcky. These states were
to be treated "in the main as consuming rather than originating states".
The Hattiesburg base rate '^as to apply to west Tennessee and west Kentucky
as a minimiara with absorption uo to five cents rjer 100 lbs, permitted
mills in all southern pine producing states east of the Mississippi River
ahd in the sts,tes of Louisiana and Arkansas. For east Kentucky and east
Tennessee an adjustment which "will pro-oerly meld into the west Tennessee
and west Kentucky adjustment" was to be devised. The traffic department
was to define the two areas.

9864

-12^1-

One abuse which the ne^ KentAidty-Tennessee Adjustment was exoected
to remedy centered arotmd a border situation at the Ohio River. The
ie;eneral intradivisional equalization in effect for southern-i^ine pro-
ducing states "orovided for a ten cent miniraura rate with a maxirauin absorp-
tion of five cents (per cwt . ) . The CiTii. Adjustm':'nt , on the other hand,
required addition of freight from Hattiesburg and a maxiraura absorption
of three cents. Certain mills were, therefore, shro'oin^ to south bank
Ohio River points (in Kentuc]:y) and having their shipments trucked across
tne river into Central Territorj''. .The new adjustment placed south bank
as well as north baik ooints on the Hattiesburg base rate.

The prevailing intradivisional adjustment within and between, other
states was not to be modified, since "no substitute more equitable or
sim"ole in operation had been found."

Finally, absorption of freight to iDort on coastwise water traffic
(authorized by LGA Bulletin ITo. 107, Section 5, paragraiDh k) was to be
prohibited, because it had tierraitted certain rail shiopers to invade
territory formerly served by tidewater and nearby mills, while discrim-
inating against rail shit)-oers unable to so absorb. Such shipments in
the future were to include rail freight to port of embarkation.

The proposed modifications were brought before the Lumber Code Au-
thority on June 27, 1934, as Docket ^Jo. 64, a re-oort of the Authority's
Costs and Prices Committee, (*) The:"' were atjproved on the same date,
(by vote of 14 to 5 of the membership of the Authority, in execxitive
session) (**) effective July 20, 1934. As finally adopted, they were
substantially as described above. The Kentucky-Tennesse adjustment had
been completed and shi-oments to points in these states and to western
"Jest Virginia were to accord with rules which ma.y be summarized thus:

(a) To western Kentud::/' and western Teniiessee, as defined, the rail
rates from Hattiesburg, MississiiD-oi, were to be the miniraTora freight rate
basis subject to equalization. Southern pine mills in Kentuclcj'- and Ten-
nessee or elsewhere shiotiing from -ooints freightwise nearer to western
Tennessee and western Kentuci'y destinations were to increase their rates
to the level of the Hattiesburg rates. From origin points having higher
than Hattiesburg rates absorption up to 5^ per cwt was allowed. Eastern
Florida mills were put on the Jacksonville prooer basis, with, however,
the same requirements as to absorotions and a,dditions.

The f. o.b. mill minim-am -orices aoT^roved by the Authority on this
date were based on reioorts from 317 operators of an estimated total
of 10,000 in the Southern Pine Division. 136 of the re-oorts used
were from large firms., of whom there were said to be 500 in the
Division. Only 650 firms were foimd to keep adequate records. The
reolies used reioresented 3,j of the n-umber of ooerators, 32^0 of the
total "oroduction.

'* Cf. L\unber Code Authority Bulletin No. 8 (Volume II), effective
July 20, 1934.

0864

-125-

(b) To eastern ■Centxiclo', eastern TennessC'-'e, and western West Virginia
destinations, as defined, the rail rates from Ciia.-'Dinan, Alabama, ^Ibany,
Georgia, Or Sianter, South Carolin;j. ('lyhichever lowest )^ were to constitute
the minimum freight raty basis sujject to equalisation ( * ) . Southern
r)ine mills shit)pin^ to destina.tions in these states were required, if
necessary, to add freight to the level of the .Chcfoman, Albany or Sumter
rate applying, were allowed to absorb not to exceed 5y5 -oer cwt., in order
to equalize with that rate. Eastern Florida mills, as before, were on the
Jacksonville ^oro-oer basis, but under the same regulations as to additions-
and absorptions, ■: ■ •:. ■

Local sales at points of oroduction- in-l?STitilcKy"and Tennessee were
to be f,o.b. mill minimum rjlus rail freight from, the proper basing point ■
to the TDOint of -jroduction.

Selection of the four basing -ooints era"oloyed in the Kentuclc^-Tennessee
Adjustment followed, according to the Division's Traffic Manager, (**)
upon the determination of the approximate average freight rate at which
pine should move into each section of the territory, if the average
net yields for all -oroducing areas (supplying it) were to be equivalent
to weighted avertige costs, 'Z\e intra-divisional minimupi was not practic-
able here because the two states are co'nraon consuming states and not
heavy -oroducers. Thus, for western Kentucky and Tennessee the Hattiesburg
rates were satisfactorv, according to the division, a.s a fair ao'oroxima-
tinn of the average freight at which pine normally moved to these markets.
The same was true for e; ch of the other three basing points, in the area

* The East Kentucl<y-East Tennessee Adjustment approved by the Lumber
Code Authority on June 2'J, 1924, contem-olated the use of only two
basing points, at Chapman, Alabama, and Albany, Georgia, "whichever
lower" to be used in calculating freight to any destination in the
territory covered by the Adjustment. This territory included only
eastern Kentucky and eastern Tennessee. On July 7, 1934, at the
request of the Southern Pine Association, the Resident Committee
approved the addition of the t :iird basing point, Snrater, South Car-
olina, and the expansion of the territory to include western West
Virginia, "roughly, between a line from Bluefield to Huntington to
the southwestern state line, " Cf. Paragraph 5, Minutes of Meeting,
Resident Committee, Lumber Code Authority, July 7, 1934. (in 1\IM
files, Lumber and Timber Product's Industries, Folder on "Code
Authority Committees - Resident, January-July, 1934.")

** Information received in the course of a conversation between the

writer of this chaoter and A. G. T. iioore. Traffic Manager, December
14, 1935.

9864

-126-^

to ^hich its rates were louver than the. rates of the other two. (*)

The aj proved re.^ulations also altered the "basis for delivered
i^r icing of lumber shiriped ty water coastwis'e; this chan/re went beyond
the recommendt'tion of the division. "tThere such shipments did not move
from or through Atlantic Coast -ocrts, delivered prices were to include,
as proposed, published water rates applicable, insurance end other de-
livery costs and rail freight cliarges to final destination beyond dis-
charging port, .with the addition of the element previously omitted, the
rail freight from point of origin to port of shipment plus handling
charges at the oort. (**)

The adjustment "proved Unsatisfactory to certain shi-o-oers in Ten--
nessee and xientuclc,^. It was contended bv these shi-'o-oers that- the
inferior, quality of southern pine produced in these states made it
impossible for them, in the Ioce.1 markets' which they served, to
add freight from the basing -do ints or to quote -orices equal to the ' v-
deliver.ed.prices. of mills shi-Doing higher quality pine from the
far south. ■ Cf. Letters from the J. p. Seaborn lumber Co. , Cleve- -
land, Tennessee, to the National .lecover^'-'iidministratioh, Aug. 10
and 29, 1934. (in ¥RA files, Limoer and Timber Products Industries.)

A committee of o'oerators from Jacksonville, Florida, purporting
. to .represent about 400 small sawmills in the southeast had'protested
to the Authoritv the -oro-oosed regulation forbidding absorption of
freight from point of origin to p6int of shipment, oh coastwise
tr,n,ffic. They contended that it would be unfair to prevent inland
mills from absorbing freight charges- to equalize with, mills near ,
ports of shipment. ITevertheless, on J-'one 23, 1934, the Luiaber Code
Authority unanimously aoproved the revision in Section fk) of
Bulletin 107 (Volume l)."

Cf. iiinutes of the Lumber Code Authority , June 20 and 23, 1934.
(In IIRA files, Lumber and Timber Products Industries, folder
entitled "Code Authority Meetings - llinutes, June, 1924".)

Assistant De-out^- Administrator J. C. ■,«'ickliff e of the ITational
Kecover;'- Administration agreed that the regulation would put in-
land mills at a disadvantage with mills at or near port, to- the
extent of excluding them from use of this mode of transportation.
The absorption by the interior mills, he said, had been as high as
16y^ per cwt. on, water shipments. Absence of' conference or established
rates on the Atlantic Coastal traffic had prevented control b^'- the
Southern Pine Association of freight charges to be added to f.o.b.
mill prices on water shipments. Thus "it had not been possible to
maintain an equal competitive opportunity between business moving -
all-rail and that moving by water".

Cf. MemorandujTi from J. C. ''.Tickliffe to :. ^i. Selfridge, Deputy
Administrator, June 25, 1934 (in ITPA Files, Lumber and Timber
Products Industries, "Prices-Transportation Rates" folder.)

^864

-127-

IIoT/ever, on sales made for shipment fron or through Atlantic Coast
ports, delivered prices vreve to include, added to the established
iiiniintua prices, a nater trans'portation charge equivalent to &Ofo of
rail freight from originatin;'^ mill to de-^lination, computed according
to the rules and regiilations of the diviaicn.

This requirement that coast^-ise traffic in southern pine moves at
sofa of .tho rrjil freight detprmin'ed according to the regulations of the
division "/as promptly largely hy complaints from vfithout the division.
The Luj-iher Code Authority undertook- in Jvue to readjust the established
coordination of TTest Coast and soxithern pine limljer. The former hs,d
requested certaan changes, because, it 'viS" claitied, T7est Coast prices
at Atlantic ports nere specific am definite, those of southern pine
practically on an open rate "basis. (The former inclu.ded established
Conference rates; the latter only p-aLlished rates, ■;rhich might vary
heti/een shipping lines.) Althoii^ii th.e Authority's Inter-Division
Coordina.ting Comiaittee- foimd no evidence tliat fir or other TTest Coast
\70ods were being displaced in eastern markets, the 60^ regulation v;as
agreed upon p,s a, compromise .( *)

The Southel-n Pine Division (in the 'report referred to) expressed
its opinion: that the difficulty had be eir 'caused principally by abuse
of the";^rov.is,ion (norr ajmended) rhich permitted absorption of freight
by iTater shippers from mill to port of embarkation. It Yio-'jld thence-
forth be possible for onl;^ a fen mills at Atlantic Coast ports (**)
to ship^ into eastern ma,rkets "at levels reflected bj'^ recent sales."
The disparity bet'.7een water-borne southern pine and na.ter-borne fir
was termed not nearly so flagrant as that between water-borne fir and
rail-shipped pine;' the latter constituted the major part of fir's
competition in those markets,

TiThen the Lumber Code Authority approved the 6C}o regulation the .
Southern Pine Division- warned it that an observer was being stationed
at Horfolk to watch the voltune of incoming fir at that and other ports;
if it increased materially, the division co-old not continue to observe^ .
the rule. No such increase was noticed in the rela.tively short period
intervening befoi-e suspension. .

The TTest Coast Division also protested at this time, ' uiisuccessfully,
against sViort-haul southern pine mills i'- the southwest being allowed
to use actual rs,il rates in selling in bordar-line western territory, .
as "inconsistent and imfair."

The problem of axljusting coastal water shipments, was not yet
solved.' 3y AwT^st 9, 1934, the division had asked arid received the
Resident Committee's (Lxamber .Code Authorit3'') approval of a revision
of Para^'raph 12 (b) of Section' 1 of the ?.egvilatio:is in Bulletin No. 8

( *) Cf Code Bulletin yo . 45 (Volume I) of the Southern Pine Division
July 15, 19.34. "Hevievr of Sessions, of the Lumber Code Authority
in Chicago ajid V/ashington, beginning June 11." (in NSA Files,
Lumber and Timber Products Industries, Code History, Exliibit K-33)

(** There are only a few so\ithern pine mills at the sea or on tide-:
water.

!864

^f Vol-ulne II \7lilc]i T'oiild fix -Tinimuii delivered pricess C.I.;F, or IT.A.S.
destination port at 60^ of tlie rp.il delivered price there JaS calculated
^n the Virginia Cities 'Adjustment "basis; freight for rail ehipment
oeyond destination port 'vas to "oe added, at lowest aTsplicatle transportation
charges to -final destination plus minimtira fendling-and unloading charges.
It Was inOouitaljle, thoioght the So\ithe rn Pine Association, to let an
interior irjill qtiote at an interior destination on the hasls of SO^a of the
ra-il rate frora the nil! to that point. The adjustment was to a'oply also
to shipment -hy inland v.'aterwtiys. Approval "bv the. Ifational Recovery
Adi;iinistration was necessary "before the araended rules 'becaine effective.
(•) ,, ■: f

Again, on Septeraher 21, the diyiBion proposed to the Authority a
revision which would require adf.ition to f ,o.b. mill miniia^ price of
the laLwful lumoer rail rate from point of ' origin to port of shipment
(as tefore), hut permit ahsoi^ption of rj,ot more .than 5^ pe^'cwt. of this
freight, the ahsorption in no instrjice '.tp exceed the lawfu^ freight
rate fron' the mill to the port. This change was approved^?\**) "by the
national Control Comnittee of the Lmiher Code Authority, lit also, of
course, required approval hy the I'ational jtlecovery Ai^jninistration,

The modifications proposed proved only partially acceptable to the
Administration. ;■ The division's fino,l Lurcher Code Authority Bulletin
I!o,8 of Voluiae II, effective September 25, 1S34, revised the regulations
governing water shipments to aoply to all shipments movini to, from,
or through Atlantic Coast ports, or inland waterways < ThefjSO^ addition
to minira-um prices was specifically' to be calcijlated on the basis of the
Vix'ginia Cities formu.la and was to establish minimum prices ,,C . I .F.
(F.A.S.) destination port; to such C.I.F. price a minimum ^charge (of
75^ per M ft. on roiigh lumber ojnd 50;* per M ft. on dresse^ lumber, if
gold f.o.b. dock) was to be added to cover all handling aii^ unloading
charges, Finally, when deliver^" was required by rail at jjpint beyond
destination port, lowest o;p'olicable transportation charge^ were to be
a,dded, to final destination. Other changes requested by |ji0 division
•qave. not approved. l^

"to other bulletins were published by the Authority in behalf of
the Southern Pine Division and no changes in its delivered price (or
transportation cost) equalization system were introduced between this
date (September 25, 1934) and the suspension of cost prot^'ption prices
Ijy administrative order on December 22, 1934. j

'Jith suspension the system of delivore-l x)rice equalization and the
basing points; which had been identified r.-ith cost protect|pn prices were
also abandoned, ilembers of the industr^r returned to the practice of
quoting approximately the delivered prices i;hich frfee competition es-
tablished in any market; the formation of these prices bears no relation

(J*) (llinutes of Meetings, ilesident Committee of the LtimbeT Code Author-
ity, August .9, 1934, (In HEA Files, Lumber and Timb^f: Products
Industries, folder entitled "Code Authority Committaps, Resident,
Hinu'tes, Aiogust, 1934.") - j*

(**) Cf, Paragraph 6, Minutes of Meeting . National Control Committee,
Lumber Code Authority, September 21-22, 1934. (in USA Tiles, Lumber
and Timber Products Industries, folder entitled "Code Authority
Committees-llational Control, I'inutes, September, 1934.")

-129-

to a:i3" exacl. elenent of frei-ht froi.i an;;- orie;in point.

Official tai'ifis and freif.iit ra.te schedules published hy the
Sovithern Pine Association during the code period {;ave the minimum code
freight rates to points in each destination territbrs', tioa.t is, the
Elixaheth (or Alexandria) La., RattiesbiTr^, Miss., Sumpter, S. C,
Aloany, Georgia,, Chapcan, Ala'baiia and Virginia Cities formuly. rates .
These tariffs also sho'.;ed, for convenience, the delivering railroad, at
each destination point.

e. Conclusions Rospectin.'^ Delivered Price Equalization ^7ith Southern
Pine Division

The Southerii Pine Division wa.s faced v.ith as difficult ajid complex
a prohlem of delivered price eqi.ialization "onder the L^'amber Code as any
division of the industry (nith the possihle exception of the Son.thern
ajid Appalachian Harduood Suhdivision) .

ilaintenance of miniami prices ^ras clearly impossihle in this
division vrithout such equalization. Mills are sca^ttered througho\it the
south, and southern pine is shipped a.t \.'idely vaj-ying freight rates from
points in no less than seventeen producing states.' Constituting one of
the two chief sources of luaiher suppl'" foj.' the nation, the states of
the division produce greatly i;i excess of their doEiestic needs and
necessarily ship tho bulk of th^ir production to the northeastern and
middle-uestern United States, markets in -rhich they mee't severe inter-
specie competition from Douglas fir and other soft^/oods. The great
disparity in freight rates from producing sta.tes to these consuming
areas ma,de it clear th.^t if delivered prices were, not equalized the
mills located at relatively short distances fron aaid .enjoying low rates
to the division's principal markets in Eastern Trunk Line and Central
freight Association Territories vo-ald suTjply a major part of the demand;
longhaul mills would he ■'anahle to oqo:ajet@ until the more favorably
situated mills had exhausted thair stocks. Consxii.rption was yet so re-
duced that market prices vrere at the Minima, vrhich trere likely to
operate as maj-ima for soiietino to como .

;;oreover, in the determination of weighted average cost protection
prices the mills freightwise distant from the principa.! consximing states
had sacrificed advonta^ges which had previously ena,bled them to compete
■I'ith their more favorably located competitors. Long-haul mills
characteristically liad lower laubor and stuinpa,g3 costs tliaji short-haul
mills, compensating for higher freight charges. Equalization or
averaging of production costs (or, more accurately, costs up to the
point of shipment)., maAe ..feqUciliza..tion of. transportation costs- essential
in this divisic?!. It is not too much to saj" th-at \;ithout it the main-
tenance of cost protection prices "ould hp.ve been impossible.

As obvious a.s this seems, the division's original plan for
equalization Was partial, incoriiplete. Pro:.: November, 1933, to March,
1934, only the Virginia, Cities Adjustment ''a^s in effect. This probably
meant tha^t shipments outside the scope of the Adjustment were being equal-
ized without authority, since the addition of actiial freight by all
mills to destinations in other markets, a,s required by the regulations,

9854

-13C-
imDractiC'j.'ble.

The conrplete equ.-ilization system waich was later dovis.ed and m-^.de
effectivG in ivlarch, 1934, oroved to n-ve' serious deficiencies, but many
of these were removed in the months preceding suspension of the minimum
prices. The jrocess of develo-mient of the system was, on the v/hole,
orderly and intelli4Ent. Tlierfe was an ar^Darent willingness to correct
mistakes ma/l.e in the course of what was necessarily a purely exDerimental
process.

These mistfikes included (apart from the initial failure to equalize
shipments to Central Freight Association and Western Trunk Line Territories,
probably the most serious) a number resulting from apparent disregard for
possible development of water aJid truck traffic in southern pine, moving
at rates which, unless controlled, would constitute a threat to the con-
tinuance of delivered price equalization. Thus pine ship-oed coastwise to
Atlantic ports and by rail inland might, until late in the minimum lorice
period, be priced to include the ^actual v/ater rates. Since these rates
were not fixed, but varied, and since their application according to rules
in any case would result in lower delivered prices than those effective
upon rail shipments, it was clear that if the water traffic (which before
the code was very little) increased largely under the stimulus of the low-
er rates, equalization in eastern ma:rkets v;ould be upset. Coastwise
water shipments did increase (*), but not enough to produce this result.
There was_ it is true, a strong reason for not equalizing prices on water
and rail-shipped pine in the interspecie competitive situation in Atlantic
Coast markets. Pine might thus reach these markets at lower delivered
prices than fir shipped through the Panama Canal. Thus, it was that when
equalization on the basis of SCf/j (**) of rail prices was effected it was .
at the instajice of the West Coast Division. It is also important that
under the original reg-ulations governing coastal water shipments inland
mills were not only induced to ship by water if possible but were also
able to absorb freight to port of embarkation in unlimited amount; this
tended to reduce the net yields for those mills below amounts calculated
to maintain the average net' yield for the division at the level of cost
protection prices.

Another instance of conflict between the objectives and methods of
divisional price equalization on the one hand and interspecie coordina-
tion on the. other is furnished by the initial exclusion of Virginia and
North Carolina mills from the regulation imposed upon othe southern pine
producers in shipping to CFa territories. 'This was done, as has been

(*) This statement is based upon information received from the
Southern Pine Association. No data showing the increase is
laiown to be available, V/ith the. expiration of minimum prices
the traffic declined' tp approximately its.pre-codc volume.

(**)By A.G.T. Moore, Traffic Manager o,f the Southern Pine Association

we are informed that the increa,S9 'in water traffic continued following
the adoption of this regulation and it would have been suspended in
December.

-131-

stated, to avoid handicap-oing these mills in their intensive struggle
with cargo-shipped fir ba.ckhauled from Atlantic ports to these aar'tets.
It is quite likely th.^t the injury done the equalization system ex-
ceeded any benefit which the favored mills received.

The problem of coordination of fir p,nd pine rai:^t have been more
simpljr solved, it nov/ appears, if the ecualizaticn system worked out
for pine had been left complete and intact, while the coordination
effected between rail shipments of the tvo sr)ecies at Chicr.go was car-
ried over to markets in Eastern Tronic Line ana eastern CFA markets
on the basis of a like meeting point (or points') which might be
chosen (*); sufficient freight might be added to Intercoastal Con-
ference rates on fir to bring about this coordinatirn, if this proved
necessary.

Failure to provide for truck and inland waterway shipments in
the original regulations again instrnces an a-oparent impression that
the problem was v\rholly one of equalizing pine carried by the railroads.
True, the volume of shipments by these other trans-oortation media had
not been large (excluding truck hauling for short distance'^ before
the code. The effect was to stimulate the trucking of pine where
practicable, and this was extremely dangerous for the equalization
system because the rates are not fixed as are r-\il ra.tes; in fa,ct,
vary widely as between carriers.

Limiting the additions of freight required of the "upper-bracket"
mills created another serious competitive maladjustment, between these
and the intermediate mills, v;hich the division found it necessary to
correct by removing the limits and requiring addition of whatever
amo-mt ^'as necessary for equalizaticn.

Intradivisional equaliza.tion presented almost insurmountable dif-
ficulties; there was a,n absence of criteria by which to decide what
mills or groups of mills should be equalized in what markets. Local
monopoly, such as might have resulted at certain points if actual
freight charges were added, was to be avoided. Markets within the
producing states were important to pine mills, and any method which
excluded mills from markets in which they had previously shared would
inevitably provoke much dissension. The ten cents per cwt. minimum
freight rate established, with absorption (to equalize with this rate)
permitted mills shipping to any destination at rates up to fifteen cents,
probably was broad enough to avoid injurying anyone seriously. A
standard regulation, it obviously was not ideally adapted to differing
local situations. The minimum rate was possible not a little higher

(*) Again, on the principle of the division of markets to
Liaintain the -ore-code status quo.

9864

than a survey (*) v,-o-iiId have sho-.Tn the averaA:e tr.-mSi ortation cost
of southern pine consumed within the producing states to be; on the
other hand it is possible that this average was offset lay an average
yield on shipments beyond the division less than weighted average cost
protection prices, or, in othe^- v^ords, by an excess of total absorp-
tions over total additions on such shipments. The solution of the
intradivisional problem scientifically w?s ira-oossible without complete
data as to consumption and sdjrces of supply for each local trade area,
and without data showing to vhat extent a balance between freight paid
the carriers and freight included in delivered price had been re-
ceived under whatever plan was established.

Compliance with the cOot protection prices (f.o.b.mill and de-
livered'iin this division is r,aid by executives of the code adminis-
trative agency to have been fairly well maintained early in the code
period and to have begun to weaken in the summer of 1934 (from Jvme
to August^; non-compliance v/as general for some time prior to sus-
pension. No more precise information as to the extent of nrice com-
pliance at various times is obtainable. The division's enforcement
activity was efficient. Weekly reports (**) v/ere required of all
members (under Article IV of the Code); these showed, for every order,
the delivered, price and destination of shipment. They were checked
by the cost protection department and discrepancies (or violations')
called to the attention of the offending mill; an adjustment of the low

(*) Since no such survey is known to have- been made, it apnears
that this will never be known.

The Southern Pine Division attempted, in June of 1934,
to determine whether the equalizs.ticn system established had
resulted in an ap-oroxiraate Balance of freight charges paid
the carriers and freight included in delivered prices, for
the division as a whole. To this end it distributed to all
racmoers copies of a form which is reproduced as Exhibit-D
at the end of this Chapter.

This was enclosed in Bulletin No. 37 (Volume l^ of the
Southern Pine Division, dated May 31, 1934 (in HRA files,
Liunber and Timber Products Industries, Code History, Sxhibit-
K-33'^ Apparently the number of returns received or the char-
acter of the data supplied was such as to prevent their cora-
loilation and use. The period for which the data was
requested, the three months ending March 31, 1934, was
probably unsatisfactory, because delivered price equal-
ization for the Division as a whole was not effective until
March 13, 1934. Although other similar surveys were at-
tempted by divisions of the industry, we have no knowledge
of the successful completion of any one, on a scale repre-
sentative of the divisional membership as a whole. Many
mills kept records inadequate even for the reporting of
this information,

(**'' These included copies of each order booked, serially
numbered.

-133-

price by payment of the balance was then required .(*) . In addition
raerabers of the division's larf^e field staff checked invoice corsies
at every mill inspected.

There were tvro factors in this division which chiefly contri-
buted to non-compliance. First, vas the extremely large number of
small mills, irresponsibly and inefficiently ooerated, habitual
price-cutters, without knowledge of their costs of production. En-
forcement of prices or pricing regulations in the case of these mills
(many of them portable) proved impracticable. Second was the activity
of the wholesaler, who was beyond the jurisdiction of the code and
might buy at the mill and fail to observe . the regulations for the
addition or absorption of freight, with the result that wholesalers
often quoted lower delivered prices at the market than members of the
industry.

The three principal objectives of the division's equalization
system were stated (**") by the Traffic Manager of the Southern Pine
Associi-tion to have been:

1. To secure each mill's normal share in its normal markets,
preserving the status quo vjith respect to division of
markets.

2. To prevent "dumping" and the sacrifice of cost protection
prices.

3. To take no overall profit on freirht.

The system ss -oerfected by the division and as it was after the
effective date of LiLmber Code Authority Bulletin !I0. 8 of Volume II,
in July, 1934, V7as, with the exceTDtion of the partial (6'^'* eaual-
ization of water shipments coast'^ise, complete. This was a primary
consideration, but the real test of the so^'ondness of any set of reg-
ulations from the point of vie'.7 of the code was the attaining of a
balance between the freight charges of the curriers and freight in-
cluded in delivered prices . To wh' t extent this balance was secured
cannot be known; but the basing points appear to have been reasonably
centraJ. in locrtion (taking into -ccount voluue of production
from the various areas); it is, as a matter of pure conjecture, un-
likely that either absorptions or additions greatly exceeded one
another.

(*) The division reports checking 922,4<^7,700 board feet for

price violations from' December, 1933, to March, 1934. SOfo of
all violations during this period were said to be unintentional,
and were corrected by the mills.

Cf . p. 13, Code Bulletin of the Southern Pine Division, Vol-
umne I, No. 38, June 16, 1934 (in IJRA. files. Lumber and
Timber Proaucts Industries, Code History, EjXhibit K-33)

(**) In the course of conversation y'ith the writer of the Chapter.

98S4

-134-

Bconomic considerations rai^ht dictate thf:t the syctera be judged
on the basis of its success in reducing crosshauling. The limitations
on absorption of freight may have hed this in view; but they vere
necessarily largely ineffective in accomplishing any reduction be-
cause they were so liberally fixed. This does not, however, reflect
upon the soundness of the system or its administration, because the
circumstances were such as to make any reform of this character (any
readjustment of marl:ets and sources of supply") impracticable.

2. The Maple, Beech and Birch Flooring Division

This division embraced manufacturers of maole, beech and birch
flooring throughout the United States. (*)

Hardwood flooring is fabric^-^ted from these three species by 56
companies operating. 50 mills in i,!ichigp,n, Wisconsin, Illinois, Ohio,
Hevf York, Pennsylvania, Vermont, Ne?,' Hampshire, West Virginia, Virginia,
Tennessee, Georgia, Arkansas and Louisiana. Flooring made fora hard
maple constitutes an overwhelming proportion of the total produced from
the species by these firms; the beech and birch varieties together
approximate I'l of the total. (**)

Maple flooring competes directly with oak flooring for use in the
construction of many t37pes in buildings. Of the total hardwood floor-
ing used in the United States, in recent years, the volume of maple,
beech and birch has fluctuated between 20 and 35fj, of oak flooring be-
tween 80 and 65fo. i.iaple flooriig is widely preferred for use in schools,
halls, and other public buildings, partly because of its durability; the
residential field is, on the other hand, dominated by oak flooring; there
is a highlj?- competitive middle grouiid in the construction of small pub-
lic buildings, shops and office buildings.

Each of these types competes indirectly nith flooring made from
softwoods, such as edge-gra.ined hart yellow pine; this competition is
so vigorous in certain areas that the hardwood floorings have been unable
to secure any considerable voliome, particularly in the south and south-
east; laminated fir flooring also offers keen competition in certain
markets.

Production of maple, beech and birch flooring is confined to a
relatively restricted area because the natural resource is concentrated
in a few states. 75 to 85(o of the total production is accounted for by
14 mills in Michigan, ten in Wisconsin and one in northern Illinois(at
Chicago^; in these two states are located the most extensive and com-
mercially valuable stands of maple timber. The freight cost of trans-
porting the raw material makes it desirable to locate the flooring mills
near the sources of supply.

A lower grade flooring, marketed chiefly in the ea.stern st tes, is

(*) Cf. Schedule A, Section 35, of the Code for the Lumber and Timber
Products Industries, Codes of Fair Competition, Vol'iome I, td.143.

(**> Accoriving to F. C. Singler, Secretary, Ma.ple Flooring Manufacturers
Association.

-135-

produced by four New England mills (in lTe'7 Hampshire and Vermont\ their
combined output about 2fo of the industry total, i'ills in the Apnal?-
chian area, in Pennsylvania, West Virginia, Virgin!?, Tennessee, and
New York, nineteen in all, together manufacture from lO to 18'^ of all
maple flooring.

A number of the southern and Appalachian mills are also producers
of oak flooring, their output of the latter usually being greatly in
excess of that for maple. Five mills in Loui3iena,Georgia and Arkansas
produce less than ifo of all maple flooring. Five mills in Ohio
manufacture from 2 to 4^^ of the total. {*) l.iany of the smaller mills, in
in Nev? England and the southern states, do not produce or stock com-
plete lines.

The annual cr-pacity of the industry is estimated at 225 million
board feet; this estimate {'**) is based upon operation during 200
days of the year a.nd a standard 4 ' hour one-shift vorking week. There
are from l''^C to 115 "matchers" or production units in the industry.

The industry's excess producti'^'n capacity is indicated by a com-
parison of this figiu-e for total capacity, 225 million board feet per
year, with aggregate shipments for all mills in 1934, 58,953,000 board
feet, and production in the sa;ae year, 57,569,^00 board feet. In 1928,
18 mills (members of the Maple Flooring Manufacturers Association') which
in 1934 shipped about 2"^ of total industry voli:ime reported total ship-
ments of 89,837,0'10 board feet; in 1929 the same group shiiD-oed 02,572,
000 board feet.

Ko data is available showing the degree to which the industry is
integrated, but it is estimated that about 5'yfo of maple flooring is
produced by mills which own find log stumpage, supplying their own raw
material needs in large part. Operators in Hichigrn and Wisconsin
particularly own extensive timber tracts: the tiercentage of integra-
tion ma^r be less in other areas. Although lower Michigan is well
cut out, there are said to De large stands of maple in the northern
part of the state and in Wisconsin.

Data with respect to the distribution of flooring manufactured
from these three species is inadequate. Eowevfer, in 1928 and 1929,
18 members of the Maple Flooring i.vpjiufacturers Associ&tion re-oorted
shipments into each state in the United States. These reports show
the principal consuming stctes in ea,ch year to be Illinois (which took
19b of the total\ i.'isconsin,. Michigan, Kew York, Minnesota, Calif-
ornia, Massachusetts, Pennsylvania and Ohio; these nine states con-
s-umed in 1928 70.6'S of the reported maple, beech and birch flooring
sold; in 1929, 71.2''o (***^

(♦) Cf. Table 8, Apnendix.

(**> According to E. C. Singler, Secretary of the Manle Flooring

Manufacturers' Association.
(***) Cf. Table 9, Appendix.

9864

— lob— ■

The saae data shows th,:',t in 1928 the 14 Southern states of
Georgia, Texas, Alabama, Kentucky, Tennessee, North Crrolina, South
Carolina, Virginia, Arkansas, Oklciiioraa, Mississippi, Louisiana, V/est
Virginia and Florida consumed only 6,749,0 "' boaxd feet of maple floor-
ing, or 7.8fo of the total; in 1929 6,851,')-i feet or 8.4-1 of total
shipments. The 14 western states of Washington, Oregon, Nevada, Ariz-
ona, New Mexico, Utah, Idaiio, Montana, Colorado, Wyoming, North Dakota,
South Dakota, Nebraska and Kansas took 9,135,0>"i ■ feet in 1928, and
in 1929, 8,384, '>>) feet, the percentage in each case being l\lf^.

The maple, beech and birch flooring industry has one of the strong-
est of lumber trade associations in the Maple Flooring Maniifacturers'
Association. This organization has (as of December 19, 1935'), 21 mem-
bers, for the most part relatively large mills. Of these, 11 are in
i:ichigan, 6 in 1,'isconsin, and one each in Illinois, Ohio, New York and
West Virginia. Members of the Association account for ?■> to S'^'o of
total shipments; their percentage of capacity is sone'vhat less as
there is a greater utilization of canacit:/ - a higher operating ratio.

There is no information as to relative quantities of flooring sold
through the several channels of lumber distribution. Many larger mills
sell direct to contractors and re'pilers. Little difficulty was ex-
perienced under- the code as a result of pressure from \7holesplers to
reduce prices; what there was of this does not apveax to have been
effective. Dealers play an important part in influencing the chi-uce
of one or the other tj'pes of flooring; some dealers stock only one
species of flooring and substitute it extensively. Nearly all maple,
beech and birch flooring is hauled by rail; none is transported by
water (except exi::)Ort shipments') and -• small Quantity moves by truck on
short hauls,.

The inception of minimum prices under the code for the lumber
and timber products industries found the maple flooring industry with
an old established single basing point system at Cadillac, Michigan.
For m^jiy years Cadillac was the center of maple flooring production:
three large mills were located there (*•) and stumpage was dense in the
vicinity. These circiimstances accoonted for its selection as a single
basing point and it continued to be used as such by members of the
association until the adoption of the code, when its application be-
came mandatory upon all mills in the industry.

The process Dy which Cadillac became a basing point is not clear.
The Maple Flooring Association for a number of years has had approx-
imately 2''' members, nearly all of whom were (as they are now) located
in the two principc-.l producin.^ strtes of Wisconsin and Michigan (**V

(*) There are still three mills at Cadilla.c, but their scale of oper-
ation is said to be proportionately not so large.

(**) In 1924, of 22 members, one was located in Illinois, one in New
York, the others were in the great richigan-.Tisconsin region.
In 1935, of 21 members, the New York and Illinois mills retained
m.embership and there were tv/o other outsiders,
in Ohio and West Virginia.

-137-

They are typically, tut not -uniformly, large, eff icientlj'' raanaf^ed mills.
Their production costs are on the whole somewhat lo-ver than the ;-iro-
duction costs of mills in other localities, as in Kev/ England.

Maple flooring for many years has been quoted and sold at delivered
prices, for reasons given a general discussion else'.'rhero in this report.
It is enough to say here that purchasers are interested in the final cost
of the product delivered at destination rather than in its price at the
mill, because of the relative importance of freight charges; delivered
prices facilitate comparison of the final cost of flooring shipped from
variously located mills, a comparison ',7hich v/ould otherwise very often
he difficult for buyers lacking adequate traffic departments. And the
maintenance of f.o.b. mill prices uniform for all bijyers, viith freight
paid by the buyer, is impracticable in this industry, for reasons r/hich
also were discussed in another part of this report, apart from con-
siderations of convenience.

The Maple Flooring Manufacturers Association collects each week
from its members data shov/ing for every transaction completed during the
week, , the species, quantity, . size, grade, delivered price and average
freight rate to destination. The avor,a^,'e freight rate .reported is the
weighted average freight rate on all shipments by the mill, of erch grade
and size, to all destinations. From this data the Association is able
to calculate, for each size and grade, the weighted average of all del-
ivered prices and the average freight cost of all shipments;- then, by
deducting the second from the first, the average price obtained by all
mills f.o.b. mill (the average net yield) is secured (for each size and
grade.) These average prices realized by member mills on an f.o.b.
mill basis are reported to the members and published 'by the association
each v/eek. It also reports averages of delivered prices, averages of
average freight rc.tes and average costs of freight, as well as total
sales, for each size and grade.

The Liaplo Flooring Manufacturers Association --Iso compiles ana
distributes bo members and non-members alike a rate book which gives the
carload freight rates on maple .flooring from Cadillac, Michigan, to
destinations throughout the United St.ates. The rates from Cadillac are
designated as average freight rates from Michigan and Tfisconsin shipping
points to representative markets throughout the United States.

Any flooring o-perator is .able, by referring to these weekly price
average f.o.b, mill and by consulting the schedTile of Cadillac freight
rates, to determine approximately what delivered price must be quoted to
meet the prevailing price at any destination. This price v-/ill ordinarily
be the sum of the average price f.o.b. mill (or average realization)
reported by the a.ssociation tind the rail freight from Cadillac.

Members of the Maple Flooring Manufacturers Associn,tion ordinarily
are guided by the reported price data and adiiere to the Cadillac basing
point on shipments to all destinations. ' Since these mills supply VO^'i
or more of total maple flooring their i^se of the price dsta and- adherence
to the Cadillac base means that usually, at nearly all destinations, the

9864

-138^

delivered price so calculi^.ted "/ill be the market price, IJon-nembers in
general ^.re ■'juaderstood not actually to use the Cadilli'c basing point in
deterraininfT their delivered prices, but to follO''.' and stajr v/ithin,
ordinarily, the delivered prices qn.oted by the member coiiipanies on this
basis. (* )

iviaintenance of the Cadillac basing point and the resulting high
degree of price stability in the industry is possible not only because
members of the association account for so large a proportion of total
maple flooring production; other important factors are the concentration
of the supply of tne raw material, maple stiunpage, over a small area,
8Jid the concentration of producers in this area, so that there is no
great disparity'- of rates from the vsrious origin point's. {'"*)

In this sense there had been a single basing point system in the
maple flooring industry for many yeirs before the institution of cost
protection prices under Article IX of the Code. These minirauJTi prices
presented the division with the sai:ie problem of delivered price
equalization v«hich confronted nearly evei-y branch of the lumber in-
dustry under the code. The Maple flooring Manufacturers Association
became administrative agency for the Code Authority in the division.
iJinimuiii prices nere proposed to the Authority and aporoved, effec-
tive November 7, 1933, (published in BulietinTo. 4 of ''^olujne ' I ) ,
the first day upon ?.hich prices became effective in any division of
the industry. The maple flooring prices were

(*). In a declining mi-.rket, non-member mills often quote prices less
than the Cadillac prices, particulrrly at destinations to which
they enjoy a relatively lov-/ freight rate. In such a market even
member mills disregard the price reports, fail to cdhere to the
basing point.

(**) The single basing point system of the maple flooring industry was
brought before the federal courts under the anti-trust laws and
v/as sustained by a decision of the United States Supreme Court in
1924 holding that the Association had only effected a combination
to gather and disseminate useful data ^ith respect to sales, ship-
ments, stocks, production, prices and freight rates from Cadillac,
"without any attempted agreement for concerted action with respect
to prices or production or restraining competition. " The opinion
further stated that there was I'undisputed evidence that prices of
dependent's products were fair and reasonable, usually lower than
the prices of non-nembersi'; also, that the evidence showed it to
have been the usual pra.ctice in the trade to quote delivered prices,
that purchasers will not buy on cuiy other basis usually, aJid that
average freight rates from principal producing points (in liichigan
and Wisconsin) to principal centers of production ere approximate-
ly the same as rates from Cadillac. The freight rrte book was
declared to serve a useful purpose in enabling members to quote
promptly delivered prices. (Cf. Supreme Court of the United States,
Ko. 342, October Term, 1924, Maple Flooring kanuf acturers ' Associa-
tion^ et al, appellants, vs. the United States of America.)

■ — ■ TT^gr

f . o. b. mill minimi' but the eccomopn.y in^ rules fnd ref_ul; tions required
sole at celivered prices not less thpn tho f. n.b. mill prices plus rail
frei'^jht from C^c'illac, iv5icl:ip:en to ooptination. In this way, the single
basing point upon vhich more than 7C' of maple flooring; had Deen sold
prior to the coce vps recognized f^nd mandatory for all mills whcreever
located. Sev/ Englfnd, Appr,ipchipn and southern mili.s, non-mcmDcrs of
the Associrtion End (except where convenient) non-users, ni the br-sing
point now found themselves forceo to are or absorb freight to equalize
with the Cauillac rate. All mrple flooring shipped, whatever its origin,
wh-.tevc-.r its destination, wf s to be quoted at Cacdll.^c freight rates.

The establishment ol rainimun celivereo jricep orsec u:jon freight
from p. sinsjle oasing point at Cadillac met vith opposition almost from
the outset. The Jpnuary (l93'-0 hearing called by FEA to consider tne
ooeration oi the lumber coec ano. receive comolaints a9-in3t it was the
occasion for an attack bj a representative of the Consomers' Advisory
Board. V/orth E. Slioiilts, the Board's lumber specieli'- 1, on January 10,
presentee a lengthy criticism of oclivered };rice equalization and the f.
raanaator^' use of basing points in a nwaber nf divi'^ions of the ineustry unce
the code; in the course of this he citer tJ>e mfole tlooring system whereby
all proaucers "pretend" location in Caaill-.c, kich. , anc offered data
tencing to show t^.at cver"":e frei;:,Jrjt charged oy the mills exceeded average
freight paid to the carriers on ■"■hioments to'threc Important markets,
Cnicago, St. Paul and Minr.e^' poLis. {*) The Lumoer Coae Authority ana
the Maple flooring Livision a , .arnntl^ were preparer, for this .criticism.
On January 12, 1934, the c.arges were fns'"erei oy the Authority's
jixecutive Officer, C. A. Bruce, wlio was able to present cata compiled
by the divi^-.ion tenaing to show tiiat the total co^t of freight and other
delivery charges actually' incurreo on maple flooring urocucts in Leccmber,
1933, varied from total freight inclucec in the delivered selling orices
(using the Cadillac base) oy one per cent only (**). , This computation
of freight figures reported by 13 mills srowet. a composite net orofit
in freight cost aoon lecember, 1933, shipments of only ■179.72, of a
total cost of freight included in -celivered ;rices amounting to ■17,421.90.
ohipments of these 13 mills were said to con-titute ?C'j of the industry
total for the month.

{'*) Cf. Tranecri(;t of C o-i e Hearing, lAWiDer and limber Procucts
Industries, Fational Secov^ry Admini-tr- tion,
January 10, 1934, pp. 3'J9-331.

(''*) Ci. Transcript of Coee Hearing, Lumber ano Timber Products
Ineustries, I'ftioncl Kecovery Acministrf tion ,
January 12, 1934, pp. 618-669.

9864

-140-

Both ststistiCr'l nresentt tions, that oi the Consojners' Ac.visory
Borrd end thgt of ttx iutnoriL^, -"Oie ofsed upon incC'.ec;U8te cats and
were inconclusive. Ihe Board h=-c. not raaae itf: om investigation and
the date it used was not representative as to sources or markets; the
Maple Floorin/< Livi'.ion had collected it'; dsta hastily (in resoonse
to a Lumber Coce .Authority re:ue t of Lecemoer 29, 1933) between
January 2, fnd January 8, 1934, ano the c.ata it usea vas not shown
to De representative a r- to procucers with re -uect to location.

On January 28, a conierence war, held in the office of FRl's
Deputy -cministrf tor for the J-aiiiDer Co(e, 1. A. Selfrics;e, between
the Lenity, Secretary i. ^. Sini^ler of the .,;^ple Flooring livision,
Shoults, and Vv. '^. Yost anc "eter Stone of the I-.esearch and Planning
Division. Tir-ds resulted in an ^sreement that the single C-dillac
Dasing point sj-stem be modified: that it be continued in use for
shipments from Michigan, V/isconsin andnort'.trn Illinois, but that
shipments from all other points be at i.o.b. millorices olus actual
cost of transportation (*). Shoults, 'ri;uin- in f-vor of modifica-
tion, termed the single barring point an "almost perfect examijle of
the outlawed ' ' ittsuurgh-Plus ' method". xost stated that the
modification would leave twent^f-two mill- controlling i'-\ of
proauction on the C-dillac base; 23 smaller mills ( accoui-jting for
tl.;e remaining 16 ) woulc oe iree to price on an f. o.b. mill basis.

T'owever, a Dulletin i'^'^) isnijec. to division members on
Feoruar^ 9, 193'-;, re..orted that weightec = veraaie costs ^nd ;jrices
had been submittec to ^^nd ai; roved by the Authority on February 8,
IS'34, the Cfdillac single i.iasin?, i,oint being letfined and ap>;roved
"on our stf tement of our unaerst^nc in ^ of the procecure agreeable
to the Cons'uners' 3oaro." Ine recuired U'3e of the Cac.illac base by
southern and eastern mills was -anderstjod to oe the source of the
Board.' s oojection, but if one or i.^ore other casing points were to
be aduopted their location "s;.oulo oe basec on a complete survey and
with dtie regard to competitive markets." Ihe surve^y " j. s to cover
delivery costs from all flooring mills to ;.;rincipal comestic
consuming markets.

('■') Cf. Letter from Leputj* ^diiiini trftor '^. A. Selfrid-i-e to
the Lumber Coce Authority, January 29, 1934, a memo-
randum from W. '£., >hoults to 1 eputy Self ridge, aated
January 29, 1934, and a letter from V.'. L. Yost to
Leputy Selfrioge, Jrnuary 31, 1974 (in I"R." Files
for the Lumber and Timber "rocucts Indi'S tries, ""^rices-
Basing Points" Folder).

('"'"). Cf. MFivlA B\illetin 3c-A, Feb. 0, 1934, (in lEA files,

Lumber and Timber Prooucts Industries Coce, Code T^istory,
Exhibit E).

9b64

On Februgry 1-^, the civision unaertook the ■r.urvey , rskin^ e-ch
mill to f^irniph it with Cfrlord ^no I.e. 1. irei.'jht rptes to r'-pre sentative
deatinftions pointo selected b:-,o listed on Tem^red forms.

The opinion of the ■viTiDer Cote /v.tiiority '■■?s ir.cicf;tec. Dy a
letter from J. k. r:cGli.ire, Crief ol the Lco;.rtment of Costs snc.
Prices, to Leputjr Adidinistr-'itor oelf'idge, arted ieoru/ry 19, 1934.
In it he declpred it to be the ouinion of his deprrtrrifnt th&t the
"ube of the Ceaillec basing point for the entire Unitec Stftes is
inaef ensicle. " It wfs his -unocrstanuing that the system vas being
continued teiaporerily, -subject to revision £S soon as substantiating
oata can be securec for the establisi'unLnt nf rctitional casing
points". (^)

While, apperertl^ , the i>':'yle J^loorinq; livision, tr.e Autnority
ana V'hA were awaitin/?: the results ol the survey oeing mfde b,/ the
first, Vi'. ■^. Yost of I'H.' ' s Re'-,earcb ar.^: ~]:--nning I»ivision from time
to time (January to Juno, 1924) requested that the .r)le Ilooring
Division furnish c-ts '"ith res'.-ect to ■•■hioir.ents, mill locations and
distribution, etc., so th:-t '"ii? oe ;;• rti.ient mi^'ht m^ke its own study
of the :jroblern. (•^*) This c?ta '"'e s nevtr fcrnishcG, -'"-Itho each
request was transr-.itt ed by the [vijnbfr ^oce Authority to the Maple
Floorin:^ livision. "er^- jrou^oly drta of the tye reauei-ted was not
available.

By Larch 9, 1934, however, the kaols Flooring livision liad
received freight rate data from 32 milTs; incom;"'lete in many respects,
it w£ s used D„^ the civipion ir averf-:;ing freight rpter, to 18 principal
mar'vets (•^'•■=^) east of the : is' issiopi Iiiver, from 7 soxLthern mills
and 11 kichigan and Wisconsin mills. Ihe rverage rate- from all 18
mills was 35. b(/ which coraoered with an average from C-cillac of
35. 3cf; the average for the southern mills in their "logical teriitory"
ranged from 2r to 3,^ lower. The aver* ge rate from '■. i-^.consin mills
to all 18 points wps 38. 4a!', iroui Micl'iigan mills SB.?'-* and from southern
mills 32.1;. The average r^-te from Johnson City, Tennessee, was 33.4'^.
Fo action was taken by the civision pending collection of more complete
cata. ("f**')

(*) Cf. FEA files, LuiTiber anj Timbs r Prouucts Incu-^tries Code,

"Prices - Basing "oints; ..iFole i^looring" folder.
(*") Cf. Letters from 1/*. Tj. 'iost to Leouty Administrator 3elf ridge, on
March 16, 1934, to A. C. Lixon, Ltouty Acministra tor , on
March 25, 1934, ana to F. '■'. Reid, Assistant Leputy Administrate
on Ajril 9, 1934 (in JIB.i files. Lumber and limber Products In-
dustries Code, "Prices- 3a sing Foints: Msjle Jlooilng" folaer)
(*■"*) Fothern destir.eticn points: Boston, luffalv,, Chicago, Cleveland,
Detroit, Indianapolis, Few York City, Phil-oel'-hia, Pittsburgh,
Portland, I.e., ^nc -iliiiington. Lei. Southern destination points:
Atalanta, Ba Iti.nore, Birmingham, Jacksonville, r.ichmond, V?., and
V'ashington, D. C.
(****) Cf. Minutes of Letting of the l.irple, ^eech ana Birch Flooring Divi-
sion, March 9, 1934, in kF^^ Dulietin Fo. 38a, dated March 15,
1934. (in I'RA files, Lumber and Timber Products Incustries
Code, Code Fistor^ Lxhioit V, Bulletins of the Maple Flooring
Divisions. )
9864

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Later, however, the Executive Committee of the division decided
tiict if an irainedif; te solution of tie problem '■■ere required, it voulo
oe well to heve th.e Cfuillpc i)r.se vo'Ay u-jon &11 sfles in ici-,i3i,?n,
Wisconsin, Illinois, Incif-n? fno. Ohio, end e ritr Diish s recond casing
^joint Ft John^ion City, Tenn. , to 5p,jly to ?11 s'-les in states south
of the Oliio Jr^.iver r nu :-,outh oi Yev 'iork z-iic the Tew -t-ngland states,
w..erever the rete from Jo:nson City vt-s lo'er tnfn thet from C?6illec.
The lew int^lmc ntetes end Tew Yor;-' i-ere to remain on the Cfdillac
Of se pencin^q: an "equitable solution of the Cfnaoien coiuoetition matter".
(*) Shipments of mills in I'e-" YoPK f-nc Few i-nelend curin,^' the six
iuonths 'ifst had amounted to only ^i,,37&,GC0 feet or 9. S of the total
for the Livi?ion (their proouction v? s 9.3^ of the totr-l); this the
Mr-ple riooring Mr-nr-facturer? ^f"oci' tlon con-icered fn "e-'tre.;'ely
smell percente,=:e of output for wr^ich to estadlish a basing point to
the 61 sadvar.tag'e of north-centrel and "Southern mills, who would be
coaipellec. to fosorb the trei^ht .Tos^ in the vrluE-ble ' ■. ty "/ork-Few
i^ngland market without recover,, of the lo;s in the cos^t orotection
prices estr oliahed".

V.hcn this dto j3sal i'??. broLU< t to the attention of the Hesearch
rnc FlanniHf? Livir.ion, this de;.;prtment rcitei'sted it"^. rfqae^^t for
oet^ilec inicrmetion re'-, .ecting the c.rjr--tion of the Cfdillac base,
anc. sue;E-t.-ted at^f^in that reducers outside of '.iscon'sin anc ^.'icjiigan'
oe allowed to ship at minimum prices plus pctual freight to destina-
tion; •-incc- procuctioi. vt s controlled oy allocation, it "t-s not ex-
pecteo thrt thi? v'oulo cip;ruyt the ;..; r.cet. Liiaieciete rction was re-
quested, i^''')

iost'p ?ug.~eaticn wps biov^ht to tne flLention of the tueple
Flooring livision. The Fev; ^nf-lanc triLlls htd not rcuorted the frei^t
i'ate Qj ta asked .y the cJivirioi:. In a letter to the Costs ana ^'rices
ueuartiuent oi ' tne AUtx:ority, otcret- r^ Din-ier eaia zm t only one mill
Wc s jrodii-cins ariy sif^nif leant niiriitity nf iJ.ourirr-'- in thet rrea, the
otner small Lnit<5 _.eing virt' ;^11^ •■.•.hut uo'-n. (*♦*) "inkier reported
th?..t the I.XBCutive Com;nitte- 'vvrs cousioerin.., ermittin- I'e"' i-neland
mills to sell at minimum prices nl us f cti/al frfci-.",bt from mill to
destinf tion.

(*) Cf. Letter fro;a I. C. in-:,ler, .secretary, i.rple Floorini?:

;v;,nufpcturer? ' .^ -scci; tion, Chicaao, to tht Lumber Code
Authority, lepFrtment of Costs anc '"rices, ^ioril IC, 1934.
(in Y-I'.A files, Iwnber anc Timber Products Ircustries Code.)

{*'') Cf. ■ ^■'emor'■nol^Il Irom Vi/. I. Yo^t, to F. Y. Reic, /s-^istant
Leputy Aoministia t'cr, ^i.jril £4, 1934, (In 'T.A files.
Lumber rnc Timber Froci^cts Incustrie>- Coce. )

(***) Cf. L etter from F. C. bin-.vler, ^.ecretery, Maple Flooring

Manufacturers Associrtion, to Costs and Prices Lepartment,
Ivunber Coce Authority, .uay 3, 193<| (in IF.^ files, luxr.oer
ana limber Prooucts Incustries Code.)

9864

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No pction was taken .imnieci.?tely, however, end on May 22, Yost
made ';:no\"n to Leouty Adrainisti? tor liyon his o.inion th^ t the rmci-
fication of the single brsine noint system, oendine since Jenuary,
should be effected immediately. He repeated -his previous .jroposr.l
for the edoition of actual Ireight b^' mills outside Michigan,
Wisconsin, ana Forthern Illinois; this would not cause any dislocation
of trade since "allocation so nerrly equals demand." The Cadillac
basing point ne thought "not fair to consumers who f re located at
or near any »f the soutnern or Tev Enc;land mills" (*) Ihe Research
ana Planning Livision (**) asked the Legal Livision to orrft ^n
oraer so amending the basing point system. Before any action was
ti'ken in this cirection, the TxiiUber Code Authority on June 22,
in approving costs and prices proposes d,/ the ivlviple Flooring
Livision to take effect under the rcvisea Article IX (about to
rec-.ive FRA approval on July 15, 193t), also aoorovea 'mencea
regulations wnich hr-d the effect of crejtin^ two more basing
points. These regulatLons vere pxiDlished in Lumber Code Authority
Bulletin ¥o. 15 of Vol^ome II, luV^ It, 1934. On and after July 20,
sales of flooring for aomestic con?\jjnpt-ion were to be at oelivered
prices:

''vvi'ich shall not De less than mir.imiim prices f.o.b.
mill plus not less than equc-lizec freight to the
poinL at which delivery is oeing made, as shewn in
the i..,FMA Rate riook. "

On July 21, 1334, the i.i^ple Flooring Manufacturers' i^ssociaticn
puolished a rate book, which was the one referi'ed to in- the regula-
tions, containing "equalized carload freight rates from Cadillac,
Michigan, Johnson City, Tennessee, and kontoelier , Vermont". This
book listed only the lo"'est rail rate in efiect from any of these
three points to destinations in all states east of the Mississippi
River ( e/:cept Vvisconsin and f/iichigan) and in louisiana, Texas, Few
Mexico, Arkansas and Oklahoma. On sales to points in ell other states
the Cadillac, Michigan, rate was to ap>'ly, as the lovest rate.
IhuB at any destination delivered orice was to be 'the sum of the
minimum .orice ana the lowest freight rate from any of the three
basing points to Qestination. On sales for export, delivered prices
were to be figured on the Cadillac base to jort ox embarkation plus
regular rates to destinrtion beyond port.

The selection of the two new bfiein?; r>oint-s w,"=-s not based on sn

"\Qf*r ^m^ -^■^-■-9^~'rt:f30^

(*) Cf. Memorandum from W. E. Yost to A. C. Lixon, Deputy

Aorainistrator, May 22, IQS'-J , (in NRA lilts. Lumber
end Timber Products Incustries Code.).. . .

(*"*) An Administrf tive Order was,' in fact, drawn in June, 1934, ex-
empting all maple flooring manuffcturers in states other than
Michigan, Vasconsin ana northern Illinois from the use of the
Cadillac case ana requiring that they sell at the minim\im
prices plus actual freight to point of delivery. It was never
approved. (Cf. l^IRA files, Liunber ana Timber Products In-
dustries Code, files of the Research and Planning Livision.)

9864

-144-

aaequete investigation of flooring: dit^tribution, freight rates, sources
of sup^.-l;y. The survey unoerte'cen by the civision in Jeoruery and ksrch
had adiuittecly failed to produce dgte complete enough or representative enough
to be used for this purpose. But Johnson City vras rlready in use as a
basing point for oak flooring, ?nd of the southern maple flooring mills
involved no les"= thrn ?<? (including 4 in Ohio) were also' producers of
oak flooring. (•') It was also considerea (as a result of the computation
rlready ciFCussed) to repre-^ent a ffir average freight r?te for this
jroducing ares - to be, roughly, a center of production for the sout'1-ern
rnd Appalachian mills in Tennessee, reor.ii^, "/est Virginia end Vir-jinia.
There was said to be no grea-t cis.jrrity between the Johnston City rates
ana the West Virginia r^-tes.-

Montpelier, at which no mill was then or i? now located, was chosen
likewise as representing a fair average ireight rate from the three mills
in Vermont and Tew iTam.'snire.

These reasons are purely as-'fiicrted "bj ' persons tamiliar with the
aoiTiinistr ation of the code in tnis civision a.ncL cannot oe documented.

It is probable that a paramount consio-eration in the selection of
each point was^thrt the average of freight rates to principal eastern
and midcle-western consximing states be as little as icsible less than
the Cadillac average, so that tlooring from kicnigan, ''isconsin and
Illinois, 64^ of the total, might not have to move to' those markets,
at rates which would involve heavy abf'orotion of freight.

At any rate, the es tabli sb.nent of the tvo ?. dcitional basing points
Cfme so late in the coce .leriod that there was not suflicient time to
afford a test of their soiuidnes". '"ery little information as to the
effect of their estc blishment is availaole. On the whole it is probible
th^t Wisconsin and Michigan mills did increase freight absorptions
materially, and suffered recuced net yieli. s on sliiuments to certain
mprkets, some of them imoort^nt, as Few York and Few Jersey, others
relatively unimoortant, as the southeastern states, henceforth on the
Tohnson City r=te. This conclusion is not based on any data, and is
aependent in its accurfcy upon the extent to which urice compliance
(fnd comoliance with pricing regulations) -was observed. In this c'ivi-
sion, it is said to have been very gooo. (exceot on the part of some of
the very small operators) even- up to the suspension of cost protection
prices; and since suspension (on Leceraber 22, 1934) maple flooring orices have
also oeen maintained at or near coce levels.

(*) In adcition, 4 maple flooring mills in 'isconsin and one in
Chicago wexe also producers of cf.k flooring.

9864

-145-

With suspension, hovever, criue the fOcnaon;.'!ent of the coae-
crestec orc-in-; point'^ rt Jo^r'son Cit>, j.ennes=!ee, and i.:ont .elier,
Vs iraor.t. Both hac oeen estaoTishec pi the insf^nce of the
i^ojiiiniotaption; Doth vei-e xiis;..!^ ;rtiiicial she coulc. not hpve* '
oee/i expectec to surviv-e the collfose of t}e rrtilicial sti-acture
of cost protection -.pr'i ces of "'hich they vere & u' rt. There vts
8 reversion to tr.e 'ir.ilt ofsmg .oint £t CpcilliC oy inerauers of
the ..iHiji, inoF.t of vuoiu, es oefore, ■•■eie in i..ichi^x-n .rnc TTinconsin.
iiit^.-'le- flooring sole oy there .ills rt the present time is quoted
St aeli^ctec , price? in the lonnetion of which the frei_^ht rete
from CaoillcC j.s useo. Tiie. Asi=oci8tion continuec to re,.ort >jrice
(rna other) (.rtc v-eekly enci to ' isr:ue' scheciuleB oi. frei",ht r^^tes
fro.n Gfdill&c; tuis, fs oefore, rT>:-;ists memo er mills, in tne form?-,
tion of ;;rices com.io'^.ite of t' e prevfilin-_ rveygge price (or
rerlizftion) f.o.b. inii?' pnc the r-'il freight from the bssin°;
joint. i-ny non-iuemoer mills, . c^rticvlsrly those outsice the
;.iicnif;8n-l!asco^np.in' are??, have revertec. to irre-'al^r delivered
pricing, niet tin§ th6 CrcdlL-c price rhere expEcient, cuttir? it
occasionally '■pere ex-jecient. These mills use ng bfsing points.
In short, there hfs been a- con'.ilete reversion to ,jre-code uractice.

9864.

-146-

Oak Flooring Division

This division included producers, manufacturers and distributors
of all standard items of oak flooring, wner^ver located, throughout
tne United States. (*)

Oak flooring is fabricated largely by mills located at or nearby
the chief sources of supply of the hardwood raw material. (**) Chief
producing states are, accordingly, Tennessee, Arkansas, Louisiana,
Virginia, Jlfest Virginia, Texas and Missouri. Plants in Pennsylvania,
Ohio, eastern Kentucky, Mississippi, Alabama and Florida accoxint for
much smaller proportions of the total supply.

The product manufactured, in a large number of grades, sizes and
specifications, is sold nationally, being shipped into every one of
tne forty-eight states (tne percentage into each state is shown in
Table lO) , but its chief markets are in the states of the east and middle
west. Consumption is l-sast in the south and southeast, where softwood
flporing manufactured from soutiiern pine is less expensive and in greater
demand, and in the Rocky Mountain States and the far west, where high
rail freight rates result in high delivered prices which discourage con-
sumption. (***)

Flooring manufactured from oak competes directly with flooring
fabricated from another hardwood species, maple. Of the total con-
sumption of hardwood flooring the former takes 66 2/3 to 75^, the latter
33 1/3 to 25^. These relative volumes did not change appreciably during
the code period. Maple flooring dominates the public building fiild of
the construction market and is preferred for use in school houses, halls
and similar buildings. Oak flooring dominates much of the field of re-
sidential building.

Hardwood flooring of both species has been unable to compete succes-
sfully against the cheaper softwood flooring in a few markets, notably the
southeast, but where the use of tne hardwood type is established, as in the
north and east, there is relatively little tendency to substitute softwood
products except in a severe general depression.

In recent years tne oak flooring industry, in common with other branch-
es of the lumber industry, has suffered from a considerable excess of pro-
ductive capacity. In 1935, total capacity was estimated by the National
Cak Flooring Manufacturer's Association at a billion board feet per year;
this compared with annual consumption approximating 200 million board feet.
The estimate of annual capacity probably is too high since it is based
upon fifty weeks of production and one working shift of sixty hours per week,
but no other, more reliable estimate is available. There is, undoubtedly, a

(*) Cf. Schedule A, Section 33, of tne Code for the Lumber and Timber
Products Industries, Codes of Fair Competition, Volume I, page
143.

(**) Twenty years ago, the bulk of oak flooring was produced in the
north, production centering around Chicago and Detroit.

(***) Cf. Table 10, Appendix

9864

-147-
serious excess of capacity over normal demand.

There are 105 plants, cp-^rating 213^ flooring unit. ..
taesa are scattered arnong the prodacing stat's neft^r. . ""^^^^nes;

Table 11. No data is available as to the extent of l^t as shown in
persons of wide experience in th ^r.L T ^''^^'}^ °^ integration, but-

and manufactured into flooring bv mi n . T^ L" °^ ^^ logged, sawn

t....r. The latter in.ur^^^::^Zr^:^ "^"^ °'

presenting (as of Nov. 1 1935s SA 1^7 Tr I J^/^^/embersnip firms re-
companies are of all si'es I^d^^apa^ tie thert J '^''"^ T^^"'^- ^'^^^^
unit (or machine) companies; th^larL t ^emb.^ f ^°. ''' '"^^^ ^^ ^"^-

a total of 23 units, accoun s ^o^r 15 £ Tf I Li ':!"'' ^ '°"^ '"'^'^ "^'^^
11.05.2 of total industry capacitv ^.v '\^°^^^ "^^™°"^ capacity aiid
units in one to three mU uf 1. I'^ar 1st non" ""'''' "'^^^'^ ' °^ ^°^^

.33^. industry ca^city. and ofie-::-:::;::r3st^ ::r:r-L
panieHrf iSren:u^i\f rt:L^:d:^:::-enL:t^^-^ "-^ -~

of the smaller mills -pTI +.... ■ >, u f^'''^^^^® selling forces, Out many
.a. .aUa.e aT L^ tti^e^^:- ^i^t^f J-.-LX--. ^J^ ^ '

of th. flooring snipped the p Lis'r ? .'"tTS' ' "'"'S'" '°- ""^'^
thought necessary or wer» able t„ ™„t f *atever the sellers

destination. In respect 0?^^!.^^! to secure business at a particular
not a.„ere .ro. ^^^^£^T.^:i^l^!^jf^^^''-^ "^

of .n^i:;z ^^J^-.Tt^^^i^ir'-'-^^^^^ "-^ "-^ -'*

Association had been influenced bvthfi Flooring Manufacturers

Association which tended rrt^^e^phirVnTe:!''' ^""''V °' ^^^
for the sale of oak flooring ThP Z^. Tennessee, as a basing point

(-) reported currently to L IslSltt"" T f '°^^°^^' '^^^^^^ "^^11^
each shipment of flooring wis sold ?hir '-"^^^^^^^^^^^ ^---- at which
Association a duplicate of each ord^r ' ^-^? J°"^ ^^ forwarding to the
price, the item and size etc n.t °^/^^^^ appeared the delivered
name of the customer ordlnarii; wa d'l:;; d f"^' '^^ ^-^-ation. The
casionally. the destination {*^ \ul'et l ^^!=°P^• l^^^ewise, oc-
the seller inserted the freight iktTlf t V^t destination was not shown.

ed from Memphis, tne basing S'int to LsH.' ''''^"'"' "^^^'^ ^^^^ -°^-
. ^ ^°^''^' *° destination. Qnce each week the

^*) -i'-^TibiTTTTT^J^i^^HI^; —

(**) Not every transaction bv tvprv m-mhr. ■ -, -,

Win o u. "^ every member mill was reo^rt-^rl hnf d -p

Soi; ::ti. S th^at'c^^iir^f'aiT ^r^""^ --"-;J;rMs;;cL

n.ore Of the industry ^^^clt;! "" ^'"^" "^'-^ -" - ^^ =0« or
the seller. '*'"''»' "^^ ''><= '>^«. *» the business detriment of

-148-

A.ss6ciation reported to the industry the state of the flooring market
as evidenced -by the prices received by members on transactions during
the w.eek past.^. The data reported included, for each size and grade, the
total (in, thousands of board feet) and the weighted average price obtained
upon, all transactions in each item, grade and size during the current week.
These prices were all, shown f.o.b. Memphis; the f.o.b. Memphis price ?;as
obtained, for each transaction, by deducting from the delivered price shown,
freight charges at established rail rates from Memphis to the destination
on the order copy; where the destination was deleted the cnarges from
Memphis to destination a calculated by the shipper were subtracted.

This reporting of the weigkited average of prices upon current trans-
actions, calculated fi./0.b. Memphis, made it possible under ordinary cir-
cvunstances for the member mills receiving the data to know (or to check
knowledge received from otner sources, as salesman and brokers) approximately
what delivered prices they must quote in order to secure business in any
domestic market. This they found by adding to average price reported rail
freight rates from Memphis to destination. Depending upon the nature of
the particular transaction or wiiat ne considered to be the trend of the
market an operator might feel it necessary to base his delivered quotation
somewhat below the average or, conversely, feel able to quote a composite
of Memphis freight charges and an amount above the average. (*) Moreover,
there was nothing to assure the use of the reported prices by each mill;
many of them might disregard the data entirely.

Memphis was chosen as the base, as might be expected, not as a result
of market research by the association, but because it had long been a center
of oak flboring as well as hardwood production; there, also, were the of-
fices of the Natural Oak Flooring Manufacturers Association, and the Hard-
wood Manufacturers Institute. (**)

(*) This would ordinarily be the case where ai mill was able to

'secure a premiim price because of the superior quality of floor-
ing.

(**) Ralph E. Hill, Secretary of the National Oak Flooring Manufacturers
Association, and the head of the Oak Flooring Division, said at the
Lumber 'Cot hearing in January, 1934, that the Memphis basing point
had been used "in the interest of stability. It makes for competi-
tive equality in the con sximing' market and avoids endless confusion
in prices." Again, "whether or not tnere are basing points, freight
absorption remains a fact; no plant can find a market for its entire
production in a single territory."

Cf. Transcript of Code Hearing, Lumber and Timber Products In-
dustries, January 13, 1934, pp. 901-2 (in NHA files, Lumber and
Timber Products' Industries. )

9864

-149-

erouv vat:.in tne incu.tr:^ to force, the use of ' ?.e.n:-,hig '; ' t.^it^oint
W^on .,ro.uc.:-. of flooring vithin or .dthoat the .^soqi'.'il. " '

clc..rl--\^!;^r^f theprice-reportin,:, procoss^was such .s to make it
ci.arl^ imposGiWe to determine . t. -hat extent the I.Ienrynis rate vrs u-^pc^
ty me.aber fxrms in qu^ti^^ delivered ..ricds. hut -al.h E.%[p "or ^^nv

oi_c.li oa. flo.img 'ms sold at -.rices in the for;;ia,tion of rhich there-onrtp,

LTOracticablP t - ^-fjr f f "^'''^^-r.'' A^Rouia..! .>n Territor-) it v/as frocnientlv
si^p-lied. la-elv ovnilis in ^hc e^^i- -^^ ^^;^- ^ '"'"^ "'''■^'®* ''^^

u.uc±ai,: area i;as a.bie to su'-rolv p-.^tpm rV"!-,---: .-j- i !_ .

,■• T . , . '^^j.v-^^' c -K-'i.i,in ci.einaii'A a,b lover co^it i r- af

aelxvere. .rices lesc than the Ke^phis hase plus Ireight fJo. "ha^city. ^

or e^;:s^v^:'^'':Titt '"^^?'^ ^^''^'^^ ^^^^^^^ ^^^^ -^^^^ — --^

to do%o seer ' ^"i-!-- T -f' ""^ '^"'^'■'' '^^^' ^^ "^^^^ ^=^^ i*' ^^^en
ti . , ^ '"- -1--^-^ "0 result in tne loss of a sale. The c>ief -d
herent.p to tlxi Memphis base ^'err o- -^i -^^ h 1^ c.iei ^d-
in the proovci-.- 4e'^ Vboi^^ • ere , a. ..t,i,.x1o be e:.^ected, :perat3rs located
Louisiana, ii;^;"l"' ?:.•"• •"'■;/" f Tennessee. Arlcansas. northern
cictio-. in hpr-vti '--^^^-^^i-.-'--'^- ^I'^e large .ni_..Ls, mem-bers of the Asso-

necessary t, C. so ) , refa.dleis rf't:-.:.::!,^ ,: i"-;."'"''^'- " "='"'=' ' '

„f ^x,"'° ?"'^°" re^,,rtoc. by t:ie Ass.,oi.-.ticn verc least ro.-ar' e ' by .,,-.t,rs
of the industry in the f*orm:--oi .>h- -^-^ .,.. - 7 i-o.A^--e- oy ,.iv_.uers

?J"S'?e:s? ^— - Sih'^rdirf Su:r:ff:":pStti;:^''?rorth; ^

tv,3.T„.„+. ,.,„ „ ,.r^", ^ ' ^"® weifchtev. average price unon last wee^-'s

flmnnnt -f -P ■ ■ ^^''^^-•V, tne c-uj_en. colr/crea once, v-hatqver the
amount .1 irei^'OT, ci^Tcn-r", + -; ',vi ^^ 4-1 ^ , > m-^j- j^j.^

±iL..^„..-c aosoriDtion or tne rec uced net yield involved.

dustrl'f .S%S^"''''^ '^*-'" "^'" ^^^^ '^^^ ^^^^^ andlimber Products In-

D^ si;n tuh th"''-^'"rr' "'"' "^"^^^^^ '^^-^^^^^ ^^ ^^^ 0^^ ^l---g

iSr" :f ^;!tS?^; '^^ ^'^ ^^'^^- ^^^^ ^^^^''^' Hof ^uTifihree'^^onths
IT^v ;:^ r , I '?'^-. Vr!.r? ^f--^-^-^--- ^^^ ^--ion. effective
any division -A-^^t^/ ^f^'f^^^ ^" ^"^ ^^^^^^^^ '"^es were effective in
4 rv^^. T^ -^ J^^ces puolished in Lumber Code Authority Bulletin ^o
4 (Vol^e I) .ere f.,.h. nill Mnima. hut frei,:ht equalisation wa^ provided

9864

-150-

for by requiring their application as delivered prices in domestic markets
with the addition of freight from Johnson City, Tennessee; Memphis,
Tennessee; or Alexandria, Louisiana, to destination, "whichever lowest".
No significant changes in these regulations were effected hy subsequent
bulletins (in Vol. I and Vol. II), published by the Authority in 1933 or
1934. The industry retained its triple basing point system throughout the
life of cost protection prices and has made a partially successful effort
to carry it over into the post-code period.

The first thing to note about the system as established under the
code is that it was founded upon three basing points. The industry had
profited from its experience with the single Memphis base, and was attempt-
ing to set up a basing point at each of three centers of production, serv-
ing important consuming areas. Thus Johnson Cit;;-, in northeastern-most
Tennessee, was expected to serve for shipments to eastern markets. Alex-
andria, Louisiana, was to function as basing point for shipments to Texas
and the southwest, and Memphis, as before, was adapted for shipments to
the midwest and the west.

How satisfactorily the three basing points operated is not definite-
ly loiovm. Onljr one test of their effect upon operators' net yields was
undertaken, this for the very early period between Ilovember 7 and December
30, 1933, by the adiministrative agency of the Oak flooring Division. The
survey .showed that on ",696,000 feot of oalc flooring sold in this period
"it cost the producer 48^ per M feet to use the basing points". In other
words the application of these three basing points during this period re-
sulted in net yields to all operators, wherever located, averaging 48(#
per M feet less than the minimum prices. (*) A fifteen page exhibit in
Y;hich the data of this test V'las contained was filed with Deputy Adminis-
trator E. A. Selfridge but cannot now be found. ITo check of the accuracy
of the survey by the National Recovery Aiiriinistration appears to have
been made. (**) •

(*) Cf. Testimony of H. E. Hill, representing the Oak Flooring Division,
in Transcript of Code Hearing, Lumber and Timber Products Indus-
tries, National Recovery Adininistration, January 13, 1934, pp.
901-2. (In NEA files. Lumber and Timber Products Industries.)

(**) This testimony was presented by the Lumber Code Authority in re-
buttal of complaints filed by several oak flooring operators pre-
viously, during the same hearing. The complaining mills were
located at Scottdale, Penna., and Harriman and Johnson City, Tenn.
They alleged general violation of the anti-trust laws and the code
by the Lumber Code Authority, in requiring sale at delivered prices
calculated on basing points, and they protested the addition of
non-existent, excessive, freight charges by non-basing point mills.
One mill protested delivered price equalization as unfair in re-
moving a freight rate advantage which, it alleged, it had previous-
ly enjoyed. Further, the price structure for the raw material
(oak), as established by the Southern and Appalachian Subdivision
of the Hardwood Division was said to discriminate against the
northern florring :nills (in Ohio and Pennsylvania) to the extent of
about $13,00 per M ft. of the class of lumber used.

9864

-151-

No data cccurately evidencing the extent of compliance with the cost
protection prices and the rules and regulations for their application in
this division is available. ?.. E. Kill, Secretary of the Oak Flooring
ianufacturers Association estimated that 95') of the industry in terms of
flooring?; shipped was, in compliajice from I^Iovember, 1933, to October 1, 1934,
Between the latter date and suspension violations became more frequent.

At one time during the code period it was proposed to add two new
basing points, one at 2ainelle, West Virginia, in a production district,
the other at Cincinnati, The application of either would have had the ef-
fect of reducing the net income of the industry; this was particularly true
of Cincinnati: nearly all mills shipping beyond or north, northeast and
northwest of that city and through it would be including in delivered prices
less than actual freight charges; nearly all mills -would be absorbing on
such shipments, very few adding freight. This proposal, v/hich came from
within, the division, was never adopted.

It is interesting .to note that there is one company operating tlaree
plants at San Praiicisco. Under the code this plant was required to add
freight from Menipliis as a basing point, in selling to West Coast points.
The company is forced, however, to haul its oak lumber at heavy transporta-
tion cost to San Francisco (by rail and water). Tliis tended to offset the
lower freight charges on the finished product. Tlie company accounts for
about l^fa of total industry capacity. Since California alone accounts for
more than lOfj of total domestic oak flooring consumption, its three mills
are able to supply only a small part of demand for the production in the
far west and price is determined by the base prices raid cost of transporta-
tion of flooring shipjjed from the east.

Transportation of oak flooring by tx'uftk, notably from the Memphis area
to Chicago and from the ..Johnson City area to ITew York and other eastern
markets is said to have increased considerably during the code period. The
regulations initially adopted applied only to rail shipments; this made it
possible to ship by truck' and compute delivered prices to include actual
trucking rates, relatively low, unstable, impossible to check. A clause
was then inserted in the regulations remedying the oversight and requiring
equalization on truck shipments at rail rates from the basing points, but
this does not appear to have caused truck shipments to decline. No data is
available as to amounts shipped by the several modes of transportation.
No flooring is known to be shipped by water.

The wholesaler was not, according to informed persons in the industry,
an important factor in forcing departures from code prices or regulations
or in bringing about abandonment of basing points, possibly because the
aiaount of oak flooring distributed through wholesalers is not a sufficient-
ly large proportion of the total.

The price structure in effect for the raw material, oak produced in
the Southern and Appalachian Hardv.'ood Subdivision, adversely affected fleer-
ing mills located north and east of Jolinson City (as indicated in the testi-
mony given at the January hearings) . Normally, and before the code, these
operators were able to buy from nearby oalc mills at. prices which compared
favorablj'' with prices paid by operators farther south. However, the mill
group point adjustment in effect for southern and Appalachian hardwoods

9864

under the code fixed iDase prices which increased as the northern cons-um-
ing centers were approached. This adjustment will he discussed at some
length elsewhere in this chapter. (*)■

Following the suspension of cost protection prices on December 22,
1934, the National Oalv Ploorin^i ManufactTirers Association (at that time
and until iv;ay 27, 1935, code administrative agency for the Oak Flooring
Division) has attempted to maintain the triple basing points, at Memphis,
Johnson City and Alexandria.

This was to be accomplished by a reversion to the pre-code price re-
porting activity, with these sii-tnif icant changes; first, the prices shown
are to be used f.o.b. the ^pplidable basing point; second, in addition
to a weighted average price' for each size and grade there is shown the
week's high ,and low prices upon the particular size and grade and the
amounts (in thousands of board feet) sold at each price. Prices are re-
ported by the member mills as before, on order copies; the association
calculates the f.o.b. mill price by deducting r&il freight from the basing
point nearest each destination, then averages all f.o.b. mill prices (on
each size and grade) whatever the basing point. With this data it is
possible for members to base delivered prices at any destination upon the
reported price (or some price hi;;-;her or lower) plus freight from the near-
est ( freightwise) basing point. The raPge between the high and low prices
reported serves to further implement their business judgment in determi-
ning the delivered prices which they must meet, and at the same time it
provides leeway in the selection of a price

No pressure is lmoi;m to be exerted to induce mills to use the basing
points, in the post code era. It has become, as before, a matter of ex-
pediency-, with (it appears) mills rarely, if ever, sacrificing a pros-
pective sale in order to maintain the basing point prices. It has not
been possible in this study to determine the degree to which this method
of price reporting influences price formation. (**)

The reduction of crosshauling in the oal-c flooring industry will al-
ways present unusual difficulties. This is because established consumer
buying habits and customary local uses strictly limit the extent to
which a producer can successfully cultivate adjacent markets at low
freight rates. These local buying habits and uses are so strong that in
many cities, metropolitan markets and trade areas, one or a few grades
and sizes of flooring are demanded almost exclusively. The manufacturer,
on the other hand, must,' economically, produce nearly all types, grades
and sizes. He must, therefore, seek extended rather than local or near-
by markets for his products. Whether this type of transshipment would
come within the definition of crosshauling is questionable, but it defi-
nitely adds to the transportation costs of flooring and to the cost to
the consumer, and decreases net income for the mills. It is to be noted
that the entrenched consumer buying habits are habits of the flooring

( *) Cf. Pp.rt III, Section 3, 1, Appalachian and Southern Hardwood

Subdivision.
(**) R. B. Hill, Secretarr- of the HGFMA, thinks that the same percentage

of total shipments would hold true as formerly, viz. 45 to 65\j,

sold at delivered prices calculated at freight from the basing

points.

9864

buyers, the contractors and retailers, and not, usually, of the ultimate
users or consumers - the houseowners.

Minimijmi prices upon cedar closet lining products of the Oak Flooring
Division v/ere established effective July 16, 1934, Sale v/as required to
be at delivered prices not less than the f.o.b. mill minima plus rail
freight to destination from Johnson City or Memphis, Tennessee, as basing
points. The basing point freightr.'ise nearer destination on each trans-
action was to be used in figuring freight to be added to the established
minimum price. Domestic v/ater and truck shipments v/ere to be at delivered
prices computed in the same way, from the same basing points and at rail
freight 'rates.

Three companies produce the bulk of the cedar closet lining products
of the division, two of which operate raills at Memphis. One is located
in Stevenson, Alabama; for the latter the Jolinson City base was instituted.
There was, thus, no necessity for an Alexandria basing point for these
products.

Whether these two basing points are being maintained in the post-code
period is unloiov/n.

9864

-154s,

U. 'Jestern Fine Division.

All producers and ijanufcctiirex-fl of It-UMoer ;;roducts of r-estern
pine (Ponderosr., California \7hite pine, sv-rrx pine, Idrlio ■'-/hite pine)
ti-nC. interninj;led species such as ^vhite fir, Enfjleiumn spruce, larch,
Do\i£las fir, red cedr.r 'and incense cedar, in the states of ArizonF.,
California (e::cept the nine counties of the riec".'.7ood Division), Colorado,
Idalio, I-'evada, ; Montana, He-r I.Iej:ico, South DrI :ota, Utah, '.'^'onin;^, "Jashin;:;-
ton a.nd'Ore;:;on (e::cept counties in the "Test Coa.st Division) and Slpaco
County, Te:;ac., '-ere included. The products of the division "-rere listed
r,s logr. , poles and piling, sawn TdnlDer and other saijn nood products of
sa'-tr.iills, and lath. (*) There -'ere ahout I7U0 ooorators in 'the division
and 1505 Dills.

Ap. has heen previously stated in Part I of this chapter, -^estern
pine is the third rirnlrinj soft-'ood species in the United States in vol-
ume of production, e::ceeded only oy Douglas fir and southern pine. Pon-
derosa pine is the principal prodact of the industry'.

In 1512, -restern pine 'lills in the Inland Snpire ?ie/-;ion of 'Jashing-
ton, Ore'jon mC. Idrho oe;'';an the reportin^^-; of c'.elivored prices and desti-
nationB of shipnent to their trrce aarociation. Several years later
price re^ortin.';; rra-s he^-U-n Try rii^P.s in California under the a.uspices of
another association. Later the t-'o associations vere r.ierfjed into the
present 'Testern Pine Association ■•hicli continued the price reportin,;^ on
a scale enhre-cinj;;^ the entire industry. Order co-;ies -'ere sent the asso-
ciation '0^- its i,:e:'y.:erp.

The delivered prices on trr.nsacbioas recently conpleted --ere adjust-
ed to an f.o.o, Spokane, ".7a.shincton, "basis (hy deduction of the frei;2-ht
rate froi that point to destination), averayed (-.rith '-reichting) P.nd re-
ported ')ach to nenhers of the r srocia.tion, -'lio Trere therelDy assisted in
the qiiotinfj of delivered price::? the appro::irjate (felivered price in any
market tended to he the reported avera.-e price f.o.o. Spokane plus
freight fro'i that point to destination, in this sense Spokane functioned
as a hasin-; point for sone years ^rior to the code.

At the inception oi cort protection prices and vith the puhlication
of the division's first -price hulletin, I'o. IG of "volu;.ie I (effective
Noveraher iS, 1533) sale -'as reruired to he (in donestic markets) on a
delivered hasis, as follo-'s: froM nills in Oregon, California, l\ievada,
■Jashington, Idaho pm'. hontana (the principal -estern pine producing stat-
es), £.t f.o.h. nill ;.iininui-.i prices plus freiglit fro:a Si3oka,ne or klfjiath
Tails, Oregon, i-'hichever lo^'er, to destination, if the destination point
had a local rate fron Portland, Oreyon, or San Francisco (whichever lo"-
er) on l\r.i'jer of not less than ^2r per c--t. ".fiierever this rate '-as less
thrn f2('' the delivered price (srve in Arison. and 1-Te^7 i:e::ico) 'ras to he
"based on the rate froii origin to ("estination, --ith, ho^-revev, ah-,orotion
permitted up to S(' per c^t. to eruaiize -^ith uorc fr.voraoly located nills
in the sriie division, hills in other prodv.cing states -rere to sell at
f.o.h, nill prices plus lawful freight fron origin to destination.

("*) Cf. Schedule A, Section IS of the Code for the Lxu:i"ber and Tin"ber
Products Industries, Codes of hrir Conpetition Vol. I, p. I35.

-155-

Co-,;i"bined i*r.il and "ater chipnents nere to "be at delivered prices
not less than the esta^olinhed f.o.b. mill [prices plus freight fron
rziamath Tails, Ore^'on, to destination at la-'ful rr.il rates and confer-
ence "ater rates ap;:lica"ble (or pul'lishec. conoination oi" rail and vrater
rates) plus all incidental delivery costs as per cota-jlished schedules.
On shipments via the lior^'ian Line, th^^ actur.l i-atn --as to apply.

SLiliseauent loulletins did. not plter the essential princip3.es of
this system-, its Spol^ane and IQanatli Tails hasin;; points or its intra-
divisional equaliza.tion provision. Ihilletin ITo. 35 of Volume I placed
BUCB.r pine, on the irianiath Tails or.se only, (to destinations to -rhich
the Portland or San Francisco rate w-.f- not lesr, than 52^). ' The sane
"bulletin put all inter-coastal shipments oy rail and v;ater conhined
on a C.I.?, tasis (at eastern seo.hoarc, ports) only, specified the
cha.rges (*) to "be included j under teins '-'hich necessitated the ahsoro-
tion or f.ddition of frei,-'-;ht" in e::cess of or less than the rail rate
(15'/^ pe-' c't.) fron Illama-th Trlls to the port of Sacramento.

Effective Llay lU,. I53U, Lujiher Code Authority JJalletin IJo. Ill of
Volume I, instituted rales .-^^overninc the sale of the division's pro-
ducts "by mills in Arizona, Cblorado, Ke'7 Iie::ico, Utah, Ujroming, South
Dakota or El Paso County, T.ercas, at delivered prices. At destinations
in or "est of Te::as, Ohlrhoiia, Colorado, '.Jyomin,-;, or Montana delivered
prices -.'ere to "be "based on frei;jht from ori/;;in to dest inaction, ••-ith
a"^osorption permitted up to S^; per c-vt. for the purpose of ecuali?;ins
^ith Ari?;ona or i'Tev Ilexico mills enjoying' a lo^.Tor' rate.

Sale at destinations not vithin the states listed '.'as to "be "based
on the Spokane or Klamath Tails rate, 'jhichever lo'7er, except that
\7here the rate from the mill '-as less than either of these rates it
might "be applied, up to'10{?? per crt. less than the Spokane or Illaxiath
Tails rate, Arizona and Ne" :ie::ico destina.tions '-^ere also, under this ■
"bulletin, made su"bject to the rales for delivered pricing effective at
points less than 'j26 freight'7ise fron San Tra'ncisco or Portland. Com-
"bined rail and nater shipments for intercoa.stal delivery on and after
liay lU, 153^, . ^"^ere to "be priced delivered to include the minima and
freight computed on the, Syrf (Spokane) rate, less $3,00 on c.i.f. sales
or $2.50 on f.o.'o, dock sales. .No "basis of sa,lc other than c.i.f. or
f.o,"b, dock '7as allo.ved.

Effective July 20 ("Voliine .II, jJu.lletin No, 20) , sugar pine ship-
ped "by rail and -'ater (co. -Coined) ''as to "je computed on the SSrf rpte
instead of the S'Jif Spokane rate.

A final bulletin, To. 2U of Voltume II, effective July 25, IS3U,
"brought truck, and tx"ucl and rail' s"iiipments within the scope of the
provisions prei'-iously governing onl;' rail shipments; rail rates only
rrere to "'oe used. Permissive rhsorption up to 3;' per c'?t. on intra-
divisiona.l shipments '7as srid to include rll destinations in Llevada
and Colorado. T"hese rales remained in effect until the date of Admin-
istrative Order To. 3-2.$! , I)ecem"ber 22, 1S3't.

Since t'lie code the 'cr i ce rscortin:" activity of the Association

(*) The intercoastal stecmship Conference rate of $12.00 per n.T.lI.
'7as included; incidental delivery costr '7ere put at $1.23 "P^r lI.T.li.
9S6U

-156-

is understood to have "been resumed, '"ith Spokane tending to operate
as a basing -ooint as befor i.

5. Cypress Division

This division erabraced all -oroducers and manufacturers of tide-
water red cypress in the States of Florida, Georgia, Louisiana and
South Carolina, but did not include vrhite and yellow cypress 'or the
small amOTint of red cypress produced b"- hard^rood mills. Products
included logs, .poles and piling, sa'^n l-omber, planing mill products
(except those of planing mills operated in conjitaction with retail
lumber yards), shingles, flooring, veneers, plywood, lath gind boxes
and crates. (*) There were relatively fe'-' members of this division,
in all about 200 miles,

'There are as yet unsubstantiated reports that the red cypress
industry in the' south used Donner, Louisiana, as a basing point on
carload shipments during a period ending about 10 or 15 years ago.
This basing point :^as employed by Louisiana producers "ho cooperated
through a strong trade association and quoted delivered prices based
upon freight from Lonner, then in the center of .the producing area.
At about this time, however, Florida production had increased to a
point which made it impossible for Louisiana producers to maintain
the Donner basing point, because mills in Florida, Georgia and South
Carolina were not using it, were, in fact, quoting lower delivered
prices in certain important markets. Abandonment of the basing point
is said to have me.snt reversion to the highly competitive, unsystem-
atic delivered pricing characteristic of the Iwaber industry as a
whole.

The establishment of minimum prices in the division under the
code ¥ras accompanied by the institution of a multiple basing point
system. Freight equalization was /achieved through three basing or
"mill group" points effective for -oroducers in three origin groups.
The first price bulletin issued for the division by the Lumber Code
Authority, Volume I, No. 19, effective Kovenber 24, 1933, established
minimum prices f.o.b. mill but required delivered prices on all rail
shipments, these prices to be not less than f.o.b. mill fDrices plus
lawful freight rates from one of the three ooints to destination.
For the producing territory west of the llississropi Siver, Donner,
Louisiana was to be the basing point; for that east of the Mississippi
iliver, Perry, Florida, was selected, except that mills north of the
Georgia-Florida state line (in Georgia and South Carolina) were to
use Waj''cross, Georgia as their basing point. "It is important to
note that the basing point for each producing territory applied on
shipments from that territory to all destinations.

Water shipments coastwise ^-ere to be at delivered orices
composite of f.o.b. mill prices, published water rates applicable,
insurance and delivery costs (as per publish«"d schedules) and rail
rates to final destination bej'-ond discharging ports.

* Cf.' Schedule A, Section 1, of the Code for the Lumber and Timber
Products Industries, Codes of Fair Comt)etition, Vol. I, rage
133.

-157-.

Subsequent bulletins did not alter these rules for delivered pricing
in any important respect, until the publication of Bulletin IJo. 77 of
Volume I, effective May 15, 1934. This provided that, v.'hile mills
should not sell at prices less than the minimum price establiijhed for the
mill group or basing point applicable to them plus frei^;ht from that
point to destination, "in order to meet competition in eny specific market
in the same species, grade and item the mill group basing point having a
disadvantage in freight rate may be equalized with the mill group having
the lowest rate to destination, providing that the absorption may not
exceed 10^ per 100 pounds." A second change, of less importance, grouped
mills in Louisiana, east of the Mississippi River with' the producing terri-
tory west of the Mississippi, that is, iipon the Donner base.

At this time -there were approximately 110 mills which reported to
the division, of vmich eight were in Louisiana, on the Donner base, 60
in Florida using the Perry base, and 32 in G-eorgia and 10 in South
Carolina calculating freight from Wsycrosc, Georgia. (*) The number of
mills in Louisiana was not large but included severa:l big operators, one
said to be the largest in the cj^press industry.

There were no further price bulletins or equalization regulations
issued.

Notable about this division's freight equalization system is that
as originally approved it did not permit mills in one origin group (as
Louisiana) to use the basing 'point Of another origin group, in shipping
to destinations to which the freight rate- from its own basing point was
higher. Instead, each mill vas to sell at delivered prices including
at any destination freight from' the basing point for its own producing
state. This amounted to a division of markets between the three origin
groups. Complete delivered price equalization was had for operators
vrithin any one group, but -there was no such equalization between the
three. This presumably would create differentials in prices in various
markets in favor of one of the groups, decisive enough m a price market
to exclude the others from competing there.

Whether or not the Division in adopting": these regulations intended
to force each producing area to serve the consuming territories with re-
spect to which it vifss most economically located (i.e., had the lowest
freight rates), as seems probable, the regailations proved impracticable
and had to be changed. In authorizing equalization of the mill group
point having a freight rate disadvantage with the basing point having the
lovi^est rate to destination, the code administrative .agency did not wholly
abandon its policy of restricting competition in a given market to not too
distant mills; absorptions to equalize with the base ra.tes were not to ex-
ceed lOj^ per 100 lbs. This limit on absorption is unlikely to have ac-
complished a great dea;l because it seems to ha,ve been set relatively high.

Also of importance was the fact that water shipments coastwise were to
include published water rates, and were not equalized with rail-shipped
cypress. Because certain mills are on tidewater this form of trainsportation
has been of some importance in the red cypress industry before the code.

(*) There were four mills at "aycross, two at perry, none at Donner.

9864

-158-

It is not known that any serious price maladjustments developed
out of this failure to complete the equalization system. No data
is available ty which it might te determined to what .extent a bal-
ance between freight charges and freight included in "orices was
secured. With the abandonment of minimum prices the' three basing
points appear also to liave been discarded. Delivered pricing is
on a pre-code "basis, without the use of bases,, zones or any other
device. ' ■ ■ . ■ '

6. Northern Hard^^ood Subdivision.

This subdivision of the Hardwood Division consisted of loroducers
and manufacturers of lumber and timber products of birch, maple, ash,
elm, basswood, oak, beach and "other indigenous and related (hardwood)
species" in Michigan, Wisconsin and iiinesota. Products included all
those brou^'ht within the jurisdiction of the code by definition ex-
cept poises and piling, w'oodwork, hardwood flooring, veneers, pl'^^ood
and kiln-dried hardwood dimension. (*) In the Northern Hemlock
Division and Northern Hardvrood Subdivision there were about 1000
mills, the great majority being small mills.

Hardwood lumber produced by mills in these three states appears
to have been sold before the code at delivered ;orices which were not
determined by the use of basing 'ooints, zones or other devices for
systematic freight equalization. Tliey were competitive prices which,
as in other branches of the industry, it was necessary for mills to
meet regardless of distance of shipment. Further, these delivered
prices were established not only by the competition of mills located
at various points within these three states but by vigorous inter-
specie competition with producers of these and other hardwoods over
almost the entire area east of the liississippi River and including
the states on the \i"est bank of the river from Missouri south.

With the inception of cost protection orices under the code
hardwoods originating in 'Jisconsin, Michigan and Minnesota were
(under Lumber Code Authority Bulletin No. 8 of Yol-ame I, effective
November 25, 1933) to be sold, for rail shipment outside the sub-
division, at delivered prices not less than minimum prices f.o.b»
mill as set forth in the bulletin, plus published freight rates from
Wausau, Wisconsin. For shipment within the subdivision -delivered
prices were to be not less than the f.o.b. mill prices nlus published
freight rates to destination, but where one oroducer was more f?vorably
located with, respect to a certain market than others, the more distant
mills were authorized to absorb the difference in freight cost.

In succeeding bulletins published up to and including the final
one issued for this subdivision (Volume II, Niunber 69, effective

(*"} Cf. Schedule A, Section 7 of the Code for the Liimber and Timber
Pi^oducts Industries, Codes of Fair Competition, Vol. I, o. 136.

9864

-15'.;-

Fovember 22, 1934) no inmortant modif icauious of these rules for de-
livered rii-icing were introduced, a rewordirit:: of tae princinal pro-
visions (in Bulletin To. 55, effective /iay 1, 1934) Oi-dtted the
qualifying "rail" before "sriipment outside the division'', thus extended
the scope of the provision to include all shipments, ms v/^s probably
intended from the beginning. (*) "Hail was inserted before "freight
rates" in -olaces in which the ohrase occurred, again n me-iiiin^ -orobab-
ly intended frora the outset. .

In the saine bulletin the oerm producer (i;i reference to equali-
zation with a more favorably located producer) is qualified thus,
"competing producer (as de'flned o,nd published by the Administra-tive
Agency) within the subdivision."

Thus the delivered orices of all hardvfood" mills in these three
northern states were equalized in all markets' beyond the limits of the
producing area by the use of a single basing point , fitictioning through-
out the period of cost protection i^rices. 'The Hai-dwood Coordinating
Comjiiittee approved the establishment of the single basing point system,
and v^as responsible for the even more important correlation of deliver-
ed prices of this and other hardwood subdivisions in the common
consuming territories vihieh constitute their most important markets.
The method of effecting this correlation . was. based upon the adjustment
of the f.o.b. mill rjrices rather thj^ji modification -of the equalization
systems. ' • ■ ,

It is not known whether or not us,e of the Wausau rates resulted
in an average net j'-ield for the subdivision as' a whole in excess of
or belo^Y \7eighted average cost protection prices f^o .b . mill (in
other words, v/hether total additions e:':ceeded' total absorptions or
otherv/ise) .

Intradivisional equalization accomplished by the use of freight
rates from the coivrpeting mill nearest destination and absoristion of
the excess aCGual freight hy the Selling mill coiuld not fail to mean
that the average net yield on such shiY-)ments -v/as less than weighted
average costs (anil cost protection trices) , since only- absorptions were
involved, no additions. This, in turn, necessitated an average net
yield on shipments outside th-e division somewhat in excess of weighted
average costs, to offset this deficiency and maintain cost protection
prices on aggregate shipments. It is possible 'that tae basing poini;
may have been located at Wousau with this in view, but is doubtful;
if so, the result was oxily a"0 n-cxima-ced pnd not,, as far as is lciov;n;
tested by the collection of the necessary d'at-a.

7. Northern Hemlocic Division

Tliis division enbraced producers and manufacturers of northern
hemlock, tamarack, bals-Vii,* fir, :Iorway "oine' and. white oine in Michigan,

(*) All truck shipments are s.iecifically required to be at rates
comouted on the -basis of railroad rates.

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V/isconsin and Kinnesota (excepting producers of northern nine liimber in
Minnesota). Poles and piling, woodwork, li^^rdwood flooring, veneers,
plywood and kiln-dried hardwood dimension were not tinder the jurisdiction
of the division. (*)

Producers of hemlock and the other softwoods mentioned in these
states are in many cases also producers of the hardwood s-oecies which
are to he found in the same areas; they are, consequently, members of
both the pTorthern Hemlock Division and tne Nortnern Hardwood Subdivision.
This accounts for tne use of the same basing -^oint under tne cole in
each branch of tie industry.

Prior to uhe code the products of these mills were sold at delivered
prices, competitive with other softwood species and without, as far as
is known, the use of any basing -ooint.

Hules and regulations for the delivered pricing of hemlock -oroduced
in these three states as issued by the Lumber Code Autiiority in its price
bulletins for the division are substantially the same as the rules in
effect for the Northern Hardv/ood Subdivision, the territory of which
included the same states. The division's original price bulletin Ko. 7
of Volume I, (effective November 10, 1933) established minimum -orices
f .o.b. mill and required sale at delivered prices based, for rail ship-
ments outside the -oroducing territory, upon the addition of published
freight rates from Vi/'ausau, Wisconsin. Intradi visional shipments were
to be at delivered prices not less than f.o.b. mill prices plus actual
freight to market, with, however, absorption permitted to producers more
distant from a market to enable tnem to equalize with the most favorably
located mill. In a l-^ter Bulletin, No. 71, effective M.ay 17, 1934, the
qualifying v;ord "rail" was omitted before "shipments" outside the sub-
division, was inserted before "freight rates", where the -ohrase occurs
in these provisions. This meaning as amended was probably intended from
the outset. Railroad freight rates were to be used in comT3uting deliver;.''
charges by truck.

Subsequent bulletins did not modify these rules for delivered pric-
ing. With the 'Wausau basing point., they were in effect until the sur-
spension of cost protection -orices on December 23, 1934.

The division also provided re.gulations governing the sale of
northern pine and Norway pine produced by members of the Northern Hem-
lock Division; Bulletin No. 4 of Volume II, effective July 20, 1934,
established minimum pricea f.o.b. mill for these -oroducts, and required
sale (by members of the division) at delivered prices not less than f.o.b.
mill prices plus freight from Duluth, i.Iinnesota, to destination; except
that at destinations in the upner peninsula of i/iichigan and in V/iscon-
sin on and east of the Soo Line Hail road (from Ashland to Amherst Junc-
tion) and on and north of the Green Bay ajid Vifestern Railroad delivered
prices were to be f.o.b. mill ijrices plus actual freignt from origin to
destination, equalization being allowed with ne.arest competing mill in
this territory.

(*) Cf . Scnedule A, Section 10 of tne Code for the Lumber and Timber
Products Industries, Codes of Pair Competition, Vol. I, p. 136.

9864

vl61-

8. northern Pine Division.

This division inducted producers and manufacturers of white -nine,
Norway pine and miscellaneous sof owood and hardv/ood lumber in the state
of Minnesota. Of tae oroducts listed 'in the 'code definition under Article
II, only millwork, nnrdwood floorin.;,. veneers , -plywood and kiln-dried
hardwood dimension w^re omitted from the jurisdiction of this division. (*)

The division is not l-.rge and i fcs, -oroducts account for only a small
proportion of the total volume of doriiestic softwoods. There are about
230 mills, but only two companies control a'ooroximately 80-.) of total pro-
duction. (**)

Before the code these ;''innesota softwoods were sold in domestic
markets in comr^etition with other softwoods, at delivered prices which,
so f^r as is known, were nol; calculated with the assistance of basing
points, price zones, or other devices. Tlie price at any destination was
tne -orice which was necessary if northern -oine was to be sold tnere tak-
ing into account the current i^rices on similr^r items manufactured from
other species.

With the inception of cost iorotc;Ction rjrices, the northern white
pine, Korway pine, spruce, aspen and tamarack (an later, effective January

16, 1934, jack i^ine and balsam) products of this division were (under
Lumber Code Authority Bulletin Ko . 21 of Volume I, effective I'Tovember

17, 1933) to be sold at delivered ^orices formed by the addition to mini-
mum prices f.o.b. mill (set fortn in the bulletin) of lawful freight
from Duluth, Minnesota, to destinations in domestic markets. However,
within the division, wherever the actual freight rate to destination was
lower than the Duluth rate, delivered nrices were to be not less than
f.o.b. mill prices plus freignt charges fromBemidji, International Falls,
Virginia, Eedby or Gloquet, whichever lowest ; but mills were to absorb
freight charges in excess of the lowest rate only up to and including 8(i
per cv;t.

Subsequent bulletins did not alter these rules for delivered pricing
as originally establiiShed and they continued in effect to the date of the
discontinuance of minimum cost -orotection prices, December 22, 1934.
Thus the industry under 1;he code had a single basing point at Duluth on
shipments beyond the division, and six basing points, including Duluth,
for intradi visional business.

(*) Of. Schediae A, Section II of the Code for tne Lumber and Timber
Products Industries, Codes of Fair Competition, Vol. I, page 137.

(**) Cf. Letter from Peter Stone, Caief, Basic Materials Unit, Research
and Planning Division, National Recovery Administration, to G. E.
Beach Jr., Lumber Code Autnority, June 1, 1934 (in 1^.^. files. Re-
search and Planning Division, Lumber and Timber Products Industries)

9854

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9. Red\700d Division.

Red'jood timber grors principally in the nine California
counties of Del Korte, Humboldt, acndocino, Sonoma, Lla.rin, San
Iviateo, Santa Cruz, Contra Costa and Montere7, adjoining the sea.
In these counties it is commercially Tjroduced and the con-
stituted the territory of the Red-'ood Division ■'onder the code.
Products are all lumber and timber products, srjlit, sann or re-
fined by manufacture, except hardv'ood flooring, veneers, -olywood
and kiln-dried hardv'ood dimension. (*)

There were about SO comoanies in the division during the
code- period operating approxiitfately 225 mills. A strong trade
association, the Ca.lifornia Red'.70od Association, even prior to
the adoption of the code had a membership re-ore senting about
90/0 of the industry's total volume of -oroduction.

Information available for this report ia incomplete, but
indicates that redr;ood products before the code rere sold at
deliv-ered prices without the use of any system of basing -ooints.
Absorption of freight wa.s resorted to by the operators, as
necess?,ry to meet competitive prices for this and other soft-
wood species in common markets.

With tlie institution of cost -orotection lorices sale of
the products of this division at delivered prices uas ina.de mandatory
under rules a,nd regulations issued in the first ^rice bulletin,
No. 28 of Volume I, effective Kovember 23, 1933. 1-inimum
■orices f.o.b. mill 'vere established and -oublished ia the
bulletin, but it was necessary to add to these nrices freight
"from E-omboldt Bay shipping -ooints to destination", at establish-
ed freight ra.tes.

The rules permitted, however, certain specified "Authorized
Allowances" u-oon some items (less than half the total items) for
the puroose of enabling producers "to meet competition in
selling for delivery in California, Arizona and Nevada". The me-fehod
by rhich these a^llovances were calculated is not given in the
bulletin, and has not been determined. They were, in effect,
limita.tions uoon the amount of freight which one -oroducer might ab-
sorb in meeting the delivered price of another mill freightwise
nearer destination. The absorption might not exceed the "Authorized
Allowance".

Redwoods ship-ijed by vrater coastwise were also required to-
be sold at delivered prices comDOsite of the f.o.b. mill minimum
prices, the esta.blished v/ater ra.tes from Humboldt Br-y to California,
ports, and "delivery costs incident thereto as per established
schedules." Lxunber shi-Q-oed intercoastal required the addition of
Intercoastal Conference water rates, applicable to the orice A. S. T.
San FreJicisco Bay, certain standard delivery charges a.nd any ra-il
or truck backhaul costs to destination beyond -3ort.

rv-

{.* J Cf. Schedule A, Section 12, of the Code for the Lxunber and Timber
Products Industries, Codes of Fair Com-oetition, Vol, I, -'->. 137«

9g6U

-163-

Douglas fir and western hemlock products of the division were to be
sold in domestic markets in accordance with the applicable prices Of the
West Coast Logging aiid Lvimber Division (Vol-ume I, Bulletin No. 14), plus
freight in accordance with rules applicable to sale of redwood products,
except that the minimum prices f.o.b. mill were to be $1.00 per W feet
less than Bulletin No. 14 prices. That part of this provision which re-
quired acldition of freight "in accordance with the rules applicable to
the sale of redwood" was subsequently omitted in Bulletin No. 42, ef-
fective January 16, 1934.

Subsequent bulletins introduced two significant changes in the
rules as outlined above. With the publication of revised f.o.b. mill
prices in Bulletin No. 112 of Volui-ne I (effective May 23, 1934) the
"Authorized Alloi.vances" on shipments to California, Nevada and Arizona
markets were discontinued, and these allowances omitted from the price
lists. Secondly, on sale for delivery in these three states freight
charges to be added to the f.o.b. mill prices were to be from Humboldt
Bay shipping points or from Del Norte or Mendocino County water shipping
points, to destination. This bulletin further established two sets of
f.o.b. mill prices, one for the "Western. Market" embracing California,
Nevada and Arizona, the Canal Zone and our insular possessions (except
the Philippines) ; the other for the "Eastern Market" embracing the en-
tire United States, except the three states mentioned. The f.o.b. mill
minima differed as between the two markets, on a nwnber of items; rules
and regulations for intercoastal shipping are substantially as in pre-
vious bulletins.

Later bulletins retained the rules and regulations as modified in
Bulletin No. 112 cf Volume I with no significant changes. These rules
were in effect up to the date of Administrative Order No. 9-297, on
December 22, 1934.

In surainary, this division established delivered prices which at
any destination point were the same for all producers. Humboldt Bay
(and later Del Norte and Mendocino County) shipping points functioned
essentially as basing points, and the point v;hich had the lowest freight
rate to any destination apparently set the delivered price there. In
selling at this delivered price each producer absorbed or added freight
according as he was freight\7ise more or less distant from destination
than the basing point. Concentration of producers within a limited area
probably kept these absorptions and additions down.

The split products of the Hedwood Division were treated separately.
Minimum prices vfere established effective March 5, 1934, as published
in Lumber Code Authority Bulletin No. 76 (Volume l) . Sale in domestic
markets was to be at not less than rainii'mam prices f.o.b. cars (or trucks
or A.S.T. the nearest loading seaport) plus established freight rates
and handling charges to destination. (*)

(*) For water shipment, rates to be added to the loading seaport prices
were specified to be, ex vessel San Francisco Bay pts., $3.50 per
M.B.M; .Santa Cruz, Moss Landing and Monterey, $4.50 per M.3.M; Los
Angeles, San Fedro, San Diego ;uid other southern harbors, >5.50 per
M.B.M. Hail shipments vrere to be at rail rates.

9864

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Those rG,5ulations nere revised in inportant repnects rrith the
publication of Bulletin lie. 12 (Volume II"), effective July 20, 1934.
Shipments outsic.c California c-l'ter this date wore to be priced, deliv-
ered, to include rail freight from Burelia, California, or vrter froi^ht
from Humboldt 'Bay or Del Torte or Mendocino County shipping points, at
established rates. T7ithin California, delivered prices were to be not
less than the delivered minima for California listed in the bulletin,
e::cept that sales might be made f.o.b. truck at, delivered price less a
trucking alloT'ance to the destination in question. ( *)

For some time the np.ter rates used vere those in effect for lumber
rathar than split products; since the latter nere higher, o,bsorption b;"-
the producer of from 50(# to $4.50 per M. was involved. Accordingly,
the Authoritj'"' s Resident Committee, rrith the a-pproval of the Costs and
Prices Department, approved revision of the regulations to substitute the
split product rates, a.t the reaiuest of the California Redwood Association. (**)
The new vrrter ro-tes were made effective l'.a.y 11, 1934, promiilgated through
Bulletin To. 106 (Volume l) . Tliey vrere also given for an increased number
of deBtination ports bet'een San Francisco Bay and San Diego.

10. Special Woodwork Subdivision

. .This subdivision of the TToodworl: Division embraced all manufacturers
of raade-to-order or special './oodwork, oroducts including doors, vindov/s,
screens, frames, and interior trim. (***) The number of mills enga';cd in
this tjnoe of work is large and almost impossible to estimate; it was "out
at 4, CSS by the L'oraber Code Aathority.

i.'ethods of pricing custom-built \7oodwork before the code are t'lo'ught
to hove varied, with some, fab rico.tors quoting f.o.b. mill, others delivered
prices. i"o basing points or price sones are ]aiown to have been used.

T7hei. this subcivision submitted its cost protection prices to the
i'''ations.l Control Committoo of the Liomber Code Authority (the latter not
then in sesr^ion) for ecivrovrl on Tovember 3, 1933, its representatives wore
directed to revise their 'oroposals so as to exclude a provision requiring ^
the sale of the, products of manufrcturers located in an;" one of four pro— ^
duction zones contemplated in the other zones at not less than the minimum
prices establish ed for the ot her zones. (*** *) The min u tes of the comiaittee's
(*) These delivered prices for California varied;, Ic'est -orices publislied

were for destination -loints freightwise nearest Sureka, California;
and the prices increr.'',ed v.'ith each '';rf or Irf increase in the freight
rate from Eureka. Bose (lo'.,'est) prices governed for points to which
rates from Eureka './ere 17';(#- or less, per cwt; ma::ima, v/here the ra.te
was 52 -^ per cwt. Delivered prices for water shipment to California
points siiov/ed a similar progression with water freight rates from
the ports of s>^ipment.
(**) Cf. I'inutes of Meeting, Resident Committee, Lumber Code Authority,

April 24, 1934 (ij^ i'RA files, Lumber and Timber Products Industries,
Polder on "Code Authority Committees, Resident, Minutes, April 1934".
(***) Cf. Schedule A, Section 23 of the Code for the Lumber and Timber
Products Indt^stries, Codes of Pair ComTDotition, Vol-ome I, p. 140.
(****) Cf. Minutes of I.'eeting, rational Control Committee, Limber Code

Authority, Uovember 3 and 4, 1933 (in ilRA files. Limber and Timber
Products Industries, folder on Code Authority Committees - rational
Control Committee Minutes.)
9864

.-165-

meoting on this date do not indicr.te its reasons for this action^ Ijut
presiiiirhly there vras objection to the heav/ ahsorption of freight vmich
would be involved for the outside sliippers. On the follo'dng da3'-, the
subrivision ^7as a.uthorized to include in its pricing regulations a pro-
vision that, on shipments moving betr/een zones, freight vas to be com-
puted from a basing point to be established for the originating zone.

The regulations v/cre revised to the satisfaction of t'le committee
and on Tovember 8, 1935 it rpproved as minimum cost protection prices
for the subdivision (*) the "basic list prices" set forth in Cost Book
A, (1933 edition) published b^ the L'illTTork Cost Bureau (Chicago, Illinois)
and filed nith the Lumber Code Authority. There vcre four production
zones establisiied; (**) the basic list prices varied in each \)y reason of
the fact that discoujitc applicable to the list prices varied as between
zones, on identical items. These discounts r/ere for most items, greatest
for Zone 1, nent grertest for Zone S, smaller for Zone 2 and least for
Zone 4 (individua.l items erxepted) . The discounted list prices for each
zone applied upon all shipments originating rrithin the zone at all desti-
nations therein; thej-e r/as no orovision for the addition of freiglit.

These prices ''.'ere effective upon I'ovember 18, 1933 (Lumber Code
Authority Bulletin i'o. 24, Volnjne l). 7ith them \7ere established, a-s
the Control Committee had autl.orized, basing points to apply to aiipments
betv/een zones.

ianimum delivered prices binding upon mills loco.ted in Zone 1 (the
south a.nd southv/est) in shipoiiog to destine.tions in the three other zones
v:ere to be not loss than established discounted bpse prices for the origi-
na,tiKg zone plus rail freight from Atlanta., Georgia, or TTaco, Tg.~as, (as
basing points), whichever lover. Delivered prices on shipments from each
of the three other zones to destinations be'-ond the zone nere to be simi-
larly computed, and the basing points effective for producers in each were:
Zone 2 (the northeast), Albany, i■e^7 York; Zone 3 (the middle'jest and prairie
states), Chej'-enne, 'Jyoming, Omaha, lebras'-.a, or Dubuque, lo'ja, vfhicheyer
lower; Zone 4 (the west and fa.r west), Portland, Oregon, or San Francisco,
whichever lovrer.

To substantial chajiges in this limited basing point s3''stem vrere intro-
duced in subsequent bulletins until BuJ^letin To. 33 of Volume II (effective
July 20, 1934), which provic.ed that, when the established prices plus freight
to a certain destination (as determined according to the rules of the sub-
division) for a. mill sliipping into one zone from a location in another zone
exceeded delivered prices a.-.TDli cable at the same point for producers within
the zone in which deliver^'- v/as made, the latter prices should prevail a,s
the delivered minima for all mills.

This revision was obviously made to permit freer inter-zone movement
of special woodv/ork. Under regulations previously in effect, producers
outside each zone viere -ondoubtedlj'- at a price disadvantage in selling within
that zone, since they were required to ad6. freight from basing points within
their respective zones, while the domestic mills quoted the base prices.
Tliis would operate to er.clude producers from shipping to nearly all desti-
nations in other zones, e::cept v,'here considerations of quality or tra.de re—
puta.tion iixfluenced buj'-ers to disregard price differentials. Such consider-
ations are important in the custom manufrcttire of woodv/ork and raill7orl:.
(Footnotes (*) and (**) continued on next pa.ge.
9854

-166-

The revisionc effective in July, 1934, permitted oil sliipncrs, --her-
cver located, to meet the icei-t delivered 'prices p.t ar^y dentinr.tion, or,
in other "-.'ordG, e sterol inhf.d c'om'olete delivered -orice ecualisation TTithin
t he r"ab di vi g i c n .

11. TJirebo^md 3o~ Subdivision

TJithin the jurisdiction of this subdivision of the T/oodcn Pacltr.'je
Division vere brought all manufacturers of v'ireboux.d boxes and cr?.tes in
the United Strtes. (*) There "'ere in all 52 operators and 54 establishments.

Little is definitely laiov/n' aboub this industr;;'-' s pricing; practice
before the code, but uncheched information received from one source indi-
cates that products v/ere priced delivered, T/itliout reference to freight
from can;'' -basing point.

Under the code minimum prices f.o.b. mill 'vere established for nire-
bound boxes and crates effective Tebruar;'' 24, 1934, promulgated bj'- Bulle-
tin 7o. 61, Yoliune I, of the Liomber Code Authority. Sale in carload
q-aantities ^■'as required to be at delivered pricer, rrhich, if the bones and
crates were made of veneer (in xiaole or in part), v.'are to be not less than
the established prices f.o.b. mill plus freight from Feu Orleans, Louisiaaia,
or Jach'sonville, Florida., vriiichever v;as f roightrrise nearer destiriT.tion.
California-made veneer boxes nerc, ho'Jever, to be bf sed on f '-.-eight from
San 7ra-'-cisco. If frbriCF.ted from resavm lumber or pl^TTDod, the products
nere to be sold at not less tlian f.o.b. mill prices plus freight from re\7
Orleans, Louisiana, Jacksonville, JTlorida, V/ausau, '"isconsin, or '^inchedon,
Massachusetts, r/hichever vas lorrest and would result in the lovest deliver-
ed price.

Less than carload shipments and local deliveries Tcre to be on the
basis of the carload rate from, the bpsing point to the virebound plant
nes^rest the point of deliver^'' plus freight' at less-than-carloaxl rates from
this plrnt to derjtination. If a plant uas located e.t destination, 20(?' per
CTTt. r:as to be added to the delivered price on such sliipments.

Plants in Alabama, Georgia, liissi ssippi, Louisiana, Florida, Tex?»s,
Ar'iansas, South Carolina, rorth Carolina, Virginia, "Jisconsin, Vermont,
I.Iassa.clai-setts, I'en Kampsti'ire and California received a slight price differ-
ential. All mills T.ere required to divide delivered -orices at all desti-
nations, rs calculated from the basing points, "b-f certain percentages, the
effect being to increase the delivered price corres-^ondirgljr; this '^s.s
"to provide for royal t;"-". 3ut mainifacturers in the states listed used a

(Footnotes ( *) and (**) continued from previous V^-S^'

(*) This was succeeded on July 20, 1934 b"- the 1034 edition (following

publication of Lumber Code Auth.orit"" 3vJ.letin To, 33 of Volujne II).
(**) As defined, Of. Exhibit B end of this Chapter.

(*) Cf. Schedule A, Section 30, Code for the Lumber ard Timber Products

Induistries, Code of Fair Competition, Volume I, p. 142.

9864

-157-

hi.'^her o-rcenta,e (resulting;; in lo"er doliversd -prices) than those in

otlier states. The former divided Td"'- 97;o, the latter by 92^7, in figuring

prices for regular "boxes; on Rock Fr.steiiers and Jriacn crates the divisions
T;ere 95^ rnd 90J^ for the tr.'o -roups.

Plants in the states m.'ntionod '■ere considered to be at a dirtarce
from the consuming markets, pnd for this reason 'Jere given the 5)o differ-
ential (in the divisor). The divisors ■./ere allegedly'- arrived at through
v/ei^rhted cost avera^ves of the plants vithin each group. (*) On the basis of
those divisors minimum prices vith the subdivision Fere coordina.ted vjith
those for other wooden packr^5:e subdivisions. 70fo of the industr"'-' s total
vol-ume is produced in the strtes listed above, rjid ^7as■ priced at the Ic'er
delivered ;crices.

Subsequent bulletins introduced no si^^nificant changes in these r-ales
for delivered tricing until Bulletin I"o. 44 (Voltmie II), effective Jul}- £0,
19-34, a.bolished the division of plants into tv7o geographical groups, £md
made ma.ndatorj'' the use of the 93 divisor for regular boxes, the 90 divisor
on rock fasterers and James crp.tes, bjr all operators, vherever located.
Hie subdivisiohal code adrainistrative a?;enc7 successfully protested this
change (vrhich involved b. substpjitial increase in prices for the mills
affected) to the L"'Jinber Code Authoritj''' s Resident Coranittee. (**) The
Comiiiittee a"oproved a reversion to the former 5;,'o differential in percentages
for -olants in the states more distaiit from the markets; to these states, as
previousl"" defined, vrere rdded "est Virginia, Tennessee, Kentuclr'' and all
Ohio River -coints. The change vas made effective through Bulletin Ho. 51,
September 20, 1934.

Bulletin l.o. 97. of Voliimc; I (April 11, 1954) provided that lots
picked up at the plant bv the b'u^'-er rere to be priced at the mi:"iraa p2us
freight from the nearest basing -ooint.

12. - Egg Crse Subdivision.

This subdivision of the TTooden Package Division included mamii'acturers
of e;gg cases or egg case ^^a.rts from cottonrrood, tupelo,gum and other hard-
woods. (***) There vrere 54 operators md C9 mills in the industry.

i'O dependable information was rvailable for this report concerning
the practice of the industry in pricing its products before the code. 7ith
the establishment in the subdivision of minimiun prices f-. o.b. mill, effec-
tive Pebrua.ry 19, 1954, there were issued regulations (in Lumber Code Au-
thority Bulletin Fo. 6o of Volume I) requiring the sale of- its hardrood egg
cases at delivered iDrices com^iosite of the minimum iirices and published

( *) Cf. llinutes of I'eetiiig, Resident Cor.-miittee, L-umber Code Authority-

September 1, 1934 (in TZik files, Lxijnber ajid Timber P-^oducts Industrie;
"Code Authority Committees, Resident, Linutcs" folder).

(**) loc. cit., para. 9, pare 2

(***) Cf. Schedule A, Section 29 of the Code for the Lumber and Timber
Products Industries, Codu of IPoiv Competition, Volume I, p. 142.

9864

rail ccrload rates to destinrtion from one of three basing -ooints. ilills
in I'orth Dphots., South Da^.ota, I'ebrasl'ia, Kansas, Te::aG, Oklahoma and all
states east thereof T/ere to use as a "base Memphis, Tennessee or "evi Orleans,
Louisipjia, the loner rate to sxiy destination to "be the applicable rate,
i^antifacturers of cases located in states "rest of those listed vere to sell
on the b^.sis of Spokane, T/ashington, a.cding rail freight from tho,t point
to destination. Sales at tac mill for truck delivery v;ere to he computed
on the sane ha.sis, v.'ith rail freight added from the applicable basirg point
to the point at which deliveiY "S-s to be made, i.Iills in western producing
territory'" vrere not authorized to meet lov/er delivered prices calculated
from eastern basing points, nor r.'ere ea.stern mills authorized to ecualize
nith the Spokane rates.

Subsequent bulletins made no significant changes in these rules for
delivered pricing. The subdivision retained its basing point system, to
the e::tent to T/hich compliance was maintained, until December 22, 1934,
the date of suspension of cost protection prices.

13. Stained Shingle Subdivision

This subdivision of the Red Cedar Shingle Division included all per-
sons 'orocessing, staining and treating wood shingles in the United States.
Tliere v.'ere no other products tmder the jurisdiction of the subdivision. (*)
Its members numbered 30.

ro information Was, available for this report res"oecting geogra.phic
pricing practices in the industr^'- before the code.

Under the code the subdivision put into effect with Lumber Code
Authority Bulletin ITo. 59. of Voliome I, minimum prices f.o.b. Seattle,
wTashington. Tiruck aaid rail ca.rload shipments of manufa,ctured shingles
were to be at delivered prices not loss than the established minimum
prices plus rail freight from Seattle to destination; all staining-in-
transit charges wore to be a^bsorbed bj'' the staining mill. TJater shipments
were to be priced on the same basis a.s rail a.nd truck, except that estab-
lished water ra,tes were to B:g'plj, including all deliverj'' and handling costs,
instead of raal rates.

On the other hand, upon less than carload siiipraents delivered price
tvas to be the s-um of the caa-load price (based on Seattle) delivered to the
staining mill, plus a fixed charge (50(#) per squa.re of shingles, plus freight
at l.c.l. rates to destination from the staining mill nearest the point of
destination. Considerations motivating this exceptional treatment of l.c.l.
shipments have not been ascertained.

Cvistom staining (where the shingles are owned by persons contracting
with the mill for the staining) was to be quoted f.o.b. the staining mill,
all deliver''' costs to be for t'le account of the ovmer of the shingles.

Subseouent bulletins did not modify these rules for delivered pricing
in any important respect; the industr;- continued to sell carload quantities

(*) Cf. Schedule A, Section 32, Code for the Lumber and Timber and
Products Industries, Codes of Fair Competition, Volume I, p. 142.

9864

-169-

at trices includirg freii"ht from the Seattle bc.ririijr point and to couali::e
freiglit •.vitli the nerrert corroeting mill on l.c.l. chipmer.ts, -until the
a^brosation of cort protection prices.

Tiie indust::^^ is not hnoi/n to ha.ve continued the use of the Seattle
basing point since suspension.

B. i.'ill Group and Delivered Price C-rmro Adjustments.

1. The A-opalachian and Southern HardvTood Subdivision (*)

Producers, manufacturers o.nd importers of all species of _ hard''/ood
lumber in the United Sbates 'vere brouj^ht under the jurisdiction of a gen-
eral I-Ir,rduood Division. There vere seven subdivisions, of which four '"/ere
established on the basis of producin^;; ref;ions rather than sipecies; princi-
•nal domestic ha,rd\70od speciog '/ere common to these regions. Of the four,
the largest (**) and niost im'oortant T?as the Appalachian and Southern Kard-
T/ood Subdivision, v/hich embraced, "producers and nam:jfa,cturers of ha.rd'.Tood,
lumber products and certain softvood species (Appp.lachian hemlock, T^hite
pine, spruce, white and vellow c3'-press, southern white junixier and red
cedar) tj'picallv logged b;^ hardnood mills in Texas, Louisiana, I'issisEi"opi,
Alabajna, Ark^nsa.s, I-as'T0ur?-,01:laiioi.ia, Florida, G-oergia, Tennessee, Kentuclc'',
South Crrolina, Torth Caroline., Virginia, ".'est Virginia and I.;a::^-lr.nd. (***)

The siibdi vision •.ts further divided into tr o producing territories, the
Appalachian and the southern. These "ere precisel;'- defined. (****)

Tliis was necessar"^ because of marked differences in the qualitj'- of
hard^7oods grov/ing on the Appalachian and range: of. imoiin tains and of the
se-me woods foujid in the lowlands of the soilth and southeast. The
A-opalachiar. woods are older, higher grade, and would warrant higher mini-
mum prices v/].ien cost protection prices were establishedi., if serious mal-
adjustments were not to rer.ult , to the competitive disadvantage of the
southern T/oods. Tlie d.efinition of the two territories is said by represen-
ta-tives of the sub5.i vision to have follo^'ed tlie A-opalachian range as shown
on the maps of the United States Jorest Service (*****)

(*) j^uch of the informa,tion u-oon '-/hich this section is based was ob-

tained in the course of an interview betT:/een the v/riter and J. II.
Townshend, who wa,E Secreta.r^T'-iianager of the Hard^/ood lia-nuf a,cturers
Institute (code acininistrative agency- for this subdivision) diiring
the cod.e period.

( **) Accounting for about 70^3 of all domestic hardwood "oroduction.

(***) Of. Schedule A, Sections 2 and 3, of the Code for the Lumber

and Timber Products Industries, Codes of ?air ComToetition,
Volume I, p. 1S4

(****) Cf. SrJ.ibit 3 end of this Cha-oter.

(*****) The northern and southern range of the C-oraberland plateau was
initiall3r included in the Aopr.lachian territorv, but after 4-00
companies compla.ined that they were unable to sell the inferior
hardwoods of the plateau at the high prices in effect for
Appalachian woods, it was brought '/ithin southern territor:^.

9864

-170-

All li:iinber and timber products under the jurisdiction of tiie code "ere
incKided in this subdivision except poles and piling, hrrdr/ood flooring,
veneers and plwood and an;'/ other products coming 'vithin the scope of other
divisionD or subdivisions.

Tie oak, gum, poplar, chestnut and other h^.rd^/oods produced by mills
in the southern and Appalachian territories \7ere sold before the code at
delivered prices. i"o brsing points, price zones or other devices for s^/s-
tematic freight equalization had ever been employed in the experience of
this brarch of the indiistrj^.

Taen minimum prices vere to be instituted under Article IX of the
Lumber Code, on the basis of a determination of r/eighted average costs,
the difficulties in the \is.y of accomplishing the necessarj'- equr.lization
of delivered prices in this subdivision nere nell-nigh insuperable.
AccordiiTgl^'-, of all systems devised by the divisions and subdivisions of
the lumber industry for the maintenance of f.O.b. mill minimum prices
through some form of ecualization, that of the Appalachian and Southern
HardiTood Subdivision is the most intricate and complex. Tlie ir;itial, /fTI
inherent obstacles in the economy of the subcavision and of the hard^Tood ^
industry- as a whole, as '.veil as the ver:^ complexit]'- of the plan ad.opted
worked to defeat the attempt at eoua,lization, sjad ■pc.rtl-f es a result of
this the structure of cost protection prices was '."eaher and. broke down
earlier in this than in other divisions and subdivisions

Chief obstacles to successful equalization were the diffused character
of the inciu.str'/, v^ith no real concentration of soiirces of supply or of
production, the Ir.rge number of small, irresponsibl]'' managed mills, the
fact that markets and consvuning industries are scattered and, fina-lly,
the nature of the rail ra-te structure, which is built upon small rather
thcji large origin groups (changes in rates are frequent relative to distance).

As established originally with the publication of f.o.b. mill minimum
prices and rules axid re^gulations for their application in Lumber Code
Authority Bulletin i'o. 10 of Voliome I (effective Tov. 11, 1933) the
system vrs essentialljr as follov/s: ([|

(a) All mills were grouped according to their distance freightwise
(at rail rates) from one of severaJ destina,tion -points. For Appalachian
hard"./oods, this point was Cleveland., for Appalachian spruce and hemlock,
Pittsburgh. For southern hardwoods and yellow c^'-press either Tororito,
Ont.ario, or Tew York Citj'- determined the grouping. (*) Groups were set at
intervals of one cent per cv/t. of freight; thus all mills from which the
freight to the respective destination ba.se was, for example, 40f^ out less

(*) The former, for producers in Texas, Louisitma, Li ssissippi, A r] :?>,;■■ sas,
Oklaaoma, Liissouri, 'Jestern Tennessee (on and west of the iTasl.ville,
Cha.ttanooga and St. LOuis 11. R. from Tashville to Chattanooga) and
western Kentuck?'- (on and west of the Louisville and Nashville Ha.il-
road from Louisville to i'ashville.) Tlie latter, for producers in
Alabama, Georgia, Florida, South Carolina, JJorth Carolina, Virginia
and i;a.r'",''land.

9 864

than 41r'' \:ere plr ced in t]ie scjne c^oivo.

(b) ianiimam rjrices f .o.'b. mill "'ere cstr.'blisncd "-itli differentials
bet'Teen the groups; there differentials -Tere set so that all youps mi^ht
quote the same delivered -orice at the destination base after adding freight
at rail rates from mill to destination. Thus the minimum price effective
for mills in one group. ioItis rail freight from the mill to the base or
focal destination v/as ercactl" equa.l to the minimrjTi price for mills in any-
other -roup plus rail frei,^ht to that destination. This meant that the
minimum prices f.o.b. mill establislaed for the freightvdse most distant
group v.-ere least; these Tjere t'le base, prices, and the minimum prices f.o.b.
mill for ever^?- other group (freightrdse nearer the destination base) v-ere
equivalent to the base prices plus the difference between the rate from
that group to the destination base and the rate from the most distant group
to the brse. Thus the minimum prices f.o.b. mill increased for each group
as the destination base v.'as approached, szid. '-'ere highest for the group
freight'dse nearest the destination base.

(c) To minimum "orices f.o.b. mill esta.blished for each mill "roup,
mills i." that group (in shipping by rail or time!:) v/ere required to add
actUcal rail freight from point of shipment to destination, to arrive at
delivered price on ai;Y sale, but

(c') In order to meet competition (that is, to meet a lorrer delivered
price cuoted) in anj^ marl:et in the scone species, grade and item, c mill
might ab'^.orb freight up to ten cents per c"t.

Considerations infliienciiig or the methods involved in the selection of
the destination bases used pre not definitely ^Jioirn. Toronto was chosen
for the southr/est mills r.s the .farthest point to vhich railraods nuoted rates
in CITA territor;;^ (*) The How York and Cleveland destination bases ''•ere
certainly not chosen for anj^ such reason, rather as approximating the centers
of the cons-'oming territories for each producing area. Similarly, the Pitts-
burgh -ooint v'as selected in view of the fa,ct that about 95^ of the softv/ood
products of the Appalachian mill's moves to marhets centering about Pittsburgh
( **\

Mill groups created for southwestern mills (on the Toronto destination
base) numbered 23, from 51rf to 29i* per cv't. frcightwise from Toronto; for
souther stern mills (on the Ilev; York base) there were 24 groups, from 47if: to
24^ per c't. freightv/ise from I'ew York. The minimum prices f.o.b. mill in
effect for southern hardwood and ^rellow C2n3ress products were the same for
the idertically numbered m.ill groups in both origin territories; hut the
southwest used mill groups numbered from to 22 vrhile the southeast used 2
to 25. This was necessary because the most distant mills in the southeast
were less than 48jZ^ freightwise from Hew York, while the most distant mills
in the southwest wore bet\.'een 51^ and 52^ per cvrt. removed from Toronto.
As it .-7 as the use of grou -p 2 minimum -prices for mi ll s from 47(^ to 48gf distant
(*) Tlie Toronto mrrket consiuaes a Irrge quantity of gum lumber, a
species produced in the southern part of the subdivision.

(**) According to former e::ecutives of the subdivision. The softwood

species, grovdng on the mountain si-des, are logged by mills waich are
primarily hardwood mil?.s.

9864

from Ylcv York ''oulcl result in cOrr jsnondingly lo'iVjr delivered -prices at
New York than at Toronto.

Tb.ere v:ei'e 26 mill ('groups effective for "orocJxi.cers in A"opalachian
territor""- (er.stern Tenner: sea, cf.stern Kentucky, T7est Virginia, Vir{;inia
and L'ip.ryland) , from 43rf to l'6ii per c^-'t. freif;htuise from Cleveland, Qjiio.
iviill^oups for sprace rnd nenlock numbered 25, from 'i:0<i to 15rf per c't.
frei~htrise from Pittsburgh.

Delivered prices for rail-c'jid-'Jater or all-water shipments v/ere to he
mo.de on the hs-sis of differentials beloT/ exi'^ting all-rail rrtes appl:'-ing
betT'een actual shippin,<7 point and final destinPotion.

These rules for delivered pricing v/ere in effect v/ith minor changes
until the effective date of B-uJle tins l^o. 22A. and 27S of Volume II on July
20, 19.^4. Bulletin To. 41 (Yolume l), effective March 23, 1934, had provi-
ded that absorption to meet competition be only against similar movement
(rail aga.inst rail, rater against v.'ater) . This rule-, according to represen-
tatives of the subdivision, '^e.s introduced in an effort to d;op i rregixLari-
ties in the absorption of freig.it: rail producers '7ere absorbing in er.-
cessivG aniounts and unnecessarily, on the preterit of meeting ns^ter compe-
tition. In fact, the new rule gre.o.tly encouraged the movement of hardwoods C
b-"- ■■./ater from MQbilo, Jacksonville and Savannali intercoastal and coastwise
to i'orfolk and northern Atlantic ports. There had. been a negligible movement
by v.'ater previouslry. Hardv.'oods v/ere also shipped, down the iiississippi Hiver
to llev; Orleans, from there to Atlantic Coast ports. The railroads have since
only partially recovered this lost traffic, axcording to persons familiar
with the irci.ustry.

Bulletin i'o. 41 also had added Georgia, South Carolina and i'orth
Carolina (*) to Appalachian territorj-- with respect to hemlock, spruce and
white pine production only, had included Appalachian white pine produced
in the subdivirdon in the mill group adjustment for hemlock and spruce,
and, finally, had established mill groups for mattress lumber 'produced in
southern territory;-- with Kansas City, Lassouri, the destination point used
for determination of the 26 groups. Kansas City is the center of consirap-
tion of mattress lurnber, used for revetement construction on the llississi'opi
and iii.sso^iri Hivers; fir, pine (western and sout'iern) , northern hemlock ,

and hardwoods, other species, all \'ere used for this purpose and rll ""cre V.
equalized at Kansas City thro'ogh the Inter-Division Coordinating Committee
of the Lumber Code Authority. The mill group adjustment for mattress lumber
produced by the Aopala.chian and Soxithern Hardv.^ood Subdivision was constructed
to- maintain the equalized delivered prices at Kansas City.

•With BLillotins 27-A and 27-}3 (**) the lumber Code Authority began pub-
lication of sepr.rate price bulletins for the Appalachian and southern
territories. This v.'a.E done for reasons of convenience.

Theoe bulletins introduced no f\indamental changes in the system of
delivered price equalization previousl''" developed. They did, however,
contain certain important modifications.

(*) This was accomplished b'- increasing the number of mill groups by five,

to include mills locc?.ted from 41'/' to (but less than) 46(Zf freightwise froo
Pittsburgh. This was done v/hen it '"'as discovered that there v.'ere hard—
v.'ood mills producing these soecies v.'hich had been omitted from the
origina.l adjustment.

(Footnote (**) continued on ner:t -)r^ge.

9864

-173-

Chief of these yras tha estr.'blishment of delivered price /groups, in
v^hich, c.ertirr.tions in ep,£-tern, north central, nestem and eatstern r^nd
T.'est'srn Cr.r.r,f.i&j': conGVjning arer.s "^ero collocted.

The delivered price group rssi^ned to each point in the consigning
territorp v/cs the lov/est coin'binr.tion of rai'^. freight applicaMe to that
poirt from arj'- prociucirig arei. and the price group (f.o.b. mill) in effect
for that rrea,. These groups a-rolied to rail, truck ojid vater (e::cept vhere
special uater deliver^'- groups "yf^ sho^'-n) shipment alike.

7ith these delivered price groupn set up, mills rie-^a free to sell
either:

e) F.O.J, mill, '"ith b-a;;vrer "oa"''in,g actual freiglit

from mill to destination, or
t) Delivered at dGstinatio:a, at the delivered price
group aoplicahle to tha.t point (regardless of
. . . method of deliver-. (*)

3"/ permitting all producers to sell in an^"" marhet at a minimum de-
livered price, determined by the lo'vest siom of f.o.h. mill -pries for an^'
mill grouij and rail freight iron mill to destination, the subdivision
opened, the vc.y to unlimited ...bsomtion of freiglit on shipments of Appala-
chian and southern hardihoods. Accordingl-", the limitation of absorption
to ten cents "oer c.vt. a^p.inst similr.r shipment onl;', Phich had previously
been in effect, 'vas elirainrted.

Each point in the Appalachian and in the sotitiiern producing areas
T7as given both a,n f.c.b. mill price grotip arid a delivered price group,
the Ic.tter being set uniforml:-'" 3 r)rice groups higher tlian the former. Any
outside mill selling in a corar.iunity in v-hich a mill nas located vras required
to observe the delivered price group established for the point in auestion.
This ?.(3justment gave each local mill an advantrsSe ( *) over outside competitorr

(Footnote (**) continued from previous page.

(**) nth publication of Bullstin ITo. 110 (Volume l) on Lay 3, 1934,

the subdivision had begun to aiine:: indices of origin points, shelving
the mill group to vrhich each siiipping point of consequence in the
, Appalachian and Southern Teritories belonged.

(*) The latter r-ould never be higher than the former since it vas based

upon the lo\'7est suiii of f.o.b. mill price and freight from cmy pro-
ducing area,. Ho mill r.'ould have a, price advantage by selling f.o.b.
mill.

(**) The advaaitage enjoyed v.'as not the full amount of the three cent

freight rate differential, since on sa,les made f.o.b. mill for
sliipment rrithin the s'.'itching limits cf the community in nhich
the mill was located, all d.eliverjr cha.rges v/ere to be borne by
the buyer. These chrrges might smotint to as much as the diff er^ential.
If in any case they amounted to more, the mill vas free to use the
delivered price grorp ap-ilicable.

98S4

-174-

vfaen E;elling in its or/n comnunity. The p\xrpose of this adjustment is
stated by Bulletin 27-A to be "to encourage consuriers located in coin-
mionities in v/hich mills are located to buy from the local mills, thus
effecting an economic result by minimizing transportation costs. "

In the intermediate area bet'/'een the southern producing area
proper pjid the Appalachian producing area proper each point was as-
signed its applicable f.o.b. mill groxip and a delivered price group set
uniforriily five points higher than the f.o.b. mill price group.

These bulletins included, in addition to indices of mill groups
applicable to aAl shipping jDoints of consequence, indices of destina-
tion (or delivered price) groups by states ojid Canadian provinces.
(The price adjustments were in effect for export shipments to Canadian,
Mexican aiid ITeirf oundlnjid Markets, except of birch, beech and hard maple
to Cpjioxlian points). An unlisted shipping or destination point Y/as to
be considered as in the group assigned to the nearest point on the same
railuoy line taking the same freight rate from mill to destination.

There nere special delivered price groups applicable to Atlantic
Coa,st ports to govern sales based upon shipments of southern hardwoods(*)
coast\7ise or intercoastal Ity nater. These represented the f.o.b, port
group (for all Gulf ports set at I.lill Group ITo.ll, the "average mill
group of the producing areas immediately adjacent to these ports plus
the appro.-xiraate average rate of freight to these ports from such areas")
plus average switching charges to shipside sncL average water rates to
respective destina.tion ports. Price groups at I7est Coast ports were to
be determined by adding to Price Group ¥.0. 11 freight at published
Conference rates from Gulf ports. These price gro-ups for both West
Coast and Atlantic Coast ports set the minimum price delivered at the
doc!'. All additional transportation and delivery charges to final des-
tination vere to be added.

Bulletin 27-S recognized ths.t the delivered groups "thus arrived
at are substantially lower than the groups applicable to all rail move-
ment and are designed to preserve the economic advantage rif water trans-
porta.tion to consignees pud shippers so situated as logically to avail
themselves of this facility. " The water delivery groups were not to be
used where the total cost of effecting deliver^'' to consignee by water
mover.ent e::cepded that by rail movement.

In the same bulletins (27-A and 27-S) it is reported for both
producing areas that the price groups on ash, beech, black gum, soft
elm, hickory, soft maple, red and white oaJc and poplar (plus basswood
in the ca.se of the southern territory) differ in some instances from
the grotips for the other \70ods, halving been adjusted dorrnward to bring
the delivered prices on these woods into proper relationship with the
same woods in the other producing area. (**)

(*) Appalachian hardwoods do not enter this water traffic.

(**) This coordina.tion of prices was brought about through the
Hardwood Coordinating Conmittee.

9864

-175-

Sul)sequRnt liulletins m-^.de no important cho,nges in the pricing
regulations in effoct in thiti subdivision.

According to infornatinn received from a formor officir.l of the
suodivision the mill and destination groups created had the effect of
equalir:ing at least 99-o of the riovement of southern and Appalachian
hard\70ods - for practical piii'poses, the total movement. (*)

The hif;hest freight rate at vrtiich southern hardwoods move to CFA
and £TL territory are the southern n(-;=;tern l)lan':>-:t r-'tes effective for ship-
ping points in Louisiana, Ar;:ansas siid Texas. (**) These rates
(according to the same source) -fere the "basis for the subdivision's
mill and delivered price group adjustment system; that .is to sa^'', the
base prices established were so set that mills shipping at these rates
might enter CPA end £TL on a delivered price parity (after freight at
rail rates from mill to destination had been added to the base prices)
with freightwise less distant mills.

This does not mean, horrever, that the delivered prices in effect
for sor.thern and Appalachian (***) hardwoods under the code were com-
posed o"! weighted average costs in the subdivision and freight from the
freightv/ise most distant sources of suppl^''. Again on the basis of
information received from the secretar3'--manager of the subdivision, it
is Linderstood that an attempt was mad.e to secure a realization (aver-
age net l:yield) of weightec'' average costs not for mills shipping from
the nost distant producing area, but rather for an intermediate group
of mills. This intermediate group would be ideally the group for which
the freight rate to the destination base in consuming territory was
equivalent to the weighted average freight rate at T;hich all shipments
of southern. (or Appalachian) hardwoods moved to that market, from all
produci:'.g areas.

It is clear that if this principle were successfully applied the
result must have been an exa.ct balance between weighted average cost
protection prices and weighted average net yields on all shipments of
the prodiicts of the subc.ivision. In view of the difficulties atten-
dant upon any attempt to determine accuratelsr the average freight rate
of the intermediate mill group vfhich would secure this result, and in '
view of pji absence of data respecting shipments from various producing
areas to consuming territories sjiC. the freight charges paid on those

(*) J. H. ToTimshend, Secretary Lanager, Hardr.'ood Manufacturers

Institute, in an interview with the writer of this chapter, on
Dec. 18, 1935.

(**) These three st.ates account for a large propor.ticn of thj' total
suppljr of southern hardwoods.

(***) Por Jtopals-chian territor;-, base xDrices were in effect for the

point freightwise farthest tiouth in Appalachian territory, viz. ,
liurph;^, II. C. (On th° Uurohy brajich of . the Southern Ry.)

5864

-176- ""

shipnenttj, nnd, finally, in view of the fact that no investigation of
averafe'e net j'-ields was completed "by the subdivision, it may be doubted
tha.t an" such exact balance ^r.z tittained.

i'.ill G-roup ivJo.lO, for southern hardwoods, and ilill Group Ho. 15,
for Appalp.chian hardv/oods, are said to have been the intermediate
groups -xipon v/hich the subdivision's adjustment system vras based.

The d.if ferential established in local markets in the producing
area in favor of local mills (rdth f.o.b. mill price groups three points
lower than delivered price groups) caused (according to the same source)
many difficulties and proved generally impracticable, not for the reason
that it tended to foster local monopoly at certain points, but primarily
because it put some mills at a slight, but often decisive disadvantage
in shipping to markets which they had alirays previously supplied. The
cases of mills in 'Jest Memphis, Arkansas, selling in Memphis, and of
mills in Helena, Arkansas, selling in iittle Rock ?rere cited as examples.
The differential woxild probably have been removed had cost protection
prices not been suspended.

Conpliajice i^ith cost protection prices and pricing regulations is
said to have been good until about Karch, 1954. After that it became
stead.ilj'' vrorse, until a genera,l breal<:down was precipitated by the letting
of a contract, in which a nuj-iber of members of the industry participated,
for the supplying of a large quantity of hardwoods to a company manufac-
turing 3utomobileLbodies, at less than the minimum prices; this occurred
in the late summer of 1934. The wholesaler (*) apparently pla^'^ed an
importaiat part in this subc.ivision (as in the Southern Pine Division) in
accelerating the breaJcdo^Tn of compliance, by purchasing at the mill,
particti.la,rly from small mills, at less than the minimiir/: -orices, and d.is-
reg?.rding the regulations governing delivered prices at the market.

Failure to -understand the complicated regulations led many small
mills (esj-ly in the period of cost protection prices) to regularly ab-
sorb up to the full amount of the 10^ maximum absorption, whether or
not the absorption was necessary to meet coiiipetition. This, of covirse,
niillified. the effect of the provision as a device to secure delivered
price equalization (with all mills absorbing, all were back in their
original position, with differentials in delivered prices and only 'X-'^.Ct^
lower average new yield, to shor- for the absorption) , and caused great
confusion.

Like tue equalization systems of other divisions of the industry'',
that of this subdivision was built upon the principle that the status
quo v;o,s not to be disturbed, that existing shales of the various pro-
ducing areas in the various markets v;ere to be maintained.

(*) Although no L.istribution data is knovm to be available, it is
estimated that about 55 to 40p of all hardwood is sold through
wholesalers, the remainder direct to consiiming industries.

9864

"177-

The coordination of the prices of this and other subdivisions
of the hardwood industry uas accomplished tlirough the Hardvrood Coor-
dinating- Comnittee, code administrative agency for the Hardwood Divi-
sion. The procedure was as deccrihed in Part II of this chapter.
Coordination was most difficiilt as between the North Central, Northern
and Sotithern ^palachiaji Subdivisions. (*)

Hardwoods of the southern and Appalachian species are sold almost
entirely on a price basis and competition vrithin the division is severe.
This accenttiated the difficulties of administering cost protection
prices. There are from five to six thousand mills in the subdivision;
of these, (according to the former secretary-manager of the subdivi-
sion) abo\it 381 band saw mills produce approximately 40^ of the total
supplj"; the others axe, with few exceptions, circular mills.

It is important to note that this mill and destination group
method of equalizing delivered -prices has the effect of putting mills
freightwise near the market at a disadvantage in shipping b'ack into
producing territory (**) (since thej' start with the higher base or
f.o.b. mill prices), unless tiie^'' are permitted to meet the. delivered
prices of the more distant mills at those points, as was allowed iinder
the regulations in effect in this subdivision at the time of suspen-
sion. Of great importance also is the fact that members of industl-ies
consuming hardwood products ( an apt example is provided by the hard-
wood flooring industries), if located in or near the consuming terri-
tory, were reoAiired to pa3' higher base prices for their raw materials
than their competitors in the producing territory. It is true that
before the code members of these industries so located (at the market)
paid, usually, hi-^her delivered prices thpji their competitors at or
near chief soui'ces of supnlj'-, but,' because of the disorganized condi-
tion of the industr^r and the instability of prices, the difference was
by no neajis as great as the freight from the producing area to the
market. Moreover, some members of consuming industries even at or
near hardwood markets had been supplied from nearby hardwood mills, in
Tennessee, Kentuclcy and the north central states, at prices comparable
to those paad bj'- their competitors in the producing territory, ¥hen
the mill group adjustment' established a differential eq\ial to the fvll
amount of the freight rate,' this situation was seriously distiirbed.
The maladjustment was never corrected, ajid only non-compliance with the
pricing rules prevented it from becoming ver;-,'- serious.

(*) Of. Part III, Section B 2 of this chapter, the section
treating of the North Central Subdivision.

(**) There is relatively'- little movement of this type.

9364

2. The rTorth Central Hardwood Subdivision.

This subdivision of the Hardwood Division consisted of producers and
manufacturers of hardwood l-umber and timber products in the states of
Ohio, Indiana and Illinois, Poles and piling, hardwood flooring, veneers
and plywood and other divisions and subdivisions were excluded. (*) There
wore about 934 operators in the subdivision.

Products of hardvvood mills in this area were sold before the code at
delivered i^rices. These prices bore no relation to freight from the mill
or from sxiy basing point, nor were there any ^rice zones. They were
competitive prices, largely determined by the comi^etition of producers in
the southern and Appallachian hardwood areas. Horth central mills, in
Indiana, Illinois and Ohio, accountiiig for a relatively small portion of
the total supply of hardwoods, were, for the most Tart, forced to meet
the delivered prices set by their southern competitors.

liVhen the Lumber Code Authority's Hardwood Coordinating Committee
(code administrative agency for the Hardwood Division) began the work
of determining weighted average costs and establishing minimum prices in
the division, it found no tro.de association ca'oable of undertaking the
activity in this subdivision. It therefore requested the Hardwood Mahu-
facturers Institute, administrative agency for the Appalachian and
Southern Subdivision, to determine and set cost protection prices initially
and to devise an adequate plan for equalization of delivered prices.

It is for this reason that the North Central Subdivision during the
period of cost protection prices emnloyed a mill group adjustment method
of delivered price equalization, closely patterned after (but simpler
than) that developed by the ApT)alachian and Southern Subdivision and the
only other such adjustment in use under the code.

Minimum prices f.o.b. mill for hardVTOod products originating in
Ohio, Illinois and Indiana were established effective November 16, 1933,
promulggtod by Lumber Code Authority Bulletin No. 13 (Volume l).

All mills in the subdivision were grouped according to their dis-
tance freightwise from Cleveland, Ohio, at intervals of one cent per cwt.
of freight. There were sixteen groups in all, the first (niimbered O)
including all mills from which the rail rate to Cleveland was 36 cents
per cent., but not in excess of 27 cents; the last (numbered 15) em-
bracing all mills 11 cents but not more than 12 cents freightwise distant
from Cleveland.

Minimum prices f^o.b. mill vrere established for each group, so set
that the mill group price plus freight to Cleveland for each g roup was
the same as that for all other mill groups. This necessitated lower
prices f.o.b. mill for groups relatively distant freightwise from
Cleveland; the lowest, or base prices were those established for Group
0, freightwise farthest from the destination base.

(*) Cf. Schedule A, Section 7, of the Code for the Lximber and Timber
Products Industries, Codes of Fair Competition, Vol. I, p. 136.

9864

Each mill \?as required to sell at delivered prices not less than
the mill group point minimum price apnlicaDle to it, plus freight from
the mill to destination, except that -in order to meet competition in
any specific market in the same species, grade and ibem, freight might
be absorbed up to 10 cents per cwt.

Modifications in these -nrincinles as issued in later bulletins
followed the pattern of such modifications as developed by the Appalachian
and Southern Hardwood Subdivision.

Lumber Code Authority Bulletin Wo. 53 of Volume I, effective March 1,
1934, established f.o.b. mill and delivered prices for 50 groupa in -olnce
of the -orevious 16.

In place of the table of freight rates to Cleveland, included in
pre"7ious bulletins, this bulletin contained a table of mill group numbers
for distinations in a niimber of states within and' beyond the limits of
the subdivision, including (in the latter) Iowa, Michigan, Wisconsin,
Connecticut, Delaware, Kentucky, karyland, Massachusetts, Minnesota,
Missouri, Hew York, Pennsylvania, and Rhode Island. Since these latter
States contained no mills under the jurisdiction of this subdivision,
the mill ^roup prices aioiDlicable at points therein were delivered prices
only .

The fourteen additional groups were created to provide "delivered
■orice groups" functioning as in the Appalachian and Southern Hardwood
Subdivision. By reference to the total of destination points and applicable
mill group numbers it wa,s possible to find minimum delivered prices at
any destination of consequence in the consuming states about the north
central territory. These minimum delivered prices \iere (although this is
not explicitly stated in the bulletin) determined as in the sister sub-
division by the lowest combination of mill group minimum prices (f.o.b.
mill) and freight from mill in that group to destination.

In this Way the subdivision equalized delivered prices by permitting
unlumited absorption by all mills in meeting a- mi:/inram delivered price
quoted by another north central mill at any desti/iation.

Limiting the amount of freight absorption to meet intradi visional
competition Y^as, no longer necessary; this the code administrative agency
recognized in the following statement in Bulletin Ho. 63:

"This absorption (up to lOip per cwt.) v/ill not be nec-
essary Tdth present delivered prices except should there
be a differential in some items in other subdivisions
and on those lumber products which have only an f.o.b.
mill price and show no 'delivered price, such as items
under the head of railway lumber products and including
structural oak and timbers."

There were certain to be inter-specie inequalities, however, because
of the complicated freight-rate stracture and cross-haul rates in Central
Freight Association Territory; so that these might be adjusted the pro-
vision permitting absorption of freight up to a maximum of 10;^ per cwt.
was retained.

9864

-150-

It S--.D-:Lli be noued thai; the "f.o.'o. niill niinizron -Drices" referred
to in tiie □■'alletin for each mill group and for each group in the cons-oz;-
ing territories were also the -inia-oE. delivered prices for these grouT)S,

IffectiTe July 23, 1934, following upon the publication of Bulletin
ITo. 29 of Volume II, there were ainirnum prices applicable for forty-five
grcups. Tne table of applicable group -ooints and n-jmbers was correspond-
ingly expanied to include destination in Colorado, California, Ontario
and Quebec, and an. increased n^jmber in states previously included. In
this way "he scope of the subdivision's zuniiroin price adjustment was ex-
panded.

A letter frc:L the ITorth Central Hardwood Association, which was
nublishad in this bulletin, stated the purpose of the 3d.ll groijp point
system:, as constructed, to be "to have -unifonE delivered prices to all
cons^iming points". The letter cites a resolution of the Hardwood Co-
ordinating Co2izittee, approved ay the L-jjrber Code Authority, as follows:

"In the ITorth Central Subdivision ndlls ziay assuzie
such freight absorption as rnay be necessary to -eet
delivered prices of southern nardwoods at delivered
-joints in the ITorth Central Subdivision and at river
joints on both sides of the ".Mississippi and Ohio
?-LT5rs bordering the North Central Subdivision".

Indicating that this rarity has been achieved the letter goes on
to say that:

■'J'jjther coordination has been effected with Northern
Hardwood and jlortheastem Hardwood Subdivisions,
therefore, in this issue an attempt has been made to
provide a ^jublication irhich will T'ercdt one to readily
determine f.o.b. mill -orices applicable in orincipal
cnnR iimi -'g' n^arkets, not only in the subdivision, but
in adjacent territory as well."

Ihis quotation clearly indicates that the term "f.o.b. xill prices"
is loosely used to ~e=n delivered ■orices, "rrithin and without the sub-
division.

Tne sijhdiTision' s last price bulletin, No. 70 of Volume II, effective
Dec. 8, 1934, oiade only minor revisions in existing pricing regulations.
Destinations in Manitoba were incluied in the delivered "orice sroucs

^ith the suspension of cost protection Drices on December 22, 1934,
the hardwood industry in the north central states, like the southern and

Appalachian branch, abandoned the code-created mill group adjustment,
and reverted tc its cre-ccde practice of unsystematic delivered nricing.

Coordination of the orices of the ITorth Central, Appalachian and
Southern, and ITcrthem Hardwood Subdivisions proved extremely difficult.
As previously stated, the delivered price equalization system of the
Xorth Central Subdivision was devised by the code administrative agency

9S64

-181-

for tne Appalachian aad Soufnem Subdivision. It was not onl7 pattemei
closely after the latter' s mil gro-jLc adjustiLent -olan; the two prici::.g
systems ?rere integrated. Products of north central hardwood ciills were ■ ..-
to be sold at destinations in their cozi-:on markets according to regula-
tions which assured delivered -prices identical vrith the delivered :3rices
of the sanie products of the southern and Appalachian iills. iZhis neant
that north central nills were, as a group, g^acting prices which were in
excess of their actual costs, including weighted average 203ts of operation
and transportation charges: the average net yield at the cull for the rob-
iivision wo^old be in excess of 'sreigh'iied average costs, to the extent of
the average aniount of freignt which the me^ibersof the subdivision were
adding in order to eq^oalize with the delivered prices of the Soutnem and
Appalachian nulls.

There was, however, widespread resistance en the part of tne ccn-
s-jcers of the north central woods (rartic-jlarly nesiers of consurring in-
dustries, as the oak flooring industry) to the quotation of delivered
prices which included this excess freight, .iithou^ ndlls in Indiana,
Illinois and Ohio supplied only a snail part of the deziand for hardwood
products in these and other C?A states, the disorganized condition cf the
industry (with -linstable prices and a continuing excess of production ever
cons-jinrpticn) for many years before the code had not pernutted tneir se-
curing prices which reflected the total cost (including freignt; cf cring-
ing the bulk of the sup-cly to the market, fron southern and Appal acnian
sources of supply. There was a tendency, in fact, fcr nills shipring fr:-
the south to absorb freight charges.

It is "onlikelv that zzsz prote-ticn prices in the Appalacman and
Southern Subdivision could have been niaintained at all had equalization
cf the delivered prices of its iseEibers and of cocpeting north central
mil. : in the vitally isioortant C?A Territory not been effected. The prin-
cipl ; ."-.ould not, however, have been a":;"clied rigidly. Thus, there are
certain species (for exairole, hard aa-^le) -croduced in the north central
states which are not -oroduced in apr)reciable quantities in the soutn.
•Tnere s-:rh species did not directly coiiiDete with other hardwoods, it was
prob?-]; -?'t equitable. to fix mininsim delivered -nrices on the basis cf an
addition jf freight from southern territory. (*;

(*; Tne following excerpts ircm s letter written to the members cf
the Eardwood Division's Price Coordinating Co^nittee oj ■*..'.
Pobes, Secretary-iianager of the !^orth Central Subdivision, dated
October 25, 1954, will indicate some cf the proplcs:^ created tsj

the integration cf the rrrc adjustment systems:

"^In o'lT Subdivision 3.eech is largely consumed ct tne
local and nearby wcodwarking pl:-,nts and on account ct
"being required to add freight rate from the extreme
South it makes the price of. Beech far out of line with
its intrinsic value. It encourages chiseling when
prices are out of ra^ascn and cut of line with the market.
He ask that a reduction on 4/4 and 5/8 be made. On the
latter thickness we recoiamend a price cf SSo.CO, i?5.00
and $1C.Q0, which as a base Tirice tjIus the frei^t frill
bring this thickness "closer to the -cresent market.

9864

-18 P^

(Footnote continued)

"We feel that we should do everything ■oossible to en-
courage the wood consuminji plants in oiir territory pud
to encourage the continued use of wood, and in order to
do 30 we cannot have higher -orices for the plants in our
territory tnan those of similar operations further south.
We refer particula.rly to the flooring industrj^. In order
tV secure Code compliance on prices and to eliminate the
temptation of chiseling we recommend that 4/4 No. 2 and
.No. 3A Common in Plain Red and White Oak and in Q,uartered
Red and White Dale, No. 2 and 3A Common, and in addition
Common Quartered Strips should he reduced so as to pro-
tect our few remaining flooring plants in North Central
territoiy. ^35.00 bpse price for 4/4 Cora,-aon Strit)s
under three inches in width is entirely out of line and
should be materially reduced."

^ ^ ^ ^ ^

"We realize that the tr.ansportation of the finished
product enters into this -orice structure of raw material
and therefore suggest an a-^iproximate -orice delivered
into the flooring markets in the North Central territory
of not to exceed cpS. 00 higner than those Code prices that
the flooring rilaiits in the South will be required to pay."

H< 4 lit :*■ i(t

"..... In our first -orice bulletins (Quartered Vfnite
Oak is the same as the Soutaern Quartered Opk, but for
some reason or other subsequent price -bulletins greatly
increased our Quartered White Oak prices over those of
the South. This has closed a great many of our markets
on this species and our operators are holding their stock
on account of the inequality of -orices. 'Ilie few operators
in North Central territory who -oroduce Quartered Oak will
naturally try to obtain as high a price as consistent
with the market and the quality of their lumber, but in
order to make free and onen trading we feel that the
Southern prices should be granted us to serve as a stop
gap "

■If ^ ^ ^ ^f

"We waflt to profit by the recent ex]3erience of the Insti-
tute and have our prices not the maximum market but to
serve as a stop gap. It is our opinion that when new price
bulletins are issued buyers of snecies other than Oak and
Gum and other woods on which a substantial reduction has
been made will oxpeat some reduction as totiieir purchases.
We believe that it would be good -osychology to grant this
ex'oectation and will prove much more beneficial than to
maintain the present arbitrary -orices. We refer particu-
larly to Hard tviaole. The South has no Hard Maple and yet
we are required to base our delivered prices on the high

5-3 64

Coordination of the delivered prices- of the Forth Central and
Northern Hardwood Subdivisions in the borderline territory between
the two wa.s never satisfactorily acconrplished. Considerable difficulty
had been experienced because the former had established minimum de-
livered -orices only, while the latter -oublished minimum price f .o.b.
mill with freight to be added from a basing point at Y^fausaxi, Wisconsin.
Finally the Hardv/ood Division proposed and the two subdivisions agreed
to an adjustment based on the following regulations.

"I. In the North Central Subdivision.

In order to meet competition in the territory of Northern
Subdivision on Hard t:aple, Soft f.iaple, Red Oak, Soft Elm and
Basswood, the delivered raininrom price of any item of such
species shipped from North Central points to destinations stated
below is to be not less than minimum prices for such items
authorized for the Northern Subdivision f.o.b. Wausfju, plus
freight as below indicated; however wnerc tne delivered
minimum price on the North Central wood as published in its
bulletin is lower, the North Central price sha.ll apply.

Destination Add frt. per cwt. to f.o.b. price Wausau

Chicago, 111. 15^

All territory in Michigan on and

South of the Grand Trunk R.H. from

Muskegon to Flint and Durand to

Detroit, via Fontiac ^ 20^ "

(Footnote from preceding page)

rate of freight from Louisip,na, which brings an exceptionally
high rice on account of the high group numbers in the
northern part of our Subdivision. We will ask that on
this species that we be permitted to reduce the group
points on 4/4 and 5/4 so that in the northern part of
our territory there will be a price near equitable and
comparable to an f.o.b. mill price plus a ten or twelve
cent rate as in the Northern and Northeastern Subdivisions.
We are specifying the 4/4 and 5/4 thicknesses to take care
of our local trade and permitting the 6/4 and 8/4 ^ody
Ma;ole to remain as it is. It has caused a great deal of
dissatisfaction in northern Indiana for instance that a
mill in South Bend will be required to ask a cons-umer
in the same city S58..00 for 4/4 FAS Hard Maple when he
has but a switching charge to pay. Similar situations
in Northern and Northeastern Subdivisions can take a
;o50.00 mill price plus the actual freight. We feel that
this should be corrected;"

(Cf. Exhibit "B" attached to :,:inutes of the Inter-Division Co-
ordinating Committee, Lumber Code Authority, Memphis, Tenn.,
October 25, 1954, in NILi. files. Lumber and Timber Products In-
9854 dustr?.es, "Code Authority Committees - Inter-Division Coordinating
Minutes" folder.

-1B4-

II. In the Northern H^-^rdv/ood Subdivision.

In order to meet competition in territorir of the North Central
Subdivision on the same woods (except Red. Oak) \/here the delivered
hiinimura price for any iteu for destination in North Central territory-
is less than the delivered price on the Northern basis, the North
Central price may be applied for sliipinent from the Northern Subdivision. (*)

These regulations v;ere approved by the Authority's Costs and Prices
Department and by the Resident Committee, but were never made effective,
because the approval of the National jRecovery Administration had not
been secured r/hen minimum prices v^/ere suspended on December 22, 1934.

The following excerpts from the letter .written by the Secretary-
i,ianager of the North Central Subdivision to the Division's Price Co-
ordinating Coinmittee and previously quoted in this section are of
interest in indicating the diff icxilties of price coordination a,s be-
tv/een the two northern subdivisions:

". . . .At the recent meeting of the Hardwood Agency in Washington
resolution v/as approved by, that body effecting' the coordination
of Oal^, Elm, Hard i.Iaple, and 3asswood as between the Nortn Central
and the Northern Subdivisions in the Chicago and southern Michigan
areas. There wa.s imposed upon us the adding and subtracting of a
ten cent freight absorption on all grades, thicknesses and species
on the delivered prices from our subdivision into that territory.
After our Cost Deptirtraent had labored fqr some time trying to
follov.' the resolution it was founa that the adding and subtracting
of the ten cent freight absorption will not work satisfactorily
for the reason that our operators will not be familiar with the
various freight rates'" tb'cdhsuining points-- in -that territory based,
on the nearest representative mill. Therefore, in the spirit of
coordination and to make the delivered prices as understandable
as possible we feel .that v/e should have the privilege of publishing
delivered prices into the said designated territory at the actual
delivered prices of the- Northern Subdivision as sho'/n by their
f.o.b. mill price , plus the rate of freight from the nearest repre-
sentative mill, which in southern Llichigan will largely be repre-
sented by Charlotte o.s a .base. The freight rate from this repre-
sentative mill is from 9 to 17 cents. i'

*****

"V^e realize that it is necessary, to coordinate on one given point,
such as Cleveland, but that does not necessarily;- mean that co-
ordination \7ill be made in other markets. This has been shown
by the present bulletins now in effect, '.'e suggest that the price
Department of the Lumber Code Authority carefully scrutinize the
copy submitted b-/ the various Subdivisions and m^ice certain that
coordino.tion in other ran.rkets is assured. •'

(*) Cf. Minutes of Mc^^ting, Resident Committee, Lumber Code Authority,
November 20, 1934. (In NEA files, Lumber and Timber products
Industries, "Code Authority Committees - Resident - Minutes,
November, 1934" folder).

9864

-185-

C. Delivered Price Zones

1. The Vvalnut Subdivision

All producers, manufacturers and importers of walnut throughout
the United States were included in this subdivision of the Hardwood
Division. All walnut lumber, legs, burls,, crotches, and sawmill prod-
ucts regardless of the variety of v.'alnut , except walnut veneers, were
under its jurisdiction. (*) Walnut is a high-priced species, compar-
able in value to mtihogany. It is logged and sawn into lumber by a very
few mills located in the states in which stands of walnut timber in com-
mercial quantities are to be found. These are Illinois, Indiana, Ohio,
Missouri, Arka-isas, Minnesota, Wisconsin, Michigan, Kentucky and Tennessee.

There are approximately 81 members of the industry operating 150
mills; of these, members of the American Iffalnut Manufacturers Association,
a strong, old-established tra.de association (organized in 1913), account
for between 70 and SO;? of total walnut production in the United States. (**)
This association was made the administrative aj^ency for the subdivision
under the code.

For an undetermined number of years before the" code, walnut pro-
duced by. members of the-. association v/as sold at delivered prices which
tended to be -uniform at all destinations within twelve consuming zones.
These zones were exaqtly defined by the association, and, from time to
time, their boundaries v/ere cnanged.

They were observed and maintained "oy the cooperation of the
association members. This me,ant simply that the quotation of delivered
prices by members was guided by the price-reporting activity of the
association. .Members reported each v.'e.ek.to the association snipments
and delivered prices received on completed transactions during the
week. These reports shov/ed the delivered price ,■ either the destina-
tion of the zone in v/hich destination belonged (***), and the item, grade,
size, e.nd quantity shipped.. The Association used this data in calculat-
ing for each, grade and size, the weighted (by quantities shipped) average
of delivered prices received upon all walnut shipments to each zone
during the week. It then reported the weighted average zone delivered
prices to its members, for their guidance in quoting delivered prices at
destination within particular zones, on current transactions.

Under ordinary circumstances, a member mill might act on the as-
sumption that the average delivered price reported for a certain zone
represented approximately the prevailing price at all destinations in
tjaat zone. It might then quote that price at any destination in the
zone, or i.t might quote prices higher or lower than the average, at

("*')' Cf. SchecLule A, Section 6 of the Code for the Lumber and Tlmbor
■Products Industries, Codes of Fair Competition, Volume I, p. 135

(**) Ten mills are reported to .account for 40^': or more of total walnut
output .

(***) This alternative was resorted to by members who did not wish to
risk disclosing the name of a buyer at a certain destination.

9854

-186-.

various points, depending on such factors as the quality,' of the product,
and trade reputation of the seller and the location of destination.

The existence of the delivered price zones did not mean, therefore,
that the prices quoted "by memters upon everj traiisaction to every desti-
nation in a particular zone were at the average; it did mean that
prices tended to he at or near the average, and, when demand was strong,
the range of delivered prices at all destinations within each 'zone was
continually being narrowed; it followed that the range of prices upon
which the averages were based tended to iDecome more and more narrow. At
such times there was a relatively high degree of price stability in the
industry and the situation, in v^hich a single price would prevail on all
shipments to all points in a given zone .was approached.

Periods of declining demand induced frequent failure to follow the
zone average delivered price. The tendency for member mills to quote
somewhat below the average on shipments to destinations which, within
the zone, are relatively near the producing area, and, conversely, to
add, where possible, a differential on shipments to the side of the zone
which is farther from the sources of supply, operated particularly under
such circumstances. -

Fnen cost protection minimum prices were instituted under Article
IX of the Lumber Code, the American black walnut lumber, dimension and
gijnstock products of the subdivision were required (und.er Lumber Code
Authority Bulletin No. 27 of Volume I, effective November 25, 1933) to
be quoted and sold in the United States and Canada at delivered prices
established for twelve "recognized" consuming zones. These recog-nized
zones were the zones which had been in use by the association for a
n-umber of j^ears, with infrequent, minor chsjiges. Map 20 shows the zones
as they were during the period of cost protection prices.

No f.o.b. mill minimum prices were included in this or in subsequent
price bulletins. The zone delivered prices were, of course, uniform
minima at all destinations within each zone. Nine of the zones were in
the United States, three (zones 10, 11, and 12) in Canada. Zones 1, 2,
3, and 7 comprised states in the producing area (in the central United
States) aiad the lowest minim-om prices were in effect in these zones.
The other zones had higher delivered minimum prices in proportion to
their distance from the sources of supply. (*)

In calculating these zone-delivered minimum prices the subdivision
is reported by persons within the industx-y to have added to weighted
average costs for the industry as determined a weighted average of freight
costs on shipments from all mills, to all destinations, in each zone.
How accurately these averages were calculated and how adeqizate and
representative was the data upon which they were bases is not known. (**)

(*) The order of sequence from lowest -to highest delivered prices was,
for most items, as follows: Zone 7, the group of zones 1, 2 and 3, Zone 6,
Zone 4, Zone 10, Zone 5, Zone 8, Zone 11 and Zones 9 and 12 together.
(**) The code records of the Walnut Subdivision wepe not available for
the purposes of the study.

9864

-187-

Ihe zone delivered prices applied, v/hatever the mode of shipment,
rail, truck, or water. Atout 95^ of the movement is said to fee by rpil
"but no data are available showing the amoiint of traffic "by each trans-
portation medium.

Ho significant changes in the rules for the application of the mini-
mum prices were introduced in bulletins succeeding No. 27 of Volume I.
The zone delivered prices were in effect under the code until cost pro-
tection prices were cancelled by Administrative Order No. 9-297 on
December 22, 1934.

It is understood that since suspension the zones have been in use as
in the pre-code period, in connection with the price reporting activity
of the trade association. Prices are, furthermore, said to have been
maintained at or about code levels.

2. The Mahogany Subdivision.

The Mahogany Subdivision of the Hardwood Division included all manu-
facturers, importers and distributors (including principals, brokers and
©gents) of all species of maho.-any (except Philippine mahogany) and of
the following other foreign hard woods: Spanish cedar, teak, ebony,
rosewood, satinwood, boxv/ood, cocabola, lignum-vitae, wood from Australia
sold under the trade name "Oriental Wood" , European brown and Pollard
oalc, all other tropical hardv^oods (except those from the Philippine
Islands) and all other foreign hardvroods customarily described as "fine",
"fancy" or "of value". Ordinary European and Cajiadian commercial hard-
woods were excepted. Products included were logs, hewn or sawn timbers,
billets, flitches, dimension stock, lumber and veneers (of a minimum
thickness of 5/l6") . (*)

Tiiese foreign hardwoods are imported for the most part from South
and Central America, Cuba, the West Indies and Africa, in the form of
logs which are sawn, fabricated and otherwise finished at American mills.
The bulk of the industry's vol-ume is mahogany. Tlie number of companies
operating under the jurisdiction of the subdivision during the code is
reported by the Mahogany Association, Inc., former code administrative
agency, to have been 15; this n-umber included importers of logs and
lumber as well as firm.s importing and manufacturing. The firms which
were exclusively importers in certain cases had the imported logs manu-
factured into lumber at domestic mills on a custom basis. Eight domestic
mills then (as now) accounted for 95fi of total domestic production; the
total number of manufactijring operations was (and is) about 10. Six mem-
bers of the subdivision had offices or factories in Hew York City, two in
Philadelphia, one in Boston, two in iTew. Orleans, one in Louisville, one
in Pensacola, one in Chicago and one in Cincinnati. As might be expected,
nearly all mills are located in the seaport cities "by which the logs enter
the country; this results in definite transportation cost economies. Of
the eight mills which account for SSfo of total production, two are said
to supply about 50fj of the total. These eight mills are located in Boston,

(*) Cf. Schedule A, Section 24, Code for tTcie Lumber and Timber Products
Industries, Codes of Fair Corr;petition, Vol. I, p. 135.

9864

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New York, Baltimore, Pensaffiola, Louisville, one each, and New Orleans)
v/here there are three mills. Two other operations are at Indianapolis
and High Point, N. C. (*)

Mahogany wps sold "before the code at delivered prices v;hich, for any
species, grade and item, were uniform at all destinations, in domestic
markets east of the Mississippi River (and including certain points on the
west bank, as St. Louis). On shipments west of the Mississippi freight
was added to the uniform delivered prices at rail rates from the gate^aj'Si
hut consumption in these markets Tjas an almost negligible proportion of
total domestic consumption (**) (estimated at less than 5> by the secretary
of the association.) (***)

The largest user of mahogany is the furniture industry, ;and principal
markets are at such centers of furniture production as Chicago, Rockford,
111., G-rajad Rapids, Michigan, and certain towns in Indiana and western
Nev; York. Lesser markets are in Minnesota, eastern Pennsylvania and Hev/
England. There is a considerable demand for wood for interior trimming,
but this market has in recent years been poor because of inactivity in
construction, particularly of the types using this product.

The practice of uniform delivered pricing in this industry before
the code grew out of a combination of favorable circumstances. Mills
were at v;idely separated locations; the bulk of production originated
at plants in cities on the Atlaiitic and Gulf Coasts. These mills,
typically large, all shipped to the same markets, chiefly in the interior
and not, on the whole, widely dispersed. The small number of producers
and the fact that only a few controlled so large a proportion of the total
volume made agreement on a mutually satisfactory delivered pricing policy
possible. A strong trade association facilitated their cooperation. (****)
The high value of the product per unit of weight and measiirement (highest
value of all products of the luiriber industry) , the coorelative fact that
actual freight charges constituted a relatively small proportion of total
price, made it practicable to quote a single price delivered at all desti-
nations in domestic markets except west of the Mississippi T/here buyers
were scattered and distances of shipment long.

Departures from the practice of uniform delivered pricing, however,
are said to have been frequent in periods of depression, particularly just
before the code was adopted. The pressure of competition induced these
departures, particularly on shipments to consumers in a mill's immediate
markets, where the quotation of such a price involved the addition of non-
existent freight charges (to permit absorption of freight costs on more
distant shipments).

(*) According to G-eorge Lamb, Secretary of the Mahogany Association, Inc.
(**) This is of course not to be understood as cons-umption by final users
of mahogany, rather as consumption by the fabricating industries.
(***) In an interview with the writer of this chapter. Unfortunately
the association has no data as to the distribution of its products by
states or consuming territories, nor is any known to be available else-
where.
(****) Uine companies in all are now members of the association.

9864

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Fnen cost protection prices were instituted in this subdivision, its
products v/ere required under Lumber Code Authority Bulletin No. 12 of
Volume I (effective November 10, 1933) to be sold at minimum prices which
v,'ere uniform delivered prices at all destinations within the United States
(west as well as east of the lAississippi River) , and thus included an
average freight cost from all shipping points to all consuming points.
These prices were to apply whatever the method of shipment, rail, truck,
or water. No f.o.b. mill minimum prices were established or published
in this or succeeding bulletins.

The Hardwood Coordinating Comi-.iittee , Code Administrative Agency for
the Hardvraod Division, stated the purpose of the uniform delivered pricing
to be the prevention of monopoly in the territory dominated by each of
the mills; this was necessary because mills were so few and so scattered;
uniform delivered prices would "enable consumers to look on any producer
as a source of supply". (*)

Subsequent bulletins revised these prices but made no significant
changes in the i-ules for their application. Uniform delivered minimum
prices were in effect under the code until December 22, 1934, effective
date of Administrative Order No. 9-297. According to information re-
ceived from the secretary of the Mahogany Association, Inc., (**) the
industry has continued to sell at uniform delivered prices in the post-
code period, with no break in the price level.

The method used in determining uniform delivered minimum prices under
the code is not definitely known, (***) but there is understood to have
been an attempt at the weighted averaging of the freight bills of all
mills to all domestic destinations over a representative recent period.

(*) Cf. Letter from L. S. Beale, Secretary, Hardwood Coordinating

Com;:iittee, to E. A . Selfridge, Deputy Administrator, National
Recovery Administration, Jaiauary 11, 1934. (in NRA files.
Lumber and Timber Products Industries, Transcript of Code
Hearing, January 12, 1934, pp. 674-83)

(**) In the course of an intervie'ff between G-eorge Lamb, the secretar;'',
and the writer of this chapter,' on Ddcemiber 20, 1935.

(***) Files of the Association from the code period were in storage and
unavailable for this study.

9864

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3. The Southern RotarJ^ Cut Lumber Subdivision
This "branch of the industrj'' included manufacturers of package and
box grades of rotary-cut lumber in Ilorth Carolina, South Carolina, Georgia,
Florida, Alabama, Mississippi, Louisiana., Tennessee, Arkansas and Texas.
Products; were defined as lumber manufactured on rotary lathes for cases,
crates, and fruit and vegetable pacl^ages, v/hether for sale to manufacture
ers, or for fabrication by the rotary cut lumber -oroducer, or for sale
on the open mai-ket. (*) There were 52 members, operating 76 mills, under
the code. Units are typically small.

The Southern Rotary Cut Lumber Industry was made a subdivision of
the Southern Pine Division for reasons which were primarily administrative;
it is in no way competitive with the southern pine industry and had no
real economic affinity with that industry, but the producing area for
■pine and rotary cut lumber is, roughly, the same, and the producers of
the latter v/ere not organized, at the time the code was adopted, in a
representative trade association.

The products of this subdivision, box and package grades of veneer
alike, were sold before the code at f.o.b. mill or delivered prices with-
out the use of basing points, price zones or other devices for systematic
delivered price equalization. Prices at destinations bore no fixed
relation to f-reight charges from point of origin or other point. TThere
f.o.b. mill pricing was used, price at the mill was not uniform for all
buyers wherever located: it vas adjusted to meet competitive prices at
destinations.

At the inception of cost protection prices, minimum prices f.o.b.
mill were established for the products of the subdivision, effective
November 17, 1935 (promulgated tlorough Lumber Code Authority'- Bulletin
¥.0. 25 of Volume l). Both box and package grades were to be sold at
delivered prices not less than the f.o.b. mill minima plus actual freight
from origin to destination. The regulations failed to provide for the
absorption of freight by freightwise distant mills to meet lower competi-
tive delivered prices; delivered price equalization was impossible iinder
the roles adopted.

However, on January 11, 1934, Bulletin llo. 53 of Volume I appeared,
effective January 21, 1934, a.nd entitled "A Change Applicable to Bulletin
Ko. 25", It contained a provision against sale at less than minimum
prices as established in Bulletin llo. 25, f.o.b. mill prices plus lawful
(rail) freight from origin to destination; except that, in order to meet
the competition of a more favorably located mill on the same item in a
specific market, a producer might absorb up to but not exceeding 10^ pe
cwt. Bulletin No, 85, effective Ilarch 26, 1934, restricted the meaning
of "more favorably located mill" to mill "in the sane subdivision".

A second radical revision in the geographic pricing practice of this
subdivisirn ijnder the code was broiight about through Bulletin No. 13,
Volume II, effective July 20, 1934. This biolletin provided for the sale

(*) Cf. Schedule A, Section 15, of the Code for the Lumber

and Timber Products Industries, Codes of Fair Competition,
Volume I, p. 137.

9864

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of southern rotary cut lumlDer in donestic markets at not less than f.o.b.
mill prices established plus f^ixed average freight or delivery charges,
varying between nine geographical market zones. A uniform freight charge
established for each zone was to be added to f.o.b. mill price on ship-
ments to all destination points within that zone, to form the delivered
price there for all Liills within the subdivision.

The definition of these zones and the uniform freight charge in
effect to all destinations within each is attached under ^Sdiibit B, end
of this Chapter.

On shipments into Zones 1 and lA, where the actual rail freight
exceeded $4.00 per M ft., an amount was to be added to the f.o.b. mill
price to equal this excess (that is. to say, delivered price was to be
equal to the minimum plus actual ra.il freight from mill to destination).

Bulletin i\To. 66, Volume II, effective ITovember 9, 1934, altered the
definition of these zones somewhat, and revised f.o.b. mill prices and
uniform freight charges downward. The zoning system as modified is also
given in Exhibit B.

This system of zone delivered prices remained in effect until
December 22, 1934, when the minimuri Torices were suspended.

Tliere are only about 25 buyers of bo~-grade veneers (the principal
product of rotarj^'-cut mills) in the United States. About two thirds of
these are box and crate manufacturers, who were under the Wirebound Box
Subdivision of the Wooden Package Division. According to the former
secretary of the Southern F.otary Cut Lumber Subdivision (*), 80fo of
sales to these box makers are to destinations in or about Chicago, taking
Chicago freight rates from producing points. The other one-third of the
buyers are manufacturers of composition roofings who buy the veneer for
the packaging of shingles and other products; most of this volume takes
Kansas City freight rates, as that city is the principal market. The
subdivision is said not to compete directly with any other lumber group,
but in recent years it has been rapidl;*" losing its markets to paper and
and metals used in the manufacture of substitutes for v/ooden boxes and
containers.

The requirement that all mills add actual rail freight from mill to
destination to form delivered price, without the opportunity to absorb
freight, proved, as might be expected, impracticable. The long-haul mills,
in the far south, were at what in many instances was a decisive price
disadvantage in shipping to markets upon which they depended in maintain-
ing production - their principal markets.

Nevertheless, the code administrative agency for the subdivision did
not talce action to alter and liberalize the regulations for several months.
The initiative in bringing about a change was taken by interests outside
the subdivision.

(*) J. F. Carter, Secretary"-, in an interview with the writer,
9864

-192-

■Jncn the JTc.tioua.l Eecoverj^ Administration announced 'nee.rin^_,5 on the
lurnber code to talze 7le.ce in Jan\i£.ry, 1934, representatives of & prorainont
Chicago mail-order house, a buyer of rotary-cv.t veneer in large qu3.ntitics,
hro'o^ht vliT-t it considered, to he ineo^uities inthe ' ricin^. rales of the
sxih-division to the ettention of V?A officials. The corrroany's v/holesalc
de-oartmcnt ; rotested the exclv-sion of frsi^htrise distant mills from
marhets in Central yrei£;ht As'ociation Territory, as a result of the
iimossihility of their ouotin^ competitive delivered -;rices under the
re^ulaticns then in effect. It asked that such mills he -permitted to
ah sorb the frei/^ht rate differentials. (*) The conr-'any's reason for
■^rotestin: vat iv.dicated to be the interest '-hich it lia.d in a mill
sxvTolyin:!. rauch of its veneer needs, a mill r/hich v/at disac.vantaj^ed i^'-ider
the provailin;!. regulations.

The comi-^ny further sent a re-- resentative to the Lumber Code rlearr.n^
on January 10, bn.t by this time the representative v/as able to report
tlie.t althou^cii 'the regulations had in the past worhed to produce a monopoly
for certain favorably located, .mills, the natter h^.d been "aajxiddcatcd."
satisfactorily by ilRA. (**)

Tnis "adjiidication" vras evic'.oncod en the follovdn^ day by the "moli-
cation of LUaiiber Codi.e A\ithority TiTlletin j'o. .'G (Volume l), which avitiioriz-
ed. absorption of frei^^ht u^' to ten centf^ per cvt. to meet comroetition i\
any me.rhet from a more favorably located mill (the rale effective on
Janoa.i^- ,?,1.) .

lu is the contention of the secretaiy of the former code adjuinistra-
tive ajcncy tliat the nci- rule was a-^proved "oy the Lumber Code Authority
a.t the instance of the national Hecovory Administration, to vhich the pro-
testin;; com-oany h.5.d directly gone; also, that the subdivision did. not
ap-^rovc the ;:'rinciple of freight equalization "with nearest conr.-^eting
m.ill". After the revised, rule was effective, the -•rotesting com;oany is
reported to lia.ve partially converted, a bo.x mill at Indis.na PJi-x-bor, Ind. ,
to the ma.:;iu.factx\re of rotary-cut lumber on a small scale. The newly-
openedi mill was then used, by this and other buyers to force d.o'ni the
pi"ices of sou.thern rota.ri''-cut lumber produ.cts by exertin^. ;7ressua''o upon
the -irod.ucers to eouialize v;ith this "nearest competin_, mill" to the
inncrtant Chicago inr.rket. Tlie disorganir.ed state of the ind.ustry and the
severe conr.etition on the part of its members in declinin^^ ;n3.rkets per-
mitted this pressure to be successfi^lly applied. (***) All or neai^ly all
mill^ absorbed freight up to the me::imum in ord.er to meet the lew deliver-
ed prices of the Indiana Harbor mill. This meant general absorption of
frei^:ht by the industrj" to an extent ^'hich nuist have rediuced. average net

yields much beloY: the v/eir.hted avera.'^e cost -protection rices. (***)

(*) Cf Tele,-, ram , from D. V. S\7earingon, Lar.a:;Or, V.'holes?le Department,
I.iont,: omery VJard and Comr-^any, to j-u_h^ S. Joh-nson, Adxainistrator,
Dece-mber 2":, IPC"). (in H?A files. Lumber and Tiriber i^roducts Ind.iis-
tries, "Prices-Basin, Point s-Conr^laints-Southern Hotary Cu.t Subdivision'
folder.)
(**) Cf, Statement of D.V. Swearin,:;eii, Kontiomery V.'ard and Co., Janu.ary 10,
19'j4, (in NBA files. Lumber and Timber Products Indu.strics, Tra-.-.scri-'t
of Codic Hearint:-, p. 341.)
(***) All of this information is as received iron Jol'in Carter, Secretary' of
the SoxitLem Hotar;" Cut Lumber Siibdi vision, in aji intei-Triew with the
writer of this Chapter on December l", 19'^3. It cannot be cheched
9864 a.t any source and is not --^resented in this re-^ort as established fact,

-193-

Tliis heav;', ^en:;ral frei nt absoi-^tiou incuced disres-ject on the -oe-i-t
of industry meui"berp i'or the minimnjn prices and regulations; from this tLne
on conroliance with ^Trices and ru.les ali];e is s? id to have l)cen very poor.
Provision in Bulletin ITo. 8C, effect:.ve liarch J6, 1^34, roctrictini; t'.ic
meanin_, of "mo-e favorahly loc?.ted mills" to mills in the s?:.ae suhdivision
is said to have had very little effect. ii»er*ers continued to ahsorh
frei^'ht to er'Uiilizc v/ith the Indiana I-artor mill, or disregarded prices
entirelj''.

There vere only three or four manufacturers of these (_,rades of veneer
"beyond the geographical limits of the suhdivision (these were in Pennsyl-
vania, Illinois and India.na) ; these mills accounted for ahout 3i,j of total
production, hut they were hoyond the jurisdiction of any division of the
code and constitixtcd a disturbing- factor in the aconinistration of the code
in th3 So\\ther?i Rotary Cut Lvunfoor Su.Ddivision. (*)

As a final attem-^t to solve the ■ rohlem of delivered --rice cqua.liza-
tion and the maintenance of cost "-protection prices in the industry, the
delivered price zones \'ere constructed anc. made effective Jxily 20, lO^A.
The svihdivision v'S-s attenrptdng to circumvent the heav;'' overall freij^ht
absnntion involved in equalizing vdth "nearest competin^; mill" and also
to protect rAills located relatively far from the mp.rket, for whom the
ten cent per cv;t. maximum freight ahsorption did not suffice. However,
counii-nce v:ith the minim^ira prices broke cown completely in the subdivi-
sion in the late svmmer of 1""4. The zones never were really tested or
applied and it is inrossible to draw other than theoretical conclusions
as to their sou^idness or practicability.

The Price Coiiimittee of the subdivision had lonanimously approved the
plan for creation of nine price zones at its April 24 meetin^^-. On Arril
26, as a necesrary ;^reliminary to establishing the zones, the subdivision
sent o^at forms to all its members, upon which they were rcqu.ested to
report the frei^^ht rates a ■rlyin- from, the mill to each of 5j destinations
(in Southern, Ce--itral rrel£,ht A's^.ociation and Hastem Trunk Line Terri-
tories) listed. To information apert from tiie freight rates was renuest-
ed. In an ecconroanyint; letter "To All ; anui-facturers of Box and/or
Paclsige Grade Veneers in tl:c Soutii", t'-.e secretary of the subcivision
stated ti'^.t "the proposed dclivei-ed -prices Vvould be based upon cost "pro-
tection prices f,©.!). mill plus an arbitraiy freight figure; this a.rbi-
trary freight chr.rge to be calculated so that, as nca.-rly as posriblo,
every manufacturer will have a fair clia.nce", (**)

(*) On December 18, 1934, four days before -iricc suspension, the Lu"nbcr

" Code Authority's Slational Control Corar.iitteo e;rproved a resolution for

an amendiTicnt to the code to, first, extend the juiisdiction of the
subdivision to all areas producing rotary cut lu-inber in the United
States, and, second, to remove the subdivision from the Southern Pine
Division an." place it in ? "proposec nc"' Veneer Division. The pro"poscd
amoiidinent was to be filed v;ith the -'ational P-ecovcry Acxii"nistration,
It was "never e.-yi'oved.

(**) Cf. Bu.lletin'of the Southern JRot?ry Cut LxTaber- Association, April 25,
1934. (in ITPA files, L"iimber rjid Timber Products Indixstries, Code
History, Exhibit K)

9864

-194-

Tiie zones -?.nd zone deliverot. -ii-ices vhich v/ers effective on July 20
v,'cre ■based l^i'^ely on reports receive:', in response to this "oullctin. The
de.ta ?.:iu coin;To.t5.tions h^^.ve "been destroyed. It is clear, however, thr-.t even
with conr-.lctG returns from all operators frei£,ht rates ?lonc were insuf-
ficient as a "basis for the determination of avera^;e freight charges to all
points v'ithin defined zones.

'.".Tien the zovics and prices \7ere revised, effective rovenfoer 9, l'^"4,
the Livnbcr Code Authority's j?esident Coninittee nas able to re coin, end
a-^vroval of tiic "minor revisions" by V.?A; these revisions v;ere "necessary
to make a nore equitable (frei^jht) cli3.r;-je for certain zones est??blished c\v.e
to the compilin£, of actual sales into each of the listed .ones. The
coraroletc ejciperiencc has been established for each zone substantiating!,' the
establishment of additional %f.ne?. and clia.n^es of base freight. "(*)

The cor..p'ilations of data referred to hs.ve also been destroyed. In
any case, it nr.y be considered rene-rhable that the zones and zone prices
established on the basis of clearly inadequate data in July should re'^uire
only minor revision upon the cora:^letion of a survey of actxial shronents,
rates, etc., into each rone, (**) ,

The conclvLsion seems Jxistificd tliat this sxTbdivision l'^.d by no rnea/.s
solved its problem of delivered --irice eq'ua.lization I'hon prices and pricin^;,
regulations were suspended on December 3.-3, 19G4-.

Silica tliat dr te the I'rrnufc ctnjrers of southern rotary cut lumber and
veneers I.?-vc revertec. to tl.eir '^re-code ^ricin^ "irF.ctice,

4-. Stoch i-anufacturors (wooc-'.'orli) Six^division

This sf.bdivision of the Vfoodv.'orl: Division ii.cluded, as the name
indicates, all nf nufactiirers for stock (as distingiiished from producers of
custom or made-to-order rooc'woi'k) of standard doors, vdndov/s, screens,
frames, trim •^nd miscellaneous vraodv/ork. It vas specifically limited,
ho'/TOver, to mr.nufrct\irers whose ■■-■roducts were predominantly those mentioned.

(*) Cf. Prra^raph 15, l.ani'.tes of ?,-leotin^, P.esident Committee, Lumber Code
Authority, October 19, 1^34, (in ITRA. files, Lumber and Timber Prodv.cts
Indv.stries, "Code Atithority Conumittees - Ecsident - Hinutes, October,
IQT/ji folder) . ■- .

(**) That tl:e actual frei'ht paid on shi-^mcnts to the zones averaged some-
thing in excess of the ujiifori-i freight charge established "in all e;:-
cept 2 or " zones", vith absolutions e;:cccding additions, ras the im-
pression of ^ilm. I], Yost of the Hesearch and Planning Division of the
national P.ecoverj'- Administration after examining the Lumber Code A'ath-
ority's file (the data and com-.utgtions ■■•^resented b;' the subdivision),
on the siibject on October 24, 1954. Foi' this reason he \7as able to ;
state tl:iat the "information seemed to -^oint out that the zone points
are jv.stified." Under such circumstances, hoxvcvcr, (with absorptions
er.ceedint, additions) it is clear that cost protection prices were not
being maintained and that the indtistrj'' vas not recovering costs of op-
eration in the -:riccs of its -^rodx^cts, as was the interit of Article IX
of the Code. (Cf. Letter from VJ. S. Yost to J. C. Wickliffc, Assistant
Depv.ty Acministrator, October 24, 19^4, in ITPA. files. Lumber and Tim-
ber Products Industries, files of the P^esearch and Planning Division)

(***) Cf. Schedule A, Section 31 of the Code for the Lxraber and Timber Pro-

9864 hicts Industries, Codes of Pair Com:retition, Volume I, p. 140.

This ira-iort?.nt vrood f ^-Ts ri cc. t i:\' : iiic'-astry, vhich lv?.c". 14,':; memtei's ^..nc. 130
mills, reruired, -under the code, delivered :.i-ices -uniform at ?.ll destina-
tions with defined zones. Sale v;?.s to he at the i,one -:)ricc "f.o.b. fac-
tory vdth freight allowed to zone of destination". (*) Tt.-o sets of zones
were used, one, comprisin^^- six in all, applying.- to tlxe sale oi vc-neered
hardwood doors; the other, includin:, thirteen zones, av^lyi-ng to all other
stock woodvorl:. A schedule of -j.rices for items and classification of -iro-
duct was isf:"i'-ed for each, vaiyin^.- oetr eei'i 7onec,.

These rc.les were p-ahlished in the sutdivision's first L-unfocr Cor'c
Authority bulletin (Volui-.ie I, '.lo. 2^) effective in Hoveraber, l?3o.
Succesdin. ■bulletins in 1934 m?.de no essential chrn^es in the zone-deliver-
ed -oricin:_ system. Bulletin S7 of Volivae I increased the n-umher of r.oncs
effective for stock v/ood-work, other than veneered hp.rdwood doors, to
sixteen. The subdivision continuec. to require -unifonn delivered pricin;
by zones Lo Ihe date of the suspension of cost protection prices in the
l"amhcr industrier, December l.o, 1D"4. •

Stock screen -Di'oducts of the subdivision v^ere sold at -oniforn
delivered -rices to all destinations in dome£.tic ina.rkets. There wore
no zones. Fall freight was alloved to all- destinations, except the.t on
less-than-carload sales to retailers and vholesalers actr^'.l freight was
allowed- only r:^ to ZOd per cwt. Jheso rules were effective ITovember '^,
193", follorin;! the -molication of the first Trice bulletin covorirs
stock screen -products. I^.ter bulletins ms-de no si;nificant cha.nges in
the ori;.in?l rules. (**)

i'To information wan available for this report concernin,^ the geo-
grarjhic pricing practice of this industry in the ■ rc-codo or post-code
periods.

3. SaTod-Box, Shook, Crate and Tray Subdivision

i'.ianufi.cturers, distributors and sellin_^ events of sawed v/ooden boxes,
shocks, crates and trays, ^-i:ether in shook or in mrde-ir:! foiTi, and the
component parts of these -^rod'ictr, '-ere \-indor the .jvn'isc iction of this
subdivision of the Wooden Pacl2.^;s Division. (***) The code administrative
af^ency (the kational Wooden Box Association) for the svibdivision divided
the continental United States into two m3.in production areas, east and
west of 100° -.-est lon^itvidc (vrhich ap-iroxinately bisects the Dalzotas, :'uns
throUj^-h IZansas and Texas), the eastern territory bein^ teniied "Central and
Eastern Areas", and the western given the name "Pacific, Pacific llorthwest
and Inland Zinpire Areas". Separate price bulletins »nd rules and re-^-ula-
tions for piicin^ were published for each territory.

(*) All sales tax a-nd freight sv.rchar^es, however, were to be oaid hy the
purchaser.

(**) After J-oly X, l'r'34 (rulletin I'o. :'2 of Volu-:e II) on l.c.l. shipments
of certeiix items no frei^^ht wac allowed; on the remainder, the 50f5
absorption ms.ximo-m was continued.

(*'^*) Cf. Schedule A, Section 23, Code for the Lvinber and Timber Products
S364 Industries, Codes of Fair Com-etition, Volmie I, p. 141.

ianimx^r! c'.elivered trices ^^y 7ones, ujiifonn for all destinations
v-ithin each rone, -ere estatlishec. for both are?.:;. The territory west
of 100° '-'est Icnjiitiic'.e vas divided into three "delivery groups", the
Pacific Division, the Inlar.d liinire Division and the Pacific ITorthwest
Box Association. The first ind'O-ded 11 zones (;principally in the far
southwest) en'oracin;, "ail destinations to vhich the le^al puhlished r-^te
of freight from 'weed, California, or Klamath Palls, Oregon (r-hichever
lover)" is rot less tlmn M-fJ' and not moie than 62^^ per cv/t (the zones
bcinj "based on freight rate gradations •■ithin tliis ran^^e) ; the second
included 11 ^oncs, geographica.lly houiided, in the Inland Znnire region
of the nort?i\vest; the third ?;a,s constitv.ted 'by the state of Washin{;ton
west of the Cascade i.ioujitains. Delivered ~ rices on the various product
items anc" cla.'-.-f ifications v.'ore set for each zone, a;?plyinj^' to all sales
for deliver" to any point vdthin the zone, v:li£-.tever the orit^in of the
shipment. (Of. Pvilletins l"o. 64- and 111 of Volume I, and To, 4-7 of
Volume II.)

The Central and Dastern areas (east of 100° v'est longitude) were
divided into 48 constiming zones av.d delivered prices vuiiforra for all des-
tinations from all ship;"iin_,' '^ointb vers established for each zone.

Le.ter br.lletins did not si^.bstantially alter these requirements

for r^one delivered -Dricin^- of sared boxes, shocks, crates, trays, wooden

bottle boxes a-d shool.s, v.'ooden tin, teiT.e and blaclTnl^.te containers and

Nov- Jn^;la;ld ;ir.r::et boxes a-^.d shoolis. They remained in effect until the
suspension cf cost protection ■■rices.

In the case of this subdivision, -st in t'le case of other divisions
and subdiviFions of the luraber industry erar^loyin^ ■uniform delivered pric-
ing' under the code, the existence of such -. ">ractice post^olates the
determi-nation not onl; of a weighted average production cost for all
manufactvirer^ i-n the subdivision but also a weighted average transportation
cost to all cons"Lijnin^._, points from 'iroducerr. shi":)in;; to those points in
each Pione. I-l the absence of the latter, ->articularly serious maladjust-
ments in the ma.rlreting strv.cture of the sub c'i vision 'with reference to
the sh^re in each geographical marhet obtained by groups of ma.nufactr.rers
variously located are almost inevit-able. It lias been impossible to deter-
mine how successfully or accv.rately this was accomplished in this subdivi-
sion.

6. Plywood Pacltage Subdivision

This svlj.ivision of the Uooden Facl:age Divis:.on consisted of manu-
facturers of -Plywood pacl^.ges or contaiiiers aiid of flat plyv/ood for pacl^3.ge
or container "^urooses. (*) There were in all about CO establishjnents in
the indust:.-^^ o^?erated by ;j8 com-'cnies.

■Jit:.: the establishment of cost protection -rices in this s^ob division,
all slii-:iments to destinations east of the lOOth ;-'ai-allel of longitude were
to be delivered prices. These -iricos were -;-o.blished in Bulletins Vo. 60
cf Volirae I, anc' ITo. 21 of Yolu^^e II (Lvunbcr Code Authority), and were

(*) Cf. Schedv.le A, Section ,16, Code for the Lvjnber rnd Timber Products
Ind-c.stries, Codes of Pair Conrotition, Volurac II, p. 141.

9864

unifor;.! for -11 destinations vltLin e?ch of two sor.cs, the northern r.ono
cmbracin , rll -joints north of ?. lint. runniniS; from the eastern seaooarcl
alon_ the fototrac River to the southern boujidary of West Vir£ini?., thence
to and alon£,.ths Ohio P.iver to ;isr.ouri -.vhere it follored tne souther/.
ho-undaries of -th£>.t state and'^fensas to the 100th ;5arallcl. The southern
sonc included a 11 territoiy in ' the United States south of this line. The
delivered -ricos upon the various ---';.cl--r.£:e items differed hetreen these
two 7onos; to rlia.t extent they i.'eprssented com;^osites of veighted average
costs in each eone and \7ei{^htod avsra.'je transportation costs from all
shi-ygei-:. to all consuming, -;oints t'-..erein h£.s not "been determined.

Zone delivered prices for territory east of 100th parallel v;ere in
.Dffcct for this suhdivision ujntil Administrative Order ITo. 0-297 discon-
...^inued cost protection prices in the indu.stiy. To provision seems to
ha.ve oecn r.ad.e for prices in vestciii. territory*

7. The ijnerican Veneer Pachr-^ie Suh.ivirion

All manufacturers of veneer pacha^^os and containers, not included
in other sucdivisions of the '.'.'ooc-en i-aclt?.{,e Jivision (r.urnoering in all
ahou.t 314 com-anies and "P/- estahlish^tients) were "orovvht within the
definition of the Aiaerican Veneer ?acl-'2'.£,e Suii division. Prodvicts were
listed as hashets and ha.mpers ra?.LG in whole or in --art of wood veneer
(or of wood in comhination with other .^la.te rials) , and v-ooden veneer.,.,,
hoxes, shoolrs, crates, trays and their parts, including veneer hoop's,
bashot rnd h^.m-per bottoms. (*) Tlv-'- subdivision thus embrrced all manu-
facturers of these irodr.cts not under tho ju^-.isd.iction of the Standard
Container S-axivision (in Florida, Ceorgia and Alahamr.) or the Pacific
Venoer P^cha^e Sx-'.hdivision (in the ' fa.r west).

Under the -ricin^ ro-?.es ajid rcf_ailations of the American Veneer
Packa^-e Subdivision as published in its first Lvimher Code Autl^ority
Bulletin (Voluiiie I, l!o. 7d-) its iiemhers vrere reouired to sell in c.omestic
marhets at minimum delivered "'rices, on carload shipments, v;hich were
uniform at all destinations. Prices listed in the bulletin were to be
net if sales ve re ;j:ia.de delivered; if sold, f.o.b, factory, full frei^jht
\7a.s to be allov:er at la\7iu.l^r?il rate':..

On less-than-carload shi-'ments tne same miniravrn prices wrdch a\Tiliod.
delivered to sales in carloac. auentities were to be quoted f.o.b. factoiy
with actux.l freight a.dd.ed to form delivered prices.

DelivcrGc" -'rices on these ■ roiu.cts '7cre somewiia.t higher in areas
west of t>-e -'-oclij' ;uoUjit?ius tha.n east. The element of frei/^ht and delivery
cost inclr^d.ed in these delivered -irices was reported by the Lumber Code
Authorit37's ConL'.ittee on Costs and Prices to be the. "riational v/eighted
avera:_,e of all reportin,.;^' factoi'ies within the jurisc.iction of this agency,
with the exception of shipments j.oinp v-ert of the Pocl::^' iiountains, on whdch

(*) Cf. Schedule A, Section 30a, Code for the Lu^nber a'ld Timber I'roducts
Industries, Codes of Fair Com-etition, Volume I, p. 142

9864 ■ • ,

-198-
a differential is added". (*)

The subdivision continued to require sale at uniform delivered
orices until Julv 16, 1934, ^hen Bulletin ITo. 42 of Voliome II tecame
effective. This bulletin divided the continental United States into
six zones, four of which were west of the 100th oarallel of west longi-
tude, two east. Minimum delivered -orices were established varving
between zones, effective at nil destinr.tions within each zone. Rules
and regulations for their ap-olication were substantially the same as
before. These zones a-oplied also fae the Standard Container Subdivision.
They were in effect until Administrative Order No. 9-297 discontinued
cost protection -orices in the lumber industry on December 22, 1934.

8. The Pacific Veneer Package Subdivision

Fabricators of baskets and haraoers in whole or in part from wood
or wood veneer and: of wooden veneer boxes, shooks, crates, trays and
component parts (as veneer hoops, basket and hamper bottoms) if located
in Idaho, Washington, Oregon, California, Arizona, Nevada, Utah and
west of the 108th degree west longitude in Montana, Wyoming, Colorado
and New I.iexico, were under the .jurisdiction of this subdivision of the
Wooden Package Division. (**) There were, in all, 34 members of the
industry in the territory operating 38 mills.

The subdivision, through Lumber Code Authority Bulletin No. 67
of Volume I, effective February 20, 1934, made it mandatory upon all
its members to sell in domestic markets at delivered prices. Minimum
prices f.o.b. mill were published in the bulletin; there were also given
"weighted average freight rates for the industry to destinations" '-'ithin
each of ten consuming groups or zones. Delivered urices were to be for
any destination Doint the s-um of the minira-um prices f.o.b. mill and the
weighted average freight rate a-oplicable to the zone in which the des-
tination was located.

No indication of the method of determination of the boundaries of
the zones was given but an index of destinations was attached showing
for each destination the ap-olicable group. Shipment to delivery points
not listed in the index was to ba "at established rail rates from
Aberdeen, Washington to destination". This system of zone delivered
pricing was in effect during the life of cost -orotection prices under
the code.

Cf. Report of the Committee on Costs ajid Prices to the Lumber Code
Authority, Docket No. 99, Sheet No. 2, February 4, 1934, entitled
"Veneer Fruit and Vegetable Package Subdivision (the original name
of the subdivision). Costs and Prices". This report was presented
to the Authority at its meeting on Februar?- 6, 1934 and is to be
found as .Exhibit A in the Liinutes of that meeting. (In NRA files.
Lumber and Timber Products Industries, "Lumber Code Authority
Minutes" Folder.)

Cf. Schedule a. Section 28, Code for the Lumber and Timber Products
Industries, Codes of Fair Competition, Volume I, -oage 142.

-19:^-

It is to' be noted that this is one of the' fev divisions or sub-
divisions irhich etolicitly 'olaced the determination of zone o.elivcred
^Drices on the basis of TninJr,?3:n prices f.o.b. mill (at weif-hbcd p-verage
costs for the industry) -olub a v/eighted ayei'age transportation cost from
all ra'^rr.bers of the industr:.'- shipping to a given zone to all destinations
within the zone.

W. The Standard Container Supdivision

This subdivision of the Wooden Package Division included all manu-
facturers of wooden pac'rages in Jlorida, Georgia, and Alabarja. Products
were defined as baskets and hamtjers made entirelv of wood vneer or of
wood veneer and other materials, or of wood in combination with other
materials, and wooden veneer boxes, shooks, crates, trays and component
parts including veneer hoons, basl:^t and hamper bottoms. (*) There were
55 operators and 62 mills in these states.

Under regulations issued by the subdivision in the Lumber Code
Authority Bulletin Ho. 74 of Volume I, its members were required to sell
in domestic markets at minimum delivered prices on carload shipments
which were iiniform at all destinations. If the sale w;-s f.o.b. the fac-
tory, full freight on the basis of rail rates was to be allowed. On
l.c.l. shipments the same minimum prices effective as delivered prices
on carload shipments were to apply f.o.b. factory with freight to destina-
tion added to arrive at delivered orice.

These minimTora delivered nrices uniform at all destinations were un-
changed until July 16, 1934 when Bulletin Ko. 42 of Volume II became
effective. This bulletin established six zones "reflecting common past
Dractices" and embracing the entire continental,. United States. The^e
zones applied to the sale of -oroducts of the American Veneer Package.
Association as well as of the Standard Container Subdivision, and were
maintained until the susisension of cost protection Tjrices.

10. Plywood Subdivision

All "oroducers, manufacturers, im-oorters and distributors of com-
mercial plywood throughout the United States, regardless of species or
origin, except Doiiglns fir, western cedar, s'oruce, western pine, hemlock,
redwood and plywood manufactured 3.nd sold exclusively -^or boxes, crates
and other containers, were included in this subdivision of the Veneer and
Plywood Division. (**) There were 93 ot)erators r..nd 109 mills in the sub-
division.

Cf. Schedule A, Section 27, Code for the Lvunber and Timber Products
Industries, Codes of Fair Competition, Volume I, p. 141.

Cf. Schedule A, Section 34-j-. Code for the Lumber and Timber Products
Industries, Codes of ?air Com-oetition, Volume I, pe-ge 7C9.

-200^

The nature of the lol^Awood. industry's ^re-code experience "ith de-
livered or f.o.t. mill pricin.-'- is not known. Under the code, the first
Lumber Code bulletin, No. 3 of Volume I, effective (on November 7, 1933)
for this subdivision established minimum ;orices f.o.b. mill and provided
for sale in domestic markets at delivered 'orices not less than these
minima plus freia:ht from origin to destination. Two lists of f.o.b.-
mill prices were published, for northern and southern pljmood. products,
respectively as defined.

Sale at delivered prices to include actual freight from mill to
destination was almost immediately recognized as im-oracticable, -On
November 13, 1933, on the appeal of the Plywood Subdivision for relief,
the Lumber Code Authority's Resident Committee approved a rule to the
effect that the established orices and regulations should not be applied
so as to "prevent any -oroducer from raf^eting. competition offered ii; good
faith by any other prod\icer rtore advantageously situated".- The males
then in effect were held not to conform to the requirements of subsection
(i) of Article IX and of Article XV of the Code. (*)

The resolution of the'36sid3nt Committee was taken as authorization
for the equalization of delivered "orices in the subdivision, and- this
was done for sometime after that by the addition of freight from nearest
competing mill to destination.

The lapse of time bet'reeh the- first and succeeding bulletins was
not long. Two of the latter, Nos. 43' ^d 66 of Volume I, issued about
the turn of the year (1933-1934) altered the subdivision's delivered
pricing practice radically, "orbviding for sale at : minimum delivered
"orices established for seven mark;-t zonfes- (into which the continental
United States was divided). These delivered orices varied between zones,
presumably were arrived at e.s the s"am of weighted 'averaige costs for the
subdivision -olus weighted average transportation charges from all pro-
ducers shipping to a certain zone to all destinations within the zone.
They ao^ear to apply, undiscounted, ftjs unifopn delivered prices, including
freight, on l.c.l. shi-oments to all domestic destinations. Basic list
minimum delivered "orices were 'oublished, f.nd the zone delivered prices
were at varying discounts from these basic net tirices, the discounts
being known as "zone freight deductions allowable".

The rules- for zone delivered pricing were in effect to the date of
suspension of cost protection -orices in the lumber and timber products
industries, December 22, 1934.

11. Commercial Veneer Subdivision ,. .

This subdivision of the Veneer £ind Plywood Division consisted of
producers, man^jf acturers and distributors of rotary cut commercial veneers
throughout the United States, except Douglas fir, western cedar, spruce,
western pine, hemlock, walnut, mahogany and other face woods "of value",

Cf. Minutes of the Resident Committee, Lumber Code Authority,
November 13, 1933 (in NBA files, Lumber and Timber Products Indus-
tries, "Code Authority Committees - Resident - Minutes, 1933" folder),

9864

-201-

and, finally, venders manufactured exclusively for crates end other
containers. (*) Members of the suMi vision numbered 54; there were
99 establishments.

Ho information was available for this report concerning the -ore-
code -oricing -oractice of this industry.

Under the cost "orotection orices, initially, sale of commercial
rotary cut veneers was required to be at. delivered prices not less than
established minimum prices, f.o.b. mill, nlus freight from origin to
destination. ^arly in the code period, however, new rules and regula-
tions were adopted (Lumber Code Authority Bulletin No. 52 of Volume I)
which defined fifte';n consuming zones, wi.th a schedule of minimxam
delivered prices for each zone and varying between zones. Later bul-
letins differentiated between the several hardwood s-oecies utilized
by the division, establishing fifteen consuming zones for veneer made
from g''jm, poplar and "rela.ted '■'oods" and seven zones for veneer for
oak, northern basswood, birch and "related woods". Also, Canada and
Mexico were included in the definition of domestic raarkats in the
later bulletins.

Cf . Schedule A, Section 34-3, Code f'->r the Lumber and Timber
Products Industries, Codes of Fair Competition, Volume I, page 7C9,

9864

-202-

12. The Douglas Fir Plywood Subdivision

This subdivision of the "/est Coast LoQ^ing and Lumber Division in-
cluded manufacturers of Douglas fir veneers and plywood in Oregon and
Washington. There were 17 mills. in the subdivision. (*)

Under the code this branch of the ^lyr^food and veneer industry
applied minimum cost protection prices as delivered prices which were
uniform at all destinations within defined zones. There were in all IG
zones. The freight cost element in the minimum delivered price for
each zone v/as reported by the Douglas Fir plywood Association, code
administrative agency for the subdivision, to be the average of rail
rates from all shippers to principal points In each zone. (**) Beyond
this point the present investigation did not proceed.

■ D. P.G.B. Mill Pricing

1. Th:e Uest Coast Logging and Lumber Division.

The "T.'est Coast Logging and Lumber Division included all producers
and manufacturers of lumber and luinber products of Douglas fir, TTest
Coast hemlock, Sitka spruce, western red cedar and rela.ted species in
western Oregon and western T/ashington (on the western slope of the
Cascade Mountains) and Alaska, Shingles, woodwork, veneers, plyr/ood,
hardwood flooring and kiln-dried hardwood dimension were specifically ex-
cluded from its jurisdiction. (***)

The division included 732 companies operating 1325 mills. As in-
dicated in Part I of this chapter, this region had in the last decade
become the country's principal source of supply of softwood lumber, the
quaJitity produced and shipped (of all species) exceeding even the total
for southern pine. There are few mills, relative to the output of the
industry in this area, axid nearly all of these mills are large, effi-
cient, low-cost units; in both of these characteristics the 17est Coast
Logging and Lumber Division contrasted sharply with the Southern Pine
Division. A strongly established trade association, the West Coast
Lumbermen's Association, was, with the Pacific Northwest Loggers'
Association, the code administrative agency on the division.

prior to Bulletin No. 14 and the establishment of minimum cost pro-
tection prices in the division the sale of fir and other "Yest Coast
products was typically at delivered prices. In any market, mills quoted
prices necessary to meet conTpetition from producers within and without
the division. Thus, for example, delivered prices quoted in northern
California by rail shippers from southern Oregon and cargo shippers from
Oregon and Washington were competitive. Realization (or net yield) at
the mill or price f.o.b, mill (where sale happened to be on that basis)
varied on shipments to points variously freight rated.

(*) Cf. Scnedule A, Section 17, Code for the Lumber and Timber Pro-
ducts Industries, Codes of Fair Competition, Vol\ime I, p. 138.

(**) Cf. Lumber Code Authority Bulletins, Vol. I, Nos. 17, 35, 92, 95,
102, 116, Vol, II, Nos. 26, 34, 54.

(***) Cf. Schedule A, Section 16, Code for the Lumber and Timber Pro-
ducts Industries, Codes of pair Competition, Vol. I, p. 158.
9864

-S03-

Hiniitroin cost protection xoricec \mder the code liecarae effective in this
division on TTovemlier 11, 1933, As prcraul^'ated throut'^h LTimLer Code Authority
Bulletins !To, 6, 14, and 30 of Volume I these prices were stated to 'oe "f.o.b.
or f,a,s,, for all domestic markets: rail and water," These three bulletins
were issued for Sitka spruce, Douglas fir and T7est Coast hemlock, aad.
western red cedar respectively. They contained rules and regulations which
were in every important respect identical; and arnendments to these rules
in subsequent bulletins were also the same' for all these woods and effect-
ive on appro?:imatelj? the same dates.

The same bulletins established the f clloT/lngrules and re;^ilations for
the application of the prices.

On all rail shipments to destinations beyond the limits of the division
sale was to be a.t delivered prices not less tha.n the minimum f,o,b, mill
prices plus lawful frei^lit I'ates to destination, (*)

On all T-?ater shipments, coastal or intercoastal, to the established
minimum prices were to be added the conference water rates applicable,
plus all insurance and delivery costs (as per esta.blished schedules),
and rail freight charges to destinatiois beyond discharging ports.

On local shipments to points -within the division (in western Oregon
and western Washington) the miniiiiuin prices in effect for water shipments,
f.a.s, , T;ere to be ajplic-ible as delivered prices uniform at all destinations,
and sellers were permitted, to absorb all delivery costs, including deliverj^
charges to shipside for water shipment, There the buyer provided trans-
portation fron the mill, an allo'^ance might be made from the established
minimujji, not to er:ceed the transporta.tion cost that the operator would
otherwise absorb.

In each of these bulletins there were on a number of items differen-
tials between the f,o,b, mill and f.a.s, prices, in favor of either. Thus,
lower minimum prices were established for the green l-omber products of rail
mills in recognition of the fact that rail rates are based on weight, while
water rates are based on measurement, or volume.

Subsequently while cost protection prices were in effect, the division
did not find it necessary to alter these rules as originally established
in any important respect, except as they applied to shipmates by rail and
water to California, Competition between rail-shipped and cargo-shipped
fir in northern California had been keen before the code, and it was diffi-
cult to arrive at a satisfactory delivered price adjustment between the two
in these markets,

(*) Mills on short and connecting lines were permitted to absorb locals
and arbitraries over trunk line rates in order to meet competition
from mills at main line points, Cf, Miijutes of the Resident Committee
Lumber Code Authority, Ilovember 21, 19 33, paragraph 5, (in KEU. files
Lumber and Timber Products Industries," Code Authority Committee -
Eesident - Hinutes, ilovember, 1933" folder.)

9854

-204-

i'he first three bulletins had required, on all v/ater shi-oments,
intercoastal or coastal (to California), the addition of established
conference water mtes to f.a.s. mininrom prices. Oa December 19, 1933,
tae Lumber Code Authority issued Bulletin ":To. 5'^; of Volume I, effective
December 29, 1933, and entitled "^ule Applicable to Sale of Lumber Pro-
duced in ./est Coast Log.jing and Lumber Division.-' This bulletin required,
on all sales to the California market at delivered prices, the addition
to cost protection orices of, in the case of water transportation, the
actual cost thereof, and in the cpse of rail transportation, the cost
based on established tariff rates. The minimim cost protection price
f.o.b. seller's mill for snipment by rail co California was in no case
to be leSs than the established minimum price for snipment by water.
These regulations, as published in Bulletin No. 32, were incorporated
unchanged in the next three bulletins published for the West Coast Di-
vision, ITos. -iS, 50, aiid 51, effective January '?.2 , 1934.

Later, on February 24, 1934, the Lumber Code Autuority published
a bulletin (Volume I, IvTo . 79) entitled "Rules for Comrjon Lumber Ship-
ments from Oregon and Wasiiington to California Cities". This bulletin
followed an Adj'i^ini strati ve Order daoed February 19, 1934, granting an
appeal from the rules established by Bulletin Wo. 33. The a-r-ieal had
been filed by three groups, tae V^ill?mette Valley Lum.bermen's Associa-
tion of Oregon, (railshippers) , certain cargo-ond-rail shippers to Cali-
fornia and the Califprnia Wnolesale Lumber Association. The order can-
celed Bulletin No. 32 and made effective new rules as recoimnended by
the Research and Planning Division of the National Recovery AdiJiriistra-
tion. (*) These rules were set forth in 3u.lletin 79 and are substantially
as follows:

Delivered prices in northern California (north of Latitude 35>l)
were to be identical for rail and water snippers (excent in the area to
which the Oregon Blanket rail rate is 38f-^* per cwt.), f>nd were to be
determined:

(a) In the case of i/ater saipmvnts, by txie addition (to miniraam
prices f.a.s.) of an ocean carriage factor set fortn in an
attached "Sciiedule A" ; plus transportation charges from port
to final destination as set forth in an attached "Scnedule B" .

(b) In the case of rail shipments, by the addition to minimum
prices f.o.b. mill of actual rail 'freight , with, however, all
shippers '.under the Oregon Blanket rail "rate permitted to ab-
sorb any excess freight charges in order to meet lov/er delivered
prices by water; conversely water ship-ners might absorb to

meet lower rail delivered prices.

Prices in the <j8-f area were to be determined by the saine method,
but rail shippers under t'ac Oregon Blanket rate were permitted to absorb
only to within oS.OO of the differential, if any, in favor of water de-
livered pri'ces. Tiiere T/as no provision for absorptions if any were neces-

(*) Gf. "Report on the 'Appeal by Tne '.Vest Coast Division and Others for
Relief from Bulletin No. 32 of the Lumber Code Authority," by Peter
A. Stone, Unit Chief, Janu-ry 30, 1934. (In ifRA files, Lumber and
Timber Products Industries).

9864

Minitmim cost protection prices luider the code became effective in this
division on TToveraLier 11, 19.33, As promulgated through Lumher Code Authority
Bulletins No, 6, 14, and 30 of Volume -I these prices were stated to "be "f.o.h,
or f,a, s,, for all domestic markets: rail and ^ater, " These three bulletins
T7ere' issued for Sitka spruce, Douglas fir and T7est Coast hemlock, and
western red cedar respectively. They contained miles and regulations which
were in every important respect identical; and amendments to these rules
in subsequent bulletins were also the same for all these woods and effect-
ive on approximately the sane dates.

The same bulletins established the f plloT/ingrules and re/f;ulations for
the application of the prices.

On all rail shipments to destinations beyond the limits of the division
sale was to be at delivered prices not less than the minimum f,o,b, mill
prices plus lawful freight rates to destination, (*)

On all water shipments, coaiStal or intercoastal, to the established
minimum prices were to be added the conference water rates a,pplicable,
plus all insurance and delivery costs (as per established schedules),
and rail freight charges to destinations beyond discharging ports.

On local shipments to points within the division (in western Oregon
and western Washington) the miniiiium prices in effect for water shixonents,
f.a,s,, v/ere to be ajplic'/ole as delivered prices uniform at all destinations,
and sellers were permitted to absorb all delivery costs, including delivery
charges to shipside for water shipment, Ihere the buyer provided trans-
portation fron the mill, an allowance might be made from the established
minimuip, not to erxeod the transportation cost that the operator would
otherwise absorb.

In each of these bulletins there were on a number of items differen-
tials between the f,o,b, mill and f,a, s, prices, in favor" of either. Thus,
lower minimum prices were established for the green lumber products of rail
mills in recognition of the fact that rail rates are based on weight, while
water rates are based on measurement, or volume.

Subsequently while cost protection prices were in effect, the division
did not find it necessary to alter these rules as originally established
in any important respect, except as they applied to shipmates by rail ejid
water to California, Competition between rail-shipped and cargo-shipped
fir in northern California had been keen before the code, and it was diffi-
cult to arrive at a satisfactory delivered price adjustment between the two
in these markets, :

(*) Mills on short and connecting lines were permitted to absorb locals
and arbitraries over trunk line rates in order to meet competition
from mills at main line points, Cf, Mirjutes of the Resident Committee
Lumber Code Authorits'-, llovember 21, 19 33, paragraph 5o (in ICU. files
Lumber and Timber Products Industries," Code Authority Committee -
Resident - llinutes, llovember, 1933" folder.)

9854

-204-

i'lie first three bulletinis had required, on all v/ater shi-oments,
intercoastal or coastal (to California), the addition of establishfed'
•canference v?ater rates to f .a^s.-'mihimom prices. On December 19, 1933,
tne Lumber Code Authority issued Bulletin Ho." 5'^, of Volume I, effective
December 39, 1933, and entitled "Rule Applicable to Sale of Lumber Pro-
duced in viest Coast Log.jing and Lumber Division. •■ Phis bulletin required,
on all sales to the California market at delivered prices, the addition
to cost protection orices of, in the case of water trans-oortation, the
actual cost thereof, and in txie cnse of rail transportation, the cost
based on established tariff rates. The minimi.-un cost nrotection price
f.o.b. seller's mill for snipraent by rail io California was in no case
to be less than the established minimum price, for sni-oment by water.
These regulations, as published in Bulletin No. 32, were incorporated
unchanged iii the next three bulletins oublished for the Yifest Coast Di-
vision, ilos.' 45, 50, and 51', effective January 22, 1934.

Later, on i'ebruar^^ 24, 1934, the LLimber Code Autaority published
a bulletin (Volume I, l^Jo . 79) entitled "Rules for Comi"on Lumber Ship-
ments from Oregon and Wasiiington to California Cities". This bulletin
followed ail Adininistrative Order daced February 19, 1934, granting an
appeal from the rules est^.blished by Bulletin llo. 33. The a-r->eal had
been filed by three groups, tiie V/illgjnette Valley Lumbermen's Associa-
tion of Oregon, (railshippers) , certain cargo-nnd-rail shippers to Cali-
fornia aJid the California Wnolesale Lumber Association. The order can-
celed Bulletin No. 33 and made effective new rules as recommended by
the Research and Planning Division of " the National H^covexy Administra-
tion. (*) These rules were set forth in Bulletin 79 and are substantially
as follows:

Delivered prices in northern California (north of Latitude 35N)

were to be identical for rail and wa.ter snippers (exc.ept in the area to

wtiich the Oregon Blanket rail: race is' SP^'-^ per cwt.), and v/ere to be
determined:

(a)' In the case of '..'ater sxiipm-znts', by the addition (to minimum
prices f.a.s.) of an ocean carriage factor set fortn in an
attached "Scnedule A", plus transportation charges from port
to final destination as set forth in an attached "Scnedule 3".

(b) In the case of rail suipments , by the addition to minimum

prices f.o.b. mill of actual rail freight, with, however, all
snippers -.under the Oregon Blaiiket rail rate permitted to ab-
sorb any excess freight charges in order to meet lower delivered
prices by water; conversely water shippers might absorb to
meet lower tnil delivered prices.

Prices in the <j3-f area were to be determined by the same met'nod,
but rail shippers unc^^r the Oregan Blanket rate were permitted to abs'orb
only to within o3.00 of the differential, if any, in favor of water de-
livered prices. There was no p-rovision for absorptions if any were neces-

(*) Cf. "Report on the 'Appeal by Tne ■.".•est Coast Divisioii and Others for
Relief from Bulletin No. 32 of the Lumber Code Authority," by Peter
A. Stone, Unit Chief, Janu-^.i^/ 30, 1954. (in IfxiA files, Lumber and
Timber Products Industries).

9864

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sary, "by v;ator shiuners.

Prices for delivery a.s.t. all Criliforuia ports were to be detor-
mined by the addition to f .o.b. mill prices of an ocean carriage factor
as in Scliedale A.

Schedule A enforced the Pacific Coast Lumber Conference v/ater rate
(of ^5.00 per a ft.) but permitted absoription u'o to ^l.oO per M fe^et
from joints south of the Columbia Ziver on snipmeuts to all California
ports, and up to ipl.OO per M feet from points on and north of the Colum-
bia River.

Schedule B listed required minimum transportation rates from ship's
tackle at California ports to a large number of northern California
destinations. Rates to intermediate cities not listed were to be not
less than the rates arirjlicable to'nearest cities listed beyond.

Bulletin ilo. 30 of Volume II, issued by the Lumber Code Authority
for the fir and hemlock products of the West Coast Division and effec-
tive on July 20, 1934, restated rules and regulations with respect to
rail and '(Vater shipments as in previous bulletins, except that shipments
to California, were to be subject to Bulletin No. 79. Tae two bulletins
(No. 31 and Ho. 39) nublished at the same time for the division's Sitka
spruce and western red cedar -nroducts did not mention Bulletin No. 79.

These reg"alations v;ere in effect for the division to i;he date of
suspension of cost -orotection orices, Docernbor 22, 1934.

Under the code the equalization of delivered prices was as neces-
sary for this division as it was for otner major divisions and for the
same fund.amental reasons. But the problem was, for most markets, read-
ily solved. This was true primarily because the rail rate structure
for members of the division, witn mills ranged w> and down the coast of
Oregon aad Yn'asaington, is blanketed, so that vv'herever located, they ship
to midwestern and eastern markets on a freight rate parity. Rail rates
are also blanketed for shipments of lumber from Oregon to California,
the third principal domestic market for west coast woods; since fir is
not shi-Q-oed by rail to California from points north of Portland the
mills supplying this market also enjpy identical rail rates. This
blanketing of rates automaticallv accomplished equalization when freight
was added to weighted average cost protection prices f',.o.b. mill. A
second reason is that established Conference water rates are identical
for all mills, on snipments coastwise (to California) and intercoastal
alike; the a-oplication of these r,-.tes was required by the regulations
not only on' shipments by coiranon c.-'.rriers (where they were alread,v in
effect) but also on traffic .by company-owned vessels.

This left the division with only one really serious problem of
equalization under the code: the adjustment of delivered prices quoted
upon rail-shipped 1-umber on the one hand and Cdrgo-shi^oped lumber on the
other on northern California markets.

Two large grouos of West Coast mills su'inly the California market:
first, cargo shippers with mills on the Oregon and Washington coast, on

9864

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the Columbia "Liver; there are more than 126 such mills, most of which
shii) hy ccnmon carrier, some of which oivn their ovm snips; second, rail
shippers, in the interior of 'western Oregon from Portland south, partic-
ularly in the Willamette Valley (where there are ^Dout 180 mills); these
mills market a large part of their production in California.

Under Bulletin No. 14 the water ship-oers who sold strictly in ac-
cordance with its provisions were excluded from the northern California
market except at the port of Oakland, Stockton, Modesta and (on a limited
numoer of items) , Bakersfield, for the reason- that at all other Doints
minimum delivered prices on cargo shipments, calculated on the basis of
the ?5.00 per M ft. Pacific Coast Liimber Conference freight rate plus
rail freight to final destination, were in excess of the rail delivered
prices on the basis of the Oregon blanket rates. (*) Because of this
disparity the Administrator (on the atjoeal of a prominent cargo shipper)
ordered issuance of Bulletin llo . 33.

The latter bulletin, hovi^ever, only shifted the disadvantage to the
rail shippers. These Oregon mills were still required to add published
rail rates to destination, but water shipiiients might be sold at delivered
prices including the actual cost of the wacer transportation, with no
provision whatever for freight beyond discharging i:)ort. This cost, on
shipments in company -o'.med vessels or contract carriers, might be any-
thing which the operator's accounting records showed, and was subject
to wide variation between shir)r)ers. Delivered prices on water shi-oments
in northern California were not only unstable but also were lower than
rail delivered prices on a majority of items at all but a few destina,-
tions. The rail mills were furtner handico.Toed by the rule that prices
f.o.b. mill for shipment by rail bo in no case less than -the minimum
prices for shipment by water;' tnis rule eliminated necessary differen-
tials on green lumber, which many rail mills without drying facilities
shipried to the northern California market. As a result of these regu-
lations rail shiToers, were in large part excluded from markets upon which
they depended for much of their total volume. (**)

(*) Kot all v/ater shi-opers, however, were disadvantaged. More than

half the members of the Pacific Coast Liomber Conference were whole-
salers who u'Gre able to equalize to the extent of absorbing the
discount allovTed to wholesalers under the code.

(,**) rne interest of these rail snipoers in tne northern California

lumber market had been recognized and strengthened by the prefer-
ential treatment which they had long enjoyed in the unper Sacra-
mento Vallye; the Oregon blaiiket (extending from Glendale, near
the southern boundary of Oregon, to Portland) rail rate to Call
fornia destinations as far so\ith as Stockton was 24(# per cwt.;
at that point the rate increased by 2d,'-> , and was 30^,^ per cwt.
to Modesta, just south of Stockton. Stockton is almost directly
east of Oakland, the Oregon blanket rail rate to whicn at tnis
time was 28?^ per cwt.

9864

It is clear that Bulletin ITo. 32 also h'\ndica-o^)ed cargo shin-oers
who, lacking their ov/n Siii-noing facilities, fomid it necessary to ship
hy common carriers charging' the Conibrence r-i,te of '5.00 per h ft. to
California ports.

Tne -oroblem was finally solved h/ ado-otion of the com"oromise regu-
lations recommended by the Division of Researcn and Planning of the Na-
tional Recoveiy Administration ajid made effective in Bulletin Mo. 79.
These regulations were 'greed U"Oon by re-oresentatives of the interests
involved, the cargo and rail shin'^ers. Tney autnorized comrolete delivered
price eo.ualization in northern California markets except in the "23-2^
area" (all points to which the. Oregon blanket rate was 2Bp(f per cwt.),
representing territory adjacent to discnarging norts. In this territory,
the rail mills were permitted to absorb only to within ^,'^.00 of the lower
water delivered price, thus were excluded from it, but rail mills had
not previously shared in these markets, so that no maladjustment was
created.

■ 'Tlie stabilization of freight rates arid charges wnich -oroved vital
in all divisions of tne industry was acconrolished by the same bulletin:
the Conference rates a;Tain became the minira:a 'for coastwise movement, and
a schedxvle of minimujn rates to destination from disch,arging ports was
■put into effect. However, water, delivered orices were lower than pre-
viously because absorption (to a maxiimim of ^31.50 ver ¥:. ft.) was per-
mitted and the minimum rates from Dort to destination were substantially
lower than rail rates, iviills on the Colmnbia River aiid north were put
at a disadvantage by being restricted to a maximum absorption of ;pl.00
per ;.;. ft. (o\it of the Conference rate). (*)

The regulations incorporated in Bulletin No. 79 proved practicable;
by making possible complete delivered -price equalization they avoided in-
juring any of the divisional interests involved. No subsequent changes
were necessary.

There was no such difficult problem of delivered price equalization
with respect to equalization of rail-shipped and cargo-shipped fir to
central and eastern markets, since rail-shi-p-oed fir already dominated
Central Freight Association Territory and cargo-ship-oed fir Eastern Trunl:
Line Territoiy with little mutual interference. Here there was no rea-
son to disturb the status quo.

(*) Reference is made upon all points covered in this discussion of the
problem of price equalization in California markets, first, to the
"Report On The Appeal B7 The ««est Coast Division And Others For Re-
lief From Bulletin No. 32 Of the Lumber Code Authority," by Peter
A. Stone, Research aiid Planning Division, National Recovery Admin-
istration, January 30, 1934, and, second, to ".an Analysis Of The
Price Discrimination Under Lumber Code Authority Bulletins No. 14
and No. 32", by Y. S. Leong, also of tiie Researcn and Planning
Division.. (Botn in jUa files. Lumber and Timber Products Industries,
"Prices - Transportation -'Waterways - West Coast Logging and Luui-
ber Division" folder.)

9864

-208-
2. The llorthea.stem Softv/ood Division.

All producers aiid manufacturers of lumber and timber products
of hemlocl:, spruce, white pine and other softwood species in the
New England states, Ne'-v York, Pennsylvania, ITevv Jersey and West
Virginia were numbers of this division. Products specifically excluded
from its jurisdiction' were poles and piling, planing-mill products,
woodvrork, loardwood flooring, veneers, pl;ni70od and kiln-dried hardwood
dimension. (* ) '

There- were about 3500 operators in this division aaid in the
Northeastern Hardwood Subdivision combined. Nearly all of these are
small mills. ■

Tlie pre-code experience of softwood producers in the northeast
with the pricing of ranber, shipped tr principal markets, in north
Atlantic States, did not differ in any important respect from tliat of
mills in other softwood producing areas. Sale was a.t delivered prices;
these prices were not calculated from any basing point, nor were they
zoned or otherwise systematized with respect to freight costs. On the
contrai-y. price at any destination was the product of the vigorous inter-
play of coiiipetition between softwood producers not only in the northeast
but (to a much greater extent) in the south, north central states and on
the west coast, ship^^ing by rail and water to the bitterly contested
markets in the north Atlantic states.

The northeastern region supplied (in recent years) so small
a proportion of the total supply of softwoods that the prices
of its products followed prices established by other, more important
sources of supply (as the west. coast and the south); the costs and com-
petition of its own operators were a minor factor.

At the inception of cost protection prices under the code,
products of the Northeastern Softwood Division were required (imder
re^Tulations published in Lumber Code Authority Bulletin No. 22 of Volume
I, and effective November 16, 1933) to be sold at delivered prices.
Minimum prices f.o.b. mill were established; to these were to be added
freight from the mill tn destination, except that on shipments to destina^-
tions to which the rail rate was in excess of 20c# per cwt. , sellers were
permitted to absorb not to exesed 10^ per cwt., the minimum rate (net
of absorption) to be, however, 20(# on suca shipments, it will be noted
that tiiese rules for the application of the rainiraura prices exactly con-
formed to those in effect for northeastern hardwoods under Bulletin No. 9 of
Vol^ime I. (** ) Trucking freight rates were to be figured on the basis of
2%% of fitst class rail rates; wherever possible, the actual commodity
established freight rate was to prevail.

There were also regulations governing the sale of softwood products
imported into the division (from outside the United States). Tliese
were to be sold at not less than the f.o.b. mill minima at the point of
entry for similar domestic species, plus a minii.mra rate of freight of
20(^ per cwt., with absorption of freigat permitted as in the sale of
(**) Of. Part III, Section D, 3 of this chapter.

(*•). Of. Schedule A, Section 13, Code for the Lumber and Timber Products

Industries, Codes of Fair Competition, Vol. I, p. 137.
9864

-209-

domestic softwoods.

Subsecraent price iDulletins issued by the Authority in behalf of
the division did not alter these rules for delivered pricing until
the publication of Bulletin IIo. 9 (Volume II), effective July 20,
1934, Y/hich substituted 2o(t for 20(# per cv/t. as the rate baieath which
absorption mig;ht not talce place and the mininiu::! rate of freight upon
softwoods imported into the division.

Suspension of the cost protection prices by Administrative
Order 9-297 on December 22, 1934, was accompanied by abandonment of
these purely artificial absorption limits and minimum freignt charges.

3. Tlie Northeastern Hardwood Subdivision

Tlie subdivision of the Hardwood Division comprised all producers
and manufacturers of hrirdwood lumber and tii.iber products of birch,
beech, maple, ash, elm, basswood, oalc and related species in the
NevT England' States, New York, Pennsylvania and Hew Jersey (except for
West Virginia, exactly conforming to the definition of the Northeastern
Softwood Division). All products enumerated in the definition of the
code (see Article II, A) v/ere under its jurisdiction except poles
and piling, planing mill products, woodwor]:, hardwood floorin:--;, veneers,
plywood and kiln-dried hardwood dimension. (*)

Hardwoods produced in this region ¥:ere sold before the code
at delivered prices, which bore no relation to freight from any basing
point or-to zone average freight costs. Prices were rather the result
of active inter-regional competition, dominated by sources of supply in
the south and in Appalachian territory.

Under the code, sale at delivered prices was required of memr-
bers of tne subdivision under conditions set forth in the first price
bulletin issued by the Lumber Code Authority in its behalf (Volume I,
No. 9, .effective November 10, 1933). Delivered prices were to be not
less than mininmm prices f.o.b. mill as set forth in the bulletin plus
frei^.fat from mill to destination, except that where the freight rate
was in. excess of 20(5 per cwt. , the seller was permitted to absorb up to
lO^^ per cwt., in no case was the absorption to reduce the rate to
less than 20(f. Mills not on rail heads were allowed to absorb up
to the nearest rail head. Truclcing freight rates were to be figured
At 22-|;o of first class rail rates, with, wherever possible, the actual
commodity established freif'kt rate prevailing.

Hardwoods imported into the territory of the subdivision by rail
or inland wa.terway were to be sold at not less than the f.o.b,
mill prices for the same domestic species, j^rade and item at point of
entry, plus at least 20^ per cwt. in freight (and the actual rate if
above 20^-#), Hardwoods imported by ocean sliipment were to be sold at
not less than the minim-um prices f.o.b. mill for the same domestic
species, grade and item plus the actual rail rate from Island Pond,

(* ) Cf. Schediile A, Section 9, Code for the Lumber and Timber

Products Industries, Codes of Fair Competition, Volume I, p. 136.

9846

- -210-

Vermont (="), to destination, the addition to be not less than 20((J
per cwt.

Later "bulletins (the last appearing November 22, 1934) made
no significant chan£;es in these rules for delivered pricing, save that
Bulletin No. 108 of Volume I, effective May 17, 1934, peiroitted sellers
of hardwoods imported by rail or inland waterway to absorb freight up
to 10(# per cwt. where the rate, from point of entry to destination ex-
ceeded 2C^; the latter figure was, however, the minimum rate. These
rules continued in effect until December 22, 1934, the date of abro-
gation of minimum prices.

At the same time the freight absorption maxima and the minimum
freight rates, essentially a part of the cos-t protection price
structure, were abandoned.

4. The Philippine Mahogany Subdivision

This was a subdivision of the Plardvrood Division which in-
cluded manufacturers of lumber and timber products of Philippine
mahogany and other Philippine hardvroods, persons exclusively represent-
ing in the United States these manufacturers, and all importers of
their logs, l-uinber and lumber products. (**) Persons under the juris-
diction of the subdivision totaled 3S.

Philippine maliogany and other hardwoods were sold in the
United States before the code at delivered prices. No basic points
were used, nor were there uniform delivered prices as in' tho nahogany
industry, or any form of price zoning.

With the publication b;; the Liomber Code Authority of the sub-
division's first price bulletin. Volume I, No. 11, effective November 10,
1933, minimum prices were established for Philippine mahogany and hardv/oods
f.o.b. cars, Pacific ports, with sale in domestic markets to be at deliver-
ed prices not less tlian these prices"f.o.b. mill" (cars) plus inland
freight to destination be,'ond port. If shipped to Atlantic and Gulf
ports and thence inland $6.00 per thousand feet (on 44 size) (*** ) was
to be added to the f.o.b. cars minima before addition of inland freight
from port to destination.

(* ) The method of, or reasons for, the selection of this quasi-basing
point are not loiovm.

(**) Cf. Schedule A, Section 5, Code for the Lumber and Timber Products
Industries, Codes of Pair Competition, Volume I, p. 135.

(***)This was the basic rate; rates on other sizes ranged about it.

NOTE: Cf. Part III, Section D, 2, of this chapter, the section
on the Northeastern Softwood Division.

9864

"21.1-

Suhsenuent "bulletins wipde no revisions in these miles for delivered

pricing and they remained in effect until the date of Administrative

Order Ho. 9-297, December 32, 1934. Tlie practice of the industry since

that date appears to have reverted to the pre-code condition of irregular
delivered pricing.

5. Red Cedar Shinglo Division

Producers and manufacturers of western red cedar shingles in Washing-
ton, Oregon, Idalio and the Territory; of Alaska were included in this
division. (*) Production of this type of shingle is concentrated in
these states and in the Territory, v\fhere there are hut two mills. There
are no operations in other states. Total nurnher of companies in the
industry is 245, of mills, 273. Nothing is kno-"m of the pre-code or pre-
cede practice of the industry with respect to delivered or f.o.h. mill
pricing. Although the Stained Shingle Suhdivision was later (**) to es-
tablish a single "basing point at Seattle (Jiulletin No, 59 Volume I), the
Hed Cedar Shingle Division, with the publication of Lumber Code Authority
Bulletin iTo„ 15 (Volume I), set minimum prices f.o.b. mill and required
the additi:v. of established freight rates from ori.-'un to destination on
all shipment 'i beyond the limits of the division "in virestern Oregon and
western Wrt;n-.;ij:on" . These' rules ;tnd prices were effective L'ovember 13,
1933; delivered prices only were to be quoted.

Freight added vas to be at established rail rates upon rail ship-
ments, and at conference vi^ater rates, plus insuraiice and all other delivery
costs incident thereto and freight at rail rates to destination beyond
discharging port, on water shipments, coastal or intercoastal.

Local shipments (within the division) were, however, to be at the
minimim prices, without addition of freight (that is, with full freight
allowed) , whatever the destination. Absorption by the seller of delivery
costs to any point within the division in western Washington and western
Oregon (***) was authorized. Where the bviT|.'er provided transportation
from the mill, allowaaice therefor might be uade from the minimum price at
not more than the transportation cost which would otherwise be absorbed
in maiding delivery at the destination in question-.

A subsequent bulletin (Volume I, No, 3S) efi'ective March 2, 1934,
continued the re;gulations in effect for shipments beyond divisional terri-
tory (as then constituted) but changed the basis for pricing local ship-
ments. On the latter, the prices established vrere thenceforth to apply

(*) Cf. Schedule A, Section 31, Code for the Lu'.iber and Timber Products

Industries, Codes of Pair Competition, Volume I, p. 142.
(**) Cf. Part III, Section A,. 13, of this Chfipter.

(***) Idalio was not brought under the jurisdiction of the division until
April 13, 1934 with the approval of A'nendment Ko. 8 to the Code for Lumber
and Timber Products Industries. (Code of Fair Competition Volume IX,
p. 717). There were only a fevir mills in this state.. Alaska was not
added until January 8, 1935, with the approval of Amendm.ent IIo. 27
(Codes of Pair Competition, Volume XX, page 179); this was after the sus-
pension of cost protection prices. There were only two mills in the
Territory.

9864

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as f.o.lD. mill mimina, except that absorption of delivery costs to any
point less distant than 40 miles from the point of shipment or to ship's
side on water shipment from any point in the division was authorized.
Where a mill was not located on a railroad, the prices were to apply as
minima f.o.h. its nearest or "usual" loading point.

These intra-divisional zones of 40 miles about each mill were ex-
tended, effective July 20, 1934 (Bulletin iJo. 10 of Volume ll) with
absorption of delivery costs on local shipments permitted to any point
less than 75 miles from the mill for delivery by truck, or from the
nearest railroad loading point for delivery by rail. Divisional terri-
tory at this time included Idaho.

Ho other revisions vfere effected "oy this or subsequent bulletins.
P.o.b. mill pricing (modified for shipments within the division as
described) was in effect until the suspension of cost protection prices
on December 22, 1934 .'

It has not been possible to investigate the experience of this
branch of the lumber industry with f.o.b. mill pricing under the code.
Certain factors tending to make the m.aintenance of minimum prices possible
in the division without provision for delivered prices equalization are
knomi without investigation; there are, first, the blanketed rail rate
structure in effect for the producers, shipping from Washington and
Oregon points to principal markets in the east and in California at no
great disparity in freight rates, (in this respect the situation
paralleled that of the West Coast Logging and Lumber Division (*) ;
second, the relative importance of quality aiid trade reputation consider- ■
ations in the marketing of the product.

6. The Broom and liop Handle Division

Manufacturers of broom, mop, sweeper and sweeping brush handles
were brought together in this division on December 7, 1933, under an
amendment to the code. (**) Thej^ numbered thirty-five, operating 39
factories. With its first price bulletin, (Lumber Code Authority Bulletin
Ho. 58, Volume l) , effective February 6, 1934, the division established
minimum prices f.o.b. mill with no provision for delivered pric6 equal-
ization or freight absorption of any type. These prices were subsequently
revised, but the rules and regulations remain unchanged. Members of the
division continued to sell their products f.o.b. mill, until the suspension
of cost protection prices.

The literal application of these regulations must have meant unequal
delivered prices at destinations for mills variously located freightwise
from those destinations. To what extent this proved practicable in the
industry and, if so, for what reasons, has not been determined by this
study. Because the product is standardized and of low value per unit of'
weight and measurem.ent , it appears unlikely that quality considerations
would outweigh differences in delivered prices caused by a disparity of

(*) Cf. Fart III, Section D,l of this Cha:^ter. '

(**) Cf. Schedule A, Section 37, Code for the Lumber and Timber Products
Industries, Codes of Fair Competition, Volume IV, p. 636.

9864

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IV. CONCLUSIONS

The conclusions presented in this fourth part oi" the chapter on the
Ltunter and Timher Products Industries will be few and tentative. This
is in recognition of the "broad scope of the prohleins and practices with
which the present study has been concerned, and the fact that it has
been impossible, because of distinct limitations of time and personnel,
to make more than a preliminary survey of these problems and practices.

In the administration of cost protection prices under the lumber
code, the code administrative agencies in a majority of the divisions
and subdivisions established basing points, delivered price zones and
other devices for the systematic equalization of prices delivered at des-
tination. This was undoubtedly essential, under the circumstances, if
the minimum cost protection prices were to be maintained. But it was
not specifically authorized by the Code for the Lioraber and Timber Pro-
ducts Industries.

■The basing point and zoning regulations in each division were devis-
ed by the code administrative agency for the division, and although they
came before the Lumber Code Authority for approval, it is clear from the
minutes of the meetings of the Authority and from the reports presented
to it by its Costs and Prices Committee that it was not the policy of
the Authority to disapprove any equalization system or set of pricing
regulations unless it was found to interfere with the inter-divisional
coordination of prices. In other words, the plans prepared and adopted
by the divisional agencies were not subject to critical examination by
the central oodo authority.

Moreover, the National Recovery Administration neglected either to
review the pricing regulations or to investigate their effect upon cost
protection prices. Although it attempted to check the cost data upon
which the determination of minimum prices in each division was supposed
to have been based, and the importance of this check was repeatedly em-
phasized, the methods by which delivered price equalization was effected
were (except in a few sporadic instances where the attention of a re-
search economist was called to a particular case) wholly disregarded.
This was of the utmost importance, because the basing points, delivered
price zones and other systems utilized by the industry clearly might
have had the effect of circumventing the established minimum prices com-
pletely, so that the net return at the mill received by any group within
the industry might either greatly exceed or greatly fall short of the
minima. Thus it was possible for a branch of the lumber industry to
take advantage of the control of prices either to charge exorbitant
prices and obtain an excessive net income, or, on the other hand, (and
this was much more likely in view of the depressed condition of the in-
dustry) to cut the prices of its products below cost and thereby obtain
a decisive advantage in competition with other species or producing
areas. The minimum prices f .o.b. mill established were of little signif-
icance in themselves; of primary importance was the overall effect upon
those prices of the pricing regulations adopted, as evidenced by the
average net yield or realization received by members of a division at
the mill.

9864

-315-

?or this reason, a review of cost sutstantiation data and the cost
protection prices estahlished f .o.t. mill was futile ?/ithout siraultaneous
review of the accompanying 'or icing practices.

Tlie primary test of the soundnesG of any divisional delivered price
equalization system was the extent to which it maintained the weighted
average cost protection prices; that is, the extent to which it produced
an average net yield for all operators in the division equivalent to the
weighted average costs. 'iTe are not here concerned with the advisability
of setting minimum prices in the lumoer industries or generally; hut if
such prices were to he estahlished, on the hasis of a determination of
average costs of operation according to a specific formula, it is clearly
of first importance that no regulations supplementary to the estahlish-
ment of the price minima he permitted to nullify or alter those minima.

If this test had heen applied in the administration of cost protec-
tion prices under the lumber code, either, hy the National Recovery Admin-
istration or hy the Lumher Code Authority, there would have heen involved,
necessarily, first, an initial investigation, on the' hasis of such data
as might he available, to determine for each division the average cost of
transportation of the products supplied each market area, from all the
sources upon which the particular area had previously'' drawn; second, the
current collbction of data showing for all the members of 'each division
the total frei..5ht ch,arg3S paid the carriers and the total freight includ-
ed in the delivered price of every shipment. Failure to do either con-
stituted a serious lack in the administration of the code.

It does not follow that the equalization systems developed by the
various divisional code administrative agencies were necessarily unsound.
Even without the data described, it appears to have been possible for
divisions which had the services of the expert traffic staffs maintained
by certain trade associations to devise, on the basis of an intimate
knowledge of the rail rate structure and the direction of the movement of
the lumber, systems vaiich were practicable and probably achieved a rough
equilibrium between the total of freight charges and the total freight
element in delivered prices. But in no instance was the availability of
expert tariff advice a --.uarantee of this, and the outcome was uiicertain.

Complete equalisation of delivered prices in the lumber industry
under the code was not apt to injure the interests of any group, geograph-
ic or otherwise, since the industrj'- before the code had equalized such
prices through competition.- However, where there vras an attempt to use
the pricing regulations to control the sources of supply for particular
consuming areas by preventing equalization by mills located at a certain
distance from those areas, it was also of great importance that the action
of the divisional code administrative agency be si^bject to careful review
by some higher, less interested body in the code authority', and also by
an agency of government, .-although this practice was attempted in only a
few instances (and there not very effectively) under the lumber code, the
provisions limiting absorption of freight which vjere utilized for the pur-
pose were not so scrutinized, either by the Lumber Code Authority or by
the Administration.

A critical examination of the soundness of the practices adopted from
9864

an economic point of view may be said to reach an impasse. Data respect-
ing prices, shipments coid cons'umption during the code period were the pro-
duct of such a complexity of influences and of so many other artificial
forces (such as controlled production) that it is largely irapossiole to
trace the effect of the delivered pricing regulations in reducing or stimu-
lating cross-hauling or in securing a more or less economical distribution
of lumber products of the vai'ious species and producing regions in domestic
markets.

It is clear, however, that in the establishment of the basing point,
price zoning and other systems the divisional agencies took extreme care
to do nothing which might deprive any group of producers, however distant-
ly located with respect to a given market, from the share in that market
which they had previously enjoyed. If there was one underlying, general
policy in all divisions it vjas that the status quo must not be disturbed.
Under the circumstances; this was (as indicated in previous sections of the
chapter) a prsvctical necessity. Any alienation of the support of important
groups of producers would have resulted in a brealcdown of minimum prices.
The policy did mean, however, that cross-hauling, extensive before the code,
would not under the code: be impeded.

Had the enforcement of the cost protection prices been stronger and
more effective, it probably vrould have been possible to utilize the equali-
zation s;''steras for the gradual reduction of cross-hauling. This might
have been accomplished by the. setting of absorption maxima (or limitations
upon the absorption of freight) which, while not necessitating sudden,
major readjustments in markets and sources of supply, v/ould have eliminat-
ed from time to time vifhat may be called the fringe of the marginal ship-
pers or uneconomic, long-haul sources of supply. In order to do this, it
would have been necessary to begin vdth relatively liberal absorption i
maxima, reducing the limits from time to time as each readjustment appear- ^
ed to have been completed and stabilized.

No program of this kind should under any circumstances be attempted
until a thorough investigfition of the problem of geographic pricing prac-
tice in the particular, branch of the lumber industry concerned had been
made. Such an investigation probably would embrace:

1. An exhaustive study of. the rail freight rate
structure in effect for thB products of the
various species and producing- areas, because
it is quite impossible to approach the prob-
lem intelligently without this tmowledge: any-
thing that may be done is conditioned b^'' the
rate structure. Along vdth this there should
be an inquiry into rates in effect for and
quantities shipped or capable of shipment by
other transportation media, water or automotive.

2, The collection of data as to consumption of
the products of each, species in each market
area, the quantity supplied it (the market)

by each producing area, and the freight charges
paid in transporting that quantity. In order

9864

-217-

' to do this it ??ould "be necessary to define
exactly the market and producin;"^ areas (the
. ... latter term is not used to mean the entire

area supplying one species, f;.s southern pine,
tut rather as restricted as possible a dis-
trict vdthin the comprehensive jjroducing
territory); this, aj*;ain, can prohahly he most
simply and satisfactorily accomplished on the
"basis of the rail rate structm-e and existing
rate differentials.

It is essential th'xt more complete informa-
tion he obtained as to the character of lum-
ber m.ai'kets and lumber demand.

3. If this data was available it would be possi-
ble tc attempt to measure the extent and
cost of cross-hauling in the industry. Such
a study would not however, proceed on the
assumption that uneconomic cross-hauling is
involved wherever a mni'ket is supi^lied with
one product or species from one source when
it could, at lover actual cost (not necess.ari-
ly price) , obtain a comparable product or
species from another source. The precise
uses of particular products and species as
the buying habits of consumers must be under-
stood, since it ma;?", in fact, be impossible
to substitute one species, product, grade or
even size (*) for another, hovirever comparable
it may seem. Any survey of the extent of
cross-hauling which fails to tal:e such uses
and buying habits into account cannot possibly
be accurate.

Finally, it is of no little importance that even before the code
four divisions of the lumber industry had been able to achieve systemat-
ic delivered price equalization tlirough the use of basing points (in the
case of the two flooring industries) and delivered price zones (in the
walnut and mahogany industries, the latter using only one zone). In
each of these industries the objective was the attainment of relative
price stability and the means the activity of a strong trade association
in the collection and dissemination of price data. In each of these
industries (with the possible exception of the oak flooring industry,
the Memphis basing point of which was not so strongly established or in
such general use) the objective of price stability/" seems to have been
attained, relative to the price exoerience of other branches of the
lumber industry. [There is as yet no evidence to indicate whether this
result was accomplished at the expense of exhorbitant, excessive prices.

The problems of the price structure ,ire of particular importance in

(*) Cf. The section on the Oak Flooring Division in Fart III of this
chapter,

9864

-218-

an industry' the prodiact of which is obtained from ahasio, essential
natural resoixrce such as timber, because price maladjustments may mean
the despoliEtion and wasteful conversion of the resource. Information
acquired in the course of the present study v/ould indicate that the pres-
ence in a division of a large number of irresponsibly managed small mills,
producing a large proportion of total output, is an- element tending to
accentuate instability of prices. A thorough investigation of the eco-
nomic structure and characteristics of the four lumber industries in
which basing points and uniform delivered pricing are maintained should
be undertaken, particularly as they relate to the price reporting activi-
ty of the trade associations; and an attempt made to relate their prob-
lems and characteristics to those of other branches of the industry.

9864

985

EXHIBIT A
IMEX OF PRICE BULLETINS
LOGGING MD LTOIBER DIVISIONS
A. SOPTWOOD

1. T7EST COAGT LOGGING AND LUJaBER DIVISION

(a) Don ^-las Eir. y cat Co-f^t HP^nlnr-v .. nd ^/?hite Fir -
vuiume I, Nos. 14, 45, 94, 132 - Volume II, Nos. 30,
48.

(b) Sitka_J^ruce - Volume I, Nos. 6, 50; Volume II, Nos. 31.

^^^ Western Red Cedar - Volume I, Nos. 20, 51- Volume II
Nos. 39, 49.

(d) Doua:las Fir and West Co ast Hemlock Sara Cross T ies -
Volume I, No. 104.

^ ^ -* R^les for Commo n Lumber Shipments From Oregon and
Washin^^to n to California Cities - Volume I ' Nos 32
• ' 79. * '

2. SOUTHEM PINE DIVISION

(a) Volume I, Nos. 5, 34, 82, 101, 107; Volume II, Nos, 8,
56.

2a. SOUTHERN ROTARY CUT PINE SUBDIVISION

(a) VoluBie I, Nos. 25, 53, 85; Volume II, Nos. 13, 66.

3. WESTERN PINE DIVISION

(a) Volume I, Nos. 18, 33, 111; Volume II, Nos. 24.

4. REDWOOD DIVISION

(a) Volume I, Nos. 28, 42, 112, 133; Volume II, Nos. 6, 7.

(b) Redwoo d ST^lit Products - Volume I, Nos. 76, 106; Volume
II, No. 12.

5. CYPRESS DIVISION

(a) Volume I, Nos. 19, 77; Volume II, Nos. 5, 52.

6. NORTHERN PINE DIVISION

(a) Volume I, Nos. 21, 37; Volvune II, Nos. 3, 60.

7. NORTHERN HEMLCCPr DIVISION

(a) Volume I, Nos. 7, 39, 71; Volume II, Nos. 4, 23, 58, 64.

-220-

8. rORTIEASTE^i' SO?T./OOD DIVISIOi' .

(a) Volu-ine I, ilor.. 22, 38, 109; Volvime II, ITos. 9.
3. HAPJT700D

1. APPALACKIAF AIT) SOUTICRi: HAUDTTOOD SI3DIVISI01T

(r.) Volume I, iJos. 10,41, OS, 110; Voltune II, 27A, 27S,
37, 68A, 68S.

2. rORTH CElTHAL HAEDT/OOD S^JBDIVISIOl"

(r) Volmae I, Tos. 13, -'J^--, 53; Volme II, I'os. 27, 70.

3. rORTIIEHi' H;lRDITOOD SIDDIVISIOl'

(a) Volix-ne I, Tos. G, 40, 55; Volvime II, Fos. 17, 69.

4. irORTHSASTERl' H-'lUDTJOCD SUBDIVISIOi"

(a) Vol-ume I. Tos. 9, 38, 108; Volume II, l"os. 15, 71.

5. TJALITFT SHJDIYISIOr

(a) Volinne I, j"cs. 27, 48; Voliime II, i"o. 35.

6. lAHOGAFi" SU3DIVISI0i'

(a) Vol-ume I, ITos. 12, 55; Volnne II, Tos. 41.

7. piiiLiPPiii ;ai:ogait susDivisior •

(a) Volume I, l"os. 11; Volume II, Tos. 14, 64.

II. PLOORI FG- DIVISIOFS

A. :APLE 3EECH .uT) 3IRGH ITLOORIFG

(a) Volume I, Fos. 4, 80, 105; Volume II, Fos. 15.
3. OAF ELOORIFG

(a) Volume I, Fo. 4, 52, 89, 127; Volume II, Fos. 40, 64.

(T:) Cedar Closet Liniiy? Produ-cts r- Volume II, Fo. 20.

III. FA33.I CATI FG DI VI SI 01 S
A. F00I)":0?J<:

1. STOCK lA-lOJEACTinaRS' SU3DIVISI0F

9864

-221-

(c.) Yol^me I, Kos. PZ, 46, 69, 37, 97; Volume II, I'o. 35.

(b) Stock Sc'- ecn P'- o ^''-'.icts - Volune I, Fos. 25, 54, 70;
Volvos li'- ilov ^^2.

2. SPBC1^\.L T.'OO'J'JOPi: SUiDIVISICr

(r.) Tclwue I, Uos. 24, 47, 75; Volume II, Uo. 33.

3. DOUGLAC -Vr.."' UOOR SU3DI7ISI0i: ( ^ect Corst Lo^^/ri-^s -li^-t?-

Li-u.il'er D:. vision)

(a) Volume I, I-qe. 16, 3'"-, 90, 91, 1.29; Voluune II, ITog. 22,
25, 57, 59. ■

B. 70CDEr PAClGlGa

1. SATTSD BOX, SlOOi:, C.7:i-TE AJT; TIlAY S'tJIiDIVISIOlI

(r) Voltino I. /OS. 54, 72, 98, 114; Vol-ume II, llos. 46, 47.

2. 2Ga CASE SLT3DI Vision

(r.) . Volir.ie I, lies. 65; VoPujne II, uos. 42, 53.

3. PLn.'OOD PaCICaGE SUBDIVISICi'

(f.) Vnlume I, Uo. 50; . Volume II, lio. 21.

4. riHSBOUl© BOX SIJBDIVISIOxJ

(a) Volmie I, Fos 61, 93; Volume II, Fos. 44, 61,

5. Ai.-EPJCAF VEi3S?. PACIuVGE SUBDIVISIOF

(a) Voliune I, ilos. 73, 03, 130, 131; Volume II, Fos. 42, 55.

6. PACIFIC i/EFEEP PACKAGE SUBDIVISIOil

(a) Volume I, Fos. 57, 115; Volurie II, Fos. 43.

7. STAFDAED COFTAIFEP SU3BIVISI0F

(a) Vol^ame I, Fos. 7.4; Volume II, Fos. 42, 53.

8. 700DSF PAIL AIT) TUB SU3DIVISI0F
(Fo prices estrtli slicd)

C. V3FEZR ACT PLTJOOD

1. PLYTTOOD SIBDIVISIOF

.9354

-223-

(r.) Hardvjood - Voltmie I, Tos. 3, 43, 56; Volume II, To. 20.

2. C0i,:i3HCIAL Y2:'2Z?. SIBDIVISIOl^

(a) VoU-une I, Tos. 3, 52, 57; Volume II, To. 38.

3. FACE VSiTEii;?. SUSDIVISIOi'
(To prices established)

4. DOUGLAS FIR PLYT/OOD smBDIVISIOi" (West Coast Log-ing 'and

Lumber Division)

(a) Volume I, ITos. 17, 36, '.2, 96, 102, 116; Volu:ne II,
Fos. 26, 34, 54.

D. OTHER

1. ICD CEDAR SHIIIGLS DI VI SI Oil

(a) Volujne I, Tos. 15, 68; Volume II, I'os. 10, 61.
la. STAIiOilD SHIilGLS SIBDIVISIOIT

(a) Volume I, Fos. 59, 81; Volume II, Fos. 11.

2. BROOi.i AIT) HOP IL^l^DLS DIVISIOi

(a) Vol'ome I, To. 58; Volume II, To. 19.

9864

-223-

EXIIIBIT 3

DKFINITIG?! GF PRODUCING ,\m CGNSmiNG
ZONES iiKD TERIilTOEIES

I. SOUTHERN PI1\!E DIVISION

DEFINITIONS OF ORIGIN AND DSSTIFaTIGN TERRITORIES (*)

The following definitions evolved for code administration vvarvoses
govern, though not in exact accord'with such territories as defined by
railroads;

A. .EaSTZRN trunk LINE AND NEV/ ENGLaND FREIGHT ASSOCIATION TERRITORIES:

All stations in the following states: Connecticut, Delaware, Maine,
Maryland, Massachusetts, New Haimoshire, New Jersey, New York, Pennsylva- '
nia, Rhode Island, Vermont and West Virginia; Virginia on and north of
the Norfolk and Western Railroad to the West Virginia 'state lin«, through
Suffolk.Fetersturg, Lynchburg and Roanoke , plus certain stations in
Eastern Ohio and intermediate points.

B. CENTRAL FREIGHT ASSOCIATION TERI-ilTORY:

All stations in following states: Illinois, Indiana, Michigan
(except that part west and north of Lake Michigan) and Ohio, except sta-
tions in Ohio included under a and intermediate points.

C. -fflSTERN TRUFK LINE TERRITORY:

All stations in following states; Iowa, Kansas, Minnesota, Missouri,
Nebraska, North Dakota, South Dakota, Wisconsin, and Michigan west and
north of Lake Michigan'. ' '

B. Eastern alabaMlA. origin group:

All of Alabama within line drawn iranediately east of the L. and N.
Railroad beginning at Highnote, north-ard, massing east of Georgianna
Montgomery, Sylacauga, Talladega to Wellington; thence north of the L.
and N. Railroad to Attalla, thence east of the A.G.S. Railroad to but
not including, Battelle,

E. EAST Ai\ro -ffiST FLORIDA ORIGIN GROUPS;

All Stations in Florida west (including west bank iDoints) of the
Apalachiola River constitute Wost Florida origin' group.

_A11 stations east of this river, including the peninsula, are East

IFlorio.'- o: i in - roup. ■ ■ ' ■

(*) Cf. Lumber Code Authority Bulletin, Volume I, No. 107. May 8,.
. 1934 (effective May 18,: 1934).

9864

-234-

P. sourmffiSTEM md southehf freight association TERP.ITORIES:

All st'tions in: Alabama, Arkansas, Florida, Georgia, Kentuclcy,
Louisiana, Mississippi, Missouri, North Carolina, Oklahoma, South Caro-
lina, Tennessee, Texas; Virginia south of, but not including, Norfolk
and Southern Railroad points (north and south routes via Cape Hency and
Virginia Ee^ch), and south of, but not including, points on the N, and
W, Eailroad to the West Vitginia state line.

G. SOUTIiWESTEElT YELL07; PINE BLANIIET: '-

1) Lotiisiana, rest of Mississippi r.iver.

2) Arkansas, south of Arkansas Paver.

3) East Texas, on and east of Gulf, Colorado and Sante Fe Railroad
from Galveston to Houston; on and east of Houston and Texas Central Rail-
road from Houston to Euhis; east of Texas Midland Railroad from Eunis to
Paris; east of Paris' and' Great Northern Railroad from Paris to northern
boundarjr of Texas,

4) Oklahoma, on and east of tike St. Louis and Santa Fe Railwaj'-. from
Southern boundary of Oklahoma- near Paris, Texas, to the boundary near
Fort Smith, Arkansas.

II SOUTHERN ROTARY CUT LUi.BER SU3DIVISI0N(* )

DESCr.IPTION OF ZONING SYSTEM

Geographical Zones, stating amount of freight to be added to f.o.b,
mill prices on veneer to make delivered price to e^,ch zone from mills
located only in the jurisdiction of the Southern Rotarj'- Cut Lumber Sub-
division,

ZONE 1 - Add $3.00 per M board feet to f.o.b. mill TDrice. Includes
Texas, Louisiana, iuississippi, Arkansas, Georgia, Florida and Carolinas.

ZOi.'E 2 - Add $8.00 to f.o.b. mill price. Includes Oklahoma, Tenn-
essee, and Kentucky west of the Tennessee River,

ZONE 3 - Add $10,00 to f, o.b, mill price. Includes Missouri east
of north and south line through Mexico, iviissoari; Illinois, south of east
and vrest line through Hffingham; Indiana, south of east and west line
through Bloomington; Ohio, south of east and wegt line through Hamilton
and west of PJavcrly; Kcntuckj'- east of the Tennessee River,

ZONE 4 - Add $11.00 to f.o.b. mill price. Includes Missouri (part
not included in Zone 3), and Kansas City, Kansas,

ZONE 5 - Add $14.00 to f.o.b, mill price. Includes Kansas (except
Kansas City), Minnesota, Nebraska, lora, ^.isconsin and I.ichigan.

ZONE 6 - Add $14.00 to f.o.b. mill price. Induces Pennsylvanir.,

(*) Cf, L\Mabcr Code Authority Bulletin, Vol-ime II, To, 13, July 20,
1S34, (Effective, July 20, 1934),

9864

-225-

New York, Bhode Island, Kew Jersej--, Delairare and all states east and north
of them.

ZONE 7 - Add $13.00 to mill price. Includes Illinois, Indiana end
Ohio (pax'ts not included in Zone ^) ,

ZOiJE 8 - Add $12.00 to f.o.b. mill price. Includes Virginia .and
Maryland.

ZOEE 9 - Add $13.00 to f.o.b. mill price. Includes West _ Virginia,

CHANGES IN THE ZONING SYSTitlt (*)

1, ZOIIE 1 - A (This zone is added) Add $2.50 to f.o.b. mill price.
This includes the city of New, Orleans and a radius of five miles from its
present coi-^orate limits, (This territory removed from Zone 1.)

■2. ZONE 2 - This zone is expanded to include Missouri, east of north
and south line through Lexico, Iv^issouri, (formerly in Zone 3), and East
St. Louis, Illinois.

3, ZOLlE 3 - Tne addition to mill price reduced from $10.00 to $8,00,
Missouri east of the line through i..exico, and East St, Louis have been
transferred to Zone 2.

4, ZONE 4 - Includes Michigan west and north of Lake iiichigan, in
place of the entire state.

5, ZONE 7 - Addition tb mill price reduced from $13,00 to $12,00,

6, ZONE 8 - This zone is restricted to Virginia and the Addition
reduced from $12.00 to $9.00*

7, ZONE 9 - Maryland is transferred from Zone 8 to this Zone, The
addition is reduced from $13.00 to $10.00,

8, ZOl'JE 10 - This zone is created, including Michigan east of Lal:e
Michigan, with an addition of $13.06, to the mill price,

9, On shipments into Zones 1 and lA, where actual freight exceeds
$4,00, an amount must be added to f,o.b. mill price that shall equal this
excess. Official published freight tarriffs and authorized weights to

be used in computing it.

Ill APPALAGHIAIT MD SOUTEEHI^T HAFD^^OOD SUBDIVISION

DEIINITION OP APPALACHIAN MTD SOUTHERN PBODUCING TEPJIITORIES (**)

(*) Cf, Lunber Code Authority Bulletin, Volume II, No. 56, Nov. 5, 19S4
(Effective Nov.. 9, 1934).

(**) Cf, Lumber -Code Authority Bulletin, VolxMie I, No, 110. i:ay 3,
1934, (Effective Lay 13, 1934).

9864

starting at Covington, Kentuclcy, following the main line of the L«
and K, Ile,il road- through Louisville, Kentucky, to the Tennessee-Kentucl:y
line Just south of Franklin, Kentucky; thence east along the Tennessee-
Kentucky- line to the western boundary of Picket- City, Tennessee, thence
along the 'Testerly and south-vestem line of Picket City to the vresterly
line of Fentress City, thence along the westerly and southerly line of
Fentress City to Morgan City, thence along the T^estern line of Morgan
City to Soane City, thence along the. western line of Roane City to Pjiea
City, thence along the northerly and westerly lines of Bhea City to Ham-
ilton City, thence east along the North Carolina and St, Louis Railroad
through Chatanooga to the intersection, of the 34th parrallel and the
North Catolina and St, Louis Railroad east of Chatanooga, thence to the
34th parrallel in Georgia, ranking the western boundary of -H-ppalachian
territory; thence east on Ihe 34th parrallel in Georgia to the main line
of . the Southern Railway Atlanta to Washington Route; thence northwest
follo^'ing' the main line of the Southern Railway from this point through
Georgia, South Carolina, North Carolina, Virginia, and Maryland to Uash-
ingtori, D« C. ; thence north following the Pennsylvania Railroad from
Washington, D, C. through Baltimote, Maryland, to Maryland-Delaware state
line; thence following the lelaware state line to the Pennsylvania state
line. All points on western boundary line of Appalachian territory are
in Southern territory; all points on eastern boiondary of Appalachian ter-
ritory are in Appalachian territory.

IV. UALIWT SUBDIVISIONS

DEIINITION OF ZONES (*)

ZONE 1 - Illinois, Indiana, Ohio, Liissouri, Arkansas, East Nebraska,
.East Keiisas (**), Eastern Oklahoma.

ZONE 2 - Minnesota, '"isconsin.

ZONE 3 - Michigan.

ZOK& 4 - Western New York^ west of Herkimer, Western Pennsylvania,
west of Plymouth and Harrisburg, 'Test Virginia.

ZONE 5 - Maine, New Hampshire, Vermont, Rhode Island, Massachusetts,
Connecticut, New Jersey, Maryland, Delaware, eastern New York, eastern
Pennsylvania.

ZONE 6 - Virginia, North Carolina, South Carolina, Georgia, Florida,
■^labsjna, Mississippi, Louisiana.

ZONE 7 - PZentucky, Tennessee,

ZOi-IE 8 - Southv^est and Mountain.

(*) Line bisects Kansas, as it appears from the map, from north to
south, extending through Nebraska and Oklahoma!.

(**) Cf. Lumber Code Authority Bulletin, Volume I, No, 27, November 15,
1933 (Effective Nov, 25^ 1933),

9864

-227-

ZOxIE 9 - Washington, Oregon, California.

ZOini] 10 - Western Ontario, East to and including Toronto,

ZOiTE 11 - Eastern Ontario, Ci,uebec and Maritime provinces.

ZOlffi 12 - Western Canada

V. SPICIAL 'T'OODWOPJC SUBUVISIOK (*)

PRODUCTION ZOlvES

ZOIIE 1 - Florida, Georgia, South Carolina, Korth Carolina, Virginia,
Alatpiia, Tennessee, Mississippi, Louisiana, Arkansas, Texas.

ZOIIE 2 " Maine, Nei^ Hampshire, Vermont, Massachusetts, Ehode IsleJid,
Connecticut, New York, New Jersej'-, Delaware , iwaryland, Pennsylvania,
District oi Columhia,

ZONE S - v,'est Virginia, Ohio, Kentucky, Indiana, Lichigan, Illinois,
Wisconsin, i.iinnesota, lo^ra, Llissouri, Kansas, Oklahoma, South Dakota,
North Dalcota, Uteli, Colorado, YTyomin-g, Montana, Idaho, I'c-w Iiexico,

ZOilE 4 - Arizona, California, Nevada, Washington, Oregon,

(*) Cf, Lumher Code Authority Bulletin, No. 24, Volume I, (effective
Novevnher 18, 1933).

9864

-228-

• EXHniT C

Tyioical General Re,£nilrtions Included In The Price Bulletin Of The
Divisions and Subdivisions

Southern pine divt-sion
General 1^1 es (*)

1. All points mentioned herein include, where aroplicahle,
switching, car ferry (excer)t Cape Charles ferrv' and lighterage limits
delivery costs.

2. Actual freight charges -oaid shall be deducted from invoices.

3. Freight shall he coin-outed on established association item
weights tnd lawful published lumber freight tariff rates.

4. Trans-oortation charges included herein cover cost of trans-
portation whether by rail, inland waterways (except to Eastern ter-
ritory)' or truck twhefier contract, private or common carrier).

5. These rules a'OToly to quotations, sal Js and shiioments both
from mills snd concentration -olants.

6. Ra.te absorr)tions sufficient to equalize land grant rate allow-
ances may be made on "delivered" sales to the United States Government
in addition to otter authorized absoriptions by those not enjoying the
land grant rates .

7. Mills and concentration 'olants not located on railroads shall
use rates apt)licable from the nearest rail shipping point and may
absorb trucking costs tAereto not to exceed 3^ i^er 100 lbs., if actual
rail shi-oment is made.

8. Ihe^-e a consignee is not located on a railroad, delivered
prices shall be based on the rail freight from shipper's rail head,
whether moving by rail, inland -.'rat erway , or truck, but no additional
absorotion may be made for delivery beyond consignee's rail head.

9. Where mills and concentration olsnts at noints on so-called
short -lines tdrv lawful charges in addition to the tr^onk line or gro-'jp
rail bases to destinations at which delivered ■:)rice bases are herein
orovided, and where switching charges at t)0int of origin are in addition
to through rates, such additional cnar.Tes may be absorbed, but in no
case shall the total rate computed by this method be lower than the base
rate as set forth in Sections 2 and, 3,

(* ) Cf. Lumoer Code Authority Bulletin yo, 8 (Volvime II), effective
July 20, 1934, Section 1.

9364

-229-

10. On all sales of car and railroad :naterial for shi-oment to
railr»;-.ds o-oerating in Southern and Southyrestern divisions as defin'^d
"by the American Hallway j^ssociation, off-line may absorb not to excsed
5(f vev 100 lbs. in m.-iking delivery to the nearest point of connection
with purchasing carrier, urovided sale is made f.o.b. such carrier's
rails. These provisions ao'^ly to all Class 2 tnd Class 3 carriers, and
to Class 1 carriers (*) :

Southern Region

Southwestern Inegion

Atlanta i West Point R. R. Co.
Atlanta, Birmingham c Coast H. A.

Go.
Atlantic Coast Line H.R. Co.
Central of Georgia Ry.
Charleston '; ¥.istern Carolina

Sa-. Co.
Clinchfield R. R. Co.
Columbus <i Greenville Ry.
Florida TIast Coast Ry.
Georgia R. R.
Georgia cc Florida R. R.
Gulf, Mobile & Northern R. R. Co.
Illinois Central System
Louisville & Nashville R. R.
Mississropi Central R. R.
Mobile & Ohio R. R. Co.
Nashville, Chattanooga « St.

Loui s Rv .
New Orleans Terminal Co.
'Norfolk Souther R. R. Co.
Seaboard Air Line Ry.
South xn Rv. S:/stem
Tennessee Central Ry. Co.
Western Ry. of Alabama

Atchison, Topeka & Santa Fe Rwy.
B^orlington-Rock Island R. R.
Chicago, Rock Island & Pacific Ry,

Co.
Fort Smith " Western Ry.
Fort Worth ^; Rio Grande Rv.
Galveston 'fharf Co.
Gulf, Colorado & Scnta 7e Ry.
Kansas City Southern Rv.
TCansas, Oklahoma m Gvdf Ry.
Louisiana I'c Ar]:ansas Ry.
Louisiana, Arkansas dc Texas Ry.
Midland Valley R. R.
Missouri & ITorth Arkansas rty.
Mis souri-Kaiisas-Texar. Li'.ie s
Missouri Pacific System Line
Oklahoma City-Ada-Atoka Ry.
Pan Handle & Santa Fe Rwy. Co.
St. Louis-San Fr.ancisco Rv.
St. Louis, San Francisco .o Texas Ry.
St. Louis Southwestern Lines
San Ar.tonio, Uvalde & Gulf R. R.
Terminal R. R. Assn. of St. Louis
Texarkana ."i Fort Smith Rv.
Texas & New Orleans R. R.
Texas A Pacific ^.
Texas Mexican Ry,
'.'ichita Falls & Southern R. R.

11. In the case of direct sales to the United States Government,
to creosoting comoanies for shiioraent to and treating at their lolants,
and to carrier railroads buying for their own use, sales may be made
f.o.b. mill. F.o.b. mill prices may also be quoted to other -oublic
agencies on direct sales for their o^-^n use if such agencies may make
shipment at rates lower than the rsgularlv ijublished lawful rail rates.

(* ) This specification of railroads to '^'hich this rule a-oplied was not
common to all divisions.

-230-
EXHIBIT D

Questionnaire Used by Southern Fine Division
In Deteri^ining Extent to liThich Freight
Charges Paid and Freight Included
In Delivered Prices Balanced
For the Division as a
Whole (*)

"Gain or Loss on Freight Differentials "

For Sales Made on Delivered Quotations, Using Arbitrary Basing

Points for Freight Rate Computation .

For the three months ended March 31, 193-1.

For the purpose of definitely ascertaining the effect of the use of
"basing points in quoting delivered prices please furnish the following
information:

1, Total amouiit of estimated freight (or other delivery expense)

added to f.o.b. mill prices, based upon arbitrary freight rates-
billed to customers on shipments during period.

3. Total amount of actual freight (or other delivery expense)

on the same shipments reported above, i.e., the total amounts
i.e., the total amounts of actual freight deducted by customers
in remitting for the same shipments reported under No. 1.

Difference - Gain or Loss

A suggestion for arriving at the amounts of the above items ♦ if
these are shown on your books, is as follows:

Item No. 1. List all shipments made to customers during the period
when delivered quotations were made and where estimated freight was
based upon arbitrary rates, as shown below:

(l) Estimated weight for each shipment

(*) Cf. Code Bulletins of the Southern Fine Division, Vol. 1, No. 36,
May 31, 1934. (in iOA files, Lumber and Timber Products Industries,
Code History, Exhibit K-33.)

9864

-231-

{Z) Ar"bitrar;,- freight rates used in deterrainin;'; delivered
prices .

(3) Ai-nomit for each shipment (l oy 2)

Item No. 2. List fro'-n freight tills covering the same
shipments as shown above the following:

(4) Actual weight for each shipment

(5) Actual freight rate for each shipment

(6) Amount for each shipment (4 'by 5)

G-ain or Loss (3) - (o)

9864

-2052-
CHAPTiiE III

PR£LII.:iiIAR Y KATErJALS RELATIITG- TO TIIE BASIITG
FOIIIT SYST^t" IT Ti:£ IROl' AlID STEEL liiDUSTItY

I. 3HIEP STATEI/EIM'T 0? THE PnOILELS IIIVGLVEIl

A treatment of thn rmiltiple 'basi.ij'; -point system of pricing as
incorporated in the Code of To.ir Competition for the Irpn and Steel
Industr^^ (Code ilo. 11, approved August 19, 1933) has to distinguish "be-
tween t-'jo nain aspects of the natter. The multiple basing point system
and, prior to it, a single "basing point system had existed in the indus-
try for approximate 13'' thirt3''-five years. The code cTid not chsjige funda-
mentallj' the form of the system as it had operated in the pre-code peri-
od. Thi'j fact suggests the great iuiport.ance of an examination of the
pre-code situation. If the pre-code "basing point system ^7as useful for
the iiadustrj'- and not o'bjectiona'ble from the point of viev of pu"blic
policy, then IIEA was justified in sanctioning it. If, on the other hand,
valid o'ojections vrere to be raised, against the pre-code system KRA ATOiild
have tc ""oe criticized for having incorporated it in the code. This
point of view needs, however, to he modified and supplemented "by a
second consideration. This relates to the modifications in the system
whicli the code effected. It is possible that the legal status given
under p:j. lPAA code made the practice question3,ble, even if as a volun-
tary practice it W3,s beneficial, or, at least, harmless. In a,ddition to
establishing legal enforceraent of tae basing point sj.'stem, the code add-
ed a few other features such as its combination with price filings, an
increase in the number of basing points, the prohibition by the code
aiithoritj'- of price reductions in selling from one basing point area
into another, the provision that freight be figured on an all-rail basis,
even if shipment actually was made by waterway or trucl:, etc. All tliese
features contribtited to an effective implementation of the system and
mal:e necessary an examination and evaluation of what the code made of the
system which had existed before HRA.

The main line of approa-ch planned for this study of the steel
basing point system under liPiA was an analysis of the relations which
exist betv/een the structure of production and markets in the steel in-
dustry- and its system of pricing. For such an investigation the steel
industry offers a unique ca.se. Strictly spealring, this industrjr em-
braces not one basing point system, but as many basing point systems as
there are different product divisions. Tiie basing point system for pig
iron is different from that for crude steel or semi-finished steel. The
wire product basing points differ in their structure from the basing
points for sheets or plates. This situation opens up a wide field for
comparisons of different instances of the relation between industry
structure and basing point structure.

'"' In errola.ining thp relations existing between tlie industry struc-
ture -"iid the basing point striicture the following aspects of industry
structure are considered as determining the situation: the heavT,"- over-
head cost structure of t ^e ino.ustry in general and, specifically, the
concentration of the heaviest investments at certain points such as
Pittsburgh; the desire for both a steady rate of operation and price

98S4

"233-

statility, uhich desire, to p, large extent, is induced b^r the high over-
head costs; the existing overcapacity, vriiich is more pronounced in the
X mi shin- field thaJi in the crude materials field, since most integrated
concerns attempt to develop a well diversified line of fa,bricating in
order to keep their iron ond steel furnaces fully occupied; the rela-
tive geographic concentration of loroducing facilities aiid'the xdde. scat-
ter -of narhets throughout th- country;, the dominant size of a feu out-
stanaing companies and their horizontal and vertical integration; ajid ,
finally, based on a combination of most of these factors mentioned, the
propensity of the industry to price leadership. Since the general
theoretical significance of overheod, overcapacity, integration of dom-
inant concerns, and price leadership for the development ^of a basing
point system has been discussed in Chapter I, no repetition is here
intended. In an effort to study the mcoiife station of these structural
mter-relationships in detail, an exaninatioh cf the conditions sur-
rounding the production of each product in each basing point area was
undertoJuen. IXie to limitations of time and personnel , this examina-
tion coulc. not be finished. Section II of this chapter represents the
tirst part of it. In this section are sho^Tn the types of comt)anies,
large .or small, integrated or non- integrated, which produce the dif-
ferent lines of product' in the different districts. Tables 12 to 27
furnish the data supplementing the presentation in the text. These
materials were planned to be correlated to the raoveraents of the dif-
ferent product price series at the different points of quotation. The
price series are given in Tables .42 aaid 56; limitation of tine pre-
vented the completion of the aJialysis. The price date were intended
to be used also for another-' Itnerof aii^ysis.Jbi examination of the de-
velopment of the price differentials obtaining between different bas-
ing points would shed light on' the type of geographic price pattern
for the implementation of v/iiich the basing point system was used.
This analysis could not be completed either.

The results of these analyses promise to- be significant. Tenta-
ll""^]"''^ ^^^ surmise may be set forth that the decline in the amount of
the difierential above Pittsburgh prices which characterized the base
price quotations of basing points in the West and South indicates that
tne relative shift in the location "of the industry away from Pittsburgh
may have been delayed and nade more gradual, but was not prevented by
the -orevo.illng: price structure. (*) _^^

( ) It is clear that the higher the level of steel prices in the
TJest and South was kept above Pittsburgh, the better was the
possibility for Pittsburgh to compete in freightwise distant
nartets without having to content itself with too low net
yields because of freight absorption.

9864

Another significant aF'oect seems to be that products of relatively-
low value per unit of '■'eic;ht, such as pig iron vrhich cannot economically
be shipped long distances, have a great number of basing points anc. dis-
plaj'' corroaratively independent price movements at 69ch of these basinji;
points, v'hile finished products have typicallj^ a smaller number of basing
points and their comparative geopraphic movements are much more closelj''
inter-related. Other tentative results concerning a comparison between
the basing iDoint structures of semi-finished and of finished products are
set forth in hypothetical form in the following sections of this chapter,

Because of the unfinished strr.te of this study, no determinate con-
clusions as to the merits or demerits of the steel basing point system
could be reached. Some of the most important aspects of the modification
of the basing point system effected by KRA are presented in tentative
form in Section IV of this chapter.

In brief summarj'-, it might be said that an examination of all angles
of the matter emphasizes that the steel basing point system with its pro-
duct ijeculis.rities follows logically from the structure of the production
and marketing of steel, ^^hich, in turn, depends upon basic financia,l and
technical traits of our modern industrial system. Such an interpretation
of the s;-stem suggests that a reform of its less desirable features would
have to be directed towards a gradual reshaping of fundamental character-
istics of the manufacturing industry. (*)

II, STEUCTlilLM AlID ECOIJOkIC BACIiaaOIIKD 0? THE IHON AND STEEL IKcusTHY,

The iron and steel industry is made up principally of financial and
producin;:^ units of very large' size. Its cost structure is characterized,
by extrenelj- high overhead costs. It is concentrated geographically in
a compcratively small niiraber of areas. These structural characteristics
have been extremely influential in affecting the geographical pricing
practices of tne industry. The purpose of this section is to discuss
these features of the industry and the causes for their existence.

In general it Till be necessary to analyze the various branches or
divisions of the industry separa^tely. The economic character of the
various divisions of the industry differs so substantially that a general
treatment of the industry without difte rent iat ion among them is impossible,

A, Products and Processes

1. Products

The procucts of the iron and steel industry may be grouped according
to the following classification: pig iron and certain ferro-alloys, steel
ingots, semi-finished products, hea.vy-f inished products and light-finished
products. Pig iron and f erro-alloj'-s and ferrous scrap are used principall3'"

(*) Lack of time precluded a thorough discussion of the two valuable aOn-
tributions to the problems of the steel basing point system to rhich
ITEA gave rise. See the references to the iederal Trade Commission
and USA reports on this m.- tter. Chapter I, Section III, supra.

9364

■2ob-

Jn^'t! iZ^'^'"'l°\°' i"^"''- ™'* ^°'- e>-ey iron and steel castings, steel

pro^x^otion of finished industry products extjer ITtT/ "T""'^ '> '"'
billets and slats or by the purchaser t\;rf*"m J helvLr ?i„".hcc °'"'"'

^:^::sr?s:cT;,rs^ii.i;;f-\s^- ctr=;hip^itd ry^p^^ '

fl^htji'- rj °" '''"' principally fcr consti-uction purposes ■^he
t n-i-t:^--^aJd-r ^c^ctrLf :ot%e^^^^^^

nro'Stf i.?;!?ri""'^'°H- "" f <= automobile indStry J.T.^nlTtlT.Xi
E- Srate IdT- , ^ " '!"■"■ =•'='="* 1" "'^'7 oonstruction. Tin ,111

preponderaaatly as a conduit for rater, oil iJ^^Is. "^ '°^'^'''-

to .i^S:iS'a:r:LSSr:^:::,JLf ^ if recinf ^^ sta.dardi.ed .oth as
■production of alloy steel. T^^h ^^^'■^' however, the

increased substantLlly!?*) "" """^'^ consxaerably in composition, has

^*^ in;ttrf ffri^s:^ 5r^^ ^^-^^^^^^^^^rj^^^^^^^^^

9864

-236-

2. Processes

Amon^ the most important factors affecting the basic character of
the industry structure has Leen the nature of its manufacturing pro-
cesses. The processes begin uith the conversion of rav/ material into
pig iron in tne blast furnp,ce. About two tons oi iron ore, one ton of
coke <,,nd four-tenths ton of limg:stone are required to mal^e one ton of
pig iron.

Steel is made by conversion of pig iron and/or other ferrous
materials by the open-hearth, and electric furnace or the Bessemer con-
verter processes. The use of the Bessemer converter dates from about
seventy-five years ago. The open-hearth furnace is a comparatively re-
cent development and its use is increasing. It accounts for p-oproximately
90/b of the total steel output.

The open-hearth furnace process is amenable to the use of ferrous
scrap as a major portion of the material charge for the making of steel,
pig iron constitutes %he bulk of the other materials used. The Bessemer
converter, on the other hand, is restricted largely to the use of pig
iron. Pig iron and ferrous scrap are used in varying proportions al-
though usually in approximately equal proportions. The ratio used is
sometimes influenced by the relative prices for pig iron and scrap.

Molten pig iron technically referred to as "hot metal", in
integrated mills, is delivered to the steel firrnaces and converters
directly from the blast furnaces. In 1933, 9,595,087 tens, or about 72;o
of the total production for the industry, vbtb delivered in a molten
state. (*)

The ingot after having been poured is allowed to cool then reheated
and is then broken down by hammering or rolling into semi-finished or
finished forms. The first forms into which it is converted are blooms,
billets, and slabs. Next the steel is rolled into semi-finished or fin-
ished rolled forms. Sheet and tin-plate bars are rolled further to form
sheets, strips and tin mill black plate. Sheets and strips may be
classified as either hot-rolled or cold-rolled. The major tonnage into
V'lhich blooms, billets and slabs are converted are sheet bars, plates,
sheets, strip, shapes, bars, rods, wire rods, skelp and tube rounds.
Plates, shapes and bars may be sold and used as such.

Wire rods, skelp and tube rounds are subsequently manufactured into
wire, welded and sea,mless tubing, respectively. Tire rods are converted
into wire by being drawn into the desired size. Skelp is welded to form
pipe. Tube rounds are made into seamless tubes by a process of piercing
and drawing over a plug and mandrel.

The finished rolled and drawn products are in some cases processed
further before they are ready for consumption. Tin mill black plate is
produced almost entirely for further fabrication into tin plate, by a
process of coating with tin. The sheets, wire, and pipe are in part con-
verted into galvanized products by being coated with zinc.

(*) Census of Manufactures: 1933.
9864

-237-

To summarize, the processes of making pi^^ iron, steel, T7ro\ip;ht iron
and some ferro alloys constitute the tacic operations of the industry
from which all the serai-finished products for the subsequent operations
are obtained. In the succeeding stafi,es the steel undergoes different
specialized processes to malre ths various rolled, drawn and welded foriois.

There have been a. nu.mber of new developments in the process of manu-
facturing st&el products in recent years. Among the most important has
been the installation of continuous mills, principally for the rolling
of sheets and strips. In these mills the rolls are cxranged in a con-
tinuous series so that the entire rolling operation is performed in one
stage. The ordinary reversible type rolling mill has rolls which reverse
themselves and by successive operations reduce the product to the desired
shape. Another important development has been the electric welding pro-
cess for pipe. 3y this process a single strip, sheet or plate of steel
is 7/elded into pipe in a continuous operation.

The processes for making and rolling iron and steel are, in the
main, continuous. The continuous processes were adopted in order to
offset the high costs which are incidental to the starting and stopping
of operations. The advantages of continuous operations have substantially
reflected the organisation of producers, notably in vertical integration.

B. Structure and Location of the Industry

An analysis as applicable to the above caption is presented on the
following basis: — lirst, a general survey of the industry capacity to
produce the major industry products and, second, a detailed capacity
statement for each ra8..jor industry Toroduct.

1. General Survey - The total industry capacit^^ for each
major industry products is: (*)

product Tons

Pig Iron and Ferro-alloys 51,110,061

Steel Ingots 59,755,371

Blooms, Billets and Slabs 43,206,520

Sheet and Tin Plate Bars 9,298,920

Sheets 7,281,362

Hot-Rolled Strips 4,214,878

Cold-Rolled Strips 1,377,950

Tin Mill Black Plate 2,759,100

Tin and Plate and Terne Plate 2,653,400
Merchant and Concrete Reinforcing Bars 12,269,883

Plates 5,989,070

Structural Shapes • 5,205,340

Skelp 3,980,700

Pipe and Tubular Products 8,741,300

Wire Rods 4,433,763

Wire (drawn) 4,054,450

Wire Products 2,440,150

Steel Rails " 2,069,100

Cold Drawn Bars 1,332,248
Footnote on next page.

9854

-238-

n^rticularlv valuable to concerns because it facilitates tne s^aoiii
SJon of their operations and production of their major lines.

The tendency toward diversification in P-°^-^^^^;;;^/J^^:f,™f,';f
fied by the fact that the largest companies engage ^^, f f. ^^^f "J^°3,°'
a number of different lines. The l,.rger companies, the "nxted States
?teel Corporation, the Bethlehem Steel Corporation, the Hcpublic Steel
C fora ion the Jones and Laughlin Steel Corporation ana he youngs own
Sheet and Tube Company, respectively, eacn produce substantially all
the major industry products.

While the largest concerns are diversified to a considerable degree.

the smallest concerns in many instances --^.^^^^^J^^r^^'/.^'i^^ed "ro-
of the latter com-nanies are specialized in tae making of finished pro
diets! flSaile-d brealc-dow/of th. diversified f "^"J^.f 3^ "'^"
of industry producing industry products is indicated in Tatle ii..

Appendix. . - ■

The group of large companies making a number of different products,
occu-oies a far greater capacity position in the industry than do the
:::h'i:rg:r Uer of smaller companies. The aggregate P-cen age_of
the above five large companies in each proauct line, is as loliows.

„. ^ 71.12

Pig Iron _ rn AQ

Steel Ingots (aaid Steel for Casting) oy.^^
Blooms, Billets end Slabs 73. d8

Merchant ard Concrete Reinforcing Bars ^^'^^

71.18
89.13
75.55
41.09
44.10

Plates

Structural Shapes

Sheet Bars

Sheets

Hot Boiled Strips

Cold Soiled Strips ^f-^°

Wire Rods

Plain Wire

T7ire Products

^^®^P fiO fiq

Pipe and Tubular Products ^q Z

Tin Mill Black Plate J-' fq

Tin Plate and Terne Plate „o*rr.

Steel Rails

65.06
53.33
54.11
.87.42

82. C5

ynntnote continues from preceding loage.

U) Oompi-e rfF^^irLTon and Steel Works Directory for the United States
and C.-icr^a for 1935. American Iron and Steel Institute. Blooms,
Sillet. 'a-nd Slabs from National Recovery Administration report on
the opsvkticn of the Multiple Basing Point System in the Iron and
Steel Industry, November, 1934,

9864

A 'break-doTvn of the relative diversified activities of the five
largest members of industry is indicated in Table 32, Appendix.

The size of companies on the whole appears to be increasing. A
number of financial mergers has occurred in the last fifteen years.
Among the more important was the recent merger of the Republic Steel
Corporation and the Corrigan, McKinney Steel Company in 1934. Also im-
portant was the merger of the Bethlehem Steel Corporation with the
Lackawanna Steel Corporation and the Midvale Steel and Ordinance Company
in 1922.

While "statistical data are not available shov/ing this trend toward
consolidation, they are available with respect to the increase in size
of the producing establishments. (*)

2. Detailed Capacity Analysis - In the tables numbered 12 to
27, and 29 and 30 there are presented detailed capacity statements re-
lative to the production of major industry products.

From the data presented in the above tables, the reader will be able
to de-,ermine the percentage capacity relg.tionship between the large and
small -^iorapanies, the relationship of integrated and non-integrated com-
panies, the geographical production and distribution centers for finished
and semi-finished products by both integrated and non-integrated com-
panies, and the productive relationship between the major industry pro-
ducts. 3or a further detailed analysis, the reader is referred to maps
numbered i to 19 inclusive, which present a geographic analysis of the
locale of +-,he production centers for the- major industry products. The
reader is also referred to Tables 31 to 38, inclusive, wherein are pre-
sented statistics correlated and supplementary to the statistics con-
tained in the aforementioned tables.

C. Cost Structure of Production

In the C09^. structure of the industry, overhead costs bulk large.
These costs fall essentially into two categories. First, there is
financial overhead in the form of capital charges, and these are costs
which are attributable to the entire corporation. Second, there is
technical overhead which is associated with the individual producing
unit* The technital overhead costs may be reduced by the internal
operating policies cf corporations. For example, one of the principal
cost elements of this character is connected with the process of manu-
facture. The process of production is e. continuous process. The costs
.associated with star-ving the process are very great. Once it is started
it becomes very expensive to stop it and start it again. Consequently,
a considerable amount of overhead cost is invested in the process once
it is started. If horizontal conbina.tions of companies can shift their
production from one producing mill to another and thus keep at least one
plant operating continuously, instead of a n\imber intermittently, their
amount of technical overhead costs may be reduced. Their financial over-

(*) Cf. Tables 33 and 34, Appendix.

9864

-240- ■

herd costs differ from therje in that the cost per unit of sales may be
reduced only, by increasing the total sales of the corporation.

The cpst structure of the_ industry varies consider3.bly , as between
product groups and types of industrial organization. On the one hand,
the costs of producing pig iron are preponderantly of a direct nature.
About 7870 of the total cost is attributable to, raw mtterials. Direct
labor accounts, for -anotner 4.7;-o of the total cost. Together ra^r
materials and direct labor account for about 82.7,o of the cost. Over-
head cost amounts to approximately 4,o of the total cost. The remaining
proportion of the cost is divided among miscellaneous items. (*)

This cost structure for pig iron is approximately confirmed by the
Census reports for the Blast j)\Lrnace Industry on cost of materials, etc.,
value added by manufacture, ajid total value of products. The cost of
materials, ■ etc. , represented in 1933, 86.1/0 of the value of products
while the value added by manufacture is made up of two general types of
costs, T/ages and overhead. "Tfges represented 5.4^J of the total value
while the remainder which is principally overhead bore a relation of d,5fo
to the total value.** These percentages roughly bear out the cost structure
of pig iron as indicated above.

On the other hand, the costs of producing steel and rolled products
include a much larger element of overhead. No analysis of these costs
has been made by the Tariff Commission. Consequently, reliance must be
placed upon the Census reports that were referred to in the case of pig
iron. The cost of materials, etc. for "Steel-works and Rolling-Mill pro-
ducts" in 1933 was only 60.5;o as compared with 86. lo for the "Blast
Furnace Industry". The Value added by manufacture for the former pro-
ducts was 39.5)0 of the total valtie while it was only 13.9,3 in the case of
the latter. TJage expense in the manufacture of the products of steel-
works and rolling mills was about 22.6^0 of the total. The remaining
16.9;o represented the cost of equipment which v/as preponderantly overhead
cost. (***)

On the whole the cost structure of integrated concerns contains a
somewhat higher proportion 01 overhead costs than non-integrated companies.
The former concerns must make large fixed investments in capital equipment
and ore and coal reserves. The costs of these facilities once they are
acquired are almost entirely of an overhead nature. On the other hand non-
integrated producers enjoy somewhat greater flexibility of costs. A much
larger proportion of their costs are of a direct nature which permits them
more easily to reduce operations as the volume of sales and prices require.

In addition to the proportions of the several cost elements, the
actual amo-ont of the costs varies v/ith different types of concerns. The
integrated producer of pig iron for example enjoys a substantially smaller

(*) Computed from Table 64, Appendix.

(**) Computed from Census of Manufactures for 1933, Blast Furnace
Inaustry.

(***) Ibid.

9864

-241-

total cost than the merchant producers. In 1924, the average cost of
the former group in the production of foundry and malleable pig iron
was $20.34 per ton while that of the latter companies .vas $23.05 "oer
ton. (*)

(*) Cf. Table 55, Appendix.

9864

L. Distribution and iviprkets

This oprt of the analysis, is dix'ided intc tliree sections, first, the
channels of distributions, second, transportation methods nnd -Drohleras, and
third, the character and location of markets.

1. Channels of Distribution

Iron and steel which is sold, except for a minor oroportion of the
total, is distributed directly to the used. Jobbers and 'warehouses in
1935 distributed only aoout 13fo of the total finished products. (*)
The proportion distributed by joboers varies for different -oroducts. In
the case of xii'oe and tubins; it is aorut 38^, Approximately 49^0 of the
galvanized sheets are sold through this channel. Jobbers are also an
important factor in the distribution of i-'ire products.

2. Transportation

The iSrincii^al mode of delivering iron and steel products is by rail.
However, a substantial amoiont is also delivered by water, A small quantity
is delivered by truck.

The average costs of shin-oinfT; iron and steel t)roducts although sub-
stantial is not prohibitive. The average freight cost for all these pro-.
ducts has been estimated to bear a relation of approximately $79 to every
$1000. (**) value of the product. Tne proportion of freight cost to total
value varies substantially among the different types of products. For
example, in the case of riig iron it is so great as to essentially prohibit
shipments over long distances. However, the cost of shinping highly fin-
ished products is so much smaller in relation to their value that they may
be shinped with facility to almost any destination in the country. In
general as the value of the product becomes greater, the ratio of its
shipping cost to value decreases.

The relative transportation costs are also affected considerably, as
regards the per mile cost, by the distance of shipment. As the distance
becomes greater the per mile cost of shiTrriinc-i, decreases markedly.

A third significant asviect of the transportation system is the prac-
tice which is known as f abrication- in-transit . Under the privilege of
"F-I-T", a fabricator is able to buy his rav; material at a distance, fabri-
cate it and ship it to market at aoout the same cost as if he had ship-oed
directly over the same distance on a through haul. This privilege has
made it possible for fabricators located at one point to invade the
natural markets of their competitors located at a distance and at the same
time cut below their Drices. The operation of this privilege is explained
in the J-'^ational Recovery Administration' s Report on the Operation of the
Multiple Basing Point System in the Iron and Steel Industry, November 30,
1934-, p. 35, as follows;

(*) Com-quted from the "Distrioution of 'lolled Steel in 1935 according to
Shipments of Companies Prodiicing 78.5 percent of the year's outuut."
Iron Age, January 2, 1936.

(**) Of. Senate Document No. 12, 73rd Con^-ress, "A Natural Plan for
American Forestry", liarch 13, 1933, Volume II, p. 1358.

9864

-243-

"The Chicago Fabricator can bu,y steel (from a Bu^'falo rail.1) in Ghi-
.ca^-^c for $1,70 plus Zip switchin;-; cl-iar-^e. The Ji^ffalo mill, to util-
ize idle capacity, may meet this Chicago price of $1,73 delivered,
netting the Buff'-lo steel producer $1.38. The Chicago fabricator
then ships his -oioduct to Kansas City on a labricatio.i-in- transit
basis, securing? a refund from the railroad Tvhich leaves him having
paid only 50(# (or the through rate from Biiffalo to Kansas City)
plus 2>(j; transit charge or 62(*. as 35^ of this was already included
in the delivered price of $1.73 which he oaid for his steel, it only
costs him 27;^ to ship his -oroduct from Chicago to Kansas City,
although if he had bought his steel from a Chicago steel mill (pay-
ing the same $1.73 for it) he ^vnuld have had to oay the railroad
A2(p to ship to Kansas City. Thus he has saved 42(# minus 27(# or 15(i*
. by ordering his steel shipped tr him from Buffalo instead of buying
it at Chicago \''hich covers the 3^ transit charge and leaves him 12(#
advantage. He can la-"- his -oroduct doim in Kansas City with a total
burden for material and t ransportation of $2.00 ($1.73 4 27(^). The
Kansas City fabricator obtains his lo'^est iDrice from a Chicago mill,
that is $1.70 - 42(^ or' $2.12, and therefore cannot meet the $2.00
price excent by nersuadin:'; a Chicago mill to cut its "orice secretly."

3 . ivia rke t s

The rank of the leading cons-oning industries for iron and steel products
with respect to aggregate quantities consujned varies considerably from year
to year, (*) In 1935, the princiiDsl consumer was the automobile industry
which accounted for 24.Sfo of the total. The second and third largest
consumers were the construction and metal container industries which were
responsible for 11, 7^0 and 11.6^ of the total, respectively. Agriculture
was next with 9.3^^ of the consum-ntion. Gil, gas and mining together were
responsible for 5,7^, while the railroads accounted for 6.55o These propor-
tions represented a considers ole change from 1929. In that year the auto-
motive industry accounted for only 18.0^ of the total; buildings, IS.Sfo;
oil, gas and mining, 10.5^, and railroads, 17,0'^.

Many of these industries tend toward localization in certain regions
of the couatry. The most highly concentrated is the automobile industry
which is centralized at Detroit. The agricultural ira-olement industry is
largely concentrated in the Chicago district. The oil, gas and mining
industry is located in large nart in the southwest and in California.

Very little data are available with res-oect to the markets for the
individual riroducing areas of the country. The only statistical data of
this character to be had are those for the distribution of products of
the mills located within a 50-nile radius cf Pittsbur-?:h during a ueriod of
three months under the code. '(**) From this data it is seen that about
34^0 of the output was distributed within Pennsylvania, 15^ in Ohio, 10.7^0
in Ns"' Ycri:, 'B.'Sp in Michigan and 'B.Vjo in the south central states. These
states in all accounted for 73fo of the total consum-otion. The remaining
22/0 was sold in other states.

(*) Cf. The Iron Age, Jamiary 2, 1936.
(**) Cf. Table 41, Appendix.

9864

. -244-

On the 'vhole, it spoears thuit a sulDstantial -Dortion rf the outnut of
the industry must be shipped a considerable distance tc ra^rkets. Ainon^-
the reasons for the distance ox" -nroducers from these narkets is, ?is has
been discussed before, the necessity for location near the source of ra-v
materials,

E . Production and Prices

1. Production

The ■'-iroduction of iron and steel products fluctviates '=7ith demand for
industry products. The output of steel in 1929 rose to its all-time hi^h
of 56,433,473 tons which bears a relation of 88.5^ to capacity. (*) 3y
1932 the product had fallen to 13,681,162 tons, a decline of at)T)ro'-imately
76^, Its scale of operations at that time was only 19.5^'o of caTsacity.
The following year it increased to 23,232,347 tons, an increase of 70)0,

The relative decline, in ?;ross torm.sp-e output durini^; the depression
varied considerably for different -oroducts. (**). For examr)le, it was
•substantially less for striios and other products, vhich pre sold tc the
automobile industry and for tin plate used in the cannin^r industry, than
it was for heavy products like plates, shapes and rails. The output of
strips fell from 2,502,793 tons in 1929 to 1,185,184 tons in 1932, a
decline of about 53^. Black relate production decreased in the same period
from 2,159,173 tons to 1,141,946 tens, a decline of 47f^. Plates, however,
declined in output from 5,022,141 tons to 829,830 tons, a decrease of
about 84^^. Rail nroduction fell from 2,722,138 tons to 402,566 tons, a
decline of about 85^. (***)

In addition to its wide cyclical movement the iron and steel industry
has a seasonal movement of Tiroduction. The seasonal movement of pi^'; iron
iDroduction nay be used to indicate the movement for the entire induistry.
The rieak month of the year is i.faroh '."rith a seasonal index of 105, The
lowest month of the year is February with an index of 93. (****)

The seasonal index varies somewhat in amplitude and with respect to
dates of the t-jeaks and trou^^^hs in the various producing areas. The greatest
amplitude occui's in Ne^-' Jersey where the index is 108 in llay and 85 in
February. It is also substantial in southern Ohio, where it is 110 in
March anc. 90 in July, In the western states it is 112 in March and 90 in
September, These indices indicate a varying amtjlitude and timing, (*****)

2. Prices

The comT)osite index of finished steel -orices in the neriod 1921-1924
fluctuated somewhat more widely th-^n did the Bureau of Labor Statistics
indices of all commodity and finished nroducts orices, (******)

T*) Cf. Table 37, Appendix .

(**) Cf, Table 38, Appendix,

(***) Computed from Table 38.

(****) Cf. Table 36, Apnendix.

(*****) Ibid.

(******) Cf. Chart I, infra.

9864

ThR finisliel steel price inde- rf 101.9, avern.-'ed for the year 1921,
fell to 87,5 for the yenr 192;^, 'prhile the Bureau rf Laoor Stntistics' sll-
coraraodity index declined from r,a f^ver^<re of 97.6 to 96.7, and its finished
■ircducts index decrer^sed from 103. :-; to 96.5. In 1923 the finished steel
index wps 112.1, tiie all-comracditj'- index 100.6, and the finished oroducts
index 99.2. Durin? the -oeriod 1925 to 1929 all three indices moved in
close hnrraony. Hnv/evor, "oeginniniC- in 1930 all tliree declined substantially
hut the order of .imolitude vi^s reversed from v/hat it ^las in 1921-1923.
All corajaodities fell from 95.3 in 1929 tc 64.8 in 1932, finished -oroducts
from 94.5 in 1929 to 70.3 in 1932, rmd finished steel from 96.2 in the
former year tc only 81.4 in the latter. (*)

Pig iron prices have, on the dicle, racved in sorae-hat closer relation
to all commodities th^a h-we finished steel -nrices. Pig iron -orices have
further tended to fluctuate in accordance with the "orice movements of
scrap with vhich it is a competitive product. (**)

An fiddition-'-il reason for the relatively higher degree of flexibility
of pig iron prices is the greater "oreponde ranee cf direct costs. The
direct costs force -irices u-ovrard in proportion as thev increase and con-
versely they permit iDrice reductions as they decline . The higher over-
head costs of steel production, m the other hand, do not fluctuate as
other OTices and costs do. This, among other factors, has tended tc
cause the rigidity' of steel --irices.

Among the rolled and finished nrodu.cts, the greatest price declines
between 1920 and 1929 occurred in the esse of hnt-rrlled and cold-rolled
strips. (***) Their price index on a 1926 base declined from 216 tc 82
in the former case and from 216 to 77 in the latter. Other imwrtant
orice declines dm-ing this -jeriod ^ere registered in the case of galvan-
ized sheetf5, hot-rolled annealed sheets, sheet bars, plates, billets
and soft steel bars. The smallest orice decline was for standard steel
■Dipe. Its index in 1920 was onl-^ 118 and in 1929 it ^as 100.

During the degression, the orice index for hot-rolled annealed sheets
fell from 96 in 1929 to 74 in 1932. Hot-rolled and cold-rolled stri-o also
declined greatly. The foi-mer vjss at 32 in 1929 and at 62 in 1932, vrhile
the latter was at 77 and 55 in 1929 and 1932, respectively. Wire nails
declined from 97 in 1929 to 74 in 1932, while plain wire decreased only
from 98 to 88. Billets and sheet bars also declined in nrice substantially.
The -nrice cf the former was at 99 in 1929 and 76 in 1932 while that of the
latter was at 97 and 72 in 1929 and 1932 resr^ectively. Skelp declined in
■orice com-oaratively little, from 98 to 83, while the reduction in the case
of standard steel pipe was lass than pnj other, namelv from 100 to 92.

The causes for the varying declines in different --oroducts are to be
seen in a number of factors. The substantial reductions that occurred in
the case of hot-rolled annealed sheets, hot-rolled stri-ns and cold-rolled
stri^js were due in part to the strong bargaining position of the automobile
.companies which are the largest consumers of these products. An additional
(*) Cf. Tables 61, 62, and 63, price indices for all commodities, finished

products, and finished steel, respectively, 1919-1935 ( index; 192G5100).
(**) Cf. Chart 2, infra.
(***) Cf. Table 57, Appendix.
(****) Ibid.
9864

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factor causing their -orice decline was the introduction of the continuous
rollinj^ mill for their manuf f^ctui-e. These mills have tremendous carjacitT
f-ind overhead costs and consequently the tendency to increase their output
hy lorice reductions is very strong. Additional factors which have affect-
ed the extent of orice declines have oeen tae number of comtianies and the
relative amount of concentration of canacity in the hands of the lar.-est
concerns. 5^or example, in the case of sheets there is a comparatively
large number of companies and, furthermore, the largest concerns have -i
relatively weak position in the industry v'ith respect to aggregate produc-
tion. On the other hand, there are few riroducers of nire rods and sJ-elp
and the largest concerns occupy a much stronger position in the industry.
The number of manufacturers cf Tjlain rare and T)ir)e is relatively large
but most cf the concerns are of very small size.

9864

-249-

Illi THU P?X~CODE PASIWG POIFT SYSTB..

The brsinpt; point system -'as established first in the fonn of a
single basing- point system, nanelj'- the Pittsburgh-Plus system. The
latter -.-ar. abrogated in 1924 by a cease and desist order from the Tec.eral
Trade Commission and '.'as superseded by the multiple basing point systeii.
This system continued to function with some modifications dovn to the
adoption of the Code. This section traces the transition through the
above stages and the economic and legal causes for the changes.

A. The Pittsburgh-Plus System

The Pittsburgh-Plus system originated in the latter part of
the nineteenth century. The conditions under vhich it came into exis-
tence are significant in the light they throw upon the causes and results
of the aultiple basing point system. The conditions uncer which it was
terminated are further significant. These are discussed in the follCTing
pages.

1, Inception of the Pittsburgh-Plus 3;;'"s.tem

Up to the latter part of the nineteenth century the most general
method of pricing used in the iron" and steel industry was pricing on an
f.o.b, Laill basis. (*) About 1880, the Pittsburgh-Plus system first
made its appearance in the steel industryas a pricing device for the sale
of beejns, (**) Thereafter, Pittsburgh-Plus and unifom zone price sys-
tems vers in use in various branches of the industrj'- until about 1901,
About 1902 the Pittsburgh-Plus system came into general use for the
entire industry. (***)'

The period of the transition from the f.o.b. iiill system to the
■uniform delivered zone price and Pittsburgh-Plus systems was marked by
significant changes in the stru:;ture of the industry. Prior to the ad-
option of the various tj-pes of delivered pricing systems the size of
companies and producing units was substantially less than after the
Pittsburgh-Plus system and other similar pricing devices came into ex-
istence. The era of the large horizontal combinations of producin'^-
comppnies did not begin until 1898. (****)

Concurrently v-ith the increase in size of producing units and the
integration of companies the fixed or overhead costs of 'the industry rrere
enhanced :.ip.terially. Prior to this time the output of the industry- wa.s
preponderantly iron. Throughout the latter uart of the nineteenth century

(*,) I'ederal Trade Commission v. United States Steel Corporation et, ol, ,
(DocliGt ITo, 760), (1924) isrief and Argument oy Attorneys for led-
eraJ Trade Comnission, p, 14,
(**) Federal Trade Commission v. United States Steel Corporation et, al, ,

op, cit. , p. 12, . .

(***) Federal Trade Commission v. Iinited States St^el Corporation et,
pi. , op. cit.

Cf. also - LcCallum, E. P.,- The Iron and Steel Industry in the
United Sta.tes . (London: P. S.' King and Son, 1951) p. 134.
(****) i'cCallum, Op. cit., page 116.

864

the output of steel increased substantially in proportion to the pro-
duction of iron. The production of iron requires a relatively smaller
investnent in capital equipment than.dOes steel production.

The process of steel making represents a continuation of the man-
ufacturing processes that is ■bef2:an Fith the conversion of raw material
in a blast furnace to o/Dtain molten or iron in pigs.(*) Consequent!;'-,
in order to produce steel, the operation of both blast furnaces and steel
furnaces .ajid/or converters is required. The integration of steel com-
panies for the purpose of controlling the entire process of production
from the ran material to the finished product materiallj'' increased cap"
ital investments.

The changes in the industry at this time were evidenced also in the
growth of producing centers located in the more western sections of the
country. The industry prior, to the establislriment of the delivered and
Pittsburgh^Plus pricing systems was 'concentrated much more in the eastern
part of the United States than during the following decades, T7ith the
growth of the western producing areas the intensity of competition be-
tween geographically separated companies was greatly increased.

In addition to the structural changes in production, the transition
from the iron to the steel industry effected changes in distribution due
to relatively lower shipping costs. Steel, being of greater value than
iron, bore higher prices, and consequently, the freight cost of shipping
it was, relative to its price, less than that of shipping iron.

The intensified competition engendered by the growing size of pro-
ducers, higher overhead investment costs, the' rise of new producing cen-
ters and i-elatively lower transportation costs, among other factors, was
influential in causing the industry toward the latter part cf the century
to embark upon a policy of industrial combination. Combinations of a
formal nature had existed in the industry as early as 1877. (**)
Beginning about this time several pooling associations were formed. In
18S8 and the following three years a number of large consolidations of
proc'aicing companies took place. (***) Some of these companies embraced
as much or more than half of the total industry capacity in their respec-
tive lines of production. In 1901 under the threat of an impending price
war the United States Steel Corporation ^as formed, uniting in one companj'-
43,2^ of the pig iron output, 65.7^o of the steel ingot production, and
SO.l^i of the production of all kinds of finished roll products in the
United States. (**** )

Ai^iong the results of the formation of pooling 'associations and huge
consolidations was the adoption of delivered pricing, uniform price zone
and Pittsburgh-Plus systems in the various branches of the industrj"-.
The first Pittsburgh-Plus system was .established in 1880 as mentioned
above, by the first beam association organized, (*****) The structural
(*) Ci. supra, Chapter III, II-A,
(**) LicCallum, op, cit, , page 115,
(***) iucCallum, op, cit,, page 118,
(****) Ibid,, p, 121, and Annual Statistical Report of the American Iron

and Steel Institute for 1928, ' .'
(*****) Federal Trade Commission v, Uj S. Steel Corp ., et al. , loc. cit.

9854

-251-

steel association in 1697 set up a uniform price r.one system with zones
radiating from Pittsbur^'h, the price difierentials het'-een zones represen-
ting differences in average freight costs from Pittsburgh. (*) The billet
pool of 1396 established the Pittsburgh-Plus system for billets. (**)
x"ollo\7ing the organization of the United St^-tes Steel Co.rporation in 1901,
the Pittsburfrh-Plus system was extended into many additional branches of
the induEtiy.'C***)

The liOhe pricing system did not, on the v/hole, prove successful,
Pabricatorr,- who were located near the boundaries of more distant zones
fo\xnd that the zone differentials in prices placed groat handicaps upon
them if they had to compete with other .fabricators across the boundarjA
line who paid substantially less for steel than they did. jTurthermore,
steel sold for delivery in a lo\^ price zone "'ould be diverted in transit
to a hif^-her price zone. These factors forced the abandonment of the zone
pricin^'" system in favor of general £.doption of the Pittsburgh-Plus sys- •
tem, (****)

2, Pricing P olicies Folloring the Orggjiization of the United
States Steel Corporation

The United States Steel Corporation someti;.ie after its formation
ass'omed the position of price leader for certain branches of the industry,
(*****) Tlie pooling: associations which had continued after its fonnation
as devices for controlling pricing practices Y.'ere superseded in 1907 by
the so«^called "Gary dinners". (******) These dinners nerc meetings of
the princi;oal members of the industry and rere devoted to discussions of
prices. The aim of Judge Gary in holding these meetings was to obtain
the cooperation of the importpjit steel producers in preventing price de-
moralization and "destructive" competition, (*******) The Gary dinners
were continued until 1911, ^^'hen the United States Goverrjnent started its
dissolution suit against the Steel Corporation, Thereafter the corporar-
tion continued to publish its prices but no other control devices were
instituted. as a vehicle for the operation of the Pittsburgh-Plus s^^stem.

The Pittsburgh-Plus system '-'as deviated from for the first time on
a pern-Dnent basis '^ith the granting of a concession to Birmingham con-
sumers in 1908. Shortly after the acquisition of the Tennessee Coal,
Iron and F..iilroad' Company in 1907 the United States. Steel Corporation
begsii to meet difficulties in that district in maintaining the price at

•(*) Ibid,, -op. .LS-17. ■ (**) loid., o. 50,
(***) McCallum, op. cit. , p. 134.
■{****) Seager, H. ?. and Gulick, C, A., Trust end Corporation Problens ,

(Hew York: Harper and Brothers, 1959)
(*****) iederal Trg.ce Commission v. United States Steel Corporation
ot al. , (Docket No., 750), (1924) 'Brief- for federal Trade
Commission, pp. 167-158,
(******) Seager and Golick, op, cit., p. 244.
(*******) Ibid., p. 245, ■ op, cit.
(********) Ibid., op. cit., p. 247.

- -252-

a Pittsburgh-Plus level. The smaller producers of plates and bars fol-
lowed a practice of cutting below the Pittsburgh-Plus prices. (*) As a
result the Tennessee Coal, Iron and Bailroad Company was forced to graiit
a concession of$l per ton from the Pittsburgh-Plus price to meet this
competition. (**) The Steel Corporation experienced added difficulties
in this district as a result of the practice of consMjners purchasing
steel from northern points instead of buying locally from the Tennessee
Company, in order to prevent the latter from obtaining the benefit of the
fictitious freight charged at Birmingham, (***) The demands of the con-
sumers for a reduction in price rere supported by the recommendations of
the -sales manager of the Tennessee Company. Consequently, the Tennessee
Compajiy in 1908 granted a concession from the Pittsburgh-Plus price to
Birmingham consumers reducing the price there to an arbitrary differen-
tial of $3.00 per ton above Pittsburgh until 1920, Then at the time of
a general increase in railroad rates it was advanced to $5.00 per ton.
It remained at this level until the termination of the Pittsburgh-Plus
system in 1924. (****)

The United States Steel Corporation i"'as in the main successful in
obtaining cooperation vith its policy of price stabilization. HoTrever,
in -times of depression, price cutting vas prevalent and the Pittsburgh-
Plus System was not strictly observed. In 1908 follorring the panic of
the preceding year the Chicago mills quoted the prices of plates, bars
and shapes on a Chicago basis for a time. (*****) Again in 1921 Chicago
became a basing point for these products r'hen the Midvrle Steel and
Ord-nance Company cut below the Pittsburgh-Plus prices, (******) The
prices of these products were not restored to a Pittsburgh-Plus basis
thereafter. However, the Pittsburgh-Plus system was continued at this
time on wire, sheets and tin plate. (*******) Price cutting also occurred
at Lackawaima, New York, where the Lackawanna Steel Company and the Mid-
vale Steel and Ordnance Company began in 1921 to quote prices on a Lack-
awanna base for plates, bars and shapes. (********•) The price cutting
at Lackarranna was brought to an end by the merger of the Iviidvale Steel
and 0rdna:ice Company and the Lackawanna Steel Companj'" ^dth the Bethleham
Steel Company in 1922.

Shortly following the period of general price cutting in the de;ores-
sion of., 1921 and 1922, YoungstOTTi became an accepted basing point for
certain products. The prices of the serai-finished products, billets,

(*) P.T.C. V. U. S. Steel Corp . (Docket No. 760) Brief for Federal

Trade Commission, p. 270,
(**) Ibid.

(***) Federal Trace Commission v. United Steel Corporation, et a3. . ,
(Docket No. 760) Findings as to Facts and Conclusion, p. 31.
(****) Ibid. . ■ • • ■

(*****) F.T.C. V. U. S. Steel Corx) . (Docket No 7£0), p,.252.>
(******) F.T.C. V. U. S. Steel Corp . (Docket No. 750), p. 252.

Also Cf. Tables 48 and 49, Appendix.
(*******) Ibid., p. 306.

(********) Federal Trade Commission (Docket No, 962) in the Matter of
the Bethlehem Steel Corporation . Exhibits 5136, 2906, 2907,
6496-6499, et al.

-253-

tlooras, sheet bars, wire rods and skelp, at Youngsto'-n, declined in
January of 1923 to the same level as the Pittsburgh prices. These
prices reraained on the pittsbargh level with minor exceiitions thereafter
during the life "of the Pittsburgh - Plus system and subsequent to its
abrogatx^rii'(* ) '

'■•■•"• ' ■■ '■'■ Zi "-' Effects of the Pittsburgh-Plus' System

producers vere affected most under the Pittsburgh-Plus system
through the possibility of higher prices and by the geographically uider
range of operations '"hich they were able to enjoy. The principal gainers
under the system vrere the producers located at Pittsburgh ^-ho were en-
abled to ship to any destination in the country" without absorbing freight.
The producers located at points other than Pittsburgh were also benefited
under the system by the higher prices they were able to charge in their
districts, v/hich made it possible for them to absorb freigh-t in shipping
back toward Pittsburgh aiid still make a profit. However, the overhead
costs of producing steel are so high that it seems unlikely that the
avails.bilitjr of high prices in districts distant from Pittsburgh was
sufficient inducement to cp.use steel companies to locate or increase
their cajDacity at such points as, for instance, Chicpgo. Volume of pro-
duction is fully as important a consideration affecting profits as prices.

Although profits of producers at Pittsburgh, as well as in other
districts, rere increased by the system, there is no indication that the
latter basically influenced the location of the iron and steel industry'-.
The location of the industry is determined largely by: the availability of
raw materials, the expense of transportation of '/'hich is roughly five
times as gi-eat as in shipping the finished product. Proximity to markets
is another basic determinant of location, especially in the case of highly
s-pecialized finished steel products. These two factors combined account
for the location of the greater part of the industry' in the United States.
In view of their importance it seems improbable that the Pittsburgh-Plus
system exercised any basic influence on the location of the industry.

The effects of the Pittsburgh-Plus system were most apparent in the
case of independent fabricators. These fabricators bought their steel
at Pittsburgh'-Plus prices and consequentlj' were restricted in their sales
largely to the territory immediately surrounding their plants or in a
direction opposite from Pittsburgh. They could not compete vigorouslj''
with fabricators located in the Pittsburgh area who bought their steel
at substantially lower prices. The amount of the comnetitive disadvantage
which these independent fabricators' suffered in comparison with their
Pittsburgh competitors varied according to the profit margin en the fin-
ished product they produced and to the proportion of total cost which was
represented by the cost of steel, -The amount of scrap loss also affected
the relative difficulties which these fabricators encovmtered under the
Pittsburgh-Plus system. Scrap loss, in effect, increases the cost of
steel to the fabricators.

The handicap of non-integrated fabricators competing with Pitts-ourgh
mills was increased by the peculiarities of the r^.ilroad freight rate
structure. The price differentials above Pittsburgh at various points
(*) Cf, Tables 46, 47, 54 and 56, Appendix.

9864

-254-

in the country iinder the Pittsburgh-Plus system Fere set on the basis of
through freight rates from Pittsburgh, However, on, the steel vhich v7a,s
bought then resold by fabricators located away from Pittsburgh^ not the
through rate from Pittsburgh was paid, but two rates for shorter distances:
one on the raw material from Pittsburgh to the fabricator's mill to the
ma,rket. The per mile freight rate on a single through haul is consic.ei^
ably less than the per mile cost of shipping a product the same distance
by a combination of shorter hauls. Conseouently, the n.on-integrated
fabricators distant from Pittsburgh, T?ho had to pay for shipping steel
froia Pittsburgh to markets by two short hauls, were at a disadvantage in
competing Fith the Pittsburgh mills, "'ho enjoyed a single through rate
to markets.

Consuners at certain points in the United States, namely, those
located outside of the Pittsburgh area, v'ere forced, a,s a result of the
Pittsburgh-Plus system, to pay higher prices than they would otherwise
have done. At the same time.it is probable that consumers located in the
Pittsburgh area paid less. The lower unit overhead costs which the
Pittsburgh producers were enabled by the system to enjoy were probabl;'-
reflected in loT-er prices to Pittsburgh consiimers than -rould otherwise
have obtained in that area. The desire of the Pittsburgh mills to main-
tain the sj'^stem appears to have induced them at times to lower the
Pittsburgh prices. (*) The net cost of the Pittsburgh-Plus system to
the consumers of the 'country as a whole cannot be estimated. The diffi-
culties r/hich stand in the way of determining this cost include,, among
other factors, the uncertainty , as to the extent to which the system was
a reflection of economic conditions which, if the system had not existed,
would have expressed themselves in other price formations with approxi-
mately the same results.

4, The Abrogation of the Pittsburgh-Plus System

The termination of the Pittsburgh-Plus system was hastened by essen-
tially two events. During the war the War Industries Board fixed the
price of steel products and in doing so made the price at Chicago equal
to that at Pittsburgh. After remaining at this level for several months
the price at Chicago was restored to its old level on July 1, 1918. In
addition, the continuance of the system was further affected, immediately
follovdng the war, by the general increase in freight rates which took
place over the entire country. Prices to consumers were raised under
the Pittsburgh-Plus system by an amount equal to the increase in freight
rates. (*)

Prompted by these two events, the restoration of the system follow-
ing its suspension during the war and the increase in freight rates, the
consumers in the Chicago area became more vociferous in their protests
against the Pittsburgh-Plus system. Consequently, the Western Association
of Soiled Steel Consumers for Opposing the Practice of Pittsburgh-Plus
was organized and complaints against the practice were filed with the
Federal Trade Commission. (**)

(*) Commons, John H, , "Delivered Price Practice in the Steel Market",

14 AiJerican Economic Review, p, 509 (September, 1924). ■
(**) Ibid. . .' .

9854

-255-

The "bases of the complaint brought by the Federal Trade Commission
against the Steel Corporation were that the corporation was large enough
to be r.ble to control sabstantially the prices of the industry and that
it had maintained the Pittsburgh-Plus system for essentially monopolistic
and discriminatory reasons. (*) The second contention was based on the
complaints of rolling-mills and fabricators located a,Fay from Pittsburgh,
i.e., that they were unable to compete with the Pittsburgh mills for the
reason that the latter could purchase steel cheaper than non-basing point
mills, v;hich had to pay an element of fictitious freight in their prices.
Furthermore, the Commission claimed that the Pittsburgh-Plus prices were
unfair to independent purchasers because the integrated steel mills, vhioh
competed in many cases vdth their customers in the sale of finished
products, transferred the semifinished forms for rolling to their rolling
department b,elow the selling price. (**) The attempt was made in the
proceedings to show that, in addition to the Pittsburgh-Plus system, the
delivered price system itself was an essentially monopolistic device and
that the only competitive method of pricing was f.o.b, mill. This con-
tention was based upon testimony that the fact that steel mills were able
to charge their customers di ferent prices depending upon their location
and thus "discriminate!' indicated the absence of competition. A competi-
tive price was considered to be a price uniform to all bioyers at the
point of sale. (***)

To i-efute these charges the Sts'el Corporation tried to show that
the^ Pittsburgh-Plus system resulted essentially from the fact that the
rest of the country was largely dependent upon Pittsburgh for its steel,
(****) I't contended that competition was substantially increased by the
system because it enabled producers located in almost any section of the
country to compete with producers located in almost any other part of the
countrjr. (*****) The corporation also attempted to show that the delivered
price sj-r.ten was not incompatible with price competition. It contended
that the uniform delivered prices which the system institited were caused
by competition, (******) finally, the corporation sought to prove that
the system did not place any handicap on the non-integrated rolling mills
and fabricators not located at Pittsburgh. (*******)

(*) :F.T.C. v. U. S. Rte el Coiu. . at al . (Docket No. 760), Complaint, p. 10.
(**) Ibid,

^***^ ^'T.C. V. U. S. Steel Corp.. et al . . (Docket l^p. 760,), Coraplslnt,

p. 191 et seq.
(.****) F.T.C, V. U. S. Steel Corp.. et al . . (Docket No. 760), Respondent's

Answer to the Complaint, pa-'re 4.
(*****) P>I^c_v._U_„_ S. Steel Cor.- , ,'flt al. . (Docket No. 760),

2espondfc-it' s Answer to the Complaint, page 6.
(******) Ij^^^^.-^lJL So Steel Corp. ^ et al .. (Docket No. 760),

ilesocndenti s Answer to the Complaint, page 5,
(*******) Ibid.

9864

-255-

In short, the difference in points of vie^- of the Federal 'Tra,de
Conrnission end the Steel Corporation was a difference in their conception
of coripetition. The Commission, on the one hand, maintained that com-
petition Slid, price -uniformity should exist -at the producing point or
mill. The Steel Corpora.tion, on the other hand-, contended that competi-
tion anong producers should exist at the delivery or consuming point.
The latter condition was that which existed in the industry under the
PittslDurgh-Plus and delivered price systems, namely, that prices of all
producers '.vere uniform at each delivery point, but varied at the mill
according to the location of each customer. The Federal Trade Commission
found that the Pittsburgh-Plus system substantially restricted competi-
tion snd discrininated against fabrica.tors and consumers located anas'-
from Pittsburgh, (*) Consequently, it issued on July 21, 1924, a cease
and. desist order against the main subsidiaries of the corporation, re-
straining them from charging Pittsburgh-Plus prices on plates, bars,
structural shapfes, sheets, tin plate, wire and rrire products. The order
also, arpplied to selling these products ux)on any other basing point than
that where they were actually produced or from 'vhere they vjere shroped.

The Steel Corporation did not contest the order of the Commission
in the courts. On the contrary, it "consented" to comply Fith it in so
far as it was practicable to do so.

(*) F. T. Cr V. U. S. Steel Corp., et al . . (Docket No. 760),
Findings as to Facts and Conclusions.

(**) F, T. -C, V, U. S, Steel Corp,, et al . . (Docket No. 760),
Order to Cease and Desist, July 21, 1924,

9864

3 . The Pre-Cod e Mult j-jle B asi n'- Point Systen

As a result of fne CoinriiEf;in]i' s orc.er, a multiple "basing
point systsin vras established. Basing points vrere established at a nur;.-
ter of ne-f "ooints. The niijnLer of points varied somewhat for different
products. Tor certain v/ire products, ne.' basing points r'ere set up at
ChiGe.go, Illinois; Birningtejn, Al.abaraa; Cleveland, Ohio; Anderson,
Ind.i?jia; Euluth, I'iun'esota; and Uorcester, Massachusetts. (*) Fe-j bases
werp established- for tin'mill black plate, tin plate, sheets and strip?
at Ghicaso. Cold.-x'olle-d strips \.'ere also based thereafter at Cleve-
land. (**) Less effect wrs felt in the establishment of nev bases for
serai-finished aiid heavier finished products than for the lighter fin-
ished prod.uctG. ' Basing iToints had. already eristed prior to the Commis-
sion's order on plates, shapes md. bars at Cliicago and Birmingham. In
addition, prices on billets, blooms,.' sheet bars, wire rods and skelp
had been quoted regularly en a Youngstorm- base prior to the order. (***)

lle-j basing points 'Teri? not established as a result of the order
in the eastern part of the United btates. The producing capacity in
this section v/as closely held "by the Bethlehem Steel Corporation. This
companj' was not affected by the Commission's order against the United.
States Steel Corporation except that the lovrering of prices in other
parts of the country was reflected to slight degree in the price reduc-
tions in this region. (****)

The industry did. not observe the order of the Commission in the
strictest interpretation of the ^v7ord. TThile new basing points were
established the old practice oi quoting prices on the basis of points
other thrai those of actual production continued in modified form. The
only differences was that prices were -ono.er the miiltiple basing point
systeu aaid were quoted on the ba^sis of the lowest combination of the
price at any basing point aiid freight to destination instead of
Pittsburgh.

In addition, the prices at some of the newly established basing
points continued, to be quoted in relation to the price at some of the
other basing points. Although a number of new bacing points were estab-
lished for wire products, the prices at most of these points ddd not
move independentljr but bore a definite relationship to the prices at
Pittsbu-rgh and Cleveland, (*****) The price at Cleveland thereafter

(*) Pederal Trade Co^nssion. In ti^e natter of the Bethlehem
Steel Company, Dochet 962. Cf. also the "Iron Age" for
September 23, 1924.

(**) Cf. Tables 50, 51, 53, and 55, .^oendix.

(***) Cf. Tables 46, 4*2, 48, 40, 54, and 55, Ap'oendix.

(****) Cf. Federal Trade Covir.ission, in the matter of the Bethlehem
Steel Corpors,tion, Dochet 962.

(*****) Cf. Iron Age, 1925..

9864

-258-

. was quoted as the sane price as Pittsburgh, However, the price at
Chica,go v.'as quoted as a differential over the above price of $2.00, the
price at Birmingham of $3.00, the price at Worcester of $3.00 and the
price at Duluth of $4. on. The differential at Duluth in iTovember, 1924
wa.s reduced to $2.00., The price at Anderson, Indiana, was quoted at a
differential of $1.00 over Pittsburgh pxid Cleveland. The differential
at Chicago in Julj'-, 1925 A=ras lowered to $1.00 per ton over the above
two points. The prices of wire products continued to be quoted in rela-
tion to Pittsburgh and Cleveland until the adoption of the code.

Prices at the new basing points were much less than they had been
under the Pittsburgh-plus system. The price of v/ire nails at
Birninghajn was reduced $0.48 per keg or about lofo of its former price.
The price of nails at Duluth was $0.45 less than the Pittsburgh-plus
price. The effect at Chicago was a reduction of $0.29. These declines
were tjrpical for all products which had been sold on a full Pittsburgli-
plus basis prior to the order. (*)

In the years which followed the abroga.tion of the Pittsburgh-plus
system, it appears that there wa-s a considerable growth in the nujnber
of basing points. This concl-aslon may be dravm by examining the
points in the Iron Age where f.o.b. prices vrere quoted. These points
were basing points. It is probable that there were other points not
quoted in the Iron Age which were also basing points. The statements
of industry'- members that the code only sanctioned the existing basing
points seems an indication of this situation because the number of
points listed under the code was su.b st ant i ally greater than those for
which prices were quoted in the Iron Age. It seems likely that this
trade joirrnal quoted prices as a practical matter only at points where
sales were recorded in sufficient voliune to v^arrant the service to pro-
ducers and consumers of reporting the prices. This tendency probably
appeared more in the case of the semi-finished products which are sold
in comparatively snail volume than in the case of finished products
which are consumed by the producing companies to a very small extent.

Beginning about 1926 the practice of quoting f.o.b. prices was
adopted for a number of additional points. (**) After January, 1926
the price of plates was quoted regularly f.o.b. docks Pacific Coast
ports. Coatesville, Pennsylvaiiia and Sparrows Point, Maryland became
price points for these products in December, 1927. At the same time
Lackawaiina, ITew York, became a point for the regular quotation of
these iDrices. In January;-, 192S, again the practice was adopted of
quoting the prices of soft steel bars f.o.b. Pacific Coast ports and
San Fraaicisco mills. F.o.b. prices on soft steel bars were first
quoted at Cleveland in December of the same year. In December, 1927,
the practice was extended to Lackawanna, Hew York. The prices of
stnictural shapes vrere first quoted f.o.b, Bethlehem in December, 1927.

(*) Federal Trade Commission, Sethlehem-Lackawanna merger,
Docket lJo.962.

(**) Cf. Tables 46, 48, 49, 52, 53 and 55, Appendix.

9864

Tiie practice was adopted at Lackawanna, iTew York at the same time. The
.price of . galvani zed sheets was first quoted f.o.h. Birnin^ham in
Novenoer, 1926. T.o.b. quotations on this product first appeared at
Clevfilajid in Hovemher of the follorang year. Cleveland and Chicago ap-
peared as points for quoting the prices of ■■'bloons and hillets for the
first tine in IsTovenoer, 1926. P.o.b. prices first were quoted on tin
plates at Gary in ITovemlDer, 1925.

The ado-otion of the practices of quoting prices f.o.h. the ahove
points indicate the tendency toward the increase in the number of "bas-
ing points in the pre-code period. However, it' does not pernit the
concl^ision to he d.ra'vn that other places were not also ba.sing points.

The geographical price differentials among the pre-code basing
points varied considerably according to products. (*) In the case of
tin nill black- plate the price at Chicago was about $4.00 per ton over
Pittsbui'gh between 1924 aaid 1926, and thereafter it was about $2.00
ov^r Pittsburgh. Essentially the snjiie differential obtained for tin
plate. Similar price differences were characteristic of the price of
plates, shapes a;id bars in the pre-code period. In the case of hot-
rolled pjinealed sheets the differential for eighteen months immediately
prior to the adoption of the code at Chicago was $2.00 per ton over
Pittsbui'-gh while at Birninghajn it was $4.oo per ton. The differential
in the isrice of cold-rolled strip over Pittsburgh at Worcester,
Ma,ssachusetts, dviring most of the pre-code period averaged about $3.00
per ton. While the price differentials between basing points were on
the whole, characteristic of the finished steel products, the prices of
the semi-finished steel products were generally the same at all' basing
points. Por example, the prices on blooms and billets at Pittsburgh,
Youngstwon and Cleveland were identical almost without exception from
the tine that they first appeared in the Iron Age. A similar situa-
tion obtained for sheet bars and wire rods. In the latter case, the
price at Chicago was on the whole $2.'"iO per ton over the price at
Pittsburgh, Youngstown and Cleveland. Skelp prices from 1919 at the
present tine have been quoted as the same price for both Pittsburgh
and Yo-ongstown.

These price differentials between basing points in finished
steel products were not rigid but fliictuated to some degree from time
to tine, Por example, the .7differential at Chicago over Pittsburgh
varied between $2.00 and $6.00 per ton. The differential between
Chicago and pittsbiirgh on taa-J-: plates varied between $3.00 and $6.00
per ton. The differential on soft steel bars between these two points
varied jfrom nothing to about $3.00 per ton. (**)

The reason for the geographical price differentials in the C8.se
of finished steel products aiiid their absence in the case of semi-
finished, products is to be seen in the significant differences in the

(*) Ibid
(**) Ibid

9864

-250-

areas of distribution. The former axe sold over wide market areas while
the sales of the latter are confined more to local areas. This situa-
tion arises from a nuraher of factors. First, the finished steel nrod-
ucts are largely consumed in the producing companies. The former, be-
cause they are sold in much larger a^uantities, must "be distributed over
wider areas than the latter. Furthermore, the markets of the latter as
such are much nearer to the producing points than in the case of the
former. T-he r)urchasers of the serai-finished products are those non-
integrated rolling mills and fabricators which tend to locate near the
producing points for their raw material on acco-iont of the exoense, among
other factors, of having to nay freight on that part of their raw mater-
ial which is converted into scrap as a by-oroduct of the ijrocess of manu-
facturing finished products. A further inducement to ship finished steel
products much further than their raw materials is the fact that the for-
mer repressnt a' much higher value in proportion to their shipping cost
than the latter. The restriction of freight costs upon ability to ship
long distances is consequently not felt nearly so keenly in the former
case as in the latter. Finally, there is substantially more inducement
for integrated concerns to lower their -orices on parts of their sales
of finished products and therefore absorb freight and sell to greater
distances than there is in the case of semi-finished or crude steel pro-
ducts. First, there is a tendency for the overhead costs on some fin-
ishing operation to be somewhat greater than those of loroducing steel
ingots. There is some tendency toward the duialication of steel finishing
canacity among different companies that does not aonear to the same de-
gree in the case of steel ingot -oroducing capacity. Secondly, it is much
more advantageous for integrated steel producers to coraoete in the sale
of finished oroducts in distant markets even at the expense of absorbing
freight than it is to seek sales at the same distance in serai-finished
products. Sales of the former products by integrated concerns increase
the production of the latter with the result that the unit overhead costs
both of the finishing capacity and the steel -oroducing equir)ment are
reduced. Consequentl:'^, it may be profitable for integrated firms to sell
their finished -oroducts at little more than cost in order to increase
the production of crude steel. On the other hand, the sales of serai-
finished or raw steel products have no effect in lowering the unit over-
head costs of any producing facilities more advanced in the process of
manufacture than those by which they are produced. For the above reasons,
mills tend to distribute their finished steel products over much wider
areas than their semi -finished goods.

As a result of the incentive to increase the marketing and distribu-
ting areas for finished steel -oroducts horizontal combinations have been
more inclined to maintain differentials at certain points to facilitate
this practice than they have in the case of semi-finished products. The
differentials have for the most part existed at points where the horizon-
tal combinations have important plants and consequently are in a position
to have substantial influence over prices. Chicago, Birmingham, Worcester,
Cleveland and certain eastern cities are points where the horizontall""'
integrated companies as a group have important producing plants (*) .
Although these concerns also have large producing facilities for their
semi-finished products at the same points they have not chosen to follow

* Maps 1-19.

-261-

the sane practice in regajrd to the prices of tiiest. products. The
reason appears to te that the advantages of do in/? so are much less and
furthermore, the necessity for maintaining geographical orice differ-
entials in order to bear the cost of shipning to distant markets in
much less acute.

Essentially the same factors which led to the estahlishment of
geographical price differentials for finished steel prices tended fur-
ther to cause the adoption of a smaller number of basing points for
those products than aijpeared in the principal producing section of the
country in the case of semi-finished products. Competition for sales
in the case of the former product tends to take the form of freight
absorption to more disti/.nt joints as o^roosed to the reduction of mill
prices while the latter is more tyoical of the semi-finished steel and
iron TDroducts. The causes of this situation have been discussed above.
The oro-Density of sellers of finished steel -oroducts to maintain their
mill prices tends to lee-d them into the practice of quoting prices on
more distant points and adopting fewer basing points. Consequently, it
a-onears that the industry was influenced, in the number of basing points
adopted, bv the character of the distribution and oricing practices, for
the products in question.

This situation is illustrated in the case of the number of basing
points that appeared for finished and semi-finished products in the
major producing section of the countr"/, namely, that aroTind Pittsburgh,
Youngstown and Cleveland. (*) Youn^^stown was in the nre-code period
a basing point for the semi-finished oroducts, blooms, billets, skelp,
wire rods and sheet bars as was Pittsburgh. Cleveland was also a basing
point for all these oroducts except skelp. The latter two places,
Pittsburgh and Cleveland, were basing points as well for most of the
finished products. Although Youngstov;^n is a large producing point for
many finished products, among them sheets and bars, and to a lesser
extent plates, it appears that it was not a basing point for these pro-
ducts. The existence of basing points at Youngstown in the one case and
their absence in the other illustrates the factors at work tending to
establish them as discussed above.

The differences which foster shipments to long distances were most
strikingly reflected in the pre-code -oeriod in the contrast between the
basing point sj'-stem in the steel industry'- and in the pig iron industry.
The latter product cannot be shipped distances at all comparable with
those in the case of steel. The reasons for the difference are to be
seen, first, in the relatively low overhea,d costs of pig iron production
which preclude the absorption of freight into total costs on the same
scale as occur in the distribution of steel; secondlv, the prices of pig
iron partly in consequence of competition with scrap have declined to a
point where the value of the oroduct does not justify the expense of
hauling to great distances.

Largely on accoimt of these factors which have tended to restrict
pig iron distribution to local areas a basing point system of the same
tyoe as in the steel industry did not develop in the sale of pig iron
prior to the code. There is some doiibt as to whether a basing point

* Cf. Tables 46 - 56, Appendix.
9864

-262-

system existed at all. The burden-of the evidence aopears to indicate
that a "basing point system did exist to some extent at least. It use,
however, a-opeared to have been intermittent. F-ortherraore, the system
as followed in the sale of ui^^ iron was significantly different from
that in the steel industry in thwt the nuraher of basing points was far
greater than in the latter case. (*)

In addition to the above factors it a-or)ears that the number of com-
oanies and the position of large comioanies in the industr:'- had something
to do with the number of basing iDOints v/hich existed in the case of dif-
ferent products. For exam-ole, it is not indicated by the price quota-
tions in the Iron Age that Chicago was a basing point for pipe, skelp,
and sheet be^rs, although substantial capacity for producing this -oroduct
was available in the district. In the Chicago area there are units of
horizontally integregated concerns which have their major plants for
this product elsewhere. (**) The latter companies were in a position to
influence the price at Chicago, orobably enough to keep the price there
at a level high enough to -oerrait shipments from their other plants into
the area without substantial freight absorption.

In addition to pipe, at Chicago, only a few points with important
producing mills for certain, products were omitted from the list of
places for quoting f.o.b. orices in the Iron Age. Principal among
these points was Chicago, Birrainghani and Buffalo. Chicago prices were
not quoted on sheet bars and skelr) although considerable capacity was
located there. Prices were not reported on sheet bars at Buffalo al-
though an important ijlant existed there.

Throughout the -ore-code -oeriod of the multiple basing point system
a definite trend was discernible in addition to the increase in the num-
ber of basing points in the redaction in orice differentials over Pitts-
burgh on finished ■oroducts, at other iDOints in the country. The custom-
ary differential over Pittsburgh at Chicago on galvanized sheets, which
had been $4.00 oer ton before 1929, was therefore reduced to "2.00 ver
ton. The differential on tan^c -olates, which had been $4.00 to $6.00 per
ton over Pittsburgh prior to 1923, was decreased by 1932 to about $2.00
oer ton. These declining differentials were typical of other finished
steel -oroducts. This change in -orice relationships was due in large part
to the geographical shift in ca-oacitv from the East to the 'Test which has
been a long-time trend in the industry.

The basing point system in the -ore-code period, according to the best
available evidence was not adhered to rigidly. More or less open devia-
tions from the system aopeared. Many of these were in the form of price
concessions to large buyers. Many of the de-oart-ures were secret which
practically precl-ides a statistical determination of the extent to which
the s'/'stem was observed or ignored.

* Points for quoting f.o.b. -prices, Tables 42 - 4d.
** Cf. Map 9.

IV. THE CODE OF FAIR COlJ^ETITIOH

The multiple basing point system v/as adopted "by the code, approved
on August 19, 1933, v/ithout undergoing any fundamental changes. The
principal contribution ;/hich the coue laade to tne basing ooint system
was the establishment of certain implementing pro.ctices "hich sub-
stantially facilitated its operation. In addition, the code increased
the number of basing points. These changes v;ere beneficial to many of
the interests affected. On the other htind, certain other interests
appeared to have been hurt by the changes. 'Thile the code affected
some interests by introducing too many innovations, it affected others
by establishing too few. The protests and the nature and cause for
the adoption of the code provision complained against are discussed
in the follov/ing pages. In addition, the general effects of the basing
point system on the industry as a whole ere exaiained. The analysis
which is undertaken is principally one to indicate the types of pro-
blems involved. I\fo attempt has been made at this time, in view of the
scarcity of time and facilities available, to reach determinant con-
clusions.

A. Code provisions and Administration

The principal provisions and Code Authority resolutions and the
nature of the problems v/ith which they sought to deal ere summarized
in the following pages.

1, Code provisions.

Briefly stated the Code established a multiole basing point
system for most of the products c/ithin its jurisdiction. It established
a basing point system for pig iron and ferro alloys which had not been
sold consistently on the system before the code. The code designated
what basing points were to be used for the sale of each product. (*)
In the original code, approved on August 19, 1533, fiftj^-nine separate
basing points v?ere listed. (**) The number was increased to sixty-
five in the amended code, approved on May 50, 1934. (***) In addi-
tion, the number of products, for which these places were made basing
points, was increased somewhat. The basing points for each product
after code amendment are shown in Table 39.

(*) Cf. Schedule F, Code for the Iron and Steel Industry, Codes
of Fair Corrpetition, ?ol. I, p. 203.

(**) Of. Practices of the Steel Industry under the Code, Senate
Document No. 15S, 73d Congress, 2nd Session, 1934-, p. 17.

(***) Cf. Table 39.

9864

-264-

Sone of the principal provisions of the co6.e v/ere concerned with
features \7hich implemented tne operotion of the "basing point sjsten.
These '.7ere as follo'.js:

(1) An all-rail freight raethou of calculatii\;- delivered prices
was established. (*)

This provision was adopted largely hocauDe the water freiglit
rates v;ere not standardized or codified. It v/as difficult to deternine
V7hat the delivered price, calculated on the ba-sis of viater rates,
would be at any one point. The basing point system is premised upon
the assumption that delivered prices can be determined accurately and
uniformly in relation to the cost of shipping from basing points.
Consequentlj'-, the omission of this provision of the code ^'Ould have
seriously interfered with effective operation.

(2) An open-price filinfc provision \/as adopted. (**)

This provision required all producers to file prices at the basing
point to whicli they 'jere nearest. All prices vrere to be open to in-
spection by anyone at any reasonable time. It wa,s provided further
that:

''The published base price for each such member for anjr
product (except standard Tee rails of more than 60 pounds
per yard, aiigle bars, and rail joints) for any basing point
for such product other than ths.t or those sho'jn in the list
cf base prices so filed by such member shell be deemed to
be the lov.est base price for such product at such other
baling point which shall be shovm in the list of base prices
filed by any other member of the Code and then in effect." (***)

The significance of this provision '7ill appear 'later in connection
with the Code Authority resolutions. (***:»=)

The open-price provision was adopted, in part, to eliminate secret
price cutting. This objective Mas a requisite for the operation of the
basing point system. The system requires, before it can effectively
function, information as to the base prices on -Thich oroducers axe

(*) Cf. Schedule l, Sec. 4, Code for the Iron and Steel Industry,
op. cit.

(**) Ibid. Sec. 3.

(***) Ibid.

(****) Qf, infra Sub-section 2.

9864

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supposed to quote in accordance ''ith the basing point formula. If
there is complete secrecy as to these prices the basing point system
is meaningless.

(3) The code attempted to deal with the problem of fabrication
— in-trrnsit, which had been very troublesome in tiie pre-code period,
by providing that:

"... in the case of plates, shapes, or bars intended for
fabrication for an identified structure, for the purpose of
establishing the delivered orice thereof, the place of del-
ivery shall be deemed to be the freight station at or nearest
to the place at which such stnacture is to be erected, and not
the shop of the fabricator." (*)

The effect of this provision was that the difference between the cost
of the through haul on these products and the sura of the two short
hauls, which formerly went to the fabricator, no\/ went to the pro-
ducer..

(4) The basing point system v/as in addition implemented by
the establishment of definite rules with respect to the distribution
of products through jobbers. The code provided that:

"Before any member of the Code shall allow any such de-
duction to any jobber or sell for resale to an.y purchaser who
shall not be a jobber ajiy product pursuant to any permission
so granted to such member, such member shall secure from such
jobber or such otiier purchaser an agreement substantially
in a form theretofore approved by the Board of Directors
and filed with the Secretary whereby such jobber or bther pur-
chaser shall agree v/ith such member (a) that such jobber or
other purchaser v/ill not, without the approval of the Board of
Directors, sell such product to a.r\y third party at a price which
at the time of the sale thereof shall be less than the price
at which such member might at that time sell such product to
such third party and (b) that if such jobber or such other pur-
chaser shall violate any such agreement, he shall pay to the
Treasurer es an individual and not a.s Treasurer of the Institute,
in trust, as and for liquidated daraages the sum of $10.00 per
ton of any product sold by such jobber or such other purchaser
in violation thereof." (**)

This provision was useful as an adjunct to the basing point system
because it prevented defections of jobbers from the system. In addition,
the code provided that the Code Authority should establish rules for
determining who was a legitimate jobber and v/ho consequently had a
right to claim the jobbers' discount. This provision was as follows:

(*) Cf. Sec. 4, Code for Iron and Steel Industry, op. cit . , p. 198.
(**) Cf. Sec. 4, Code for the Iron tJid Steel Industry, op. cit ., p. 199.

9864

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"The Board of Directors (of the American Iron and Steel
Institute, the Code Authority) shall prescrite such rules and
regulations as it shall dee:.i proper by v;hich the question of
whether or not any purchaser or -orospective purchaser of any
product for resale is a jofoer shall be determined, ond in
granting any permission as aforesaid, the Board of Directors
shall prescribe such rules and regulations in respect thereof
as in its judgment shall be necessary in order to insure to the
members of the Code that action in accordance v^rith any such
permission shall not result in an unfair practice...." (*)

This provision was important as an attempt to remove a featiore of the
pre-code pricing system vjhich had tended to disturb the operation of
the basing point system. The functions of jobbers and fabricators nere
frequently combined in one firm in the industrj)-. Such a concern had
a distinct advantage over competing fabricators which did not enjoy
the benefit of jobbers' discounts. The objective of the code appeared
to be, in part, to equalize the competitive opportunity of all inde-
pendent fabricators in this respect.

In conjunction with the establishment of stringent regulations
for implementing the system the code provided also for means by '.7hich
exemptions from certain of the provisions could be granted. The ori-
ginal code provided that:

"... in any case in which such product shall be delivered
by other than all-x'ail transportation, the member of the code
selling such product may allov? to the purchasers a reduction in
the delivered price otherv.'ise chargeable. .. .at a rate which
shall have been previously approved by the Board of Directors
and filed v/ith tiie Secretary." (**)

This provision was amplified in the aiaended code by the addition of
the words, "equitable and necessary, in order that competitive
opport-unity to producers and consumers oi products shall be maintained".
(***) rphg Qode further provided that:

"the Board of Directors, by the affirmative vote of
three-fourths of the whole Board, may permit any member
of the Code in special instances or members of the Code
generally to sell or contract for the sale of anjr product

(*) Ibid.

(**) Ibid, p. 198.

(***) Schedule E, Section 4, Amendment to the Code for the Iron and
Steel Industry, Codes of Fair Competition, Vol. XI, p. 354.

9864

-^367-

produced by s-uch member or members at a base price which shall
be less than the then published base price of such member or
members for such product at the respective basing points there-
for of such nembers, if by such vote such Board shall deter-
mine that the making of such s^le or contract of sale at such
less base price is in the interest of the Industry or of any
other branch of industry and will not tend to defeat the policy
of Title I of the National Industrial Recovery Act b^' making
possible the using or employing of an unfair practice." (*)

2» Administration

Facilities have not been available for examining the Code Auth-
ority resolutions and regulations and their effects. Consequently
only the briefest mention is made of them here.

The Code Authority used its oo^^ar to grant concessions below all-
rail freight prices and base prices a number of times. For example,
a concession was allov;ed on truck shipments to permit buyers obtaining
steel in this way to buj'' it at 65^^ of the all-rail freight rate. In
severa,l districts concessions were granted from the s.ll-rail price on
steel products transported by water.

In addition to the concessions from the basing point and open
price filing systems granted by the Code Authority'', the latter signi-
ficantly changed the pricing practice of the industry from the practice
before the code. The provision ol the code which prescribed that pro-
ducers could deem as their price the lowest price filed at other basing
points, Vifhere they themselves did not quote prices, was interpreted
by the Code Authority to mean that producers must file prices not lower
than the lowest filed prices at basing points other than the one nearest
them.

The factors \7hich v/ere uppermost in the thoughts of the Code Auth-
ority in adopting this resolution may only be surmised. However, it
seems likely that among then was the desire. to prevent water shippers
and small concerns located near the boundary lines (**) of the two basing
point areas from taking advantage of the all-rail freight provision and
the legal enforcement of the basing point system by cutting prices in
selling from one area into another. The code increased the margin be-
tween the costs of delivery and the delivered price based on all-rail
freight rates so widely at certain points that there was probably

(*) Schedule E, Sec. 4, Code for the Iron and Steel Industrj?-, op. cit . ,
p. 193.

(**) It seems necessrry to make clear that the basing point areas had
no fixed boundary lines. By boundary lines is meant the line of
price demarcation between basing point areas based upon the formula
that the delivered price is the lowest s-am of a base price plus
freight to destination.

9854

-258-

considera'ble lee-way for such sellers to cut -orices. Similar lee-way
for cutting prices v/as rvailable to the coinprratively small producers
located at a considerable distance from the "basing points. The willing-
ness of water shippers and mills distant from basing points to cut
prices ty the amount of the margin betv/een actual delivered prices and
costs wa,s determined (a) by the relative ajnount of their sales by water
and 'by rail, and (b) by the proportion sold in the immediate vicinity
of the latter mills at a high price as compared with the part sold to
nore distant points with considerable freight absorption. As the pro-
portion of sales with a high margin between prices and costs was in-
creased, it seems likely that the propensity to cut prices was greater.
If this was so, the base prices in each area v^here these producers traded
woul.d have been driven dovTn to a rjoint approaching their costs. Price
competition was limited entirely to base prices, and the price cut of
one producer in an area had a tendency to extend to all producers, since
none could compete fi*om nearer the basing point toward the price cutter
by absorbing freight. It seems likely that the action of the Code
Authority in adopting this resol^ition was influenced by a desire to
prevent such a development to the extent that it was caused by producers
selling across the boundary lines of basing point areas.

3r "Protests and Complaints

A substantial number of Tjrotests and complaints against certain
features of the code indicated the wide diversity of interests and
points of view involved in the basing point system. This section ex-
amines some of the most important protests from the points of view of
the interests of both code members a.nd purchasers. No attempt has been
made at an exhaustive analysis due to limitations in time. The following
examination is to be considered as a "type" study of the more important
and representative protests and complaints.

(a) The inclusion of all-rail freight rates in
delivered prices, (Schedule 3. Sec. 4, Code
for the Iron and Steel Industry, op. cit, ,
p, 198)

This provision v/as one of the most objectional features of the code
from the point of view of fabricators. Tlie nximber of protests received
was considerable. Most of these came from fabricators located on in-
land water\7ays, particvilarly the Ohio and Mississippi Rivers, A few
were received from manufacturers who were accustomed to bring piorchased
steel to their mills in their own trucks.

Among other grounds, these protests '.7ere based upon the contention
that the all-rail freight provision represented a substantial departure
from the practice existing before the code. On the whole, in view of
the substantial number and agreement of complainants, there seems little
reason to doubt this assertion. The adoption of the provision, they
claimed, vitiated and advantages which had been the impelling motive
determining their location on waterways. Although it would appear that
there is some justification for the protests on this basis, the fvill
validity of the complaints can only be estimated when weighed with other

9864

-269-

factors. First, the location of fabricators, particularly those engaged
in manufacturing products where the cost of steel is a small component of
the total -orice of the final product, is in most cases determined more
largely "by the location of markets than hy raw material costs, aecond,
these fabricators , although they lost the advantages of cheaper ran
material transportation costs, did not lose those connected with distri-
buting their finished products by v;ater.

(b) The provision that "in the use of T)lates, shapes, or
bars intended for fabrication in an identified struct\ire,
for the purpose of establishing the delivered price
thereof, the place of delivery shall be deemed to be
the freight station at or nearest to the place at
which such struct-'ore is to be erected, and not the
shop of the fs.bricator". (*)

This provision, although it i7as designed -orinarily to protect the
interests of fabricators of plates, bars, and shapes, caused numerous
protests. The substance of the xirotests was principally that the pro-
vision forced fabricators to divulge the identity of their customers to
the large integrated concerns fron which the;'- bought plates, bars, and
shapes, and v;hich sold also the fabrications into which these products
Y/ere made. The fabricators feared as a result that the integrated com-
panies, which had natural competitive advantages due to their large
size and prestige in the industry, wo^xLd use their knov/ledge as to the
identity of fabricators' customers' to compete for the "ourchases of the
latter. In reply to such protests, it was asserted that the fears that
fabricators entertained concerning divulging the identity of their
customers to their competitors could be justified only in those cases
where fabricators asked for price quotations upon their raw material
before entering into sales contracts with their customers. The extent
to which fabricators indulged in this practice cannot be ascertained,
but it seems unlikely that it was a general practice.

The protests of many of the fabricators may have been motivated by
a desire to obtain a return of the advantages which they had enjoyed
before the code under the fabrication-in-transit privilege. The fa-
bricators, v?ho enjoyed no advantages before the code from the fabrica-
tion-in-transit privilege, and who nay have suffered a disadvantage in
competing v/ith those who did,, were probably in favor of this "orovision.

(c) Power of the Code Authority to Determine the
Qualifications of Jobbers. (Schedule E, Sec. 4,
Code for the Iron and Steel Industry, op. cit.,
p. 199)

This provision was one of those ado;oted to cope with a problem
relative to the operation of the basing point system v/hich had developed
before the code. As has been stated above, distribution by jobbers in
1935 accounted for only about 13-;j of the total sales. The facilities

(*)■ Ibid. p. 198.

-270-

and time have not been available for a study of the protests which
arose from this source, and conseo^uently not even tentative conclusions
may be reached. The provision S'"ems to have been directed largely
against concerns which combined the functions of jobber and fabricator
in one unit and which consequently ",".ere able to make use of the jobbers'
discount in competing with the fabricators who \7ere not also classified
as jobbers. If some concerns were injured because the provision re-
moved their status as jobbers, other fabricators may have been benefited
by the elimination of their competitors' advantage.

(d) Open price filing provision (Schedule E, Sec. 3,
Code for the Iron and Steel Industry, op. cit . , p. 198).

The complaints which viere mrde against the open price filing
system came almost entirely from jobbers and small concerns which con-
tended that customers always buy from large concerns if the prices of
all sellers are the same, as they tend to be under an open price system,
and that consequently small concerns should be allowed to sell without
divulging their prices to their com-oetitors.

(e) Number and Location of Basing Points.

The effects of the code in causing new protests and complaints by
attempting to solve older problems are further discernible in the
complaints about the establishment of new basing points. Liost of these
complaints were received from the territories surrounding Pacific and
Gulf ports. In the original code, Ilobile, Alabama; llew Orleans,
Louisiana; and Orange, Port Arthur, Bea-ujuont, Baytown, Galveston and
Houston, Texas, were made basing points on the Gulf Coast. (*) On the
Pacific Coast, San Pedro, and San Francisco, California; Portland,
Oregon; and Seattle, fJashington (and San Diego, California, for plates
and structural shapes only) were made basing points. (**)

The establishment of these points as basing points gave rise to
considerable protest from fabricators located within the area of the
basing points, but not at the points themselves to the effect that they
were subjected to a competitive disadvantage from the fact that their
competitors located at the basing points could h-ay more cheaply than
they. These protests were partitilly adjusted by the addition of Gulf
Port basing points at Lake Charles, Louisiana, and Corpus Christi,
Texas, and of the Pacific Coast basing points at Long Beach, Stockton,
and Sacramento, California, and Everett and Bellingham, Washington. (***)

(*) Schedule F. Code for the Iron and Steel Industry, op. cit., p.
203-205.

(**) Ibid.

(***) Cf. Schedule F, footnotes 1 and 2, Amendment to the Code for the
Iron and Steel Industry, Codes of Fair Competition, Volume XI,
p. 350.

-271-

In addition to the protests of this character from the Pacific ajid
Gulf Coast ports, others arose from the establishment on the discussions
about establishing basing points at raid-westei^n points. For example j
St, Paul, Minnesota, fabricators complained when Duluth, Minnesota, was
made a basing point for merchant bars. This protest nas not adjusted.
Similarly fabricators at Lansing, Michigan, complained when the estab-
lishment of a basing point for striiDs at Detroit was talked about. The
latter never actually took place.

These complaints are typical. The basing point fabricators obtain
an advantage. The competitive difficulties of the non-basing point
fabricators are substantially increased because they pay a higher dif-
ferential price relative to their basing point competitors than before
the establishment of a basing point in their vicinity''. The reason
appears in the fact that the cost of shipping a short distance is
proportionately much greater than that of shipping a long distance.
Thus if two fabricators had, for example, a differential of $1.00 per
ton between their plants when basing upon a distant point the differen-
tial might easily become $2 per ton if a basing point were established
at one of them.. Such results must be considered an almost inevitable
result of the increase in number of basing points.

In addition to the complaints that were received against the
est3.blishraent of new basing points, a number were made to the effect
that the code did not go far enough in establishing new basing points.
Principal of these were those directed against the omission of Johnstown,
Pennsylvania, Detroit, Michigan, Youngstown, Ohio, and St. Louis,
Missouri, The cora-olainants considered themselves entitled to a basing
point on the ground that producing capacity was located near their mills.
The interests concerned and the probable effect of the adjustment of
these complaints is presented in the following discussion.

(l) Johnstown, Pennsylvania.

The protests from. Johnstown were ba.sed princi'oally upon the fact
that capacity existed therefor pig iron, plates, bars and wire, and that
Johnstown was a considerable distance from the nearest basiig point for
these products, Pittsburgh (or Neville Island, near Pittsburgh), The
protests were directed especially against the omission of the city as
a basing point for ^Dig iron. It was claimed that the amoiant of pig
iron capacity at .Johnstown greatly exceeded the amount at some other
basing points. This seems borne out by an examination of the available
data. There is at Johnsto\-m 1,665,000 tons of pig iron and ferro-all.oy
producing capacity. This amount of capacitjr is greater than that at
16 of the 22 basing points for these products, (*) Furthermore,
■Johnstown is located 60 miles from I^Teville Island. (**) Although located

(*) Gf. Table 12.

(**)Cf. Heport of the National Recovery Administration on the 0:oeration
of the Multiple Basing Point System In the iron and Steel Industry
llovember 1934, p. 12.

9864

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50 miles from its basing point, Johnstoun has far more producing capa^
city than any other point in its "basin;; point area. Its capacity
amounts to almost half the total capacity of its area. Neville Island,
the basing point itself, has a capacity of only 180,000 tons as com-
pared with 1,665,000 tons for Johnstown. (*) It may be tentatively
inferred that on the basis of the size and distance of Johnsto\7n from
a basing point it was entitled to be a basing point for pig iron.

An added substantiation of this hypothesis may be obtr>.ined by
examining the cost structure of production and transportation for pig
iron. The costs of iioaking pig iron predominantly direct costs. Con-
sequently, the freight absorption which producers can incur in shipping
is comparatively limited. The area of distribution is further re-
stricted by the low price of pig iron in proportion to its cost of
shipping. The small amount of freight absorption and the limited area
of distribution tend to induce producers located at any one point to
reduce their prices and keep competition out of their immediate markets.
Consequently, it may be tentatively inferred that the code established
a differential at Johnstown over lleville Island somewhat higher than
would have otherwise occurred and that the differential permitted distri-
bution of pig iron over somewhat wider areas than had existed before
the code, with the result that the total costs to the consumer may have
been increased.

On the other hand, the amount of the price differential at
Johnstown over Neville" Island would, in any event, ha.ve been affected
by the proportion of pig iron at the former place which is produced for
consumption without sale. If the pig iron is mainly consumed in the
producing company there is little reason for keen competition and con-
sequently the price tendencies which otherv/ise might have developed as
described above would not have appeared. Little indication of the pro-
portion of the output of pig iron at Johnstown which is consumed by the
producing conrpany may be obtained from the available data. Most of the
capacity in Johnstown produces pig iron both for consumption and sale.
(**) Consequently, the data do not permit of any final conclusion in
this respect.

The effects of the establishment of a basing point at Johnstown
would be determined in some degree by the number and relative position
of companies at that point. Pig iron capacity'- there is highly con-
centrated in the hands of one concern, a horizontal combination which
might be in a position to exercise considerable influence over the price,

(*) Ibid.

(**) Appendix C. Report of the NEA on the Operation of the Basing
Point System in the Iron and Steel Industry, Nov. 1934, p. 8.

9864

-273-

However, it seems unlikely, in view of the factors which tend to cause
low pig iron orices, that even if it were able, this concern would
maintain a very high price differential at its plant over that of
surrounding producing centers.

The protests of the Johnstown interests against the omission of
Johnstown as a basing point for rjlates, shapes, merchant and concrete
reinforcing bars, and drawn wire were not so well founded as in the case
of pig iron. The capacity for making these products at Johnstown is
as follows; plates 275,000 tons; shapes 6,000 tons; merchant and con-
crete reinforcing bars, 550,000 tons; and dravm wire 89,300 tons. (*)
These amounts of capacity represented almost 12^0, 4Jo, 12.5;<3 and 7.6,o
of the total capacity in the basing point area, Pittsburgh, in which
they were situated. So small were these producing capacities in pro-
portion to the others in the area that it seems likely that producers
would have chosen to follov/ price leadership instead of embarking upon
an independent price policy with the possible consequences of keen price
competition. If that were the case, the failure of the code to re-
cognize Johnstown as a basing point for these products had little or no
effect upon the price differential there with respect to Pittsburgh.

This tentative inference is further borne out by examining the
cost structure of producing these products. In contrast with pig iron,
finished steel products such as these, have comparatively high overhead
costs and low freight costs in proportion to value, which tend to in-
duce competition among producers somev/hat more by absorbing freight
than by reducing mill prices. Conseqtiently, it appears that the
establishment of a basing point for these products at Johnstown would
have had less effect in causing a price reduction than in the case of
pig iron.

(2) Youngs town and Cleveland, Ohio .

The protests against the omission of Youngstown and Cleveland as
basing points for sheets appeared to strike at a major difficulty of
the code in establishing and locating basing points. The amount cf
sheet capacity in the Youngstown district was approximately equal to
that surrounding Pittsburgh, while that in the Cleveland and Youngs-
town districts combined far exceeded that around Pittsburgh. (**) This
situation was reflected in the geographical distribution of the sheet
capacity of the Pittsburgh basing point area, in that 62.3/a of the
capacity was located more than 50 miLes from Pittsburgh. (***) Prior to

J*) Ibid, pp. 93, 81, 54, and 178. ~~~~

(**) Cf. Map 12.

(***) iieport of the Kationa.1 Recovery Administration on the Operation
of tlae l.Iultiple Basing Point System in the Iron end Steel In-
dustry, November 1934, p 10.

9864

-374-

the code Youngstown had based upon Pittsburgh, and it continued to do

so under the code. However, it appeared that Cleveland, before the

code v.-as a basing point for sheets and was removed as such by the code. (*)

Tne reason the code established a single basing point for this
area, although there had been tv/o, apperrs to lie in the geographical
distribution of capacity and sales. These three points are located
in close proximity to each other, so that the capacity of all three
of them as a whole tends to form a geographical unit or entity of its
own. The objections that may be raised to the establishment of a
single basing point for a concentrated group of firms axe somewhat less
than for establishing a single basing point for producers widely
scattered over the co\inti-y. A single basing point would be more in
accord v/ith the natural inclinations of the former group than the latter.
If the former compete rigorously \7ith each other there is danger that
prices may be drawn doT\rn to a point that none can make a profit and
consequently they are prone to adopt a practice of price leadership
centering about a single or at most a very small number of basing
points.

The tendency of producers located comparatively close together to
quote prices based upon a single point is further intensified in the
sale of a finished product such as sheets. The cost structure of pro-
duction and transportation of finished products is such that there is
a strong inducement for the producers of these products to compete by
the absorption of freight rather than by lowering mill prices. The
propensity of these producers to compete in this fashion tends to lead
them to price upon the ba,sis of aistrnt points - a practice which is
conducive to the establishment of one or a very small number of basing
points.

The location of the single basing point v/ithin this region at
Pittsburgh instead of at a more central location, for example, Youngs-
town, was probably motivated by the broa.d geographical pattern of
distribution from Pittsburgh. The Pittsbiirgh district is able to con-
sume according to estimates only approximately one-third of the total
production of the district. Consequently a Ic rge part of the output
of the area must be shipped a comparatively long distance to markets.
A large part of the production is distributed in Ohio in the direction of
Youngstown and Cleveland and to some extent in Michigan. (**) The sheets
are in large part sold to the automotive industry. It seems likely,
therefore, that the establishment of a basing point at Youngstown or
Cleveland would have forced a considerable increase in the freight ab-
sorption of the Pittsburgh mills.

On the other hand, v.'hile there were extenuating reasons for the
establishment of Pittsburgh as a basing point for all of this territory,
the merits of the complaints as such cannot be minimized. The estab-

(*) Cf. Table 5'6.
(**) Cf. Table 41.

9864

-275-

lishment of new basing -ooints in the Great Lakes Hef^ion was'in line vdth
the trends in the industry v^hich had a-ooeared in the nre-code period.
To this extent it ap'oeared that the code interfered vrith a fiindaiental
tendencj'' in the industify,

(3) D etroit, liichiran .

The protests against the omission of Detroit as a basing point for
strips were significiuit also in that thejr arose from only one of the
many interests concerned. The automobile industry \/o.s during the de-
pression one of the largest consumers of steel -oroducts. The ability
to market ^)roducts in the Detroit market in competition with fabri-
cators located in the vicinity of Detroit or Cleveland, where many of
the autonotive parts producers are located, was consequently highly
important to manj' -oroducers and fabricators located in various oarts of
the country. For exardole, o. considerable •oart of the steel sold in
Chicago was fabrico.ted into frames and parts for the automobile indus-
try and shipped to Detroit, It maj'" have been felt that the establish-
ment of a basing point at Detroit would have had the effect of causing
substantial price reductions at that point. If a basing point had been
established there with this result, the competitive position of inde-
pendent fabricators of automotive equipment located at Chicago might
have been seriouslj" impaired ^oir the increase in the amount of freight
absorption that they would have had to incur in reaching the Detroit
market, ^t might consequently have been necessarj'' for producers of
strips at Chicago to reduce their prices in order that their customers
would have sufficient margin between their raw materials and finished
product orices to iDerrait them to continue to sell in the Detroit market
by absorbing more freight, 'Thile the reduction of prices at Detroit
is a contingency that might have occurred as a result of making it a
basing point, no conclusions that this would necessarily have happened
may be dra¥;n. On 1»he other hand, it may be inferred that the reputed
excess of consumption and production at Detroit might have mvillified the
effects of the establishment of a basing point there. However, it
apoears likely that such a line of thought as has been developed here
was a contributory reason, among others, which led to its omission,

(4) St. Louis, '. iissouri .

The claims for the establishment of a basing 'ooint at St. Louis
for plate bars and shapes were based principally upon the competition
T/hich fabricators there experienced from other -noints nearer basing
points, principally Chicago, The same considerations are involved in
determining the validity of these -orotests as were discussed with res-
pect to the omission of Johnsto'.Tn, Pennsylvania as a basing point for
the saJie -oroducts. The amoxmt of capacity for shapes and bars at St.
Louis is very small in cora-oarison with that at Gary where its prices
were based, (*) The n^'omber of -oroducers is, furthermore, very small.

(*) Cf. i'iap 4 and 15.

9864

-277-

(f) Price Differentials Between Basing Points

The protests received were concerned, not only with special aspects
or featiares of the basing point s^'stera, but with the behavior of prices
at basing points. Most of these protests were directed against the ex-
istence of s-abstantial price differentials at certain basing points over
others, particularly in the case of those points which were newly made
basing points by the code. The principal protests of this type came from
Pacific and Gulf Coast ports. Por example, an SI Paso fabricator objected
that he could buy plates from Sparrows Point, Maryland, practically as
cheaply as from Houston, Texas, which was a basing point. A purchaser on
the Pacific coast claimed that the price of wire rods there represented a
differential over Pittsburgh amounting to the full freight, in spite of
the fact that San Francisco was a basing point.

Tile contention that substantial differentials in prices between these
points and Pittsburgh did exist may be substantiated by an exaioination of
the price tables. (*) 'The differential on wire rods at Pacific Coast
ports over Pittsburgh was $9.00 per ton and the differential at &alveston
was $5.00 per ton. The differential on tank plates at Gulf ports was
$5.00 per ton over Pittsburgh and $5.00 per ton over Sparrows Point,
Maryland. These differentials were typical of those that existed at these
points over Pittsburgh and other eastern producing centers.

The production at these points presumably is considerably less than
the consumption. The producing capacity is insignificant in comparison
with the rest of the country. Tae reason for the establishment of basing
points at these places appears to have been, not the existence of sub-
stantial producing facilities, but the apprehension of foreign competition.
The failure of price differentials at these points to decline was, there-
fore, not necessarilj'' due to any attempt to maintain prices at artificial
levels, but possiblj'' to the failure of foreign competition to develop as
keenly as had been expected.

As a result of the limitation in time and facilities it has not
been possible to evaluate the amount of the differentials at these points
over Eastern producing centers, i'o verification of the charge that the
differentials bare a relation to Pittsburgh prices by the amount of the
freight to the Pacific Coast in the one case and to Sparrows Point prices,
by the amo\ant of the freight to Houston, in the other has been attempted.
It may be surmised that the Pacific and Gulf ports receive the marginal
amount of their consumption from Eastern producing centers and that con-
sequently the prices at these points would naturally tend to assume a
differential over Eastern points, modified by foreign competition,
approximating the freight cost.

The existence of a price differential on several finished products
at Birmingham and Pittsburgh was the source of additional complaint.
The protests were concerned with the fact that these differentials remained
while the price of billets, a semi-finished product, was the same as at
Pittsburgh. The accuracy of the statements of the protestants is borne
out by an examination of the price statistics. (**) For example,

(*) Cf. Tables 49 and 56. (**) Of. Tables 46-56
9864.

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had been in the pre-code -period, for the basinij point producers (for the
most part the larger niills) to absorb freight in competing vith those
situa.ted in the out-lying part of their ba.Bing point area, vrhich '-'ere on
the uhole smaller plants. The result of this situation vas that price
reductions such as had occurred for special interests or ■ooints before
the Code veve either not made or pasoed on to all customers ritain a
basing point area by the loviering cf base prices.

Tlie .elimination of arbitr^.^y■ end indiscriminate freight absorptions
was parti ciiJ.arl,y important in competition in which the all-rail freight
rate v:as formerly not used to determine delivered -orices. The price a.t
certain points was raised considerably out of proportion to the costs of
distributing by T.'ater by this provision. It appears likely that conse-
quently the producers who v sre able to telze advrjitage of water facilities
in distributing a large part -of their output may have been induced by the
marrsii" betT"een costs and. prices to file lower prices than the producers
who 'ere handicapped by the necessity of shipping most of their sales b^''
rail. Before the code the latter might ha.ve competed v/ith the former b"/
maintaini^Tg their basing point "orices rjid simultaneously absorbing freight
in the areas where the price was effected by water trc.nsportation. Under
the code, however, when producers could quote delivered prices at any
■ooint onl]'- in rela.tion to their base prices they were forced to set base
prices to a point where their all-rail freight diff erentia2 a.t a,n-^ point
in the ba.sing point area would -oermit them to meet the competition of
water-shippers. Consequently, it appears that although the all-rail
freight provision ma;- have caused certain "oroducers to charge s.onewhat
more fictitious freight thaji they other."'ise would have done, it also may
have worlred the other way and forced reductions in base prices sufficient
to permit brsirg point producers to compete with the out-lying producers
or water-distributors by addiiig to their base prices the full amount of
the call-rail freight differential.

These characteristics of the pricing "oractice established by the
code appeared to have significant results upon price movements under the
code. Princip3,l of then was the fact thst price cuts of any single pro-
ducer seemed to be adopted quickl;/' by aJl producers within anj"- basing
point area where thej- occurred. This character of the price movements at
basing points v^as probably furthered by the ten-da^'' waiting -oeriod for
filed prices.(*) Ho'.7ever, it peems that the basing point system itself
was also influential in this res'oect. The ntunber of price reductions of
this character was considerable. (**)

The elimination of some of the irregularities which had existed in
the pricing practices before the code was probably/- an' influence toward the
reduction of the price differentia-Is that had existed between certain
basing points before the code. The 'ero,dication of the practice of granting
concessions to special customers at points' such as Chicago probably caused
a more open competitive sit''.ia.tion to develop, which, on account of the

(*) Schedule E, Sec. 2 Code for the Iron and Steel Industry', ov cit.
p. 197.

(**) Cf. Price filing cards of the Code Avithorit;-.
98S4

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comparabively large margin betvieen prices and. costs at these points out-
side Pittsburgh, appears to Iiavo intensified the tendenc-' already-- exist-
ing prior to the code to^.'ard lowering the price dii"f erentials v.-ith
res'oect to Pittsburgh. Only partirl responsibilit"/" can be asstimed \)'j
the code for these reductions, since the tendency was alreao.],'' apparent
in the pre— code period. Tjnpical of the reductions in price differentials
at Chicago over Pittsburgh were those on tanlc iDlates, soft steel bars,
and shapes. The price differential on tanl<: plates between those two
points had, for a consider9,ble period before the code, been about $2.00
per ton. On October 3, 1S33, it became $1.00 per ton, at which point it
rema.ined for the duration of the code. (*) The price differential at
Chics^go over Pittsburgh on soft steel bars had also been about $2.00 per
ton inuiediatcly prior to the code. However, on the effective c'^te of
the code, Augvist 29, 1933, the price at Chicago dropped $1.00 per ton,
malcing the differential over Pittsburgh onl-.^ $1.00 per ton, where it
remained for the rest of the code period. (**) A similar movement
occurred in the case of the Chicago differential on structural sha,pes.
The difference in this price between Chicago and Pittsburgn had been
$2.00 per ton before the code, but on the effective date of the code,
August 29, 1933, dropped to $l.no. (***)

In addition to establishing a uniform practice for calculating de-
livered prices londer the basing point formula, the code established an
orderl;'- sj-stem of pricing with respect to filing base prices. Prior to
the code it seems that difficulties had been experienced with secret
price-cutting. TFith secret price cutting it was sometimes impossible for
producers to know what the base prices were on which they were supposed
to quote delivered prices 8i.ccording to the basing point formula. As a
result there was a tendency for the basing point system as ?Ja effective
instrument of pricing to brealc down. "Sj giving wide publicit"'- to base
prices the code remedied this difficult]'-. The filing of open prices was
an essential factor in the basing point s'^-stem.

2. ilumber of Basing Points.

In addition to changes in the character of the pricing practices
under the basing point s;'"stem, the code introduced changes in the system
itself, namelj'-, in the establishment of additional basing points. These
points, it seems, were added principally in the Middle West and the
Great Lalces region. Most of them, it appeared, were established for the
semi-finished steel products. The main indication of the number of new
basing points that were established b^- the code is obtained by examining
the places at v;hich f.o.b. prices were quoted in the Iron Age before and
after the adoption of the code. Tlie principal points at which new quota-
tions appeared were the following: G-ary, Buffalo, Detroit, Duluth and
Birmingham for billets and blowers; Anderson, Indiana, San Prancisco,
California, Galveston, Texas, Birmingham, Alabama and Worcester, i.iassa-
chusetts for wire rods; Buffalo, Canton, Ohio bxvo. Sparrows Point, ilar'/-
land for sheet bars and Chicago, Coatesville, Pennsylvania and Sparrows
Point, Karj'-land for skelp. The inaug-aration by the Iron Age of reporting
f.o.b. price quotations at those points fcllov/ing the adoption of the code

(*) Cf. Table 49. (**) Cf. Table 48. (***) Cf. Table 52.

9864

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is not conclusive evidence that they were not also basing points prior
to the code. Konever, it is indicative. Substantiating evidence of the
increase in the number of basing points is provided by the statements of
customers in regard to the establishment of new basing points. For ex-
ample, statements of customers indicated that Gulf ports xiere nev/ basing
points for a number of products, including bars and shapes, and Duluth
for merchant bars and billets.

The basing points sanctioned by the code '.7ere more numerous for the
iron and semi-finished steel products than for the finished steel goods.
Particularly vras this true of the basing points that s.ppeared to be
nevrlj established for steel products. On the uhole the proximity of
producing capacit^^ to basing points in the case of iron and semi -finished
steel prodt\cts was substantially greater than in the case of the finished
steel goods. Competition for sales in the case of pig iron and semi-
finished steel products tends to talce the form of reductions in mill
prices much more than in the case of finished steel products. The pro-
ducers of the latter, due to factors which have been discussed above, are
more inclined to absorb freight in order to increase sales rather than
reduce their mill prices substantially. Consequentlj/- the number of the
basing points v/hich the industr;" tends to ?.dopt of its own accord is
somev.'hat less in the case of finished steel than in the case of iron and
steel semi-finished products.

V. COiCLUSIOI'S

As a result of the scarcitj- of time and facilities available in mail-
ing this' st\id:i'- no attempt has been made to draw sxi:/ final conclusions.
The principal conclusions that might be drawn at the present time a.re of
the character of suggestions for future \7ork and not findings. Tiiese
suggestions have been summarized in Appendix I.

— ^''^1 p"

APPE.3IX I
i:.2TH0DS E.,J>LOIED IN THE HEPUlVT OK COKTHOL CE C-EOGHAPHIC

PHICE h::lations ^ld :'U-,j.h:i-i lu'es Ox' analysis iieces-

SAfiY TO COi.'iPLETE lilE STUDY

The r.iethods employed in this stucl^^ 00X1.138 divided into tvro clashes.
In the first class belong- z'ae methods relative to fact-finding and the
.■j^atherinf', of information necessary to give a j;eneral picture of the
tfade practices to be studied rjic. :neir significonce r/ithin the frame-
"'ork of the industries -^hich used them. The secjnd .rroup of methods
eraoraces the technique of statistical .nd economic analysis of the ef-
fects of txie operation of the prp.ctices revii^ed.

As to the fact-finding methods, the first step taken was an. ex-
amination of all HEA codes a.s to geographic -oricing practices which
might he contained in bhem. After a selection was made of those in-
dustries of which the limited time and persomel svailahle would permit
investigation the collection of industry information was st rted on a
broad front in order to gain a clear picture of the economic background
ajid structure, the types of operation end distribution, and other prob-
lems essential to tl.ese industries. This was necessary, as rjiy special
set of trade practices could be truly appreciated only in connection
with a correct underst aiding of both the technical and economic opera-
tions of the industry reviewed. For the purpose of collecting such in-
formation, all available HRA materials were used. The transcripts of
public hearings on the original code and on later code amendments aiid
other WA. problems constituted a source of valuable and ^oertinent data.
In many cases, the old Research and Planning Division had prepared in-
oustry reports and statistical analyses -'hich could be draivn upon.
An important part of the 'orl: consisted in an examination of all the
materials contained in the files of the vajrious branches of the old
NRA organization. The files of the deputy administrators, of the re-
spective code advisers in the Research t'jnd Planning nnd Legal Divisions,
of the Consumers' ajid Industrial Advisory Boards, of the Compliance
Division, cjid other divisions furnished documents such as letters,
briefs, applications, protests, a.nd complaints, which threw light on
specific industry problems. All of these documents 'Tere digested
systematically in order to iiake later reference to them as simple as
possible. In addition to KRA materials, the sources used included
publications of other government agencies, tra,de journals, scientific
magazines, pertinent monographs and books and, specifically, all
sources of industry statistics as published by government agencies and
trade associations. In some instances it x/as found necessary to go
back to the dockets and files of the Federal Trade Commission, in order
to gain information not available in published form.

Personal contacts "ith industr:/ members and former code authority
and trade association officials, "ho were visited partly in T7ashington,
and partly on field trips to other parts of the country constituted an
import ait method of general and specific fact-finding.

9864

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The second group of methods employed, of economic and statistical
analysis, related to a study of the structure of production and dis-
triDiition of the industries under review; that is, more specifically
Volumes of prodaction, shipment'^, cost elements, prices and profits.
Only a very small part of these topics of investigation could be cov-
ered in the present iB-oort, due to distinct limitations of time and per-
sonnel. The follorring lines attempt to give first a picture of the full
scope of such analyses as ..seemed desirable '.ind,. second, to indicate
■'hat part of them has not yet been co^ipleted.

Practices aiming at control of geographic price relations are sig-
nificant because of their effects on the general level of prices and,
second, their effects on price differentials obtaining from different
geographic regions. Certain geographic pricing practices are closely
related to the phenomenon of price leadership. It 'Tas, therefore,
necessary to study uhe absolute level of special commodity prices, as
compared vith the general price level, and their responsiveness to '
changes in e conomic conditions, that is, their degree of rigidity or
flexibility. Wherever possible, the behavior of prices before the
adoption of the trade practices revieiied t-nd during the period of oper-
ation of such practices had to be co:npared. A useful technique of
comparison appeared to be the exajnination of the development of the
margin bet"-een costs of production and prices obtained in txie periods
before and after the adoption of the respective geographic pricing
practices. As to price leadership, the relation betv.'een size of com-
panies and influence on the foriaation of the price level had to be in-
vestigated. It i-.'as, therefore, desirable to obtain, \-herever feasible,
a freQuency distribution o:" companies and plants by size, both absolute
and relative to the volume of total industry production. Such a nation-
8,1 distribution had to be broken down into similar diistrib itions for the
main producing regions. In industries .'here price filing was adopted
under the code, the available price filings had to be consulted in or-
c.er to test the degree of price leadersnip exercised by the dom.inant
industry members.

Another significant comparison v.'as che one of price charge for
comparable industry products in different parts of the country. In or-
der to see this latter '^ind of price analysis in its right light, it
was necessary to studj'- the volumes of production by geographic regions
and the movement of goods shipped between these regions. In all bas-
ing point industries, where certain mills serve as a basis for price
quotation while others do not, freight is absorbed on certain ship-
ments v-fhile "fictitious" freight is charged on others. It seemed de-
sirable to obtain frer.uency distributions of the sales of basing point
and non-basing point mills in order to throw light on the proportion
of their business which netted high or low mill realizations. By
combining such information with volume of production, cost and other
pertinent data, an ^jnder standing of the development of industrial
profits as between different regions and different companies and of
the trends of geographic shifts in the location of industries could
be gained.

9864 ■ • .

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The completion of a research program as comprehensive as the one
outlined aoove \70uld have been a matter of years. Under the prevailing
conditions of severe limitation of time and personnel, the program had
to he curtailed suhnt aitially. Only the hasing point system of the
Iron and Steel Industry and. the "basing point, freight equalization and
zoning practices adopted oy the lujiiher and timber products industries
could he afforded -somewhat more detailed treatment. Other industries,
suches the reinforcing materials fabricating and the steel joist indus-
tries, the cememt industry, the ca'^t iron soil pipe industry, the salt
industry, some branches of the paper indiBtry, ana many others, the
study of Tfhich seemed highly desirable, had to be put aside. But even
the stud^r of the iron and steel and the lumber rnd timber products in-
dustries had to be r sduced to a much smaller sccle than originally
planned. Especially the statistical pe^rt of the work suffered very
materially in :30th industries, k study of the railroad .and waterway
freight rate structure has yet to be undertalcen. Tnis is indispensable
to an inderstrnding of the dependence of geographic pricing practices
upon the prevailing freight rate structure. Freight rate differentials
obtaining betveen crude, semi-finished and finished products are of
interest with respect to tlie competitive pos'-tion of integrated and
non- integrated procucters.

7ith respect to the steel industry specifically, it is necessary
to obtain cost of production data end analyze the comparative costs
of large and' small, integrated a-id non- integrated, and differently lo-
cated producers. It seems to be of special iTapo::taace to collect ac-
curate data as to the volume of shipments bet"7een different producing
and consximing points and areas, in order to be able to determine the
amount of uneconomic hauling which tal^es plc?ce. Some such data are
available in the .confidential files of the "'ederal Trade Commission.
Although they axe said to cover a small sample only (approximately
lOfj of total industry shipments) they would be of interest, for a study
of cross- hauling. It has not been possible to use these data for pres-
ent report. The effects of integration, product diversification and
s-oecialization, of costs attached to starting and stopping operations,
and similar structural factors, on the amount of long-dists-oce hauling
need to be examined. Price leadership in the steel industry should
bestudied on the basis of information contained in the Code Authority
price filings. The question of enforcing a limitation of freight ab-
sorptions and the effects of the sjnount ofsuch a limitation are fur-
ther important subjects for thorough stud;'-.

In the lumber industry, similarly, dat a as to shipments from
producing to consuming territories are indispensable to a continuation
of this studj^. Another set of data not yet obtained relates to the
capacity of mills in each of the divisions of the lumber and timber
products industries. More information is ce- irable regarding the
Specific uses of lumber species an:" products in vai'ious markets.
Such information would throw light on the extent to •/hich inter-
regional shipments of lumber are necessary. A more thorougla study of t
the basing point and zoning practices established in the maple and oak
flooring, walnut and maliogaiiy divisions, as 'veil as of the activities
of the trade associations in these and oLher diMrisicns, .is called for.
Because of lack of data, thus fax no cost and price analysis has been
undertalcen for the different lumber and timber products. Such cost and
price analyses need to be combined with volume of production and profit

9864

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statistics, in order to complote tke picture of the effects of ideograph-
ic pricing methods on economic cojyiitions in these industries.

Pinally, the legal r.spects of the problems dealt. v?ith will have
to he given careful consideration, In this connection, a thorough-
going examination and interpretation of pertinent jadicial decisions,
such as the linseed, hardwood, maple flooring and cement case, as well

as the Sugar Institute case now pending "before the Supreme Court,
should he undertaken.

9864

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i^PPEiroiX II.
TEE MTI-DUMFIKG PROVISION Ij' THE C0D3 FOH TES IC3 IIIDUSTHY.

The outstsriding exanple of aii anti-dumpiiic;; provision sanctioned "bv
NrlA. is firrnished "by the code for the ice industry. Article IX of this
code states that the practice of producers or vendors in selling ice
i'.ito other thaii their hasic or normal markets is condemned ty the industry
as an ujifair method of competition in all cases in which such trans-
actions are conducted otherv/ise than in compliance with the following
restrictions:

1. Such ice cannot be sold helov/ the lowest published
schedule of prices obtaining in the market or terri-
tory in which such ice is offered for sale

2. Such ice cannot be sold below the average cost of
production and distribution of all ice produced, sold
or distributed by the producer or seller, plus the cost
of transportation to the point of ultimate sale or
delivery.

3. Such ice cannot be sold for lower prices than those
being secured by the producer or seller in his normal
or basic market. (*)

It is clear that the implementation of this provision depended on
the determinatioxi of what constituted a producer's basic or normal mar-
ket territory. 'The code provided that such determination should be made
in each individual case by the code authority with the approval of the
Acijninistrator. During the period of operation of the ice code, many
mrrket area determinations were handled by the Ice Code Authority in-
dependently and accepted ''oy the industry, T.hile forty cases of applica-
tion of the anti-dumping provision to specific areas were submitted to
the Ad-ministration. In all of these latter cases, the local committees
of arbitration aiid appeal as instituted by the ice code held public
hearings on the matter and made recommendations to the national Code
Authority, which, in turn, forwai'ded these recom/aendations with its
approval to the National Hecovery Adininistration. In May, 1935, waen
the Supreme Court Decision abrogated the enforcement of codes, eight
out of these forty cases were still pending, while thirty-two had been
decided by the Administration. The office of the deputy administrator
in charge of the ice code laid dovm certain items of general infor-
mation upon which the determination of normal market areas was to be
made. This infoi-mation was to include: (**)

(*) See Code of Fair Competition for the Ice Industry, approved October

3, 1933, Article IX '(l).
(**) Memorandum from Thomas R. Vaughn, Assistant Counsel to Earle W.

Daiilberg, Deputy Adjninistrator , in Deputy Administrator's Records,

SRA Piles, Ice Industry.

9864

-2B7-

1. G-eographical positio;. of the cities in question.

?. Transportation facilities, includin;-; cost.

3. Purposes and date for v;hich plants were erected, and capacity.

4. Custom of sales in past - prior to code.

5. Difference in prices as compared in scne ^eneral territory.

6. Aoility of producer to render service.

7. "Jhether or not there is bona fide conipetitioa in the

invaded area.

Moreover, it was stated as a .general rule that full consideration
should he given small enterprises. The second part of this appendix con-
tains a short s;.mopsis of all cases of market area determination for
which a final decision was reached. It appears that the great variety of
individual circumstances made it verj' difficult for the Administration to
apply consistently the same set of rules to all of them. In some of the
Cases it is likely that decision was Dased on compromise "between the con-
flicting desires and views of the parties involved, l^o statistical in-
formation is availahle which would permit a comparison of prices and
volumes of production in the respective localities, "before and after the
administrative determination of the normal, market area. However, the
general significcjice of these market area determinations seems to have
"been that price wars hetween producers in adjacent towns and cities were
"brought to an end and friendly understandings or tacit agreements as to
the division of market territories aaid the level of prices were reached
under the persuasive influence of the Local Ccmijiittees of Ar'bitration and
Appeal and other Code Authority officials.

In a few cases, such as Dallas aiid ]?ort Worth, Texas, the determin-
ation of the normal market area was followed "by an ela"borate agreement
among producers to regulate all phases of ice production and distri"bution.
For the sake of illustration, it may "be of interest to give in "brief
lines the essentials of the Fort Worth agreement. Tlie volume of ice
sales in this city shrank apprecia'oly after 1931, as the following firue
figures indicate:

1931 190,000 tons

1932 160,000 tons

1933 152,000 tons

A nura"ber of factors seem to have "been responsi"ble for this decline,
such as the increasing replacement of ice "by mechanical refrigeration,
the unusually cold winter of 1933, anc^ general depression conditions.
The average rate of operation had fallen in 1933 to 31/o of capacity for
all factories, while some of them operated at as low a percentage as
13.5^ (*) In the face of these facts, the market "broke completely in
1933 and ice prices reached a low of $1.00 per ton at wholesale as com-
pared with a price level of around $5.00 per ton that had prevailed in

( *) It must "be "borne in mind that theoretical capacity for ice plants

is calculated on a 365 days basis, vfhile an operation of 170 or
180 full days a year is practically considered a good result. The actual
rate of operation has never exceeded 50 per cent of theoretical capacity
by very much.

9864

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more normal times. Industry members estimated that this low price created
an approximate loss of $500,000 per year for the Fort Worth ice business.
Hearings were held hy the Administration on the price situation, hut the
estahlishnent of emergency minimum prices was denied because of the be-
lief that it would not be possible to enforce minimum prices. Some
tine later, a scheme of regulation wps submitted to Washington for ap-
proval, but the Administration again: refused to sanction it. Shereupon,
the ice interests of Fort Worth decided to carry out their plan on the
basis of voluntary agreement. All of the companies located within the
market territory of Fort Worth were divided into three groups and the
total volume of sales as anticipated for the following year was allocated
to these three groups. The first group consisted of plants which were
shut down. These were to receive ^^.OO per ton liquidated damages for
the volume of business which had been allocated to them. The second group
consisted of companies v/hich produced a lirdted amount of ice, for which
they were to receive a fixed price of $3.85 per ton and vAich they were
to turn over for marketiiig to the rf.embers of the third group.

Tne third group assumed the responsibility for the distribution of
all ice, both the volume produced oy its members and the volume produced
by the second group. If a member comp.v^ny of the third group developed
a. sales outlet for a greater amount of ice than its allocated production,
it \7as required to purchase any excess from all members of the industry
in proportion to their alloted quotas. A minimum price of $4.50 at
wholesale and 48fJ per cwt . at retail was agreed upon.

A similar plan was adopted and carried into effect by the city of
Dallas. In both cases it is reported that the operation of these plans
highly satisfied the members of the industry because of their stabilizing
effect on prices. (*)

From an economic point of view, what happened in Fort Worth and
Dallas, and in a less pronounced degree in other cases of successful
determination of market areas, can be characterized as the implementation
of price agreements combined with regu.lation of the volume of production
and allotment of production quotas. This seems to have been possible by
restricting the production and marketing district which had to be regu-
lated within certain vrell-defined boundaries. It is beyond the scope
of the present report to discuss the problems of minimum prices and the
regulation of production. (**) It may suffice to say here a few words
regarding the economic characteristics of arrangeraents such as those
effected by Fort Worth and Dallas. If excess capacity in an industry
is not merely cyclical but has becojie permanent because of the displace-
ment of its products by the product of another industry (mechanical
refrigeration) , the competitive mechf.niGm provides for the gradual writing

(*) See the records of the Deputy Administrator regarding the Fort Worth
end Dallas majrketing agreements in N2A consolidated files. Ice
Industry.

(**) As to these natters, see reports: "iviinirnum Price Regulation Under
Codes of F,':!ir Competition" and "Production and Capacity Control

in the Ice Industry Under the NHA Code" - Trade Practice Studies Section,

Division of Review.

9864

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off the social "balance sheet of- the capital investment of such an in-
dustry by the process of 'bankruptcies and reorganizations. This pro-
cess was nodified in the Fort "/orth and Dallas agreements by the pro-
vision that those companies whom competitive price wars would have
forced to the wall first, were to receive liquidated damages for
yielding voluntarily. In times of crisis a:id depression this procedure
raijjht "be less disturbing than frequent bankruptcies would be. However,
the real question is whether a socially desirable middle course cpii
be found between the two extremes of subsidizing (in the case of price
wars) the consuming public at the expense of those ice companies which
will be needed in the long run to supply the active demand for ice, find
subsidizing (through price and production control agreements) the
vested interests in the ice industry at the expense of the consuming
public.

A short synopsis of the cases of market area determination which
were decided upon by the Administration follows belov/. For each of
these cases factors characterizing the local ice market are given in
abbreviated form.

9864

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3P.IEF SYNOPSIS OF CASES OP UATtKET A3EA DETEHMIlTATIOr - ICE IKDUSTRY.

Case iJc' . 1.

Ackerman, Miss., 1,200 popnlation, one small pl;u:it; McCool, Miss.,
population 350, one small plant; "both, gradually deteriorating since 1929 -
Z^ miles ppart. Price stabili'^ed at 50;* cwt. domestic. McCool dumping
into Ackerman. Trouble threatened. Determination was that Ackerman and
six small villa^'es withia an area of ten miles were outside of the normal
market area of McCool. iiule -,fl, ,r,eographical position, was applied.

Case llo . 2.

G-loucester, Mass., 24,000 population, three plants, total daily
capacity, artificial ice and 45,000 tons natural ice storage. Essex,
Mass., 2,000 population, 25,000 tons natioral ice storage. Seven miles
apart. Essex storage house partially destroyed hy fire. Distressed ice
being dumped into G-loucester at $2.00 per ton. No sales in G-loucester in
former years. Determination: G-loucester was outside of the normal area
of Essex. Rules #4 and fd applied.

Case No. 3,

G-odley, Texas. Approximately 800 population, one plant, 17 ton daily
capacity. Cleburne, Texas, population 3,000, two platxts, 70 tons daily
capacity. Eleven miles apart via improved highway. Prices stable, 40^
cwt. station or platform, 50^ per cwt. delivered domestic. G-odley opera-
tor did not deliver or maintain refrigerated storage in Cleburne (in
dumping of ice) and did not serve Cleburne until 1933. Determination:

G-odley was outside of the Cleburne normal market area. Rules 1, 2 and 6
applied.

Case ilo. -i-,

Shelby County, Indiana, includes the town of Shelbj'-ville, population
10,602, which has one plant of 75 tons daily capacity. Rushville, Rush
County, Indiana, population 5,733, plant or plants capacity not of record.
To\TOs 22 miles apart. Prices stable, domestic delivered oity, 40(!J cwt,, count:/-,
.45^ cwt. Mr. C. E. ^[illis Assistant Deputy AdiiinistEator, denied deteriination
recom-nended March 27th, 1934. "Approval is given only in cases which
arise under Art. 14, Section 2. — llot indicated that ice is being dumped
into this area." Case reopened and determination made July 27, 1934, that
Shelby Coiuity, Indiana, was outside normal market area of Rushville,
Indiana. Rules 1 and 6 v^ere applied.

Case No. 5.

Morgan County, Indiana, includes the town of Martinsville, population
4,822, with one plant of 30 tons daily capacity, 2,500 tons storage,
Indiana Terminal and Refrigerating Conpany, Indianapolis, Indiana, essen-
tially a cold storage plant, dumped excess ice into Martinsville, 30 miles
distance. Determination: Morgan County is normal market area for Martins-
ville plant and outside the normal market area for Indiana Terminal and
Refrigerating Company ice. Rules 1 and 3 applied.

-231-

Case No. 6.

01ne7, 111., populr.tion S.OOO, one plant unrecorded capacity.
Prices $5.50 -per ton to peddlers, 50.;^ cwt., delivered dovnestic. i^Iev.'ton,
Illinois, population 2,500, one plaiat, capacity not stated, selling to
peddlers at $3.50 per ton for resale in Olney, 19 miles distant at 40-5
P':3r cwt., at station, and 50-^ per cwt., delivered domestic, under v/ritten
contract, for three years, dated Juiie 15, 1933. Deteriiiination: Tovii of
Olney is outside normal market area for ice from Newton. Rules 1, 5 and
7 apTolicatle.

Case lo. 7.

Ea:^le Lake, YiTis., included Swift raid Co ^.pany packing plant. iTptural
ice storage 35,000. Swift and Co., complying with code, refused further
sales at cut prices to peddler, v.-ho in former years had diimped t'nis ice
into Sacine, Illinois, 19 miles awa.y, and in competition with peddlers
buying from Raci.ie plants at $5.50 per ton. Tiie peddler, to whom Swift
& Co., refused f-orther sales first' complained to the Federal Trade Com-
mission, which developed these facts and transferred the complaint with
information to IJSA. Determination was that ice of Swift & Co. storage
was prinarily for meat packing aiid must he sold in Racine in compliance
with the provisions set forth in Article IX, Section 2 of the code. -Jo
discrimination of prices against conplainant who- may "buy ice in Racine.
Case was reviewed aiid determination recom.mended by Industrial and Con-
sumers Advisory Board and Legal Division. Rule 3 governed.

Case i'o. 8. ■ ■ ■

Sesser, Illinois, is a snail inland town havir.g had no ice service
except hy one peddler m;:.intaining refrigerated storage for 15 years,
selling ice purchased at $5.00 per ton at plant in Christopher, 111., 10
miles away. Market invaded in 1933 hy another peddler, maintaining re-
frigerated storage only during sTam.mer a:id selling ice at $4.00 per ton
at plant in Johnson City, 30 miles fro;n Sesser. Invader chai'ged with
cutting prices and faiUire to maintain year-round service. Case was re-
viewed and determination approved hy Deputir Aciministrator, Research, Lr.hor,
Industrial and Consu]-;ier ' s Boards. Sesser is outside of normal market area
of Johnson City, 111., Rules 1, 4 aiid 6.

Case ¥,0.3,

Cambridge, Mass., market- and a radius of 20 miles had "been served hy
local storage of natural ice, except iniported following mild winters.
Gardiier is 50 miles from Carahridge, in a colder section where natural ice
is more certain. Large storage of ice at &ar.hier formerly sold in car
.lots for Boston, Mass., and other markets, hut seldom in Cambridge. All
natural ice must be harvested a:id total cost assiomed in advance of demand.
Great excess caused distressed ice in summer following good harvest during
cold Y/inter. Fierce conpetition r-nd cut prices followed. This effect was
felt in Cambridge when peddlers dumped Gardner ice in the market below nor-
mal prices. Determination v;as that Cambridge was outside normal market of
Gardner ice. Rules 1 and 7 probably applied.

—393-

Case Ho. 10.

Metropolis, 111., had one plant, built 1903, 50 ton capacity, exceed-
ing local consixmrition. Price $5.00 to $6.00 per ton to dealers and
peddlers. Paducah, Kentucl<y, 10 ;niles away, across toll bridge on river,
had tivo pla.nts - respondent plant built 1933 - capacity considerably
greater than local demand. Peddler in Ketropolis bought ice in Paducah
at $3,00 per ton under questionable written contract and resold in
Metropolis in competition with dealer prices of local plant, but not be-
low domestic price of local ice. Determination was that Paducah was
outside the normal market area of Iletropolis. PluIc 6, bona fide contract,
applied.

Case No. 11.

Henry and Owen Counties, Kentucky, have for years been served by a
peddler operating from Carrolton, Ky. , in an adjoining county, bioying the
ice from Carrolton plant owned by utility company under 10 years contract
expiring 1937. Other peddlers have also served these counties with ice
bought at meat packing plant in Hadison, Ind. , across Ohio river. Two
other adjoining counties were also indirectly involved somewhat nearer
Hadison. Determination was that Henry and Ov/en Counties were not the
normal market area for loacking company ice in Madison, Indiana. Role
No. 3 or compromise by No. 1 may have been the basis.

Case No. 13.

Greensburg, Indiana, had one plant, 50 ton capacity, excess in pealc
of demand. Posted price 50f# cwt., domestic, delivered. Rushville is 30
miles distant and Indianapolis is 50 miles distant from G-reensburg. Sold
ice to peddiers maintaining refrigerated storage in Greensburg which X7as
resold at 35^ cwt. to domestic trade. Price of Greensburg ice was 6'0(f: cwt,
Domestic in 1933, prior to entr^/ of competition. Detennination: that
Greensburg was outside market area, for Pushville and Indianapolis ice,
but Deputy Administrator stated tliat it may be withdrawn upon five days
notice if prices are undulj?- raised by the Greensburg Ice Company.
Rules 1, 3, 5, and 7 applicable.

Case No. 13.

Bristol, Pliodc Island, population 11,000, with one plant 33^ ton
capacity and 10,000 ton natural ice storage capacity. Peddler prices,
$4.00 per ton, domestic, 50<f; cwt. delivered. Marlret invaded by peddler
formerly biiying from local source, but selling ice in 1934, bought at
platform in Seekand, Mass., 30 miles away, at $3.00 per ton. Determina-
tion: that Sristo.l was outside normal marlcet for Seekand ice.
Pules 4 and 5 applicable.

Case No. 14.

Old Orchard, Maine. Resort, summer population of 15,000 to 30,000.
Winter, 1,600 and adequate supply stored annually/ locally; Biddleford,
Maine, industrial city, popvilation 30,000, twelve dealers store 15,000
tons annually, 10,000 consumption, 5,000 ton normal surplus. Prices cut

-293-

Case No. 14 (Cont'd)

to $2.00 ton wholesale. Torms 3vr miles apart. Determination: Old Orchard

outside Biddleford normal market. Rule ITo. 5 (Not No. 1) applied.

Case No. 15.

Lula, Miss., small town, one plant, annual load fs,ctor 39.1^ - 1933,
invaded Jonestown, small inland town formerly served "oy plant in Clarksdale,
Miss., having an annual load factor of 13.1^ - 1933. Jonestown 12 miles
from Clarksdale and 18 miles from Lula. Determination: Lula is outside
of Jonestown a,rea. Rule No. 4 applicable.

Case No. 16.

Eminence, Ky., is small tovm; abandoned plant 'bo\:ight by Frankfort,
Ky. , producer, who served the market from Fra.nkfort plant, 22 miles away.
Meat packing plant in Madison, Indiana, 44 miles distant, had periodically
sold ice to peddlers for resale in Eminence. Determination: Eminence
is outside normal market for Madison, 111. ice. Rules 1, 3 and 6 would
apply.

Case No. 17.

Roclonart, Ga. , small town, one rebuilt plant, 15 tons capacity.
Cedartown, G-a. , 10 miles distant, larger town, tvo plants - 35 ton and
new 15 ton plant, built 1932 when owners, of 35 ton plant dismantled plant
in Cedartown and rebuilt it in Roclonart, presumably to extend out from
their two plants into wider territory. Determination: that Rockmart was
inside of Cedartown area. Rules 7 and 8 specifically applied.

Case No. 10.

Lynn, Mass., is within the Boston section and appeared to have been
the potential battleground of a rsrice war. The Ljmn area was designated
to include several other towns into which certain ice companies might
sell and other com-oanies could not sell. This determination is in reverse
to the decision of Asst. Deputy Mr. ¥illis, who had previously ruled that
determination would not be made- unless Art. 14, par. 2 was being violated.
Such was not the' case in this instance.

Case No. 19. .

This is a case of a member selling distressed ice from his partially
destroyed storage house in Essex, Ma,ss,. to the fish trade in Gloucester,
Mass., which market or channel was ade.quately served by houses in ,
Gloucester at a price of $4,00 per ton, whereas the Essex ice was bought
for $2.00 in Essex and resold to the fish trade channel at $3.50 per ton.

Case No. 20.

This is a case of a dairy company in TJichita Palls, Texas formerly
buying ice at a satisfactory price from a plant in TJichita for own use
and for resale to its dairy producers' patrons. The price was advanced
to $4.00 per ton, and the dairy company -reopened its small ice-making

Case Mo. 20 (Cont'd)

department, 'producing for its OTvn use and sale at $3.00 per ton to the '
farmer supplying their milk. Determination: thafthe dairjr Comriany nas
a member of the Industry'' and permitted to supply the dairy farmer channel
demand T7ith ice at $3.00 per ton.

Case Uo. 21. ' ■ ' '

Torrant County and Ft. Worth, Texas, vras experiencing a price war
with prices as low^as $1.90 per ton wholesale and dumping ice into other
adjoining market normally served by local plants. Determination: that
a wall around the "fire" would stop the dumping and restore order.
Rule No. 8 was probably in mind.

Case No. 22. ' ■'•■■' •■■••■•■'■'

' ■ '' Dallas County, Texas, and City of Dallas, located 32 miles from
Ft. lorth, was likewise going- through a destructive price war, resulting
from excess capacity. Annual load- factor around 35fo and dumping ice
into other markets up to distance of 100 miles. Determination was made
on same day as case Ho. 21 and for same reason as in the case of
Ft. "Jorth.

Case No. 23. ' • •

San Antonio, Texas, (population 270,000) was in a similar situation
as prevailed in Dallas and Ft. Worth and in a like manner the Code Author-
ity requested that the Countj'' of Bexar, about 35 miles distant, was fixed
as the normal market area.

Case llo. 24.

Chambersburg, Pa. , vdth over-production capacity, began cutting
prices and sold ice at $3.00 per ton to peddlers who dumped the ice into
the Hagersto\7n, Maryland, market, 22 miles away; this market liad a price
of $6.00 per ton to peddlers an the lowest published price. Peddlers of
Chambersburg ice were only fair weather dealers and discontinued service
during the winter of 1933 and reopened in the spring of 1934. l-Io ice
from Chanbersburg had been sold in Hagerstom previous to 1933. Determina-
tion; that the limits of the City of Chambersburg was the normal market
area for ice mainufactured in Chambersburg. A wall was thrown around the
"fire" in answer to the protest of an injured producer on the outside of
that area.

Research and Planning Division did not approve the limits of the
seven mile area for Chambersburg, and that "peddler selling such ice in
Hagerstown appeared to be fair. "

The Consumers' Advisory Board "approved the determination. . .dumping
of Chambersburg ice into various towns in liaryland, therebjr bringing
aliout destructive price cutting..."

9864

-295-

Case No. 25.

Thibadaux, La., is sitiiated in a section embracing seven or more
ice plants, all operating on around 30;;o annual load factor. A new ijlpnt
was built in Thi"badaux v^hich started contracting with peddlers and
various operators of cash and carry stations throughout the whole section,
extending a distance of 50 miles from ""hibadaux, thereby creating unrest
in all these markets. An area was determined to include Thibadaux and
the surrounding country, extending a distance of approximately eight miles
in each direction, which would give respondent's plant and the other
plants in Thibadaux an estimated sales cutlet to create an annual load
factor equal to the average of the other plants in adjoining area.

Case No. 26.

Saton, Ohio, a small town, and the surrounding county area had been
served by the Eaton plant of 15 tons capacity and 500 tons storage capacity,
for many years. Ice had been purchased in Dayton, Ohio, and resold by
peddlers in this town and county for sevei'al years, but prices remained
fairly steady at 605;^ per cwt., domestic, delivered (some trouble came on
in minor isolated cases.) The determination recommended by the Committee
and Code Authority was in the fonr'. of a compromise cutting out a few out-
side village sections in the county and designating the remaining large
per cent of the county and the town of Eaton as the normal market area for
the plant a.t Eaton.

Case No. 27.

Xena, Ohio, plant owners were denied petition for their normal market
area to include certain interior to^ns into which ice from competing
plants in other towns had and was being sold, — particularly claiming
one to\Tn where they had bought the charred remains of a plant destroyed
by fire for the purpose of inheriting its good will and the rights to
distribution. Order of denial by the Deputy Administrator was to nrevent
complications even more serio\is and destroy competition.

Case No. 28.

Kennedy, Texas, plant owners wanted their own raarlzet area to shut
out dumped ice from Sam Antonio. Determination unnecessary because an
area had been fixed including San Antonio.

Case No. 29.

Bedford, Ind. A petition for determination of normal market area
was denied on the grounds that prices were fair and monopolj'' was not de-
sired.

Case No. 30.

Columbia, Tcnn. owners of small plant petitioned for a normal market
area, to prevent a dealer-T)cddler from selling ice, bought ujider an old
contract, from a plant 30 miles away at Eohenwold, Tenn. , for resale in
Columbia. The petition was denied because the contract was valid and compe-
tition was necessa.ry.

-396-

Ccse No. 31.

Taladega, Ala^bama, plant owner's petition v;as denied apparently on
a technical basis, — that the ov;ner did not file or post peddler price
or seek peddler business. On these grounds, Peel City, Alabama, ice
may be sold into the town of Taladega.

Case No 32.

uanchester, Conn., plant owners nity sell their ice oS hes been done
in years past into Hartford, Conn, market, and therefore ? petition to
establish Hartford normal market area to exclude Manchester was denied.

The records of the eight petitions for determination of normal
market areas were not included in this study.

-297-

T.ABLE 1

FRODUCTIOII OF SOFTIOODS 3Y PRIlJCIFiiL PRODUCING REGIONS

1929 pnd 1932

Thousands of Board Feet

1929

1932

7est Coast
Southern Fine
Western Fine
Cypress
California RedFood

All Other

Total

9,964,000

11,333,000

5,148,000

381,000

590 , 000

1,510,000

28,926,000

3,131,000

3,069,000

1,796,000

118,000

174,000

458,000

8,746,000

Source: National L^junber Manufacturers' Association,
Statistical Department.

T.4BLE 2

FRODUCTION OF HARDWOODS 3Y FRINCIPaL PRODUCING REGIONS

1929 and 1932

Thousands of Board Feet

1929

1932

Appalachian and Southern
Northern Hardwoods
North Central
Northeastern Hardwoods

All other

Total

5,090,000
938,000
353 , 000
521 , 000

171,000
7,073,000

1 ,022,'^'^0

145,000

64,000

130,000

44 , nnr)
1 , 405 , "^oo

Source: National Lumber Manufacturers' Association,
Statistical Department,

-298-

TABLE 3
PERCENTAGE DISTRIBUTION OF LUMBER PRODUCT ICN, BY REGIONS

1849-1934

Total

North-

Lake

Southern

Western

Central

Other

Year

United
States

eastern
States

States

1849

lon.o

*58.8

6.3

13.6

5.9

1G.6

1869

100.0

*37.8

24.4

9.4

4.9

20.0

3.5

1879

100.0

25.8

*34.7

13.8

4.5

18.4

2.8

1889

100.0

19.8

*34.6

20.3

9.6

13.1

2.6

1899

lOn.o

16.3

24.9

*31.7

9.9

16.1

1.1

1909

100.0

11.7

12.3

*44.9

18.4

12.3

1919

lOO.O

7.5

7.8

46.6

29.2

8.7

1929

100.0

3.3

4.8

41.9

*43.4

6.4

1930

lOO.O

3.8

5.1

39.0

*46.6

5.2

1931

100.0

3.6

4.3

36.2

*50.7

5.0

1932

100.0

3.8

2.8

38.8

*50.3

4.1

1933

100.0

3.0

2.8

41.3

*48.9

3.9

#1934

lOO.O

3.9

36.8

*51.7

3.5

Source: Census of Manufactures,

* Region leading; in nroduction for the year indicated.

# Estimate hased on saimDle of 630 mills.

9864

-299-

TABLE 4
COMPARISON OF YEARLY
LIMBER FlffiDUCTION, 1919-1933, A^ID
ESTIMATED CAPACITY 0? THE INDUSTRY
IN 1929 IN MM BOARD FEET.
CAPACITY: U. S. Timber Conservation Board Estimate for 1929
Lumber Code Authority E'^timste for 1929
PRO DUCTION
Year

82,ono

66,000

1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934

510

5no

000

nnn

oon

500

oon

000

552

000

250

000

500

ooo

750

2P0

750

886

100

523

151

961

263

Source: Data for production, 1920 to 1928, inclusive, as comcuted by
the Federal Reserve" Board; all other yeprs, estimates of the
United States Forest Service, excenot 1934, the estimate for
which Fas made by the National Lumber Manufacturers' Associa-
tion, and 1909, 1919 and 1929, which show Bureau of the Census
figures.

9864

-300-

TABLE 5

FEE CAPITA COKSUMFTION OF LUMEH aSD TIMBER PRODUCTS

1309 - 1934
In Board Feet

Year

Per Canita Consumption

Year

Per Canita Cons-uin-Dtion

1809
1819
1829
1839
1849
1859
1869
1879
1889
1899

1904
1905
1906
1907
1908
1909

1910
1911
1912
1913
1914

335

260

340

365

435

460

505
505
535
510
460
475

465
435
455
430
400

1915
1916
1917

1918
1919

1930
1921
1922
1923
1924
1925
1926
1927
1928
1929

1930
1931
1932
1933
1934

380
395
350
310
325

325
260
315
355
345
345
335
300
305
275

210

130

121

122

Source: 1920 to 1923 computed by the Federal Reserve Board; all other

years computed by the Forest Service, De-oartment of Agriculture,

9864

-801-

<iH

tfft

[X4

o o

•H 0)

<y PS
o

0) Cm
S5 O

bo
O -P

a o
3 o<

H O^ «n «<j- cvi c~-

>r\ o eo nO iTi CO «o
O sO O f^ c^ to o

(M -stO Ti O U>i

(^ rr\ o >• cv ^
CV C^ Cf^ \D ir\ CO

vO-<tHtOCVNDOsD
cv irsto >r\ (^ to CO O

*t •« •« I as

•v-wotOCOH vOv_ -. ..

HC~CMrHrr\ ■v^^r^vJ■f^cocv

r-i H H r-\ H HHrHrHCVCVCViCV

CO t^ cr\ to to O

CT^ H t- OJ in O

•k ff^ •> c^ •« *« I

O VNCO to 0^\O
kA O C<^ m O C^

ttO-<tC^r^rHr<^ OvDC^C^-<l-Ot0*D
O^mvJ-OvDO |rHC--C>tOOmrHvn

C\iCNiHC\iCVCV CMrHrHrH

(T\CV\OiAHrrN

OOrHCVr^^msDC^COOOHOiC^

iH cv cv cv cv (\( c; C'! a cv cv ca o^ r~, c^

r-\r-{r-\r-\r^r-{f-\r^

•H C

a 6

a •<-{

O -P

O cj

<«-l

'^■^

-p ^

o o

■p

-p

•H

■p ft

a s

Q) 0)

•H

m «

-P

0.' (1)

^ l

■p

e-s

(u -p

•«

w J3

<u O

h .,

> +> Q)

1 a H

) -H ^

1 aj

) CNi -H

J •> oJ

o 3 C -P

■P O O

3 -H Q) -H C

•H

cti nJ

J-i -P

o a

OiO

9864

-o03-
TA3LE 7

SAL3S OF SOUIHl^lJ YELLO.' PlilE PliOii VIl.GLJIA Al© ilOP.TH CAHOLINA
TO IlBIiifA, :,;iC.{Il>AN AivD OHIO AS ■IJ.POKT-^D 20 SOUTHERN PDTE DIVISION
D'.Ll.UGr J.iI.nJABY, 'FZERJA^n AlIL l/JL-XH, 1934.
(Eeet List ed i n Tnous:i nds. M .lvl. ) . .

Indices of Soathern Pine Production and Shipments
(For Purposes of Comparison) (*)

product ion
1917-2;4~" '" '1923-31

Ship ment s
1922-'l931

January

Pebruflry

March

105

- 106

April

102

103

May

109

105

June

100

July

103

Au.Tis t

105

103

SepteKi"ber

101

100

October

100

104

Novemoer

December

105

106

107

100

106

103

108

SAL3S TO ALL STATIS

Originating
States

January

February

March

Total

Virginia

9,376

10,781

19,115

39,273

K. Carolina

15,310

22,571

29,143

66,024

TOTALS

24,6.36

33,352

47,259

105,297

(*) Index of Procuction, Souther Yello'7 Pine, talcen from
"Seasonal Variations in Industry and Tradei', by Simon
Kuznets, a public-tion of the National Bureau of Eco-
nomic Research, Nevj York, 19,:.3 (pp. 404, 405).

9864

-303-
■ TABLE 7 (Ccjnt'd.)
SALSS ?0 IwDlAlU

Originating
States

-Ja]
Feet

luar^

Feb
Feet

ranry

March
Feet fj

Virginia-

0.60

0.56

0.39

]\. Carolina

ilone

1-Ton e

None

222

0.79

TOTALS

0.23

0.18

297

0.63

SALES

TO MICKIGAl^J

Originating
States

January
Feet fi

February
Feet fa

March
Feet fj

Virginia

2005

31.33

1454

13.57

4421

23.13

N. Carolina

2442

15.96

1003

4.44

4705

16.72

TOTALS

4447

18.01

2457

7.40

9127

19.31

SALES TO OHIO

Originating
States

January
Feet fi

February
Feet '.0

March
Feet fo

Virginia

1045

11.16

1878

17.43

2599

13.60

N. Carolina

403

2.63

934

4.14

0.06

TOTALS

1449

5.87

2812

R.43

2515

5.53

TOTAL S.ALES TO
IHDIA^-TA-i.iICHIGAI'I-OHIO

Originating
States

Virginia

N. Carolina

TOTALS

Ja nuary;

Feet' '-,0

Feb map
Fee t W

M arch
Feet

AggreA'ate
Feet ^

3107 53.14 3402 31.55 7095 37.. 12 13604 34.64

2845 18.58 1937 S.5S 4944 17.57 9757 14.73

5952 24.11 5339 16.01 12039 25.47 22330 22.16

P^f^A

-304-
TA5LE 7 (cont'd.)

TOTAL PmCHASSS OF SOUTICRN YELLQV.' PIKE

BY IKDIMA, j"iICHiaM MD OHIO

AS REPORTED TO SOUTHERl-I PIIIE DIVISION

DURIKG JAIIUARY, FEBRUAP.Y Al'ID i.iAECH 1934
(Feet Listed in Thousands B.M.)

Purchases from all

Southern Pine States

January

Februaxy

Indiana

5,193

8,615

Michigan

11 , 804

10,522

Ohio

8,051

16 , 339

TOTALS

25,048

35,476

Janu ary
Feet fi

Indiana 56 1.08

Michigan 2,005 16.98

Ohio 1,046 12.99

TOTALS 3,107 12.40

Januaiy
Feet fi

Indiana None None

Michigan 2,442 20.69

Ohio 403 5.01

TOTALS 2,845 11.36

FROM VIRaiNIA

Fehi'uary
Feet ~^

60 0.70

1,464 13.91

1,878 11.49

3,402 9.59

FROM NORTH CAROLINA

Febi niary
Feet " " fo

None None

1,003 9.53

964 5.90

1,967 5.54

March
20,947
24,945
24,304
70,196

March
Feet fo

76 0.36

4,422 17.73

2,600 10.70

7,098 10.11

March
Feet fo

222 1.06

4,707 18.87

16 0.06

4,945 7.05

Tota l

34,755

47,271

48 , 694

130,720

Total
Feet fo

192 0.55

7,891 16.69

5,524 11.34

13,607 10.41

Total
Feet fo

222 0.S4

8,152 17.25

l,o83 2.84

9,757 7.46

9864

TAB'LE 7 (Cont'd.)
TOTH L moil VIR&INI A A]TD lORTK OARnT.TIJA

Jamiary February Hs^Sh. Total

^eet ^ Feet ^ Feet" fo Feet ' fo

Indiana 56 1.08 SO 0.70 298 1.42 414 1.19

Michigan 4,447 37.67 2,467 23.44 9,129 36. SO 116,043 33.94

Ohio 1,4.:9 18.00 2,842 17.39 2,616 10.76 6,907 14.18

TOTiiXS 5,952 23.76 5,369 15,13 12,043 17.16 23,364 17.87

9864

-306-
TABLE 7 (Cont'd.)

CLASS 0? STOCK OF SOUTEJSN YELLO'J PlltS PUP.CHASZD BY lilDIAlIA,
MICHiaAN Al'IB OHIO 7R0U VIEailTIA .^i-JD ./OSTIi CajOLINA.
(E][ACT CAHLOAD ESTIlAiES: TIi.3ERS 20,000 FT.; OrHlH STOCK 25,000
AS 7<EP0?:TED TO SOUTKEHN PIHE DIVISION
(Feet Listed in Actual Fi/nires)

DUaiHG FE3P.UAEY, 1934

FLOOSMG: Feet

Caxs

CEILIKG & PAHTITION: Feet
Cairs

SIDIIIG: Feet

Cars
Feet
Cars
Feet
Cars
Feet
Cars
Feet
Cars
Feet
Cars
Feet
Cars

FT.)

FIinSH:

BOARDS & STRIPS:

DILffllTSIOW:

TliviBEES:

ROOFERS

rOTALS

VI?.GIJ.IA

N. CAROLINA

TOTALS

11,000

None

11,000

1/2

None

1/2

3,000

None

3,000

1/8

None

1/8

11,500

None

11,500

1/2

None

1/2

11,400

None

11,400

1/2

None

1/2

822,600

1,362,100

2,184,700

87i

2,155,200

571,200

2,726,400

86-1/5

22-3/4

109

387,500

8,000

395,500

19-1/3

1/2

19-5/5

None

25,000

None

3,402,200

1,966,500

3,844,500

140-1/6

78-3/4

219

9864

ROOFERS:

SIDIITO:

FINISH:

BOARDS & STRIPS:

DIMSiJSIOK:

TIwBERS:

CAS ivLA-TERIAL:

SHIP DECKIFG:

-507-
TABLE 7 (cont'd.)

VIRGINIA N. CAROLINA TOTALS

Feet None 873,000 873,000

Cars None 35 35

Feet 20,000 None 30,000

Cars 1 None 1

Feet 16,000 None 16,000

Cars 2/3 None 2/3

Feet 4,365,600 3,886,300 8,251,900

Cars 174-2/3 155-1/2 330*1/6

Feet 2,031,800 42,900 2,074,700

Cars 81-1/4 1-3/4 83

Feet 381,000 128,400 509,400

Cars 19 6-1/2 25-1/2

Feet 7,500 None 7,500

Cars 1/3 None 1/3

Feet 275,000 15,000 290,000

Cars 11 2/3 11-2/3

TOTALS:

Feet
Cars

7,096,900 4,945,600 12,042,500

287-1/2 198 485-1/2

Source: Letter from Southern Pine Association to J. 1. McClure,
Chief, Departments of Costs and Prices, Lumber Code
Authority, May 26, 1934. (in N.R.A. files, Liamher and
Timber Products Industries, "Prices Basing Points -
Southern Pine Division" Folder.) Only those mills re-
porting to the Southern Pine Division are included.

-30C-
TABIE 8

PRODUCTIOK MD SHIPiiT^aiTS
BY MFM3ERS OF THE
LiAPLE, BEECH AM) 3I-J.CK ZLOORIIJG DIVISION
OF THE
LUIfflEH AIID TIi.3SR PRODUCTS INDUSTRIES CODE
1974
THOUSANDS OF 30ARD FEET

PRODUCTION

SHIPMENT

State Uumte:

r of

Mills

i:. ft.

of Total

M. ft.

of Total

luichigan

30, 031

52.2

27,747

47.1

\iisconsin

15, 009

26.1

17 , 242

29.3

Illinois

1,224

2.1

1,012

1.7

Ohio

1,9G8

3.4

2,283

3.9

New York

2,857

5.0

3,494

5.9

Pennsylvania

649

1.1

637

1.1

Vermont

1,022

1.8

1,167

2.0

New Hampshire

0,1

0.1

West Virginia

2, C79

5.0

3,163

5.3

Virginia

285

0.5

310

0.5

Tennessee

1,238

2.1

1,227

2.1

Georgia

'\1

179

0.3

Arkansas

187

■^.3

277

0.5

Louisiana

0.2

173

0.3

TOTALS

57, 569

lOO.O

58,953

lOn.O

Source: Maple Flooring Manufacturers Association, code administrative
agency fcr the division. Includes all maple flooring mills
in the United States.

9864

-309»
TiBU 9

COMPARISON OP 1929-1928 SHIPSOWTS OF MAPLE
BEECH AND BIRCH FLOORING INTO EACH STATE IN
THE UNITED STATES, ARRANGED IN GEOGRAPHICAL
GROUPS.

1929

19 2 8

SHIPPED TO

RANK

SHIPMENTS

PER CENT

RANK

SHIPMENTS

PER CENT

Group 1

Illinois

I579IM

19.15K

I777IM

19.756

Wisconsin

9847

11.9

10555

11.7

Michigan

6181

7.5

66a

7.4

ftlnnesota

49a

5068

5.6

Ohio

3314

4585

5.1

Indiana

U89

1.8

2339

2.6

Missouri

1U6

1.7

1835

Iowa

1127

1.4

1087

1.2

North Central

441%

53.4

49861

55.3

States (8)

Group 2

New York

6000

7.3

Massachusetts

4506

5.5

Pennsylvania

3505

4.2

New- Jersey

2183

2.6

Connecticut

797

Maine

490

New Hampshire

410

%ode Island

262

Maryland

Dist. of Col.

Vermont

Delaware

North Eastern

18452

22.4

States (12)

6173

6.9

3629

3236

3.6

1945

2.2

729

826

299

208

512

461

167

18187

20.2

D8(3'4

-310-

TART.1 9

1929

19 2 8

SHIPPED TO

RANK

SHIPMENTS

psB carr

RANK

SHIHIIENTS

PER CHir

Group 3

California

^709

5.7

5905

6.6

Washington

1601

1.9

1580

1.8

North Dakota

1349

1.6

1340

1.5

Utah

1086

1.3

895

Kansas

697

855

South Dakota

672

737

Montana

560

853

Oregon

A58

530

Kdaho

A25

490

Colorado

417

428

Arizona

441

Nebraska

399

701

T^oming

137

194

New Mexico

Nevada

J^5

(15)

81
13093

.1
15.8

Western States

15040

16.7

Group 4

.Georgia

10A9

Texas

962

Alabama

801

Kentucky-

750

Tennessee

677

North Carolina

675

South Carolina

486

Virginia

469

Arkansas

255

Oklahoma

255

Mississippi

234

Loiiisiana

129

West Virginia

Florida

49
(14)

Southern States

6851

1.3
1.2
1.

.8
.8
.6
.6
.3
.3
.3
.2
.1

8.4

880

507

1151

1.3

599

454

124A

1.4

615

251

136

491

180

6749

7.8

Source: Maple Flooring Manufactvu'ers Association,
Chicago, 111. Based on reports received
from 18 identical M.F.M.A. members; data
released July 10, 1930.

9SG4

-3U-

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C^W>r-HH«VJCr\vOO^-*O^CVNO>OCV-^Ht0t0t^C«-O<
C>4 to •«* CA H >n H

(\iONOf^HHvO>rit^tOt^r-iStnSfOiC\JHNO>r>\0«f\H

to>A\p^i-ir\»ri^l>2torr>t-vpfVvoO'tfNOO
rjvDo^ooNty«r»ot>-oo^HSoNHt'Soovo«o
r-?vocytoH «r\ «r* H o p«^ oJ oj m vo HvonSf^

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s % ss s s s

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c<^ O >r»

to to _

«rt >o Tf^ ^ 0| ^

o <> H oJh
•k ••oil S

t>-sO HI O
H BJ

Ifel

8*1

« O TJ

3 s -^
8 2

•H W •>

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o<«t e

01 -a
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98b'

-213-

TULJ n

mstam and cu>icitt or laus tut prosoci'ici dkits it stui
laiffist ASS loi-iaaaa mills *
AS at ion'«sa 1. .i;}j

miOM MILLS

Stat.

Dvbar

Ihmbar

|t of total

f> of total

Htmrly Prod.

* of total Maa-

* of tctal In-

of UUli

of Dhlti

IfeBibar nnltl

Cas. In Board ft

bar CaoacitT

Alabama

.699

.■•68

2187

.82

.56

Arlcamao

21.680

It. 522

67390

*.3s

'\tl

CallfonU

2.098

l.ito6

I68O

.«3

G*?or^l.';

.699

.468

1873

.7C

i:2?

Illln'.lB

2.098

I.H06

5376

2.02

Kf^ntociiy

2.098

1.1*06

2? 73

1.12

•79

Loulaiun

7.692

5.152

26176

9.8U

6.92

Mar.-land

}M7

.:%

3637

l.W»

1.02

Ulailxippi

7716

2.90

2.01*

UlaFourl

2.097

l.UOlt

Utfi*

l.«3

1.29

north Oaro3Ua

.699

.1*68

11*59

.56

5:?.

PM^

9.090

6.088

206l6

7.7"*

P-uct^jlTMla

2.09s

l.to6

6072

2.28

1.61

Sour.h Carolina

■ 699

.U68

1021*

.38

.27

■l>n:.5iiiie5

30.069

20.lWt

811*79

30.61

a.6o

Ts»«

S.798

1.876

6868

2.58

1.62

Tlr^lnU.

't.195

2.810

1CS52

3.81*
lt.06

2.71

ITeat Virginia

1..S96

3.232

10806

2.86

V\ncour<ja

.699

lll20

• 53

.37

Location UnZoicjwn

.699

:i62

.81

.57

TOTALS

IU3

loo.ono)(

66.98*

266,259

100.00*

7O.U5*

State

•tmbar

Rouber

It of total

110B-tiE!gSH I'lLLS
* of total

Ho;irl3' Pro-

^ of total

* of total

of unit

of Onltt

Hon-Menber

IciH\fltry

duction Capa-

Non-tembar

In*ietry

nut.

Unit.

city. In Board Ft.

OarscltT

CaoicHT

Alabana

2.83?

.93*.

U028

3. Si

1.01

Ar1wnfla«

I.UI8

utn

i.fir

.50

riorlda

1.U18

1225

1.10

.32

Illlsoli

'*.257

1.M06

1*986

i*.l.7

1.32

XxntviclQ'

9.930

3.280

79'10

7.11

2.10

LouiBifina

U ■

5-676

i.s76
i.?)u

7891*

^:|g

1.98

Ular-ourl

!.676^-

71*70

1.98

Kortb C rollaa

7.090

^.^lt0

Ugno

1*^1

^^3

OMo "

}

U.25I*

1.4011

lC30

South Carolina

l.UlS

191*7

liru

.51

Tpureaaee

PS.371

':U1

3621*3

s?."?

1.58

TeiH!.

l.WR

1919

1.72

:§

Tlrtl..l?

'.f?6

.936

?380

2.13

Wisconsin

11.31*6

3.7'<e

15873

14. 2;;

.21

H'H "rfinl.-i

10.636

3.511

10599

5.50

.80

LocctlO'i 'jBtooTin

l.MlS

.■4cB

1122

1.00

.30

TOTALS

■+6

TOj

100.000*

33.02*

111.617

100. OPi

.^.:5*

fih

RSCAJPITnUTIO'T!

TOTAIS, Itember

L'lll.

1U3

66.98*

2c.b,2>;9

70. ^5<

totals; Son-!fe3i-

ber Mill

1)6

70i

13.03*

111.617

29.55*

TOTALS. All "ILS

'05

213i

100.00*

377.876

100.0:^

DISTRraniOB OP ULLS BY SUUBEE OP UNlTs' OPEUTIS
Hnmber of Ulllp

Total Ro. of lUUa
Vombar of Coopanla

105
95

• Claaaifiad by meaberabip or> noib-aanibershlp In tbi» Satlonal OejE Tloorlng ;i£aufacturere Aaeocl'tlon.

# Unit « flooring -rwetiina.

Sourco! Batlonal Oak Ploorlng Itorafactnrors Aaeoclatlon, Itoniphli, Tens. Data not hitherto piibllshad.
Eonrly prodMStlon oipMlty la onbaala of total 193!* production and operating ho>ir» reported
by milli. In tha ease of 6 ore--anlt and 1 tpo-rmlt ^.e: ber clll" and ^ one-^ilt and 3 t^^*"
Tmlt non-member mills tho hoiirly production ap^clty Ir n»lculaUd on the bueio of the In-
dustry eTerage unit hourly production during 1931*. <■'■ '^ being no IndlTidml record fortheeo atlu ,

9864

— Sl-i—

APFESDIX III
TABLES

9864

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Hf-«Hr4Hf-4Hf-4fHiHC\J<MCMCMCMCMnlCMCMNt<\K\K>KMO

-sao-

lABLl 17

PRODUCTIVE CAPACITY FOR
TIN MILL BLACK PLATE
BY CGPilPANIES AMD BASINp POINT AREAS:

1934

COMPANY

BASING POINT AREAS

Rnnlf

Name Capacity

% of

Sen

(Tons)

U.S.

Pittsburgh Gary

Francisco

Capacity

U.S.Stee^ Corp. 1

,007,4.00

36.50

615,300

360,100

32,000

Natlonel Steel

334,800

12.12

334,800

Behtlehem Steel

214,000

7.76

2U,000

McKesfiDort Tin

Plate Co.

100,000

6.52

130,000 .

Jones & Loughlin

163,000

6.09

168,000

TJheeling Steel

*133,000

4.82

133,000

Republic Steel

126,500

4.59

126,500

YoungstO'Ti Sheet

& Tube Co.

120,000

4.35

120,000

9 ■

Inland Steel Co.

12^,000

-^.'5

120,000

Continental Can Co.

110,000

3199

110,000

Gr.anite City Steel '

75,000

2.72

75,000

Follanpibee Bros. Co;

54,800

1.99

54,800

Robertcon Steel &

Iron Co., V. F.

45,000

■ 1.63

45,000

Canton Tin Plate Co

. 36,000

1.31

36,000

15 -

rapliineiton Tin Plate 22,600

.82

22,600

Davey Steel Co.,W.H,

. 12,000

.44

12,000

Total Capacity 2,

,759,1Q0

100.00 2

,052,000

675,100

32,000

Per Cent of United gtates
Capacity

"100.00

74.4

24.4

1.2

Source: Compiled by NatioriEl Recovery Administrt.tion from the
Iron and Steel VJorks Directory of the United States
and Canada, Aneric&n Iron and Steel Institute.

9&6,

•321-
TJLBLE 18

PRODUCTIVE CAPACITY FOR
HOT ROLLED STRIPS
BY COMPANIES AND BASING POINT AREAS:

193A

COMPANY

Rank

Name

BASING POINT AREAS
% of
Capacity 0.3. Pitts-
(Tons) Capacity biorgh

Bir-
ch icago ndngham

United States Steel Corp.

1,231,500

29.23

636,500

590,000 5,000

National Steel Corp.

603,000

U.32

603,000

Republic Steel Corp.

534-, 500

12.65

534,500

Acme Steel Co.

430,000

10.21

430,000

West Leechburg Steel Co.

2^0,000

5.68

240,000

Sharon Steel Hoop Co,

230,200

5,45

230,200

Otis Steel ^o.

135,000

3.21

135,000

International Harvester Co.

110,000

2,61

110,000

Superior ^teel Corp.

107,000

2,52

107,000

Stanley Works

92,500

2.21

92,500

Laclede ^teel Co,

90,550

2.15

90,550

Youngstown Steel & Tube Co.

75,000

1.79

54,000

21,000

McLouth Steel Corp.

50,000

1.19

50,000

Ford Motor Co.

42,700

1.01

42,700

Inland Steel Co.

40,000

.95

40,000

Atlantic Steel Co,

36,000

.85

36jOOO

Washburn Wire Co., Inc.

25,000

.59

25,000

Harrisburg Steel Co,

25,000

.59

25,000

Jones & Laxighlin Steel Corp.

. 18,000

,43

18,000

J. A. Roebling Sons, Inc.

15,000

.36

15,000

Connors Steel Co.

15,000

.36

15,000

Carpenter "^teel Co.

12,700

.30

12,700

Crucible Steel Co, of America 11,700

.28

11,700

Joslyn Mfg. & Supply Co.

10,760

.26

10,760

Universal Steel Co.

6,468

.15

6,468

H. Disston & Sons, Inc,

5,000

.12

5,000

Colorado Fuel & Iron Co,

5,000

.12

5,000

Wrought Washer Mfg. Co.

5,000

.12

5,000

Buffalo Steel Co.

4,000

,09

4,000

Highland Iron & Steel Co,

3,800

.09

3,800

Granite City Steel Co,

2,000

.05

2,000

Knoxville Iron Co.

1,500

,04

1,500

Jessop Steel Co.

1,000

,02

1,000

Total Capacity

4,214,878

100.00

2,849,268

1,308,110 57,500

Per

' Cent of United States

Capacity

100.00

67.7

31.0 1.3

Source ; Compiled by National Recovery Administration from the

Iron and Steel Works Directory of the United States and
Canada, American Iron and Steel Institute.

9S64

TASUB ^

PRODDOTIVE CAPACITI FOR
COLD ROLLED STRIPS
By COMPANIES AND BASING POINT AREAS:

1934

COMPANY

BASING POINT APRAf?

Rank Name

Capacity

% of

(Tons)

U.S.

Pitts-

Clere-

totrOMM^

Capacity

burgh

land

ter '

Cold Metal Process Co.

180,000

13.06

180,000

Republic Steel Corp.

175,700

12.73

175,700

U. S. Steel Corp.

133,800

9.71

120,400

\%ifti

Detroit Steel Corp.

123,000

8.93

123,000

Acme Steel Co,

76,000

5.52

■^yOOO

National Steel Corp,

65,000

4.72

65,fXn

Otis Steel Co.

65,000

4.72

65,000

Stanley Works

6^^,000

4.65

64,000

Test Leechburg Steel Co.

5-4,000

3.92

5VJUU

Superior ^teel Corp.

5-4,000

3.92

54,000

Thomas Steel Co.

45,000

3.27

45,000

Sharon Steel Hoop Co,

U,600

3.24

^,600

Griffin Mfg. Co.

25,500

1.85

25,500

Rotary Electric Steel Co.

25,000

1.81

25,000

Brainard Steel Corp,

24,500

1.78

24,500

Greer Steel Co,

24,000

1.74

24,000

lovmgstovm Sheet & Tube Co.

21,000

1.52

21,00d

Wallingford Steel Co.

20,400

1.48

20,400

J. A. Roebling's Sons, Inc.

20,000

1.45

20,00(>

Bopp Steel Corp.

16,500

1.20

16,500

Blair Strip Steel Co.

14,400

1.05

U,400

Newmen Crosby Steel Corp.

13,000

.94

13,000

Wickwire Spencer Steel Co.

10,400

.76

10^400

Thcanpson Wire Co.

10,000

.73

10,000

Rome Strip Steel Co., Inc.

9,000

^,000

Crescent Insulated lire & Cable Co. 9,000

9,000

Inland Steel Corp.

8,000

.58

8,000

Worcester Pressed Steel Co,

6,750

.48

^750

Wallace Barnes Co.

6,000

.44

6,000

Allegheny Steel Co.

6,000

Crucible Steel Co. of America

5,400

.39

Universal Steel Co.

4,900

.36

4.900

Athenia Steel Co.

4,000

.29

4,00(>

Buffalo Bolt Co.

4,000

.29

4*000

Carpenter Steel Co.

3,500

.25

3,500

Hind Steel Co., Inc.

2,400

.17

2,400

Driver-Harris Co.

1,200

.09

I.IQD

Granite City Steel Co.

1,000

.07

1,000

'39

Igoe Bros.

1,000

.07

1,0(X>

Alloy Metal Wire Co., Inc.

1,000

JJI

1,000

*' '- Total Capacity

1.377.950

100.00

202.800

975.200

199.9^

Per Cent of United States

Capacity

100.00

U-T

70.8

H«a-

Source: Compiled by National Recovery Administration

from the

Iron and Steel Works Directory of the United States and

Canada, American Iron

and Steel Institate.

95a

POTJCOfxn CiPiciii ie«
u'ui.: ticc ooKCma busfobciiis um
A.'jj.ia Am sisaspaDR irusi 193k

D. S.

BISIES FOUn lEUS

Pltt». terr

i ?■

United State* Stsel Coip. ^
Republic StQel Corp. 2

Bethleh^ia St«el Corp. 1

Jon«a A LAu/thlln Stoel Co.
Cnurlul.- St.«l uo. of AjoerlCA
tlalloiml Stftoi Corp.
Inl<v.d St-"*! Corp.
7)Xi<-Bt xrn Sl£et & Tabe Co.
lQtiiT;tton/vl HAnreater Co.
Jbiurlcv. Bolltne Ulll Co.
R-adlnf, Irna Co.
Colorui^ P'.isl A Iron Co.
Tord Uotoi Co.
Include Stfel Co.
SelUra life. Co.
Tl^oa Steel A ^a)>a Co.
Ov-f StAtr-« Stepl Co.
Eotnry Sl-c-.rlc Steel Co.
^rou^ht Iron Co.
Xnoxvllle Iron Co.
AnerlCAT Car A Poondry Co.
Hlleoori Sollln; Hill Corp.
EUb7 Car A PoUbdry Co.
Steel Co.
Steel Cc.

Lodcliart Iron & Steel Co.

B'^falo Bolt Co.

Judeon Kfg. Co.

W"«t Tlrgln'.a Ball Co.

Lof^as Iron A Steel Co.

Tranklla Steel ITorks

Hlgbl^id Iron & Steel Co.

FoUak Stegl Co.

Buffalo Steel Co.

Illlloc !ifg. So.

Sweats Steel Co.

I. ia't i Co.

Thedogar Co.

Joeel:.-n Mfg. A Supply Co.

Con-jore Steal Co.

T.-madlnm JUl ,s S-.:el Co.

Bancroft A U-.-.u- Soiling Uill

Texae Stnel Co.

B-or^e.! Sls^l Co,

Eeiiry Ele-ton i S'ns

Barrl"0--r£ Steel Corp.

Jaaeon Steel A Iroi; Co.

Roci^oay Boll In; Uill Co.

St. Lonls Screr i ?olt Co.

UnlTorsal Steel Co.

Imld Iron Co.

Siceto«B ?lat.i Weeber Co.

Petui Iron i St-el Co.

»ort!».rt Steel RolUa; «lll«

PirtE. Sterling Steal Co.

Vortt^m Steel Co.

Uiivale Steel Co.

lllefoeny Steel Co.

Clc Eonlnlon Iron A Steel Wot*e

fllkee Rolling Ulll Co.

BaltUore « Ohio R.R.

?lcjce;re Bras.

Simonde Saw A Steel Co.

Fboenlx Inn Co.

.S31.8OO

.O'tr.OOO
.550.100
BlU.lOO
1491.600
365,750
315,000
309,000

275-000

236,600

131,050

121,000

117.600
UU,00O
100,000
93.033

83.800
80.000

75,000
7'!. 600

72,000

70,000
ju.ooo

52,500

50,000
50,000

59.100

119,000
Us, 200

■17,000
115,000
115,000
i|ii,500

l|O,000
32.000

30.000
30,000

25,000
211,000
22,200
21,000
20,000
18,000
18,000
16,000
15.300
15,000
15,000
15,000
15,000
15,000
15,000
13,200
12,000
12.000
12,000
11,900

9,100
9,000
5,iioo

5.1100
5.000
5.000

3,750

2. Son

30.08

16.61

12.62
6.611
ll.Ol
2.98
2.57
2.52
2.2U
1.95
1,07

1,199,60a
25,0«>

9118.700
nU.ioo
><09,8oa
29,750

315,!
IP,'

966,000
336.000

6711,000 5,000 21*6,300

1130,000 3'^i,ooo

1160,000 79,500

75.000
72,000

2ll,000
20,000

15,000
15,000
15,000

9,100

5,100
5,1100
5,000
5,000

'v,COC

35.000

121,000

83,800

7».Cae

10.000

118,200

32,0CO

25,000

11.000
16.000
15,00c

letel Capacity

■, 033,500 l,W».300 1,377.033 5I16.200 17^,000 ,

1.579,200 1,539,600 1,022,150 I3f.roo

Percentage of U.S. Capacity

1.1 l.U 1.2 1.0

gtsb*

Sourcpt Compiled by Hatlonal Becovery IdiBliil it ration iron
Ir^D and Sttel Toricc Directory of the (fclted StAt*
and C:ir.&iA, i;Drrlcaii Iron and Steel lastUute.

31 !

^ 5

.J5

V4 CO «-«

° .3

d S'

5 vj> ifMr\

<n r*" vo

i^r-to H ri <u (^ ir> ^- o\ ff\ (r> ^-vj) 4
K^Kl^-rHHa^o^l-l<o^J(^tl-<opq

3 »n

KScftr<-\M H rM H

& '^ 5

• o m a r

CO o

ra r4 irl o d

O rl O -a rH

■ •> jd r< «

• <tf W) fl i-l c

*> m p 3 q **

C a h M CO

-tf a >4 i-i

^ a ^ o fl

• >-< ■ a ^ o

4> A • C h •<

^ 4> d o o -p

a V o f a «

p m n (V, ^ f=

5\ .S

• o O h

to o q

« a d

ate u ,
6 °

ri P f-t

d .o o
t-i H o •

I.SS.

' l-l o

I ■*»

« «Q

^B:::

■ H r-f
I O O

4 i

I w K\^ iTxjj r— «o <rv o f-i c\i p-w* if >

r4 f-l H H «

I—

f-i

•

OJ.

Jj-

j»

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■^

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-«*

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■p "

Vl CO -H

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9864

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tOCVvOvDOO«AC\iC^O

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O O O »r,

c^ to r^ lA (

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(D (U Q)

5.^

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0) 0)

pi CO

■p p

CO CO

to H

-P

(1)

(D t§

•P

CO
CO

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to

0»

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clede

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|=> {H "-a CQ rt ^

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S -P

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g-s^

•H -P -P

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ery

tory
and

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Iron

'^^S

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-326-

TABLE 23

Rank

Name

■ PRODUCTIVE CAPACITY FOR
PIPE At^D TUBULm PRODUCTS
BY COLIPAUIFS AND EASING POI^IT AREAS: 173^

caa^im basing point arfas

Capacity % of
(Tons) U.S. Pitts- Gaiy
Capacity

Bar>e
Lorain , . Unknorn

U. S. Steel Corp.

2,?U,800

26.81

1,103,000

571,000

670,000

Youngstowi Sheet & Tube Co.

1,313,000

15.07

933,000 385,000

A. 0. Smith Corp.

950,000

10,86

950,000

Retfublic Steel Corp.

7A2,o;;o

S.49

742,000

Jones & Laughlin Steel Corp.

636,000

7.26

636,000

Spang, Chalfont & Co., Inc.

525,000

6.01

525,000

Pittsbiargh Steel Co. .

300,000

3.42

300,000

mieeling Steel Corp.

276,000

3.16

276,000

Central Tube Co.

236,100

2.70

236,100

Timken Steel & Tube Co,

211,000

2.47

211,000

Bethlehem Steel Corp.

199,000

2.28

199,000

Clayton Mark & Co. "

126,000

1.4A

126,000

'3 Reafling Iron fJorks

lLi.,000

1.30

114,000

A. H. Byers Co.

85,800

.98

85,800

Wheatland Tube Co.

84., 000

.96

84,000

Steel & Tube, Inc.

69,500

.79

15,000

5^,500

South ChestfT Tube Co.

62,000

.71

62,000

Pittsburgh Tube Co.

58,500

.67

58,500

Globe Steel Tube Co.

54,000

.62

54,000

Fretz-Jiloon Tube Co., Inc.

50,000

.57

50,000

Mercer Tube & Jifg. Co,.

50,000

.57

50,000

Ohio Seamless Tube Co.

43,000

.55

48,000

Laclede ^teel Co,

40,000

.46

40,000

Cdhoes Rolling Mill Co.

30,000

.34

30,000

Babcock & V/ilcox Tube Co.

26,450

.30

26,450

Detroit Seamless Steel Tube

Co. 25,800

.30

25,800

Allegheny Steel Co.

17,400

.20

17,400

Taylor Forge & Pipe T-'orks

13,200

.15

13,200

<-^^'

z.9Americ8n Concrete & Steel Pipe 12,500

.14

1-^,500

3~0

Vest Coast Pipe & Steel Co.

12,000

.14

12,000

Rome Mfg. Co.

10,000

.11

10,000

Michigfji Sea iless Tube Co,

6,000

.07

6,000

ShcTon Tube Co.

5,400

.06

5,400

Steel Tank & Pipe Co. of Ore

gon 1,500

.02

1,500

Irvins' Steel Tube TJorks, Inc. 1,350

.02

1,350

Total Cepc.city

S,7/-l. 300

100.00

5,560.000 ;

2,140,000

1 1,015,3 jO 26.000

Per Cent of United States

Capacity

100,00

63.6

2-4.5

11,6 ,03

SouT-ce: Compiled by N.-.tionrl

Recovery Adininistrr

tlon from ■

the

Iron and Steel TTorks

Directory c

^f the United State

s md

Canada, Ajnerican Iron and Steel

Institu-t

/£■ •

98B4

-327-^

TABLE 24

PRODUCTIVE CAPACITY FOR TIN PLATE AKD TEHIJE PLATE -
BY COLIPAKIES A^ID BASINC POINT AREAS: 1934

COMPANY BASING POINT AREAS

Rpnk Fpme Caioacity ^ of San

(Tons) U.S. Pittsburgh Gary Francisco
Capacity

1 United States Steel Corp. 879,200 33.00 512,600 335,200 31, 4^0

2 National Steel Corp. 297,000 11.15 297,000

3 Continental Can Co. Inc. 244, OOO 9.15 144, ooo 100,000

4 Bethlehem Steel Corp. ?,0O,00O 7.50 200, ooo

5 McKeesport Tin Plate Co. 180,000 6.76 180, OOO

6 I'Theeling Steel • Corp. 150,000 5.66 150,000

7 Republic Steel Corp. 142,700 5.36 142,700

8 Jones & Laughlin Steel 142,000 5.33 142,000

9 Youngs town Sheet & Tube 12^,000 4.50 120,000

10 Inland Steel Co. loo,ooo 3.75 lOO.ooo

11 Granite City Steel Co. 63,000 2.37 63,000

12 Foil anr,bee Bros. Co. 52,200 1.96 52,200

13 TJ. F. Robertson Steel &

Iron Co. 45,000 1.69 45, OOO

14 Washington Tin Plate Co. 26,0O0 .98 26,000

15 Caiton Tin Plate Co. 22,300 .84 22,3^0

Total Capacity 2,663,400 lOO.oo 1,913,800 718,000 31,400

Per Cent of United States

Capacity lOO.o 72.0 25 iS 1'.2

Source: Compiled by National Recovery Administration from the Iron and
Steel Works Directory of the United States and Canada, American
Iron and Steel Institute.

9864

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_ fi ••• •

"ti .o 01 J5

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■H ♦» iH M

E"3'

&"*

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rH rj e iH •»» *

5 fl » o CO .a I
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• J1 q to

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-331-
TAPT.E at
Midlan ivvang* ftta* of Oapaeltlaa and Pereantage
of ladvatxy Cftpaeltjr of Iron tad Steel Oeqpmlee

ProdMt aiae

ja yptf of Pf w
151,000

Tig Iron

Steel Ingots ft Steel
for Gestlng

1U,800

Bloeae, HLllete, Sleba

240,000

aieat k T1& ELate Bars

179,000

Sheets

93,000

Hot Belled Strips

36,000

Celd Rolled Strips

16,500

Tin mil Black Plate

120,000

Ha Plate

142,700

■irehaat Bare

a,5oo

StmetTiral Sbspw

60,000

Plates

108,000

Wire Rods

90,000

Plain Wire

15,000

Wire Prodticts

68,500

Skelp

240,000

Pipe & Tulralar ProdTiots

62,000

.29

.20

.49
1.93
1.28

.85
1.20
4.35
5.36

.36
1.15
1.80
2.03

.37
2.81
6.03

.71

Semrcet Coaplled hy W.R.A. froo Iron ai^ Steel Works Directory of the
U» S. end Canada for 1935, Aserlcan Iron and Steel Institute.

9864

^1-

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:ll

5-5 2

5 5

e • 4*

H r-l CO

• ■

4> ■

111

CO p m

s m pj

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• ■

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§■■11 h
o g o

•833-

Oonparativc Industry Position of Uoltiplo Hill
and Single Uill Companies

yrodaet

HDlti- No* of
pie Plants of
fotal Uill Ualtiple
Compazv- Total Compan- Uill Com-
Asa M^liVf \W fiflBl£S

ii of V, 8.

Ospaclty
Controlled
ty Molti-
ple Com-
PflBlggi

Pic Iron

115

Steel Ingots & Steel

for Casting

128

BLooffls. Billets & Slabs

Sheet A Tin Plate Bars

Slieets

Bbt Boiled Stripe

Gold Boiled Stripe

Tin Mill Blark Plates

Tin PUte

Uerdbant & Concrete

Beinforcing Bars

112

Structriral Shapes

Plates

fire Bods

Plain fire

fire Products

Skelp

Pipe & Tubular Prod.

Steel Bails

82, 87

80.08
82.39
79.92
73.87
58.53
27.09
58.03
64.32

82.56
89.13
60.55
54.35
53.52
51.64
84.28
60.01
82.05

SOOBCS: Compiled \ij DBA. from Iron and Steel Works Directory of
the XlQited States and Canada, for 1935.
Merican Iron and Steel Institute*

9864

i34--

TABLE 31

Distrilution of Iron and Steel Com-nanies "by the Number
of Major Products rroLUced: 1934

N-umber of Products

IMlTi^ERS OF C0M7ANIES
Including Pig Iron Excluding Pig Iron

144

101

Total 232

NOTE. Froducta used as a basis for comparison are:

Iron

Steel Ingots & Steel

for Casting
Blooms, Billets & Slabs
Steel & Tin Plate Bars
Sheets

Hot Rolled Strips
Cold Rolled Strips
Tin iviill Black Plate
Tin Plate

Merchant & Concrete 'Reinforcing

Bars
Structural Shapes
Plates
"lire Rods
Plain Wire
Wire Products
Skelp

Pipe & Tubular Products
Steel Rails
Cold Drawn Bars

Source: Compiled from Iron and Steel Works Directory of the United

States and Canada for 1935. American Iron and Steel Institute,

9364

fiSLK-32

KatHBtry Position of the Flv« Larsiet St««l COttpdnies: L934

U. S.

Beth-

Rei»>-

Jones &

Young »-

Total

Steel

lehem

lie

Laoghlin

town

i of

Corp.

Steel

Sheet &

U. 8.

Corp.

fabe Co.

9i€ Iron and

40.61

12.00

7.21

f.65

(it 65

71.12

ferr* Allojrs

St«el Ingots

3B.25

^.09

8.57

5. IS

i>36

69.42

& Steel for

Casting

Blooms Billets 33. 83

19. Qt

7.40

5.28

».56

73.68

Slats

Mtrchant &

30.08

12.6e

16.61

6.64

2.52

66.47

S.I. Bars

Plates

48.06

12.49

5.49

S.34

1.80

T1.18

Structural

44.33

36. 8T

....

«.78

1.16

8e.l3

Sba.-p9u

Sheet Bars

35.90

11.37

11.44

1.87

1».97

76.55

Sheets

18.67

4.11

11.17

.17

•.9T

41.09

Hot Soiled

Strips

39.23

....

12.65

.45

1.79

44.10

Cold Rolled

Stripe

9.71

....

12.73

....

1.52

23.96

Wire Hods

46.50

7.J3

2.35

6.63

3.25

66.06

Plain Wire

40.52

4.54

.94

4.87

2.46

53.33

fire Products

42.21

3.66

.26

5.06

2.91

54.11

SiDBlp

48.80

6.67

6.03

10.64

16.28

87.42

Pipe & Tulju-

26.81

2.28

9.27

7.26

15.07

60.69

lar Products

Tin Mill

36.50

7.76

4.58

6.09

4.35

59.29

Black Plate

Tin Plate &

33.00

7.50

5.36

5.33

4.50

55.69

Terne Plate

Source: Con^iLed by HHA from Iron A Steel forlcB Directory of the U. S. and
Canada for 1935, .American Iron and Steel Institute.

9864

^986

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lABJ 36

DDKUS GPSEASONAL VARllTIOl TOR tfKSlEQATE lEimniT
PRODDCnCW OF FIG IRQIJ O EACH Of THE SEVERAL
DISTRICTS AND HI IHE EBTIRE DNITED STATBS

Sap,,

Feb,

J&UlL

Apr. Mav

Jme

July Auff.

S»Dt.

,, 09t.

Nov.

Dec.

Italted Sta^8 (Iqt(^;y

105

102 104

v»

10^

100

Lehl«fa

102

104

103 104

105

10/,_

101

.SnhiiylVm

101

108

104 io«

100

'^'>

102

Soaqiiehazma-Lebanon

101 108

103

102

104

106

100

New Jersey

103 108

101

103

107

100

J.04.

100

Pittsburgh

106

101 102

100

101

106

Nev lork

105

103 107

103

102

100

■^stem Pennsylvania

IDA

103 104

101

100

104

•jhenango

9-t

103

102 101

102

108

Mahotting

106

100 104

100

102

104

Central and Northern Ohio 98

107

99 101

100

102

100

Southern Ohio

105

100

104 106

101

105

Wheeling

107

101 101

101

104

Maryland-Virginia

104

101 106

106

103

101

Tennessee

100

106

101 102

104

101

Alabama

103

98 99

106

104

106

Illinois-Indiana

101

101 106

103

104

103

luo

102

festens*

106

100

112

108 105

104

* Hiohlgan, Minnesota, Missouri, Wisoonsin, Colorado, and Utah.
yoroet H. B. Vanderblue and W. L. Cmn, The Iroo Industry in Prosperiiy and Depression

9864

-840-

A o

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9864

TABU S9

LOCATION or BASING POISTS FOB IRON AMD STIEL PRODUCTS

•{

a
1

■a
s

1
1

:
1

3
1

I
1

a
s

3
1

■i

5
1

1 1

BASI

Plttrturgh

"T"

"7"

"T"

X z

Chicago

X X

BlriDlnghao

ClSTflMd, 0.

X X

Bulutfi. Ulna.

Oulf Port!

Pactflo Coast Port*

Buffalo

Canton, 0.

Uaesllon. 0.

Bothlabon. Pa.

Oary, Ind*

romig«town. 0.

Troy. ». r.

J-rsey City. S.J.

DOTep, Va.

Rockairay. H.J.

I^ladelphla, Pa.

Columbia, Pa.

Lebanon, Pa.

Beading, Pa.

Danville, Pa.

Bfrwlclc, Pa.

Bumham, Pa.

Orelghton, Pa.

Rlchraond. Va.

Cuyaboga Palle, 0,

loui .Tills . Sy.

Terre Haute, Ind.

Uollne, 111.

Syracuse, H.T.

Hen Toric, H..T.

Baltimore. Ud.

Palmerton, Pa.

X ■

Lorain. 0.

Steel ton, Pa.

Shelby. 0.

Detroit. Mich.

Ullnukes, tls.

HsTllle t Bland, Pa.

Sh«rp«»ille. Pa.

Erie, Pa.

Swedoland, Pa.

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^ B B B E B

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B B B B

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!CAELE 47

CX)I.IP.AEATIVE GEOGEAPHIGAL PRICE MOVE:.IElT'rS OP
lEOK MD STEEL PRODUCTS

Sheet Bars

ollars^

psr gross

tonj

Pitts-

Yoxmgs-

Pitts-

Yoimgs-

Date

"bur^.

Date

Irar^.

toim.

Cleveland

12/30/19

50.00

(*)

3/13/23

45.00

(♦)

2/ 3/20

55.00

4/ 3

42.50

2/10

58.00

4/17

45.00

2/17

60.00

6/19

42.50

3/ 2

65.00

9/18

40.00

3/23

70.00

10/ 9

42.50

3/30

80.00

4/29/24

41,00

41.00

6/22

75.00

5/13

40.00

7/13

70.00

7/15

38.00

8/17

68.00

8/26

37.50

9/14

67.50

9/15

37.00

9/28

65.00

12/29

38.00

10/12

62.50

3/51/25

37.00

11/ 9

60.00

5/19

35.00

' 35.00

11/23

55.00

10/13

33.50

11/30

47.00

11/ 3

35.00

2/15/21

42.00

11/24

36.00

3/ 8

40.00

3/ 1/27

34.00

3/22

38.50

5/24

33.50

3/29

38.00

7/19

34.00

4/19

39.00

5/29/28

33.00

7/5

35.00

7/ 3

32.00

7/26

32.00

10/ 9/

33.00

8/23

30.00

10/16

33.00

9/27

32.00

1/ 8/29

34.00

10/11

30.00

2/26

35.00

1/ 3/22

29.00

4/23

36.00

36,00

4/ 4

31.00

6/18

35.00

35,00

5/ 9

35.00

12/17

34,00

8/22

.37.50

12/24

34.00

34,00

8/29

38.00

2/ 4/30

33.00

33.00 .

33.00

9/ 5

40.00

5/27

31.00

10/31

39.00

12/23

30.00

30,00

30.00

11/ 7

38.00

5/19/31

29.00

11/28

37.00

■ 1/ 5/32

28.00

28,00

28.00

12/ 5

36.50

1/12

27.00

1/ 9/23

37.50

l/l9

27.00

1/30

39.50

2/ 2

26.00

25,00

2/13

40.00

2/23

26.00

3/ 6

42.60

42.50

(continued on the following page)

9864

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( continued from the preceding page)

Pitts-

Youngs-

Cleve-

Sate
<Bl5lZZ

■buTfih

town

land

Buffalo

Canton

Sparrows Point

26.00

(*)

9/19

26.00

4/24/34

30.00

7/10

28.00

28,00

28.00

11/12/35

30.00

30.00'

30.00

1/ 9/36

Source: Compiled from weekly quotations in the Iron Age.
Hote: Only quotations which represent a change from the preceding
price are shown.
(♦): No quotation was reported.

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TiBLI; BO

COlffARAIIVE GiX)GiUP:iIGAL PRICE !,:OVELffilWS OP
ISOi: AlID STEEL PilOIIUCTS

Tin Mill Black Plates
(Base, cents per -oound)

Date

Pittsburgh

Chicago

Date P

ittsljurgh

Chicago

12/30/19

4.35

(*)

10/14/24

3.40

3.60

1/20/20

4.60

11/25

3.70

2/ 3

5,00

12/ 9

3.50

3/ 2

5.50

12/29

3.50

7/13

6.50

2/10/25

3.50

7/20

7,50

3/17

3*40

9/28

7.00

4/1

3.60

10/ 8

6.75

5/ 5

3.50

10/26

6.50

5/12

3.30

11/ 9

6.00

5/26

3.20

11/23

5.50

6/ 2/25

3.15

11/30

4.85

6/ 9

3.25

12/ 7

4.35

6/23

3.10

2/15/21

4.20

7/14

3.15

4/5

4.00

9/ 1

3.10

4/12

3.35

9/22

3.30

4/19

4,00

10/13

3.25

6/ 7

3.85

10/27

3.15

6/28

3.75

11/ 3

3.25

3,35

7/ 5

3.50

12/ 8

3.35

3,45

7/19

3.25

4/27/26

3.25

7/26

3,00

6/ 1

3.15

8/23

2.75

6/22

3,35

9/27

3.00

7/13

3.25

11/ 8

2.90

8/24

3.10

11/15

2.75

9/14

3.15

11/29

3.00

9/21

3.10

4/11/22

3.15

1/18/27

3.00

8/15/

3.35

2/ 8

3,10

2/ 6/23

3.50

3/29

3.05

2/13

3.35

5/10

3.00

2/27

3.50

6/28

3.10

3.20

5/ 1

3.85

10/11

3.00

■

6/ 3/24

3.75

10/22

2.90

3.00

7/ 1

3.65

12/ 6

2.85

7/15

3.50

12/27

2.90

9/9

3.40

2/21/28

3,00

3.10

98b4

(contimitd on the
following page)

-384-

(Contlmied. from the pre ceding; page)

Pacific Coast Ports

late

Pittsburgh

Chicago

foh. cars dock.

4/ 3/28

2.90

3.10

(*)

6/12

2*80

6/19

2.85

9/11

2.90

10/16

3.00

12/11

3.00

1/15/29

3.10

7/23

2.90

8/ 6

3.00

3/11/30

2.85

3/18

2.80

4/28

2.90

5/37

2.75

7/22

2.70

2.80

11/ 4

2.65

2.75

12/29

2.6G

2/17/31

2.55

2/24

2.65

3/18

2.50

2.60

5/10

2.40
2.30

2.50

10/11/32

2.40

10/25

2.30

2.50

12/27

2.40

1/24/33

2.20

2.30

■

2/14

,2.30

2.40

6/27

2.50

2.60

12/ 5

2.65

2.75

4/24/34

2.85

2.95

6/12

■

3.35

7/10

2.75

2.85

7/17

3.25

8/14

■

R '

3.35

1/ 7/36

■

^ H

SoTireei Obn^iled from weekly quotations in the Iron Age.
Sote: Only quotations i^ich represent a change from the preceding
price are shown.
(*): No quotation was reported*

9864

-385-

TABLE 51

COMPARATIVE GEOGRAPHICAL PRICE MOVEMENTS OF
IRON AND STEEL PRODUCTS

Cold Rolled Strips
(Cents per poimd)

T?orcester

Date

Pittsburgh

Cleveland

Chicago
Del'd

12-30-19

5.50

(-)

(*)

1- 6-?.0

6.00

2-3

7.00

U-n

8.50

11-9

8.00

12-7

7.00

12-21

6.25

>;-19-21

5.50

6-28

5.00

7- 3

u.n5

7-12

A.25

8-16

A.oo

10-18

3.75

11-15

4..00

1-3

3.50

u--^

3.65

5-30

3.75

6-6

A.oo

8-29

K.25

10- 3

^.50

2-13-23

-4.75

3-6

5.00

k- 3

5.25

■

6-26

5.00

12- A

4.90

12-11

4.75

12-2A

5.00

2- 5-24

4.75

5-6

4.50

7- 8

4.25

8- 5

4.00

9- 30

4.00

(*)

Continued on following page

9864

-386-

Date Pittsburgh Cleveland Qilcago Worcester
^S^

10-U 4.00 A.OO 4.30 4.15

11-25 " 4.15 4.45 4.30

12-29-24 5.60 " 3.70 "

1-13-25 4.00 4.00 4.45 ■

8-24 ■ " 4.30 •

8-31 ■ " " 4^15

5-5 ■ 3.75 4.05. "

5-26 3.75 " " 3.90

6-2 3-65 3.50 4.00 "

6-9 3.50 " 3.80 "

6-23 "- 3.40 " "

7-7 " 3.50 " "

7-21 3.75 3.75 3.90 "

8-18 • " 4.05 "

10-27 ■ 3.90 " "

11-3 3.90 " 4.20 4.05

4-13-26 3.75 3.75 " "

4-20 « 3.50 " "

4-27 " 3.75 " "

5-11-26 ■ « 4.05 ■

6-15-26 "3.60 " «

6-29 3.60 " " "

7-6-26 « " 3.90 "

7-27 ■ 3,H0 " "

8-3-26 ■ ■ 3.75 3.75

8-17-26 " « 3.90 "

8-31-26 3.50 " 3. 80
9-7-26
9-2J.-
10-5-26

10-12 ■ " 3.55

10-19 " 3.15 3.45

10-26 " « 3.35

11-2-26 ■ " 3.45

11-23-26 " • 3.40

11-30 " 3.00 "

12-7-26 3.10 " "

3.50

p _

3.50

3.25

Continiied on following page

9864

-387-

Date

Plttsbiir^ Clereland Chicago
__^ Del'd

Worcester

12-U-26
1-^5-27
3-15-27
5-10-27
6-21-27
9-20-27
9-27

10-18-27

10-25

11- 1-27

11- 8
11-22
11-28

12- 6-27
1-29-28
3-27-28
6-26-28
7-2A-28
8-21-28
8-28-28
9-11-28

10-25-28
11- 6-28
2-19-28
2-26-28
3-19-28
l-7-?0
1-21-30
1-28-30
3-18-30
3-25-
-^-28-
5-6
5-20
5-27-
8-5-
10- 7

3.00

2.80

3.00

3.25
n

3.00
3.25
3.00
3.25
3.00

2.90

2.65
n

2.75

■
a

2.75

■

2.65

2.55
n

2.-^5

■

«
2.35

3.00

3.30

2.85

3.15

3.00

3.30

3.25

3.55

3.00

3.30

3.25

3.55

3.00

3.30

3.15

3.55

3!i00

3.A0

3.30

■

3.20

3.30

2.90

2.65

2,95

2.75

3.05

2.85

3.15

2.95

2.85

2.75

3.05

2.65

2.95

■

2.55

2.85

2,k5

2.75

2.73

2.35

2.63

3.75

3.^0
3.15
3.40
3.15
3.40

3.15
3.25

3.15

2.90

3.00

R
B

2.90

2.80

2.70
2.60

2.50

9864

Continued on follovring page.

-388-

Date

Pittsburgh

Cleve.! anci

Chicago
Del'd

Worcester

11-25-30

2.25

2.53

2.50

3-31-31

■

•

2.40

A-28-31

2.15

2.-43

2.30

10-27-31

2.05

2.33

■

11-10-31

2.05

■

11-2A-31

2.20

12-15-31

2.00

•

1-5-32

1.95

1.90

2.35

2.15

1-12

2.25

1-19

1.90

1.85

2.20

2.05

3-15-32

2.00

2.30

2.20

9-6-32

1.90

9-13

1.90

2.20

11- 1-

2.00

2.30

■

1-3-33

1.90

2.20

1-24-

2.05

1-31

1.80

2.10

2-7

2.00

2-U

2.20

5-23

2.00

2.30

2.20

5-30

1.80

2.15

9- 5

2./+0

2.A0

2.68

2.60

k'lk

2,80

2.80

3.08

3.00

7-10

2.60

2.88

2.60

7-17

2ii60

1-8-35

2.80

4-23-35

2.895

1-7-36

■

Soiirce: Compiled from weekly qxiotations in the Iron Age.
Note: Only qviotations ■Bhich represent a change from the
preceding price are shown.
(*) : He quotation was reported.

9864

-389-

o
a CO

M O

Q)
P.

+> -a
o o

Pt<

•H

4h 43

•H

h M

(0 (X.

•0

U H

.^.^

•0

•H H

-d

+?fl

■p ^

)^BCBB>SCBC«EB

)|eCBB«ECBMBBBS»KIIBa»|i«

cv t- f- oi c^ c^ to too

#BBBBBBiBBBB8 BBB*

J^BEBBCBBBBB

B B B B ■ » ■

>|c B C B B B B

B B B B B

)|C B B B B

>^ B B B B B

>f\«f\0 O >r» O

•>*i^C^ O CV H

• • • • • • • I

N oi c\j .c»> r'^ cf\

B B B B B B

B B B 8 B

O C^ I CVnO ~*-*H O^ CV O C «> W H O^t0vO>O o o

iiiiiiiijiiTiiiiiiiii
c^fHc^i<»^c<^lf\eotoo^j•^•^c^^c\i r^-*>c t-w to &■

9864

-390-

Gulf Ports

F.o.b. Car

Docks

•H a •

New

Tork

Del'd

Cleve-
land
Del'd

a
«

•H O

itc B n s « « K

BBfcBCecCB

BKBBMBBEBBBBBBCCeB

%B'(I«BBBBBB«BB|IBBB,BBBBBBEBB

ifCBBBBBBBBBBBBBBBBBBBBBBBBBB

lf( B « B B

B B B B

BBCBECCESB

ijCBBBBBBBa BBBEB8BBBCBBBBBBBBB

iftEBEBBBBBBBBBBBBBEESBBEBBBBB

}|CSBBBBBBBBBBBBBBBBBBBCBBSEBB

J|CBBBBCBBB88BBBB

c^B cv rf\ cv
. • ...

HHHHHHHHHOiC^^«VC^iO^C^^C^iCVCMCVC^^C^iCVC^iC\iC\^ CV

W <V ~* CM CV

I I r3 I I

I O CNj r^ -4 >ri c>- to eo H c\j cj (*N rN -* c«^ -4- ■>* >r> c^ t- p q H oi H -*

9864

o • ,M

P^ ,0 o

• a

44 o o

•H W CH
<U +> •
•H h .H
O O •

cd Pk o

T3
^ -y -
0) O 0)

a H o

PQ H

o o

-391.

X(BBBCECBCCCBKBCBBP«BCBC|:eCB

^BCBCSBBBBKBBBBBBBBBBCBBCBa

O lA «A o «r\o »fx

:t<B (B ••BBBBBE (BB ••* •BBCEBBBB

;$^

;:! ^

«j- O^ -^^ g^
o3 o O CT^

**= r-}

BEBBBBBBB

CV C\J cv cv tv

OB O^ 0^ CT-

• • » • •

BBBBBBEBBBBBBEBBBEBEBBB

'-^o ooooh o cr>

^e •SBEBB ((B '(B •SBBBBBB (BEE •

— ' c\i Hcvcvrvfcv cv H

BBBBEBBBBSEBBBBBBBBBB aBBEB

00 O

••BEBBBBBB •EBBSBBBBEE

OJ H Oi

g s

E • B

vO vO nO vD
(M Cv! CV CV

I I

I OI>-4H>Av£)C%OC^-<f >r»c~- C^-d->rNC0t0ir»IO »*H

OtOHHCV HOiCMCV rlHCNiC^HfV CJHOiHHt^r-HCvi

C7>H I I I I I I I 1 I I I I I I I I I I I I I I I I I

I I H H H C . H r^ (^ -4--4- W->vO \0 r-CO CO to O CV H H CNJ >rv\0 vO-tO

SO to rH H H iH

9864

-393-

O • 10

Is
si

o •

Jj 4» *^

O O •
bJPliO
Pi

New
York

Cleve-
land
Del'd

a> H
m H

•rt O

3
^

H H Ol CV

XJ Q m

s» s ;?? ^ f 3

••■■ (BBB '^BBB (BBBBB •& (EBBBB

HHCX <\iCV (V OJO/

^?. . ^. . . ^.^.B . B ^B ^.B ^.°.^.B ^.B °.B . B

S^ ^ g^ ^ S ;?

•BB •BB*BBBBBB«BBSeBB •BBB 'BE

H H H tv a C^

v\ Q >r\ o u^

4<BBBBBBBBB 'BB (BBEBB (B (BBB (B

•-^ H W CNJ (V OJ

O iTi O O >rv >ri o

a«BBaB•BB(^BB•OrHBOBBBHBBBBB EM

• • • • • • •

Ba^BBtt)BB9«BBBBOO>aOBEBBBOBBEB

• ••• ••• •

CVHHH CVHCvi CV

if* O »ri Q ir>

t^BBBBBBBOOBBBBtOSBBEBCNBBBBBONB

• » • • ,
H H H H H

7 I ** ^

to CSvO O C^ rH <S WN>0 ff\ p t- II to j"

JLAJLJ.JJ. I. I • I I c\!cr>c--(\cvNHJj Hcvw cv

>O«)t0<J^0>>Or-lrHfVC\JrVCVI I I I I I lOOCil I I I I
H(-4HHrHr-iHHHC«iCVr>>r\t-HHHC\it\«^~*eO

9864

-393-

1^ .a
• o
o o

•H D
O O -H

as PL, •

a> o »
;ss HO

« 3 0)

H H O

* C

o o a«os

H H H

ir» m >r\ «f\ >r\

r'^ a i-i oi t-t

C\J W C\J Ol C\i

H(«

s ff 1 If

« s

to to

>BBBB ••& (BBBB (BBB •B«CBIIB *BB •
0< CVMCVJ H HH i-liH

Htol H|(M HW

• B S B •& B (B B B B (B (B • » tt B (B B 6 B •(
Oi NC\J H <-i r-i r-\ r-i H

H o o o^ ^ to

*6BBBB (BB (BBBBBB 'BBB aBBBB •!

O S O^

• B M (B B B B 6 (B •& C B (B •« (B B B B B C C

CV C\i rH H H H H

'6BMBB •MBBBUB

in o «A
C- t- nO

I CS O^ O^ CA

o^r^<^JwHf<^Ll-l«o«)m_u^o^ cno ■>* won CSO^nO

n'7cic!,c!.J,cVT7-7T71'n'71'T7?5'^7 7Xn'T7

O^O^HHHHHH.HHP>«»N-4--4-<l->n«nv\vON£)I>t>-t>-«>t0C0«0

9864

-394-

•

OJ (i4

•H

CO Vl

h -H

PL.

pL. O

■O

TJhi

B H (=>!

•H

Ph Q|

■d

•O

O H«J

m H|

^ ■

1
cd

•rl

-p

•H

■P

4l B C B B B

CSCBBBBBB8 BBCCBEB

*<:CC •BBBBBSECB^BBvO'>OEBBBt^C

• BSB8BCB BBB •BBBBBBBC BB tBEB

C\i CJ W

OOtOB B ObB B B B8 BS BtOtOBtOC^t^C^BS «I}B E

HH H HHHHHH '"'

Hlc»-i|cj O^ Jw O

vOr-lvp H0N->t-*S-4-

vOt^BS C^BBCBBBBBBC^vOvOBBvCtrNBEt^B E

HH H HHHHH H

H|01 H|N HIpHN HltM t-t|(M C^ f^ rr\ C<^ (^

to f^ t»<n eo to oo Qoo

t~-CBECOBBt^tOBBBBt^BB>i5BBC^C^SsCOt~-tO
H H HH H H HH HHH

>r> p ■ if\ O «ri O O

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CO to D- to t>-

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B B B v£> B

C~\ H I

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a^ o^ (T^ i-\

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Till

9864

•^95-

ho I

• ^

fi o

CS ft^

o a

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M «M

4> •
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C>i Oi CNi

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C~- »n»r\ir\v\ >r\ i-iv\

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CO (y-tOO^ HbbOceOCb

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CVJ

cv cv

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to «0 O^ O O O

r^ vfN la >rv c^ m

OEBBtOBSE(<>Btt)BBBOO^C

to to o o o o

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t^ to o

• EBB 'EBBB (B •BBBBB

C^bbbCObbbeCbcSb bbbb

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9864

-896-

TABLE 53

OOIIPARATIVE GEOGRAPHICAL PRICE MOVHEHTS OF
IRCW AHD STEEL PRODUCTS

Galvanlged Sheets

(Base, cents per

pound)

Pitts-

Phila.

Bate

biirg^

Pate

lbfm*rt^

Chicago

Del'd

12-30-19

5.70

9-27-21

4.00

(*)

1-20-20

5.95

11-8

3.90

2-3

6.50

11-15

3.75

3-2

7.00

11-28

4.00

7-13

8.00

4-11-22

4.1^

■

7-20-

9.00

8-15

4.35

9-28

8.50

2-27-23

4.60

10-8

8.25

3-20

5.00

10-26

8.00

11-6

4.90

11- 1

7.75

11-20

4.85

11- 9

7.50

12-11

4.90

11-16

7.25

1-15-24

5.00

11-23

6.70

3-11

4.90

11-30

6.00

4-15

4.80

12-7

5.70

5-20

4.75

2-15-21

5.50

7-1

4-60

3- 1

5.25

4.50

3-15

5.00

8-18

4.60

U' 5

A.75

9- 9

4.55

u-iz

4.60

9-16

4.50

■n

A-19

5.00

10-14-24

4.50

4.70

6-28

4.75

11-25

4.50

4.80

7-5

4.50

12-2

4.60

4.85

■

7-19

4.25

12-9

4.75

7-26

4.00

3-10-25

4.65

8-23

3.75

4-17

4.60

Contimied on the following page.

9864

-397-

Continued from preceding page.

Date

Pitts-
burgh

caiicago

Phila.

Del'd, Birmingham Cleveland

3-31-25

A-21-

A-28-

5-5-

5-26

6- 9
6-21

7- 7
7-U
7-21
8-11

lQ-27

11-3

11-11

11-2A

12-8

1 -5-26

1-26

4-20

4-27

5- 4

'i-lB

5-25

6 -1

6-22

6-29

7-13

8-10

8-17

9- 7

9-14
10-19-26

1- 4-27
1-11-27
1-25

2- 1
2-15

4.50
n

4.40
4.30

4.25
n

4.15

4.20

4.30
4.50

4.60

n
n

4.50
II

4.40

4.35
U30

4.25
n

4.20

4.25
3.85

3.75

3.70
n

3.65

4.70
4.60

4.50
n

4.35
4.25
4.35

n
4.30
4.35
4.40
4.60
It

4.70

(*)

4.82

4.92

3.35

4.70

4.72

4.60

4.50

4.62

4.40

4.52

4.57

4.62

3.95

4.17

4.05

3.95

4.07

3.85

3.97

4.15

4.20
n

4.00

9864

Continued on the following page.

-398-

Continued from preceding page.

Pitts-

Philn.

B'ham

Cleve- Pacific

Bate

bxirgh

Chicago

land Ports
Clf.

2-22-27

3.65

3.85

3.92

3.95

(*) (*)

3-8

3.60

3-15

3.70

4.02

3.90

U- 5

3.60

■

-^-12

■

3.97

A-19

3.92

7-12

3.85

3.95

4.17

3.95

9-27

4.00

10-4

4.07

10-11

3.75

B B

10-18

3.85

10-25

3.65

3.97

11- 8

3.95

11-15-27

3.80

■

3.74i ■

11-22

3.75

■

3.74 ■

10-30

3.60

10- 6

3.70

12-13

3.79 «

12-27

3.65

3.90

3.74 ■

1-3-28

3.84 ■

1-10-28

3.85

2- 7-28

4.07

3-27

3.74 •

it-10

3.97

4-2A

3.60

3.70

3»92

5-1

■

3.64

5-15

•

3.85

5-22

3.55

3.87

6- 5

3.50

3.82

3.80

6-19

3.60

6-26

3.54 ■

7-10

3.70

7-24

3.40

3.72

7-31

3.65

9-11

3.59 ;

10- 2

3.50

3.82

10-9

3.69 •

Continued on the following page.

9864

-399-
Contijaued from preceding page.

Pitts-

Cleve-

Pacific

Date

burg

Chicago

PhllA.

B'hnm

land

Ports
Cif.

11-27-28

3.50

3.60

3.82

3.75

3.69

(*)

12-11

3.60

3.70

3.92

12-18

3.79

3- 5-29

3.80

4.25

6-25

3.50

(*)

7-16

3.69

8-6

3.70

■

3.59

8-13

3.60

9-10

3.70

9-17

3.69

10- 1

3.82

3.59

10-15

■

3.75

10-29

3.40

11-19

3.50

3.72

12-3

3.65

l-U-30

3.30

3.62

3.49

1-21

3.A0

3.55-

1-28

3.50

2-11

3.45

5-13

3.20

3.30

5-19

3.49

3.431

5-27

■

3.40

6-10

3.35

6-24

3.15

3.25

3.44

7-1-30

3.33i

■

7-22

3.10

7-29-30

3.28i

8- 5

3.20

3.39

3.25

8-12

3.05

3.34

8-19

3.00

3.15

3.29

9-2

3.10

3.20

9-23

3.18i

■

9-30

3.15

1&-28

3.24

11-4

2.90

11-11

3.10

3.091

11-25

3.15

9864

Continued on following page.

-400-

Contioued from preceding page.

Pitts-

Chi-

Cleve- Pacific

Pitts.

Date

burgh

cago

Phi la.

Bihnin

land

Ports
Cif.

WroTi^t
Iron

12-16-30

2.90

3.00

3.24

3.15

3.08J

(*)

2- 3-31

■

3.10

2-10

3.05

u-i

2.80

2.90

■

3.00

3.50

A-21

■

2.80

Ar-2&

2.98|

6-11

2.75

■

3.04

2.85

2.93i

6-18

2.85

6-30

2.90

3.00

3.19

3.05

(*)

3.38

12-22

2.80

2.90

3.09

2.95

1- 5-32

3.11

3.40

2- 9

2.75

2.85

3.06

3-29

2.85

2.95

3.16

3.00

3.45

&-16

■

3.50

9-27

2.75

2.85

3.06

2.90

10-18

2.85

2.95

3.16

3.00

12-27

4.95

1- 3-33

2.75

2.85

3.06

2.90

1-17

2.65

2.75

2.96

2.80

1-24

2.65

1-31

2.50

2.60

2.81

2.65

3.25

2-21

■

2.50

3-7

2.60

2.70

2.91

2.75

4-25

2.70

2.80

3.01

2.85

3.35

5-23

2.95

3.16

7-3

2.85

3.00

3.50

9-12

■

3.55

9-26

3.U

U-2U-3U

3.25

3.35

3.54

3.40

3.85

6-26

3.80

7-3

3.85

7-10-34

3.10

3.20

3.39

3.25

3.85

7-17

3.70

5-7-35

3.a

1-9-36

■

Source: Compiled from weekly quotations in the Irga Ag«*
Note: Only quotations which represent a change frtm ilkiB
preceding price are sham.
(*) : No quotation was reported.

9864

-401*

TABLE 54

OOUPAEATIVE GEOGRAPHICAL PHICE MOVEI-IENTS OT
lEOK AND STEEL PHODUCTS

(Cents per pound)

PittslTurgh

Pittslrargh

Chicago, Buf-

Date

and

Date

and

falo, Coatss-

Young stown

Youngstown

ville. Spar-
rows Point

12/30/19

1/13/20

1/20

3/2

7/20
11/20
12/21

1/11/21

3/ 1

3/29

4/ 5

4/19

6/21

7/I8

8/23

8/30

9/ 6

9/20

9/27
11/29

2/28/22

4/11

5/16

5/23

8/ 8

8/15

1/30/23

2/13

2/20

3/20

4/24

5/15

7/10
11/20

2/12/24

2.45
2.65
2.45
2.75
3.25
3.00
2.65
2.45
2.35
2.25
2.10
2.20
2.00
1.85
1.80
1.75
1.70
1.65
1.60
1.50
1,40
1.50
1.60
1.70
1.30
2.00
2.10
2.20
2.25
2.35
2.50
2.45
2.40
2.35
2.30

4/29/24

2.25

5/27

2.20

7/1

2.15

8/ 5

2.00

10/21

1.90

12/ 9

2.00

2/ 3/25

2.10

4/ 7

2.00

6/ 7

1.90

5/24/27

1.80

9/20

1.75

11/23

1.80

2/ 7/28

1.85

10/ 2

1.90

3/ 5/29

1.85

1:^/31

1.80

5/27/30

1.70

10/ 7

1.60

3/10/31

1.65

7/21

1.60

12/15

1.55

12/22

1.50

5/ 3/32

1.60

9/ 5/33

4/24/34

1.70

12/ 1/35

1.80

1/ 7/36

(*)

1.60
1.70
1.80

Source:
llote:

(•):

98b4

Compiled from weekly quotations in the Iron Age.

Only quotations whicn represent a ciiange from the preceding

price are shown.

Ho quotation was reported.

-4oe-

TABLB 86

COI^ARATIVE aBOGBAPHICAL PRICE LIOVEUEHTS 01
IBON AND STEEL PEODUCTS

Tin Plate
(Bollars a tase "box)

Pitts-

Chicago

Elwood,

Pacific Coast

Date

bTirgh

Oary

Mills

Ind.

f.o.b. cars, dock

12/30/19

7.00

(*)

(;)

i*)

7/27/20

9,00

10/12

8.50

11/ 9

7.50

11/23

7.00

4/12/21

6.25

6/ 5

5.75

7/26

5.50

8/ 2

5.25

IO/I8

5.00

11/1

4.75

12/13

4.65

12/20

4.75

2/28/22

4.60

4/ 4

4.75

2/27/23

4.95

5/ 1

5.50

9/30/24

5.60

11/21

5.60

11/10/25

5.60

i*)

12/27/27

5.25

5.35

3/13/28

(;)

11/20

5.35

5.45

1/ 7/30

5.25

5,35

10/ 7

5.00

5.10

10/13/31

4.75

4.85

12/27/32

4.25

4.35

9/ 5/33

4.65

4.75

12/ 5

5.25

5.35

5.90

1/ 7/36

Source: Compiled from weekly qtiotations in the Iron A^e,
Note; Only q-uotations which represent a change from the preceding
price are shown.
(*) : No qTiotation was reported.

9^64

-403-
TABLS 56

OOLlPi^EATIVE GEOGRAPHICAL PRICE MOVEHENTS OF
IRON AlTD STEEL PRODUCTS

yrire Rods

(common soft)

(Base, dollars per gross ton)

Sate

Pittsbiirgh

Yoxuigstoim

Cleveland

Chicago

12/30/19

60.00

(•)

(*)

2/10/20

65,00

3/ 2

70.00

5/18

75,00

11/ 2

70.00

11/23

65.00

11/30

57.00

2/15/21

52.00

4/12

48.00

6/ 5

45.00

7/12

43.00

7/19

42.00

8/30

40.00

9/ 6

38.00

9/20

41.00

10/18

40.00

12/ 6

38.00

1/ 3/22

36. CX)

2/21

35.00

2/28

36.00

4/11

38.00

6/27

40.00

8/15

42.00

8/22

45.00

9/12

47.50

9/26

45.00

1/ 2/23

45.00

1/9

47.50

2/15

50.00

5/13/24

48.00

48,00

8/12

46.00

46,00

10/14

45.00

12/ 2

48.00

12/29

48U00

50800

4/21/25

46,00

46.00

4/28

46.00

6/23

45.00

45,00

47,00

45,00

7/28

45,00

46,00

9864

(continued on the following page)

-404-

(continued fi-on the preceding page)

PittB-

Young s-

Cleve-

Chi-

Birra-

An-

Wor-

San

Galves-

Date

"b-urgh

tOTOl

land

cago

ing-
ham

der-
son,

Ind.

cester

Fran-
cis-
co

ton

2/ 1/27

43.00

(*)

(•)

(*)

(•)

2/ 8

44.00

4/12

40.00

4/19

43.00

4/26

42.00

5/ 3

42.00

42.50

7/12

43.00

7/19

42.00

7/26

43.00

44.00

9/13

42.00

9/27

43.00

10/18

40.00

10/24

41.00

42.00

11/15

40.00

1/ 3/28

42.00

l/lO

42.00

43.00

2/ 7

44U00

45.00

2/21

44.00

5/ 8

42.00

6/26

43.00

44.00

7/10

42.00

43.00

1/ 1/29

(♦)

9/24

40.00

41.00

10/ 1

40.00

2/27/30

38.00

38,00

39.00

5/ 6

36.00

37.00

12/ 9

35.00

36.00

12/29/31

37.00

38.00

1/24/33

35.00

n a

35.00

9/ 5/

36.00^

38.00

12/ 5

36.00

37.00/

36.00

37.00

39.00

4/24/34

38.00

39.00/

38.00

39.00

4i.ee

6/12

39.00

40.00

47.00

44.00

11/26/35

40.00

41.00

40.00

41.00

43.00

41.00

42.00

49.00

46.09

1/ 9/36

Source: Compiled fron weekly quotations in the Iron Age.
Ifote: Only quotations which represent a change from the preceding
price are sliown.
(*) : llo quotation was reported.

/ : Delivered price.

9864

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-413-
•EASU 64

Iron in piga: Cost of production in the Tftilted States of foundry iron by
producing districts for the Ignnonth period. January 1« 1929. to
June 30. 1930 (per long ton)

Itea

Eastern Buffalo Alabama Hidwestem

Materials:

Metallic mixture ..., $8.23 $8.20 |5.68 $8.70

Fuel 5.90 6.21 3.06 A.OJ^

Flux dl ,g4 »12 .^

Total materials.. U.60 U.95 8.86 13.22

Labor end expense:

Direct labor .57 ,J^ .59 .55

Relining expense , .40 .31 .32 .31

Other plant expense 1.83 2.09 1.70 1.77

Total labor and expense,, . 2,80 2.82 2.61 2.63

Total Plant cost 17.40 17.77 11,47 15.85

B7-product credits .89 .60 .52 .^5

Net plant cost 16.51 17.17 10.95 14.90

OveAead 1.46 1.47 1.96 1.16

Total cost excluding interest.. 17.97 18.64 12,91 16'.06

Interest .95 .84 .40 .62

Total cost including

interest 18.92 19.48 13.31 16.68

Selling expense .25 .27 .11 .36

Production costed (long tons).. 789,282 666,180 3,788,232 952,977

Total production (long tons)... 789,282 910,546 1,993,651 2,438,952
Per cent of total production

costed..^ 100.00 73.16 89.69 39.07

Source ; United States Tariff Commission, Report to the President on
Iron In Pigs end Iron Kentledge, Report No. 23, Second
Series, (p. 14)

9864

-413- \

lABLl 66

- PIG IRON -
SOMMABI OF COSTS OF FRODUCTIOH IN THE DHITED STATES
BY GRADES AND DISTRICTS. PER LONG TOM. 192A

Dlatrlet

Grade

Wei^ted
Eastern Buffalo Alabama We stem average

Foundry and malleable........ $25.17 122.17

Merchant plants 26.09 22.56

Integrated plants 22.9ii 20. Oi^

Basic. 20.73 a/ 17.82

Basic, foundry and malleable. 22,-^7 21,32

Bessemer - -

liow-phosiiiorus - -

♦19.39 I2X.50 $21.63

21.51

17.67

Vll.35

16.21

21.89 23.05
20.09 20.34
21.67 20.79
21.6ii 21.03

- b/c/18.88

- 5/29.71

Source: 1927 Report - Ifcited States Tariff Commission, Iron in Pigs ,
dated Februaiy 2, 1927, page 15.

a/ Does not include overhead or interest.

b/ Costs can not be shown by districts without revealing

confidential information,
c/ Does not include interest.

9864

-41^

TA fff.* 66

- IROH IH FIQ8 -

maraFACTURiMG .aHD tp awsportat ioh costs of fouwdri and

iiiT.T.F.ART.Tr. TPnW PLUS COSTS OF MOVIMQ TO
PHILADELPHIA. HEW YORK. AHD BOSTON .
■PER LONG TOH*. 192A

Domestic lro& in pies

Item East- Buffalo Ala- Test-

em bama em

Domestic eost,

f.o.b. plant... $25.17 $22.17 $19.39 $21.50

Transportation and other
charges to Philadel-
phia ^ b/1.25

Total cost or price de-
livered in Philadelphia 26.i42

Transportation and other
charges to Hew Tork a/ ^2.61

Total cost or price de-
livered in He* Tadt... 27.78

Trassportatian and other
diarges to Boston a/ b/3.65

Total cost or price de-
livered in Boston 28. d2

A.91

6.01

c/5.27

27.08

25.40

26.77

A.9I

9.24

5/5.72

27.08

28.63

27.22

it.91

6.91

i/6.17

27.08

26.30

27.67

Soujrcet Compiled from 1927 Report - ttiited States Tariff
Commission, Iron in Pigs , dated Februarj 2, 1927,
page 23.

sJ Transportation inclxtdes all frel^t from point of
■anofaeture to Tbited States port. Other diairges
include consular fee, brokerage fee, transshipnent
and insux^moa.

^ Average of rates from ftredeland, Robesonia, and Beading.

jj Average of rates from Toungstovn and Pittsburf^*

9864

-415-

TABLI 67

UmU S'l' m POSITIOH AHD LOCITIOH OJ PLA5TS CfT TSOt ftS
LAfiOEST POBfLASD CSOM OOUPAITIB IV TEB

Qo^gpffy

1. UalTer sal- Atlas Conent Oompaajr
UnlTersal, PeimaylTanla
Baffiagton, Indlaoa
St eel ton, Ulnnesota
lortha9Q>ton, PennsylTania
Eaanl'bel, mssoiirl
Hudson, "Sew Tork
Independence, Kansas
Leeds, Alabama
Waco, Texas

Rated Capacity
In Barrels

35,300,000

Pareentage of total
Industry Capacity

11.8

2. Lehigh Portland Cement Company

Ormrod, Pennsylrania

West Coplay, Pennsylrania

Togelsvllle, Pennsylrania

Bath, Pennsylvania

Sandt's Eddy, Pennsylvania

"Sm Castle, Pennsylvania

Ubion Bridge, ilaryland

Tordirick, Tirginia

Birain^iain, Alabama

Mitchell, Indiana

Oglesby, Illinois

Mason City, Iowa

lola, Kansas

Metal ine Falls, Washington

Buffalo, Veir Tork (^ interest in Great
Leikes Portland Cement
Oompany - total output of
plant sold as "Lehigh")

27,700,000

X0.7

98B4

-416-

TABLl 67 „ ^ :. -

Rated Capacity Percentage of Total

Company in Barrele Indnatry Capacity

3. Inteinaatlosial Cement Corporation (owits 18,000,000 9.1

plants in Cuba and Sontli America also
holding company for Lone Star plants
in V. S.)

Lone Star Cement Corporation
Spocari, Alabaoft^
Birmingham, Alabama
Veir Orleans, Loiiisiana
Hacareth, Pennsylvania
Horfolk, Virginia
Bonner Springs, Kansas

Lone Star Cement Company, Indiana, Inc.
Limedale , Indiana

Lone Star Cement Company. New Tork, Inc.
Bodson, Vev Tork

Lone Star Cement Compsay, TexM
Harrys, Texas (Dallas)
Houston, Texas

4. Allha Portland Cement Company 13,000,000 4.4

Uartlns Creek, Pennsylvania
Manheim, West Virginia
Blrmln^iam. JlLabama
Iron ton, Ohio
St. Louis, Uissonri
Bellerae, Michigan
LaSalle, Illinois
JflnesTllle, Nenr Tork
Cat skill, New Tork

5. Pennsylvania Dixie Cement Corporation 12,200,000 4.2

Hazareth, Pennsylvania
Bath, Pennsylvania
Eingsport, Tennessee
Eichard City, Tennessee
dinchfleld, Oeorgla
Portland Point, Heir Tork
Valley Junction, Iowa

9864

TiBLI 87

B*ty4 Capacity Perc»ntag« of Tot«^

gynptsy ^ l*ryyti Iran Vr TtutI w

6. ZdNd CeiMn* Ooavnar (bldiag 0M9«ir) 9,600,000 3.6

Ocloxado Portittid C«iMnt Coa^mj

BMTtltftd. OolAX^D

Bo«ttdur, OoloradD

irlcazisaa PortlaBd Csient Oooipaoy
Oka/, izkansas

(^ahOB* Psrtland Ceaient CompaQjr
Ada, Oklahoma

Cbree forks Portland. Cement Conpaajr
Tridflct, Montana
HanoTer, liontaxva

Hebradca Cement Company
Siperlor, ]7e'braaka

limited States Portland Cement Company
Concrete, Colorado

tJ&lon Portland Cement Ooaqp«qr
SerllB Slide, Utab

?• Medusa Portland Cement Coo^any 9,000,000 3*3

BB7 Bridge. Qlil6
Silica, Otiio
leirajrgo, MlcMgan
Slzon. Illinois
Manitowoc, Tisconsin
fanipitrn, Pennsylrania
Tork, Pennsylvania

8« Consolidated Cement Corporation 8,900,000 3.2

Vredonia, Kansas
Mildred. Kansas
Cement City, Michigan

norida Portland Conent Company
Taopa, Tlorlda

Si^ial Mountain Portland Cement Oonpany
Chattanooga, leiBnessea

Trinity Portland Cement Oonpany
Eagle Tord. Texas

'lort Worth, Texas nftf»4

Houston, Teas \)OV)'

-418- •

TABLI 67

Batad Canmiity Pereantiiga of Total
fi2SBflfi£ in Barry^s Industry Capacity

9. Marietta Cement lianiifacttirlng Conipany 7,000,000 S,66

LaSalle, Illinois
Cape airardean, Uiasonrl

10« Boron Portland Cement Coiqpany 5,250,000 2*0

Alpena, lUchieftn

Wyandotte Portland Ceqent Company
fyandotte, Uidiisan

58 smaller companies 117,336,000 44.5

Sonreet 9ie American Cement Directory 1935, (published by
Bradley PolTerizer Company)
E. I. Eilts "file ManufactTLTing Capacity, Yoltnoe and
Costs of Portland Cement in the IXaited States" ,
IRA. Slvision of Sesearcsh and Planning,
October 8. 1934.

986^

-419-

TABUE 6S
THE

CMENT INDUSTRI
ESTIMATED MANUFACTURING AND SELLING COST OF PORTLAND CHIEWT IN A
REPRESENTATIVE PLANT. AT VARIOUS OPERATING C APACITIES. CLASSIFIED
BY ITEMS OF COST. AUGUST.