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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 

By 

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 



I 



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 



i 



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?. 



44 

45 

46 

47 

48 

49 

50 

51 

52 

53 

54 

55 

55 

57 
58 
59 
60 
61 
62 
63 
54 

65 
65 

57 



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- 



t 



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- 



f 



c 



-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 



-13- 

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 



t 



{*) 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 

(c) Provisions relating to regulation of production and new 
capacity. 

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 



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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 



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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. 



9864 



-.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 



-45- 



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 



m 



-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 

.n 

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 



-47^ 

''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 



-52- 

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 



-54- 

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 



-57- 

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. 



9864 



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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, 

9864 



-60- 

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 



-63- 

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 



-64- 

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 



-67- 

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 



-684 

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 



-69- 

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 



-73- 

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 

rt 



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. 

9864 



-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 



-115- 

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. 



-116- . 

(?) 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. 



-117- 

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. 



-121- 

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, 

9864 



-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 



-142- 

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 



-143- 

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. 



9864 



-160- 

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 



-162- 



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 



-164-. 

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 



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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 



-183- 

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 



-189- 

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 



-190- 

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 



er 



-191- 

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 



-205- 



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 



-206- 

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 



-213- 

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 



-214- 

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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-248- 

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 



-265- 

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 



-266- 

"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 



-272- 

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. 



■279- 



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 



-280- 



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 



-281- 



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 



-283- 

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 ■ • . 



-284- 

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 



-285- 

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 



-285- 
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 



-288- 

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 



-289- 

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 



-290- 



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 


States 


States 


States 


States 


1849 


lon.o 


*58.8 


6.3 


13.6 


5.9 


1G.6 


.8 


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 


.4 


1919 


lOO.O 


7.5 


7.8 


46.6 


29.2 


8.7 


.2 


1929 


100.0 


3.3 


4.8 


41.9 


*43.4 


6.4 


.2 


1930 


lOO.O 


3.8 


5.1 


39.0 


*46.6 


5.2 


.3 


1931 


100.0 


3.6 


4.3 


36.2 


*50.7 


5.0 


.2 


1932 


100.0 


3.8 


2.8 


38.8 


*50.3 


4.1 


.2 


1933 


100.0 


3.0 


2.8 


41.3 


*48.9 


3.9 


.2 


#1934 


lOO.O 


3.9 


3.9 


36.8 


*51.7 


3.5 


.2 



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 



44 


510 


44 


5no 


43 


000 


45 


nnn 


44 


oon 


40 


500 


38 


oon 


40 


oon 


31 


000 


32 


000 


34 


552 


35 


000 


29 


000 


35 


250 


41 


000 


39 


500 


41 


ooo 


39 


750 


37 


2P0 


36 


750 


36 


886 


26 


100 


16 


523 


10 


151 


13 


961 


15 


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 



55 

55 

65 

95 

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 

94 

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- 





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o 




o 


<iH 


tfft 




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to 


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§ 


? 


1 


E 


EH 


[X4 


^ 




o 


5 



o o 



^ 



•H 0) 

<y PS 
o 

0) Cm 
S5 O 



bo 
O -P 

a o 
3 o< 



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•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^ 



V 



0) 


•H C 


53 


a 6 


o 


a •<-{ 


o 


O -P 


c 


O cj 


M 


to 


<«-l 


'^■^ 


" 


-p ^ 




o o 


to 


■p 


o 


-p 


•H 


■p ft 


+3 


a s 


w 


Q) 0) 


•H 


m « 


-P 


0.' (1) 


to 


^ l 


■p 


e-s 


OT 




(u -p 


•« 




?J 


w J3 


pi 


<u O 


fl 


h ., 



> +> Q) 

1 a H 

) -H ^ 

1 aj 

) CNi -H 

J •> oJ 

CO 



o 3 C -P 

■P O O 

3 -H Q) -H C 



CD 


•H 


O 


cti nJ 


^ 


tH 


O 


J-i -P 


0) 


C 


o a 


P3 


O 


M 


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 


94 


99 


Pebruflry 


93 


95 


March 


105 


- 106 


April 


102 


103 


May 


109 


105 


June 


100 


99 


July 


103 


99 


Au.Tis t 


105 


103 


SepteKi"ber 


101 


100 


October 


100 


104 


Novemoer 


95 


98 


December 


88 


91 



97 

94 

105 

106 

107 

95 

100 

106 

103 

108 

97 

85 



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- 


56 


0.60 


SO 


0.56 


75 


0.39 


]\. Carolina 


ilone 


1-Ton e 


None 


None 


222 


0.79 


TOTALS 


56 


0.23 


50 


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 


15 


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 


33 


54 


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 


25,000 


None 


1 


1 


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. 


1 


of Total 


M. ft. 


1 


of Total 


luichigan 


14 




30, 031 




52.2 


27,747 




47.1 


\iisconsin 


10 




15, 009 




26.1 


17 , 242 




29.3 


Illinois 


1 




1,224 




2.1 


1,012 




1.7 


Ohio 


5 




1,9G8 




3.4 


2,283 




3.9 


New York 


3 




2,857 




5.0 


3,494 




5.9 


Pennsylvania 


2 




649 




1.1 


637 




1.1 


Vermont 


3 




1,022 




1.8 


1,167 




2.0 


New Hampshire 


1 




33 




0,1 


42 




0.1 


West Virginia 


7 




2, C79 




5.0 


3,163 




5.3 


Virginia 


1 




285 




0.5 


310 




0.5 


Tennessee 


6 




1,238 




2.1 


1,227 




2.1 


Georgia 


1 




71 




'\1 


179 




0.3 


Arkansas 


3 




187 




■^.3 


277 




0.5 


Louisiana 


1 




96 




0.2 


173 




0.3 


TOTALS 


58 




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 


1 


I579IM 


19.15K 


1 


I777IM 


19.756 


Wisconsin 


2 


9847 


11.9 


2 


10555 


11.7 


Michigan 


3 


6181 


7.5 


3 


66a 


7.4 


ftlnnesota 


5 


49a 


6. 


6 


5068 


5.6 


Ohio 


9 


3314 


4- 


7 


4585 


5.1 


Indiana 


12 


U89 


1.8 


10 


2339 


2.6 


Missouri 


13 


1U6 


1.7 


12 


1835 


2. 


Iowa 


15 


1127 


1.4 


17 


1087 


1.2 


North Central 




441% 


53.4 




49861 


55.3 


States (8) 















Group 2 



New York 


4 


6000 


7.3 


Massachusetts 


7 


4506 


5.5 


Pennsylvania 


8 


3505 


4.2 


New- Jersey 


10 


2183 


2.6 


Connecticut 


20 


797 


1. 


Maine 


27 


490 


.6 


New Hampshire 


34 


410 


.5 


%ode Island 


36 


262 


.3 


Maryland 


40 


U3 


.2 


Dist. of Col. 


46 


71 


.1 


Vermont 


47 


62 


.1 


Delaware 


48 


23 




North Eastern 


18452 


22.4 


States (12) 









4 


6173 


6.9 


8 


3629 


4. 


9 


3236 


3.6 


11 


1945 


2.2 


24 


729 


.8 


22 


826 


.9 


37 


299 


.3 


39 


208 


.2 


29 


512 


.6 


33 


461 


.5 


42 


167 


.2 


49 


2 






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 


6 


^709 


5.7 


5 


5905 


6.6 


Washington 


11 


1601 


1.9 


13 


1580 


1.8 


North Dakota 


U 


1349 


1.6 


lA 


1340 


1.5 


Utah 


16 


1086 


1.3 


18 


895 


1. 


Kansas 


22 


697 


.8 


20 


855 


.9 


South Dakota 


25 


672 


.8 


23 


737 


.8 


Montana 


26 


560 


.7 


21 


853 


.9 


Oregon 


30 


A58 


.6 


28 


530 


.6 


Kdaho 


31 


A25 


.5 


32 


490 


.5 


Colorado 


32 


417 


.5 


36 


428 


.5 


Arizona 


33 


aA 


.v 


35 


441 


.5 


Nebraska 


35 


399 


.5 


25 


701 


.8 


T^oming 


a 


137 


.2 


40 


194 


.2 


New Mexico 


U 


88 


.1 


47 


68 


.1 


Nevada 


J^5 

(15) 


81 
13093 


.1 
15.8 


48 


23 




Western States 


15040 


16.7 



Group 4 



.Georgia 


17 


10A9 


Texas 


18 


962 


Alabama 


19 


801 


Kentucky- 


21 


750 


Tennessee 


23 


677 


North Carolina 


24 


675 


South Carolina 


28 


486 


Virginia 


29 


469 


Arkansas 


37 


255 


Oklahoma 


38 


255 


Mississippi 


39 


234 


Loiiisiana 


42 


129 


West Virginia 


43 


90 


Florida 


49 
(14) 


19 


Southern States 


6851 



1.3 
1.2 
1. 

,Q 

.8 
.8 
.6 
.6 
.3 
.3 
.3 
.2 
.1 



8.4 



19 


880 


1. 


30 


507 


.6 


16 


1151 


1.3 


27 


599 


.7 


34 


454 


.5 


15 


124A 


1.4 


26 


615 


.7 


38 


251 


.3 


43 


136 


.2 


31 


491 


.6 


46 


68 


.1 


41 


180 


.2 


U 


95 


.1 


45 


78 


.1 




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- 



g 












r^ o 



K « K 

vO H rH 



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o 








CO 


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i 


8 


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a, 




^ 


s 


3 ; 


^ 






g 


^ 




g 


w 


H 1 






H • 



H >r» CV 0( H »AHr^<XHH H «0 rr^ (N •'^ ^< 



H V»0 



C^H H 



C>H 0< H 



•k <k n 1^ 

H «ACV H C»> H 



'oolcr^ H -*HCr\H H O rrv W t^ H 



«0>rvvOOHcnNO«^C~«rvOtoOH>rv-^t*0«OHQr>-HH*ONO< 
WOv^>^tOC*^<AC^^J^-H^PW«^v«00^^{f»^<>>TOU^<^0^«1^0 



M •« <« 

CO H <N( 



•k « 



H to 0< H f>> 



• 






H^r,cMoo^oc^<^^c^^^»^oo<^fyr-^^->4••;4to«ooof»^^oO <»jh 



tOHH»fMn«)r>toc^«oO«At-^<no^-^r-iwoot50vDC-0 o{ 
n^tO •>ifvp -^tH O f*< H WN 0^&^CS WvO --T-^^a a« -<*«o ^to H 
•HO^VNsO «rM-i H nO -4- cj vo ('S cy CM vO O H >rv 1-J u> c^ 



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a> ^ 

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fe • -H bo o d a 

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•3§ 



HhH«JOO<I)'HH<l>'dHd 



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CO 

S Si 



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w o d CO 05 



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C>iC^W>sOtO<»>CNJ-*W'>*->*CVsOO»riHt>-C^«n«riOoHvOO>tHH 
0< H^ *r4 * *r4c\I 'vOCSoIhoIh H C^ f^ W H P> H 



qkf»4 



-sia. 









CVJ (X, 
0^ 



o w 



H H to -"tHHcn * * 'o ' T-i H 






f<>o*o«or»ot>jcow>»r>o-^\oi^N<\jrHPsif\jeo>r>ey 



•^StOS VTi ON ^ -dD vD vO to sD eO f<> VN C^ H vO -«* O 



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^ 






ID 

Pt m-ri M a 

S fH >< b H ^ 

CO O <D O «> m 



<D (D .«) O O O j ^ U 



s % ss s s s 










^, 






3 






OS >rNto <«> 
c<^ O >r» 



to to _ 



'i 

«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 •> 

« -o 
o<«t e 

01 -a 
nop 



U -P 

p a o 

■P h d 

c « 

cd ^ o> 

3 g «J 

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(0 



^ 



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 




I 


.699 


.■•68 


2187 


.82 


.56 


Arlcamao 




31 


21.680 


It. 522 


67390 


*.3s 


'\tl 


CallfonU 




3 


2.098 


l.ito6 


I68O 


.«3 


G*?or^l.'; 




1 


.699 


.468 


1873 


.7C 


i:2? 


Illln'.lB 




3 


2.098 


I.H06 


5376 


2.02 


Kf^ntociiy 




3 


2.098 


1.1*06 


2? 73 


1.12 


•79 


Loulaiun 




11 


7.692 


5.152 


26176 


9.8U 


6.92 


Mar.-land 




2 


}M7 


.:% 


3637 


l.W» 


1.02 


Ulailxippi 




5 


7716 


2.90 


2.01* 


UlaFourl 




3 


2.097 


l.UOlt 


Utfi* 


l.«3 


1.29 


north Oaro3Ua 




1 


.699 


.1*68 


11*59 


.56 


5:?. 


PM^ 




13 


9.090 


6.088 


206l6 


7.7"* 


P-uct^jlTMla 




3 


2.09s 


l.to6 


6072 


2.28 


1.61 


Sour.h Carolina 




1 


■ 699 


.U68 


1021* 


.38 


.27 


■l>n:.5iiiie5 


15 


\ 


30.069 


20.lWt 


811*79 


30.61 


a.6o 


Ts»« 




S.798 


1.876 


6868 


2.58 


1.62 


Tlr^lnU. 




i 


't.195 


2.810 


1CS52 


3.81* 
lt.06 


2.71 


ITeat Virginia 




7 


1..S96 


3.232 


10806 


2.86 


V\ncour<ja 




1 


.699 


Mg 


lll20 


• 53 


.37 


Location UnZoicjwn 


1 


1 


.699 


Ms 


:i62 


.81 


.57 


TOTALS 


59 


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 


2 


2.83? 


.93*. 


U028 


3. Si 


1.01 


Ar1wnfla« 


1 


1 


I.UI8 


Ms 


utn 


i.fir 


.50 


riorlda 


I 


1 


1.U18 


Ms 


1225 


1.10 


.32 


Illlsoli 


1 


3 


'*.257 


1.M06 


1*986 


i*.l.7 


1.32 


XxntviclQ' 


5 


7 


9.930 


3.280 


79'10 


7.11 


2.10 


LouiBifina 


2 


U ■ 


5-676 


i.s76 
i.?)u 


7891* 


^:|g 


1.98 


Ular-ourl 




U 


!.676^- 


71*70 


1.98 


Kortb C rollaa 


5 


5 


7.090 


^.^lt0 


Ugno 


1*^1 


^^3 


OMo " 


} 


3 


U.25I* 


1.4011 


lC30 


South Carolina 


1 


1 


l.UlS 


Ms 


191*7 


liru 


.51 


Tpureaaee 


s 


20 


PS.371 


':U1 


3621*3 


s?."? 


1.58 


TeiH!. 


1 


1 


l.WR 


1919 


1.72 


:§ 


Tlrtl..l? 


2 


2 


'.f?6 


.936 


?380 


2.13 


Wisconsin 


li 


8 


11.31*6 


3.7'<e 


15873 


14. 2;; 


.21 


H'H "rfinl.-i 


7 


7i 


10.636 


3.511 


10599 


5.50 


.80 


LocctlO'i 'jBtooTin 


1 


1 


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. 


59 


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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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 








1 


U.S.Stee^ Corp. 1 


,007,4.00 


36.50 


615,300 


360,100 


32,000 


2 


Natlonel Steel 


334,800 


12.12 


334,800 






3 


Behtlehem Steel 


214,000 


7.76 


2U,000 






U 


McKesfiDort Tin 














Plate Co. 


100,000 


6.52 


130,000 . 






5 


Jones & Loughlin 


163,000 


6.09 


168,000 






6 


TJheeling Steel 


*133,000 


4.82 


133,000 






7 


Republic Steel 


126,500 


4.59 


126,500 






o 


YoungstO'Ti Sheet 














& Tube Co. 


120,000 


4.35 




120,000 




9 ■ 


Inland Steel Co. 


12^,000 


-^.'5 




120,000 




10 


Continental Can Co. 


110,000 


3199 


110,000 






11 


Gr.anite City Steel ' 


75,000 


2.72 




75,000 




12 


Follanpibee Bros. Co; 


54,800 


1.99 


54,800 






13 


Robertcon Steel & 














Iron Co., V. F. 


45,000 


■ 1.63 


45,000 






U 


Canton Tin Plate Co 


. 36,000 


1.31 


36,000 






15 - 


rapliineiton Tin Plate 22,600 


.82 


22,600 






16 


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 



1 


United States Steel Corp. 


1,231,500 


29.23 


636,500 


590,000 5,000 


2 


National Steel Corp. 


603,000 


U.32 


603,000 




3 


Republic Steel Corp. 


534-, 500 


12.65 


534,500 




A 


Acme Steel Co. 


430,000 


10.21 




430,000 


5 


West Leechburg Steel Co. 


2^0,000 


5.68 


240,000 




6 


Sharon Steel Hoop Co, 


230,200 


5,45 


230,200 




7 


Otis Steel ^o. 


135,000 


3.21 


135,000 




8 


International Harvester Co. 


110,000 


2,61 




110,000 


9 


Superior ^teel Corp. 


107,000 


2,52 


107,000 




10 


Stanley Works 


92,500 


2.21 


92,500 




11 


Laclede ^teel Co, 


90,550 


2.15 




90,550 


12 


Youngstown Steel & Tube Co. 


75,000 


1.79 


54,000 


21,000 


13 


McLouth Steel Corp. 


50,000 


1.19 


50,000 




U 


Ford Motor Co. 


42,700 


1.01 


42,700 




15 


Inland Steel Co. 


40,000 


.95 




40,000 


16 


Atlantic Steel Co, 


36,000 


.85 




36jOOO 


17 


Washburn Wire Co., Inc. 


25,000 


.59 


25,000 




18 


Harrisburg Steel Co, 


25,000 


.59 


25,000 




19 


Jones & Laxighlin Steel Corp. 


. 18,000 


,43 


18,000 




20 


J. A. Roebling Sons, Inc. 


15,000 


.36 


15,000 




21 


Connors Steel Co. 


15,000 


.36 




15,000 


22 


Carpenter "^teel Co. 


12,700 


.30 


12,700 




23 


Crucible Steel Co, of America 11,700 


.28 


11,700 




2A 


Joslyn Mfg. & Supply Co. 


10,760 


.26 




10,760 


25 


Universal Steel Co. 


6,468 


.15 


6,468 




26 


H. Disston & Sons, Inc, 


5,000 


.12 


5,000 




27 


Colorado Fuel & Iron Co, 


5,000 


.12 




5,000 


28 


Wrought Washer Mfg. Co. 


5,000 


.12 




5,000 


29 


Buffalo Steel Co. 


4,000 


,09 


4,000 




30 


Highland Iron & Steel Co, 


3,800 


.09 




3,800 


31 


Granite City Steel Co, 


2,000 


.05 




2,000 


32 


Knoxville Iron Co. 


1,500 


,04 




1,500 


33 


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 ' 


1 


Cold Metal Process Co. 


180,000 


13.06 




180,000 




2 


Republic Steel Corp. 


175,700 


12.73 




175,700 




3 


U. S. Steel Corp. 


133,800 


9.71 




120,400 


\%ifti 


A 


Detroit Steel Corp. 


123,000 


8.93 




123,000 




5 


Acme Steel Co, 


76,000 


5.52 




■^yOOO 




6 


National Steel Corp, 


65,000 


4.72 


65,fXn 






7 


Otis Steel Co. 


65,000 


4.72 




65,000 




8 


Stanley Works 


6^^,000 


4.65 






64,000 


9 


Test Leechburg Steel Co. 


5-4,000 


3.92 


5VJUU 






10 


Superior ^teel Corp. 


5-4,000 


3.92 


54,000 






11 


Thomas Steel Co. 


45,000 


3.27 




45,000 




12 


Sharon Steel Hoop Co, 


U,600 


3.24 




^,600 




13 


Griffin Mfg. Co. 


25,500 


1.85 




25,500 




U 


Rotary Electric Steel Co. 


25,000 


1.81 




25,000 




15 


Brainard Steel Corp, 


24,500 


1.78 




24,500 




16 


Greer Steel Co, 


24,000 


1.74 




24,000 




17 


lovmgstovm Sheet & Tube Co. 


21,000 


1.52 




21,00d 




18 


Wallingford Steel Co. 


20,400 


1.48 






20,400 


19 


J. A. Roebling's Sons, Inc. 


20,000 


1.45 






20,00(> 


20 


Bopp Steel Corp. 


16,500 


1.20 




16,500 




21 


Blair Strip Steel Co. 


14,400 


1.05 


U,400 






22 


Newmen Crosby Steel Corp. 


13,000 


.94 






13,000 


23 


Wickwire Spencer Steel Co. 


10,400 


.76 






10^400 


2k 


Thcanpson Wire Co. 


10,000 


.73 






10,000 


25 


Rome Strip Steel Co., Inc. 


9,000 


M 






^,000 


26 


Crescent Insulated lire & Cable Co. 9,000 


M 






9,000 


27 


Inland Steel Corp. 


8,000 


.58 




8,000 




28 


Worcester Pressed Steel Co, 


6,750 


.48 






^750 


29 


Wallace Barnes Co. 


6,000 


.44 






6,000 


30 


Allegheny Steel Co. 


6,000 


.u 


6,000 






31 


Crucible Steel Co. of America 


5,400 


.39 






%m 


32 


Universal Steel Co. 


4,900 


.36 


4.900 






33 


Athenia Steel Co. 


4,000 


.29 






4,00(> 


3A 


Buffalo Bolt Co. 


4,000 


.29 






4*000 


35 


Carpenter Steel Co. 


3,500 


.25 


3,500 






36 


Hind Steel Co., Inc. 


2,400 


.17 






2,400 


37 


Driver-Harris Co. 


1,200 


.09 






I.IQD 


38 


Granite City Steel Co. 


1,000 


.07 




1,000 




'39 


Igoe Bros. 


1,000 


.07 






1,0(X> 


AO 


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. 



h 



31 ! 



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9864 



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Iron 


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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 



1 


U. S. Steel Corp. 


2,?U,800 


26.81 


1,103,000 


571,000 


670,000 


2 


Youngstowi Sheet & Tube Co. 


1,313,000 


15.07 


933,000 385,000 




3 


A. 0. Smith Corp. 


950,000 


10,86 




950,000 




/v 


Retfublic Steel Corp. 


7A2,o;;o 


S.49 


742,000 






5 


Jones & Laughlin Steel Corp. 


636,000 


7.26 


636,000 






6 


Spang, Chalfont & Co., Inc. 


525,000 


6.01 


525,000 






7 


Pittsbiargh Steel Co. . 


300,000 


3.42 


300,000 






8 


mieeling Steel Corp. 


276,000 


3.16 


276,000 






9 


Central Tube Co. 


236,100 


2.70 


236,100 






10 


Timken Steel & Tube Co, 


211,000 


2.47 






211,000 


11 


Bethlehem Steel Corp. 


199,000 


2.28 


199,000 








Clayton Mark & Co. " 


126,000 


1.4A 




126,000 




g 


'3 Reafling Iron fJorks 


lLi.,000 


1.30 


114,000 






A. H. Byers Co. 


85,800 


.98 


85,800 






15 


Wheatland Tube Co. 


84., 000 


.96 


84,000 






16 


Steel & Tube, Inc. 


69,500 


.79 


15,000 




5^,500 


17 


South ChestfT Tube Co. 


62,000 


.71 


62,000 






18 


Pittsburgh Tube Co. 


58,500 


.67 


58,500 






19 


Globe Steel Tube Co. 


54,000 


.62 




54,000 




20 


Fretz-Jiloon Tube Co., Inc. 


50,000 


.57 


50,000 






21 


Mercer Tube & Jifg. Co,. 


50,000 


.57 


50,000 






22 


Ohio Seamless Tube Co. 


43,000 


.55 






48,000 


23 


Laclede ^teel Co, 


40,000 


.46 




40,000 




2A 


Cdhoes Rolling Mill Co. 


30,000 


.34 


30,000 






25 


Babcock & V/ilcox Tube Co. 


26,450 


.30 


26,450 






26 


Detroit Seamless Steel Tube 


Co. 25,800 


.30 






25,800 


27 


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 


31 


Rome Mfg. Co. 


10,000 


.11 


10,000 






?2 


Michigfji Sea iless Tube Co, 


6,000 


.07 






6,000 


33 


ShcTon Tube Co. 


5,400 


.06 


5,400 






34 


Steel Tank & Pipe Co. of Ore 


gon 1,500 


.02 






1,500 


35 


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 



(J 



-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 






R8^ 



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w<nr~-t— ir\ir»r<-»r<->r«^cvifMi-ifH<-4 



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o • p, g> 
o p, W h 

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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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•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 


62 


115 


14 


67 


Steel Ingots & Steel 










for Casting 


71 


128 


14 


68 


BLooffls. Billets & Slabs 


46 


90 


11 


56 


Sheet A Tin Plate Bars 


18 


34 


6 


21 


Slieets 


34 


68 


12 


46 


Bbt Boiled Stripe 


33 


46 


6 


18 


Gold Boiled Stripe 


40 


44 


3 


7 


Tin Mill Blark Plates 


16 


28 


4 


16 


Tin PUte 


15 


24 


5 


14 


Uerdbant & Concrete 










Beinforcing Bars 


67 


112 


13 


58 


Structriral Shapes 


15 


29 


4 


18 


Plates 


23 


30 


2 


9 


fire Bods 


26 


39 


3 


16 


Plain fire 


52 


73 


5 


27 


fire Products 


22 


36 


3 


18 


Skelp 


10 


21 


5 


16 


Pipe & Tubular Prod. 


35 


51 


8 


24 


Steel Bails 


4 


8 


2 


6 



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 



Q 



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 



19 


1 





18 





1 


17 


4 





16 





4 


15 


n 





14 


1 





13 


1 


1 


12 


1 


1 


11 


2 


1 


10 


1 


3 


9 


2 


1 


8 


5 


4 


7 


5 


3 


6 


5 


8 


5 


7 


7 


4 


11 


10 


3 


12 


13 


2 


30 


31 


1 


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 


Steel 


Steel 


Sheet & 


U. 8. 






Corp. 


Corp. 


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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to o> o 






CO 1-1 




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H «^ 



luded 

luded; 
eluded 


•P bO 


a< CO 

(S m rH 


o ox 


0) 


•s -g .g •" 


a • 0/ 

O rH -P 


.1 .| 


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t2 = 





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H 

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t-i X Xi >» • • • 

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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 


99 


9? 


105 


102 104 


99 


98 


v» 


98 


10^ 


99 


100 


Lehl«fa 


102 


93 


104 


103 104 


98 


95 


95 


96 


105 


10/,_ 


101 


.SnhiiylVm 


101 


95 


108 


104 io« 


100 


99 


97 


93 


99 


'^'> 


102 


Soaqiiehazma-Lebanon 


97 


87 


96 


101 108 


103 


102 


104 


99 


106 


100 


98 


New Jersey 


94 


85 


96 


103 108 


101 


103 


107 


100 


J.04. 


100 


99 


Pittsburgh 


96 


92 


106 


101 102 


99 


100 


101 


99 


106 


% 


98 


Nev lork 


95 


89 


105 


103 107 


103 


102 


99 


98 


102 


97 


100 


■^stem Pennsylvania 


97 


93 


IDA 


103 104 


99 


101 


100 


100 


104 


98 


98 


•jhenango 


99 


9-t 


103 


102 101 


97 


99 


99 


102 


108 


98 


99 


Mahotting 


96 


94 


106 


100 104 


99 


100 


102 


99 


104 


97 


98 


Central and Northern Ohio 98 


95 


107 


99 101 


100 


100 


102 


97 


102 


98 


100 


Southern Ohio 


105 


100 


no 


104 106 


101 


90 


93 


93 


98 


95 


105 


Wheeling 


99 


95 


107 


101 101 


96 


96 


101 


98 


104 


99 


104 


Maryland-Virginia 


99 


93 


104 


101 106 


98 


96 


96 


98 


106 


103 


101 


Tennessee 


100 


96 


106 


101 102 


95 


95 


99 


99 


104 


101 


101 


Alabama 


103 


93 


103 


98 99 


94 


96 


99 


99 


106 


104 


106 


Illinois-Indiana 


95 


89 


101 


101 106 


103 


104 


103 


luo 


102 


98 


98 


festens* 


106 


100 


112 


108 105 


99 


96 


91 


90 


96 


94 


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 



& 


n 


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•ri 


« 


£3 


1 


+» 


2 


1 


1 

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1 



^■31 
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• ••••••••••••••• 

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e^l^^-<o«po>n"W^OQ»tOl^^?^»o> 

to n O' CM 0> M c\) <.o CO oo t- CO o <o ";< 00 



^ to 



i-l to to to 
CO o> Ok to 
en to N a> 

t>^inop'<i«rH«OOtOlO«0<0 



en lO fH CM IP 

o> •^ « to » 
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0> CM <0 CM to C* 

to t~ CM H CM 00 
O CO U) lA t- O 



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t> U5 O 

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tO>HIO<OOIOiHf-la|iM4p 

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c\:u>to«po>tocMt<>u:>a>iQto6>ier-i>-4 

IOCMCO<OOTj<lO'^Ot>-9.JIO<09IO 

t0CMt>-00^CM0>IO0>O'(0CMpH 
to t- M ^ CM rH (-1 



c\]t-cooooooc'aooe>u)0>o><o<Or-it> 

(O00tOCn00CIi<O(OCMO>Q>O^6-O>IO 

u30o>cMOloo>lO^-r^lB«^•^0^-» 

>-ltOiaO>^C»tO<4<f-IOM>OCOC>JCOCM 
t~0Ol-lc-l00a>CMtOO>CMCMtOCMtOCM(O 
CM00O0>^00t-O>rH«Or-lOO»*rH 

t~oo^tocom(0(o<o<ot~ioiOi-icMCM 



<^lOCMtOC^OOOCniO(OOOCM(OOCMtO 

050)0ooioiooot^toiocot~-«>eot-o 
<ooocoo><oto^cnioo>oor-tiotO(Of-i 

00<-l01flOC35t~^i-IOOtOC\}0>0>C^rHi-l 
^t~OOOCJ>l>tOO><OrHlO^QOflOtO 
0>VlOtO00mo<0OrHl0O>»0^t0IO 



?(itOrHC010rHO'0^000'*COOtOC- 
b-rHCOCO«Ot-00lOe<liHlOubfHlH*tO 



CMt~U>(05J<i-l<OCMCMlO^U:>0 
00tOt-i-«^tOMi-<tQ«O00 

TllCOtO^<0^r-<COO^t~ 



lo o p i-t 
(o CO ^ o> 

r-l a> to iH 



o)o>o)o>o>0)0>o>o>o>C3a>o>o^o>o> 



9864 



I 



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K-rH C\J h-VD Ri,-«l»-o^vBvosoo%«o 
t^ o » hf\vo <T\ r^ 1"^^ oj cJ u^ t<^ cj j* r^ 
rH (Q f-t >H r«->3- u> it\F-<o o o f" irvj o 

vi> K> ^ to r~ eo Q F'Mrk lo p rrMo to r>^ O 
O r-vr> r-H r-r-<>-D3- r<o^ «)(Mjj<o 
^* >j3 rJ to in rix* i-< cJvD to pj (V r^ Q> in 

H O t-i-l p to Q r^-:*- Ovf—HSB "^ O W 



O^njtotOr-iuStaowvSp^voOScvjo 

<jN CM f— movo ONinvo i-Tt^Q r<>ino i~- 
r-i ^-cjr— ibinHrJH lr\VD irv^ to t— to 
^ ir» N invo ^otatata(r>a\toC2>t^ f\3r 

vo "w r>-^o P-CNp^to ty to »cr>f^©P-3' 

o^ (^vc r-3"\»(nr-i~-t— S^ Pv3 h " O 
f»\,HirioMr\wvoj-tocvi;* H3- kS w 8 

J* vi> iH tnin^inin^'vD^oj* (\JH w cJ 



r-VI>CMOt0U>voCM^IOo9tnlCMtaQ 
CM 10 r-l rH to j:t\o inK-L^^V^I^r-^-) to 

in «oii-i K-;* CT\inincM tb tb3 inf^UScM 

r'% K>i-4 CM KNCM r^K\KM«M«^ 

R3 <T\rH to r'^'O W ° W'W'tt 8S'?\8 
0/ 1^ H CM CM H CQ r-l H f-l rU 



^ oM>aoi-4mr^tocMta<HCar4pmQVA 
,H to K\itv^ CM^ CM iHvo oi W«» rS<n 

Ur-< inCMv2>tOtOCMCUK\H ir\a\yC iH to >H 
5*3 i-Th 1-4 CJ CMiH iHrJ 1-i CM 

K-tvo t'\fHiH to>^mr>-<M KvvA int* to ih 
vo »-<^ CM<r>inr^r^toOi-t 9\<(> «\iojt 

rHVi)tOr<incJI^OI»-Q<r>CMrHlijKMn 

>ocr\toi«~>CMr-ino>CMi'»mer>i-<3vor«^ 

HH i-liHrHi-IWi-»<MCM<Hi-lr-li-ti-t 

cj H i~-vi> H Q CM cr\ r^ o to i--^ tu o m 
to =F to CM 0-* tojt o;* cjNin-^injt'Z 

(nVQ H h- 1^\0 VOf— CTlCM^iHr-rr-ICMCM 

6 tolncTiuSSjocMcrxntM inj j- o cm 
CM CM 1-4 CM i<^ K^^ J-" r-v* in r^ CM ri f^ f^ 

d ''V* pininrJCJotOrtrocMpcMcTi 
SI I^CM «^U> Pi to S Cm3 CU 1-4 pStS F- 
r^lHK^a^^- to^iHtovDHSoCMtOf^t— 

i-linp<7\tOlOM^rtOr^CM CMi^ CT^P f"- 

ff\ ini3 fHvoj:t'!npr!iiHCMvov2cM<SK> 
r'V* tH KXjt r<\ r<v* fO r<> in r^ H i-t rH 

r-l^ ™ CM OTW CM CM CM CM IM mi^SsKA^ 
<ys<j\ ON o> CMJN ON o% OMJN c^ o o^ ff^ o^ ON 



SJS 



• MM 
•-I • • 



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I >^ rj KM^ rr\ K\J* 



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minrr\ntvo rr>ojo Nini-4vei-4K\mK\ 

JO'S 9 "£. i::; SE* ™ 5 '-' 4 5 "^ 1^ •^'3' CM 

wONJTi>^into,-ivo .-(O inino f<^a^K^ 
Q fNcriinj- to to cI Q r^ en to us f<^l«^r^ 



15 



er\o nj» 

vo r^r-4SP 
to ini>-^ 



«aVP O^ O^ r^fOKNCM I^l>^t0j* to o 
A (0 1-4 d ra iH •-• i-i <H r4 iH r4 r4 S 






jrt- o^ KvF- to inv* o 



rHvo g>p p rj mm 

CVjr^i-tCMr^CMCMCMCMf^KNCMrHHCMr^ 



|5| 



to VS U (^^ <T> O to ^ 

8>Rv£*H H"d?iCM Sm 

!*%»> C3 CM to CM* p to jr 
toSjcntoJ f^F-«ocM 
to to rH KNlM r— K1 in It 



to gNinmvg k>»o p cm r<^tovo p <r>mf- 

P: S fe f3 R*V£ S !? fe Sis 8 R [?. td 

in CM ON to t^ H CO t^5 i5S In>S ^<S S> f3 
CM KNH CM KNK^K^^<^^«^r<^^»^CM f-4 rt 

1^ CM to M to KNVO o\inp3hF-rti^ON 
to to v£) to r-tnmehvD 3 K^moNlnN 

St in Jt VB f-VJB to ON to 1^ ONvS KN ■-( H 



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KNNO tOVOVO CM r— C»NVO KNIO KN 

tV^ !0 r44 K>m»-^ f^CM t»Nt~CMVI> 

8Sr:i5^?^rt8(SS&JJ?55!; 

CM CM CM CM CM CM CM lA cJ tj CM t-T 1-4 



??8 fa Ri Kit »« j?a 8f s^p^^R^ 

oS <y\ o^ <r^ o> ON o> <^<iS9\oS9\o%CT\<r\<r\ 



9864 



TABU S9 

LOCATION or BASING POISTS FOB IRON AMD STIEL PRODUCTS 













3 
















































T^ 


























s 
















































£ 
























& 


s 


1 

1 












1 


































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s 














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c 


1 


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1 

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11 




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X 






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X 


X 


X 


X 


_ 


~ 


X 


X 


"T" 


T" 


X 


"T" 


I 


X 


X 




X z 






Chicago 


X 


X 


X 


X 


X 


X 


X 




X 




X 


X 


X 




X 






X 


X 


X 


X 


z 




X 


X 




X 


z 






X 


X 




X X 


z 


X 


BlriDlnghao 


X 


X 






X 




X 










X 


X 




X 






X 


X 


X 


X 




X 








X 


z 






X 








z 




ClSTflMd, 0. 




X 




X 


X 




X 










]t 






X 








X 




X 


X 








X 










X 








X 


X X 


Bulutfi. Ulna. 




X 




















X 






X 








X 




































Oulf Port! 




X 






X 




X 




X 


















X 


X 












X 






X 














X 




Pactflo Coast Port* 










X 




X 






















X 


X 


X 


X 




I 




I 






X 


X 












X 


z 


Buffalo 






X 


1 


X 




X 








X 


X 






X 










X 


X 


X 




X 


I 






z 






X 












Canton, 0. 






X 
















X 






X 
















X 






























Uaesllon. 0. 






X 
















X 




















































Bothlabon. Pa. 






J 










X 






2 








J 


























X 


















Oary, Ind* 








X 


X 




X 










X 










X 


X 










X 












X 
















romig«town. 0. 










X 




















X 












X 


X 




X 






















X 




Troy. ». r. 












X 






























































J-rsey City. S.J. 












X 






























X 
































DOTep, Va. 












X 






























































Rockairay. H.J. 












X 






























































I^ladelphla, Pa. 












X 






X 
























X 
































Columbia, Pa. 










































































Lebanon, Pa. 












JJ 






























































Beading, Pa. 












J^ 






























































Danville, Pa. 












X 






























































Bfrwlclc, Pa. 












X 






























































Bumham, Pa. 












X 






























































Orelghton, Pa. 












X 






























































Rlchraond. Va. 












X 






























X 
































Cuyaboga Palle, 0, 












X 






























































loui .Tills . Sy. 












X 






























































Terre Haute, Ind. 












X 






























































Uollne, 111. 














2 




























































Syracuse, H.T. 
















X 


























































Hen Toric, H..T. 


















X 
























































Baltimore. Ud. 


















X 
























































Palmerton, Pa. 


















X ■ 
























































Lorain. 0. 




















X 














X 








































Steel ton, Pa. 




















X 










X 


X 








X 


































Shelby. 0. 




























X 














































Detroit. Mich. 




























X 


X 












































Ullnukes, tls. 




























X 














































HsTllle t Bland, Pa. 










































































Sh«rp«»ille. Pa. 










































































Erie, Pa. 










































































Swedoland, Pa. 










































































Blrdebopo. Pa. 
































X 










































Hamilton, 0. 










































































Jacteeon, 0, 










































































loledo,-0. 










































































5ranlt9 City, 111. 










































































Standish, H. y. 
































X 










































ProTO, Utah 










































































l».rett,' Ua.i. 










































































Sparrows Point, Md. 




































X 








X 




X 
























* 


Johnson City. Tonn. 
































X 










































CoateBYUle, Pa. 




































X 












X 


























St. Loole, Mo. 










































X 
































Kansas City, Uo. 










































X 
































Ulnnequa, Col. 










































X 
































ITeirton, f..ya. 










































































Portsmouth. 0. 










































X 
































Worcester, |iass 










































z 












X 














I 


X 


z z 


Anderson.* Ind. 


































































X 


z 


X 




GlGssport, Pa. 




































































z 




1 


Waui»gan, 111. 








































































Uuncie, Ind. 








































































' 


Ireatoa. H. J. 









































































* 



3 6 6 5 9 H 10 3 



7lal6 7lt6'i3373 



Sooroel Iron snd Stesl Industry Code, imaadnent Ho. 1. 



9864 





DISTRIBUTION 


-343- 
TABLE 40 

OF CAPACITY V/ITH RESPECT TO BASING PODITS 




PRODUCTS 


At 

Basing Point 

% 


Not at But 
within 50 
Miles of 
Basing Pt. 


% 


Not Within 
50 Miles of 
Basing Pt. 

% 


Total 


PIG IRON 


12.83A.700 


A0.85 


U.9A9.255 


A7.58 


3.637.600 


11.57 


31,A21,555 


BLOOMS 
BILLETS & 
SLABS 


12.030.200 


25.2 


22.96^.020 


A7.9 


12,87A.30O 


26.9 


A7. 918. 520 


MFR. & 
CONG. BARS 


A. 092. 200 


29.1 


5. 776, AGO 


Al.O 


A. 209, 325 


29.9 


11.077.925 


SHEET & TIN 
PLATE BARS 


3.119.600 


33.5 


5.113.300 


55.0 


1,067,020 


11.5 


9,299,920 


STRUGTIIRAL 
SH/J'ES 


l,i07.500 


26.1 


3.53A.300 


65.6 


A53.000 


8.3 


5.395.300 


PLATES 


1.521.350 


2A.7 


3.080.300 


Z.9.9 


1.566.200 


25. A 


6.167.850 


SHEETS 


512.100 


6,3 


3.075.200 


?7.6 


A.581.500 


56.1 


8.168.800 


HR STRIP 


586.000 


11.8 


1.707.500 


3A.3 


2.683.000 


53.9 


A.981.500 


CR STRIP 


225.900 


21.8 


382.500 


36.9 


A27.20G 


a.3 


1.035.600 


TIN M. BLACK 


276,500 


10.3 


1.565.A00 


58.1 


8A9.9G0 


?1.6 


2.691.800 


TIN PLATE (1) 


306.330 


10.6 


1.797.550 


61.9 


799. A50 


27.5 


2.903.380 


SKELP 


1.133.000 


27.1 


2. A/./,. 200 


58.7 


59A.0G0 


U.2 


A.171.200 


PIPE. etc. 


1.327.600 


15.5 


3.7A2.600 


A3.7 


3.A88.200 


AG. 8 


8.558.A00 


WIRE RODS 


780.000 


18.1 


2.255.000 


52.A 


1.269.000 


29.5 


A.30A.00O 


\7IRE NAILS & 
STAPLES: 
BABBED WIRE & 

KmcinG 


306.650 


9.5 


1.817.700 


56.6 


1.087,850 


33.9 


3.212.200 


V,TRE DRAVJN 


762.500 


19.1 


1.606. AGO 


A0.2 


1.631.900 


A0.7 


A. 000.800 




Al. 272. 180 


75.812.125 




A1.22A.AA5 


158.308.750 




26. 


1% 


17.9% 




26.0S6 




10056 






IL.QH, 













(1) Includes small quantity of teme plate 
Source: Report of the NRA on the (Operation of the Basing Point System 
in the Iron and Steel Industry, November 30, 193A» 



9864 






Interstate Dlstribatlai of Iron and Steel Products 
for an alllssithin 50 miles of Pittsburgh 
( 3 months ending Jime 30, 193i^) 





(thousands) 
( of ) 






(net tons) 


Fercentaee 


Pennnylvania 


517 


34.0 


Ohio 


228 


15.0 


Nsv lork 


161 


10.7 


lilRhigan 


138 


9.2 


South Central States (l) 


137 


9.1 


nUnnifl 


67 


4.5 


Nev Ehgland States (2) 


51 


3.il 


Pacific States (3) 


43 


2.9 


Harylnnd 


a 


2.7 


Hoirth Central States U) 


a 


2.7 


^FirginiB 


2A 


1.6 


Indiana 


23 


1.5 


Kentucky 


15 


1.0 


South Eastern States (5) 


11 


.7 


Mountain States (6) 


8 


.5 


Wiscoasin 


U 


.3 


Delasare and 0. C. 


3 


.2 



Total 



1,522 



100.0 



(1) Okla., Ark., La., Tex. 

(2) Maine, N. H., Vt., Mass., R.I., Com. 

(3) Calif., Ore., Wash. 

U) Minn., fi. Da., S. Da., lova. Neb., Kai 

(5) N.C., Ga., Fla., Ala., Miss. 

(6) Mont., Ida., Colo., Utah, N. Mex. 



SODRdi NRA Division of Review, Evidence Study Series No. 20 
The Iron and Steel Industry 

Prepared by A. G. White 

9864 Percentages cwnpiled by Trade Practice Section. 



88 



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-367- 
!CAELE 47 

CX)I.IP.AEATIVE GEOGEAPHIGAL PRICE MOVE:.IElT'rS OP 
lEOK MD STEEL PRODUCTS 



Sheet Bars 





CD 


ollars^ 


psr gross 


tonj 








Pitts- 


Yoxmgs- 


Pitts- 


Yoimgs- 




Date 


"bur^. 




Date 


Irar^. 


toim. 


Cleveland 


12/30/19 


50.00 


(*) 


3/13/23 


45.00 


45.00 


(♦) 


2/ 3/20 


55.00 


n 


4/ 3 


42.50 


42.50 


n 


2/10 


58.00 


It 


4/17 


45.00 


45.00 


N 


2/17 


60.00 


n 


6/19 


42.50 


42.50 


N 


3/ 2 


65.00 


II 


9/18 


40.00 


40.00 


H 


3/23 


70.00 


It 


10/ 9 


42.50 


42.50 


N 


3/30 


80.00 


ti 


4/29/24 


41,00 


41.00 


It 


6/22 


75.00 


II 


5/13 


40.00 


40.00 


n 


7/13 


70.00 


11 


7/15 


38.00 


38.00 


M 


8/17 


68.00 


" 


8/26 


37.50 


37.50 


n 


9/14 


67.50 


II 


9/15 


37.00 


37.00 


H 


9/28 


65.00 


It 


12/29 


38.00 


38.00 


a 


10/12 


62.50 


" 


3/51/25 


37.00 


37.00 


n 


11/ 9 


60.00 


" 


5/19 


35.00 


' 35.00 


n 


11/23 


55.00 


n 


10/13 


33.50 


33.50 


a 


11/30 


47.00 


II 


11/ 3 


35.00 


35.00 


n 


2/15/21 


42.00 


II 


11/24 


36.00 


36.00 


a 


3/ 8 


40.00 


» 


3/ 1/27 


34.00 


34.00 


a 


3/22 


38.50 


II 


5/24 


33.50 


33.50 


a 


3/29 


38.00 


n 


7/19 


34.00 


34.00 


a 


4/19 


39.00 


II 


5/29/28 


33.00 


33.00 


a 


7/5 


35.00 


n 


7/ 3 


32.00 


32.00 


a 


7/26 


32.00 


n 


10/ 9/ 


33.00 


33.00 


a 


8/23 


30.00 


It 


10/16 


II 


n 


33.00 


9/27 


32.00 


II 


1/ 8/29 


34.00 


34.00 


34.00 


10/11 


30.00 


It 


2/26 


35.00 


35.00 


35.00 


1/ 3/22 


29.00 


It 


4/23 


36.00 


36.00 


36,00 


4/ 4 


31.00 


n 


6/18 


35.00 


35.00 


35,00 


5/ 9 


35.00 


It 


12/17 


n 


34,00 


n 


8/22 


.37.50 


II 


12/24 


34.00 


n 


34,00 


8/29 


38.00 


11 


2/ 4/30 


33.00 


33.00 . 


33.00 


9/ 5 


40.00 


n 


5/27 


31.00 


31.00 


31.00 


10/31 


39.00 


II 


12/23 


30.00 


30,00 


30.00 


11/ 7 


38.00 


II 


5/19/31 


29.00 


29.00 


29.00 


11/28 


37.00 


ti 


■ 1/ 5/32 


28.00 


28,00 


28.00 


12/ 5 


36.50 


H 


1/12 


H 


27.00 


27.00 


1/ 9/23 


37.50 


II 


l/l9 


27.00 


n 


a 


1/30 


39.50 


39.50 


2/ 2 


26.00 


26.00 


25,00 


2/13 


40.00 


40.00 


2/23 


H 


n 


26.00 


3/ 6 


42.60 


42.50 











(continued on the following page) 



9864 



-368> 

( continued from the preceding page) 





Pitts- 


Youngs- 


Cleve- 








Sate 
<Bl5lZZ 


■buTfih 


town 


land 


Buffalo 


Canton 


Sparrows Point 


26.00 


26.00 


26.00 


26.00 


26.00 


(*) 


9/19 


n 


n 


n 


n 


n 


26.00 


4/24/34 


30.00 


30.00 


30.00 


30.00 


30.00 


30.00 


7/10 


28.00 


28.00 


28,00 


28.00 


28.00 


28.00 


11/12/35 


30.00 


30.00' 


30.00 


30.00 


30.00 


30.00 


1/ 9/36 


R 


n 


It 


II 


H 


n 



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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-383- 
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 


N 


11/25 


It 


3.70 


2/ 3 


5,00 


n 


12/ 9 


3.50 


R 


3/ 2 


5.50 


H 


12/29 


3.50 


R 


7/13 


6.50 


II 


2/10/25 


3.50 


R 


7/20 


7,50 


II 


3/17 


3*40 


R 


9/28 


7.00 


n 


4/1 


It 


3.60 


10/ 8 


6.75 


n 


5/ 5 


n 


3.50 


10/26 


6.50 


It 


5/12 


3.30 


n 


11/ 9 


6.00 


n 


5/26 


3.20 


R 


11/23 


5.50 


n 


6/ 2/25 


3.15 


n 


11/30 


4.85 


II 


6/ 9 


It 


3.25 


12/ 7 


4.35 


II 


6/23 


3.10 


R 


2/15/21 


4.20 


II 


7/14 


3.15 


R 


4/5 


4.00 


n 


9/ 1 


3.10 


n 


4/12 


3.35 


ti 


9/22 


R 


3.30 


4/19 


4,00 


It 


10/13 


n 


3.25 


6/ 7 


3.85 


n 


10/27 


3.15 


R 


6/28 


3.75 


It 


11/ 3 


3.25 


3,35 


7/ 5 


3.50 


n 


12/ 8 


3.35 


3,45 


7/19 


3.25 


II 


4/27/26 


3.25 


R 


7/26 


3,00 


It 


6/ 1 


3.15 


H 


8/23 


2.75 


n 


6/22 


n 


3,35 


9/27 


3.00 


N 


7/13 


n 


3.25 


11/ 8 


2.90 


It 


8/24 


3.10 


fl 


11/15 


2.75 


II 


9/14 


3.15 


R 


11/29 


3.00 


n 


9/21 


3.10 


H 


4/11/22 


3.15 


It 


1/18/27 


3.00 


H 


8/15/ 


3.35 


n 


2/ 8 


H 


3,10 


2/ 6/23 


3.50 


It 


3/29 


3.05 


R 


2/13 


3.35 


It 


5/10 


3.00 


H 


2/27 


3.50 


n 


6/28 


3.10 


3.20 


5/ 1 


3.85 


It 


10/11 


3.00 


■ 


6/ 3/24 


3.75 


It 


10/22 


2.90 


3.00 


7/ 1 


3.65 


H 


12/ 6 


2.85 


R 


7/15 


3.50 


It 


12/27 


2.90 


R 


9/9 


3.40 


n 


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 


t 




6/19 


2.85 


a 




9/11 


2.90 


R 




10/16 


a 


3.00 




12/11 


3.00 


a 




1/15/29 


N 


3.10 




7/23 


2.90 


« 




8/ 6 


> 


3.00 




3/11/30 


2.85 


N 




3/18 


2.80 


R 




4/28 


1 


2.90 




5/37 


2.75 


R 


" 


7/22 


2.70 


2.80 




11/ 4 


2.65 


2.75 




12/29 


2.6G 


R 




2/17/31 


2.55 


R 




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 


H 




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 


■ 


R 


3.35 


7/10 


2.75 


2.85 




7/17 


R 


R 


3.25 


8/14 


■ 


R ' 


3.35 


1/ 7/36 


■ 


R 


^ 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 


It 


n 


2-3 


7.00 


n 


H 


U-n 


8.50 


n 


n 


11-9 


8.00 


n 


fl 


12-7 


7.00 


n 


n 


12-21 


6.25 


n 


R 


>;-19-21 


5.50 


n 


R 


6-28 


5.00 


R 


R 


7- 3 


u.n5 


R 


H 


7-12 


A.25 


n 


R 


8-16 


A.oo 


« 


R 


10-18 


3.75 


B 


R 


11-15 


4..00 


n 


R 


1-3 


3.50 


n 


R 


u--^ 


3.65 


n 


n 


5-30 


3.75 


n 


n 


6-6 


A.oo 


n 


« 


8-29 


K.25 


B 


n 


10- 3 


^.50 


n 


n 


2-13-23 


-4.75 


n 


n 


3-6 


5.00 


n 


R 


k- 3 


5.25 


n 


■ 


6-26 


5.00 


n 


H 


12- A 


4.90 


n 


n 


12-11 


4.75 


R 


R 


12-2A 


5.00 


R 


R 


2- 5-24 


4.75 


1) 


R 


5-6 


4.50 


n 


R 


7- 8 


4.25 


R 


R 


8- 5 


4.00 


H 


R 


9- 30 


n 


4.00 


R 



(*) 



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 


n 


It 

p _ 


3.50 




3.25 


3.25 


n 



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 

R 

■ 
a 

2.75 

■ 

2.65 

n 

2.55 
n 

2.-^5 

■ 

« 
2.35 



3.00 


3.30 


2.85 


3.15 


3.00 


3.30 


3.25 


3.55 


n 


n 


3.00 


3.30 


3.25 


3.55 


3.00 


3.30 


3.15 


3.55 


n 


n 


3!i00 


n 


R 


3.A0 


« 


3.30 


■ 


3.20 


« 


3.30 



2.90 



2.65 


2,95 


2.75 


3.05 


B 


R 


2.85 


3.15 


2.95 


n 


2.85 


n 


2.75 


3.05 


2.65 


n 


n 


n 


« 


2.95 


■ 


B 


2.55 


2.85 


R 


n 


n 


n 


2,k5 


2.75 


n 


2.73 


2.35 


2.63 



3.75 



3.^0 
3.15 
3.40 
3.15 
3.40 



3.15 
3.25 

B 

3.15 



2.90 

B 

3.00 

R 
B 

a 

2.90 

n 

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 


2.25 


2.53 


2.50 


3-31-31 


■ 


II 


• 


2.40 


A-28-31 


2.15 


2.15 


2.-43 


2.30 


10-27-31 


2.05 


n 


2.33 


■ 


11-10-31 


" 


2.05 


■ 


■ 


11-2A-31 


a 


n 


n 


2.20 


12-15-31 


2.00 


2.00 


• 


n 


1-5-32 


1.95 


1.90 


2.35 


2.15 


1-12 


n 


n 


2.25 


n 


1-19 


1.90 


1.85 


2.20 


2.05 


3-15-32 


2.00 


2.00 


2.30 


2.20 


9-6-32 


« 


1.90 


n 


n 


9-13 


1.90 


« 


2.20 


n 


11- 1- 


2.00 


2.00 


2.30 


■ 


1-3-33 


1.90 


1.90 


2.20 


II 


1-24- 


« 


N 


n 


2.05 


1-31 


1.80 


1.80 


2.10 


n 


2-7 


a 


n 


n 


2.00 


2-U 


n 


n 


2.20 


n 


5-23 


2.00 


2.00 


2.30 


2.20 


5-30 


II 


1.80 


n 


2.15 


9- 5 


2./+0 


2.A0 


2.68 


2.60 


k'lk 


2,80 


2.80 


3.08 


3.00 


7-10 


a 


2.60 


2.88 


2.60 


7-17 


2ii60 


« 


II 


« 


1-8-35 


a 


n 


n 


2.80 


4-23-35 


n 


II 


2.895 


R 


1-7-36 


« 


» 


■ 


a 



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- 



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c^fHc^i<»^c<^lf\eotoo^j•^•^c^^c\i r^-*>c t-w to &■ 



9864 



-390- 



Gulf Ports 

F.o.b. Car 

Docks 


^1 


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land 
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BBCBECCESB 



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J|CBBBBCBBB88BBBB 



c^B cv rf\ cv 
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HHHHHHHHHOiC^^«VC^iO^C^^C^iCVCMCVC^^C^iCVC^iC\iC\^ CV 

W <V ~* CM CV 

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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 

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• • » • • 



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'-^o ooooh o cr> 

^e •SBEBB ((B '(B •SBBBBBB (BEE • 

— ' c\i Hcvcvrvfcv cv H 



BBBBEBBBBSEBBBBBBBBBB aBBEB 



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OJ H Oi 



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vO vO nO vD 
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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 

g^ 


Is 
si 


o • 

Jj 4» *^ 

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bJPliO 
Pi 


New 
York 


4? 


Cleve- 
land 
Del'd 


a> H 
m H 


1 


•rt O 


21 


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 



1^ .a 
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o o 



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a> o » 
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H H O 

o 









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r'^ a i-i oi t-t 

C\J W C\J Ol C\i 



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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 

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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 



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C- t- nO 



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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 

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9864 



-394- 





n 




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vOt^BS C^BBCBBBBBBC^vOvOBBvCtrNBEt^B E 

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9864 



•^95- 





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9864 



-896- 



TABLE 53 

OOIIPARATIVE GEOGRAPHICAL PRICE MOVHEHTS OF 
IRCW AHD STEEL PRODUCTS 

Galvanlged Sheets 







(Base, cents per 










pound) 










Pitts- 




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 


It 


II 


2-3 


6.50 


11-15 


3.75 


n 


II 


3-2 


7.00 


11-28 


4.00 


n 


a 


7-13 


8.00 


4-11-22 


4.1^ 


n 


■ 


7-20- 


9.00 


8-15 


4.35 


n 


n 


9-28 


8.50 


2-27-23 


4.60 


n 


n 


10-8 


8.25 


3-20 


5.00 


n 


II 


10-26 


8.00 


11-6 


4.90 


n 


ft 


11- 1 


7.75 


11-20 


4.85 


n 


II 


11- 9 


7.50 


12-11 


4.90 


n 


n 


11-16 


7.25 


1-15-24 


5.00 


n 


It 


11-23 


6.70 


3-11 


4.90 


n 


11 


11-30 


6.00 


4-15 


4.80 


11 


n 


12-7 


5.70 


5-20 


4.75 


n 


II 


2-15-21 


5.50 


7-1 


4-60 


n 


n 


3- 1 


5.25 


22 


4.50 


n 


n 


3-15 


5.00 


8-18 


4.60 


n 


It 


U' 5 


A.75 


9- 9 


4.55 


n 


n 


u-iz 


4.60 


9-16 


4.50 


■n 


n 


A-19 


5.00 


10-14-24 


4.50 


4.70 


n 


6-28 


4.75 


11-25 


4.50 


4.80 


n 


7-5 


4.50 


12-2 


4.60 


4.85 


■ 


7-19 


4.25 


12-9 


4.75 


n 


n 


7-26 


4.00 


3-10-25 


4.65 


« 


n 


8-23 


3.75 


4-17 


4.60 


n 


R 



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 

a 

4.20 



4.30 
4.50 



4.60 

n 
n 

4.50 
II 

4.40 

II 

4.35 
U30 

4.25 
n 

4.20 



4.25 
3.85 



3.75 

3.70 
n 

3.65 



4.70 
4.60 

n 

4.50 
n 

4.35 
4.25 
4.35 

n 
4.30 
4.35 
4.40 
4.60 
It 

4.70 



(*) 



(*) 



(*) 



4.82 



a 


4.92 


n 


n 


3.35 


n 


4.70 


4.72 


4.60 


n 


n 


n 


n 


n 


4.50 


4.62 


4.40 


n 


n 


« 


n 


4.52 





4.57 


n 


4.62 


3.95 


4.17 


4.05 


n 


n 


n 


3.95 


4.07 


n 


n 


3.85 


n 


n 


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 




B 


B 




3-15 


3.70 




4.02 


3.90 




U- 5 


3.60 




■ 






-^-12 


■ 




3.97 






A-19 


M 




3.92 






7-12 


3.85 


3.95 


4.17 


3.95 




9-27 


B 




B 


4.00 




10-4 


B 




4.07 






10-11 


3.75 




fl 




B B 


10-18 


n 


3.85 


B 






10-25 


3.65 




3.97 






11- 8 


B 




B 


3.95 




11-15-27 


« 


3.80 


■ 




3.74i ■ 


11-22 




3.75 


■ 




3.74 ■ 


10-30 


3.60 




B 






10- 6 


n 


3.70 


B 






12-13 


n 




B 




3.79 « 


12-27 


3.65 




B 


3.90 


3.74 ■ 


1-3-28 


« 




B 




3.84 ■ 


1-10-28 


B 


3.85 


fl 






2- 7-28 


B 




4.07 






3-27 


B 




a 




3.74 • 


it-10 


B 




3.97 






4-2A 


3.60 


3.70 


3»92 






5-1 


■ 




B 




3.64 


5-15 


B 




• 


3.85 




5-22 


3.55 




3.87 






6- 5 


3.50 




3.82 


3.80 




6-19 


n 


3.60 


B 






6-26 


II 




B 




3.54 ■ 


7-10 


It 






3.70 




7-24 


3.40 




3.72 






7-31 


n 




B 


3.65 




9-11 


B 




B 




3.59 ; 


10- 2 


3.50 




3.82 






10-9 


B 




B 




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 


« 


a 


a 


12-18 






n 


n 


3.79 


a 


3- 5-29 




3.80 


n 


It 


" 


4.25 


6-25 


3.50 




« 


n 


a 


(*) 


7-16 






n 


11 


3.69 


a 


8-6 




3.70 


» 


■ 


3.59 


a 


8-13 




3.60 


If 


n 


a 


a 


9-10 






n 


3.70 


a 


a 


9-17 






n 


« 


3.69 


a 


10- 1 






3.82 


n 


3.59 


a 


10-15 






■ 


3.75 


a 


a 


10-29 


3.40 




II 


n 


a 


a 


11-19 




3.50 


3.72 


a 


a 


a 


12-3 






n 


3.65 


a 


« 


l-U-30 


3.30 




3.62 


n 


3.49 


a 


1-21 




3.A0 


It 


3.55- 


a 


a 


1-28 






n 


3.50 


a 


a 


2-11 






It 


3.45 


a 


a 


5-13 


3.20 


3.30 


n 


a 


a 


a 


5-19 






3.49 


a 


3.431 


a 


5-27 






■ 


3.40 


a 


a 


6-10 






n 


3.35 


a 


a 


6-24 


3.15 


3.25 


3.44 


B 


a 


a 


7-1-30 






II 


n 


3.33i 


■ 


7-22 


3.10 




R 


a 


a 


a 


7-29-30 






n 


11 


3.28i 


a 


8- 5 




3.20 


3.39 


3.25 


a 


a 


8-12 


3.05 




3.34 


a 


a 


a 


8-19 


3.00 


3.15 


3.29 


a 


a 


a 


9-2 




3.10 


n 


3.20 


n 


a 


9-23 






n 


a 


3.18i 


■ 


9-30 






a 


3.15 


a 


a 


1&-28 






3.24 


a 


a 


a 


11-4 


2.90 




n 


n 


II 


a 


11-11 






H 


3.10 


3.091 


a 


11-25 






II 


3.15 


a 


a 



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 


n 


■ 


n 


3.10 


a 


a 




2-10 


n 


n 


n 


3.05 


a 


a 




u-i 


2.80 


2.90 


■ 


3.00 


a 


3.50 




A-21 


« 


■ 


« 


2.80 


a 


a 




Ar-2& 


D 


n 


B 


a 


2.98| 


a 




6-11 


2.75 


■ 


3.04 


2.85 


2.93i 


a 




6-18 


g 


2.85 


n 


B 


a 


a 




6-30 


2.90 


3.00 


3.19 


3.05 


(*) 


3.38 




12-22 


2.80 


2.90 


3.09 


2.95 




a 




1- 5-32 


« 


« 


3.11 


a 




3.40 




2- 9 


2.75 


2.85 


3.06 


a 




a 




3-29 


2.85 


2.95 


3.16 


3.00 




3.45 




&-16 


« 


a 


■ 


a 




3.50 




9-27 


2.75 


2.85 


3.06 


2.90 




a 




10-18 


2.85 


2.95 


3.16 


3.00 




a 




12-27 


« 


a 


B 


a 




a 


4.95 


1- 3-33 


2.75 


2.85 


3.06 


2.90 




a 




1-17 


2.65 


2.75 


2.96 


2.80 




a 




1-24 


* 


2.65 


B 


a 




a 




1-31 


2.50 


2.60 


2.81 


2.65 




3.25 




2-21 


■ 


2.50 


m 


a 




a 




3-7 


2.60 


2.70 


2.91 


2.75 




a 




4-25 


2.70 


2.80 


3.01 


2.85 




3.35 




5-23 


s 


2.95 


3.16 


a 




a 




7-3 


2.85 


fl 


B 


3.00 




3.50 




9-12 


■ 


If 


B 


a 




3.55 




9-26 


n 


n 


3.U 


a 




a 




U-2U-3U 


3.25 


3.35 


3.54 


3.40 




3.85 




6-26 


II 


11 


II 


a 




3.80 




7-3 


n 


n 


n 


a 




3.85 




7-10-34 


3.10 


3.20 


3.39 


3.25 




3.85 




7-17 


n 


n 


a 


a 




3.70 




5-7-35 


« 


n 


3.a 


a 




a 




1-9-36 


n 


« 


a 


a 




■ 





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 


N 


4/24/34 


1.70 


12/ 1/35 


1.80 


1/ 7/36 


n 



(*) 



n 

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*) 


i*) 


7/27/20 


9,00 


n 








10/12 


8.50 


H 








11/ 9 


7.50 


N 








11/23 


7.00 


n 








4/12/21 


6.25 


n 








6/ 5 


5.75 


R 








7/26 


5.50 


R 








8/ 2 


5.25 


R 








IO/I8 


5.00 


a 








11/1 


4.75 


R 








12/13 


4.65 


R 








12/20 


4.75 


R 








2/28/22 


4.60 


R 








4/ 4 


4.75 


N 








2/27/23 


4.95 


n 








5/ 1 


5.50 


R 








9/30/24 


n 


n 


5.60 






11/21 


n 


R 




5.60 




11/10/25 


H 


5.60 


i*) 






12/27/27 


5.25 


5.35 




5.35 




3/13/28 


n 


R 




(;) 




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 


R 


H 






R 



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 


n 


45.00 






1/9 


47.50 


47.50 






2/15 


50.00 


50.00 






5/13/24 


48.00 


48,00 






8/12 


46.00 


46,00 






10/14 


45.00 


45.00 






12/ 2 


48.00 


48.00 






12/29 


It 




48U00 


50800 


4/21/25 


46,00 


46.00 






4/28 


n 




46.00 




6/23 


45.00 


45,00 


47,00 


45,00 


7/28 


If 




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 


43.00 


43.00 


(*) 


(•) 


(*) 


(*) 


(*) 


(•) 


2/ 8 


n 


ti 


n 


44.00 


H 


H 


tt 


It 


H 


4/12 


40.00 


40.00 


II 


H 


It 


It 


II 


II 


H 


4/19 


It 


n 


It 


43.00 


n 


n 


n 


II 


H 


4/26 


42.00 


42.00 


II 


n 


II 


n 


n 


n 


N 


5/ 3 


It 


II 


42.00 


42.50 


It 


n 


n 


II 


n 


7/12 


43.00 


43.00 


It 


« 


n 


tt 


It 


« 


n 


7/19 


42.00 


42.00 


It 


n 


It 


n 


n 


n 


It 


7/26 


43.00 


43.00 


43.00 


44.00 


II 


II 


n 


n 


It 


9/13 


II 


It 


42.00 


n 


II 


n 


It 


II 


H 


9/27 


II 


It 


It 


43.00 


It 


It 


It 


II 


II 


10/18 


11 


n 


40.00 


H 


11 


II 


H 


II 


It 


10/24 


41.00 


41.00 


It 


42.00 


n 


II 


11 


II 


n 


11/15 


40.00 


40.00 


ti 


It 


II 


It 


It 


tl 


n 


1/ 3/28 


n 


It 


42.00 


II 


II 


II 


II 


II 


n 


l/lO 


42.00 


42.00 


11 


43.00 


II 


It 


II 


n 


n 


2/ 7 


H 


n 


44U00 


45.00 


It 


It 


II 


It 


It 


2/21 


44.00 


44.00 


11 


It 


It 


n 


tt 


n 


n 


5/ 8 


42.00 


42.00 


11 


II 


II 


II 


tl 


It 


tl 


6/26 


H 


It 


43.00 


44.00 


II 


n 


It 


II 


II 


7/10 


II 


It 


42.00 


43.00 


II 


II 


II 


n 


n 


1/ 1/29 


II 


(♦) 


It 


II 


It 


n 


II 


II 


fl 


9/24 


II 


II 


40.00 


41.00 


II 


II 


II 


n 


n 


10/ 1 


40.00 


n 


II 


II 


n 


It 


II 


II 


It 


2/27/30 


38.00 


It 


38,00 


39.00 


It 


It 


n 


It 


n 


5/ 6 


36.00 


H 


36.00 


37.00 


It 


It 


tt 


n 


n 


12/ 9 


35.00 


II 


35.00 


36.00 


II 


It 


It 


tl 


n 


12/29/31 


37.00 


11 


37.00 


38.00 


It 


It 


n 


H 


R 


1/24/33 


35.00 


n a 


35.00 


35.00 


II 


n 


II 


n 


N 


9/ 5/ 


11 


36.00^ 


II 


II 


38.00 


II 


II 


It 


n 


12/ 5 


36.00 


37.00/ 


36.00 


37.00 


39.00 


II 


n 


n 


It 


4/24/34 


38.00 


39.00/ 


38.00 


39.00 


4i.ee 


It 


II 


N 


n 


6/12 


w 


39.00 


II 


It 


It 


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 


It 


n 


It 


It 


II 


II 


It 


It 


II 



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. 

a 

/ : Delivered price. 



9864 



t 


Si 


^3*« S S 1 § Si.*** S ffS S5^ 










^ 


?:» epi*,!? 8 84 es.fi»!r;a c c 


: 


^ 


^ggS^ffiJS |R| gg'iSS^ «\s, 




Pi 


Ss sPiS's 5,8 s tss'ffi t-a fS.8 




W,.,^^tv,f>,.-.^^««rf^^,^^^ 


■3 

U 






•" 


C>.Cv,Hr.<ViM--r.«,^-«.<r^-_j 


• 


75 


a S-5,Sg,8 11 S.S8'^SSi.S-?,S; 


Is 


^ 


r^iH rH'S*r^r^'^'^ii>w ^^J- ftJ «)^o'r'^5 




BO r-vv^ J-WOOOONCrsOl^ 10-3 rH UD 10 
r— BO U5 ITiKO r^ f— r— vo ^ r~\£> VO VD M) "^ "-^ 



i ■ 



Tea S' 















wl S'!^OBOCTioOo8o^S^<J^O^^O«(J^CT^ 

— , c\JvcooK^e^Jwa^Q o\3 w f'M^fg a^o o 

cy| ^^^pC>^^^HO^o tr- bo oo h-\o •^ \i} to bo 

•»-^ r— t\j l"lc\j (T\r— j^ bo r-"?noi-i bo to"^0 r< 

^ S'8S?5S88SSi,KS't8R!.fiP:ff 






r-wvo O ONO Q lr^K^» irvio ev O to 9% 



;!,3'!£^f:f 



98b4 



?>5"iS. 


T>r— ov: 


^SKT. 


oS^'lS^S 


-.83:^ 




K^^ r^W 


?RR 


X?,5^S"<! 


'^KrKr 


s,sJ,s 


^«K 


SggSjS 


sSIrS 



«5 SS ." 

a o H t} n Q 

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