A tiny, 242-mile railroad in Northern Michigan has taken on the entire railroad industry, and won.

The Michigan Northern Railway shook up the railroad establishment last year when it politely declined to increase its transcontinental freight rates for eight commodites by 5 percent, an increase that had been granted to the industry by the Interstate Commerce Commission.

What upset the other railroads was a regulation that says that the lowest freight rate offered by any railroad whose track is used on a cross-country trip becomes the rate charged for the entire trip.

It seems that some of the larger roads, like Southern Pacific and Union Pacific did not appreciate the fact that they would have to take a 5 percent cut on the freight rates that they had fought so hard to raise.

So 20 railroads got together and petitioned the ICC to allow them to cancel all routes that went over Michigan Northern's tracks, forcing shippers to have their goods sent on other, probably longer and more expensive routes.

Yesterday, the ICC ruled that those railroads could not cancel those routes, and Michigan Northern could keep its rates where they are.

"What this means," says Union Pacific spokesman Joe McCartney, "is that Northern Michigan can buy traffic with our money. They can control out pricing levels even though we have been given the right to set higher rates - it's the tail wagging the dog."

McCartney said another problem associated with the Michigan Northern route is the ferry the railroad uses to cross over the Straights of Mackinac, the water separating the two land masses that make up the State of Michigan.

"The cars have to cross on a ferry," McCartney said, "and there have been times when several weeks worth of cars were just waiting because of the capacity of the ferry."

But Michigan Northern attorney Mike Sterlacci said "it turns out to be shorter and faster for many shippers to use our route."

But why not go along with every other railroad in the 5 percent increase.

"Look at the airlines," Sterlacci said. "All they did was lower their rates and their business is booming. We figured if we lowered our rates, our business would pick up, too."

Michigan Northern could use the pick-me-up, ICC sources said. Subsidised by the state of Michigan, a situation that will only last three more years, Michigan Northern has that much time to become self-sufficient.

"With today's victory we have an opportunity to be self supporting," he said. "I feel like the little guy was finally able to stand up to the giants and win one."

The ICC concedes the case is unusual, and agreed with the shippers who favored the lower rates in their support of Michigan Northern before the commission.

"We don't get too many requests for rate hikes to be cancelled," one ICC official said.