Freight Railroads: Updated Information on Rates and Other Industry Trends

Over 25 years ago, Congress transformed federal freight rail transportation policy. At that time, after almost 100 years of economic regulation, the railroad industry was in serious economic decline, with rising costs, losses, and bankruptcies. In response, Congress passed the Railroad Revitalization and Regulatory Reform Act of 1976 and the Staggers Rail Act of 1980. Together, these pieces of legislation substantially deregulated the railroad industry. In particular, the 1980 act encouraged greater reliance on competition to set rates and gave railroads increased freedom to price their services according to market conditions, including the freedom to use differential pricing--that is, to recover a greater proportion of their costs from rates charged to those shippers with a greater dependency on rail transportation. At the same time, the 1980 act anticipated that some shippers--commonly referred to as "captive shippers"--might not have competitive alternatives and gave the Interstate Commerce Commission (ICC), and later the Surface Transportation Board (STB), the authority to establish a process through which shippers could obtain relief from unreasonably high rates. This process establishes a threshold for rate relief, allowing a rate to be challenged if it produces revenue equal to or greater than 180 percent of the variable cost of transporting a shipment. Since the passage of the Staggers Rail Act of 1980, we have issued several reports on the freight railroad industry. On October 6, 2006, we issued our most recent report, in which we reported that industry rates and the rates for many commodities (e.g., coal and motor vehicles) had generally declined from 1985 through 2004. We also reported that freight railroad companies do not consistently report revenues raised from fuel surcharges. Some railroads report fuel surcharges as part of their general revenues, others categorize the surcharges separately as "miscellaneous revenue," and still others may not report revenue collected from fuel surcharges at all. This inconsistent reporting led us to recommend that STB review its method of data collection to ensure that all freight railroads are consistently and accurately reporting all revenues collected from shippers. Congress asked us to update our October report using 2005 data, which became available after we issued our report. This report provides that update, including changes in industry and commodity rates, other costs to shippers (such as railcar ownership and miscellaneous revenue), and data on traffic traveling at rates equal to or greater than 180 percent revenue to variable cost (R/VC).