Freight Railroads: Industry Health Has Improved, but Concerns about Competition and Capacity Should Be Addressed
GAO-07-94
Published: Oct 06, 2006. Publicly Released: Oct 06, 2006.
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Highlights
The Staggers Rail Act deregulated the freight rail industry, relying on competition to set rates, and allowed for differential pricing (charging higher rates to those more dependent on rail). The act gave the Surface Transportation Board (STB) authority to develop remedies for shippers "captive" to one railroad and set a threshold for shippers to apply for rate relief. GAO was asked to review (1) changes in the railroad industry since the Staggers Rail Act, including rates and competition; (2) STB actions to address competition and captivity concerns and alternatives that could be considered; and (3) freight demand and capacity projections and potential federal policy responses. GAO examined STB data, conducted interviews, and held an expert panel.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Surface Transportation Board | To ensure an appropriate balance between the interests of railroads and shippers, the Chairman of the Surface Transportation Board should undertake a rigorous analysis of competitive markets to identify the state of competition nationwide; in specific markets, determine whether the inappropriate exercise of market power is occurring; and, where appropriate, consider the range of actions available to address problems associated with the potential abuse of market power. If the Chairman determines that STB requires more resources to conduct this analysis, then STB should request additional resources from Congress. |
When Congress substantially deregulated the railroad industry in the 1970s and 1980s, it intended that competition and demand for services would establish reasonable rail rates and minimize the need for federal regulatory control over the rail industry. However, our October 2006 report raised questions about the state of competition in the railroad industry and whether rail rates in selected markets reflected justified and reasonable pricing practices or an abuse of market power by the railroads. We recommended that the Surface Transportation Board undertake a rigorous analysis of competitive markets to identify the state of competition nationwide; in specific markets, determine whether the inappropriate exercise of market power is occurring; and, where appropriate, consider the range of actions available to address problems associated with the potential abuse of market power. In September 2007 the Board announced that, in response to our recommendation, it had awarded a contract to a firm to conduct a comprehensive and independent study of competition and related issues in the freight railroad industry. The firm released its initial report in November 2008; subsequently the Board directed the firm to update its study to include more recent information. A second report was released in January 2010. In September 2010, the Board Chairman testified before Congress that he intended to proactively reexamine the Board's rules on competition in the rail industry. In June 2011 the Board held hearings to explore the current state of competition in the railroad industry and possible policy alternatives to facilitate more competition, where appropriate. The Board held these hearings to help it decide what measures the Board could and should consider to modify its competitive access rules and policies. Our work helped focus the Board on the important issues of competition, consistent with the intent of Congress that competition and demand for services establish reasonable rail rates in the industry.
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| Surface Transportation Board | To ensure an appropriate balance between the interests of railroads and shippers, the Chairman of the Surface Transportation Board should review STB's method of data collection to ensure that all freight railroads are consistently and accurately reporting all revenues collected from shippers, including fuel surcharges and other costs not explicitly captured in all railroad rate structures. |
In December 2007, the Board substantially implemented this recommendation when it issued a ruling (Ex Part 385(Sub No. 6)) instructing the freight railroads to report fuel surcharges as revenue in the freight revenue field of the Waybill Sample.
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| Department of Transportation | As DOT continues to develop a national freight policy and a possible federal policy response, and to ensure the efficiency and effectiveness of our nation's freight system, the Secretary of Transportation should consider strategies to (1) sustain the role of competitive market forces by creating a level playing field for all freight modes and (2) recognize the fiscally constrained federal funding environment by developing mechanisms to assess and maximize public benefits from federally financed freight transportation investments. |
DOT considered these among other factors in formulating its draft National Freight Policy.
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Topics
CompetitionCost analysisEconomic analysisFinancial analysisFreight transportationFreight transportation ratesPrices and pricingRailroad industryRailroad regulationShipping industryStrategic planningTransportation planningTransportation policiesTransportation ratesBarges