U.S. Rail Industry

Historians have concluded that railroads were the indispensable and driving force behind America’s growth in the nineteenth century. As we begin the twenty-first century, railroads continue to play an integral role in the U.S. and global economy. Railroads move approximately 43 percent of our nation’s freight (measured in ton-miles), which is more than any other mode of transportation.

Interstate Commerce Act of 1887

As a result of the passage of the Interstate Commerce Act in 1887, freight railroads became the first U.S. industry to be subject to comprehensive federal economic regulation. This regulation lasted for the next 93 years. By the 1970s, archaic regulations, in combination with intense competition from other modes of transportation and highly inefficient rail systems, brought the industry to the brink of disaster. Bankruptcies of large railroads were common as investment levels were insufficient to maintain rail infrastructure in good condition, rates were rising, productivity was low and vast segments of rail lines were duplicative or had low traffic levels. The U.S. government gave serious consideration to nationalizing the railroad system.

Staggers Rail Act of 1980

The passage of the Staggers Rail Act of 1980, which partially deregulated the railroad industry, began a period which gave rise to the revitalization of the industry. The Staggers Act allowed railroads to establish their own routes, tailor their rates and service to market conditions, and differentiate rates on the basis of demand. There are few industry experts who would question the wisdom of the Staggers Act as it enabled railroads to reinvest billions of dollars into their systems, vastly improve service, increase productivity, increase traffic levels and improve the overall financial viability of railroads. Shippers have seen their rates decline, as measured on a revenue per ton-mile basis, over 57 percent (inflation adjusted) from 1981-2005.

The Staggers Act also resulted in the railroad industry looking at their rail systems and rationalizing those segments which were considered non-core. The result was a significant number of branch rail lines being sold to “short line railroad” operators. These short lines were able to significantly increase traffic on the branch lines through focused marketing efforts, increased productivity, targeted investment and a lower overall cost structure.

Railroads Today

Today, the U.S. rail system is characterized by three types of freight railroads. There are seven Class I railroads in the U.S. These are railroads with annual revenue in excess of $401 million. Class I railroads comprise one percent of all the freight railroads but account for 67 percent of the industry’s mileage operated, 90 percent of its employees and 93 percent of its freight revenue. They typically concentrate on long-haul, high density intercity traffic lanes.

Regional railroads are linehaul railroads with at least 350 route-miles, operate in several states, and generate revenue of between $32 million and the Class I threshold. In 2008 there were 33 regional railroads in the U.S.

Local linehaul carriers (often referred to as short line railroads) operate less than 350 miles and generate less than $32 million in revenue per year. In 2008 this classification totaled 525 railroads. They generally provide point-to-point service over short distances and most operate between 10 to 100 track miles in a single state. This classification also includes switching and terminal railroads, which provide local switching and/or terminal services.

With 558 short line and regional railroads generating $3.3 billion in railroad freight revenue, the short line and regional railroad sector is a significant part of the railroad industry. Short line and regional railroads operate nearly 45,000 miles of track, which represents almost 32 percent of all U.S. railroad miles. Short line railroads serve a critical function in the freight transportation network, connecting shippers with long-haul, intercity corridors served by the Class I railroads. As the indispensable “first or last mile” of rail infrastructure, short lines originate or terminate one out of every four railcars.

Patriot Rail believes that short line and regional railroads will play an increasingly larger role in the transportation industry in the years to come by preserving rail freight service to rural areas of the U.S.