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Rail
Deregulation In the late 1970s, nearly a third of U.S. railroads were in or close to bankruptcy. Over 80 years of fairly stringent regulations and gradually increasing competition from truck and barge transportation had caused a financial and physical deterioration of the national rail network. To rejuvenate the rail sector and open it up to market forces, Congress passed the Railroad Revitalization and Regulatory Reform Act of 1976 which eased regulations on rates, line abandonment, and mergers. After four years, it was determined that further action was needed to revive the industry, and Congress followed up with the Staggers Rail Act of 1980. The Staggers Act provided the railroads with greater pricing freedom, streamlined merger timetables, expedited the line abandonment process, and allowed confidential contracts with shippers. In the post-regulation environment, one of the most important elements driving the business decisions of the rail sector continues to be the high level of fixed costs that they face. Although railroads, like other modes of transportation, must purchase and maintain their own rolling stock and locomotives, they must also, unlike competing modes, construct and maintain their own roadbed, tracks, terminals, and related facilities. In the regulated environment, recovering these fixed costs was difficult, hindering the profitability of the industry. After deregulation, North American railroads sought to shore up their financial condition and improve their operational efficiency with a mix of strategies. These have included reducing excess or unprofitable capacity (network rationalization), raising equipment and operational efficiencies, using differential pricing, and pursuing consolidation.1 Some network rationalization was inevitable, at least in the United States, where historically a substantial overcapacity existed. The U.S. rail system had been designed and built before the advent of the interstate highway system, during a time when half the trains on the network were passenger trains. A contraction of the network has been occurring since World War I, but was intensified by the deregulation process. The process of abandoning trackage helps to boost railroad profitability by increasing traffic density on a railroad’s remaining lines and ceasing operations on those lines that are unprofitable or marginally profitable. In the category of operational and equipment efficiencies, railroads have pursued a number of goals. First they have sought to boost the traffic volume on individual routes and their networks by running trains more frequently along the same track. Second, they have encouraged longer hauls with less switching in order to decrease their per mile costs. Finally, through various incentives, they have increased the standard shipment size, again raising the volume of traffic moving over individual lines and the network. One of the more newsworthy efficiency strategies has been the shift to larger rolling stock. This trend—expected to intensify—is straining the short line rail system, whose infrastructure is not equipped to safely handle the larger 286,000-pound and 315,000 pound gross weight railcars, and whose revenue levels make the necessary track and bridge upgrades prohibitive. Consolidation has been substantial in the United States with the number of Class I railroads declining from 63 in 1976 to 5 today.2 Most the mergers were combinations of parallel networks, which helped the railroads to lower costs through greater economies of scale, and created more efficient movements by eliminating frequent interline switching. Future mergers, if they occur, are expected to be end-to-end mergers that would integrate regional networks, extending the market reach of the resulting combination and creating increased lengths of single-line moves.3 While deregulation has been a success in terms of creating a financially sound and more efficient rail network, it has also had some unintended consequences for shippers. For instance, mergers have provided the remaining railroads with significant market power, decreasing the transportation options—especially for those removed from inland waterways—and increasing rates for many of the shippers in more remote, less dense areas. In the agricultural sector, network rationalization has forced shippers to truck their bulk commodity products greater distances to mainline elevators, resulting in greater pressure on and damage to rural road systems. For intermodal shippers, rationalization has meant reduced access—physically and economically—to COFC/TOFC4 facilities and services. 1Changes in Railroad Rates
and Service Quality Since 1990. U.S. General Accounting Office Report
to Congressional Requesters. GAO/RECD-99-93. April 1999, pp. 7-8 Transportation Mode | Transportation | Transportation/Trade | Home
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