Freight Railroads: Updated Information on Rates and Competition Issues

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.

GAO-06-898T Freight Railroads: Preliminary Observations on Rates, Competition, and Capacity Issues

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. Since the passage of the Staggers Rail Act in 1980, we have issued several reports on the freight railroad industry. In October 2006, we issued our most recent report on the freight rail industry. The objectives of this report were to determine (1) the changes that have occurred in the freight railroad industry since the enactment of the Staggers Rail Act, including changes in rail rates and competition in the industry; (2) the actions STB has taken to address concerns about competition and captivity and any alternative approaches that could be considered to address remaining concerns; and (3) the projections for freight traffic demand over the next 15 to 25 years, the freight railroad industry's ability to meet that demand, and potential federal policy responses. Among other things, this report describes the significant changes that have taken place in the railroad industry and reports that from 1985 through 2004, rates generally decreased, but nominal grain rates increased 9 percent. We also found that, on some routes, the amount of grain traveling at rates significantly above the threshold for rate relief had increased since 1985.

Since the passage of the Staggers Rail Act of 1980, there have been several reports on the freight railroad industry. The most recent report was on Oct. 6, 2006, in which it was reported that industry rates & the rates for many commodities (e.g., coal & motor vehicles) had generally declined from 1985 through 2004. It was also reported that freight railroad companies do not consistently report revenues raised from fuel surcharges. This inconsistent reporting led to a recommendation that the Surface Transport. Board review its method of data collection to ensure that all freight railroads are consistently & accurately reporting all revenues collected from shippers. Charts & tables.