GAO: Rail rates same as 1985, competition concerns remain
A report from the Government Accounting Office said rail shipping rates have not increased over the past 20 years following the Staggers Rail Act of 1980, which essentially deregulated the U.S. rail freight network.
The GAO’s analysis stretches from 1985 to 2004, but indicated a subsequent rise in rates to 2006. “Although there has been a slight upturn in rates from 2001 through 2004, the industry continues to experience rates that are generally lower than they were in 1985,” the GAO said.
“According to freight railroad officials, shippers and financial analysts, since 2004 rates have continued to increase as the demand for freight rail service has increased, rail capacity has become more limited, and as a result, freight railroad companies have gained increased pricing power.”
The Staggers Act limited the authority of the Interstate Commerce Commission, which is now the Surface Transportation Board, to regulate rail rates only for traffic where competition is not effective to protect shippers. It also legalized railroad-shipper contracts. At least 55 percent of all U.S. rail traffic moves under contract today. Those contracts are privately negotiated agreements between railroads and shippers over rates, service levels, equipment used, and minimum annual volume of traffic.
“The changes that have occurred in the railroad industry since the enactment of the Staggers Rail Act are widely viewed as positive, as the financial health of the industry has improved and most rates have declined since 1985, although concerns about competition and captivity in the industry remain,” the GAO said.
“Since the Staggers Rail Act was enacted, the railroad industry and the economic environment in which it operates have changed considerably. Not only has the rail industry continued to consolidate, potentially increasing market power by the largest railroads, but after years of reducing the number of its employees and shedding track capacity, the industry is increasingly operating in a capacity-constrained environment where demand for their services exceeds their capacity.
“Concerns about competition and captivity in the railroad industry remain because traffic is concentrated in fewer railroads and even though rates have declined for most shippers since the enactment of the Staggers Rail Act, some shippers are paying significantly higher rates than other shippers — a reflection of differential pricing.”
Looking ahead, the GAO said the ability of railroads to meet the increased demand for freight traffic over the next 15 to 25 years is “largely uncertain.”
“I don’t know of many other industries charging less for their services in 2006 than they did in 1985,” said Edward R. Hamberger, president and chief executive officer of the Association of American Railroads. “U.S. freight railroads do a remarkable job of meeting the needs of an extremely diverse group of shippers. Railroads move tens of thousands of railcars to and from thousands of origins and destinations every day, at rates that shippers elsewhere in the world would love to have.”
The GAO’s full report is available at: https://www.gao.gov/new.items/d06898t.pdf .
GAO: Rail rates same as 1985, competition concerns remain
