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AskWavesNewsRail

Why are railroads still important in the current era?

Intermodal has replaced coal as the king of rail freight

Railroads are the most efficient transportation mode for moving goods on the earth’s surface. Railroads are of particular importance for the movement of commodities that heavy and moved in bulk over long distances where the transportation spend represents a large portion of the total delivered cost. Just a few examples of commodities moved by railroad are coal, grain, fertilizer, chemicals, forest products, finished motor vehicles and metals, among many others. The railroads are no longer in the business of moving passengers, but approximately 70% of the miles that Amtrak runs travel over track owned by the freight railroads for a fee. 

What advantages do railroads have as compared to other transportation modes? 


Compared to truck, railroads are less expensive but also typically represent a lower level of service. In the railroad revenue segment that is most competitive with trucking (i.e., intermodal), shipments via railroad are typically priced at a 10%-15% discount as compared to trucking. On shipment of goods that are less competitive with trucking, the difference in rates can be much higher, or the trucking industry may be unable to profitably compete for the freight entirely. 

Compared to transportation by barge on the inland waterway, railroads are a higher-cost, but a faster option. For many bulk railroad commodities that are less time-sensitive, such as grain, shipment via lower-cost barge would be preferable, but the constraint is the lack of a waterway in the needed location. 

What do railroads haul? 

Railroads haul a wide range of bulk commodities, chemicals, finished motor vehicles and intermodal containers, roughly approximated in the chart below. It is important to note that while intermodal units represent approximately half of railroad unit volume, intermodal represents roughly one-quarter of railroad revenue (shown below 20% in the chart below because some intermodal freight is captured in other categories). The railroads’ revenue per unit is lower for intermodal than carload traffic because one intermodal unit carries less tonnage than a carload and is also more competitive with the highway. 

*Some intermodal revenue included in other modes, such as food products
Source: Stifel Financial

How are railroads regulated? 

The railroads were economically deregulated by the Staggers Act of 1980. The Staggers Act enabled the railroads to set rates determined by market conditions rather than by any collective rate-making structure. The railroads became free to ask for rates that they believed reflected market conditions provided that no alternative in the marketplace existed. The Staggers Act also allowed the railroads to abandon unused or less used rail lines which were important because of the capital-intensive nature of keeping railroad track maintained to adequate safety standards. The railroads remain economically deregulated (meaning they have the right to set rates) but are under the regulatory purview of the Surface Transportation Board (STB) of the U.S. Department of Transportation, the current iteration of what was formerly called the Interstate Commerce Commission. In lieu of oversight by the Department of Justice, the STB must approve all mergers and acquisitions and is responsible for overseeing rate cases that shippers bring against railroads where there is an accusation of abuse of market power. 

Source: Shutterstock


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5 Comments

  1. I believe trains have a distinct advantage in moving heavy freight long distances. Moreover, trains travel on dedicated corridors, giving them a distinct advantage over trucks. However, I think these dedicated corridors are underutilized. I think we should build at least four or five East/West high speed rail passenger systems and at least 10 North/South systems. We could use the same right of ways with a little expansion, and we have the engineering to be able to design and build these systems. AMTRAK is o.k., but gets delayed a lot and is very slow. We can do better.

  2. It comes down to the fact trucks cant physically haul the same amount of goods train do long distance. Youd have to increase the highways by 2 lanes each way, and somehow find enough workers to run all the trucks. The railroad doesnt make as much because of higher employee wages, track and locomotive maintenance, and paying for the land they have there tracks on.
    Overall railroads have to pay more to keep it running. Imagine if trucking had to pay to keep the roads upkept and in good order, pay for trackside signals, pay better wages and pay taxes on all the roads they run on. They wouldnt be doing as well as they are now.
    Both trains and trucks are very important and we need both, but trains will always be superior in terms of long distance freight and being the greenest way of transport.

    1. Apparently you know very little about transportation. Trucks pay a very high cost to operate on America’s highways. On the federal scale it starts with a cost of almost $.06 per mile, then in states like California tack on another $.07 per mile. Then on top of that is the federal excise taxes across the industry. Tires for instance are taxed as much as $75 per tire, then there is the tax on heavy duty trucks of around $15,000 per truck, then there is the annual highway use tax of $550 per truck, then there is the annual tax of around $2000 per truck for trucks that run in interstate commerce. So yes, trucks do pay their fair share of road use taxes, and don’t even get me started on tolls that are 10-20 times higher than the rate paid by cars.

      The railroads make more than trucking companies because they are subsidized by tax dollars. Currently a large railroad like Union Pacific has an operating cost of around 59% where a trucking company has an operating cost of nearly 73%.

  3. The trucking industry of yesteryear were sleeping at the helm , and they still are . They should have realized that RAIL was attempting to wake them up indirectly .

    They should have built their own private truck hauling ROADS/HIGHWAYS ! However, these primitive thinkers were to busy cutting each others throats when deregulation came along rather than joining forces ! Dumb dumbs !

    Now they have no private hauling roads of their own , lower rates , and competition so far up their wazoos that it engendered abuse galore leading to regulations limiting production PLUS driver misclassifications low wages and ill treatment . BUT now they collude through their so called trucking associations and lobby in their favor , LOL ! Dumb DUMBS !

    In my humble opinion …………

  4. Thanks for mentioning that railroads are not as expensive as trucks and have a lowe level of service. I think it’s a good idea that train companies have good maintenance services to maintain the tracks before operating machines on them. It also seems like a good investment to hire a reputable railroad track repair service to fix the tracks if the need arises.

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