Freight Railroads: Highlights of GAO Report on Freight Rail
Industry Performance, Competition, and Capacity (08-NOV-06,
GAO-07-207R).
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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-207R
ACCNO: A62844
TITLE: Freight Railroads: Highlights of GAO Report on Freight
Rail Industry Performance, Competition, and Capacity
DATE: 11/08/2006
SUBJECT: Competition
Economic analysis
Freight transportation rates
Prices and pricing
Railroad industry
Railroad regulation
Shipping industry
Strategic planning
Policy evaluation
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GAO-07-207R
* [1]Letter
* [2]Enclosure I
United States Government Accountability Office Washington, DC 20548
November 2, 2006
The Honorable Charles D. Nottingham
Chairman
Surface Transportation Board
Subject: Freight Railroads: Highlights of GAO Report on Freight Rail
Industry Performance, Competition, and Capacity
Mr. Chairman and Members of the Surface Transportation Board:
We appreciate the opportunity to testify on our recently issued report on
the freight railroad industry. As you know, 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. In
particular, the 1980 act encouraged greater reliance on competition to set
rates and gave railroads increased freedom to price their services
according to market conditions, including the freedom to use differential
pricing--that is, to recover a greater proportion of their costs from
rates charged to shippers with a greater dependency on rail
transportation. At the same time, the 1980 act anticipated that some
shippers might not have competitive alternatives-- commonly referred to as
"captive shippers"--and gave the Interstate Commerce Commission (ICC), and
later the Surface Transportation Board (STB), the authority to establish a
process so that shippers could obtain relief from unreasonably high rates.
As you know, this process establishes a threshold for rate relief,
allowing a rate to be challenged if it produces revenue equal to or
greater than 180 percent of the variable cost of transporting a shipment.
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.^1 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
GAO, Freight Railroads: Industry Health Has Improved, but Concerns about
Competition and
Capacity Should Be Addressed, GAO-07-94 (Washington, D.C.: Oct. 6, 2006).
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.
In light of these findings, you asked us to testify today on the results
of our work. The findings and conclusions we reported are reflected in the
attached slides. A copy of the report can be found at www.gao.gov.
Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions you or other Members of the Board may have at
this time.
Sincerely yours,
JayEtta Z. Hecker Director, Physical Infrastructure Issues
Enclosure
Freight Railroads: Highlights of GAO Report on Freight Rail Industry
Performance, Competition, and Capacity
Enclosure I
(544133)
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