Update on the Financial State of the Class I Freight Rail Industry

November 21, 2013

WASHINGTON, D.C.—Chairman John D. (Jay) Rockefeller IV issued an update to the 2010 Committee Majority Staff Report that examined the financial state of the rail industry, concluding that the financial performance of dominant Class I freight rail companies is at its strongest since the passage of the Staggers Act of 1980.

“The Staggers Act was designed to give a boost to the rail industry during a time when railroads were struggling – but today the railroads are enjoying tremendous financial success,” Rockefeller said. “At this point the evidence is clear that the dominant freight railroads are financially strong.”

“It is not any secret that I think that – more than three decades after the Staggers Act – the Surface Transportation Board (STB) needs to take a close hard look at whether large freight rail companies now enjoy an unfair competitive advantage,” Rockefeller added.

The Senate Commerce Committee held a hearing on Thursday, November 21, 2013 at 2:30 p.m. to consider, among others, the nomination of Ms. Debra Miller to be a Member of the Surface Transportation Board (STB). 

Background:

The current financial condition of the freight railroads is an important issue for policymakers because the Staggers Act of 1980, which currently regulates the railroad industry, was written at a time when the industry was experiencing serious financial problems. Two of the important goals of the Act were “to assist the rail system to remain viable in the private sector of the economy” and “to assist in the rehabilitation and financing of the rail system.” 

U.S. rail transportation policy has been geared toward making sure the railroads earn adequate revenue, but this policy was created when the railroads were on the verge of bankruptcy. The Majority Staff Report being issued today provides information on the financial status of the freight rail industry to assist policymakers reviewing whether the current rail regulatory system is meeting another important goal of the Staggers Act: “to provide a regulatory process that balances the needs of carriers, shippers, and the public.”

In September 2010, the Senate Commerce Committee Majority Staff issued a report examining the financial performance of the dominant Class I rail companies, based on review of public filings and statements by these companies. This report found that these companies were generating significant profits for their owners, investing substantial capital in their networks, and competing successfully against other transportation modes. 

The update report the Committee is issuing today also is based on public filings and statements of the dominant publicly traded Class I freight rail companies. Based on this review, the report finds that in the past four years these companies have been achieving new financial performance milestones, reporting quarterly or all-time company records in operating ratios, operating income, and earnings per share. The strong financial performance of the freight rail industry is particularly remarkable as this was accomplished in a time when much of the rest of the American economy has been struggling to recover from a deep recession, and overall rail volumes have been below pre-recession levels.

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