a

GAO

United States General Accounting Office

Report to the Chairman, Committee on 

Transportation and Infrastructure, House 

of Representatives

June 2002 RAILROAD 

REGULATION

Changes in Freight 

Railroad Rates from 

1997 through 2000

GAO-02-524
Page i GAO-02-524 Freight Rail Rates

Contents

Letter 1

Results in Brief 2

Background 3

Rail Rates Generally Continued to Fall 6

Proportion of Rail Industry Revenues Exceeding 180 Percent of 

Variable Costs Generally Were Stable 25

Agency Comments and Our Evaluation 30

Appendixes

Appendix I: Scope And Methodology 32

Appendix II: Real Rail Rates for Coal 34

Appendix III: Real Rail Rates for Wheat and Corn Shipments 36

Appendix IV: Real Rail Rates for Chemicals and Transportation 

Equipment 38

Figures Figure 1: Rail Rate Index for the Transportation of Selected 

Commodities, 1990–2000 8

Figure 2: Real Rail Rates for Coal, Selected Medium-Distance 

Routes, 1990–2000 13

Figure 3: Real Rail Rates for Wheat, Selected Medium-Distance 

Routes, 1990–2000 16

Figure 4: Real Rail Rates for Corn, Selected Medium-Distance 

Routes, 1990–2000 19

Figure 5: Real Rail Rates for Plastic Materials or Synthetic Fibers, 

Resins, or Rubbers, Selected Short-Distance Routes, 

1990–2000 22

Figure 6: Real Rail Rates for Motor Vehicles, Selected 

Medium-Distance Routes, 1990–2000 24

Figure 7: Percentage of Rail Industry Revenue Exceeding 180 

Percent of Variable Costs for Selected Commodities, 

1990–2000 26

Figure 8: R/VC Ratios for Medium-Distance Shipments of Wheat, 

1990–2000 29

Figure 9: Real Rail Rates for Coal, Selected Short-Distance Routes, 

1990–2000 34

Figure 10: Real Rail Rates for Coal, Selected Long-Distance Routes, 

1990–2000 35
Contents

Page ii GAO-02-524 Freight Rail Rates

Figure 11: Real Rail Rates for Wheat, Selected Short- and 

Long-Distance Routes, 1990–2000 36

Figure 12: Real Rail Rates for Corn, Selected Short- and 

Long-Distance Routes, 1990–2000 37

Figure 13: Real Rail Rates for Potassium/Sodium Compounds, 

Selected Short-, Medium-, and Long-Distance Routes, 

1990–2000 39

Figure 14: Real Rail Rates for Plastic Materials or Synthetic Fibers, 

Resins, or Rubbers, Selected Medium- and Long-Distance 

Routes, 1990–2000 40

Figure 15: Real Rail Rates for Motor Vehicles, Selected 

Long-Distance Routes, 1990–2000 41

Figure 16: Real Rail Rates for Motor Vehicle Parts or Accessories, 

Selected Medium- and Long-Distance Routes, 

1990–2000 42

Abbreviations

Conrail Consolidated Rail Corporation

R/VC revenue-to-variable cost
Page 1 GAO-02-524 Freight Rail Rates

United States General Accounting Office

Washington, D.C. 20548

A

June 7, 2002 Letr

The Honorable Don Young

Chairman, Committee on 

Transportation and Infrastructure

House of Representatives

Dear Mr. Chairman:

The Railroad Revitalization and Regulatory Reform Act of 1976 and the 

Staggers Rail Act of 1980 gave freight railroads increased freedom to price 

their services according to market conditions. A number of shippers are 

concerned that freight railroads have used these pricing freedoms to 

unreasonably exercise their market power in setting rates for shippers with 

fewer alternatives to rail transportation. In 1999, we generally reported 

that most rail rates had decreased from 1990 through 1996, and that rates 

for shipments of selected commodities with effective competitive 

transportation alternatives—such as from other railroads, trucks, or 

barges—generally had decreased to a greater extent than rates for 

shipments without such alternatives.1

 However, some rates had increased. 

These results were consistent with the pricing freedoms provided by 

federal law that allows railroads to price their service in relation to market 

demand and competition.

This report responds to your request that we update the rate information in 

our 1999 report using the same commodities and markets. For the period 

from 1997 through 2000, we (1) examine changes in rates and (2) describe 

changes in the proportion of shipments above the Surface Transportation 

Board’s statutory jurisdictional threshold for rate relief actions (shipments 

in which revenues exceed 180 percent of variable costs).2

 To do so, we 

used the Carload Waybill Sample maintained by the Surface 

Transportation Board to determine rates for coal, grain (wheat and corn), 

chemicals (potassium and sodium compounds and plastic materials or 

synthetic fibers, resins, or rubber), and transportation equipment (finished 

1

U.S. General Accounting Office, Railroad Regulation: Changes in Railroad Rates and 

Service Quality Since 1990, GAO/RCED-99-93 (Washington, D.C.: Apr. 16, 1999).

2

The Surface Transportation Board is the industry’s economic regulator. Among other 

things and upon request, it decides disputes between shippers and railroads over the 

reasonableness of rates. Rates are not presumed unreasonable solely because they are 

above this threshold. 
Page 2 GAO-02-524 Freight Rail Rates

motor vehicles and motor vehicle parts or accessories).3 These 

commodities represented a substantial portion of total industry revenue. 

We analyzed rate changes for these commodities in the top five 

transportation corridors (measured by tons shipped) according to length of 

haul (short, medium, and long). (See app. I for additional discussion of our 

methodology.) Although the focus of our work centered on the 1997–2000 

period, we also present the results of our previous work covering the 1990–

1996 period for perspective. 

Results in Brief From 1997 through 2000, rail rates generally decreased, both nationwide 

and for many of the specific commodities and markets that we examined.4

 

However, rail rates for some commodities and distance categories—such 

as wheat moving long distances (over 1,000 miles) and coal moving short 

distances (up to 500 miles)—have stayed about the same or increased. In 

other instances, such as wheat moving medium distances (501 to 1,000 

miles), rail rates stayed about the same or decreased. There may be a 

variety of reasons why rail rates change over time, including increases or 

decreases in production or export of various commodities (such as coal or 

grain); changes in railroad costs; changes in use of contracts that tie rates 

to specific volumes of business; service problems that could affect the 

ability of railroads to supply railcars, crews, and locomotive power to meet 

the demand for rail transportation; or the degree of competition from other 

rail or nonrail (such as barge or truck) transportation providers. In general, 

as expected, rail rates were lower in areas with more, rather than less, 

competition from other transportation providers. 

Overall, the proportion of rail shipments above the board’s statutory 

jurisdictional threshold for considering rate relief actions—where railroad 

revenues for the shipment exceed 180 percent of variable costs (variable 

costs are those costs that change with the quantities shipped)—stayed 

relatively constant at about 30 percent from 1997 through 2000. However, 

the proportion of shipments for which revenues exceeded variable costs by 

180 percent varied depending on commodity and markets. For example, in 

3

The Carload Waybill Sample is a sample of documents prepared from bills of lading 

(authorizing railroads to move shipments and collect freight charges) that are submitted by 

railroads annually. 

4

Rates are measured as cents per ton-mile. A ton-mile is 1 ton of freight transported 1 mile. 

Unless otherwise noted, all rates are in 1996 dollars. We used 1996 dollars to facilitate 

comparisons of the results in this report with those presented in our 1999 report.
Page 3 GAO-02-524 Freight Rail Rates

2000, 62 percent of chemicals were transported at rates generating 

revenues exceeding 180 percent of variable costs. However, in the same 

year, only 17 percent of transportation equipment (which includes motor 

vehicles and motor vehicle parts or accessories) was transported at rates 

above this level. Although revenue-to-variable cost ratios are often used as 

indicators of shippers’ captivity to railroads, changes in such ratios over 

time may not be a reliable indicator of trends in the actual rates being paid 

by shippers. Such ratios can be increasing at the same time as rates are 

decreasing and, conversely, decreasing at the same time as rates are 

increasing. In particular, if industry productivity increases and the cost 

savings are passed entirely on to customers in the form of rate reductions, 

revenue-to-variable cost (R/VC) ratios may increase, since both the 

numerator and denominator would be decreased by the same amount.

In commenting on a draft of this report, both the board and the Department 

of Transportation generally agreed that it accurately portrayed rail rate 

trends over the 1997 through 2000 period. The board said it is difficult to 

identify with specificity why rail rates change in the short run, especially 

for specific commodities over specific routes. The board suggested that 

our report recognize additional factors, such as commodity supply, that 

influence rate changes. The department suggested that our Results in Brief 

could better recognize that R/VC ratios by themselves are not good 

indicators of railroad market power. We revised the report to reflect these 

comments.

Background Railroads are the primary mode of transportation for many products, 

especially for such bulk commodities as coal and grain. Yet by the 1970s, 

American freight railroads were in a serious financial decline. Congress 

responded by passing the Railroad Revitalization and Regulatory Reform 

Act of 1976 and the Staggers Rail Act of 1980. These acts reduced rail 

regulation and encouraged greater reliance on competition to set rates. 

Railroads have also continued to consolidate (through such actions as 

mergers, purchases, changes in control, and acquisitions) to reduce costs, 

increase efficiencies, and improve their financial health. 
Page 4 GAO-02-524 Freight Rail Rates

The 1976 act limited the authority of the Interstate Commerce Commission 

(now the Surface Transportation Board) to regulate rates to instances in 

which there is an absence of effective competition—that is, where a 

railroad is “market dominant.” The 1980 act made it federal policy to rely, 

where possible, on competition and the demand for rail services (called 

demand-based differential pricing) to establish reasonable rates. 

Differential pricing recognizes that inherent in the rail industry cost 

structure are joint and common costs that cannot be attributed to 

particular traffic. Under demand-based differential pricing, railroads 

recover a greater proportion of these unattributable costs from rates 

charged to those with a greater dependency on rail transportation. Among 

other things, the 1980 act also (1) allowed railroads to market their services 

more effectively by negotiating transportation contracts (generally offering 

reduced rates in return for guaranteed volumes) containing confidential 

terms and conditions; (2) limited collective rate-setting to those railroads 

actually involved in a joint movement of goods; and (3) permitted railroads 

to change their rates without challenge in accordance with a rail cost 

adjustment factor. Furthermore, both acts required the Interstate 

Commerce Commission to exempt railroad transportation from economic 

regulation in certain instances. The Staggers Rail Act required exemptions 

where regulation is not necessary to carry out rail transportation policy and 

where a transaction or service is of limited scope,5

 or where regulation is 

not needed to protect shippers from an abuse of market power. During the 

1980s and 1990s, railroads used their increased pricing freedoms to 

improve their financial health and competitiveness.

5

A transaction is something other than a continuing service provided by railroads that 

requires board approval (such as the control of one railroad by another or an abandonment 

of track).
Page 5 GAO-02-524 Freight Rail Rates

In addition, the railroad industry has continued to consolidate in the last 2 

decades to become more competitive by reducing costs and increasing 

efficiencies. (This consolidation continues a trend that has been occurring 

since the nineteenth century.) In 1976, there were 30 independent Class I 

railroad systems, consisting of 63 Class I railroads. (Class I railroads are 

the nation’s largest railroads.) Currently there are 7 railroad systems, 

consisting of 8 Class I railroads. Half of that reduction was attributable to 

consolidations.6

 The 8 Class I railroads are the Burlington Northern and 

Santa Fe Railway Co.; CSX Transportation, Inc.; Grand Trunk Western 

Railroad, Inc.; Illinois Central Railroad Co.; Kansas City Southern Railway 

Co.; Norfolk Southern Railroad Co.; Soo Line Railroad Co., and Union 

Pacific Railroad Co. 

The Surface Transportation Board is the industry’s economic regulator. 

The board is a decisionally independent adjudicatory agency 

administratively housed within the Department of Transportation. Among 

other things, board approval is needed for market entry and exit of 

railroads and for railroad mergers and consolidations. The board also 

adjudicates complaints concerning the quality of rail service and the 

reasonableness of rail rates. Under the ICC Termination Act of 1995, the 

board may review the reasonableness of a rate only upon a shipper’s 

complaint. Moreover, the board may consider the reasonableness of a rate 

only if (1) the revenue produced is equal to or greater than 180 percent of 

the railroad’s variable costs for providing the service and (2) it finds that 

the railroad in question has market dominance for the traffic at issue. If the 

revenue produced by that traffic equals or exceeds the statutory threshold, 

then the board examines intramodal and intermodal competition to 

determine whether the railroad has market dominance for that traffic and, 

if so, whether the challenged rates are reasonable. 

From 1997 through 2000, there were two periods during which major 

portions of the rail industry experienced serious service problems. The 

first began in July 1997, during implementation of the Union Pacific 

Railroad and Southern Pacific Transportation Company merger. As a result 

of aging infrastructure in the Houston, Texas, area that was inadequate to 

cope with a surge in demand, congestion on this system began affecting rail 

6

Other reasons for the reduction in the number of Class I railroads were carrier 

bankruptcies and various changes in the threshold for qualifying as a Class I railroad (from 

$5 million in 1976 to $250 million in 1992, as measured in 1991 dollars, and adjusted for 

inflation since then). Bankruptcies eliminated 2 of the 30 Class I railroad systems, while 

changes in the Class I standard moved 9 systems out of Class I status.
Page 6 GAO-02-524 Freight Rail Rates

service throughout the western United States. Rail service disruptions and 

lengthy shipment delays continued through the rest of 1997 and into 1998. 

The board issued a series of decisions that generally were designed to 

enhance the efficiency of freight movements by changing the way rail 

service is provided in and around the Houston area. These decisions 

principally focused on the Houston/Gulf Coast area and included an 

emergency service order to address the service crisis. In addition, CSX 

Transportation and Norfolk Southern Corporation began experiencing 

service problems in the summer and early fall of 1999, shortly after they 

began absorbing their respective parts of the Consolidated Rail 

Corporation (Conrail). These service problems caused congestion and 

shipment delays, primarily in the Midwest and Northeastern parts of the 

country. By early 2000, those service problems had largely been resolved 

without formal board action.

Rail Rates Generally 

Continued to Fall

Rail rates generally have continued to fall nationwide for the commodities 

we studied and in the specific markets we reviewed. However, in several 

markets rates either increased over the 4-year period for certain 

commodities or increased and then later fell, resulting in an overall 

decrease for the period. There may be a variety of reasons why rail rates 

change over time, including increases or decreases in production or export 

of various commodities (such as coal or grain); changes in railroad costs; 

changes in use of contracts that tie rates to specific volumes of business; 

service problems that could affect the ability of railroads to supply railcars, 

crews, and locomotive power to meet the demand for rail transportation; or 

the degree of competition. We do not attempt to identify and explain all the 

various reasons for changes in the rail rates we examined. Rather, our aim 

is to put rate changes for particular commodities into context with some of 

the economic or rail industry conditions that might have affected them 

from 1997 through 2000. 
Page 7 GAO-02-524 Freight Rail Rates

Rates for Selected 

Commodities Have 

Generally Continued to Fall 

Nationally

Rates for coal, grain (wheat and corn), chemicals (potassium and sodium 

compounds and plastic materials or synthetic fibers, resins, or rubber), and 

transportation equipment (finished motor vehicles and motor vehicle parts 

or accessories) generally fell from 1997 through 2000.7

 (See fig. 1.) These 

decreases followed the general trend we previously reported on for the 

1990–1996 period and, as before, tended to reflect railroad cost reductions 

brought about by continuing productivity gains in the railroad industry that 

have allowed railroads to reduce rates in order to be competitive. 

7

For this analysis we used rate indexes. A rate index attempts to measure price changes 

over time by holding constant the underlying collection of items that are consumed (for 

example, items shipped). See appendix I for a discussion of the rate indexes that we 

constructed.
Page 8 GAO-02-524 Freight Rail Rates

Figure 1: Rail Rate Index for the Transportation of Selected Commodities, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.

From 1997 through 2000, the rates for coal decreased slightly but steadily 

from about 1.5 cents per ton-mile to about 1.4 cents per ton-mile. Coal 

production fluctuated over this period but generally decreased from about 

1.12 billion tons in 1998 to about 1.08 billion tons in 2000. The production 

of coal shipped for export also generally decreased from about 83.5 million 

tons in 1997 to 58.5 million tons in 2000. The Energy Information 

Administration attributed these decreases to, among other things, a draw 

down in coal stocks by utilities and reluctance on the part of some coal 

producers to expand production.8

 Lower demand for rail transportation 

8

Fred Freme, U.S. Energy Information Administration, U.S. Coal Supply and Demand: 2000 

Review (undated).
Page 9 GAO-02-524 Freight Rail Rates

resulting from lower production generally results in lower rail rates. 

However, the demand for rail transportation (and consequently rail rates) 

can also be affected by changes in coal held as inventory and other supplyrelated factors. Board officials suggested that the decrease in coal rates 

during this period could also be attributed in part to increasing competition 

between low-sulfur Powder River Basin coal from the West and highersulfur Eastern coal, and to the expiration and resulting renegotiation of 

many long-term coal transportation contracts. 

The rates for wheat increased slightly from 1997 to 1998—from about 2.46 

cents per ton-mile in 1997 to about 2.47 cents per ton-mile—before falling 

back in 1999 and 2000 to just under 2.4 cents per ton-mile. Rates for wheat 

may have decreased because overall production decreased, from 67.5 

million tons for the 1997–1998 season to 60.5 million tons for the 2000–2001 

season, despite a modest increase in demand for exports (from 28.1 million 

tons to 30.0 million tons over the same period). Preliminary information 

indicates that in 1998, the most recent year for which data were available, 

railroads transported over half (about 55 percent) of all wheat shipments.

Corn rates generally decreased from about 2 cents per ton-mile in 1997 to 

about 1.8 cents per ton-mile in 2000. Corn production fluctuated between 

1997 and 1999 (the latest year for which data are available), increasing from 

9.2 million bushels in 1997 to 9.8 million bushels in 1998 before falling back 

to 9.4 million bushels in 1999. However, the domestic use of corn (the 

primary use of corn) increased by about 4 percent—from 7.3 million 

bushels in 1997 to 7.6 million bushels in 1999. This increase suggests, all 

else being equal (including rail costs), greater demand for transportation 

and possibly higher rail rates. Yet, rail rates for corn are influenced by a 

number of factors. Significant amounts of corn are produced in areas 

accessible to navigable waterways and, therefore, the transportation of 

corn is less dependent on rail. (About 25 percent of corn was shipped by 

rail in 1998, the latest year for which data are available.) In addition, rates 

may be affected by the supply of corn. From 1997 through 1999 (the latest 

year for which data are available) the total supply of corn increased from 

10.1 million bushels to 11.2 million bushels.9

 It is possible that intermodal

9

The total supply of corn is a combination of carryover stock, production, and imports.
Page 10 GAO-02-524 Freight Rail Rates

competition, increased domestic use of corn, and an increasing supply of 

corn may have all influenced rail rates for corn.10

The rates for chemicals (as illustrated by rates for potassium/sodium and 

plastics) decreased slightly from 1997 through 2000 at a steady rate. 

According to data from the American Chemistry Council, the production of 

chemicals in the potassium/sodium classification increased between 1997 

and 1999. Plastics production also steadily increased over the period.11

These data suggest that, all things being equal, rail rates should have 

increased over the period because of a higher demand for rail 

transportation. However, over 65 percent of chemicals are transported less 

than 250 miles, a distance that is truck competitive, which may indicate 

that railroad rates are sensitive to truck competition. In addition, not all 

chemicals that are produced require immediate transportation. An official 

with the American Chemistry Council told us that chemical manufacturers 

often produce a product, load it onto railcars, and store the railcars until 

the product is sold, at which point it is transported to destination. 

Although the tonnage of chemicals shipped by rail generally increased 

between 1997 and 2000, railroads accounted for only 20 percent of the 

tonnage transported in 2000. This is up slightly from the 19 percent 

transported in 1997.12

Rates for motor vehicles and parts also generally decreased over the 4-year 

period, but not at a steady rate. This occurred during a time when U.S. car 

and truck production generally fluctuated between 12 million and 13 

million units. Car production, in particular, generally decreased over the 

period from about 5.9 million units to about 5.5 million units, according to 

Crain Communications, Inc., a publisher of Automotive News. The 

automotive industry is heavily dependent on railroads, and the Association 

of American Railroads—a railroad trade group—estimates that railroads 

transport about 70 percent of finished motor vehicles. Automotive 

production declines, among other things, might have contributed to 

10According to the board, corn rates also tend to be lower than wheat rates, in part, because 

corn is more likely than wheat to move in longer 110-car unit trains which are more cost 

efficient than shorter trains.

11Potassium/sodium production increased from about 69 million tons in 1997 to about 70 

million tons in 1999 before falling back in 2000 to just under 68 million tons. Plastics 

production increased from about 52.6 million tons in 1997 to about 58 million tons in 2000. 

12In contrast, the tonnage of chemicals transported by truck remained at about 55 percent 

between 1997 and 2000.
Page 11 GAO-02-524 Freight Rail Rates

generally decreasing rail rates. Data on auto parts production were not 

available.

In its own study, the board found that the average, inflation-adjusted rail 

rate had continued a multi-year decline in 1999 and that, since 1984, real 

rail rates had fallen 45 percent.13 It found that real rail rates had decreased 

for both eastern and western railroads. According to the board, the results 

of its study implied that, although railroads retain a degree of pricing power 

in some instances, nearly all productivity gains achieved by railroads since 

the 1980s (when railroad economic regulation was reduced) have been 

passed on to rail customers in the form of lower rates. The board 

estimated that rail shippers would have paid an additional $31.7 billion for 

rail service in 1999 if revenue per ton-mile had remained equal to its 1984 

inflation-adjusted level. The board acknowledged, however, that even 

though real rail rates had decreased overall, individual rates might have 

increased and, further, that some rail customers might feel disadvantaged if 

their rates did not fall to the same extent as their competitors’ rates.

Rail Rates for Specific 

Markets Generally Have 

Continued to Fall

Our analysis of rail rates for coal, grain (corn and wheat), chemicals 

(potassium, sodium, plastics, and resins), and motor vehicles and motor 

vehicle parts in selected high-volume transportation markets generally 

showed that rates continued to decrease from 1997 through 2000. 

However, this was not true in all markets. Rail rates may have been 

sensitive to competition, and rail rates were generally higher in areas 

considered to have less railroad-to-railroad competition. 

13Surface Transportation Board, Rail Rates Continue Multi-Year Decline, Office of 

Economics, Environmental Analysis, and Administration (Dec. 2000). The board measured 

rail rates as gross revenue per ton-mile of freight originated and stated these rates in 1999 

dollars. The board used a rate index in which it aggregated annual rate changes for the 1984 

to 1999 period for different commodity groups by weighting each commodity’s year-by-year 

rate change by its share of total rail revenue in those two years.
Page 12 GAO-02-524 Freight Rail Rates

Coal Real rail rates for coal, although fluctuating in some markets, generally 

decreased from 1997 through 2000. In virtually every market we 

analyzed—both in the East (Appalachia) and in the West (Powder River 

Basin)—rates decreased. For example, on a medium-distance route from 

Central Appalachia to Orlando, Florida, rates decreased from about 2.2 

cents per ton-mile in 1997 to 1.7 cents per ton-mile in 2000.14 (See fig. 2.) 

The 2000 rate was also substantially less than the rate of 2.6 cents per tonmile in 1990.

14Appendix II contains illustrations of real rail rates for coal shipments on short- and longdistance routes. 
Page 13 GAO-02-524 Freight Rail Rates

Figure 2: Real Rail Rates for Coal, Selected Medium-Distance Routes, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.
Page 14 GAO-02-524 Freight Rail Rates

Competition may have played a role in the decrease in coal rates that we 

examined. In the West, the two Class I railroads that served the Powder 

River Basin during the 1990–1996 period, the Burlington Northern and 

Santa Fe Railway and the Union Pacific, continued to serve the market 

from 1997–2000. In the East, three Class I railroads served Central 

Appalachia until mid-1999: Conrail, CSX Transportation, and Norfolk 

Southern.15 Following its acquisition by the latter two carriers, Conrail 

began being absorbed into CSX Transportation and Norfolk Southern in 

June 1999, with the latter two carriers continuing to serve the market. As 

part of this transaction, certain areas of Pennsylvania and West Virginia 

(part of the Appalachia Coal Supply Region) that had been served 

exclusively by Conrail, although conveyed to Norfolk Southern, are 

available to CSX on an equal-access basis for 25 years, subject to renewal.

Finally, rail rates for coal can be influenced by coal production as well as 

existing supplies of coal. In general, coal production in the Appalachian 

area decreased from 1997 to 2000—from about 468 million tons to about 

421 million tons. On the other hand, coal production in the Western region 

(which includes the Powder River Basin) increased between 1997 and 

1999—from about 451 million tons to about 512 million tons—before falling 

back to 510 million tons in 2000. In its 2000 review, the Energy Information 

Administration noted that coal production in Wyoming (which dominates 

coal production in both the West and the United States) was driven higher 

by an increasing penetration of Powder River Basin coal into Eastern 

markets—an action creating competition for coal produced in the East.16

Board officials told us that in order for Powder River Basin coal to 

penetrate Eastern markets, railroads have had to offer very low 

transportation rates. In addition, they suggested that rail rates for Powder 

River Basin coal are lower than rail rates for Appalachian coal because of 

the ability of railroads to use larger (110-car unit) trains to pick up the coal 

and because of more favorable terrain (flatter and straighter routes) to 

transport the coal from the mines. Coal supply (as measured by year-end 

coal stocks) generally fluctuated over the 1997 through 2000 period—

increasing from about 140 million tons in 1997 to 183 million tons in 1999, 

before falling back to 142 million tons in 2000.

15The Central Appalachia Coal Supply Region includes eastern Kentucky, Virginia, and 

southern West Virginia.

16Fred Freme, Energy Information Administration.
Page 15 GAO-02-524 Freight Rail Rates

Wheat and Corn From 1997 through 2000, real rail rates for shipments of wheat and corn 

generally stayed the same or decreased for the markets that we reviewed.17

For example, wheat shipments moving over medium-distance (501 miles to 

1,000 miles) routes generally followed this pattern. (See fig. 3.) The 

exception was wheat shipped from the Oklahoma City, Oklahoma, 

economic area to the Houston, Texas, economic area.18 On this route, rail 

rates generally increased by 12 percent—from 1.9 cents per ton-mile in 

1997 to 2.2 cents per ton-mile in 2000. The largest increase occurred 

between 1997 and 1998, when rates went from 1.9 to 2.1 cents per ton-mile. 

This increase came at about the same time as the service crisis in the 

Houston/Gulf Coast area that delayed the delivery of railcars and, in some 

cases, halted freight traffic. Although board officials did not think railroads 

used rail rates to allocate the supply of railcars during this time, such an 

action could have occurred for particular commodities on particular 

routes. The increases also came at the same time as wheat production in 

Oklahoma rose from about 170 million bushels in 1997 to just under 200 

million bushels in 1998. This may be consistent with an increase in the 

handling of bulk grain by the Port of Houston Authority between 1997 and 

1998, from about 388,000 tons to 1.2 million tons.19 These factors may also 

have contributed to a general increase in rail rates for these movements. 

Even with these increases, the rail rate in 2000 was still less than it was in 

1990—about 2.2 cents per ton-mile in 2000, as compared with 2.5 cents per 

ton-mile in 1990. 

17Appendix III contains illustrations of the real rail rates on selected long- and short-distance 

routes for wheat and corn.

18An economic area is a collection of counties in and about a metropolitan area (or other 

center of economic activity); there are 172 economic areas in the United States, and each of 

the 3,141 counties in the country is contained in an economic area.

19Wheat production in Oklahoma subsequently declined to about 143 million bushels 

(preliminary estimate) in 2000. Bulk grain statistics for the Port of Houston Authority may 

include shipments from other domestic locations as well as imports.
Page 16 GAO-02-524 Freight Rail Rates

Figure 3: Real Rail Rates for Wheat, Selected Medium-Distance Routes, 1990–2000

Note: For confidentiality, data points for the route from the Duluth economic area to the Chicago 

economic area for 1993 and 1999 were excluded.

Source: GAO’s analysis of the Surface Transportation Board’s data.
Page 17 GAO-02-524 Freight Rail Rates

Rail rates for wheat from the northern plains locations of the Great Falls, 

Montana, and Grand Forks, North Dakota, economic areas on mediumdistance routes generally decreased over the period.20 Wheat production 

and demand for rail transportation may have been influencing factors. 

Although the volume of export wheat was increasing over the 1997 to 2000 

period, wheat production in various states fluctuated. For example, wheat 

production in Montana steadily declined between 1997 and 2000, from 

about 182 million bushels to about 154 million bushels. In contrast, wheat 

production in North Dakota (the second highest wheat producing state 

behind Kansas in 2000) fluctuated between about 240 million bushels and 

315 million bushels, alternately increasing and decreasing beginning in 

1997. Whether wheat is transported or not depends on many factors, 

including the price of wheat and the amount of carryover stocks from year 

to year. In 2001, the U.S. Department of Agriculture reported that grain car 

loadings on railroads had steadily decreased over the previous 5 years, with 

the exception of 1999.21 This was attributed, at least partially, to farmers 

holding on to grain because of large harvests, large carryover stocks, and 

low prices. 

20Real rail rates for other distance categories reflected similar trends, except for rate 

increases between 1999 and 2000 on three of the five short-distance (500 miles or less) 

routes we examined. 

21U.S. Department of Agriculture, Agricultural Marketing Service, Grain Transportation 

Prospects (Feb./Mar. 2001).
Page 18 GAO-02-524 Freight Rail Rates

Rate trends between 1997 and 2000 for the shipment of corn were similar to 

those for wheat. Again, rate trends for corn can be illustrated in the rail 

rates for medium-distance routes. (See fig. 4.) The rates for most of these 

routes generally either stayed about the same or decreased over the period. 

Similar patterns are seen in the other distance categories. However, some 

rail rates on short-distance routes increased between 1999 and 2000. This 

was particularly true for corn shipments within the Minneapolis, 

Minnesota, economic area, where rates went from about 3.5 cents per tonmile in 1999 to about 4.2 cents per ton-mile in 2000. The specific reasons 

for this increase are not clear. Corn production in Minnesota generally 

decreased during this period, from about 990 million bushels in 1999 to 

about 957 million bushels in 2000. However, in November 1999, the U.S. 

Department of Agriculture reported that, while corn production and 

exports were expected to decrease, the domestic use of corn was expected 

to remain strong, and that domestic use of corn was heavily dependent on 

rail and truck transportation.22 Other than livestock feed, domestic use of 

corn includes corn sweeteners (used in the soft drink industry) and ethanol 

(a fuel additive). Minnesota also has an active livestock industry, and the 

state ranked third highest in the country in the number of hogs and pigs 

produced and hogs marketed in 1999 (behind Iowa and North Carolina).

22U.S. Department of Agriculture, Agricultural Marketing Service, Grain Transportation 

Prospects (Nov. 1999).
Page 19 GAO-02-524 Freight Rail Rates

Figure 4: Real Rail Rates for Corn, Selected Medium-Distance Routes, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.

Rail rates for wheat and corn shipments appear to be sensitive to both 

inter- and intramodal competition. As shown in figure 3, rates for wheat 

shipments from the Duluth, Minnesota, to the Chicago, Illinois, economic 

areas—a potential Great Lakes water competitive route—continued to be 

between 0.72 cents to just under 2 cents per ton-mile lower in 2000 than 

rates on other medium-distance routes we examined that potentially had 

fewer transportation alternatives (for example, shipments from Great 
Page 20 GAO-02-524 Freight Rail Rates

Falls). In addition, as shown in figure 4, rail rates for corn shipments from 

the Chicago and Champaign, Illinois, economic areas to the New Orleans, 

Louisiana, economic area—potentially barge-competitive routes—were 

substantially lower (up to 1.7 cents per ton-mile in 2000) than rates on 

other medium-distance corn routes we examined that potentially had fewer 

transportation choices (for example, shipments from the northern plains 

states). Sensitivity to intramodal (railroad-to-railroad) competition also 

continued to be evident. For example, rail rates from 1997 through 2000 for 

wheat shipments originating in the Wichita, Kansas, and Oklahoma City, 

Oklahoma, economic areas were about 1.4 cents per ton-mile lower than 

rail rates for wheat shipments from the Great Falls economic area to the 

Portland, Oregon, economic area over the same period. The central plains 

area is considered to have more railroad competition than the northern 

plains area.

Shipment size can also influence railroad costs and, therefore, rates. 

Loading more cars at one time increases efficiency and reduces a railroad’s 

costs. From 1997 through 2000, the average shipment size for wheat 

continued to be higher in the central plains than in the northern plains. For 

example, the average shipment size for wheat from the Wichita economic 

area from 1997 through 2000 was about 88 railcars, as compared with about 

43 railcars for wheat shipments from the Great Falls economic area. In 

both instances, the average shipment size increased in the 1997 through 

2000 period as compared with the 1990 through 1996 period—by about 17 

railcars for wheat shipments from the Wichita area (from about 71 railcars 

to about 88 railcars) and by about 5 railcars for wheat shipments from the 

Great Falls area (from about 38 railcars to about 43 railcars). As discussed 

above, rates in the central plains states were typically lower than those in 

the northern plains states for the routes we examined.

Chemicals and Transportation 

Equipment

Real rail rate changes for chemical and transportation equipment (motor 

vehicles and motor vehicle parts) shipments were mixed for the 1997 

through 2000 period for the markets we reviewed—some rates fell while 

others stayed the same or increased. These trends can be seen in shortdistance (500 miles or less) shipments of plastics.23 (See fig. 5.) Two of the 

more notable trends are shipments within the Beaumont, Texas, and Lake 

Charles, Louisiana, economic areas. In the Beaumont economic area, real 

rail rates increased from 42.6 cents per ton-mile in 1997 to 55.8 cents in 

23Appendix IV contains illustrations of real rail rates for chemicals and transportation 

equipment shipments in other distance categories.
Page 21 GAO-02-524 Freight Rail Rates

1998 before falling to 29.1 cents in 2000. In the Lake Charles economic 

area, rail rates increased from 25.9 cents per ton-mile in 1996 to 29.7 cents 

per ton-mile in 1997 before falling (by about 78 percent) to 6.5 cents per 

ton-mile in 1998. After increasing again in 1999, the rates decreased to 4.8 

cents per ton-mile in 2000 on this route. Rates in the other markets 

generally stayed about the same or decreased. While it is not clear why 

these rates changed the way they did, the changes came at the time (1997–

1998) of a severe service crisis in the Houston/Gulf Coast area. Board 

officials said that generally, in their view, it did not appear that railroads 

used rail rates to allocate resources during the service crisis; they 

suggested that the erratic nature of the year-by-year rate changes reported 

for certain of these intra-terminal movements (which, according to the 

board, tend to be small shipment sizes) may have been related to the 

heterogeneous nature of this chemicals traffic and to the low sampling 

rates for smaller shipment sizes—1 in 40 waybills for movements of 1 to 2 

car shipments, and 1 in 12 waybills for 3 to 15 car shipments—in the 

stratified Carload Waybill Sample. 
Page 22 GAO-02-524 Freight Rail Rates

Figure 5: Real Rail Rates for Plastic Materials or Synthetic Fibers, Resins, or 

Rubbers, Selected Short-Distance Routes, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.

Real rail rates for shipments of finished motor vehicles and motor vehicle 

parts or accessories also showed a variety of trends. In 1999, we reported 

that one of the more dramatic changes in rates was for the transportation 

of finished motor vehicles from Ontario, Canada, to Chicago. (See fig. 6.) 

The rates on this route decreased about 40 percent between 1990 and 1996. 

Since that time, the rates on this route have largely stabilized at about 12 

cents per ton-mile, with a slight increase between 1997 and 2000. In 

general, rail rates for the transportation of motor vehicle parts or 
Page 23 GAO-02-524 Freight Rail Rates

accessories on both long- and medium-distance routes decreased. The 

notable exception is rates for the transportation of motor vehicle parts or 

accessories between the Detroit, Michigan, and Dallas, Texas, economic 

areas. On this route, the rates generally increased from about 9 cents per 

ton-mile in 1997 to about 22 cents per ton-mile in 2000—about a 139 

percent increase. Most traffic in motor vehicles and motor vehicle parts or 

accessories is either under contract or exempt from economic regulation. 

Use of contracts suggests that rate decreases may be related to price 

discounts offered in return for guaranteed volumes of business. However, 

board officials noted that in recent years, railroads have increasingly been 

offering motor vehicle manufacturers service packages in which railroads 

provide premium service for higher rates. This may account for rate 

increases on specific routes. 
Page 24 GAO-02-524 Freight Rail Rates

Figure 6: Real Rail Rates for Motor Vehicles, Selected Medium-Distance Routes, 

1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.
Page 25 GAO-02-524 Freight Rail Rates

Proportion of Rail 

Industry Revenues 

Exceeding 180 Percent 

of Variable Costs 

Generally Were Stable 

Between 1997 and 2000, the proportion of all railroad revenue that came 

from shipments transported at rates that generated revenues exceeding 180 

percent of variable costs stayed relatively constant at just under 30 percent. 

(See fig. 7.) This result is about 2 percentage points less than the average 

for the 1990–1996 period. In addition to being a jurisdictional threshold for 

the board to review the reasonableness of rates, revenue-to-variable cost 

ratios are sometimes used as indicators of shippers’ captivity to railroads. 

If used in this way, the higher the R/VC ratio, the more likely it is that a 

shipper can use only rail to meet its transportation needs. 24

24Generally, greater competition results in lower rates charged for goods and services. In a 

competitive market, producers will offer goods or services if, over the short term, they can 

at least recover those costs that vary with the level of production. 
Page 26 GAO-02-524 Freight Rail Rates

Figure 7: Percentage of Rail Industry Revenue Exceeding 180 Percent of Variable 

Costs for Selected Commodities, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.
Page 27 GAO-02-524 Freight Rail Rates

Individual commodity results differed markedly. In 2000, 62 percent of 

chemicals (which include potassium, sodium, and plastics) and 42 percent 

of coal were transported at rates generating revenues exceeding 180 

percent of variable costs.25 However, only 17 percent of transportation 

equipment (which includes motor vehicles and motor vehicle parts or 

accessories) and 32 percent of farm products (which includes wheat and 

corn) were transported at rates above this level. Board officials suggested 

that the comparatively high and rising R/VC ratios for chemicals traffic is 

likely attributable in part to the fact that the railroads’ greater liability 

exposure associated with transporting hazardous materials is not reflected 

in the costs attributable to this traffic under the board’s rail costing system. 

Board officials told us that higher rail rates for transporting hazardous 

chemicals are reflected in higher revenues for a railroad. However, 

additional costs incurred because of the higher liability exposure (such as 

court judgments against a company and set asides for future claims) are 

shown as special or extraordinary charges that do not become part of the 

variable costs of a movement in the board’s rail costing system.

In contrast to the fairly constant overall proportion of goods shipped with 

revenues exceeding 180 percent, the results for four broad classes of 

commodities decreased or increased noticeably. For example, the 

proportion of farm products transported at above 180 percent R/VC 

increased from 23 percent to 32 percent from 1997 through 2000, following 

an increase from 1990 to 1994 (from 22 to 32 percent) and a decline from 

1994 to 1996 (from 32 to 23 percent). The proportion of coal shipped above 

this ratio decreased from 50 percent to 42 percent from 1997 through 2000, 

continuing a gradual overall decrease from 1990.

In some instances, the average R/VC ratios for the 1997–2000 period were 

considerably higher or lower than the average R/VC ratios for the 1990–

1996 period. For example, the largest increase in average R/VC ratios for 

the routes that we reviewed was for medium-distance shipments of plastics 

from the Houston, Texas, economic area to the Little Rock, Arkansas, 

economic area. On this route, the average R/VC ratio increased by about 64 

percentage points—from an average of 154 percent (1990–1996) to an 

average of 218 percent (1997–2000). The R/VC ratio on this route peaked at 

250 percent in 1999. The R/VC ratio on this route was generally increasing 

while the rail rate was generally decreasing, suggesting that both rates and 

25Consistent with our 1999 report, we examined changes in R/VC ratios for broader 

categories of products than we did for changes in rates.
Page 28 GAO-02-524 Freight Rail Rates

variable costs were decreasing and that railroads did not pass on all cost 

reductions to customers in the form of rate reductions. In contrast, the 

largest decrease in average R/VC ratios for the routes we examined was 

about 116 percentage points, which occurred for motor vehicle shipments 

between the Chicago economic area and the Dallas economic area—from 

an average of 240 percent (1990–1996) to an average of 124 percent (1997–

2000). Over this latter period, rail rates on this route decreased from about 

8.7 cents per ton-mile in 1997 to about 8 cents per ton-mile in 2000. This 

suggests that variable costs increased during this period.

The R/VC ratios we observed are consistent with railroads’ ability to use 

differential pricing, and they are sensitive to competition. For example, 

over the 1997–2000 period and the 1990–1996 period, the R/VC ratio for 

medium-distance shipments of wheat from the Great Falls economic area 

(a northern plains location) exceeded those for wheat shipments from the 

Wichita, Oklahoma City, and Duluth economic areas for the specified 

destinations. (See fig. 8.) There are fewer potentially competitive 

alternatives to rail in the northern plains states. In contrast, shipments 

originating in the central plains states (for example, from Wichita and 

Oklahoma City) are considered by some to have more alternatives to rail 

than in the northern plains. Duluth (a northern plains origin) offers a 

competitive alternative of transportation by water. The anomaly appears to 

be medium-distance wheat shipments originating in the Grand Forks, 

North Dakota, economic area (a northern plains origin) transported to the 

St. Louis, Missouri, economic area. The R/VC ratio for this route, although 

consistently above the R/VC ratio for shipments from the Duluth economic 

area (with potential water competition), was generally below that of 

Wichita and Oklahoma City (with potentially more rail competition) from 

1997 through 2000. This suggests that wheat shipments on this route may 

have been sensitive to barge competition from the Mississippi River or rail 

competition in the central plains states or the Midwest.
Page 29 GAO-02-524 Freight Rail Rates

Figure 8: R/VC Ratios for Medium-Distance Shipments of Wheat, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.

The use of R/VC ratios has limitations. In particular, the ratios are subject 

to misinterpretation because they are simple divisions of revenues by 

variable costs. It is possible for rates paid by shippers to be dropping while 

the R/VC ratio is increasing—a seemingly contradictory result. For 

example, if revenues (which are the rates paid by shippers) are $2 and 

variable costs are $1, then the R/VC ratio is 200 percent. If costs decrease 

by 50 cents and railroads pass this cost decrease on to shippers by 

decreasing rates by 50 cents, the R/VC ratio becomes 300 percent. 

Therefore, by itself, the R/VC ratio could suggest that railroads are using 
Page 30 GAO-02-524 Freight Rail Rates

their market power to make shippers worse off when this might not be the 

case. Board officials suggested that the R/VC ratio shown in figure 8 for the 

movement of wheat from the Great Falls economic area to the Portland 

economic area is one such instance of this. In this case, rail rates from 

Great Falls generally decreased over the 1997 through 2000 period from 

about 3.5 cents per ton-mile in 1997 to about 3.2 cents per ton-mile in 2000. 

Board officials said unit costs were also decreasing, in part, because of 

increases in shipment size and various carrier-specific productivity 

improvements related to the 1995 Burlington Northern Railroad merger 

with the Atchison Topeka & Santa Fe Railway Company. The R/VC ratio on 

this route increased from 240 percent in 1997 to 308 percent in 2000. 

Similarly, using the example above, if variable costs increase by 50 cents 

(from $1 to $1.50) and railroads increase their rates by the same amount 

(from $2 to $2.50), then the R/VC ratio becomes 167 percent. Again, the 

R/VC ratio alone would suggest that shippers are better off—because the 

R/VC ratio decreased from 200 percent—when this might not necessarily 

be the case.

Although R/VC ratios have limitations, they can be useful indicators of 

railroad pricing and of whether railroads may be using their market power 

to set rates. As described previously, the R/VC ratio is a jurisdictional 

threshold for the Surface Transportation Board to consider rate relief 

cases. The board uses other analytical techniques to determine whether 

rates are reasonable.

Agency Comments and 

Our Evaluation

We provided a draft of this report to the Surface Transportation Board and 

the Department of Transportation for their review and comment. The 

board provided its comments in a meeting that included its general counsel 

and chief economist. In general, the board agreed with the material 

presented in our draft report and stated that it accurately portrayed rail 

rate trends over the period of our study. It said that the overall trend of 

declining rates that we found is consistent with studies and analyses 

prepared by the board. Board officials said that, while it can be difficult to 

identify with specificity the reasons why rail rates might change in the 

short run, especially rates for specific commodities over specific routes, 

the draft report did an admirable job in discussing factors that could 

influence rate changes. Among the specific comments made were (1) that 

low rail rates have allowed Western coal to penetrate Eastern coal markets 

and (2) that R/VC ratios for chemicals may not fully reflect the costs of 

increased liability exposure faced by railroads in transporting hazardous 

chemicals. We made changes to the report to reflect the board’s comments. 
Page 31 GAO-02-524 Freight Rail Rates

The board offered additional clarifying, presentational, and technical 

comments that, with few exceptions, we incorporated into our report.

The Department of Transportation, in oral comments made by the director, 

Office of Intermodal Planning and Economics, Federal Railroad 

Administration, said that the report fairly and accurately portrayed the 

changes in railroad freight rates over the study period, and that rail rates 

were responsive to market conditions and competition. The department 

suggested that our Results in Brief section should indicate that R/VC ratios 

cannot be relied upon as measures of railroad market power. We modified 

the Results in Brief to provide a fuller discussion of R/VC limitations.

As arranged with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 21 days after the 

date of this letter. At that time, we will send copies of this report to 

congressional committees with responsibilities for freight railroad 

competition issues; the administrator, Federal Railroad Administration; the 

chairman, Surface Transportation Board; and the director, Office of 

Management and Budget. We will also make copies available to others 

upon request. This report will also be available on our home page at 

http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

either James Ratzenberger at ratzenbergerj@gao.gov or me at 

heckerj@gao.gov. Alternatively, we may be reached at (202) 512-2834. Key 

contributors to this report were Stephen Brown, Richard Jorgenson, and 

James Ratzenberger.

Sincerely yours,

JayEtta Z. Hecker

Director, Physical Infrastructure Issues
Page 32 GAO-02-524 Freight Rail Rates

Appendix I

Scope And Methodology ApApenednxidexiIs

As for our 1999 report, we used the board’s Carload Waybill Sample to 

identify railroad rates from 1997 through 2000 (the latest data available at 

the time of our review), which we then analyzed to determine rate changes. 

The Carload Waybill Sample is a sample of railroad waybills (in general, 

documents prepared from bills of lading authorizing railroads to move 

shipments and collect freight charges) submitted by railroads annually. We 

used these data to obtain information on rail rates for specific commodities 

in specific markets by shipment size and length of haul. According to 

board officials, revenues derived from the Carload Waybill Sample are not 

adjusted for such things as year-end rebates and refunds that may be 

provided by railroads to shippers who exceed certain volume 

commitments.

Some railroad movements contained in the Carload Waybill Sample are 

governed by contracts between shippers and railroads. To avoid disclosure 

of confidential business information, the board disguises the revenues 

associated with these movements before making this information available 

to the public. Consistent with our statutory authority to obtain agency 

records, we obtained a version of the Carload Waybill Sample that did not 

disguise revenues associated with railroad movements made under 

contract. Therefore, the rate analysis presented in this report presents a 

truer picture of rail rate trends than analyses that may be based solely on 

publicly available information. Since much of the information contained in 

the Carload Waybill Sample is confidential, rail rates and other data 

contained in this report that were derived from this database have been 

aggregated at a level sufficient to protect this confidentiality. 

As in our 1999 report, we analyzed coal, grain (wheat and corn), chemicals 

(potassium and sodium compounds and plastic materials or synthetic 

fibers, resins, or rubber), and transportation equipment (finished motor 

vehicles and motor vehicle parts or accessories) shipments. These 

commodities represented about 52 percent of total industry revenue in 

2000 and, in some cases, had a significant portion of their rail traffic 

transported on routes where the ratio of revenue to variable costs equaled 

or exceeded 180 percent.

We used rate indexes and average rates on selected corridors to measure 

rate changes over time. A rate index attempts to measure price changes 

over time by holding constant the underlying collection of items that are 

consumed (in the context of this report, items shipped). This approach 

differs from comparing average rates in each year because, over time, 

higher- or lower-priced items can constitute different shares of the items 
Appendix I

Scope And Methodology

Page 33 GAO-02-524 Freight Rail Rates

consumed. Comparing average rates can confuse changes in prices with 

changes in the composition of the goods consumed. In the context of 

railroad transportation, rail rates and revenues per ton-mile are influenced, 

among other things, by average length of haul. Therefore, comparing 

average rates over time can be influenced by changes in the mix of longand short-haul traffic. Our rate indexes attempted to control for the 

distance factor by defining the underlying traffic collection to be 

commodity flows occurring in 2000 between pairs of census regions. 

To examine the rate trends on specific traffic corridors, we first chose a 

level of geographic aggregation for corridor endpoints. For grain, 

chemical, and transportation equipment traffic, we defined endpoints to be 

regional economic areas defined by the Department of Commerce’s Bureau 

of Economic Analysis. For coal traffic, we used economic areas to define 

destinations and used coal supply regions—developed by the Bureau of 

Mines and used by the Department of Energy—to define origins. An 

economic area is a collection of counties in and about a metropolitan area 

(or other center of economic activity); there are 172 economic areas in the 

United States, and each of the 3,141 counties in the country is contained in 

an economic area. As in our 1999 report, we placed each corridor in one of 

three distance-related categories: 0–500 miles, 501–1,000 miles, and more 

than 1,000 miles. Although these distance categories are somewhat 

arbitrary, they represent reasonable proxies for short-, medium-, and longdistance shipments by rail. 

To address issues related to revenue-to-variable cost ratios we obtained 

data from the board identifying revenues, variable costs, and R/VC ratios 

for commodities shipped by rail at the two-digit Standard Transportation 

Commodity Code level. We used data from the Carload Waybill Sample to 

identify the specific revenues and variable costs and to compute R/VC 

ratios for the commodities and markets we examined. Using this 

information we then identified those commodities and markets whose 

R/VC ratios were consistently above or below the 180 percent R/VC level.

We performed our work from December 2001 through May 2002, in 

accordance with generally accepted government auditing standards.
Page 34 GAO-02-524 Freight Rail Rates

Appendix II

Real Rail Rates for Coal ApendxiI

The following are real (inflation-adjusted) rail rates for coal shipments in 

the various markets and distance categories we reviewed. The distance 

categories are as follows: short is 0 to 500 miles, medium is 501 to 1,000 

miles, and long is greater than 1,000 miles.

Figure 9: Real Rail Rates for Coal, Selected Short-Distance Routes, 1990–2000

Note: The Central Appalachia Coal Supply Region includes eastern Kentucky, Virginia, and 

southern West Virginia. The Northern Appalachia Coal Supply Region includes Maryland, 

Ohio, Pennsylvania, and northern West Virginia. The Illinois Basin Coal Supply Region 

includes western Kentucky, Illinois, and Indiana.

Source: GAO’s analysis of the Surface Transportation Board’s data.
Appendix II

Real Rail Rates for Coal

Page 35 GAO-02-524 Freight Rail Rates

Figure 10: Real Rail Rates for Coal, Selected Long-Distance Routes, 1990–2000

Note: The Powder River Basin Coal Supply Region includes Montana and Wyoming.

Source: GAO’s analysis of the Surface Transportation Board’s data.
Page 36 GAO-02-524 Freight Rail Rates

Appendix III

Real Rail Rates for Wheat and Corn Shipments ApendxiI

The following are real (inflation-adjusted) rail rates for wheat and corn 

shipments in the various markets and distance categories we reviewed. 

The distance categories are as follows: short is 0 to 500 miles, medium is 

501 to 1,000 miles, and long is greater than 1,000 miles.

Figure 11: Real Rail Rates for Wheat, Selected Short- and Long-Distance Routes, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.
Appendix III

Real Rail Rates for Wheat and Corn 

Shipments

Page 37 GAO-02-524 Freight Rail Rates

Figure 12: Real Rail Rates for Corn, Selected Short- and Long-Distance Routes, 1990–2000

Note: For confidentiality, data points for 1996, 1998, and 1999 within the Des Moines economic area 

were excluded.

Source: GAO’s analysis of the Surface Transportation Board’s data.
Page 38 GAO-02-524 Freight Rail Rates

Appendix IV

Real Rail Rates for Chemicals and 

Transportation Equipment ApendxiIV

The following are real (inflation-adjusted) rail rates for selected chemical 

and transportation equipment shipments in the various markets and 

distance categories we reviewed. The distance categories are as follows: 

short is 0 to 500 miles, medium is 501 to 1,000 miles, and long is greater 

than 1,000 miles.
Appendix IV

Real Rail Rates for Chemicals and 

Transportation Equipment

Page 39 GAO-02-524 Freight Rail Rates

Figure 13: Real Rail Rates for Potassium/Sodium Compounds, Selected Short-, Medium-, and Long-Distance Routes, 1990–2000
Appendix IV

Real Rail Rates for Chemicals and 

Transportation Equipment

Page 40 GAO-02-524 Freight Rail Rates

Note: For confidentiality, the 1997 data point for the route from the New Orleans economic area to the 

Baton Rouge economic area was excluded.

Source: GAO’s analysis of the Surface Transportation Board’s data.

Figure 14: Real Rail Rates for Plastic Materials or Synthetic Fibers, Resins, or Rubbers, Selected Medium- and Long-Distance 

Routes, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.
Appendix IV

Real Rail Rates for Chemicals and 

Transportation Equipment

Page 41 GAO-02-524 Freight Rail Rates

Figure 15: Real Rail Rates for Motor Vehicles, Selected Long-Distance Routes, 

1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.
Appendix IV

Real Rail Rates for Chemicals and 

Transportation Equipment

Page 42 GAO-02-524 Freight Rail Rates

Figure 16: Real Rail Rates for Motor Vehicle Parts or Accessories, Selected Medium- and Long-Distance Routes, 1990–2000

Source: GAO’s analysis of the Surface Transportation Board’s data.

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