A Comprehensive 

Rail Rate Index 

for Grain

Agricultural 

Marketing 

Service

April 2013
ii

Preferred citation:

Sparger, Adam and Marvin E. Prater. A Comprehensive 

Rail Rate Index for Grain. U.S. Department of Agriculture, 

Agricultural Marketing Service. Washington, DC. April 2013. 

<http://dx.doi.org/10.9752/TS060.04-2013>

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A Comprehensive 

Rail Rate Index 

for Grain

Adam Sparger

Marvin E. Prater

1

Several annual rail rate indices depict changes in 

the prices paid for rail service. Although accurate 

for general analyses, each of these indices falls 

short in capturing the three major components 

of total railroad grain rates: tariff rates, fuel 

surcharges, and secondary railcar market costs. 

Bids in the secondary grain railcar market can 

affect whether the actual rate paid by shippers 

is above or below the published tariff rate. The 

seasonality of rates inherent in grain transportation 

is captured through the secondary market but is 

neither contained in other grain rail rate indices 

nor apparent in annualized data. In addition, most 

grain rate indices do not include fuel surcharges, 

which have become a major component of the total 

rate paid for any rail commodity movement. This 

paper develops new rail rate indices for unit trains 

and shuttle trains and compares them with a rail 

cost index. The new indices improve on other grain 

rail rate indices by including information from the 

secondary rail market, fuel surcharges, and tariff 

rates into a weekly index that covers the period 

between 1997 and 2011. The improved indices 

show a higher level of detail than annualized 

indices, allowing for a more thorough analysis of 

grain rates. They show grain rail rates generally 

higher than do other indices, with a notable 

departure from rail costs at the beginning of the 

economic recession in 2009. A comparison of the 

rail indices with rail costs calls into question earlier 

conclusions about rail market power. In constant 

dollars, rail rates for unit trains increased 67 

percent between April 2005 and December 2011, 

and rail rates for shuttle trains increased 29 percent 

between May 2006 and December 2011.

Executive Summary
2

Rail rates have always been a contentious issue 

between railroads and shippers. On the one 

hand, rates must be sufficient to cover railroads’ 

total costs and provide an acceptable return on 

investment. However, rates should not be priced so 

high that the availability of railroad service becomes 

limited to only a handful of shippers, forcing the 

rest to either adopt other transportation modes 

or go out of business. Several recent studies 

have developed rail rate indices to analyze the 

changes in rail rates over time in order to evaluate 

the fairness and competitiveness of the railroad 

industry. Although some of these studies have 

included a rail rate index for grain, none have been 

a comprehensive index from the shipper’s point of 

view. This study creates a comprehensive rail rate 

index for grain that includes the pricing components 

inherent in grain movements: rail tariffs, fuel 

surcharges, and secondary railcar auction values.

Grain is an important commodity to railroads. In 

2010, grain represented 5.5 percent of all carloads 

originated, 8.2 percent of total tons, and 8.4 

percent of total revenue for the Class I railroads 

(Association of American Railroads (AAR), 2010). 

Railroads are also important to grain shippers; they 

hauled 29 percent of all grain transported in the 

United States in 2010 (USDA/AMS, 2012). The 

Surface Transportation Board (STB) notes that grain 

shippers have been concerned about rail rates for 

the past few years (STB, 2009a). Some of their 

major concerns include greater reliance on shipperowned rolling stock, pricing disincentives for singleand multi-car service, and lower rates for longer 

hauls. In addition, the Government Accountability 

Office (GAO) expressed its concern over 

competition and captivity in the rail industry (GAO, 

2006; GAO, 2007). The STB and GAO developed 

rail rate indices for the rail industry overall, and 

the GAO developed a separate index for grain. 

Although their methodologies for creating rate 

indices differed, their findings were similar. Overall 

rail rates generally declined between 1985 and 

2004 before increasing in 2005, 2006, and 2007. 

The GAO’s grain rate index, on the other hand, 

shows that grain rates have steadily increased 

between 1987 and 2005 and are 18 percent higher 

in 2005 than in 1985 in real terms.

Despite differences in methodologies, the indices 

are similar in that both are from the railroad’s 

perspective; they include only railroad revenues 

and exclude secondary railcar auction values. Grain 

is a unique rail commodity; bids in the secondary 

rail market can affect whether the actual rate paid 

by shippers is above or below the published tariff 

rate. From the shipper perspective, secondary 

railcar values are part of the total cost of shipping, 

in addition to tariffs and fuel surcharges (Wilson 

and Dahl, 2010, pg. 24).

Fuel surcharges have also become a major 

component of the total rate paid for any rail 

commodity movement over the past several years. 

In 2011, fuel surcharges on grain movements 

averaged 7 percent of the total cost paid to 

railroads (tariff rates plus fuel surcharges) for unit 

trains and 10 percent for shuttle trains. Although 

the STB index included fuel surcharges, the GAO 

index did not, perhaps because of inconsistent 

reporting methods by the railroads, as noted in 

the GAO report. Prior to the standardization of 

fuel surcharge reporting in 2009, some railroads 

reported fuel surcharges as miscellaneous revenue 

while others reported it as freight revenue between 

2003 and 2008. The study on railroad competition 

by Laurits R. Christensen Associates, Inc. (2009, 

Vol. 2, pg. 8-10) further investigated the issues 

raised by the GAO and developed its own rate 

index for the period of 1987 through 2006. The 

Christensen report developed two rate indices—one 

that included miscellaneous and fuel surcharges 

and one that did not. Both indices showed the 

same overall increase during this period, but with 

different patterns. The index with fuel surcharges 

was higher than the one without surcharges 

between 1992 and 1996, but lower between 1997 

and 2006, with a considerable narrowing of their 

differences beginning in 2004. However, the 

Christensen report did not include a separate grain 

rate index with fuel surcharges.

Introduction
3

The objectives of this paper are twofold. The first 

objective is to develop comprehensive rail rate 

indices for grain in unit trains and shuttle trains 

using all three major components of the total price. 

This is done by combining weekly data from the 

secondary railcar market with monthly tariffs and 

fuel surcharges to create a weekly index between 

the years 1997 and 2011. The second objective is 

to compare the rail rate indices for grain with a rail 

cost index to measure how documented changes in 

the rail marketplace beginning around 2004 have 

impacted grain rates.

These indices offer several benefits over previous 

grain rate indices. First, the level of detail shown 

at the weekly level is useful for studying the 

seasonality of total rail rates inherent in grain 

transportation, allowing for a more thorough 

analysis of grain rates than possible with the 

annualized indices of other studies. Second, these 

indices cover the most recent time period and 

are currently the only ones capable of providing 

analysis on rates through the economic recession 

that began in December 2007. Third, they are the 

only indices that provide a comprehensive look 

at grain rail rates from a shipper’s perspective, 

including secondary railcar auction results and 

fuel surcharges.

Objectives
4

Rail service’s responsiveness to market pressures 

has increased through several mechanisms. The 

first mechanism relevant to the construction of the 

index is the development of unit trains and shuttle 

trains. Railroads began offering pricing incentives 

in the 1980s for larger car shipments from grain 

elevators in order to increase efficiency. Previously, 

cars were priced individually and assembled with 

cars from other origins at a rail yard to form a 

complete train. Unit trains are an innovation over 

single-car pricing in which cars are typically ordered 

in a block of 25–52 cars and receive a lower per-car 

price (Sarmiento and Wilson, 2005). Shuttle trains 

are a further innovation: an entire train can be 

ordered—75 to 120 cars, depending on the railroad. 

Shuttle trains offer further efficiency gains over 

unit trains by avoiding the need to reassemble any 

single cars or blocks of cars at a rail yard in order 

to form a complete grain train. While there are 

differences among railroads about how many cars 

constitute a unit train or shuttle train, shuttle trains 

have several defining characteristics: 

• The locomotives and crew are not detached 

from the grain cars, but remain with them 

throughout the movement.

• The train service is contracted for a specified 

number of shipments over a 6- to 9-month 

period between specific origin-destination 

pairs.

• There are incentives for limiting loading 

and unloading time (Sarmiento and Wilson, 

2005, pg. 1035). 

Thus, train sizes alone do not define the 

train type. Due to railroad differences in definitions, 

this paper defines unit trains as between 25 and 75 

cars and shuttle trains as 75 cars and greater.

The second mechanism of interest is the creation 

of the primary and secondary railcar markets. 

Unlike barge, ocean, or truck rates, rail rates do not 

change on a weekly basis even if market pressures 

demand otherwise. Railroads publish tariff rates 

that reflect the market conditions most likely to 

prevail, given historical precedence and future 

expectations; the law requires them to give 20 

days’ notice before changing the published price. 

As such, rail rates are more insulated from weekly 

market changes and unexpected events, such as 

weather, transportation disruptions, revised grain 

production or export sales data, and exchange 

rates. But as new information enters the market, 

pressures may distort the optimal supply and 

demand arrangement reflected by the tariff rates. 

This element of risk is captured through the primary 

and secondary railcar markets, which affect the 

overall price paid to transport grain.

Prior to the late 1980s, pricing for rail service was 

done through published tariffs that changed little 

throughout the year (Wilson and Dahl, 2010, pg. 4). 

Railcars were secured on a first-come-first-served 

basis—meaning that during certain periods, some 

shippers would not be able to secure rail service 

at any price, while others who had previously 

obtained service would not need it. Beginning with 

Certificates of Transportation in 1988, railroads 

began offering various forms of forward-guaranteed 

railcar service in primary markets, which were 

tradable in secondary railcar markets (Wilson and 

Dahl, 2010, pg. 4). A vast improvement over the 

first-come-first-served allotments, the forward and 

transparent nature of secondary railcar markets 

makes them a risk mitigation method against 

changes in rail rates and as an assurance for railcar 

placement.

Important differences between the primary 

and secondary railcar markets must be noted 

in constructing a rate index. Railroads auction 

an allotment of railcars for non-shuttle service 

Background
5

(single car and unit train) and shuttle service in 

the primary market for placement during specific 

time periods. The winning bidders of these 

auctions can then re-auction these allotments 

in the secondary railcar market. Primary and 

secondary railcar auctions differ in that the revenue 

from primary auctions is paid to railroads. The 

revenue or shortfall in the secondary auctions, 

however, is income gained or lost for the bidder 

(elevator, grain trading firm, or other entity) 

that obtained the service in the primary market 

(Wilson and Dahl, 2010, pg. 22). As the primary 

service holders, railroads have no incentive to 

accept a bid or provide an offer below their own 

published tariffs in primary auctions. Given their 

nature as instruments against risk, bids and offers 

can trade above or below published tariffs in 

secondary auction markets, resulting in revenues 

or shortfalls for the seller of the service contract 

in the secondary market. Railroads are not known 

to participate in the secondary market and would 

not conceivably have much incentive to participate. 

An exception might occur if a railroad wished 

to reduce outstanding service obligations, for 

whatever reason, by purchasing back guaranteed 

car allotments. 

In times of ample railcar availability, shippers 

would not place a premium on risk reduction 

through guaranteed car allotments if service is 

readily attainable through regular tariffs alone. 

Thus, bidders who had previously acquired service 

allotments in the primary market would trade them 

at a loss in the secondary railcar market if the 

bidder finds that service is unneeded. In times of 

high railcar demand and low railcar availability, the 

opposite scenario would occur and result in revenue 

gains. Wilson and Dahl (2010, pg. 22) found that 

between 2004 and 2010, more than 90 percent 

of primary auction results were at nil premium, 

meaning that shippers were able to obtain shuttle 

car commitments at tariff rates. They also found 

that the average secondary market value during the 

same time period was slightly greater than zero, 

meaning that trading guaranteed service allotments 

for risk mitigation in the secondary railcar market 

has proven desirable and profitable over time. 

Conversely, if the average secondary market value 

was consistently less than zero, shippers may 

forgo trading in the secondary market to avoid the 

associated monetary loss.

Figure 1: Secondary Railcar Market Weekly Averaged Bids for Nearby Month*

Source: USDA, Agricultural Marketing Service, Transportation Services Division, Grain Transportation Report

*Nearby month (also know as the spot month or delivery month) is the futures contract month closest to expiration.

-$700

-$500

-$300

-$100

$100

$300

$500

$700

$900

$1,100

$1,300

Current Dollars Non-shuttle (Single Car and Unit Train) Bids Shuttle Bids
6

Data from the secondary railcar market instead of 

the primary railcar markets are included in this rate 

index for two reasons. First, a majority of primary 

auction results are at nil premium, which do not 

add much additional insight into the actual cost of 

transporting grain over the rail tariffs alone. Since 

the primary market is constrained by zero at its 

lower bound, numbers alone make it difficult to 

distinguish a nil premium that represents a nearperfect supply-and-demand equilibrium through 

published tariffs with a nil premium that represents 

an excess supply from tariffs priced above demand. 

Second, the results from the secondary market 

are a good depiction of the railcar supply-anddemand constraints for the grain industry. Supply 

and demand are tied to the agricultural production 

cycle, which affects the total cost of shipping at 

different times of the year. The results of auctions 

in the secondary railcar market are a better 

indicator of immediate grain rail service demand 

because service bought in the primary market may 

be re-traded in the secondary market as demand 

conditions change. The primary source of value 

in obtaining guaranteed railcar placement lies 

in mitigating the risks associated with transport 

availability and cost (Wilson and Dahl, 2005, pg. 

8). The seasonality of agricultural shipments 

involves risk to the shipper, and mitigating that risk 

involves a premium that adds to the total cost. The 

seasonality is apparent in a graph of secondary 

railcar market results (Figure 1).

The data shown in Figure 1 are the weekly averages 

of the winning bids per car for the Burlington 

Northern Santa Fe Railway’s (BNSF) and the Union 

Pacific Railroad’s (UP) near-month non-shuttle 

(single car and unit train) and shuttle services 

trading in the secondary railcar market. Each 

secondary railcar market bid is relative to the 

regular tariff rate a shipper must pay with $0 

representing bids trading at tariff. Thus, the bids 

represent either a premium or a discount to the 

regular tariff. For example, if a shipper purchases 

a guaranteed car allotment in the secondary railcar 

market with a winning bid of $100, then the shipper 

will pay an additional $100 per car above the 

published tariff rate to the seller, regardless of how 

much the seller previously paid for the guaranteed 

car allotment in either the primary or secondary 

market. Conversely, if the winning bid is -$100, 

then the purchaser will get a $100-per-car discount 

on the published tariff rate via a loss to the seller. 

Typically, most of the values fall in the -$200 to 

$200 range. Although this range is relevant to 

the underlying tariff which changes over time, 

bids within plus or minus $200, using absolute 

values, typically represent less than 3 percent of 

the value of the tariff rate across this time period. 

Bids between $200 and $300 are equivalent to a 

12-percent increase, on average, to the tariff rate. 

However, during times of peak demand, bids can 

reach into the $600–$1,000 range. Bids in this 

range are, on average, equivalent to a 31-percent 

increase in the published tariff rate. Bids reached 

a high during October 2005 in the $900 range, 

representing a 47-percent increase to the published 

tariff rate. Values reached into the $600–$1,000 

range between August and October in 3 years: in 

2005, after Hurricane Katrina severely disrupted 

major grain transportation arteries; in 2007, when 

record grain exports put high demand on available 

rail service; and in 2010, during the Russian export 

ban on grain. The Russian export ban on grain 

cut global supply and caused a global increase in 

demand for U.S. grain, leading to a premium on 

rail service by domestic grain shippers trying to 

meet demand. Despite atypical disruptions, the 

indicator is generally higher between August and 

October for any given year as shippers anticipate 

the fall grain harvest by bidding high premiums on 

service to ensure adequate rail capacity for their 

crop. In contrast, values below zero indicate bids 

trading below published tariff rates during times of 

weak demand. Typically, this has occurred between 

February and June, but it has happened as early as 

October, such as the 2011/2012 marketing year, 

when less grain was transported after the harvest.

Also of note is the significant peak and trough 

beginning in August 1997 and ending in May 1998 

that ranged between -$300 and $300. Following 

the Union Pacific and Southern Pacific merger, 

major transportation delays ensued across the 

Western United States for grain and other shippers. 

During this period of widespread uncertainty, 

guaranteed car allotments traded at a premium in 

the secondary railcar market. The STB issued a 

joint petition for service order on October 31, 1997, 

which successfully addressed the problems and 

eventually returned traffic to normal. Following the 

STB’s intervention, the premium on guaranteed car 

allotments began to fall and eventually traded at a 

discount for a short period of time.
7

In order to create the rail index for grain rates, 

data from the STB’s Confidential Carload Waybill 

Sample (STB, 1997-2010) and the USDA’s Grain 

Transportation Report (USDA/AMS, 1997-2011) 

were used to construct a database including 

all three major components: rail tariffs, fuel 

surcharges, and secondary railcar market bid 

results. As in the STB rate index, changes in the 

commodity mix were controlled to avoid biasing 

the index. However, because this index is designed 

to provide an up-to-date snapshot of the current 

market for grain rail rates, all dollars for this index 

are current dollars. In this analysis, a specific 

inflation-adjusted version of the index including only 

railroad revenues (tariffs and fuel surcharges) is 

compared with inflation-related changes in railroad 

input costs. Dollars for the inflation-adjusted 

index were converted into 4th Quarter 2011 dollars 

by the same method employed by the STB using 

the Implicit Price Deflators for Gross Domestic 

Product. The specific procedure is well documented 

in the Excel Workbook Documentation (STB, 

2009b) accompanying the STB’s Rail Rate Study.

There are several important differences in the 

construction of this index, the STB index, the GAO 

index, and the Christensen index. First, both 

the STB and Christensen studies controlled for 

inflation in revenues, whereas the GAO study did 

not. Second, this index calculates the changes 

in per-car non-contract tariff rates to build on 

the per-car non-contract tariff rate database 

in the USDA’s Grain Transportation Report. In 

contrast, the other studies calculate the changes 

in revenue per ton-mile. Between 1997 and 

2010, a majority of the sampled rates from the 

Waybill were non-contract for the selected routes 

except for 2003, 2007, 2009, and 2010. An 

advantage of using only non-contract rates is 

their immediate availability for constructing an 

index. On the other hand, by excluding contract 

rates, the rail rate index may be higher than 

one using contract rates under the assumption 

that contract rates are lower than non-contract 

rates. However, as long as the index is consistent 

in its rate composition over time, it should be 

a good indicator for relative price changes. 

Finally, this is an unweighted index designed 

to be timely and readily accessible for market 

purposes, putting it in contrast with the different 

weighting schemes used by the other indices. 

Like the other studies, this index controls for 

changes in the commodity mix by classifying 

shipments into separate categories according 

to similar characteristics. The characteristics 

controlled for include shipment size (unit train or 

shuttle), origin-destination pairs, commodity, and 

rail carrier. Thus, changes in the per-car tariff 

rates and fuel surcharges do not reflect changes in 

the composition of the underlying shipments, but, 

rather, price changes imposed by the railroads on 

a consistent set of identical shipments over time. 

In contrast to weighting the price changes for each 

tariff and fuel surcharge, the indices developed 

here—one for unit trains and one for shuttle trains—

are based on the unweighted changes in their 

respective monthly tariff rates and fuel surcharges.

The GAO study uses a fixed-weight method 

for controlling price changes in each shipment 

category. This fixed-weight method uses relative 

shipment sizes from a base year to weight the 

relative contributions of each category. In contrast, 

the STB and Christensen studies use a chainweighted Tornqvist Index (although they use 

different classifications for assigning changes to 

shipments). The Tornqvist method weights price 

changes in each category during each time period 

using the price ratio based upon the category’s 

average contribution between two periods. For 

example, the price ratio at time n is calculated from 

the time n and time n-1 prices and weighted by 

their average contribution from time periods n and 

n-1. Each method, including the one presented 

below, has its advantages and drawbacks. In the 

academic literature, the chain-weight index is the 

preferred approach. However, the USDA index is 

not necessarily meant for academic purposes, but 

rather as an industry tool containing up-to-date 

market data.

Methodology
8

The USDA’s Grain Transportation Report (GTR) 

provides a multifaceted analysis of the grain 

transportation industry, including important 

indicators and cost data. Since June 2010, the GTR 

has kept track of monthly rail tariffs for the most 

important grain corridors in terms of volume and 

geography. Unit train (between 25 and 75 cars) 

and shuttle (75 cars and greater) tariff rates per 

car are collected for wheat, corn, and soybeans 

moving in the larger and more predominant 

286,000-pound grain cars between key origindestination pairs. The GTR contains a monthly 

fuel surcharge database that can estimate the fuel 

surcharge for any grain movement by rail since 

2000. In addition, the GTR includes a database of 

secondary railcar market auction bids covering nonshuttle service (including unit trains) since 1997 

and shuttle train service since 2006.

The USDA comprehensive indices are based 

on the tariff rates and fuel surcharges for the 

representative grain corridors detailed above in 

the GTR. In addition, it combines the non-shuttle 

and shuttle secondary railcar market auction 

results from the GTR with the grain tariffs and 

fuel surcharges on a weekly basis to approximate 

a shipper’s total cost for shipping grain by rail 

(Table 1). In order to build a historical database 

that would extend the tariff data within the GTR 

beyond June 2010, the Waybill samples were 

used to calculate monthly average tariff revenues 

between 1997 and May 2010 reported per car for 

unit trains and shuttles hauling corn, wheat, and 

soybeans consistent with the specific routes and 

rail carriers as published in the GTR. Thus, for 38 

origin-destination pairs, there were approximate 

tariff rates per car using the Waybill between 

1997 and May 2010 and actual tariff rates per car 

using GTR data between June 2010 and December 

2011. These 38 origin-destination pairs include 

seven wheat, seven corn, and five soybean unit 

train routes and six wheat, seven corn, and six 

soybean shuttle routes. An unweighted average 

of the 19 unit train tariff rates with accompanying 

fuel surcharges was calculated for each month 

to derive a monthly series of the average per 

car rate. The same procedure was applied to 

the 19 shuttle rates and fuel surcharges.

Because of inconsistencies in fuel surcharge 

reporting methods of railroads prior to the 2009 

STB Waybill, the estimated fuel surcharges 

corresponding with each tariff were calculated from 

the GTR’s fuel surcharge database for all years 

prior to 2009. Between 2009 and May 2010, fuel 

surcharges were obtained from the Waybill’s fuel 

surcharge category. Actual fuel surcharges were 

used between June 2010 and December 2011, 

consistent with the actual reported tariff rates in the 

GTR (Table 1). 

To derive the secondary railcar market data, the 

weekly winning bids for BNSF’s and UP’s nearmonth secondary railcar markets were averaged 

together. This was done separately for unit trains, 

using non-shuttle bids, and for shuttle trains, using 

shuttle bids. The resulting weekly bids were added 

to the corresponding monthly average per-car rate 

derived above. For example, the average percar rate including tariffs and fuel surcharges was 

$3,911 across the 19 unit train origin-destination 

pairs for December 2011. The average near-month 

secondary railcar market bids for non-shuttle trains 

for each week of December 2011 were -$16, $3, 

-$21, and $13. Thus, the average total costs to 

shippers for each week in December were $3,895, 

Component Years Source

Tariff Rates 01/1997 - 05/2010 STB Carload Waybill Sample

06/2010 - 12/2011 USDA Grain Transportation Report

Fuel Surcharges 01/1997 - 12/2008 USDA Grain Transportation Report

01/2009 - 05/2010 STB Carload Waybill Sample

06/2010 - 12/2011 USDA Grain Transportation Report

Secondary Railcar Market Bids

(Non-Shuttle) 05/1997 - 12/2011 USDA Grain Transportation Report

(Shuttle) 05/2006 - 12/2011 USDA Grain Transportation Report

Table 1: Data Sources for Components of Rail Rate Index
9

$3,914, $3,890, and $3,924. The total costs 

including all three components were calculated 

for each week between May 1997 and December 

2011 for unit trains and between May 2006 and 

December 2011 for shuttle trains. Due to the 

limitations of the GTR’s secondary railcar market 

database, only the tariff rates and fuel surcharges 

are available for shuttle trains prior to May 2006, 

significantly shortening the span by which to create 

a comprehensive cost index for shuttle trains.

The base units for both indices are their firstquarter averaged tariff rate with fuel surcharges 

from 2001. This time period was chosen as 

the base for the indices because of the limited 

availability of shuttle tariff data prior to then. An 

average of the first quarter was used instead of 

a single month in order to avoid any abnormal 

monthly variations and to be as representative as 

possible. Weekly secondary railcar market data 

was excluded from the base of each index because 

it was unavailable for shuttles, and both indices 

should be comparable over the same time frame by 

being consistent in the base value chosen.

Using an unweighted index may be isrepresentative 

under some circumstances. An unweighted index 

is equivalent to assigning equal weights to each of 

the underlying categories and is subject to some 

of the same criticisms of a fixed-weight index. 

If, in reality, one category contributes a smaller 

share to the index than another category, then 

an unweighted index would register changes in 

either category equally despite their proportional 

differences. Thus, the index could be misleading 

resulting from changes in the smaller lessrepresentative category. However, given the nature 

and selection of the underlying categories chosen 

for this index, an unweighted index is appropriate 

for the purposes of constructing an industry tool 

depicting changes in grain rail rates.

The unweighted index described above was 

compared against a chain-weighted Tornqvist Index 

that uses the number of carloads per month to 

weight changes in the total rate per car (tariffs, 

fuel surcharges, and secondary railcar market 

bids) (Figure 2). Both indices covered unit trains 

over the same time period, 1997–2010, based on 

Figure 2: Difference Between Chain-Weighted Tornqvist and Unweighted Index for Comprehensive Grain Rail 

Rates for Unit Trains

Source: USDA analysis of STB Carload Waybill Sample, 1997-2010; USDA/AMS Grain Transportation Report, 1997-2010

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

220

230

240

250

5/7/1997 5/7/1998 5/7/1999 5/7/2000 5/7/2001 5/7/2002 5/7/2003 5/7/2004 5/7/2005 5/7/2006 5/7/2007 5/7/2008 5/7/2009 5/7/2010

5/7/1997 = 100

Tornqvist

Unweighted
10

the availability of Waybill data for reconstructing 

tariffs and constructing weights. They also used 

the same monthly tariff, monthly fuel surcharge, 

and weekly secondary railcar market data. The 

two indices move closely together, being within a 

5-percent difference of one another for a majority 

of the time. The greatest divergence was just 

under a 14-percent difference for portions of 1999, 

2000, and 2001, which was caused by especially 

heavy carload traffic on a couple of the corn routes. 

For the rest of the period, traffic volumes stayed 

relatively within the same bounds.

Furthermore, the underlying tariff data at the 

base of this index is a useful and representative 

approximation of changes in grain rates as 

compared to using revenue per ton-mile, as do 

the other indices. Figure 3 demonstrates the close 

comparison between the fixed-weight GAO grain 

index and the annualized tariff rate component 

of the USDA unit train index (fuel surcharges and 

secondary railcar market results were excluded for 

consistency). A major advantage of this method is 

not having to rely on the Waybill for constructing 

weights and, thus, avoiding a 1- to 2-year lag 

on obtaining the most current data. This is also 

true for contract rates which are contained in the 

Waybill. For further explanation, Christensen 

(2009) contains a detailed overview of the various 

methods and associated biases for each study.

Figure 3: Grain Rate Indices

Source: GAO Freight Railroads, 2006, 2007; USDA analysis of STB Carload Waybill Sample, 1997-2005.

0.6

0.7

0.8

0.9

1

1.1

1.2

198519861987198819891990199119921993199419951996199719981999200020012002200320042005

Fixed-Weight GAO Index

(revenue per ton-mile)

Unweighted Unit Train

Index (tariff rate per car)

1997=1
11

Between May 1997 and December 2011, the 

unit train index stayed relatively flat until 2005, 

when it began trending upwards through 2011, 

with an overall low of 82 in January 1998 and an 

overall high of 230 in September 2010 (Figure 

4). There were four discernible periods evident 

in the data: (1) May 1997 through March 2005, 

(2) April 2005 through March 2007, (3) April 2007 

through December 2010, and (4) January through 

December 2011. The first period is characterized 

by a relatively flat trending rail index with a low 

standard deviation of 8.4, a maximum of 135, and 

a minimum of 82. The second period is marked 

by higher overall rail rates that have dramatic 

swings between highs and lows. The maximum and 

minimum are 182 and 110, respectively, and the 

standard deviation is 13.9. The third period shows 

a higher variance, standard deviation of 21.0, 

similar to the second period but with a constant 

upward trend, maximum of 230, and minimum of 

120. The fourth period is similar to the first period 

in terms of having a flat sideways trend, yet with 

the lowest standard deviation—4.1—of any period. 

Its maximum and minimum are 221 and 202.

The shuttle and unit train indices move in tandem 

between May 2006 and December 2010 (Figure 

4). However, beginning in the fourth period, a 

divergence begins to appear, with the unit train 

index 27 points higher on average than the shuttle 

index throughout the period. The shuttle index, 

although shorter in length, can be separated into 

Results

Figure 4: Comprehensive Grain Rail Rate Indices

Source: USDA analysis of STB Carload Waybill Sample, 1997-2010; USDA/AMS Grain Transportation Report, 1997-2011

70

90

110

130

150

170

190

210

230

5/7/1997

11/7/1997

5/7/1998

11/7/1998

5/7/1999

11/7/1999

5/7/2000

11/7/2000

5/7/2001

11/7/2001

5/7/2002

11/7/2002

5/7/2003

11/7/2003

5/7/2004

11/7/2004

5/7/2005

11/7/2005

5/7/2006

11/7/2006

5/7/2007

11/7/2007

5/7/2008

11/7/2008

5/7/2009

11/7/2009

5/7/2010

11/7/2010

5/7/2011

11/7/2011

Unit Train

Shuttle 1st Quarter 2001 = 100

Tariff, Fuel Surcharge, Secondary Railcar Market Costs per Car (Current dollars)

Period 1 Period 2 Period 3 Period 4
12

the same distinct time periods as the unit train. 

The shuttle index in the second period, beginning 

in May 2006, follows the same pattern as the 

corresponding unit train index. The standard 

deviation is 9.7, and the maximum and minimum 

are 169 and 134, respectively. The third period 

shows the same upward trend as the unit train 

index with a maximum of 244, minimum of 124, 

and standard deviation of 23.4. During the fourth 

period, the index trends sideways but with a higher 

volatility, with a standard deviation of 9.4 compared 

to 4.1 for unit trains. The maximum and minimum 

are 216 and 168, respectively. This divergence 

during the fourth period may show railroads’ 

increasing preference for shuttles over unit trains, 

which is related to the issues raised by the STB 

(2009, pg.7) stating shippers’ worries of railroads 

attempting to “de-market” single-car and multi-car 

service to encourage shuttles.

As mentioned previously, these indices show the 

total costs for shipping grain from a shipper’s 

perspective because shippers pay premiums in 

the secondary railcar market which the railroads 

do not receive. To examine the influence 

secondary railcar markets exert on overall rates, 

separate indices were developed which excluded 

all secondary railcar market data (Figures 5 and 

6). Generally, the indices followed one another 

closely with a few dramatic exceptions where the 

secondary railcar market boosted overall rates 

above published tariff rates during times when 

insufficient car availability became a greater risk 

to shippers because of higher demand, restricted 

supply, or both: August 2005 through January 

2006 during the aftermath of Hurricane Katrina; 

August through October 2007 during a record U.S. 

export of corn, wheat, and soybeans; and July 

through October 2010 during the Russian grain 

export ban. The widespread service disruptions 

in the western United States stemming from the 

Union Pacific and Southern Pacific merger also 

caused a notable deviation between secondary 

market and published tariff rates in 1997 and 

1998—initially the secondary market traded 

above tariff rates during the disruptions, and 

then below tariff rates after STB intervention.

Interestingly, the secondary railcar market had 

different effects on unit train and shuttle rates. For 

unit trains between May 1997 and December 2011, 

there was an almost even split between weeks in 

Figure 5: Comparison of Unit Train Indices

Source: USDA analysis of STB Carload Waybill Sample, 1997-2010; USDA/AMS Grain Transportation Report, 1997-2011

70

90

110

130

150

170

190

210

230

Unit Train Index Without Secondary Market Data

Comprehensive Unit Train Index 1st Quarter 2001 = 100

Katrina

Record Export Year

Russian Grain Ban

Widespread Service Disruptions
13

which the secondary railcar market caused the total 

cost of shipping to be greater (49 percent) and 

weeks in which it caused the total cost to be less 

(51 percent) than tariff rates and fuel surcharges 

alone (Figure 5). This finding is consistent when 

viewed between the narrower timeframe of May 

2006 and December 2011, when the secondary 

market was greater than tariff rates 48 percent of 

the time. In contrast, the secondary railcar market 

for shuttles caused the total cost to be greater than 

it otherwise would have been only 31 percent of 

the time between May 2006 and December 2011 

(Figure 6). Shippers have more frequently placed 

a higher premium on mitigating risk through the 

secondary market for unit trains than for shuttles. 

This shows that obtaining adequate service for unit 

train shipments of grain has been harder than for 

shuttle trains during this period. 

Applying the Index

A consistent finding among the rail rate studies 

has been that overall rail rates decreased between 

1985 and 2000, had either zero or slight increases 

between 2000 and 2003, and increased noticeably 

from 2004 to the present. The evident rate 

increases beginning around 2004 have been the 

source of much controversy involving allegations of 

railroad market power and excessive profits after 

almost two decades of declining rates. As did the 

other studies, the rate indices presented here show 

that grain rates began increasing around 2004. 

Plotting the rate increases against railroad input 

costs becomes especially illuminating (Figure 7).

The Association of American Railroads constructs 

the quarterly All-Inclusive Index (AAR, 2004; 

AAR, 2011), which measures changes in railroad 

inflation. It is limited to inflation-related changes 

in input price levels, such as fuel, labor, materials, 

and supplies. When graphed against the inflationadjusted rail price indices, it is apparent that prices 

and costs mirror one another until the beginning of 

2009, during the economic recession. It appears 

that rising rail rates beginning in 2004 generally 

track rising rail input costs. This is consistent 

with the finding of the Christensen study, which 

states that recent increases in rail revenue per 

ton-mile were the result of increasing input costs, 

not an exercise of market power, between 1987 

and 2008 (2009, Vol. 2, pg. 10-12). Nevertheless, 

Figure 6: Comparison of Shuttle Indices

Source: STB Carload Waybill Sample, 2006-2010; USDA/AMS Grain Transportation Report, 2006-2011

90

110

130

150

170

190

210

230

250

Shuttle Index Without Secondary Market Data

Comprehensive Shuttle Index

1st Quarter 2001 = 100

Record Export Year

Russian Grain Ban
14

the highest commodity markups are for grains 

and are related to grain shipper captivity (2009, 

Vol. 2, pg. 11-30). The Christensen study (2009, 

Vol. 2, pg. 10-2) also notes that the rail industry 

cannot be classified as purely competitive or purely 

monopolistic, recognizing that some market power 

does exist while nevertheless being subject to 

some competition.

Beginning around January 2009, it appears that 

railroads were able to increase prices for unit train 

and shuttle service above market increases for 

railroad inputs. Rail rates for shuttle shipments 

experienced a dramatic increase, which was more 

than twice as fast as the rate of rail input cost 

inflation between February 2009 and December 

2010, before leveling off to the input cost level. 

In comparison, rates for unit trains have risen 

faster and remained above railroad input costs 

throughout the period between January 2009 and 

the present. Especially during a time of recession, 

this raises questions of whether the Christensen 

study’s findings still apply to the most recent data: 

(1) are increasing input costs, not railroad exercise 

of market power, still responsible for rate increases; 

and (2) does captivity relate to recent differences 

between prices of unit and shuttle trains. Still, 

a more detailed study would be necessary for 

investigating and interpreting these results beyond 

the preliminary trends presented here.

Figure 7: Real Grain Rates vs. Railroad Costs

Source: AAR Railroad Cost Indexes; STB Carload Waybill Sample, 1997-2010; USDA/AMS Grain Transportation Report, 1997-2011

70

90

110

130

150

170

190

210

Unit Train Index Without Secondary Market Data (2011 dollars)

Shuttle Index Without Secondary Market Data (2011 dollars)

AAR All-Inclusive Index (Inflation Related Railroad Costs)

1st Quarter 2001 = 100
15

The comprehensive indices for unit and shuttle train 

grain rates developed here are a useful measure 

for capturing changes in the total cost of shipping 

from the shipper’s perspective. The tariff rate and 

fuel surcharge components of the index are useful 

for tracking the long-run trends in grain rail rates, 

whereas secondary railcar market results reflect risk 

and the seasonality of grain shipping. The long-run 

trends show relatively sideways trending rail rates 

for unit trains until the beginning of an upward 

trend in 2004, with a rate increase of 95 percent 

between April 2005 and December 2011 in current 

dollars (67 percent when adjusted for inflation). 

The shuttle index follows the unit train index closely 

until September 2009, when it exhibits a less 

pronounced upward trend. Between May 2006 and 

December 2011, the shuttle index shows an almost 

47-percent increase in current rail rates (29 percent 

when adjusted for inflation).

Secondary railcar markets are useful for 

internalizing outside risk brought about by 

unexpected developments not otherwise captured 

in the published tariffs. This ensures shippers 

have adequate service during times of increased 

uncertainty. The indices show this has happened 

in recent years during Hurricane Katrina, record 

grain exports in 2007, and the Russian ban on 

grain exports. However, the seasonality of grain 

shipments is also reflected in the secondary railcar 

market through normally higher premiums between 

August and October in anticipation of the annual 

grain harvest.

These two indices corroborate the findings of 

previous rate indices of an upward trend in rail 

rates beginning in 2004. Based on these indices, it 

appears the increase in grain rates between 2004 

and 2009 was related to the increase in railroad 

input costs. Only since the beginning of 2009 has 

there been a consistently visible difference between 

rail rates and railroad input costs. In contrast to 

unit train rates, the increase in shuttle rates during 

the recession appears to again be consistent with 

rail input costs. These findings raise the issues 

brought about by the STB regarding shipper 

concerns over railroads “de-marketing” single-car 

and multi-car rates as well as Christensen (2009) 

findings regarding grain shipper captivity. 

These indices should prove useful to grain shippers 

who wish to track the seasonality and long-run 

trends of unit train and shuttle rates. They 

could also serve as a foundation for researchers 

who wish to expand upon these findings for 

academic purposes.

Conclusions
16

Association of American Railroads. AAR Railroad Cost Indexes, March 2004.

Association of American Railroads. Freight Commodity Statistics, 2010.

Association of American Railroads. AAR Railroad Cost Indexes, September 2011.

Government Accountability Office. Freight Railroads: Industry Health Has Improved, but Concerns About 

Competition and Capacity Should Be Addressed. GAO-07-94, 2006.

Government Accountability Office. Freight Railroads: Updated Information on Rates and Other Industry 

Trends. GAO-07-291R, 2007.

Laurits R. Christensen Associates, Inc. “A Study of Competition in the U.S. Freight Railroad Industry and 

Analysis of Proposals That Might Enhance Competition.” Report prepared for the Surface Transportation 

Board. Madison, WI, 2009.

Sarmiento, Camilo and William W. Wilson. “Spatial Modeling in Technology Adoption Decisions: the Case of 

Shuttle Train Elevators.” American Journal of Agricultural Economics 87(4), (2005).

Surface Transportation Board. Confidential Waybill Sample, 1997-2010.

Surface Transportation Board. Study of Railroad Rates: 1985-2007, 2009a.

Surface Transportation Board. Excel Workbook Documentation: For Computations Made in the STB Rail 

Rate Study, 2009b.

U.S. Department of Agriculture, Agricultural Marketing Service. Grain Transportation Report, 1997-2011. 

Accessed January 13, 2012. http://www.ams.usda.gov/AMSv1.0/gtrdata.

U.S. Department of Agriculture, Agricultural Marketing Service. Transportation of U. S. Grains: A Modal 

Share Analysis, 1978-2010 Update, 2012.

Wilson, William W. and Bruce L. Dahl. “Railcar Auctions for Grain Shipments: A Strategic Analysis.” 

Journal of Agricultural & Food Industrial Organization 3(2), (2005): Article 3.

Wilson, William W. and Bruce L. Dahl. “Grain Pricing and Transportation: Dynamics and Changes in 

Markets.” Agribusiness and Applied Economics Report 674. North Dakota State University, Department of 

Agribusiness and Applied Economics, Fargo, ND. 2010.

References
17

Photo Credits

Cover, page 1

Gene Hanson

Cover, page 2

USDA

Cover, page 11

Huw Williams

Cover, page 15

Wikimedia 

Commons

Cover

Huw Williams

Cover, page 7

Courtesy of the 

World Shipping 

Council and 

Hanjin Shipping

Page 3

Sean Lamb

Page 4

USDA

Page 16

Alameda Corridor 

Transportation 

Authority
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