Chapter 6

Rail 

Competiti on and 

its Importance 

to Agriculture
191

Chapter 6: Rail Competition and its Importance 

to Agriculture 

The legislative language establishing this study requires an examination of: “... the sufficiency in 

rural areas of transportation capacity, the sufficiency of competition in the transportation 

system, the reliability of transportation services, and the reasonableness of rates...”96 This 

chapter and the five that follow explore these questions with regard to rail freight 

transportation. 

This analysis of rail transportation is covered in the next six chapters of the Study: 

• Chapter 6, Rail Competition and Its Importance to Agriculture (this chapter) 

• Chapter 7, Rail Rates 

• Chapter 8, Rail Service Performance 

• Chapter 9, Rail Capacity 

• Chapter 10, Rail investment 

• Chapter 11, Rail Rate Relief Processes for Shippers 

U.S. Agriculture Depends on Rail Transportation 

Agricultural producers—farmers—are dispersed over the entire country. Unlike most other 

industries, they are unable to move their operations—they are tied to the land, and often to a 

particular climate. Because they are tied to the land, they must be able to transport their 

produce to markets, many of which are located long distances from the farms. 

Nine of the ten top wheat-producing States are more than 150 miles from barge transportation 

on the Mississippi River, which usually provides the strongest intermodal competition to 

railroads for the long-distance movement of grain to export ports. Unlike other agricultural 

shippers in the United States, wheat shippers in much of the Great Plains have no cost-effective 

transportation alternatives to railroads. The wheat produced in these areas moves long 

distances to domestic markets for processing and consumption or to coastal ports for export. 

Shippers in these regions have little direct access to inland waterway transportation and the 

distances involved can make truck transportation uneconomical. 

Large volumes of grain and oilseeds are produced each year in the United States. American 

farmers produced more than 18.8 billion bushels of grain and oilseeds in 2008, weighing more 

than 539 million tons.* This volume of grain and oilseeds would require 19.6 million truckloads 

or 5.4 million railcar loads to haul. 

 

*

 “Grains and oilseeds” includes barley, corn, millet, oats, rice, rye, sorghum, wheat, canola, flaxseed, peanuts, 

safflower, soybeans, and sunflower seeds. 
192

The share of the grain harvest moved by rail has been declining since deregulation in 1980. In 

that year, railroads moved half the grain harvest. In 2004, the rail share had declined to 35 

percent.97 Most of the traffic lost to rail now moves by truck, partly as a result of changes in 

grain markets, especially the location of more cattle feedlots and newly constructed ethanol 

plants in grain-producing States. Most of the grain for these feedlots and ethanol plants moves 

relatively short distances, and most is moved by truck. 

Although rail shipments of grains and oilseeds have increased at an average rate of 1.1 percent 

over the last fifteen years, truck shipments have increased by 4.4 percent.98 In other words, 

rail’s market share has been steadily decreasing. Farmers have other options, and they appear 

to be taking advantage of them. 

An affordable and reliable transportation network is necessary to maintain the strength and 

competitiveness of American agriculture and our rural communities. Rail service is a 

particularly important part of that network for U.S. agriculture, because it is virtually the only 

cost-effective shipping alternative available for low-value, bulky commodities in rural areas that 

are distant from water transportation and markets. 

Agricultural shippers in Montana and North Dakota are particularly dependent on rail 

transportation because of their distance to inland waterways and the prohibitive distance for 

the use of trucks. Figure 6-1 shows that, on average, railroads transported more than 70 

percent of the grains and oilseeds originated in Montana and North Dakota during the crop 

marketing years from 2004 to 2007. Another study indicates that during crop marketing year 

2004, railroads transported 78 percent of North Dakota crops.99 A recent study states that 

nearly 100 percent of Montana wheat is shipped by rail.100

During the crop marketing years 2004–2007, railroads transported more than 50 percent of the 

grain production of Arizona, Oklahoma, and South Dakota. During the same time period, rail 

moved more than 30 percent of grain and oilseed production in the States of Idaho, Illinois, 

Indiana, Kansas, Minnesota, Nebraska, Nevada, Ohio, Tennessee, and Washington. 

During calendar year 2007, 33 percent of major grains and oilseeds and 46 percent of grain and 

oilseed exports moved to market by rail. Wheat is particularly dependent on rail; 66 percent of 

all wheat and wheat exports moved by rail during 2007. 

 
193

Figure 6-1: Railroad shipment/grain production ratio, average 2004-2007 marketing years 

Government Promotion and Regulation of Railroads 

During the 19th century, all levels of government promoted the development of railroads. 

Contrary to popular impression, most of the government promotion of railroads during this 

period was undertaken by State and local governments, not by the Federal Government. State 

and local governments promoted railroads in an attempt to attract commerce, and many of the 

nation’s major cities and industrial centers can attribute their development in some measure to 

commerce generated by the availability of railroad transportation. State incentives for railroad 

development included government purchase of railroad stock, loans and loan guarantees, cash 

grants, and tax exemptions.101 The Federal Government promoted rail transportation by 

surveying land for the railroads and providing land grants to encourage railroad development in 

Western States. These land grants were usually sold by the railroads to finance construction of 

their lines and to encourage agricultural production and traffic on the rail lines. 

Because of government promotion, overcapacity was an early and lasting feature of the 

railroad industry, in part because of the intense competition among municipalities to obtain rail 

service. The consolidation of local railroads into larger rail systems during the 1870's and 

1880's and the presence of excess capacity ensured periods of vigorous—and destructive—

competition among railroads. These bouts of competition alternated with attempts by 
194

railroads and Wall Street financiers to create a sustainable cartel that would boost the 

industry’s profitability. Although each cartel failed, the apparent collusion of railroads, 

financiers, and government officials infuriated the public, especially the farmers and 

agricultural interests who were dependent on rail transportation. 

Interstate Commerce Act of 1887 

Because they possessed and exercised considerable market power, railroads were the first 

industry regulated by the U.S. government. The Interstate Commerce Act of 1887 (ICC Act) 

created the Interstate Commerce Commission (ICC) and charged it with implementing the ICC 

Act. The ICC Act prohibited price discrimination by place, shipper groups, commodities, long 

haul/short haul, and on a personal basis. The ICC Act also prohibited pooling, or the formation 

of cartels, and required that rail rates be just and reasonable. Railroads were required to 

publish and adhere to tariffs to allow the ICC to monitor prices and price discrimination.102 

Hepburn Act 

Congress broadened and strengthened the scope of railroad regulation over the ensuing years 

and Federal regulation of all facets of the industry became pervasive. The Hepburn Act, passed 

in 1906, allowed the ICC to establish maximum rail rates, increased its power to regulate joint 

rail rates, and extended its power to regulate personal price discrimination. Because some 

railroads gave preferential rates to commodities in which they had a financial interest, The 

Hepburn Act included the commodity clause, which prohibited railroads from hauling 

commodities they produced, owned, or in which they had a financial interest. Under The 

Hepburn Act, the ICC could suspend rate-change proposals for 120 days to determine rate 

reasonableness. Railroad profitability slipped between 1906 and 1920, as the ICC turned down 

nearly all rail rate increases. As a result, rail service deteriorated and many railroads went 

bankrupt.103 

Transportation Act of 1920 

The Transportation Act of 1920 tried to address the financial needs of railroads by extending 

ICC regulations to minimum rail rates and by allowing pooling, if shown to be in the public 

interest. Also, the rule of rate-making was introduced, entitling railroads to charge prices which 

would result in a fair return on their investment. Regulation was extended to the control of exit 

and entry in the rail industry, the issuance of financial securities, and ICC approval of mergers. 

In spite of its good intentions, this law greatly hampered the ability of railroads to respond to 

competition, abandon unprofitable lines, cover their fixed costs, and provide flexible service. 

Meanwhile, government construction of highways and locks and dams increased competition 

from other transportation modes, further depressing railroad profitability. The new 

commercial trucking industry and the beginnings of an extensive network of roads and 

highways greatly reduced truck transport costs. In addition, government construction of lock 

and dam systems on the upper Mississippi and Illinois Rivers and the promotion of inland 

waterway transportation further lessened the railroads’ share of intercity freight movements. 
195

Regulation of the rail system was not relaxed even though the Federal Government subsidized 

the rail industry’s competitors by building the interstate highway system, the inland waterway 

system, and key portions of the nation’s commercial aviation industry. Federal law still made it 

difficult for railroads to abandon track or eliminate unprofitable passenger service. As a result, 

railroads were unable to earn enough money to pay for the maintenance of their equipment 

and infrastructure throughout the 1950's, 1960's, and 1970's. Since cash flows were 

inadequate and it was difficult to abandon lines under the rail regulatory system, railroads 

often opted to defer maintenance on lighter traffic-density lines. The condition of the U.S. rail 

network deteriorated greatly until the mid-1970s. By 1976, approximately one-third of the 

Nation’s railroads were bankrupt or nearly bankrupt.104 

Start of Regulatory Reform 

Regulatory reform began with the Regional Rail Reorganization Act of 1973 (3-R Act), which was 

passed primarily to restructure the railroad network in the Northeastern United States, and was 

strengthened with the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act), 

which relaxed regulation of railroad rates, mergers, and abandonments. The 4-R Act was 

designed to rescue the rail industry by giving railroads more flexibility and by relying more on 

market forces to set prices. The 4-R Act allowed minimum rail rates as low as railroad variable 

cost and removed regulation of maximum rail rates unless the railroad had market dominance. 

Finally, the 4-R Act gave the ICC the power to grant regulation exemptions for commodities and 

types of transportation in which railroads have no market power. Despite these changes, the 3-

R Act and 4-R Act failed to revive the rail industry. 

Staggers Rail Act of 1980 

The Staggers Rail Act of 1980 (Staggers Act) gave railroads increased freedom to price their 

services according to market conditions, including the freedom to use differential pricing. 

Perhaps most importantly, the Staggers Act permitted railroads to enter into confidential 

contracts with shippers, which were to be filed with the ICC, thereby enabling railroads to make 

investments in plant and equipment with a greater degree of certainty that these investments 

would be profitable. 

At the same time, the Staggers Act gave the ICC, and later its successor, the Surface 

Transportation Board (STB), the authority to establish a rate appeals process so captive 

shippers could obtain relief from unreasonably high rail rates. Under the Staggers Act, the STB 

has no jurisdiction over maximum rail rates unless the railroad has market dominance and the 

revenue-to-variable cost ratio exceeds 180 percent. Furthermore, the STB has no authority 

over contract rates or the rates and service of exempt—including some agricultural—

commodities. 
196

Figure 6-2: Many rail lines to local elevators were abandoned after the Staggers Act of 1980. 

Source: Wikimedia Commons 

Interstate Commerce Commission Termination Act of 1995 

More recently, the Interstate Commerce Commission Termination Act of 1995 (ICCTA) 

eliminated the ICC as of January 1, 1996, replacing it with the much smaller STB. The ICCTA 

eliminated the requirement of railroads having to file tariffs with the STB and abolished the 

STB’s authority to establish minimum rates. Under the ICCTA, the STB may not suspend any rail 

rates except to prevent irreparable harm. This contrasts to prior laws, in which the ICC had the 

authority to investigate and suspend new rail rates on its own initiative. The Act also imposed 

time limits on rate proceedings before the STB, ostensibly to prevent future rate appeals from 

lasting eighteen years as did the McCarty Farms case, which appealed agricultural grain rates in 

the Northern Plains (see Chapter 11 for more about the McCarty case). 

The ICCTA requires a railroad’s common carriage rates (tariff rates) and service terms to be 

disclosed on request and published in some form for agricultural products and fertilizer. 

Increases in these tariff rates or changes in the service terms require 20 days advance notice be 

given to any person who had requested such rates or made arrangements for shipment under 

the rate. 

The STB may still require rail carriers to file their car service rules even though tariff filing has 

been eliminated. A railroad is allowed to fulfill its contractual commitments before handling 

requests for common carrier service. However, the contractual commitments of the carrier 

must be reasonable, and not prevent a carrier from responding to its common carrier 
197

obligations. Railroad movements which use cars provided under guaranteed car systems are 

not considered contractual movements. The STB is also directed to consult as it considers 

necessary with the National Grain Car Council on matters involving the rail transportation of 

grain. 

The ICCTA also accelerated and streamlined the procedures for rail consolidation proceedings. 

The STB retained the power to approve rail mergers, consolidations, and control transactions, 

but has added rules to guide that discretion. The conditions may include divestiture of parallel 

tracks, the granting of trackage rights, and access to other facilities to alleviate anti-competitive 

effects of the transaction. In addition to the criteria required in previous legislation, when a 

transaction involves the control of at least two Class I carriers, the STB is instructed to consider 

whether the proposed transaction would have an adverse effect on competition among all 

carriers, not just those in the affected region. Recently approved mergers by the STB have had 

more conditions and longer oversight periods, particularly in view of the Western rail crisis 

during 1997-98, which followed the Union Pacific/Southern Pacific merger. 

Rail Competition in an Era of Deregulation 

This section discusses various types of competition in the railroad industry today and uses the 

inverse Herfindahl-Hirschman Index (HHI) analysis by Crop Reporting District (CRD) to explore 

how rail-to-rail competition has changed for agriculture since the mid-1980s. 

Deregulation of the Railroad Industry 

The constraints of pervasive economic regulation, although meant to protect shippers from the 

abuse of railroad market power, resulted in nearly bankrupting the railroad industry as well as 

increasing shipper costs. Furthermore, Federal legislators recognized that industry regulation 

was expensive for both industry and government, and created market distortions for nearly all 

regulated markets.105 Congress deregulated railroads in response to arguments that the 

industry needed greater pricing and operating freedom to avoid more bankruptcies.106 

As the Nation deregulated the railroad industry, conflicting goals included the preservation of 

effective transportation competition, the regulatory protection of captive shippers, 

deregulation of rail rates when sufficient competition is present, and revenue adequacy of 

railroad firms.*

 The concept of adequate competition is so important that competition is 

mentioned four times, avoidance of undue concentration of market power is mentioned once, 

and adequate railroad revenues or sound economic conditions is mentioned twice in the fifteen 

Rail Transportation Policy goals of the Staggers Act and ICCTA.107 The presence of 

transportation competition was expected to protect most shippers by constraining the use of 

railroad market power. On the other hand, adequate revenues are necessary for rail service to 

remain viable and continue providing service. 

 

*

 Although railroads are economically deregulated, they are still subject to significant safety, labor, and other laws 

and regulations. 
198

Figure 6-3: Decreased rail-to-rail competition reduces options for shippers. 

Source: Wikimedia Commons, Sean Lamb 

In cases when rail-to-rail competition was not present, captive shippers expected meaningful 

protections against the excessive use of railroad market power. Until 2008, the only rail rate 

appeals used by shippers were Stand-Alone Cost procedures, which cost millions to adjudicate. 

(See Chapter 11 for detailed information on rate relief processes for rail shippers). Small 

shippers essentially had no protection until 1996, when the STB instituted small rate case 

appeals procedures. Small shippers, however, did not use those procedures because they did 

not perceive them to be cost-effective and were concerned about the uncertainty of the 

process. The STB held a proceeding regarding small rate case appeals procedures and set new 

rules for small rate case appeals in 2008. In response to appeals from both shippers and 

railroads, the U. S. Court of Appeals for the District of Columbia Circuit affirmed the STB 

decision on June 9, 2009. 

Benefits of Railroad Deregulation and Agricultural Concerns 

Railroad deregulation encouraged greater reliance on free markets to promote railroad 

profitability and public benefits.108 The Staggers Act significantly reduced economic regulation 

in the railroad industry, which has benefited shippers as well as railroads. 

 
199

Since the Staggers Act, the average rate of return on investment for the railroad industry has 

increased from less than 2.5 percent during the 1970s to slightly more than 10 percent during 

2006 and 2007. The Christensen study found that the return on equity for the railroad 

industry—when compared to revenue adequacy standards using STB’s Capital Asset Pricing 

Model (CAPM)*

—has exceeded revenue adequacy standards since 2001.109 In addition, 

railroad industry earnings above CAPM revenue adequacy standards have widened in recent 

years. 

During the first decade of railroad deregulation, the annual benefits to shippers amounted to 

more than $12 billion in 1999 dollars, equivalent to $14.7 billion in 2007 dollars.110 Shippers 

have benefitted from 20 years of decreasing rail rates (in terms of inflation-adjusted revenue 

per ton mile) and the preservation of rural lines that were sold or leased to smaller railroad 

firms. Many of these new short line railroads have been able to operate profitably on rail lines 

abandoned by the major railroads and have generally provided more individualized service to 

shippers.111 

 

Despite the initial success of the Staggers Act, agricultural producers and shippers continue to 

express concern about decreased rail-to-rail competition, rapidly increasing rail rates, poor rail 

service, rail capacity constraints, and the fair allocation of rail capacity. As expected, the 

distribution of benefits has tended to favor grain producers and shippers in regions with more 

transportation competition.112 In addition, the GAO noted that rates have not declined 

uniformly for all commodities and that rates for some commodities are significantly higher than 

others. In particular, from 1987 to 2004, rail rates for grain have increased 9 percent, as rates 

have declined for coal, motor vehicles, and miscellaneous mixed shipments.113 

Role of Competition 

Some economists claim that the way to preserve the benefits of deregulation is to increase rail 

competition; many shipper groups have echoed this conclusion in comments prepared for 

various proceedings before the Surface Transportation Board.114 Market-based competition is a 

fundamental economic policy of the United States.115 Competition requires businesses to 

become efficient and effective† in providing the kinds and quality of goods and services the 

consumer desires. Competitive markets reduce market distortions and result in the efficient 

allocation of resources, providing a basis for economic development. As the Antitrust 

Modernization Commission states, “The U.S. economy is an example of how free markets can 

lead to the creation of wealth, making possible improved living standards and greater 

prosperity.”116 Furthermore, Michael Porter observes that industries sheltered from 

competition are less vigorous and successful than industries subject to competition.117 

 

*

 At the time of the Christensen study, the STB used the CAPM standard to evaluate the revenue adequacy of the 

railroad industry. On January 28, 2009, STB adopted a new measure which is the simple average of the CAPM 

and a multi-stage Discounted Cash Flow method of estimating revenue adequacy. †

 USDA defines “efficient” as being cost-efficient; “effective” is the production of a product or service having the 

features and quality that consumers want. 
200

When an industry is economically regulated, competition is not as important because 

government protects the consumer and social welfare. When an industry is deregulated, 

however, competition and antitrust enforcement become the major forces protecting the 

consumer and society from unfair business practices. The loss of competition, combined with 

deregulation, could lead to the unrestrained use of market power. This is especially true in 

highly concentrated industries that possess market power, such as the railroad industry. 

Unrestrained use of railroad market power would likely result in unnecessarily high rail rates 

and the inability of agricultural producers to reach multiple and competing markets. Because 

agricultural producers typically receive a price net of transportation, higher rail rates and 

inability to access a variety of markets result in reduced producer income. The preservation and 

protection of competition is vital for the economic prosperity of agricultural producers and 

shippers contending with a deregulated railroad industry. 

Effective Competition 

In order for competition to be effective, it must be cost-competitive. Four types of competition 

constrain the use of railroad market power: 

• Intermodal competition from other transportation modes, such as motor carrier, multimodal, and barge transportation 

• Intramodal (rail-to-rail) competition among individual, independent railroads 

• Geographic competition, in which a producer can haul products to rail loading facilities 

located on competing railroads or in which a buyer could obtain products from other 

originating locations 

• Product competition, in which a producer can substitute other inputs in the 

manufacture of a product 

Intermodal Competition

Barges, railroads, and trucks not only compete against each other, they also complement each 

other. Before agricultural products reach the market, they have often been transported by two 

or more transportation modes. This balance between competition and integration provides 

agricultural shippers with a highly efficient, low-cost system of transportation. The 

competitiveness of U.S. agricultural products in world markets and the financial well-being of 

U.S. agricultural producers depend on this competitive balance. A highly competitive and 

efficient transportation system translates into lower shipping costs and more competitive 

export prices. Such efficiencies also result in lower food costs for U.S. consumers and higher 

market prices for producers.118 
201

Figure 6-4: Truck, trains, and barges meet at an elevator on the Mississippi River. The modes 

of transportation not only compete with each other, but also depend on each other. 

Source: Wikemedia Commons, Kelly Martin 

Each transportation mode has its own role in the transportation of agricultural products.119 

Trucks provide excellent service and are most cost-effective for shorter hauls (up to about 500 

miles). Truck transportation also serves as an assembler and disassembler by providing the first 

few miles and the last few miles of a haul. Rail and barge transportation are more costeffective on longer hauls and can handle large volumes of bulk commodities. The 

disadvantages of barge and rail transportation are the inability to deliver to all sites, slower 

delivery times, and more variation in transit time. The service advantages of truck 
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transportation are not as relevant with bulk commodities, however, as they are in the 

movement of fruits, vegetables, and other commodities that need specialized services, such as 

refrigeration or timely delivery. In addition, the intermodal movement of agricultural 

products—in which more than one transportation mode is used—is becoming increasingly 

common.120 

In many regions of the Nation, cost-effective intermodal transportation competition to rail is 

not available. For instance, barge competition is most effective for those shippers located 

within trucking distance of a barge-loading facility. Truck transportation has been most 

competitive with rail on hauls of less than 500 miles, but during periods of high fuel prices, 

which affect trucks more than rail, this distance shrinks substantially. Truck competition is not 

cost-effective in large portions of the Plains States because the producers are too far from both 

markets and navigable rivers. 

During the record oil prices of 2008, high fuel prices increased the relative cost advantage of 

the more fuel-efficient transportation modes, shifting some traffic from trucks to rail and 

barges; fuel cost increases affect rail and barges less than trucks. Record fuel prices badly 

damaged the financial condition of the trucking industry, resulting in many small owneroperators being forced out of business.121

On a British thermal unit (Btu) basis, freight railroads are more fuel-efficient than either the 

barge or the trucking industries. Freight railroads use 344 Btu’s per ton-mile; barges use 417 

Btu’s per ton-mile and trucks 3,476 Btu’s. With this measure of fuel efficiency, freight railroads 

are about 1.2 times more fuel-efficient than barges and 10 times as efficient as trucks. 

Furthermore, from 1990 to 2002, rail improved by more than 20 percent in fuel efficiency while 

the trucking industry improved only 2.9 percent over the same period.122 

On the basis of ton-miles per gallon of fuel, barge transportation can move a ton of cargo 576 

miles on a gallon of fuel, railroads 413 miles, and trucks 155 miles. Again, rail and barge 

transportation are 2.7 and 3.7 times more fuel efficient, respectively, than truck transportation. 

But in this comparison, barge transportation is almost 1.4 times as fuel efficient than freight 

rail.123 

 
203

Rail-to-Rail Competition

USDA has had long-standing concerns regarding railroad consolidation, which has had adverse 

effects on agricultural shippers. In 1976, 63 Class I railroads operated in the United States; by 

the end of 1999, only seven of these major railroads remained.* In 1996, 87 crop reporting 

districts (CRDs) in the top 20 grain-producing States were served by fewer than three railroads; 

only 58 CRDs were served by fewer than three railroads in 1992.†

 Twenty-nine of those cropreporting districts lost competitive choices between 1992 and 1996.124 

Even these numbers do not indicate the true extent of the decrease in rail-to-rail competition. 

Some of the railroads counted in these CRDs are short line railroads that may have physical 

barriers or contractual obligations preventing the exchange of freight traffic with railroads that 

compete with the railroad from which the line was purchased or leased. 

Economists disagree on the competitive effects of end-to-end railroad mergers. Many 

economists believe that end-to-end railroad mergers are relatively free of competitive impacts 

because the number of captive shippers does not increase in purely end-to-end railroad 

mergers, and other forms of competition—intermodal, geographic, and product—are sufficient 

to constrain prices. Other economists, however, believe that end-to-end mergers allow 

competitive impacts through the creation of “bottlenecks” and the virtual foreclosure of 

markets.‡ A railroad can virtually foreclose the access of other railroads to markets by the 

denial of permission for competing railroads to use their track or facilities, by the elimination or 

cancellation of joint-line rates, through routes, and reciprocal switching agreements, and by the 

closure of gateways.125 

The latter view is supported by shipper complaints that railroad consolidations have resulted in 

Class I railroads canceling reciprocal switching rights shortly before a planned merger is 

announced, closing gateways, and refusing to quote rates on newly created bottleneck 

segments.126 The increased market power derived from railroad consolidations appears to have 

allowed Class I railroads to change service terms involving demurrage, railcar supply, and 

shipment size. These changes in service terms affect agricultural shippers, producers, and rural 

communities. Although some Class I railroads have made efforts to improve communications 

with grain shippers by establishing grain desks and ombudsmen, many agricultural shippers still 

 * Not all of this reduction in Class I railroads was due to merger activity; since the dollar volume threshold for 

the definition of Class I railroads was raised in 1991 from $96.1 million to $250 million (adjusted annually for 

inflation), several Class I railroads were reclassified as Class II railroads. In addition, prior to 1976, some of 

these Class I railroads were legally distinct, but operationally integrated.

† There were approximately 168 crop-reporting districts in the top 20 grain producing States in 1996. Thus, 81 

crop-reporting districts in these 20 States, or nearly half, were served by more than three railroads.

‡ When two railroads compete for a haul from a single origin to a single destination but the second railroad 

has to rely on the other railroad for a portion of the haul, a “bottleneck” exists. The railroad able to 

complete the entire haul on its own line is able to charge the competing railroad an abnormally high price 

for the portion of the haul that it controls, thereby forcing the entire haul to its own line. 
204

complain that railroad changes in service terms impose additional costs and effort on shippers 

without a commensurate increase in the responsibilities of the rail carrier.127

 

Decreased rail-to-rail competition among Class I railroads has resulted in an increased ability of 

railroads to raise rates. The presence of a competing railroad has a noticeable effect on rail 

rates; rail rates rise well above incremental costs in regions that have only one or two railroads 

and are far removed from navigable rivers.128 In addition, rail consolidation has created more 

captive shippers and has increased the market power of railroads over shippers. Finally, many 

rail consolidations have resulted in service disruptions, which have been costly to agricultural 

shippers. 

The extent of the loss of rail-to-rail competition because of rail mergers, which has resulted in 

increased railroad market power, was not foreseen by many at the time of enactment of the 

Staggers Act. The rationalization of the rail network, however, was anticipated by many 

economists. The regulated railroad industry was characterized by over-capacity. Consequently, 

reduction in excess capacity was a logical and expected result of deregulation. The 

concentration of increased tonnage on fewer track miles has enabled railroads to reap 

enormous economies of scale. Studies have shown that rail costs have fallen 60 percent in real 

terms—and that most of these savings have been passed on to shippers. 

Nevertheless, rail rates have not fallen everywhere and for all shippers. In some areas of the 

country, the loss of rail-to-rail competition has resulted in poorer service and higher rates. 

Also, as railroads sought to concentrate traffic on fewer route miles, many branch lines and 

country grain elevators have been closed, requiring farmers to truck grain longer distances for 

rail shipment. 

Since farmers are generally price-takers, and since farm product prices received are net of 

transportation costs, railroad actions since deregulation have in some cases reduced income to 

farmers. Rail consolidation also has led to a decline in competitive routes and marketing 

options for some agricultural shippers. The inability to cost-effectively market to numerous 

potential buyers can also result in lower prices received by agricultural producers. 

Some regions, however, may not have adequate freight traffic to support additional rail 

infrastructure or to support a second railroad operating over the tracks of the incumbent 

railroad. In fact, the evidence in one study suggests that railroads may be natural monopolies. 

Consequently, the study concluded that some forms of mandated rail-to-rail competition could 

result in higher, rather than lower, rail prices.129 

Although the number of Class I railroads has been reduced since deregulation, the railroad 

industry contends that rail-to-rail competition is actually more intense because the remaining 

large railroads are stronger and their market reach is greater. In addition, the railroad industry 

believes that the Nation is better served by having only a few strong railroads with broad 

network coverage that compete with each other throughout the West or the East than with a 

patchwork quilt of regional railroads that face limited rail-to-rail competition within their 
205

territories.130 Certainly shippers have benefitted from the enormous increases in productivity 

achieved by railroads since deregulation, and the financial condition of the industry has greatly 

improved since 1981. 

Railroads also are concerned that the demand in the market may not be sufficient to support 

more rail-to-rail competition, especially if that competition is induced. Their position is based 

on an industry cost structure with high fixed costs that rail rates must cover, and a cost 

structure that decreases with volume until traffic approaches capacity. The industry is also 

concerned that firms could engage in destructive competition if more rail-to-rail competition is 

induced under this cost structure. They believe this could result in rail rates dropping to the 

point that they do not cover all costs, resulting in financially weaker rail firms. Furthermore, 

railroads face considerable investment risk; their assets are long-lived and shipping demand can 

shift rapidly. Rail lines are expensive to install and costly to remove, causing rail firms to be 

cautious in adding capacity. 

Geographic and Product Competition

Although product and geographic competition can limit railroad pricing in some cases, these 

forms of competition are less relevant to market dominance today in light of the rapid 

consolidation of the rail industry. 

 

The average number of route miles operated by each of the Class I railroads in the 

United States has more than tripled since 1980, resulting in dominance over larger geographic 

regions by a single Class I railroad.131 Railroad mergers of the 1960s and 1970s combined 

smaller rail systems that operated in smaller geographic territories. In the 1980s, newly 

merged rail systems began to gain dominance within some geographic regions. For instance, in 

1960 the average Class I railroad in the United States operated 1,956 route miles. By 1980, this 

had increased to 4,226 miles, and by 2007, to 13,473 miles. 

 
206

Figure 6-5: Many farmers haul grain long distances by truck because rail is not available 

locally. 

Source: USDA 

As a result, many farmers in the Plains States no longer have a cost-effective option of hauling 

grain to an elevator served by a competing railroad. In 1980, the ability of a farmer to haul 

grain to an elevator served by a competing railroad often provided the competition necessary 

to constrain rail rates. Today, only two Class I railroads are dominant in the western 

United States and two are dominant in the eastern United States. This decrease in rail-to-rail 

competition has decreased the effectiveness and the relevance of geographic and product 

competition. 132, 133 

Competition Decreases Opportunities for Collusive Behavior 

The number of competing railroads that a region can support depends on the level of rail 

demand. As described in a later section in this chapter, inverse Herfindahl Index maps 

demonstrate that rail line density in most of the West is much less than that in the East. The 

heavier rail line density in the east is supported by established manufacturing plants and 

consumer demand, fueled by higher population densities and availability of labor. In 2006, 59 

percent of the U.S. population resided east of the Mississippi River and 52 percent resided in 

East Coast and West Coast States. Consequently, many grain producing regions located in the 

Plains States may have too few people and natural resources to support more than one or two 

competing railroads. 
207

In past railroad mergers, the STB concluded that two railroads provide adequate 

competition—especially in the presence of effective intermodal competition—and have a 

better probability of operating profitably than when three railroads compete. Thus, STB has 

not placed competitive conditions on rail mergers in which the number of competing railroads 

in a region decreases from three to two. STB routinely places competitive conditions on rail 

mergers in which the number of competing railroads in a region decreases from two to one. 

In 2002, the STB placed strict conditions on future mergers between two Class I railroads and 

tightened the requirements for mergers with competitive impacts. Nevertheless, some 

shippers—mainly in regions without cost-effective transportation alternatives—have 

complained that competitive conditions are also needed on mergers involving three-to-two loss 

of rail competition. Other shippers have complained that the competitive conditions placed on 

mergers involving two-to-one loss of rail competition have not been effective. 

Empirical evidence indicates that competition between two rail companies in Canada has been 

inadequate in many markets, despite mandatory reciprocal switching at prescribed rates and 

the requirement to provide competitive line rates.134 As few as two sellers would be adequate 

to produce effective rail-to-rail competition if the rivals were to compete consistently. If all 

rivals in a market were to collude or tacitly cooperate, however, even with several sellers 

competing in a market, prices would be higher than when competition is present.135 

When only two or three firms serve a market, those firms recognize that it is not in their selfinterest to have destructive competition—especially in an industry having high fixed costs such 

as the railroad industry.136 It can be debated as to whether two rail companies will provide 

adequate rail-to-rail competition in the United States under the present regulatory framework. 

Markets having only two or three firms may experience either tacit or explicit collusion. In 

order to collude, selling firms in a market must reach an agreement on price (or service) and 

adhere to that agreement. Consequently, each selling firm must make one-to-one agreements 

on both of these points with every one of the other competing firms involved. As the number 

of firms in the market declines, the competing firms face a progressively simpler problem137 

(Table 6-1). For instance, when three firms compete in a market, three agreements are 

needed. When only two firms compete in a market only one agreement is needed, making it 

much easier to collude. 

 
208

Table 6-1: Number of two-party agreements required to collude 

Number of Market Participants Number of Two-party Agreements* 

5 10 

4 6 

3 3 

2 1 

1 0 

*[N(N-1)]/2 where N is the number of sellers 

Source: Allen R. Ferguson 

Shippers have noted that Class I railroad actions closely mirror each other in the areas of fuel 

surcharges, hazardous materials rates and service, rail rate increases, demurrage charges, 

charges for storage of railcars, encouraging longer hauls and eliminating shorter hauls, and 

closure of access to off-line markets. Recently, shippers have engaged in class action law suits 

alleging price-fixing on the part of railroad firms in the setting of fuel surcharges. 

Railroad Antitrust Immunity 

Railroads have enjoyed limited exemptions from antitrust laws since 1914. These exemptions, 

which were granted when railroads were economically regulated include:138

• The Surface Transportation Board (STB) holds sole authority to rule on railroad mergers 

and acquisitions. Although required to consider the position of the Department of 

Justice regarding proposed mergers, STB has approved several major railroad mergers 

which were opposed by the Department of Justice, USDA, and agricultural shippers. 

• The STB reviews sales of rail lines, and its approval provides immunity for the 

transaction from antitrust laws. STB has approved line sales and leases that include 

contractual interchange agreements that limit the ability of the smaller railroad to 

interchange freely with railroads that compete with the selling railroad. Without STB 

antitrust immunity, these agreements may not meet the requirements of antitrust law. 

• STB-approved agreements relating to leases, trackage rights, pooling arrangements, and 

agreements to divide traffic are exempted from the antitrust laws to the extent 

necessary to carry out the approved agreement. However, such agreements can be 

related to restrictive interchange agreements on leases and agreements to divide traffic 

in line sales discussed above. If antitrust immunity was removed, an expected condition 

might be the preservation of the ability of railroads to pool railcars, which would benefit 

consumers. 
209

• Railroads are immune from certain rate-related agreements when approved by the STB, 

such as agreements establishing rules governing charges that one railroad must pay to 

use another’s equipment. 

• Private parties may not obtain injunctive relief under the antitrust laws against a 

common carrier subject to STB jurisdiction. 

• Conferences among railroads, shippers, labor, consumer representatives, and 

government agencies may be convened by the Secretary of Transportation, and 

discussions or agreements entered into with the Secretary’s approval through these 

conferences are exempted from antitrust laws. 

• The STB and not the Federal Trade Commission has authority to enforce compliance 

with the Federal Trade Commission Act against railroads and other common carriers 

subject to STB jurisdiction. 

• Railroads are immune from treble damages for antitrust violations on filed rates. 

The Antitrust Modernization Commission and the American Bar Association’s Section on 

Antitrust Law have recommend removal of the railroad industry’s limited antitrust 

exemption. 

Legislation to eliminate these antitrust exemptions and place railroads on an equal footing 

with most other industries is being considered by Congress. On June 1, 2009, the media 

reported on an agreement between the Senate Judiciary Antitrust Subcommittee and the 

Senate Commerce, Science and Transportation Committee to delay a floor vote on the 

proposed antitrust act so the two committees could work together on a more 

comprehensive rail policy overhaul in an act that would include the repeal of the railroad 

antitrust immunity. 

The presence of transportation competition was expected to protect most shippers by 

constraining railroads’ use of market power. In addition, due to the lack of sufficient 

railroad competition in some markets, the Staggers Act was expected to provide effective 

and adequate protection for captive shippers. On the other hand, revenue adequacy of the 

railroads was necessary for rail service to remain viable and for railroads to continue 

providing service. 

Therefore, shippers argue that antitrust exemptions—which were granted during a time 

when railroads were regulated—probably should have been removed at the time of railroad 

deregulation. As Alfred Kahn elaborated to STB during a proceeding on rail access and 

competition issues in 1998, 

When one relies on regulation to protect consumers, anti-trust law is 

relatively unimportant. When one deregulates and leaves the protection 

of customers to the plays of competition, then the anti-trust laws become 

very important. Anti-trust is a kind of regulation, but it is totally different 
210

in spirit and substance from directly fixing prices, controlling entry, and 

controlling service quality. Its intention is to protect competition as an 

effective force in the market for protecting the public.139 

Railroads, which must function as an interconnected network, say that limited anti-trust 

immunity helps them to provide better service to shippers. As an example, the railroadowned corporation TTX owns and manages a fleet of intermodal equipment, auto carriers, 

box cars, and gondolas that is managed to maximize utilization and minimize cost. 

Revocation of the railroads’ limited anti-trust exemption could mean the dissolution of TTX, 

and possibly lead to less efficient equipment utilization. Railroads are also concerned that 

removing the anti-trust exemption will act as a deterrent to future investment and redirect 

management focus to litigation rather than expansion.140 

Railroad Concentration and Market Shares 

Since the 1920s, many railroads have merged. During the 1960s and 1970s, many of the 

mergers combined financially weak railroads with stronger firms, in the hope of developing a 

financially stable railroad that was large enough to compete effectively with other 

transportation modes. After deregulation, the pace of merger activity picked up as railroads 

strove to increase geographic range, eliminate duplicate lines, reduce costs by increasing the 

size of the firm, and gain increased market power. 

Today we have two major duopolies—one serving the western United States and the other 

serving the East. In addition to these four mega railroads, during 2007 there were three smaller 

Class I railroads serving the central portion of the Nation, 33 regional railroads, and 523 local 

railroads.141 

Market Concentration and Share 

The top four Class I railroads originated 84 percent of grain and oilseed traffic in 2007, 

compared to only 53 percent in 1980 (see Figures 6-2 and 6-3). In addition, the market share of 

the predecessor railroads compared to the current railroads has changed. Whereas the 

Burlington Northern and Atcheson, Topeka & Santa Fe combined for only 30 percent of the 

grain and oilseeds originations in 1980, by 2007 the Burlington Northern Santa Fe (BNSF) had 42 

percent of the market. This compares to a 31 percent market share held by Chicago & 

Northwestern, Union Pacific, and Missouri Pacific in 1980 that has decreased to only 19 percent 

for Union Pacific (UP) in 2007. 

 
211

Figure 6-6: Railroad grain origination market shares, 2007 

Source: AAR 

Figure 6-7: Railroad grain origination market shares, 1980 

Source: AAR 
212

Railroad concentration and market shares are even higher for specific markets. For instance, 

the top four Class I railroads transported 94 percent of the wheat in 2007 compared to only 80 

percent in 1994 (see Figures 6-4 and 6-5). The market share for BNSF increased in comparison 

to its predecessors—54 percent in 2007 compared to 41 percent in 1994. UP market share in 

2007 was only 20 percent in 2007 compared to 29 percent for its predecessors in 1994. The 

Soo (Canadian Pacific U.S.) market share increased to 11 percent in 2007 from only 4 percent in 

1994, while the CSX market share increased to 9 percent compared to only 4 percent for its 

predecessors. 

Figure 6-8: Railroad wheat origination market shares, 2007 

Source: AAR 

 
213

Figure 6-9: Railroad wheat origination market shares, 1994 

Source: AAR 

However, the level of rail-to-rail competition is not a function of the market concentration of 

railroads in the Nation as a whole. Instead, it is a function of the quality and effectiveness of 

competitive options in particular markets. It is not only the number of competing railroads to 

which shippers or receivers have access, but also the effectiveness of competition from the 

other transportation modes. 

Inverse Herfindahl-Hirschman Analysis of Rail-to-Rail 

Competition 

The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market 

concentration. It estimates the ability of a firm to use market power. An HHI value, however, 

does not measure the actual use of market power. The HHI takes into account the relative size 

and distribution of the firms in a market and approaches zero when a market consists of a large 

number of firms of relatively equal size. It increases both as the number of firms in the market 

decreases and as the disparity in size among those firms increases. 
214

Advantages of Analyzing HHI by CRD 

USDA has long used HHI for the analysis of 

changes in railroad concentration for the subState regions called crop reporting districts 

(CRD), which are multi-county areas comprised 

of 6 to 15 counties. The analysis of HHIs by 

CRD has advantages over the analysis of HHIs 

by counties. 

One advantage of analysis by CRDs rather than 

by counties is that farmers often haul grain 

and oilseeds to the next county during the first 

movement from the farm. Consequently, a 

CRD better reflects the actual distance and 

area that producers haul their commodities 

during the first movement from the farm than 

does a county. The mean distance corn is 

hauled to the first handler is 22 miles and 25 

percent of the corn is moved more than 28 

miles. Similarly the mean for the first 

movement for soybeans and wheat are 24 

miles and 21 miles, respectively. Twenty-five 

percent of soybeans are moved more than 30 

miles and 25 percent of the wheat is moved 

more than 25 miles during the first movement 

from the farm.142 

HHI analysis by CRD also captures the 

feasibility of farmers hauling grain and oilseeds 

to elevators located on potential alternative 

railroads, either for the first haul from the 

farm or for subsequent truck movements 

between elevators. HHI analysis by county 

ignores the feasibility of hauling grain to 

elevators located on competing railroads in 

adjacent counties. The mean county size in 

the United States is only about 1,000 square 

miles, which is a little less than 32 miles by 32 

miles. From the center of an average county, 

an agricultural producer would only need to 

haul the commodity less than 16 miles to be in 

the next county. Counties in the East are 

smaller than those in the West. The median 

size of counties in the Corn Belt—Indiana, 

Calculating Inverse HHIs 

An HHI is calculated by squaring the market share 

of each firm competing in a market, then 

summing the resulting numbers. For example, 

for a market consisting of four firms having 

market shares of 30, 30, 20, and 20 percent, the 

HHI is 2,600 (302 + 302 + 202 + 202 = 2,600). 

Markets in which the HHI is between 1,000 and 

1,800 are considered moderately concentrated 

and those in which the HHI exceeds 1,800 are 

considered to be concentrated. The maximum 

value of the HHI is 10,000, which occurs when 

one firm has a monopoly in the market with a 

market share of 100 percent. Transactions that 

increase the HHI more than 100 points in 

concentrated markets raise antitrust concerns 

under the Horizontal Merger Guidelines issued by 

the U.S. Department of Justice and the Federal 

Trade Commission.* 

USDA frequently uses an inverse HHI, calculated 

by dividing 10,000 by the HHI, to measure 

railroad concentration. The advantage of an 

inverse HHI is that it is easier to visualize the 

number of equivalent railroads with equal market 

shares that are competing in the market. 

An inverse HHI is always greater than one. An

inverse HHI of 1.00 means that there is only one 

railroad competing in the movement of a 

commodity. An inverse HHI of 2.00 is the 

equivalent of two railroads competing, with each 

railroad moving half the tonnage. An inverse HHI 

of 3.00 is the equivalent of three railroads 

competing in the market, with each railroad 

moving a third of the tonnage. 

The value of an inverse HHI also can be barely 

above 1.01 even when multiple railroads are 

competing in a CRD, depending on the relative 

market share of each. A market with two 

railroads, one of which carries 95 percent of the 

traffic, has an inverse HHI of 1.10. The value of 

the inverse HHI for a market with two railroads 

can range from 1.01 to 2.00. Likewise, the 

inverse HHI for a market with three competing 

railroads can range from 1.01 to 3.00. 

*

U. S. Department of Justice, Merger Guidelines, §1.51. 
215

Illinois, Iowa, eastern Kansas, northern Kentucky, Michigan, southern Minnesota, Missouri, 

Ohio, and Wisconsin—is closer to 500 square miles and only the largest counties comprise an 

area of 1,000 square miles. This compares to counties in the West, which often exceed 2,000 

square miles. Consequently, county-based inverse HHI measures do not capture competitive 

options in the Corn Belt States. Many county-based inverse HHI measures may be 1 or very 

close to 1, but in the eastern Corn Belt, a competing railroad or a barge-loading facility in the 

next county may be within 20 miles of most grain shippers.143 

Findings from Past USDA HHI Studies 

USDA research on rail rates by CRD has found that rail rates decline as the number of 

competitors increases. In a 1989 study, moving from a rail monopoly to a duopoly in a corn 

market 75 miles from water reduced rates by 17.4 percent, and increasing competition to a 

three-firm rail oligopoly reduced rates another 15.2 percent. The farther the shipper location is 

from navigable water, the greater the effect on rates as additional railroads enter the 

market.144 

An updated study in 2008 found similar results for rail rates for soybeans. Rail rates decreased 

10.9 percent when moving from a monopoly to two-railroad competition in a market 300 miles 

from a barge-loading facility. Adding a third railroad decreased rates another 6.5 percent. 

Furthermore, in the 12-State region studied, the average inverse HHI for corn had dropped to 

1.86 in 2004, from 2.30 in 1983. The average inverse HHI for soybeans and wheat decreased 

from 2.46 in 1983 to 1.90 in 2004 and from 1.85 in 1983 to 1.58 in 2004, respectively.145

Key Differences in this Analysis 

This study has two main differences from the two recent studies by GAO and Laurits R. 

Christensen Associates, Inc. that used HHI to analyze railroad concentration in markets: 

For this study, only tariff rail rates are used for revenue calculations due to data limitations. 

Further, movements of railroads having only one connection are assigned to the connecting 

railroad. 

 

Tariff rates for revenue calculations have been used because the STB has no jurisdiction over 

contract rates; STB has jurisdiction only on tariff rates having a revenue-to-variable cost ratio of 

180 percent or more. Tariff rates were separated from contract rates using a “Contract Flag” 

field that STB provided from the Unmasked Confidential Waybill Sample. However, for 

calculation of the inverse HHI using tonnages, data from all movements were used—both tariff 

and contract. 

The second major difference in this study is that tonnages originated on smaller railroads 

connecting to only one other railroad were considered as part of the connecting railroad. This 

gives a more accurate portrayal of actual market share controlled by each railroad. When 

smaller railroads connected to two or more railroads, no attempt was made to assign the 

smaller railroads’ volumes to a particular railroad. This is because little industry data are 

available regarding which railroads have contractual interchange commitments that strictly 

limit their ability to interchange with other railroads. 
216

This study split the period from 1985 to 2007 into three time periods rather than using data for 

single years. This was done to obtain more CRDs having more than 30 observations, below 

which no results were reported for the CRD. The three periods include: 

• Period 1: 1985–1992, an 8-year period representing the early years of deregulation, and 

including some important railroad mergers. 

• Period 2: 1993–2002, 10 years that saw many mergers and the formation of the Eastern 

and Western railroad duopolies. Important operational issues arose during the 

implementation of these mergers. 

• Period 3: 2003–2007, 5 years in which capacity constraints on the rail system first 

appeared, when the early retirement of engineers and conductors caused operational 

problems, and disruptions caused by storms were unusually severe. Major increases in 

rail rates due to capacity constraints and high fuel costs also occurred during this period. 

An inverse HHI for originated tonnage by CRD was calculated and mapped for four major 

commodity groups: 

• Grain and oilseeds 

• Grain products including dried distillers grains with solubles (DDGS) 

• Food products excluding grain products and DDGS 

• Fertilizers 

More information about the methodology of this study can be found in Appendix 6-3: Waybill 

Calculation Methodology 

Grain and Oilseeds Analysis of Inverse HHI and Revenue-to-Variable Cost Ratio 

As rail-to-rail competition decreases in a CRD, the market power of the railroads increases. A 

decrease in competition could result in higher rail rates and gives railroads the market power to 

change service terms. The revenue-to-variable cost ratio is an indicator of that market power. 

This part of the study uses inverse HHIs to measure the degree of rail-to-rail competition in 

each CRD. The absolute value of the inverse HHIs and the degree of change are both important 

to an understanding of competitive status. 

 
217

HHI Analysis 

Based on the HHI analysis, the overall level of rail-to-rail 

competition by CRD for grain and oilseed shippers has fallen 

significantly between Period 1 (1985 to 1992) and Period 3 

(2003 to 2007). The level of rail-to-rail competition 

decreased in 109 CRDs, and only 38 CRDs had an increase in 

rail-to-rail competition. The analysis of the grain and oilseeds 

group will be discussed in this section; the maps for grain 

products, food products, and fertilizers are located in 

Appendix 6-1: Maps of Inverse Herfindahl Index for Rail 

Shipments. 

The number of CRDs in which a railroad had a monopoly for 

grain and oilseeds (inverse HHI equal to 1.00) increased from 

20 (9.9 percent of the total CRDs) in Period 1, to 25 (15.3 

percent) in Period 3 (see Table 6-2). Eleven CRDs in this 

group of 20 had a change in the inverse HHI and nine had no 

change. Only two CRDs had an increase in competition since 

Period 1; one had an increase of 0.09 and the other had an 

increase of 0.80.*

CRDs with an inverse HHI between 1.0 and 2.0 increased from 

77 (38.1 percent of the total) in Period 1, to 96 (58.9 percent) 

in Period 3. Twenty had inverse HHIs less than 1.25 (very 

weak two-railroad competition) and 14 had inverse HHIs 

between 1.25 and 1.50 (limited two-railroad competition). In 

Period 3, this had increased to 25 and 19, respectively. Five 

CRDs in this group during Period 1 had an increase in inverse 

HHIs of between 0.80 and 2.04 (see Table 6-2). 

The number of CRDs with an inverse HHI greater than 2 fell from 105 CRDs (51.9 percent) in 

Period 1, to 42 (25.8 percent) in Period 3. The trend has been a marked decrease in rail-to-rail 

competition; many of the CRDs having higher inverse HHIs moved to lower inverse HHIs by 

Period 3. Seven CRDs had a decrease in the inverse HHI between 2.58 and 4.25, 30 CRDs had a 

decrease in the inverse HHI between 1.41 and 2.58, and 25 CRDs had a decrease in the inverse 

HHI between 0.44 and 1.41 (see Table 6-2). 

 

 

*

 Not all CRDs are represented in both Period 1 and Period 2. Thus, the numbers do not always tally. 

What do the Numbers Mean? 

An inverse HHI above 2.00 

indicates strong competition 

among two or more railroads, 

and is a marker of healthy 

competition. 

One below 1.25 indicates weak 

rail-to-rail competition involving 

two or more rail firms, one of 

which is strongly dominant. 

An inverse HHI of 1.00 indicates a 

rail monopoly. 

In this study, the change in 

inverse HHIs ranges from -4.25 

(equivalent to the loss of more 

than four strong competing 

railroads) to 2.04 (equivalent to 

the addition of another two 

strong rail competitors to the 

market). 
218

Table 6-2: Grain and oilseeds, changes in inverse HHI by number of CRD 

Number of Crop Reporting 

Districts 

Inverse HHI 

Range 

Inverse HHI 

Period 1 

Inverse HHI 

Period 3 

Change in Inverse HHI by 

Inverse HHI Range* 

Number 

of CRDs 

1.00 20 25 Change by > 0 to ≤ 0.80 10 

Increase by > 0 to ≤ 2.04 1 

> 1.00 and ≤ 2.00 77 96 Decrease by > -4.25 to ≤ -2.58 0 

> 1.00 and ≤ 1.50 34 44 Decrease by > -2.58 to ≤ -1.41 0 

> 1.00 and ≤ 1.25 20 25 Decrease by > -1.41 to ≤ -0.44 10 

> 1.25 and ≤ 1.50 14 19 Change by > -0.44 to ≤ 0.80 45 

 > 1.50 and ≤ 2.00 43 52 Increase by > 0.80 to ≤ 2.04 5 

> 2.00 and ≤ 3.00 

56 31 Decrease by > -4.25 to ≤ -2.58 0 

Decrease by > -2.58 to ≤ -1.41 4 

Decrease by > -1.41 to ≤ -0.44 19 

Change by > -0.44 to ≤ 0.80 20 

Increase by > 0.80 to ≤ 2.04 1 

> 3.00 and ≤ 4.00 

32 10 Decrease by > -4.25 to ≤ -2.58 0 

Decrease by > -2.58 to ≤ -1.41 21 

Decrease by > -1.41 to ≤ -0.44 5 

Change by > -0.44 to ≤ 0.80 1 

Increase by > 0.80 to ≤ 2.04 0 

> 4.00 and ≤ 5.75 

17 1 Decrease by > -4.25 to ≤ -2.58 7 

Decrease by > -2.58 to ≤ -1.41 5 

Decrease by > -1.41 to ≤ -0.44 1 

Change by > -0.44 to ≤ 0.80 1 

Increase by > 0.80 to ≤ 2.04 0 

Total Number of CRDs 202 163 156 

Maximum Inverse HHI 5.72298 5.1688 Maximum change in Inverse HHI 2.03612 

Minimum Inverse HHI 1.00 1.00 Maximum change in Inverse HHI -4.24547

*Calculated on tariff rail rates only when more than 30 observations in a CRD. 

Source: Surface Transportation Board, Confidential Waybill Samples 
219

R/VC Ratio Analysis 

Increased competition results in lower rail rates. Table 6-3 

shows that the percentage of CRDs having average R/VC 

ratios below 180 increases as the level of rail competition 

increases during periods 1 and 3. For example, during period 

3, only 50 percent of the CRDs that were served by a rail 

monopoly had average R/VC ratios below 180. In contrast, 

during the same period, 93 percent of the CRDs had average 

R/VC ratios below 180 when more than 4 strong railroads 

were competing. The finding that increased competition 

results in lower rail rates is consistent with the conclusions of 

studies by MacDonald and Harbor. 

The number of CRDs with average R/VC ratios less than 100 

(less than variable cost) decreased from 19 of 163 CRDs (11.6 

percent) in Period 1 to 7 of 141 CRDs (5.0 percent) in Period 

3. The number of CRDs from all HHI ranges having average 

R/VC ratios between 100 and 180 (the STB jurisdictional 

threshold is 180) decreased from 134 in Period 1 to 110 in 

Period 3. Those CRDs having average R/VC ratios from 180 

to 240 (slightly above the jurisdictional threshold) increased 

from 10 in Period 1 to 24 in Period 3. A summary table 

including the other three commodity groups is included in 

the appendix and shows that the trends for HHI and R/VC are 

similar to those of the grain and oilseeds commodity group. 

 

What Does the R/VC Ratio Mean? 

R/VC ratios have a degree of error 

because they are calculated from 

the STB Uniform Rail Costing 

System, which has not been 

updated to reflect current 

conditions for 30 years. In theory, 

railroads are recovering only their 

variable costs when their ratio of 

revenue to variable cost (R/VC) is 

100. They are recovering less than 

variable costs—losing money—

when it is less than 100 and 

recovering variable and a portion 

of fixed costs when it is above 

100. The STB has jurisdiction to 

examine the rates they charge 

when the R/VC is 180 or above. 
220

Table 6-3: Grain and oilseeds, changes in R/VC ratios by inverse HHI*

 

Number of CRDs 

Inverse HHI Range 

Percent 

Revenue-toVariable Cost 

(R/VC) Range 

R/VC 

Period 1 

Percent 

of HHI 

Range 

R/VA 

Period 3 

Percent 

of HHI 

Range 

1.00 

< 100 0 0% 0 0% 

> 100 and ≤ 180 6 60% 5 50% 

> 180 and ≤ 240 4 40% 5 50% 

> 240 and ≤ 300 0 0% 0 0% 

> 300 0 0% 0 0% 

> 1.00 and ≤ 2.00 

< 100 8 12% 2 4% 

> 100 and ≤ 180 53 83% 43 78% 

> 180 and ≤ 240 3 5% 10 18% 

> 240 and ≤ 300 0 0% 0 0% 

> 300 0 0% 0 0% 

> 2.00 and ≤ 3.00 

< 100 7 15% 4 10% 

> 100 and ≤ 180 37 80% 29 75% 

> 180 and ≤ 240 2 5% 6 15% 

> 240 and ≤ 300 0 0% 0 0% 

> 300 0 0% 0 0% 

> 3.00 and ≤ 4.00 

< 100 3 11% 1 4% 

> 100 and ≤ 180 22 85% 20 87% 

> 180 and ≤ 240 1 4% 2 9% 

> 240 and ≤ 300 0 0% 0 0% 

> 300 0 0% 0 0% 

> 4.00 and ≤ 5.75 

< 100 1 6% 0 0% 

> 100 and ≤ 180 16 94% 13 93% 

> 180 and ≤ 240 0 0% 1 7% 

> 240 and ≤ 300 0 0% 0 0% 

> 300 0 0% 0 0% 

Total Number of CRDs 163 141 

Maximum R/VC percentage 198.62 228.56 

Minimum R/VC percentage 65.17 68.98 

 *Calculated on tariff rail rates only when more than 30 observations in a CRD. 

Source: Surface Transportation Board, Confidential Waybill Samples 

 
221

R/VC ratios for grain and oilseeds shifted into the higher R/VC ranges. One hundred eight CRDs 

(83 percent) had an increase in the R/VC ratio, but only 22 (17 percent) had a decrease. 

The red highlighted regions on Figures 6-6 and 6-7 indicate CRDs having only one railroad 

serving the grain and oilseeds market; the tan highlighted regions show CRDs having at least 

two competing railroads, and the light yellow regions have at least three. Regions that changed 

to a rail monopoly since Period 1 include parts of Arkansas, Louisiana, Michigan, Mississippi, 

Ohio, Nebraska, Oregon, South Dakota, Tennessee, Virginia, Washington, and Wyoming. Many 

of the regions colored red or tan are in areas of the country important in the production of 

grain and oilseeds and distant from barge-loading facilities. 

Figure 6-10: Inverse HHI for grain and oilseed shipments by rail, 2003-2007 

 
222

Figure 6-11: Inverse HHI for grain and oilseed shipments by rail, 1985-1992 

Figure 6-12 shows the changes in the inverse HHI by CRD. Major grain production regions that 

have gained rail-to-rail competition since Period 1 are highlighted in blue and include northeast 

Minnesota, central and eastern Iowa, and the Dallas/Fort Worth region of Texas. Inverse HHIs 

for CRDs highlighted in red have lost the equivalent of 4.25 to 2.58 competing railroads. These 

regions include west central Missouri, western Tennessee, north central Indiana, parts of Ohio, 

and a portion of Texas. The tan regions, which include parts of Arkansas, Colorado, Illinois, 

Indiana, Iowa, Kansas, Kentucky, Michigan, Missouri, Nebraska, Ohio, Oklahoma, and Texas 

shows CRDs that have lost the equivalent of 1.41 to 2.58 competing railroads since Period 1. All 

of these States were in the top 20 U.S. grain- and oilseed-producing States during 2007. 

 
223

Figure 6-12: Change in inverse HHI for grain and oilseed shipments by rail, 1985-1992 

compared to 2003-2007 

The change in R/VC ratios shown in Figure 6-13 indicate some regions with the lowest inverse 

HHIs have lower R/VC ratios than Period 1, and other regions have higher R/VC ratios. The 

CRDs in blue and grey have increased R/VC ratios. The blue regions include parts of Colorado, 

Kansas, Michigan, Mississippi, Oklahoma, Oregon, and Texas. 

 
224

Figure 6-13: Change in R/VC for grain and oilseed shipments by rail, 1985-1992 compared to 

2003-2007 

Additional Analyses Needed 

Due to data limitations and time constraints, USDA was unable to do the types of analyses 

required to draw conclusive results on the relationship between rail-to-rail competition and 

R/VC ratios, or to fully examine shipper concerns about the use of railroad market power. 

More exhaustive analyses are required. For example, the R/VC ratios presented in this study 

are an average of the R/VC ratios for movements by tariff rates only. It is possible that some 

contract rail rates, which were not available for this analysis, equal or exceed the tariff rates in 

particular CRDs. Also, an analysis of the range of the R/VC ratios for particular CRDs may give 

more conclusive information. USDA plans to statistically test the use of railroad market power 

by CRD, and pursue more detailed and exhaustive rail revenue analyses in the future. 
225

Comparison of Rail-to-Rail Competition 

and Distance-to-Water Transportation 

by State 

This part of the study looks at annual statewide tariff rail rates 

from 1988 through 2007 for a group of six States with limited 

rail-to-rail competition and varying distances from barge-loading 

facilities, and a group of four States with more rail-to-rail 

competition and closer barge loading facilities. With the use of 

annual data, rail rate trends become more apparent, and 

interesting differences between the States are revealed. 

States in the first group—with less rail-to-rail competition and 

varying distances from barge-loading facilities—include 

Montana, North Dakota, South Dakota, Nebraska, Kansas, and 

Colorado. The average distance to barge-loading facilities from 

the middle of these States ranges from 200 to 850 miles. For 

States showing a range of distances to water, the shorter 

distances are to facilities on the Missouri, Arkansas, Snake, or 

Illinois Rivers; the longer distances are to facilities on the 

Mississippi or Ohio Rivers. Barge movements on the Missouri 

and Arkansas Rivers have fewer cost efficiencies compared to 

rail transportation; barge movements on the Mississippi, Ohio, 

and Illinois Rivers do realize cost efficiencies compared to rail. 

All these States produce large amounts of grain and oilseeds. 

For instance, Nebraska is ranked 3rd in the United States in grain 

and oilseed production, Kansas 6th, South Dakota 7th, North 

Dakota 9th, Colorado 14th, and Montana 18th. 

Grain producers in Montana and North Dakota have complained 

for years about high rail rates— rates often higher than those 

for South Dakota, Nebraska, and Kansas grain that travels 

shorter distances over the same track to reach Pacific Northwest 

markets. The States of Montana and North Dakota have 

appropriated funds to study grain and oilseed rail rates and to 

appeal those rates to the STB. 

The States with more rail-to-rail competition and proximity to 

barge-loading facilities are Illinois, Indiana, Iowa, and Missouri. 

These States, also, are major grain and oilseed producers; Iowa 

is ranked 1st in the United States, Illinois 2nd, Indiana 5th, and 

Missouri 10th. They all border the Mississippi or Ohio Rivers, 

Contract Rates and Tariff 

Rates 

The comparison of inverse 

HHIs and tariff rail rates by 

CRD is limited by the lack of 

revenue data for many of the 

CRDs and groupings. These 

limitations can have an 

averaging effect on the data, 

which makes the results less 

distinct. USDA did not have 

access to unmasked contract 

rates, so could only analyze 

the tariff rates. Substantial 

amounts of grain move under 

contract and, in recent years, 

controversy has arisen over 

the definition of contract 

rates. Because of the lack of 

transparency, concerns have 

been raised that some rail 

contracts may establish rates 

at the same level as for tariff, 

with no differentiation or 

guarantee on service levels. 

Since STB has no jurisdiction 

over contracts, the concern is 

that such contracts may have 

been designed to prevent the 

possibility of rate appeals. 
226

and the Illinois River runs through Illinois. The average distance from the middle of these States 

to barge-loading facilities is from 50 to 150 miles. 

In 1988, Montana and North Dakota paid the highest nominal (not adjusted for inflation) rail 

rates in the nation to move grain and oilseeds (see Table 6-4). Montana grain shippers paid 

$25.41 per ton and North Dakota $22.61. Kansas shippers paid only $11.69 and Nebraska 

$17.59. The average rates for States with more competition ranged from $9.06 to $12.12 per 

ton. 

Table 6-4: Grain and oilseeds, comparisons of nominal tariff rail revenue per ton and ton-mile 

and R/VC by State (in $/ton) 

State 

Avg. 

Miles of 

Water 

Trans. 

Revenue per ton ($) Revenue per ton-mile 

(cents) 

Revenue to Variable Cost 

Ratio 

1988 2007 Change 1988 2007 Change 1988 2007 Change 

Lower levels of rail competition and distance from water transportation: 

Montana 400 25.41 27.70 2.29 2.58 2.90 0.32 186 187 1 

North 

Dakota 410 22.61 28.89 6.28 2.56 2.46 -0.10 166 191 25 

South 

Dakota 200-340 18.41 29.64 11.23 1.54 1.95 0.41 117 151 34 

Nebraska 250-530 17.59 30.07 12.48 1.51 2.10 0.59 108 148 40 

Kansas 220-460 11.69 22.92 11.23 1.91 2.79 0.88 117 176 59 

Colorado 500-850 18.34 26.34 8.00 1.64 2.82 1.18 125 167 42 

Higher levels of rail competition and closer to water transportation: 

Illinois 50-90 9.06 16.82 7.76 1.97 2.27 0.30 115 151 36 

Indiana 120 11.79 19.64 7.85 2.10 2.93 0.83 132 151 19 

Iowa 150 9.30 28.28 18.98 1.87 2.28 0.41 134 171 37 

Missouri 125 12.12 19.73 7.61 1.91 2.73 0.82 108 162 54 

Source: Surface Transportation Board, Confidential Waybill Samples 

By 2007, however, four States paid more to ship grain than shippers in Montana ($27.70): 

Nebraska paid $30.07 per ton, South Dakota $29.64, North Dakota $28.89, and Iowa $28.28. 

Montana rates per ton had increased 8.3 percent and North Dakota 21.7 percent since 1988, 

but the rate increase for the other eight States shown in Table 6.4 ranged from 30.4 percent 

(Colorado) to 67.1 percent (Iowa). The greater distances for Iowa shippers contributed to the 

unusually large increase in their rate per ton (compare to revenue/ton-mile column of the 

table). 
227

Nominal tariff rates per ton-mile show that States lacking rail-to-rail competition do not 

necessarily pay higher rates than States having more transportation competition. Examining 

tariff rates on a ton-mile basis adjusts for the distance shipped; some States ship grain farther 

than others. In 1988, Montana and North Dakota paid the highest nominal tariff rates per tonmile, but Illinois, Indiana, and Missouri paid the next highest rates (see Table 6-4). By 2007, 

Indiana paid the highest tariff rates per ton-mile, followed by Montana, Colorado, and Kansas. 

The States having the least increase in tariff rates per ton-mile include North Dakota (with a 

0.10 cent decrease), Illinois, South Dakota, and Montana. Colorado, Kansas, and Indiana had 

the steepest increases. 

An analysis of R/VC ratios based on tariff rates, which indicate the profitability of a movement 

for the railroads, shows mixed results relative to the amount of transportation competition. In 

1988, Montana and North Dakota grain shippers had the highest R/VC ratios, at 186 and 166. 

The R/VC ratio for Montana was nearly 40 percent higher than it was for Iowa, which had the 

3rd highest R/VC rate among the 10 States selected for comparison (see Table 6-4). In 2007, 

North Dakota and Montana grain shippers still paid the highest R/VC ratio, and Kansas, Iowa, 

and Colorado paid the next highest ratios. In 2007, however, the Montana R/VC ratio was only 

10 percent higher than Iowa’s. The R/VC ratio for Montana increased 0.5 percent and North 

Dakota’s 13 percent between 1988 and 2007. The ratio for Missouri increased 33 percent, that 

of Kansas 34 percent, and that of Nebraska 27 percent. 

The use of state-wide averages may have masked the relationship between rail-to-rail 

competition and R/VC. Prior studies by McDonald and Harbor, which are based upon individual 

waybills, show a relationship between rail-to-rail and intermodal competition and rail rates. 

Figures 6-10 and 6-11 show the trends of the nominal rail tariff revenues per ton from 1988 

through 2007 (the information for 1992 and 1993 was not available). Montana, North Dakota, 

and South Dakota grain shippers consistently paid high rates, but by 2007, Nebraska, South 

Dakota, North Dakota, and Iowa paid higher tariff rates per ton than Montana. Rates for 

Montana peaked in 1998 and then steadily decreased through 2007. Rates for North Dakota 

peaked in 1997, decreased until 1999, fluctuated until 2003, and then increased to new highs. 

Grain shippers in the States of South Dakota, Nebraska, Colorado, and Iowa had the steepest 

rate of increase since 2003. 
228

Figure 6-14: Grain and oilseeds: nominal rail (tariff only) revenues per ton for States with less 

transportation competition, by year 

Source: Surface Transportation Board, Confidential Waybill Samples 

Figure 6-15: Grain and oilseeds: nominal rail (tariff only) revenues per ton for States with 

more transportation competition, by year 

Source: Surface Transportation Board, Confidential Waybill Samples 

The States of Montana and North Dakota, which are distant from barge competition, have 

substantially higher R/VC ratios than States having more rail-to-rail and barge competition. In 

addition, R/VC ratios have considerable variation by year for some States. Figures 6-12 and 6-

13 show that Montana and North Dakota grain shippers have had some of the highest R/VC 
229

ratios. From 2000 through 2006, Kansas grain shippers have had higher R/VC ratios than North 

Dakota shippers. Tariff rate R/VC ratios for all of the States with less competition, though, have 

decreased since 2003 and 2004. The R/VC ratio in Missouri increased sharply in 2004 and has 

decreased since then. The R/VC ratio in Indiana increased from 1990, peaked in 1994, 

decreased until 1996, and then increased through 2004. 

Figure 6-16: Grain and oilseeds: rail R/VC ratios (tariff) for States with less transportation 

competition, by year 

 

Source: Surface Transportation Board, Confidential Waybill Samples 

 

Figure 6-17: Grain and oilseeds: rail R/VC Ratios (tariff only) for States with more 

transportation competition, by year 

 

Source: Surface Transportation Board, Confidential Waybill Samples 
230

Conclusions 

An affordable and reliable transportation network is necessary to maintain the strength and 

competitiveness of American agriculture and rural communities. Agricultural commodities are 

often produced in large quantities at locations distant from domestic and international 

markets, making rail a natural and preferred choice of transportation. Truck transportation is 

not cost-effective for many agricultural shippers, who are often located long distances from 

markets, and barge transportation is not an option for most. Rail is the only cost-effective 

transportation mode broadly available for many agricultural producers. Railroads transport 

nearly all of the grains and oilseeds produced in Montana, more than 70 percent of that 

produced in North Dakota, and more than 50 percent of that produced in Arizona, Oklahoma, 

and South Dakota. 

Railroads were the first transportation industry regulated by the U.S. government because they 

possessed and exercised market power deemed contrary to the public good. Eventually, 

railroad economic regulation became so pervasive and limiting that the railroad industry was 

nearly bankrupted. 

The ensuing deregulation encouraged greater reliance on free markets to promote railroad 

profitability and public benefits, but relied on competition to protect shippers and the general 

public. The loss of rail-to-rail competition due to railroad mergers, and the associated increase 

in market power, was not foreseen by many when the Staggers Act was passed. However, the 

abandonment of rail lines was a predictable outcome of railroad deregulation. Railroads under 

regulation were burdened by significant excess capacity. Deregulation permitted mergers and 

line abandonments, which eliminated overcapacity as a problem for railroads; and also greatly 

increased railroad market power and profitability. 

The preservation and protection of competition is vital for the economic prosperity of 

agricultural producers and shippers contending with a deregulated railroad industry. However, 

in deregulating the rail industry Congress recognized that intermodal competition had the 

potential to be as effective as rail-to-rail competition in restraining the exercise of market 

power. In fact, rail rates fell substantially following deregulation, but not all rates fell for all 

shippers. In recent years, rail rates have increased as costs have risen. 

The loss of rail-to-rail competition also increases the opportunities for collusive behavior. 

Empirical evidence in Canada indicates that competition between two rail firms in Canada has 

been inadequate in many markets, despite mandated reciprocal switching and a requirement to 

provide competitive line rates. It is much more difficult to collude—either tacitly or 

overtly—when three railroad firms or more serve a market. 

Railroads have had some exemptions from antitrust laws since 1914. Shippers believe that 

antitrust exemptions, which were granted during a time when railroads were regulated, should 

have been removed when the railroads were deregulated. Railroads, which must function as an 
231

interconnected network, argue that limited anti-trust immunity helps them to provide better 

service to shippers. Congress is currently considering legislation in this arena. 

Railroad concentration for grains and oilseeds has increased substantially since 1980 due to 

railroad consolidation. Market concentration is even greater for some individual commodities, 

such as wheat. 

Analysis shows the level of rail-to-rail competition for grains and oilseeds decreased 

significantly between 1985 and 2007. The number of competing lines declined in many areas 

and only increased in a few, and the areas served by only one railroad increased significantly. 

As competition fell, rail rates rose. The ratio of revenue to variable costs increased in 83 

percent of the measured areas but declined in only 17 percent. 

Many grain- and oilseed-producing regions that are distant from barge-loading facilities 

changed to rail monopolies after deregulation. Many areas with less rail-to-rail competition are 

in regions important in the production of grain and oilseeds and are distant from barge-loading 

facilities. 

Since the early 1990’s, portions of west central Missouri, western Tennessee, north central 

Indiana, parts of Ohio, and a portion of Texas have lost the equivalent of 4.25 to 2.58 

competing railroads. Parts of Arkansas, Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, 

Michigan, Missouri, Nebraska, Ohio, Oklahoma, and Texas have lost the equivalent of 1.41 to 

2.58 competing railroads. All were among the top 20 grain- and oilseed-producing States in 

2007. 

In 1988, Montana and North Dakota shippers paid the highest nominal (not adjusted for 

inflation) tariff rail rates in the nation to move grain and oilseeds. By 2007, however, Nebraska, 

South Dakota, North Dakota, and Iowa all paid more to ship grain than Montana. 

Nominal tariff rates per ton-mile show that States lacking rail-to-rail competition do not 

necessarily pay higher rates than States with more transportation competition. This may be 

due to individual railroads being more sensitive to shippers’ needs or could be due to greater 

engagement by governments at the state level. In addition, data analyzed at the State level can 

mask relationships that may be more apparent in analyses done at the CRD level. 

Although rail shipments of grains and oilseeds have increased at an average rate of 1.1 percent 

over the last fifteen years, truck shipments have increased by 4.4 percent. In other words, rail’s 

market share has decreased. Farmers have other shipping options, and they appear to be 

taking advantage of them. 
232

Appendix 6-1: Maps of Inverse Herfindahl Index for Rail 

Shipments 

Figure 6-18: Inverse Herfindahl Index for rail shipments: grain products for 2003 to 2007 

Figure 6-19: Inverse Herfindahl Index for rail shipments: grain products for 1985 to 1992 
233

Figure 6-20: Inverse Herfindahl Index for rail shipments: grain products period 1 to period 3 

Figure 6-21: Inverse Herfindahl Index for rail shipments: grain products period 1 to period 3 
234

Figure 6-22: Inverse Herfindahl Index for rail shipments: food products 2003 to 2007 

Figure 6-23: Inverse Herfindahl Index for rail shipments: food products 1985 to 1992 
235

Figure 6-24: Change in Inverse Herfindahl Index for rail shipments: food products period 1 to 

period 3

Figure 6-25: Change in revenue to variable cost for rail shipments: food products period 1 to 

period 3 
236

Figure 6-26: Change in Inverse Herfindahl Index for rail shipments: fertilizer products period 1 

to period 3

Figure 6-27: Change in revenue to variable costs for rail shipments: fertilizer products period 

1 to period 3
237

Appendix 6-2: HHIs and R/VCs for Commodity Groups 

Analyzed by Number of CRD

Table 6-5: Summary of HHIs and R/VCs for four commodity groups analyzed by number of 

CRDs 

Commodity Group 

Change in HHI Change in R/VC No. of CRDs HHI =1 

>0 Same <0 >0 <0 Period 1 Period 3 

Grains & oilseeds 

No. 38 9 109 108 22 20 25 

% 24 6 70 83 17 10 15 

Grain Products 

No. 23 2 59 48 13 14 13 

% 27 2 70 79 21 11 13 

Food Products 

No. 25 11 113 84 25 20 40 

% 17 7 76 77 23 11 25 

Fertilizers No. 12 5 35 19 5 11 12 

% 23 10 67 79 21 13 21 

Source: USDA analysis of Surface Transportation Board, Confidential Waybill Samples 

 
238

Appendix 6-3: Waybill Calculation Methodology 

For this report, USDA conducted analysis focused on the adequacy of rail competition. Several 

analytical measures were calculated from the STB Carload Waybill samples to show trends and 

identify areas of competition where there was a potential for railroads to exercise market 

power. 

USDA obtained this information from the STB: 

• Confidential Waybill samples for the years 1985 through 2007 

• A supplemental file containing 

• Information about whether a movement was from a contract (true revenue is masked) 

or from a tariff rate 

• The calculated variable costs of the movement.*

 

The supplemental file told only if the waybill for a shipment was carried under a contract rate 

(true revenue is masked) or a tariff rate (actual revenue). USDA chose to look at waybills and 

rail revenues for non-contract or tariff rate shipments. This was done for several reasons, but 

mainly because the contract shipments revenue was masked and in most cases multiplied by a 

scaling factor. USDA believed any analysis done using the scaled masked contract revenues 

would be misleading. Also, the STB has no jurisdiction over contract rates and rates for exempt 

movements, so contract rates generally cannot be appealed by shippers. 

Preparing Data for Analysis from Original Waybill Sample

The raw waybill data is screened by STB for anomalous observations and checked for errors 

before it is provided to USDA and other requesters. USDA further reviewed and cleaned the 

Confidential Waybill data for obvious omissions, errors, and outliers. 

These Waybills were excluded from the Study: 

• Shipments originating outside the 48 contiguous United States. 

• Shipments with unusually heavy (more than 157.5 tons) or extremely light (less than 1 

ton) average tons per car. 

• Trains longer than 150 cars. 

• Shipment distances less than 20 miles and more than 3,500 miles for domestic 

movements or 4,500 miles for export movements (Mexico and Canada). 

• Waybills with a gross weight above 315,000 pounds, which exceed the maximum 

possible. 

 

*

 The Total Variable Cost field was not available for 1985, 1986, 1987, 1992, and 1993, and the supplemental data 

for the years 1986, 1987, 1992, and 1993 was not available. Thus, those years are not included in the USDA rate 

analysis.