Chapter 8

Rail

Service 

Performance
277

Chapter 8: Rail Service Performance 

Rail services are particularly important to agricultural shippers, who move low-value bulk 

commodities long distances, and who often must depend on rail as the only cost-effective 

means of reaching their market. Grains and oilseeds, as well as other agricultural products and 

farm inputs, depend on rail. As discussed in other chapters of this report, rail moves 40–50 

percent of grains and oilseeds—up to 95 percent in some corridors (see Chapter 2: Importance 

of Freight Transportation to Agriculture). 

Rail’s share of the grain market has been decreasing, causing concern because rail is the least 

costly mode of transportation in many cases, and this change in market share increases the 

burden on highways and the infrastructure serving other modes of transportation. 

Railroad service itself has several aspects. It can be viewed as the outcome of capacity, 

competition, regulatory reform, and private railroad business decisions. It also can be viewed 

as a tool that a railroad can use in determining price as it strives to maximize its profits. In the 

current deregulated environment, providing the quality of service required by agriculture 

remains largely at the discretion of the railroads. 

Capacity constraints from 2003 through 2006 and declining rail-to-rail competition have 

resulted in railroads becoming more selective in accepting traffic. In an effort to maximize 

profits and efficiency, railroads have eliminated service in some lanes and promoted shuttle 

train shipments over single car or manifest shipments.* They also promote intermodal hubs in 

major metropolitan areas such as Chicago, Memphis, Atlanta, Dallas, and New York, and shut 

down or eliminate service to small intermodal yards in rural areas. Although the Common 

Carrier Obligation still exists, it is more difficult to enforce when rail capacity is constrained. 

Furthermore, shippers contend that rail carriers often price traffic they do not want well 

beyond the value of service, thereby driving unwanted traffic to other modes.

Due to railroad policies, agricultural shippers in rural areas often haul their commodities long 

distances by truck to reach rail service, resulting in increased transportation costs and wear on 

rural highways. In addition, many farmers shipping commodities in intermodal containers have 

lost rail service at local intermodal yards and find it difficult to acquire empty containers. As a 

result, they are often forced to haul empty containers by truck long distances from urban 

intermodal yards and then haul the loaded containers back to those urban yards for shipment. 

 

*

 AAR defines single car movements as one to five carloads. Some railroads define manifest shipments as those 

less than 27 railcars. 
278

Figure 8-1: An intermodal terminal at the Port of Los Angeles. Railroads promote the use of 

major intermodal hubs because of their efficiency. 

Source: ©Port of Los Angeles 

For example, in 2006, cotton shippers in Lubbock, TX, paid nearly $1,100 per container in extra 

transportation costs. They had to pick up containers in Dallas, load them in Lubbock, and 

deliver the loaded containers back to Dallas where they could be put on trains to a West Coast 

destination. The increased cost of trucking due to the lack of rail service hinders the ability of 

agricultural producers to compete in domestic and international markets (see Chapter 14: 

Ocean Transportation for more information on ocean and intermodal transportation). 

Consequently, although railroads have made great strides in improving their efficiency, many 

agricultural shippers believe this efficiency has come at the cost of effectiveness in serving the 

needs of the shipper. Agricultural shippers contend that railroads have become less attentive 

to their needs as railroad competition has decreased, railroads have grown larger, and rail 

markets have become more concentrated. 

This chapter examines specific concerns of the agricultural industry about the service offered by 

railroads. It also looks at general service issues, including on-time delivery performance, the 

value of reliability, closures of service nodes, rail line abandonment, rail car shortages, 

consumer complaints, and paper barriers. 
279

Concerns from the Agricultural Industry 

A review of many documents (studies, shipper comments in STB proceedings, etc.) dealing with 

service, capacity, and rates reveals a list of concerns from the agriculture industry, some 

specific to service in a technical sense and some relating to service policy. 

Large versus Small Shippers 

Allocation of service between smaller and larger shippers may be unduly discriminatory, to the 

detriment of smaller shippers. Small shippers complain that shuttle-train shippers receive 

preferential treatment, particularly when the demand is high for empty railcars. Railroads 

counter that shuttle-trains make more efficient use of assets since they make 2.5 to 3 cycles in 

the time it takes non-shuttle trains to make 1 cycle. In addition, one railroad states that only 40 

percent of its grain car fleet is allocated to shuttle trains, but that those cars handle 60 percent 

of their grain shipments. 

Service Disruptions 

Agricultural shippers often appear to bear the brunt of rail service disruptions, as in the case of 

a soybean processor that has to either cut back crush volumes or shut down the plant when a 

rail disruption occurs. Such plants often operate 24 hours a day and 7 days a week, but cannot 

operate without rail service. Both cutting back crush volumes and shutting the plant down are 

expensive to the processor, but a total shutdown is the most onerous, threatening contracts 

and jeopardizing customers who depend on receiving their product on time. Expensive truck 

transportation may have to be used to accommodate and keep those customers, but is not 

always available during the rail service disruption. In addition, some customers who have 

contracted for delivery by rail are not set up to receive truck shipments. The excessive cost of 

trucking agricultural products long distances means less risk to the railroad of losing the 

transportation of agricultural products even in a service disruption. 

Many shippers are captive to one railroad; only about 5 percent of grain elevators are served by 

more than one railroad. Captive shippers claim they receive inadequate service relative to 

areas where railroads compete for the traffic. Even shippers served by two railroads 

sometimes complain that the railroad not currently being used refuses to offer service or quote 

a rate since “it is no longer one of our facilities to serve.” 

Studies have shown that agricultural shippers with more limited transportation options are less 

responsive to rail price changes. This inability to respond to prices becomes especially evident 

at times of service disruption when service is restored more quickly to those shippers that do 

have transportation alternatives. 
280

De-marketing 

A common shipper charge against the railroads is that, by favoring the more lucrative long hauls 

to export terminals, the railroads have effectively de-marketed rail for some crops, some 

shorter hauls, hauls to markets located on competing lines, and to closer domestic markets. 

The concept of service to all customers required by the Common Carrier Obligation is strained, 

even though it remains part of the transportation law. 

Miscommunication on Delivery of Empty Railcars 

Agricultural shippers report ordering several lots of 5–10 empty railcars to be delivered weekly 

(based on their capacity to load the railcars within loading time limits without being charged 

demurrage), only to receive all of the empty railcars at one time, affecting internal efficiency 

and demurrage charges. Some lumber shippers also have stated that they are told empty 

railcars are not available at critical times, even though market information reveals the railroad 

has cars of the desired type in storage. 

Forced to Truck Transportation 

Decreased service at local elevators due to abandonment of rail lines or the efficiency-driven 

push towards shuttle facilities causes grain to be trucked longer distances over State and 

county highway systems, increasing time of shipment and expense to the shipper. Greater 

traffic also causes higher maintenance and repair costs on local roads. 

Longer Wait Times for Specialty Crops 

Producers of certain specialty crops, such as dry beans, barley, and peas and lentils, experience 

longer waits for rail service, possibly because of limited volumes, resulting in truck movements 

of even longer distances than those for wheat. 

Demurrage and Railcar Storage Fees 

Demurrage, which is a charge for failure to load or unload cars within the time allowed, has 

risen steadily. In addition, carriers now charge storage fees for empty private cars stored on 

railroad-owned lines. Third parties own over 60 percent of all railcars due to lack of railroad 

investment in them, but carriers still assess this storage charge. Because carrier ownership of 

railcars has decreased, this additional storage charge affects the cost of service provided by the 

railroads. 
281

On-time Delivery 

Shippers and carriers do not define reliability in the same way. For example, a carrier is 

obligated to provide service to a shipper upon reasonable request. The statute does not dictate 

“service reliability” or frequency of service, leaving the carriers to determine what is reasonable 

and reliable. Service is not guaranteed in this setting. 

Data obtained from Argus Media reveals shipper ratings of the on-time performance of Class I 

railroads and provides a customer service index, both for trains carrying grain.167 The following 

graphs provide a picture of performance from September 1997 to December 2008. As Figure 8-

2 shows, there has been an improvement in on-time arrivals, but with substantial variation. 

Performance had been increasing until mid-2003, when railroad capacity constraints and 

personnel shortages due to early retirements began to appear. Consequently, the index fell 

below 3 in some instances and certainly below the average experience over the time frame. 

Since the low points in 2003 and 2005, a general improvement in on-time arrivals has been 

achieved, with arrivals in 2008 matching those of 2002. 

Figure 8-2: Average on-time delivery index for all Class I Railroads for grain 

Source: Argus Media 

 
282

An index of customer service, also compiled by the Argus Media group and shown in 

Figure 8-3 indicates that Class I railroads were consistent in customer service over that time 

period. The index is remarkably stable, around 3.5, with little variation throughout the period. 

This index, however, may reflect the effectiveness and courtesy of the customer service staff in 

resolving shipping issues more than rail service policies. 

Figure 8-3: Customer service index for Class I Railroads for grain 

Source: Argus Media 

The data are also available for specific railroads. For the sake of comparison, they are 

presented in railroad pairs from the same regions. In Figure 8-4, BNSF is rated slightly higher 

than Union Pacific, and both have been rated somewhat higher than the Class I railroad average 

performance. The personnel and congestion issues mentioned earlier resulted in UP’s lower 

on-time performance during 2002–2005. UP recovered after 2005 and more closely matches 

the performance of BNSF. 

 
283

Figure 8-4: Average on-time delivery index for grain—BNSF & UP 

Source: Argus Media 

UP varied more in the customer service index than BNSF, but in the earlier and later years were 

rated better than BNSF. 

Figure 8-5: Customer service index for grain—BNSF & UP 

Source: Argus Media 
284

Comparison of CSXT and Norfolk Southern indicates two railroads with similar performance, 

both in on-time delivery and customer service indices (see Figures 8-6 and 8-7). The two 

railroads track each other closely, indicating that market and management issues affect them 

the same way. In the last two years reported, Norfolk Southern has been rated marginally 

better than CSXT in on-time performance but slightly lower in customer service. 

Figure 8-6: Average on-time delivery index for grain – CSXT & Norfolk Southern 

Source: Argus Media 

 
285

Figure 8-7: Customer service index for grain—CSXT & Norfolk Southern 

Source: Argus Media 

Comparison of Canadian National with Canadian Pacific shows more variation in customer 

service than in the analyses above (Figure 8-8). They performed similarly in earlier years but in 

the four most recent years Canadian Pacific consistently and significantly was rated better than 

Canadian National. 

Figure 8-8: Customer service index for grain—CN & CP 

Source: Argus Media 
286

Figure 8-9 compares the four railroads, Canadian National, Canadian Pacific, CSXT and Norfolk 

Southern in overall customer service for grain. The four railroads are consistent and similar in 

customer service, varying in similar patterns over the 12-year period. Earlier in the period, 

Canadian National was consistently rated better than the other railroads. Recently, however, 

CSXT has been rated better. 

Figure 8-9: Customer service index for grain—CSXT, NS, CN, and CP 

Source: Argus Media

Comparison of the Argus Media indices in Table 8-1 shows that on-time delivery and customer 

service vary significantly across railroads. In general, on-time delivery has been improving and 

the customer service index has been consistent. 

In sum, railroad’s service to agriculture varies by service component. On-time delivery has 

improved and customer service has been stable and consistent. However, complaints being 

filed with the STB indicate that agricultural products are the commodity with the most 

complaints, and rail service has been the most common type of complaint over the past four 

years. 

 
287

Table 8-1: On-time delivery and customer service indices by Class I railroads, June 2, 1997 

through December 8, 2008 

Source: Argus Media
288

Lane Closures 

The U.S. railroad system is a network. Free 

interchange of traffic among railroads could 

allow shippers to maximize logistical efficiency 

and access to markets. However, railroads 

frequently restrict free network interchange—

thereby restricting shippers’ choices of markets. 

The restrictions include contractual interchange 

agreements that restrict the ability of smaller 

railroads to interchange with railroads 

competing with the carrier that sold or leased 

the line to the smaller railroad (paper barriers). 

Other restrictions include the closure of 

gateways, termination of interchange 

agreements with other railroads, and closure of 

specific lanes. 

Loss of rail service through lane closures and 

service discontinuance has become 

commonplace. In many cases, the cost of 

alternative transportation is cost-prohibitive, so 

agricultural producers often are unable to get 

the best price for their products. 

Effects of Increased ShuttleTrain Movements 

The efficiency of shuttle trains benefits both the 

railroad and agricultural producers fortunate 

enough to be near shuttle-loading elevators. As 

pointed out earlier, shuttle train railcars cycle 

2.5 to 3 times for every cycle of a non-shuttle 

railcar. This efficiency results in lower costs to 

the railroad, a portion of which is passed on to 

the shipper. Thus, shuttle-train loading facilities 

are able to offer higher prices to agricultural 

producers for grains and oilseeds. 

 

Case Studies of Service Limitations 

In a presentation at the USDA 2009 Outlook 

Forum, Mallory Alexander International 

Logistics described a series of service 

eliminations in 2007, at the peak of export 

demand for containerized agricultural 

commodities.* This is a small sample. 

CSX: 

• Chicago to BNSF at Houston, TX, and 

Robstown, TX 

• Birmingham, AL, to BNSF at El Paso, TX, 

and Phoenix, AZ 

• Columbus, OH, to Worcester, MA 

 

Norfolk Southern: 

• Specific types of container service to KCS 

at Laredo, TX and interior Mexico points 

• Specific types of container service to and 

from Toledo, OH 

• Specific types of container interline 

service to and from Cincinnati, OH, with 

UP, BNSF, CP, and CN 

• Specific types of container service to UP 

at Ft. Smith, AR 

• Specific types of container service to and 

from Houston/Englewood, TX, via 

interchange at Memphis, TN 

BNSF: 

• Closure of ramp at Richmond, CA 

UP: 

• Barbours Cut, TX, to Oakland, CA 

• Service for 48 and 53 foot containers 

from Marion, AR, to Englewood, TX 

• Houston, TX, to Dallas, TX 

• Closure of Hawk Fresno ramp in 

Fresno, CA 

* Lemm, Donna, Mallory Alexander International 

Logistics, “Agricultural Opportunities in Ocean 

Shipping,” presented at USDA 2009 Agricultural 

Outlook Forum, February 27, 2009 
289

The benefits of shuttle trains, however, are not 

shared evenly by agricultural producers. 

Producers located closer to a shuttle-train 

loading facility benefit because the higher 

prices received are greater than any increased 

cost of transporting their commodity longer 

distances. However, transportation costs for 

producers distant from shuttle-train service are 

too high for them to benefit. If the smaller 

grain elevators those producers normally use go 

out of business, then they must transport their 

commodity to a more distant shuttle-train 

loading elevator. Furthermore, rail service for 

less-than-shuttle-train shippers frequently is 

inferior to that received by shuttle shippers. 

The movement of grains and oilseeds by unittrain has increased rapidly since 1985. The 

percentage of grains and oilseeds (by tonnage) 

moved by unit trains has increased from 34 

percent in 1985 to 63 percent in 2006 (see 

Figure 8-10). Meanwhile, the movement of 

grains and oilseeds by single-car shipments has 

decreased from 36 percent in 1985 to only 10 

percent in 2006. 

 

Shipment Types for Grain 

Railroads classify shipment types as single car, 

multiple car, unit train, and shuttle train. 

• Single car movements are one to five 

carloads that originate at a single origin 

and go to one or more destinations. 

• Multiple car movements are 6 to 49 cars 

that originate at a single origin and go to 

one or more destinations. 

• Unit trains have more than 50 cars that 

originate at a single origin and go to a 

single destination. 

• Shuttle trains have more than 75 cars that 

originate at a single origin and go to a 

single destination. Shuttle trains differ 

from unit trains in that the locomotive is 

never detached from the cars and the cars 

must be loaded and unloaded within a 

short time. 
290

Figure 8-10: Percentage of grain and oilseeds by type of movement*

Source: Association of American Railroads, Rail Transportation of Grain 

The loss of local elevators, combined with the growing dominance of shuttle-loading elevators 

has forced much grain and oilseed traffic to trucks, resulting in increased road wear, and 

affecting rural counties much more than urban counties; the former have a more limited tax 

base to pay for road construction and repairs. Although the user fees (fuel taxes, registration 

and license fees, etc.) assessed on heavy trucks appear at first glance to be adequate, the 

damage to roads increases exponentially, rather than linearly, with increased weight. The 1997 

Federal Highway Cost Allocation Study concluded that user fees collected from 5-axle tractorsemitrailer trucks registered at 80,000 pounds pay for only 90 percent of the costs they impose 

on the Federal Highway System.168 However, since Federal-aid highways comprise only about 

25 percent of the total road infrastructure, they do not include most of the rural road system 

used by these heavier trucks. Because heavy truck traffic does more damage to rural roads, 

which were not designed for it, those user fees probably pay for only 60 to 67 percent of the 

costs tractor-semitrailer trucks impose on the road system. 

 

 

*

 Although included as unit trains in the data, shuttle trains differ in that the locomotive is never separated from 

the railcars, and they are at least 75 cars long. Shuttle trains also have loading and unloading efficiency 

requirements. 
291

The Shift to Larger Railcars 

A shift to larger grain cars (C-114 covered hoppers) has 

occurred quite rapidly. In 1995, 6.8 million tons (4.4 

percent) of grain and oilseeds moved in C-114 railcars. By 

2007, 86.4 million tons (55.7 percent) moved in the larger 

railcars (Figures 8-11 and 8-12). The tonnages and 

percentages hauled in the larger cars peaked in 2002, 

declined until 2004, then rapidly increased until 2007. 

The dip in C-114 tonnages during 2003 and 2004 shown in 

Figure 8-11 is probably due to rail congestion. Rail 

congestion affects the quickly turning C-114 cars, which are 

more often used in shuttle movements, more than C-113 

cars, which are used in carload movements. 

Figure 8-11: Grain tonnages moved by type of covered hopper car 

Source: Surface Transportation Board, Confidential Waybill Samples 

 

Truck Damage to Rural Highways 

The damage a loaded semitrailer 

truck does to major rural collector 

highways is 13.5 times the amount 

of damage the same truck does to 

a rural interstate highway. The 

truck does 21 times the damage to 

minor collector highways.* 

*DOT, Federal Highway Administration, 

1997 Federal Highway Cost Allocation 

Study, Washington, DC, 1998. 
292

Figure 8-12: Percentage of grain moved by type of covered hopper car 

Source: Surface Transportation Board, Confidential Waybill Samples 

The shift to larger railcars hurts the short line and regional railroads that serve grain producers 

because they do not have the financial resources to upgrade their rail lines. In 2007, short line 

and regional railroads operated nearly 46,000 miles of the U.S. rail network and had $3.9 billion 

in revenue. 

The major railroads averaged more than $560,000 in revenue per route mile in 2007, but short 

line and regional railroads averaged only a little more than $85,000.169 The cost to upgrade the 

lines of smaller railroads to handle larger railcars varies. In a study completed in 2000, the 

estimated cost of upgrading railroad tracks and bridges was estimated at $6.8 billion—more 

than $137,000 per mile.170 A Washington State study estimated that upgrading branch lines to 

handle heavier railcars would cost $250,000 to $300,000 per mile, exclusive of bridge 

rehabilitation costs.171 An Iowa report concluded it would cost $250,000 per mile to upgrade 

branch lines to handle larger railcars.172 

Several studies have concluded that the shift to larger railcars will result in abandonment of 

some route miles by short line railroads.173 The effects of short line abandonment are expected 

to lower the grain prices received by farmers, raise their transportation costs, lose economic 

opportunities for rural communities, reduce the local tax base needed to fund basic 

government services, increase highway traffic accidents due to increased truck traffic, increase 

road damage costs, and increase energy use and emissions.174 The risk to rail lines in many of 

the less-populated rural states is high; smaller railroads operate 54 percent of the route miles in 

South Dakota, 50 percent in Oregon, 43 percent in Michigan, 42 percent in Idaho, 40 percent in 

North Dakota and Washington, and 37 percent in Montana.175
293

Rail Line Abandonment 

The bankruptcies of several Class I railroads during the 1970's 

and Class I railroad abandonment of unprofitable rail lines have 

resulted in the loss of rail service to many communities. Many 

of these abandoned lines were purchased or leased by short 

line and regional railroads, shippers, States, or quasigovernmental entities to preserve rail service. Most of the 

short line and regional railroads operating on these lines have 

been successful, but a few have failed.* The ability of shortline 

railroads to provide service is constrained by the rate 

agreements and paper barriers affecting local alternatives. 

Since 1995, an increasing proportion of rail abandonments 

have been by short line and regional railroads, usually lowtraffic branch lines that did not generate enough income to pay 

for the maintenance of the track. In these cases, the lines did 

not pay for themselves. In other cases, discounts offered by 

Class I railroads for unit-train loading or C-114 railcars have 

contributed to track abandonment. Since most short line and 

regional railroads do not have the capital needed to upgrade 

their lines and usually serve small grain elevators unable to 

load unit trains, these incentives often result in traffic handled 

by smaller railroads moving to elevators located on the Class I 

railroad. 

Rail line abandonment, or rationalization, causes shippers to 

haul traffic longer distances. Consequently, the abandonment 

of rail lines and the increased use of shuttle trains result in 

increased road maintenance costs in rural areas as traffic is 

shifted to trucks. The damage caused by the loss of rail service 

and shuttle-train shipments affects rural counties more than 

urban counties because they have fewer residents to pay for 

road upkeep. 

Studies undertaken by Kansas State University and the 

University of Iowa indicate that in these States, State 

investment in rail branch lines may be a lower-cost alternative 

to improving local roads.176 Equipping rail branch lines and 

country elevators to handle larger quantities of grains and 

 

* Short line railroads include line haul railroads as well as switching and terminal railroads. Line haul railroads may 

be local or regional in size.

Agricultural States Lost the 

Most Rail Mileage 

The route miles operated by all 

railroads in the United States 

have decreased from 211,925 in 

1965 to 140,695 in 2007, a drop 

of nearly 34 percent.* Many of 

the Great Plains and Midwest 

States have lost a much larger 

proportion of their railroad 

networks. The States that lost 

the most rail service between 

1965 and 1997 are Iowa (49 

percent), Minnesota (40 

percent), and South Dakota (46 

percent). A third of the rail 

networks in Missouri, Montana, 

and Nebraska have disappeared 

since 1965, Kansas and Illinois 

have each lost 30 percent, and 

North Dakota has lost 20 

percent of its network.† All 

these States are major 

agricultural producers. 

*

AAR, Railroad Facts, various years.

†

Tolliver, Denver, presentation at the 

National Agricultural Transportation 

Summit, Kansas City, MO, July 27-28, 

1998.
294

heavier C-114 cars can give farmers an economically 

attractive alternative to trucking grain long distances, and 

can produce sufficient volumes of rail traffic to support the 

operation of shuttle trains. 

Due to the high costs of maintaining light-duty asphalt 

roads, rural counties facing such large-scale diversions of rail 

grain to trucks will likely be forced to allow many roads to 

revert to gravel. 

Paper Barriers 

Since the Staggers Rail Act of 1980, large railroads have 

reduced the size of their networks, often by selling or 

leasing unprofitable or marginally profitable lines. Many of 

these lines were sold or leased to small, newly created, 

short line or regional railroads that could operate them 

profitably in circumstances where the larger railroads could 

not. These line sales or leases have preserved rail service, 

especially in rural areas, and have kept lines from being 

abandoned, benefiting both the communities and the 

shippers. Short line and regional railroads now operate 

nearly 30 percent of the national railroad network and 

originate about 25 percent of the carloads. 

While it is generally agreed that the emergence of smaller 

railroads to fill the void left from rail abandonment has been 

a positive development, shippers have raised concerns 

about the interchange commitments, or paper barriers, 

included in many line sale and lease contracts. They 

question whether such agreements serve the public 

interest, or if they unduly restrict trade, keeping rates 

higher through restrictions on competition. Although these 

interchange commitments have been agreed upon by the 

smaller railroads, typically as part of the sale or lease of a branch line to a newly formed 

railroad company, they restrict the flow of interstate commerce and reduce the benefits arising 

from the rail network as a whole. Railroads are a network industry; rail carriers not only 

compete with, but also complement, one another. Unnecessary restrictions on interchange 

may be in the interests of a railroad, but are not in the interest of the network as a whole. 

 

Case Studies of Road 

Maintenance Cost Increases 

When Ottawa County, KS, with a 

population of only 6,000, lost rail 

service, the county’s annual road 

maintenance bill increased from 

$1 million to nearly $7 million.* 

Similarly, it will cost Harper 

County, KS, which has a 

population of 6,400, $27 million 

to rebuild the county’s roads and 

bridges to a standard that will 

withstand the increased truck 

traffic caused by the loss of rail 

service in 1997.†

 

* Baccus, Steve, “Economic Future of 

Rail Dependent Industries Under Status 

Quo Rail Policies,” presentation at the 

2nd Annual Rail Customer Forum, 

Washington, DC, March 1, 2000. 

† Griekspoor, Phyllis Jacobs, “Rural 

Roads Suffer When Trains Go Away,” 

The Wichita Eagle, Wichita, KS, July 30, 

2000. 
295

A paper barrier typically prevents a newly formed short line railroad from interchanging traffic 

with a railroad that competes with the larger railroad that is selling or leasing the line to the 

short line railroad. In Figure 8-13 below, because of a paper barrier, railroad 1 is either 

prohibited from interchanging traffic with railroad 3 or is penalized for doing so. The paper 

barrier is between railroad 1 and railroad 2. 

Figure 8-13: Schematic of a paper barrier 

Source: Government Accountability Office 

Paper barriers that limit the ability to interchange traffic with other railroads restrict the access 

of shippers and producers to markets and rates. Limited market access interferes with the 

ability of agricultural shippers to obtain the best price for their products and increases their 

transportation costs, resulting in reduced income for farmers and damage to the economic 

well-being of industries and communities. Restrictions to market access also result in 

inefficient transportation when distant producers serve nearby markets. 

Since 1980, many rail lines were sold or leased at a low price that was based on the inclusion of 

interchange commitments. The low selling price was required because most independent small 

railroads were under-capitalized and unable to finance the line acquisition at market value. 

Small independent railroads often were able to borrow only the salvage value of a rail line. 

Class I railroads had a choice of selling at less than the market value, but with interchange 

commitments to recover whatever remaining value they could extract from the sale or lease, or 

abandoning these lines. 

It appears to some shippers, however, that what began as a reasonable mechanism for small 

railroads to acquire divested rail lines has evolved into restraints on competition that would be 

prohibited by antitrust law except for the exemption gained by STB approval of the contract. 

Without an exemption, paper barriers would be subject to the ancillary restraints doctrine 
296

under the antitrust laws, which allows post-sale restraints only if they are reasonable in scope 

and duration. Such restraints must be reasonable, no broader than necessary, and have public 

benefits that outweigh the anticompetitive effects. 

When the STB initiated a review of railroad access and competition issues in 1998, shippers 

discussed the conflict between the public interests and the anti-competitive nature of some of 

these paper barriers. As a result of the STB review, the Association of American Railroads (AAR) 

and the American Short Line and Regional Railroad Association executed a Railroad Industry 

Agreement (RIA) that addressed paper barriers and other issues. On March 21, 2005, the 

Western Coal Traffic League renewed its 1998 request for a rulemaking on the paper barrier 

issue because it asserted that the RIA did not adequately deal with these barriers. 

On October 29, 2007, STB ruled that the propriety of such paper barriers would be best 

considered on an individual, case-by-case basis. In addition, STB proposed new disclosure 

requirements to assure regulatory scrutiny of such agreements in connection with future line 

sales or leases. Finally, STB proposed expedited discovery procedures for obtaining a copy of 

an existing paper barrier as soon as a regulatory challenge is brought. 

Shippers contend that some existing paper barriers appear to be anti-competitive because they 

limit market access for shippers, restrict rail-to-rail competition, and are unreasonable 

restraints to trade. Shippers have indicated that some of the unreasonable aspects include: 

• Excessive penalties for interchanging with a competing railroad. 

• Lack of shipper involvement in negotiating the terms of the barriers to interchange and 

a lack of shipper recourse. 

• Unreasonably long terms for contracts. 

• Line values set unreasonably high. 

Excessive Penalties for Interchanging with a Competing Railroad 

Shippers argue that many paper barriers appear to fail the reasonableness test because of 

excessive penalties for interchange with a competing railroad. In the 2007 decision referenced 

above, the STB stated that the revenue stream resulting from a paper barrier should be no 

more than the carrier would have received had it not divested or leased the rail facilities in 

question.177 

Prior court rulings for other industries have allowed contractual barriers designed to protect 

the reasonable value of the assets being leased or sold, but not be so excessive they could be 

construed as a restraint of trade. Court rulings for other industries also have required that the 

societal benefits exceed the societal costs of the anti-competitive practices. 

An example of a paper barrier that has been challenged is that between UP and Missouri & 

Northern Arkansas Railroad (M&NA). Entergy Arkansas, Inc. challenged this paper barrier as 

overcompensating Union Pacific for the pre-transaction value of the line. The UP/M&NA 

interchange agreement imposes up to a $90 million annual rental obligation (the amount is 
297

adjusted annually for inflation) should M&NA interchange nearly all of its traffic with UP’s 

competitors. Table 8-2 provides the details of the annual rent due from M&NA:178

Table 8-2: Summary of UP/M&NA lease contract 

Percentage of Total Traffic Interchanged with 

Union Pacific 

Annual Base Rent due Union Pacific 

(adjusted annually for inflation) 

100 – 95 percent $ -0- 

94 – 85 percent $10,000,000 

84 – 65 percent $20,000,000 

64 – 55 percent $30,000,000 

54 – 45 percent $40,000,000 

. . . . . . 

0 – 4 percent $90,000,000 

Source: Entergy Arkansas, Inc. complaint to the STB 

M&NA is a regional railroad with revenues between $28.8 and $359.6 million.179* Clearly, even 

a $10 million annual lease payment, based on a loss of only up to 15 percent of the traffic by 

the UP, could exceed the entire net profit of M&NA. Entergy Arkansas, Inc. and other shippers 

believe such a lease payment schedule is excessive and appears to be designed to inhibit 

interchange with competing railroads. At this time, there has been no ruling by the STB. 

Lack of Shipper Involvement and Recourse 

Shippers are troubled by their lack of involvement in the negotiation of these interchange 

commitments. Many of the terms of sale or lease tie a shipper’s traffic to the railroad that sold 

or leased the line, without any input or consideration for the shippers’ interests. 

Since these interchange commitments are part of confidential contracts, shippers often are not 

aware of their existence until they attempt to ship products using the connection the smaller 

railroad has to a competing railroad. Even then, shippers generally cannot gain access to the 

interchange commitments because they are not publicly available at the STB or elsewhere. 

Shippers discover when they attempt to ship on a competing rail line that the penalties in the 

paper barrier make it impossible. Due to the public interest of shippers and affected 

communities, shippers believe the contents of sale and lease agreements containing these 

barriers should be made a matter of public record as soon as possible. 

Railroads contend that shippers do not need separate standing†

 to challenge interchange 

commitments because their interests are fully represented by the short lines serving them. 

Shippers contend that their interests are not represented for existing traffic because the short 

 

*

 This level of revenue is part of the definition of a regional railroad. †

 Separate standing is the right of a person to initiate a legal action challenging the terms of a paper barrier. 
298

line would earn its revenues whether it routed through the seller or through one of its 

competitors. For most traffic, the short line railroad has no incentive to act in the interests of 

the shipper regarding paper barriers. Even for new traffic, the short line railroad may perceive 

its interests as aligned with those of the larger railroad with which it has an agreement. 

Consequently, many shippers do not perceive the short lines as “fully representing” their 

interests. In fact, in many cases the short line railroad gives the larger railroad—the seller or 

lessor of the line—the right to establish a joint rail rate for itself and the short line railroad. In 

that instance, the shippers’ interests are not protected by either railroad. 

Unreasonably Long Contract Terms 

Many line sale and lease agreements contain paper barriers that continue into perpetuity or for 

extremely long terms. Courts have ruled that constraints to competition that endure for long 

periods of time are unreasonable. Consequently, shippers believe that, if paper barriers are 

permitted, the term of paper barriers should be limited to the minimum duration necessary to 

recover the fair market value of the line. 

Shippers assert that, although the public interest may tolerate temporary restrictions to a 

buyer’s ability to compete freely, these restrictions should not be tolerated indefinitely. If 

allowed to continue indefinitely, shippers contend the harm to competition would soon 

outweigh the public benefits of preserving rail service. As long as these competitive constraints 

exist, agricultural shippers maintain they cause artificially high rail rates that reduce the income 

of agricultural producers. 

Unreasonable Line Values 

Many shippers believe the selling or leasing railroad should be allowed to recover no more than 

the fair market value of the lines. They believe this value should not include the value of traffic 

that will travel over the selling railroad’s lines after the short line tenders traffic to the selling or 

leasing railroad. The value of the traffic moving over the selling railroad’s lines should not be 

included because the selling or leasing railroad would have sought STB approval to abandon the 

line if the line was unprofitable or not sufficiently profitable to continue operating it. 

The STB, in setting the fair market value of the abandoned line, would presumably not include 

the value of the traffic that might move over the line. The railroad abandoning the line would 

not know when seeking approval if another railroad would purchase the line and provide rail 

service. Further, shippers also believe railroads should not be allowed to inflate this value to tie 

traffic to the selling railroad. When the fair market value of the line is inflated, shippers and 

producers pay tariff rates higher than warranted. 

Railroad Industry Position 

The railroad industry states that the competitive position of shippers is not changed by an 

interchange agreement because there is nothing in the agreement that would cause a shipper 

on the smaller railroad to pay higher rates or receive poorer service than if they were served by 
299

the original railroad. The railroad industry states that, if anything, the shippers will receive 

better service because the smaller railroad has more flexibility and closer ties to the community 

than the original railroad. 

In addition, railroads believe that if interchange agreements were banned, many sale or lease 

transactions that have preserved service would not have taken place. They argue the buying 

railroad would often be unable to afford the line if it had to pay more. In addition, the deal 

might no longer make sense for the selling railroad, since it would no longer receive adequate 

compensation. If the sale or lease did not occur, the rail lines would become even more 

marginalized as their owners concentrated their resources on more viable and lucrative lines. 

They argue that many of these lines would ultimately be abandoned. 

Railroads also argue that if interchange commitments are banned retroactively, the original 

transaction would have to be renegotiated so that the selling railroad could receive a higher 

cash payment to compensate for the loss of the paper barrier. 180 

Consumer Complaints 

One way to understand shipper problems is to examine the consumer complaints filed with the 

STB. The following tables show four years of complaints, organized by category of complaint 

and by the commodity identified in the complaints. 

More detail is available for 2008 than for previous years. If the technical and information 

assistance requests are eliminated, complaints about abandonment, real estate, rail-to-trails*

and motor carrier service problems, in that order, are most common. The commodity most 

often involved was agricultural products, followed by chemicals. 

In 2007, less detail is available but rail service and rates are by far the most common 

complaints. Agricultural products, chemicals, and minerals—in that order—are the 

commodities cited. In 2006, complaints about rail service, then rates, are most common. 

Paper products lead the commodities, followed by agricultural products and chemicals. In 

2005, rail service accounted for almost 50 percent of the complaints, followed by rates, as in 

most years. Paper and agricultural products were tied for the most common commodities, 

followed by metals. 

Over the 4 years from 2005 through 2008, rail service was consistently the primary source of 

complaints. Similarly, agricultural products were the most commonly cited commodity, 

although paper products shippers also had many complaints in the first two years of the time 

period. 

 

 

*

 Abandoned rail lines converted by STB to biking and hiking trails for public use. 
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Table 8-3: Complaint cases by category and region, 2008 

Category All 

Regions* Northeast South Midwest West Not Specified 

Abandonment/Loss of Service 98 13 7 22 18 38

Acquisition and Operation Exemption 1 0 0 0 0 1

Amtrak Issue 3 2 0 0 1 0

Arrange Meeting 1 0 0 0 0 1

Blocked Crossings 17 0 5 2 7 3

Car Repair 1 0 1 0 0 0

Car Supply 4 0 0 1 0 3

Claims 8 1 1 2 2 2

Common Carrier Obligation 4 1 0 0 0 3

Competition Issues 5 0 2 1 1 1

Demurrage 3 0 0 0 0 3

Demurrage Charges 5 0 2 2 1 0

Denial of Rail Service 5 0 3 2 0 0

Embargo 18 3 6 2 7 0

Environmental Issues 7 0 0 2 2 3

Fuel Surcharge 1 1 0 0 0 0

Grade Crossing Issues 6 0 1 4 1 0

Grade Crossing Maintenance 3 0 1 2 0 0

Household Movers 8 0 2 0 1 5

Idling Engines/Parked Trains 1 1 0 0 0 0

Information Request 193 28 14 25 17 109

Information-Economic Data 9 0 0 0 0 9

Issues on Notes Feedback 1 0 0 0 0 1

Labor Issues 5 0 0 2 0 3

Locomotive Issue 1 0 0 0 1 0

Motor Carriers (trucks) 24 3 3 2 3 13

Noise-Airhorn, etc 7 4 0 1 1 1

Noise-Airhorn, Safety, etc 10 2 1 2 2 3

Paper Barriers 1 0 0 0 0 1

Preemption 9 1 0 3 2 3

Rail Service 10 1 1 3 2 3

Railroad Credit Terms 2 0 0 0 2 0

Rails to Trails 32 5 0 13 2 12

Rate Levels/Increases 27 2 1 7 4 13

Real Estate Matter 39 3 5 4 9 18

Service Problems 25 2 3 9 1 9

STB Jurisdictional Question 24 2 4 4 3 11

STB Procedural Assistance 205 9 3 140 20 33

STB Webpage/Downloading Assist. 26 0 1 1 4 20

Water Carrier 6 2 0 0 1 3

Other 5 3 0 1 1 0

Total 867 89 67 259 116 336

*U.S. Census Regions. See <http://www.census.gov/geo/www/us_regdiv.pdf>

Source: Surface Transportation Board. 

 
301

Table 8-4: Complaint cases by category and region, 2006 

*U.S. Census Regions. See <http://www.census.gov/geo/www/us_regdiv.pdf>

Source: Surface Transportation Board. 

Table 8-5: Complaint cases by category and region, 2005 

Category All 

Regions* Northeast South Midwest West Not Specified 

Car Supply 9 1 2 2 4 

Demurrage 3 1 2 

Fuel Surcharges 2 1 1 

Information Request 27 2 6 1 3 15

Rail Service 56 6 17 22 10 1

Rates 16 2 3 7 3 1

Other 8 1 2 4 1 

Total 121 12 32 37 23 17

*U.S. Census Regions. See <http://www.census.gov/geo/www/us_regdiv.pdf>

Source: Surface Transportation Board. 

 

Category All 

Regions* Northeast South Midwest West Not Specified 

Car Supply 5 1 1 3 5

Demurrage 7 1 1 2 3

Fuel Surcharges 2 1 1 2

Information Request 14 1 3 2 2 14

Rail Service 39 1 12 15 10 1

Rates 19 1 5 7 4 19

Other 14 2 4 3 2 3

Total 100 6 27 29 23 15
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Table 8-6: Complaint cases by commodity group, 2005, 2006, and 2008 

Commodity Group Number per Year 

2005 2006 2008

Aggregates 3

Agricultural Products 17 13 23

Automobile 2

Chemicals 5 10 21

Coal 2 1 5

Construction Debris 2

Forest Products 17 17 8

Hazardous Waste/Radioactive Waste 1

High/Wide Loads 1

Industrial Products 3

Intermodal 2 5 5

Metals and Minerals 11 9 4

Municipal Waste 1

N/A 711

Other 29

TIH 4

Total* 121* 100* 867*

*In many cases, the commodity is not specified, so the total may not equal the total for the quarter.

Source: Surface Transportation Board.

Conclusions 

Rail is the least costly mode of transportation for many farmers, but railroads are carrying a 

smaller share of America’s grain than they used to, shifting the burden to trucks. The heavy 

truck traffic places an extra burden on rural roads. When met with a shortage of capacity from 

2003 through 2006, railroads began to favor the more profitable longer trains and longer hauls. 

They increased the number of unit and shuttle trains, favoring them over carload shipments, 

resulting in agricultural shippers hauling their goods farther by truck to reach the nearest rail 

service. In effect, shippers are now consolidating loads for railroads, a job railroads used to do 

themselves. 
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There has been a general trend of slightly improving on-time arrivals, but with substantial 

variation from period to period. Performance had been increasing for the Class I railroads until 

mid-2003, when railroad capacity constraints began to appear and personnel shortages due to 

early retirements became evident. 

In many cases, railroads restrict free network interchange, restricting shipper choices of 

markets, in an effort to maximize their efficiency and profits. The restrictions to free 

interchange in the railway network include contractual interchange agreements (paper 

barriers) that restrict the ability of smaller railroads to interchange with railroads competing 

with the carrier that sold or leased the line to the smaller railroad. Other railroad restrictions to 

free interchange include the closure of gateways, termination of interchange agreements with 

other railroads, and closure of specific lanes. 

Loss of rail service through lane closures and service discontinuance has become a common 

occurrence. In many cases, the cost of alternative transportation to these specific markets is 

prohibitively costly. As these closures and service discontinuances restrict the ability of 

agricultural shippers to ship to markets, agricultural producers often are unable to get the best 

price for their products due to increased transportation and logistical costs. 

In the last few years, railroads have begun using larger grain cars (C-114 covered hoppers). In 

1995, only 4.4 percent of grain and oilseeds moved in C-114 railcars, but by 2007, they moved 

55.7 percent. While efficient for the line haul segment of the move, several studies have 

concluded that the shift to larger railcars will result in abandonment of some route miles by 

short line railroads. This means farmers will receive lower grain prices and pay higher 

transportation costs. Rural communities will lose economic opportunities, highway traffic 

accidents will increase due to increased truck traffic, road maintenance costs will rise, and 

energy use and emissions will increase. The risk to the rail lines in many of the less populated 

rural States is high; smaller railroads operate 54 percent of the route miles in South Dakota, 50 

percent in Oregon, 43 percent in Michigan, 42 percent in Idaho, 40 percent in North Dakota and 

Washington, and 37 percent in Montana. 

The net effect of these restrictions is that farmers must truck their commodities farther to 

reach rail lines. This not only increases costs for farmers, but increases the upkeep on rural 

roads, which affects rural counties more than urban counties because they have fewer 

residents to pay for the increased road damages. 

From 2005 through 2008, concerns about rail service were consistently the largest source of 

complaints to the STB, and agricultural products were the category most commonly complained 

about. 

 
304