Chapter 10

Rail 

Investment
333

Chapter 10: Rail Investment 

A good working relationship between the railroad and agricultural industries in the 

United States depends on the ability of the railroads to provide adequate service to agricultural 

shippers at a reasonable price. DOT has predicted that total freight transportation could 

increase over 90 percent from 2002 to 2035.191 AAR states that “if railroads don’t have the 

money to expand their infrastructure, by 2035 some 16,000 miles—one-third of the nations’ 

primary rail corridors—will be severely congested.”192 They further state “freight railroads are 

key to solving the freight capacity challenge and keeping more trucks off our highways (as) 

railroads, on average, move one ton of freight 436 miles on just one gallon of fuel.” 

Continually increasing rail rates, however, could undermine projected future rail demand and 

reduce the level of investment needed. Although rail rates decreased from the 1980 Staggers 

Rail Act until 2005, they have been increasing rapidly for the past four years and, for many 

agricultural products, since 1988. As discussed in Chapter 9, a recent study showed the amount 

of rail freight originated during 2007 decreased markedly from the trend of real GDP, showing 

railroads lost market share in 2007 rather than gained it, as was expected.193

Railroads are a capital-intensive industry. In an attempt to meet rising demand, railroads spent 

around $420 billion on infrastructure between 1980 and 2007.194 Freight railroads have 

invested almost 18 percent of their revenue on capital expenditures,195 including maintenance 

of way.* Perhaps 15 to 20 percent of this investment went to expanding rail capacity; the 

balance was simply to maintain existing capacity.196

Figure 10-1: Railroads 

must invest in 

infrastructure to keep up 

with increasing 

transportation demand. 

Source: Chris Groeling 

 

* Maintenance of way is the normal maintenance required to keep track at the same level of performance. 
334

Due to the recent decline in the economy, investment by the railroad industry in new capacity 

may fall behind in meeting future railroad transportation demand, especially for agricultural 

commodities. This potential shortfall in investment could come at the time when competing 

nations, such as Brazil, are making strategic investments in the transportation systems serving 

their export grain markets.197 The lack of investment in rail capacity for agricultural products 

can impair the United States’ position as the deliverer of the lowest cost, highest quality grain 

and grain products in the world. 

While several recent studies predicted a future shortage of rail capacity, a review of these 

studies by Christensen Associates for the Surface Transportation Board indicated that forecasts 

of future growth in rail traffic—especially the movement of coal and municipal solid waste—

appeared to be substantially overstated. Nevertheless, the investment of public funds in the 

expansion of rail capacity may be justified by the savings in pollution, congestion, and 

maintenance of highways. Public investment in railroads has until recently been directed 

largely to the preservation of branch line rail service to rural areas. However, the time may 

now have arrived when public investment in main lines and intermodal facilities is economically 

justified. 

Demand for Rail Freight Movements 

Many recent studies have pointed to a continual increase in the demand for rail freight service. 

Although the magnitude and timing is debated, the fact that demand will increase is not. 

Changes in economic activity are the basis for forecasts of increases in overall freight 

transportation, and especially freight rail. The GAO, in an October 2006 report, examined the 

economic health of the freight railroad industry. It found that economic health had improved, 

but that concerns about competition and capacity should be addressed.198 The study reviewed 

several major studies dealing with transportation demand, especially rail transportation 

demand. GAO concluded that “...forecasts of freight and freight rail demand are useful as one 

plausible scenario for the future. As the CBO observed in a January 2006 report ‘forecasts of 

demand are best viewed as illustrative rather than quantitatively accurate.’”199
335

First DOT Study 

The Freight Analysis Framework (FAF) is a 

comprehensive database and policy analysis tool 

maintained by DOT to help identify needed freight 

capacity investments. Using FAF in 2002, DOT projected 

that overall domestic freight demand would increase by 

more than 65 percent and international demand by 84 

percent from 1998 to 2020.200 

AASHTO Study 

The American Association of State Highway and 

Transportation Officials (AASHTO) released Freight Rail 

Bottom Line Report, which described the rail industry 

and its benefits to the nation. In this report the 

industry’s investment needs and its ability to meet those 

needs was estimated, and the consequences of 

underinvestment were quantified.201 It developed 

baseline freight forecasts using TRANSEARCH data for 

the year 2000 and interim growth rates developed by 

DOT under the FAF project.202 The study concluded that, 

with moderate economic growth, total freight tonnage 

would grow from 15.2 billion tons in 2000 to 24.5 billion 

tons in 2020, an increase of 67 percent. Domestic 

tonnage would rise from 12.6 to 21.7 billion tons, an 

increase of 57 percent, and import-export tonnage was 

projected to grow from 1.4 to 2.8 billion tons, an 

increase of 99 percent. 

It found that not all regions of the United States would 

experience the same growth in demand. Growth was 

forecast to be 76 percent in the West, 71 percent the 

South, 63 percent in the Central region and 58 percent in 

the Northeast. The largest volumes (rather than 

percentage increases) were predicted for the Northeast 

and Central regions. 

Modal volumes and growth were also predicted, driven 

by the growth in the commodities traditionally handled 

by the modes. Barring any change in modal shares or 

logistical constraints, the study projected that rail would 

grow from 2,009 million tons in 2000 to 2,891 million 

tons in 2020, an increase of 62 percent. Ton-miles were 

projected to grow to 1,821 billion in 2020, up from 1,239 

billion ton-miles in 2000, an average increase of 47 percent for all rail markets. 

U.S. Growth, by the Numbers 

Congressman James Oberstar, 

discussed meeting our infrastructure 

needs in Transportation Builder, March 

2009, mentions changes in the country 

since 1956: 

• Between 1950 and 2007, the U.S. 

population doubled from 150 

million to 300 million. 

• The gross national product has 

exploded from $345 billion to $13 

trillion. 

• Imports have tripled and exports 

have doubled since 1970. 

• Land use, economic development, 

and migration patterns have 

changed significantly, leading to 

an increased dependence on our 

transportation infrastructure for 

daily travel. 

• U.S. exports of goods and services 

grew by 12 percent in 2008 to 

$1.84 trillion; imports increased 

by 7.4 percent to $2.54 trillion. 

• Exports accounted for 13.1 

percent of U.S. GDP in 2008, up 

from 9.5 percent in 2003 and 5.3 

percent forty years earlier.*

*

Transportation Builder, March 2009 
336

Both the FAF and AASHTO studies predicted that freight rail tonnage, while increasing 44–55 

percent, would lose some market share to truck carriage by 2020. The AASHTO study based its 

projections on the assumption that up to about $4 billion in annual railroad investments would 

be required to meet future demand. 

ATA Report 

In 2005, the American Trucking Association’s (ATA) report, U.S. Freight Transportation Forecast 

to 2016, projected overall freight volume to increase by about 32 percent between 2004 and 

2016.203 

Booz/Allen Study 

A 2006 survey by Booz/Allen, in conjunction with Traffic World, collected data from rail and 

intermodal shippers and potential rail freight users about the capacity of the rail freight 

network and its impact on customers.* Rail is attractive to shippers for its efficiency; 42 percent 

of respondents said they would increase their rail shipments up to 40 percent if there were no 

capacity issues. In analyzing demand, Booz/Allen found that rail demand had increased for the 

ninth consecutive year in 2006 and the network can be expected to carry 500 billion ton-miles 

of new traffic, with an over 20 percent increase in rail freight demand in the next ten years.204 

FHWA Study 

In a similar study, DOT’s Federal Highway Administration (FHWA) also has examined growth 

trends and made projections on U.S. freight tonnage in their Freight Facts and Figures. Using 

assumptions similar to the earlier DOT report, they estimated that freight tonnage would grow 

by slightly over 70 percent between 2006 and 2035.205 

 

 

*

 The survey was sent to 6,000 current and former Traffic World subscribers who ship a range of goods. Fifteen 

percent of the respondents spent at least $500 million each year on freight transportation, two-thirds spent at 

least $10 million, and 15 percent spent less than $1 million to ship goods. 
337

 

Summary of Various Study Findings 

Study Year 

Conducted Findings 

DOT/FAF 2002 Domestic freight demand projected to 

increase by 65%; international by 84% 

AASHTO undated 

Total freight expected to grow from 15.2 

billion tons in 2000 to 24.5 billion tons 

2020 (67% increase) 

Domestic up 57% 

International up 99% 

ATA 2005 Overall freight volume up 32% from 2004 

to 2016 

Booz/Allen 

 (for Traffic World) 2006 

Rail network expected to carry 500 billion 

ton-miles of new traffic; 20 percent 

increase in next 10 years 

FHWA 2006 Freight tonnage expected to grow 70% 

between 2006 and 2035 

DOT/FAF Version 2.2 2007 Total freight projected to increase by 93% 

from 2007 to 2035 

Cambridge Systematics 

(for AAR) 2007 Uses USDOT/FAF Version 2.2 projections. 
338

Second DOT Study 

A second FAF study by DOT, FAF Version 2.2, estimated that the demand for total freight 

transportation will grow from 19.3 billion tons in 2007 to 37.2 billion tons in 2035, an increase 

of about 93 percent.206 An annual increase of 1.9 percent in rail shipments is assumed. The 

data from FHWA used in this study estimates that population growth, economic development 

and trade will drive this increase in demand for transportation services.*

 

Cambridge Systematics Study 

A substantial study was commissioned by AAR in 2007. It was called National Rail Infrastructure 

Capacity and Investment Study and was conducted by Cambridge Systematics. It assessed the 

long-term capacity expansion needs of the continental U.S. freight railroads.207 The study 

agrees with the projected demand figures by the FHWA of an increase of 88 percent in tonnage 

by 2035. The Cambridge Systematics study will be used later in this chapter to examine 

shortfalls in capacity and resultant investment needs in the future. 

Christensen Study 

A study conducted by Laurits R. Christensen Associates in March 2009 titled Supplemental 

Report to the U.S. Surface Transportation Board on Capacity and Infrastructure Investment is 

the most recent study done on rail capacity and related issues.208 This was a follow-up study to 

the original report to STB titled A Study of Competition in the U.S Freight Railroad Industry and 

Analysis of Proposals that Might Enhance Competition, in November 2008, by the same firm.209 

In the supplemental report Christensen Associates was tasked with analyzing the long-term 

forecasts of freight rail demand as a precursor to projecting rail investment needs. The report 

describes efforts to review FAF and to augment it as much as possible to permit “greater 

incentive-based responses by economic agents and to test sensitivity of FAF to key inputs such 

as fuel prices and rates.” The following paragraphs in this section are drawn from that study. 

The demand for railroad services is based on the need to move products from production 

points to (in the case of agriculture) the tables of consumers. The FAF projections have been 

frequently used as the future picture of that demand. However, comparison of FAF to 

alternative forecasts illustrates some uncertainty. 

This study showed how forecasts of real GDP used by the Trustees of Federal Old-Age and 

Survivors Insurance and Federal Disability Insurance Trust Funds (OASDI) vary significantly from 

low-cost to high-cost scenarios.†

 Estimates of increases in real GDP range from 80 percent to 

151 percent growth between 2002 and 2035 for the high-cost and low-cost scenarios, 

respectively.210 Comparison of macroeconomic forecasts made by the CBO in January 2007 

versus those made in January 2009 revealed that the projected growth in real GDP from 2002 

to 2035 ranged from 131 percent using the January 2007 assumptions to only 115 percent using 

 

*

 Estimates obtained in FAF Version 2.2 are not directly comparable to those in the original FAF. Version 2.2 uses 

a different set of data, relying much more on Commodity Flow Statistics to generate estimates. †

 Real GDP is often used to forecast freight demand. 
339

the January 2009 assumptions, indicating that the current recession has had significant effects 

on projections.211 

The Christensen study also analyzed sources of uncertainty by looking at major commodities in 

the rail shipment mix. They said, “Overall, we find that the FAF model forecasts very high rail 

demand growth compared to current forecasts from the Department of Energy for coal and for 

petroleum products (excluding gasoline and fuel oils) and from the Department of Agriculture 

(USDA) for grains.” Specifically, the FAF models forecast coal tonnage that was more than the 

growth in total coal production projected by the Department of Energy’s Energy Information 

Administration (EIA). FAF forecast growth of 78 percent from 2002 to 2035; the EIA scenarios 

forecast increases of only 24 percent to 50 percent. 

The grains category, the second largest in the FAF tonnage growth, was projected by FAF to 

nearly double between 2002 and 2035. USDA’s production expectations are substantially less 

than the FAF traffic projections for the first ten years of the period, under the assumption of 

constant modal shares. 

In total, the Christensen study found the FAF projections to be substantially higher than 

alternative forecasts and commodity projections. Thus, the top end of required investments of 

$148 billion identified in the Cambridge Systematics study may be overstated. However, there 

seems to be consensus that substantial investment, even if an unknown amount, is required to 

provide shippers the capacity and service they desire. 

Regardless of magnitude, the direction of growth in transportation demand seems clear. 

Significant and sustained growth is expected, possibly almost doubling by 2035. The following 

section examines past investment performance, current investment ability, and long term 

investment needs of the railroad industry to meet the demand for capacity and service in the 

future. 

Railroad Investments and Service 

Recent years have seen, after many depressed years, a surge in railroad revenue to the point 

where revenue adequacy has been achieved (for a fuller discussion, see Chapter 7: Rail Rates). 

The question now is whether that revenue will be translated into investments in infrastructure 

and how much of it will be invested. 

There is no question that railroad capacity has been strained, especially for bulky agricultural 

commodities, and could be more strained in the future based on the demand projections 

summarized above. Total tons hauled and ton-miles per route mile have steadily increased for 

Class I railroads. This increased traffic density (up 118 percent since 1990 according to the AAR) 

on the tracks, while increasing efficiency overall, has been accompanied by congestion on some 

rail corridors and the rise of many chokepoints.212 AAR also reports that from 1980 to 2007 a 

total of about $420 billion of capital expenditure and maintenance expenses have been spent 

on infrastructure and equipment.213
340

Capital Expenditures 

Figure 10-2 below shows Class I railroad capital expenditures for roadways and equipment. It 

shows that expenditures on equipment decreased steadily in the first four years of the period 

examined. Equipment expenditures increased slightly in the middle of the period, decreased in 

2005, then increased again during the last two years. Roadway expenditures have increased 

significantly since 2003, with 2003 being the last year of fairly constant expenditures. Railroads 

are responding both to the increased demand and to the availability of capital associated with 

being revenue adequate. After reaching a low of about $5.5 billion in 2001, railroad industry 

annual capital expenditures on roadway and equipment have increased steadily to over $9 

billion in 2007. 

Figure 10-2: Class I Railroad capital expenditures 

Source: AAR, Analysis of Class I Railroads 

 
341

The two tables below from the AAR disaggregate the investment pattern and present a 

comparison of western and eastern railroads. Tables 10-1 and 10-2 show that total road and 

equipment investments by the western railroads during 2007 were $5.9 billion compared to 

$3.2 billion for the eastern railroads. The western railroads, however, operate many more track 

miles than the eastern railroads: 70,828 miles in the West compared to 48,794 miles in the East 

in 2007. Even so, western railroads spent about 26 percent more per mile than eastern 

railroads—$83,700 compared to about $66,200. 

The regions vary in communications system investments; western railroads have invested from 

50 to 100 percent more than eastern railroads. In total road investments, the western railroads 

usually invest about double that of the eastern railroads, with the west investing $4.68 billion in 

2007 and the east investing $2.26 billion in the same year. Both areas have investment patterns 

showing lower levels around the middle of the period but with significant increases in later 

years. For example, from 2002 to 2007, investments in roadways increased 66 percent for the 

Eastern railroads and 42 percent in the West. 

Both East and West have increased their expenditures on equipment in the last two years, but 

the East is still below its expenditures during the 1990’s. Because of the substantial investment 

in locomotives and freight cars during 2007, the Western railroads have reached almost the 

highest level during the period; only 1998 is comparable. Overall, western railroads have 

worked to meet the increased demand by investing almost $6 billion in 2007, a 57 percent 

increase over 2002. Eastern railroads also have increased their overall investment by over 72 

percent from 2002 to 2007. 

Table 10-1: Eastern railroads, capital expenditures ($1,000) 

Source: AAR, Analysis of Class I Railroads 
342

Table 10-2: Western railroads, capital expenditures ($1,000) 

Source: AAR, Analysis of Class I Railroads 

Levels of Service 

Given the forecast increase in demand and the efforts of the railroads to invest in 

infrastructure, just what is the current situation? AAR points out that the Class I freight 

railroads have, after many years of decreasing labor numbers, recently hired and trained 

thousands of employees. The railroads had 11,000 more employees in December 2007 than 

they had in December 2003.* 

As rolling stock numbers suggest, railroads also have added thousands of new, more-powerful 

locomotives. The aggregate horsepower of the locomotives owned and operated by the 

railroads increased nearly 23 percent from 2002 to 2007.214 Railroads further stress that they 

have been incorporating new technologies to take advantage of these investments, including 

using “trip planning” systems to consider many variables such as crew and locomotive 

availability, track conditions, and weather to optimize how and when freight cars are assembled 

in rail yards and when those trains depart. 

 

 

*

 Due to the current recession, though, some of these new employees have since been laid off. 
343

Figure 10-3: A Norfolk Southern dispatch center. Railroads have been investing in new 

technology to increase efficiency. 

Source: Norfolk Southern 

As the Class I railroads build large new intermodal facilities in urban areas, many smaller 

intermodal terminals in rural areas have been closed or had their service discontinued. This has 

resulted in greatly increased costs to agricultural shippers who use intermodal services. 

Although western railroads are investing in capacity, rural agricultural shippers are concerned 

that the direction of their investments is increasing shippers’ transportation costs and road 

maintenance costs to rural society. 

Since the Staggers Act, railroads have been slowly increasing their share of freight ton-miles by 

introducing innovations. Significant reductions in inflation-adjusted freight expenses per 

revenue ton-mile have been achieved. Decreases in such costs have been made by 

abandonment and spinoff of rail lines, reduction of redundant labor, reduction of routes, longer 

hauls, heavier rail cars and, most notably, increased density on remaining lines by longer and 

heavier trains. Some of these efficiencies are the source of concerns by shippers when service 

is evaluated and concern about “cost shifting” is expressed. 
344

Shippers worry that the railroads have focused internally on their own needs to reduce costs 

rather than trying to improve the price or service offered to customers. Eliminating the excess 

capacity of their network has increased the probability of railroad congestion, considering the 

expected surges in rail freight demand. 

Until the current recession began, this was the situation that faced the nation, with new 

demands poised to appear in the marketplace. Once the economy more fully rebounds, these 

concerns will resurface. The issues then become the sufficiency of future investment, 

additional investments needed, and the source of those investment dollars. The needs of other 

sectors in the supply chain, such as ports, terminals, roadways, and waterways will compete for 

available public investment funds. 

Investment Needs 

In August 2006, Traffic World examined the 5-year investment needs for U. S. infrastructure.215 

It estimated that over $1.6 trillion would be needed to improve the Nation’s infrastructure. The 

report, very broad in approach, included many items, ranging from roads and bridges to schools 

to dams to hazardous waste. The estimated five-year needs for transportation-related items 

were $628 billion for roads and bridges, $219.5 billion for transit, and $50 billion for navigable 

waterways. Investments needed for rail transportation were $61 billion over the five-year 

period, or an average of about $12 billion per year. 

The magnitude of growth in transportation demand is projected to be as much as 80 percent 

over the next 20 to 30 years. The recent review of FAF projections by Christensen suggested 

these estimates may be high, but if most of the increased traffic appears, the level of service 

provided by the current freight rail system could decrease significantly without substantial 

infrastructure investments. 

Other investment need estimates are available from recent studies. The National Surface 

Transportation Policy and Revenue Study Commission, in a December 2007 report, found that if 

increases in capacity or changes in rail market share were to occur now, the percentage of 

primary rail corridors operating below their theoretical capacity would decrease from a current 

level of 88 percent to 44 percent.216 The percentage of corridors operating near capacity would 

rise slightly from 9 percent to 10 percent. The number of corridors operating above their 

theoretical capacity would increase from 3 percent to 30 percent. Such a result would be 

characterized by unstable flows and service breakdowns. 

This estimate of shortfall in capacity and service is based on the Cambridge Systematics study 

reviewed earlier, done by the AAR upon a request by the Commission. Required investments 

were analyzed based on railroads maintaining their current market share, and then under 

conditions of increasing market share through 2035. 

An average annual investment of $5.3 billion would be needed to accommodate the rail 

demand identified in the Cambridge Systematics study. This $5.3 billion annual investment is 

the equivalent of $148 billion over the 2007-2035 time period. The Commission report 

suggests that the Class I railroad share would be $135 billion, and the share of the smaller 
345

railroads would be $13 billion. However, the Cambridge Systematics study assumes the Class I 

railroads would only be capable of generating and investing $96 billion of the $135 billion with 

the rest ($39 billion, or $1.4 billion per year) to be provided from other sources. 

The Commission reported on a sensitivity analysis with market shares ranging from a reduction 

of 20 percent market share to an increase of 20 percent. The lowest estimate for annual 

investment needs was $3.9 billion; with an increase of 20 percent, the annual investment 

required would be $7.1 billion. The impact of not meeting the required investment of $148 

billion would be, according to the Commission, the rail infrastructure being able to carry only 

2.46 billion rail ton-miles on primary rail corridors in 2035, rather than the 2.75 annual ton 

miles consistent with maintaining railroad market share, an 11 percent shortfall. These 

estimates reflect only the cost of system expansion and not the anticipated costs of system 

rehabilitation. Cambridge Systematics suggest that the balance for the Class I freight railroads 

of $39 billion, or about $1.4 billion per year, be funded from railroad investment tax incentives, 

public-private partnerships, or other sources. 

Estimates based on the alternative growth rates presented by Christensen rather than the FAF 

projections used by Cambridge required reduced investments. Overall for the four major 

commodities of coal, cereal grains, petroleum and coal products excluding fuel, and waste and 

scrap, use of the alternative projections resulted in a decrease of slightly over 900 million tons 

of rail traffic, about a 40 percent decrease in tonnage. Reductions for specific commodities 

were 38 percent for coal and 30 percent for cereal grains. If the percentage for total traffic is 

simply assigned to the earlier estimates of the $148 billion required investment, the new 

estimate becomes around $89 billion, or $3.18 billion per year, down from $5.3 billion. Even 

though the estimated investment need is decreased, substantial need for capital investments 

still remains to handle the increased traffic demand that is expected. 

Investment Sources 

The above discussion indicates the range of investment needed to maintain the current level of 

service. The examination of roadway investment suggests that the western railroads, which 

move many agricultural products and depend on the revenue from these movements, have 

been making far more investments in roadway than have the eastern railroads, suggesting that 

agricultural interests might be receiving attention. However, it is not certain how much of this 

investment is going for the bulk commodities, such as the grains that are so important to 

agriculture, and how much is going to enhance intermodal container shipments from overseas 

to inland centers. 

Railroad investments in capacity require adequate rail revenue. The recent surge in 

investments by the railroads has occurred at the same time as increased rail revenues. 

Railroads have raised their rates over the past four years overall, and over the past eight years 

for many agricultural products. Increased revenues offer investment dollars and expectations 

for future revenue streams. From the railroads’ viewpoint, a decrease in rates without an 

accompanying decrease in costs of operation means a decrease in available investment dollars. 

Officials of the major railroads serving agricultural markets have continued to speak positively 

about the revenue picture and the possibility of continued investment increases. 
346

One source of investment for rail capacity has been the shippers that use the rail system. Their 

private investments in terminals to handle trainload shipping, in ports to provide capacity to 

move freight, and in freight rail cars to provide capacity are now part of the rail transportation 

landscape. These private investments are based on private benefits to the shippers. 

Public-private funding of rail infrastructure projects, to the extent that it benefits the public, 

also has become an accepted practice. The Alameda Corridor that has eliminated many 

rail/highway crossings in the Los Angeles/Long Beach region is a good example. The public has 

benefitted from the elimination of waiting time at highway/rail crossings and the increased 

safety; the railroads have benefitted from the increased speed in the movement of freight. For 

more detail on the Alameda Corridor, see Chapter 14: Ocean Transportation. Other examples 

are public investments to preserve railroad branch lines to avoid the additional costs of 

highway maintenance and highway accidents that would occur if the lines are abandoned. 

Figure 10-4: The Alameda Corridor moves freight quickly through Los Angeles to the 

 Port of LA. 

Source: ©2010 Alameda Corridor Transportation Authority 
347

Yet another source of public funding is the use of tax credits for investment in railroad 

infrastructure that expands capacity. Similar tax credits have been used to assist smaller 

railroads in upgrading their lines to handle the larger 286,000-pound railcars that are now 

common in the railroad industry. Some interested observers have suggested that tax credits 

could be available to all businesses making capacity-enhancing rail investments, not just 

railroads. 

Finally, railroad capacity investments can be financed through the use of low-interest 

government loans. The Railroad Rehabilitation and Improvement Financing (RRIF) loan 

program is an example. The RRIF program currently is limited to $35 billion, with a limit of $3.5 

billion for each firm. The program has assisted railroads in making capacity and rehabilitation 

improvements and no loan has been in default. 

Public benefits come in many forms, magnitudes, and in many places. Safety and security can 

be enhanced, environmental air quality can be improved, highway congestion decreased and 

mobility increased, network efficiency on the railroads can be improved, among other benefits. 

Lower transportation costs lower the costs of inputs to producers in rural areas, increase farm 

gate prices, increase competitiveness of U.S. producers in international markets, and improve 

local job and tax base opportunities. These benefits exist whether the mode is waterway locks 

and dams, dredging, highways, or ports, whether marine or air. 

These public benefits have driven the public—Port Authorities, States, the Federal government, 

and other entities—to provide funds for private/public partnerships in the railroad system. 

Short line railroads, many of them serving agricultural and rural interests, have received 

financial support from States. Rail projects receive local and State investments, rail bridge 

investments to decrease rail transit times are mutually funded, and freight train track and 

terminal relocations have been and are under consideration. 

The railroad industry argues that governments should fund railroad improvements because it 

funded infrastructure for water and truck transportation. They note that public funding of 

infrastructure for water and truck transportation has put rail at a competitive disadvantage. 

They further suggest that governmental funding of rail infrastructure would help eliminate the 

inequity of governmental support of competing transportation modes. 

Government investment in railroads had, until recently, been limited mostly to passenger rail 

projects of various kinds and to the preservation of railroad branch line service in rural areas. 

Often this involved the purchase of branch lines from Class I railroads to prevent their 

abandonment, with the State contracting with a short line rail carrier to provide rail service. 

Increasingly, public money has flowed to investments in main line railroads, usually for capacity 

increases or terminal improvements. In these cases, investment is usually shared between the 

railroad and public sources, with the public funding justified by public external benefits that will 

not accrue to the railroad or its shareholders. Such an arrangement can be difficult to manage, 

however, because access to the rail system is controlled by the owner of the track, who is able 

in some instances to charge bottleneck rates for the use of that track and restrict rail-to-rail 

competition in other ways, which could result in benefits weighted toward railroad 
348

shareholders. The use of public funds for transportation infrastructure, whether for rail, 

highway, or waterway, should be developed in such as way as to ensure that the benefits of 

public financing flow to the public commensurate with the level of investment. 

Existing data did not allow specific investigation of the investment needs of agriculture for this 

study. The practice of differential pricing by railroads means that, in some markets, agricultural 

shippers are contributing to both railroad variable costs as well as covering a large share of 

fixed costs. However, in areas where transportation alternatives exist—especially alternatives 

such as waterways, made possible by large public investments—railroad rates have been 

restrained. The extent to which railroads will be able to generate sufficient investment to 

accommodate the future growth in the demand for agricultural transportation remains an open 

question. A greater level of public investment in rail capacity may be required. 

Conclusions 

The steady and significant growth in demand for freight transportation is unquestionable, but 

studies provide differing predictions of the rate of growth. Investment in the railroad industry 

may not keep up with future demand for rail services, especially for agricultural commodities, 

which are located in rural areas. Insufficient investment in rail capacity for agricultural products 

could impair the United States’ position as the deliverer of the lowest cost, highest quality grain 

and grain products in the world. 

Railroad capacity has been strained recently, especially for bulky agricultural commodities, and 

could become even more strained in the future. Total tons hauled and the number of Class I 

railroad ton-miles per route-mile owned have been steadily increasing, resulting in congestion 

in some rail corridors and the rise of chokepoints in the system. 

Railroads are a capital intensive industry. To meet rising demand, railroads, according to AAR, 

spent around $420 billion on infrastructure between 1980 and 2007. For freight railroads, this 

represents an investment of almost 18 percent of their revenue on capital expenditures, which 

includes maintenance of way. 

Railroad industry profitability has surged in recent years, quite often reaching revenue 

adequacy. They are responding by increasing capital investment. After reaching a low of about 

$5.5 billion in 2001, annual railroad industry capital expenditures on roadway and equipment 

have increased steadily to over $9 billion in 2007. During 2007, the western railroads invested 

$5.9 billion, compared to $3.2 billion for the eastern railroads. Western railroads, however, 

operate more track miles than the eastern railroads, 70,828 miles in 2007 compared to 48,794 

miles, so they spent about 26 percent more per mile operated than the eastern railroads, 

$83,700 compared to about $66,200. Western railroads have met increased demand by 

investing almost $6 billion in 2007, a 57 percent increase over 2002. The eastern railroads have 

also increased their investment—over 72 percent from 2002 to 2007. 

 
349

A 2007 study by Cambridge Systematics (which, in view of the current recession, may overstate 

the investment needed) estimated as much as $148 billion would need to be invested in rail 

infrastructure by 2035. Class I railroads will need an investment of $135 billion, with the 

balance needed by smaller railroads. Other evaluations of the growth in the economy and in 

coal and grain movements suggest a somewhat lower estimate of $89 billion being needed. 

Following the Cambridge study, Class I railroads estimated they would be able to invest as much 

as $96 billion for increased capacity. Should only $89 billion in rail investment be needed, 

public funding might still be needed because in a slower economy railroads expect to have less 

revenue available for improving future rail capacity. 

The availability of public investments typically depends on the benefits to the public. Public 

benefits often vary in form, magnitude, and location. Safety and security can be enhanced, 

environmental air quality can be improved, highway congestion can be decreased and mobility 

increased, and the network efficiency of the railroads can be improved by focused public 

investment. 

 

 
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