Published April 2010

The United States 

Department of 

Agriculture

The United States 

Department of 

Transportati on

Study of Rural 

Transportation Issues
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Preferred Citation

Casavant, Ken , Marina Denicoff, Eric Jessup, April Taylor, Daniel Nibarger, David Sears, Hayk Khachatryan, Vicki 

McCracken, Eric Jessup, Marvin Prater, Jeanne O’Leary, Nick Marathon, Brian McGregor, and Surajudeen Olowolayemo. 

Study of Rural Transportation Issues, U.S. Department of Agriculture, Agricultural Marketing Service, April 2010. Web. 

<http://dx.doi.org/10.9752/TS041.04-2010>
Preface
i 

Preface 

This study was required by Congress in Section 6206 of the Food, Conservation, and Energy Act 

of 2008 (PL 110-246), which directs the Secretaries of Agriculture and Transportation jointly to 

conduct a study of rural transportation issues. 

The results of this study are presented in 15 chapters. The primary focus is on the need for, 

and performance of, the transportation system in moving agricultural commodities and other 

products important to rural America, including examinations of issues important to 

stakeholders. The study provides information on: 

• The importance of freight transportation to agriculture 

• How freight transportation supports rural America 

• The transportation of biofuels and coal 

• Modal information on rail, barge, truck, and ocean freight transportation 

• The sufficiency and performance of rail competition, rates, service, capacity, 

investment, and rate grievance processes 

• Multimodal and policy issues 

The Act establishes these requirements: 

Sec. 6206. Study of Rural Transportation Issues. 

(a) In General—The Secretary of Agriculture and the Secretary of 

Transportation shall jointly conduct a study of transportation issues 

regarding the movement of agricultural products, domestically 

produced renewable fuels, and domestically produced resources for 

the production of electricity for rural areas of the United States, and 

economic development in those areas. 

(b) Inclusions—The study shall include an examination of— 

(1) the importance of freight transportation, including rail, truck, 

and barge, to— 

(A) the delivery of equipment, seed, fertilizer, and other 

such products important to the development of 

agricultural commodities and products; 

(B) the movement of agricultural commodities and 

products to market; 

(C) the delivery of ethanol and other renewable fuels; 

(D) the delivery of domestically produced resources for use 

in the generation of electricity for rural areas; 

(E) the location of grain elevators, ethanol plants, and 

other facilities; 

(F) the development of manufacturing facilities in rural 

areas; and 
ii 

(G) the vitality and economic development of rural 

communities; 

(2) 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 

transportation rates; 

(3) the sufficiency of facility investment in rural areas necessary 

for efficient and cost-effective transportation; and 

(4) the accessibility to shippers in rural areas of Federal processes 

for the resolution of grievances arising within various 

transportation modes. 

 (c) Report to Congress—Not later than 1 year after the date of enactment 

of this Act, the Secretary and the Secretary of Transportation shall 

submit to Congress a report that contains the results of the study 

required by subsection (a). 

Acknowledgements 

The process of creating a work of this breadth and detail requires the collaboration of many 

talented and skilled people. USDA appreciates the efforts of all the individuals responsible for 

the study. 

The study was prepared by a team from the Transportation Services Division (TSD) of USDA’s 

Agricultural Marketing Service (AMS), with assistance from our external partner, the 

Transportation Research Group (TRG) of Washington State University (WSU). The staff of the 

U.S. Department of Transportation (DOT) cooperated by reviewing and providing input on the 

study. 

Bruce Blanton, Director of TSD, managed the study and contributed to all chapters. Dr. Ken 

Casavant, Professor of Economics, WSU, was the primary author for five chapters and 

contributed to all chapters. Dr. Eric Jessup, Associate Professor of Economics, WSU, created the 

GIS maps and was a statistical sounding board for the project. 
iii 

Chapter Authors and Other Contributors 

Contributions by the study team were as follows: 

Name* Contribution 

Dr. Ken Casavant Ch. 1 – Introduction and Overview 

Marina Denicoff, Dr. Eric Jessup, April Taylor, 

and Daniel Nibarger 

Ch. 2 – The Importance of Freight 

Transportation to Agriculture 

David Sears, Dr. Ken Casavant Ch. 3 – How Freight Transportation Supports 

Rural America 

Marina Denicoff, Hayk Khachatryan Ch. 4 – Biofuels Transportation 

Dr. Vicki McCracken, Dr. Ken Casavant, Dr. Eric 

Jessup Ch. 5 – Coal Transportation 

Dr. Marvin Prater, Dr. Ken Casavant, Dr. Eric 

Jessup 

Ch. 6 – Rail Competition and Its Importance to 

Agriculture 

Dr. Ken Casavant, Dr. Marvin Prater Ch. 7 – Rail Rates 

Dr. Ken Casavant, Dr. Marvin Prater Ch. 8 – Rail Service Performance 

Dr. Ken Casavant, Dr. Marvin Prater Ch. 9 – Rail Capacity 

Dr. Ken Casavant, Dr. Marvin Prater Ch. 10 – Rail Investment 

Pierre Bahizi, Daniel Nibarger, Johnny Hill, and 

Isaac Weingram Rail data, analysis and graphing 

Jeanne O’Leary, Dr. Marvin Prater Ch. 11 – Rail Rate Relief Processes for Shippers 

Nick Marathon Ch. 12 – Barge Transportation 

Brian McGregor, Dr. Ken Casavant Ch. 13 – Truck Transportation 

April Taylor and Dr. Surajudeen Olowolayemo Ch. 14 – Ocean Transportation 

Marina Denicoff, Nick Marathon, Brian 

McGregor, Dr. Marvin Prater, Daniel Nibarger, 

April Taylor, and Dr. Surajudeen Olowolayemo 

Ch. 15 – Multimodal Issues 

Mike Smith Editor 

Jessica Ladd Layout 

John V. (Jack) Wells, Randolph (Randy) Resor DOT review 

Ron Hagen, Camia Lane, Daniel Nibarger. Dr. 

Delmy Salin and Francine Torres 

Covering extra workload while other team 

members focused on the study 

 

*

 Primary authors are listed first; other contributors follow. 
iv 

USDA expresses its appreciation to the staff of the Surface Transportation Board (STB) for their 

assistance in providing the waybill data required for the USDA analysis for the rail chapters of 

the report. Specifically, William Huneke, William Brennan, Paul Aguiar, Michael Smith, Scott 

Zimmerman, and Jamie Rennert. 

USDA thanks the following individuals or organizations for their assistance, contributions and 

insights to the study: 

Dr. Harry Baumes, USDA, Office of the Chief Economist; Allen Baker, Richard Stillman, Nathan 

Childs, Agnes Peres, David Nulph, and James McDonald, USDA, Economic Research Service; 

Johnny Broussard, USA Rice Federation; Promod Chandhok, DOT, Bureau of Transportation 

Statistics; Howard Froelich, USDA, Farm Service Agency; Scott Greene, Joel Palley, and Raquel 

Wright, DOT, Federal Railroad Administration; Pam Guffain, The Fertilizer Institute; Susan 

Hassett and Shaku Jain, U.S. Army Corps of Engineers; Jay Johnson, USDA, National Agricultural 

Statistics Service; Howard McDowell, USDA, AMS, Dairy Program; Tony Furst and Michael 

Sprung, DOT, Federal Highway Administration; LeAnn Oliver, USDA, Rural Development; Joan 

Glickman, U.S. Department of Energy; Jerry Norton, USDA, World Agricultural Outlook Board; 

Laurits R. Christensen Associates; Tom Crowley, L.E. Peabody & Co.; Richard Jorgenson, Steve 

Cohen, and Steve Brown, Government Accountability Office; Shade May, Escalation 

Consultants; Terry Whiteside, Whiteside and Associates; Dr. Stephen Fuller, Texas A&M 

University; Gerald W. Brown, Retired, Cargill Marine Transport; Russ Byington and Mike 

Yarrington, DOT, Maritime Administration; and Cory Cinque, Federal Maritime Commission. 

Not an Endorsement 

The USDA study team is solely responsible for the facts, analyses, and findings in this report. 

Any mistakes, inconsistencies, or omissions are those of the study team. While USDA 

appreciates the assistance of the many individuals listed above, they are not responsible for any 

errors or the study’s content, nor should their assistance be construed as an endorsement. 
Executi ve Summary
v 

Executive Summary 

This report is in response to Section 6206 of the Food, Conservation, and Energy Act of 2008 (PL 

110-246), which directs the Secretaries of Agriculture and Transportation jointly to conduct a 

study of rural transportation issues. The report reviews transportation and its effect on rural 

communities, with an emphasis on agricultural transportation. It looks in depth into each of 

the four major modes of transportation commonly used by agriculture in the United States: 

trucking, railroads, barges, and ocean vessels, examining each in the light of its ability to meet 

rural America’s transportation needs now and in the future. It identifies some broad issues that 

merit attention from policy makers. 

Transportation is critical to U.S. agriculture, which raises the food for America and feeds a 

hungry world with its abundance. Our transportation system moves food from farms to our 

tables, and to ports for export to foreign markets. The four major modes work together in a 

seamless network, cooperating and competing with one another in a balanced and flexible 

system that delivers products efficiently and economically in an ever-changing market. 

Agriculture is the largest user of freight transportation in the United States, claiming 31 percent 

of all ton-miles transported in the United States in 2007. Much of this freight travels out of the 

country. Global agricultural supply and demand have changed rapidly since 1990. Corn and 

soybeans have increased dramatically in both consumption and production. During the past 5 

years, half of American wheat was exported, along with 36 percent of the soybean crop and 19 

percent of the corn crop. These exports travel from the inland areas of the United States where 

they are produced to borders and ports by way of a network of trucks, trains, and barges. 

The need for agricultural transportation will continue to increase, based on projected growth in 

the demand for U.S. agricultural products domestically and overseas. 

Transportation Issues Affecting Agricultural Shippers 

This study highlights some policy issues that should be examined. These issues are described in 

greater detail in Chapter 15: Multimodal Issues. 

• Transportation needs should be viewed from a system standpoint. Current governance 

oversees each mode of transportation—trucks, railroads, barges, and ocean 

vessels—separately and disparately rather than as a single interlocking system of 

transportation. The U.S. agricultural supply chain is a major user of the nation’s 

transportation system, so its needs, especially in rural areas, should be taken into 

account in the planning and oversight of transportation in the United States. 

• Ocean shipping and railroads are exempt from many antitrust rules. These exemptions 

have the potential to decrease competition, reduce service, and raise rates. However, 

since each of these industries cooperate as part of a network (although in different 

ways), carriers believe the limited antitrust exemptions have facilitated this 

cooperation. 
vi 

• The rapid consolidation of the railroad industry through mergers has resulted in a 

decrease in the unrestricted interchange of traffic, routing choices, and the level of 

competition among railroads. Shippers are concerned with switching limitations, 

restricted interchange, paper barriers, inconsistent service, high rates, excessive fuel 

surcharges, bottleneck rates, and the effectiveness of the rate challenge process. 

However, railroad productivity has increased greatly since deregulation in 1981, and 

rates have fallen for many shippers, although to a lesser degree for grain and coal 

shippers. At the same time, the financial health of the rail industry has improved, 

benefiting farmers and rural areas. 

• In 2005, Congress clarified the 100 air-mile radius agricultural exemption from the hours 

of service rules, first granted in 1995. It means that drivers transporting an agricultural 

commodity or farm supplies for agricultural purposes are exempt from the maximum 

driving and on-duty time provisions required of long-haul drivers. The agricultural 

exemption is important because of agriculture’s unique requirements; however, 

questions remain about its impact on highway safety. 

• Funding for new waterway projects is nearly depleted, and there is a growing funding 

gap to finance ongoing projects. A consensus on the best way to tackle these funding 

issues is needed. 

Transportation Supports Rural America 

An effective transportation system supports rural economies, reducing the prices farmers pay 

for inputs, such as seed and fertilizer, raising the value of their crops, and greatly increasing 

their market access. The economies of rural areas are intertwined. As agriculture thrives, so 

does its supporting community. Providing effective transportation for a rural region stimulates 

the farms and businesses served, improving the standard of living. 

The interaction of agriculture and the off-farm jobs it supports provides a solid base for rural 

communities. Agriculture is far from the largest employer in rural America. Four other 

sectors—services, government, retail and wholesale trade, and manufacturing—comprise 80 

percent of rural employment. Agriculture is responsible for less than one in ten rural jobs but, 

because it is so capital-intensive, it generates much more economic activity in the community 

than just the jobs it creates. 

The transportation system that contributes to the success of agriculture also supports rural 

manufacturing. Although the traditional view of rural America is agricultural, it is, in fact, 

manufacturing that is critical. Manufacturing employs 15 percent of the rural workforce. As a 

share of total employment, manufacturing is 42 percent more important to rural America than 

to metropolitan America. The availability of rail, air, and highway services is one of the most 

commonly cited requirements of manufacturing and commercial establishments. 
vii 

Transporting Biofuels 

The burgeoning use of biofuels contributes towards our country’s policy goals of addressing 

climate change, supporting the domestic economy, and reducing the nation’s dependence on 

imported petroleum. By 2008, U.S. ethanol production had reached 9.3 billion gallons—

equivalent on an energy basis to approximately 36 percent of the gasoline produced from crude 

oil imported from Persian Gulf countries. Renewable fuel standard (RFS-2) goals target biofuel 

use to be 36 billion gallons by 2022—a very brief time in which to develop the distribution 

infrastructure. 

The biofuels most commonly used in the United States are ethanol and biodiesel. Ethanol is 

produced in much greater quantities than biodiesel, making its transportation requirements 

more complicated because more demand is placed on the transportation system. Most is 

currently produced from corn, and most ethanol plants are in the Corn Belt. As cellulosic 

ethanol is commercialized production density is likely to remain in the Midwest due to the 

abundance of crop residue. 

To achieve the RFS-2, EPA estimates that 40 unit train destinations*

 will be needed by 2022. 

There are currently 13 unit train destinations. Additional unit-train destinations would create 

more ethanol corridors on the rail network, preventing congestion points that could develop 

with increased biofuel shipments. Future transportation needs will be influenced by the 

location of feedstocks and production facilities and the extent to which the next generation of 

biofuels can use existing distribution infrastructure. 

Transporting Coal 

Coal is a major source of energy in the United States. In 2006, it was responsible for one-third 

of domestic energy production and almost half of electric power generation. Despite the 

growth of alternative energy sources, coal will continue to be a major source of power for rural 

consumers. Because coal plays such an important role in generating electricity, its costs—

including its delivery costs—are reflected in the price consumers pay for electricity. The cost of 

coal delivered to electric plants has increased every year since 2000. 

The Clean Air Act Amendments of 1990, which limited sulfur dioxide emissions, increased the 

demand for coal with less sulfur. Production shifted from the Appalachians to the Powder River 

Basin of Wyoming and Montana, which now produces 43 percent of the Nation’s coal. This 

western shift has resulted in the use of cleaner coal, but production is now far from river 

transportation systems, and competitive access to railroads is limited, raising issues about 

generating electricity at affordable prices. 

Since 1979, when the first coal mines began production in the Powder River Basin, the railroad 

industry has constructed the longest new rail line built in the 20th century, purchased many 

locomotives and coal hoppers, and made investments in existing infrastructure on routes from 

 

*

 Unit train destinations are petroleum blending terminals and intermediate storage terminals that are equipped 

to handle unit trains of at least 50 cars. 
viii 

Wyoming to coal consumers in the Midwest and on both coasts. Railroad investment in this 

infrastructure has benefitted shippers of other commodities as well, since few rail lines carry 

only coal. 

Railroads are vital to coal transportation, and coal is vital to railroads. Coal accounted for 46 

percent of railroad car loadings in 2007 and will continue to be important in the future. 

Sufficient railroad capacity is essential to move this traffic. 

Coal shippers are concerned about bottleneck rates and contractual paper barriers that prevent 

interchange with competing railroads, which can result in higher rates. Railroad service 

problems and high rates can directly impact rural consumers by pushing up electricity rates. 

Rail Competition and Agriculture 

Rail is the only cost-effective mode of transportation available to many agricultural producers. 

Railroads transport nearly all the grains and oilseeds produced in Montana, more than 70 

percent of the commodities produced in North Dakota, and more than half of those produced 

in Arizona, Oklahoma, and South Dakota. 

The Staggers Rail Act of 1980 economically deregulated railroads, encouraging greater reliance 

on free markets to promote railroad profitability and relying on competition to protect shippers 

and the public. The preservation and protection of competition is vital for the prosperity of 

agricultural producers and shippers operating with a deregulated railroad industry. Railroads 

have had certain exemptions from antitrust laws since 1914. When deregulation leaves the 

protection of customers to competition, antitrust laws are vital to protect that competition. 

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. Prior to 

deregulation, the railroad industry was characterized by excess capacity. Following 

deregulation, railroads reduced costs by eliminating excess capacity. Many routes and branch 

lines were abandoned, railroads merged to eliminate duplicative facilities, and costs fell as 

productivity increased. The mergers increased railroad market power and profitability. 

Nevertheless, rates for many shippers fell from 1981 through the end of the 20th Century. Since 

2004, however, rates have begun to rapidly increase as railroads reach the limits of their 

capacity. 

The level of rail-to-rail competition for grains and oilseeds decreased significantly between 

1992 and 2007. Almost 75 percent of agricultural areas lost rail competition from 1992 to 

2007, and the areas in which a railroad had a monopoly in transporting grain and oilseeds 

increased from 10 percent to 15 percent. At the same time, the revenue-to-variable-cost ratio 

in 83 percent of those areas increased. 
ix 

Rail Rates 

The passage of the Staggers Act in 1980 enabled railroads to increase their return on 

investment, in part by allowing differential pricing in which different rates can be charged to 

different shippers and therefore some shippers bear a greater share of fixed costs than others. 

Agricultural commodities have historically carried higher rates than traffic more subject to 

competition from other modes. When selling their products farmers have little control over the 

prices they receive, so higher transportation costs result in lower net prices to farmers. This 

not only can affect the economic vitality of U.S. agriculture but also the competitiveness of U.S. 

agricultural exports in world markets. 

Nationally, not only are rail rates for grain and oilseeds higher than those for other 

commodities, but the rates have increased more rapidly during the four years since 2003. Rail 

rates for grain and oilseeds rose 46 percent from 2003 to 2007; rates for all other commodities 

increased 32 percent in the same period. 

Railroads have structured their rates to favor larger movements. There is a significant rate 

advantage for the largest trainload shipments of grain and oilseeds. Many costs that were once 

included in railroad rates have been shifted to shippers, such as car ownership. Railroads have 

also paid billions in merger premiums, which causes higher rates for shippers. 

Railroad rates have increased significantly since 2004, increasing railroad profitability. In part, 

this has resulted from a lack of rail capacity and a need for additional investment in 

locomotives, freight cars, and fixed plant. In part, the increase in rates has been a response to 

rising costs, as pointed out in a report by Christensen Associates in 2007. 

There is considerable evidence that railroad fuel surcharges recovered more than the additional 

cost of fuel, artificially boosting railroad profits. From 2001 to 2007, surcharges were 55 

percent higher than the incremental increase in the cost of fuel. 

Bottleneck rate situations constrain the options available to shippers, decreasing routing 

efficiency, increasing rates, and increasing the market power of railroads. 

Rail Service 

The railroad share of the grain transportation market has been shrinking in recent years, in part 

because of changes in the way grain is marketed and in part because of increases in rail rates. 

The closure of many rail branch lines and a shift to “shuttle train” service by railroads has 

resulted in the closure of many country grain elevators, resulting in the movement of grain for 

longer distances on rural roads to shuttle train terminals. 

The U.S. railroad system is a network. The unrestricted interchange of traffic among railroads 

could allow shippers to achieve higher efficiency and better access to markets. In many cases, 

however, railroads restrict network interchange—restricting shipper choices of markets in the 

process—in an effort to increase profitability. 
x 

The abandonment of grain branch lines has in some cases limited the markets farmers can 

economically reach, resulting in lower prices due to the cost of transportation or a lack of 

access to markets. While the concentration of grain loading at fewer points has increased the 

efficiency of rail transportation, it has also resulted in the movement of grain over local roads 

for longer distances, resulting in higher road maintenance costs for many rural communities. 

Railroads have since the 1990s been moving to larger-capacity grain cars as a cost-reducing 

measure. While these cars permit mainline movement of grain at lower cost, many branch 

lines cannot accommodate the heavier weights, and smaller railroads often lack the resources 

to make necessary investments in their infrastructure to handle the heavier cars. 

Rail Capacity 

Rail capacity is usually examined in terms of average tonnages carried and investment 

strategies, which gives a misleading picture of the situation. Capacity should be looked at in 

light of the specific characteristics of agricultural movements. The seasonal needs of 

agriculture, its regional variation, and the presence of local nodes of congestion show that 

attention must be paid to specific components rather than aggregate data. 

Rail capacity constraints were common from 2003 through the first half of 2006. Weaker 

demand for rail freight transportation beginning in late 2006 and a recession that began in 

December 2007 slowed demand and resulted in adequate rail capacity for agricultural products 

since the harvest of 2006. 

The increased use of rail transportation, which has benefited the railroads financially, also has 

contributed significantly to rail congestion. Each route mile during 2007 carried, on average, 

171 percent more traffic in ton-miles—nearly triple the traffic—than in 1980. 

Rail Investment 

Significant and sustained growth in freight demand is expected, and could double by 2035. 

Investment in the railroad industry, however, is not expected to keep up with demand once the 

economy fully recovers, especially in agricultural areas. This shortfall of investment could 

threaten the United States’ competitive position as a low-cost supplier of high quality grain. 

Railroads are a capital-intensive industry. The railroad industry’s profitability has surged in 

recent years, finally giving it adequate revenue*

 and increased access to capital. In an attempt 

to meet the rising demand for their services, railroads spent $420 billion on infrastructure 

between 1980 and 2007, investing almost 18 percent of their revenue on capital expenditures. 

 

 

*

 Revenue adequacy is a regulatory concept used by the Surface Transportation Board to determine whether 

railroads are earning adequate profits in relation to their investments. 
xi 

According to a recent supplement to the Christensen study, Class I railroads may need to invest 

$89 billion by 2035 to satisfy demand. Some observers have suggested that public funding 

might still be needed because in a slower economy railroads have less revenue available for 

improving future rail capacity. 

Rail Rate Relief 

Tariff rail rates can be challenged before the Surface Transportation Board (STB) when revenue 

exceeds 180 percent of operating cost and the railroad has market dominance. Rail rates for 

contracted and exempted movements may not be challenged; STB has no jurisdiction over 

those movements. 

STB has created two classes of rate cases: coal rate and non-coal rate. Coal rate cases take 

millions of dollars and two to four years to pursue. They have no restrictions on the amount of 

the award if the contested rate is higher than 180 percent of the railroad’s variable costs. 

Simplified procedures are available for appealing non-coal rate cases, but have limits to the 

amounts that can be awarded. Shippers contend that the cost of pursuing these rate appeal 

procedures is too high and the monetary limits too low; they could result in shippers receiving 

little more than the cost of using them. A chemical company has used the simplified 

procedures, but no agricultural shipper has appealed rates using them. 

Barge Transportation 

For shippers near the inland waterways, barges offer a low-cost transportation alternative for 

moving their crops and fertilizer. Critics, however, argue that all the operational and 

maintenance costs and half the capital costs of these waterways are covered by the 

government through appropriations to the U.S. Army Corps of Engineers, which is responsible 

by law for maintaining the Nation’s inland waterways. Barges move more than a third of our 

corn exports and 17 percent of our soybean exports through the New Orleans region along the 

Mississippi River and Illinois Waterway. The market share of barges has been slowly shrinking 

for a number of years, and traffic on these waterways has declined. 

Although aging, the locks and dams on the system are generally reliable. As locks age, however, 

repairs and maintenance become more extensive and expensive. The balance of the Inland 

Waterways Trust Fund, which finances 50 percent of most of the capital costs of the inland 

waterways, has been declining since 2002 because expenditures have increased and revenues 

have declined, indicating a there is a structural imbalance between the two. It is unclear how 

the funding will be provided. The lack of a clear path forward on funding is of significant 

concern to farmers that depend on the inland waterways to move their crops to market. The 

funding to maintain and rehabilitate the existing infrastructure needs to remain a priority. 
xii 

Truck Transportation 

Trucking is critical for American agriculture. The industry carries 70 percent of the tonnage of 

agricultural, food, forest products, alcohols, and fertilizers. It links farmers, ranchers, 

manufacturers, and service industries to grain elevators, ethanol plants, processors, feedlots, 

markets, and ports. More than 80 percent of cities and communities are served exclusively by 

trucks. The first and last movements in the supply chain from farm to grocery store are by 

truck. Agriculture’s trucking needs are seasonal, requiring frequent trips during planting and 

harvest seasons. Many agricultural products are perishable and time sensitive, requiring the 

efficiency, special handling, or refrigerated services best provided by trucks. 

The trucking industry is highly competitive. Half of all trucking companies own one truck, 

driven by the owner. This keeps rates low; the average operating costs are 95 percent of 

operating revenue. 

In 1995, Congress recognized the needs of farmers and ranchers during the busy planting and 

harvest seasons and provided a seasonal 100-air-mile radius exemption from hours-of-service 

rules for drivers transporting agricultural commodities or farm supplies for agricultural 

purposes. Congress also allowed the U.S. Department of Transportation (DOT) to provide an 

exemption from the commercial driver’s license (CDL) requirement for drivers of farm vehicles 

used to transport agricultural products or supplies to or from a farm within 150 miles of the 

owner’s farm. 

However, interstate commerce case law has affected farm trucks driving short distances within 

States or across State borders, requiring compliance with the same Federal rules that apply to 

professional, full-time, long-haul truck drivers. Any goods eventually destined for interstate or 

foreign trade are considered part of interstate commerce. 

Trucks are governed by Federal law limiting axle weights and gross vehicle weight to 80,000 

pounds on the Interstate Highway System. Agricultural interests argue that farm and forest 

products are heavy, bulky, and of low value, making transportation a large component of their 

final price, and would like to see a limit of 97,000 pounds with a sixth axle on Interstates. 

Studies have indicated that trucks do not bear the full cost of the damage they cause to 

highways. Increasing allowable weight without a sixth axle would increase pavement 

maintenance costs, requiring more revenue for maintaining the highways. Also, existing bridge 

design capacities may not permit heavier loadings without significantly shortening bridge lives, 

which would of course increase the required investment in highways. One proposal is to charge 

a fee for heavier vehicles with a sixth axle and dedicate the receipts to bridge repair and 

maintenance. 
xiii 

Ocean Transportation 

Ocean shipping of agricultural products is in either bulk vessels, which are contracted for 

individual shipments (tramps), or in container ships, which usually ply scheduled routes (liners). 

Grains and oilseeds are frequently moved in bulk vessels, which are usually the least expensive 

shipping method. The market for bulk shipments is highly competitive. Fleet capacity is 

determined by the rate at which old ships are scrapped and new ones built. High shipping rates 

before the recession slowed scrapping and spurred building, moderating rates. Companies are 

responding to the current downturn by removing ships from the fleet or laying them up. 

More than half of U.S. agricultural exports by value move in marine shipping containers. 

Containers haul all types of agricultural products, from bulk grains to frozen beef. Agricultural 

shippers report that container availability is the greatest challenge facing their business. The 

recent decline in import cargo reduces the availability of containers for export cargo, resulting 

in lost sales and unreliable service to overseas buyers. 

Infrastructure and technological improvements are needed at U.S. ocean ports to expand 

capacity to accommodate the forecast growth in U.S. trade and avoid costly congestion. 

Multimodal Issues 

The seamless network that makes up America’s transportation system has four major 

components: trucks, trains, barges, and ocean vessels. For example, a cargo, such as wheat, 

might be moved off the field to an elevator by truck, loaded into a train at the elevator, 

transported to another elevator on the Mississippi River, where it is moved to barges, then 

taken downriver to New Orleans for transfer to a ship bound for Africa. Each mode of transport 

is important, but their interaction is vital. 

Current United States policy is mode-oriented; different agencies focus on each mode of 

transportation, and each mode has its own funding mechanisms. Investment and planning 

could be better focused if it were more system-based. A systems-based approach could 

identify choke points in the network, and investments could be targeted to improve the 

interaction between modes. 

Transportation will continue to be integral to the successful functioning of the agricultural 

sector. The Federal Government can play an important role in supporting improvements to the 

multimodal transportation system that will benefit rural America and global consumers of U.S. 

food and agricultural products. 

 
xiv 

 
Contents
xv 

Contents 

Preface ............................................................................................................................................. i

Acknowledgements ..................................................................................................................... ii

Chapter Authors and Other Contributors .................................................................................. iii

Executive Summary .......................................................................................................................... v

Transportation Issues Affecting Agricultural Shippers ............................................................... v

Transportation Supports Rural America .................................................................................... vi

Transporting Biofuels ................................................................................................................ vii

Transporting Coal ...................................................................................................................... vii

Rail Competition and Agriculture ............................................................................................. viii

Rail Rates .................................................................................................................................... ix

Rail Service ................................................................................................................................. ix

Rail Capacity ................................................................................................................................ x

Rail Investment ........................................................................................................................... x

Rail Rate Relief ........................................................................................................................... xi

Barge Transportation ................................................................................................................. xi

Truck Transportation ................................................................................................................. xii

Ocean Transportation .............................................................................................................. xiii

Multimodal Issues .................................................................................................................... xiii

Contents ......................................................................................................................................... xv

Figures ............................................................................................................................................ xx

Tables ......................................................................................................................................... xxvii

Chapter 1: Introduction and Overview ........................................................................................... 1

Agriculture Requires Transportation ......................................................................................... 1

Agriculture, Trade, and the Economy ........................................................................................ 3

Railroads ..................................................................................................................................... 4

Barge Transportation ................................................................................................................. 8

Ocean Transportation .............................................................................................................. 11

Truck Transportation ................................................................................................................ 15

Conclusions .............................................................................................................................. 18

Chapter 2: The Importance of Freight Transportation to Agriculture .......................................... 19

How Agriculture Uses Transportation ..................................................................................... 20

Relative Modal Importance ..................................................................................................... 22

Moving Agricultural Commodities to Market .......................................................................... 27

Grains and Oilseeds Profile ...................................................................................................... 27

Corn Profile .............................................................................................................................. 34

Soybean Profile ........................................................................................................................ 40

Wheat Profile ........................................................................................................................... 44

Rice Profile ............................................................................................................................... 49

Livestock and Livestock Products Profile ................................................................................. 54

Meat and Poultry Exports Outlook .......................................................................................... 60

Cattle and Beef Profile ............................................................................................................. 63
xvi 

Hogs and Pork Profile ............................................................................................................... 67

Poultry Profile .......................................................................................................................... 70

Dairy Profile .............................................................................................................................. 73

Fruit and Vegetables Profile ..................................................................................................... 79

Apple, Lettuce, and Potato Profiles ......................................................................................... 89

Apple Profile ............................................................................................................................. 90

Lettuce Profile .......................................................................................................................... 92

Potato Profile ........................................................................................................................... 95

Trends in Fruit and Vegetable Consumption ........................................................................... 98

Fertilizer Profile ...................................................................................................................... 102

Conclusions ............................................................................................................................ 113

Chapter 3: How Freight Transportation Supports Rural America .............................................. 115

Rural America ......................................................................................................................... 116

Rural Vitality ........................................................................................................................... 122

Rural Manufacturing .............................................................................................................. 123

Conclusions ............................................................................................................................ 129

Appendix 3-1 .......................................................................................................................... 130

Chapter 4: Biofuels Transportation ............................................................................................ 131

The Current Distribution System ........................................................................................... 132

EPA’s Biofuel Distribution Analysis ........................................................................................ 138

Ethanol and Co-product Transportation ................................................................................ 142

Potential Phases of Biofuels Expansion from the Transportation Demand Perspective ....... 147

Market Uncertainty and its Implications for Infrastructure Investment ............................... 148

Conclusions ............................................................................................................................ 151

Chapter 5: Coal Transportation .................................................................................................. 153

Production .............................................................................................................................. 155

Demand and Utilization ......................................................................................................... 160

Transportation Flows ............................................................................................................. 170

Rail Rates ................................................................................................................................ 173

Service .................................................................................................................................... 177

Paper Barriers......................................................................................................................... 184

Bottleneck Rates .................................................................................................................... 186

Recent Decision by STB in Favor of Coal Shippers ................................................................. 189

Conclusions ............................................................................................................................ 189

Chapter 6: Rail Competition and its Importance to Agriculture ................................................. 191

U.S. Agriculture Depends on Rail Transportation .................................................................. 191

Government Promotion and Regulation of Railroads ........................................................... 193

Rail Competition in an Era of Deregulation ........................................................................... 197

Rail-to-Rail Competition ......................................................................................................... 203

Geographic and Product Competition ................................................................................... 205

Railroad Concentration and Market Shares ........................................................................... 210

Inverse Herfindahl-Hirschman Analysis of Rail-to-Rail Competition ..................................... 213

Comparison of Rail-to-Rail Competition and Distance-to-Water Transportation by State .. 225

Conclusions ............................................................................................................................ 230
xvii 

Appendix 6-1: Maps of Inverse Herfindahl Index for Rail Shipments .................................... 232

Appendix 6-2: HHIs and R/VCs for Commodity Groups Analyzed by Number of CRD .......... 237

Appendix 6-3: Waybill Calculation Methodology .................................................................. 238

Chapter 7: Rail Rates ................................................................................................................... 239

Importance of Reasonable Rail Rates .................................................................................... 239

Rates and Railroad Deregulation ........................................................................................... 241

Recent Rail Rate Levels .......................................................................................................... 243

Railroad Revenue Adequacy .................................................................................................. 261

Bottleneck Rates and Rules .................................................................................................... 269

Conclusions ............................................................................................................................ 271

Appendix 7-1: Rail Revenues for Agricultural Products ......................................................... 273

Chapter 8: Rail Service Performance .......................................................................................... 277

Concerns from the Agricultural Industry ............................................................................... 279

On-time Delivery .................................................................................................................... 281

Lane Closures ......................................................................................................................... 288

Effects of Increased Shuttle-Train Movements ..................................................................... 288

The Shift to Larger Railcars .................................................................................................... 291

Rail Line Abandonment .......................................................................................................... 293

Paper Barriers......................................................................................................................... 294

Consumer Complaints ............................................................................................................ 299

Conclusions ............................................................................................................................ 302

Chapter 9: Rail Capacity .............................................................................................................. 305

Demand and Transportation Capacity ................................................................................... 306

Agricultural Demand and System Usage ................................................................................ 309

Factors Influencing Rail Performance .................................................................................... 310

Train Speed ............................................................................................................................ 311

Dwell Times in Terminals ....................................................................................................... 320

Miles of Track ......................................................................................................................... 325

Analysis of Rail Equipment Statistics ..................................................................................... 327

Conclusions ............................................................................................................................ 332

Chapter 10: Rail Investment ....................................................................................................... 333

Demand for Rail Freight Movements ..................................................................................... 334

Railroad Investments and Service .......................................................................................... 339

Investment Needs .................................................................................................................. 344

Investment Sources ................................................................................................................ 345

Conclusions ............................................................................................................................ 348

Chapter 11: Rail Rate Relief Processes for Shippers .................................................................. 351

Regulating Railroads .............................................................................................................. 351

STB’s Rate Regulation ............................................................................................................ 354

Rate Reasonableness Complaints—Finding Market Dominance .......................................... 356

Types of Cases ........................................................................................................................ 356

Standard Guidelines for Assessing Rate Reasonableness— Coal Rate Guidelines ................ 357

New Simplified Guidelines for Assessing Reasonableness—Non-Coal Rate Guidelines ....... 360

Conclusions ............................................................................................................................ 366
xviii 

Chapter 12: Barge Transportation .............................................................................................. 369

Barge Traffic ........................................................................................................................... 371

Today’s Barge Industry ........................................................................................................... 373

U.S. Grain and Tank Barge Fleet ............................................................................................ 374

Barge Rates ............................................................................................................................ 376

Condition of the Nation’s Inland Waterways ........................................................................ 383

Environmental and Economic Uses of the Missouri River ..................................................... 391

The Columbia-Snake River System ......................................................................................... 394

Inland Waterways Funding .................................................................................................... 397

Conclusions ............................................................................................................................ 401

Appendix 12-1 ........................................................................................................................ 402

Chapter 13: Truck Transportation............................................................................................... 403

Importance of Trucking to Agriculture .................................................................................. 403

Trucking Capacity and Service ............................................................................................... 406

Issues Affecting Capacity of the Roads .................................................................................. 420

Economic Regulation and Rates ............................................................................................. 424

Conclusions ............................................................................................................................ 432

Appendix 13-1: Commercial Motor Vehicle Definitions ........................................................ 434

Appendix 13-2: Commercial Drivers’ License Classifications ................................................. 435

Appendix 13-3: Excerpts from the Surface Transportation Authorization Act of 2009 ........ 436

Chapter 14: Ocean Transportation ............................................................................................. 439

Today’s Ocean Transportation Industry ................................................................................ 439

Characteristics of the Ocean Shipping Industry ..................................................................... 441

Bulk Shipping .......................................................................................................................... 442

Container Shipping ................................................................................................................. 447

Government Oversight ........................................................................................................... 451

Intermodal Facilities ............................................................................................................... 454

Transload Facilities ................................................................................................................. 455

Containerized Transportation of Agricultural Products ......................................................... 456

Ocean Ports ............................................................................................................................ 459

Importance of Ocean Ports to Agricultural Movements ....................................................... 459

Port Capacity Constraints ....................................................................................................... 467

Rates, Competition, and Service ............................................................................................ 476

Foreign Trade Regulations ..................................................................................................... 484

Conclusions ............................................................................................................................ 486

Appendix 14-1: FMC Complaint Resolution Process .............................................................. 488

Appendix 14-2: Port Expansion Plans .................................................................................... 491

Appendix 14-3: Foreign Trade Regulations: Carrier Responsibility ....................................... 495

Chapter 15: Multimodal Issues ................................................................................................... 497

Freight Transportation Modes and Multimodal Issues ......................................................... 497

Freight Rates and Fuel Costs Help Determine Transportation Choices ................................. 499

Transportation Capacity and Service ..................................................................................... 505

Investment and Funding ........................................................................................................ 509

Transportation Issues Affecting Agricultural Shippers .......................................................... 516
xix 

Conclusions ............................................................................................................................ 522

Abbreviations .............................................................................................................................. 523

Glossary ....................................................................................................................................... 527

Index ............................................................................................................................................ 535

Notes ........................................................................................................................................... 541
xx 

Figures 

Figure 1-1: U.S. agricultural supply chain for raw and processed products ............................. 1 

Figure 1-2: Refrigerated trucks enable the trucking industry to provide special services ....... 2 

Figure 1-3: A unit train has more than 50 cars, all of which are shipped from the same 

origin to the same destination ................................................................................ 7 

Figure 1-4: A 1,200-foot barge tow—a common length—passes through a 600-foot lock 

in two stages ......................................................................................................... 10 

Figure 1-5: The Estelle Maersk has a capacity of 11,000 TEUs ............................................... 13 

Figure 1-6: Highways are vital to the trucking industry .......................................................... 15 

Figure 2-1: Peas being harvested directly into a field truck ................................................... 19 

Figure 2-2: Agricultural and total freight moving on U.S. interstate system, 2002 ................ 20 

Figure 2-3: Agricultural and total freight moving on U.S. rail lines, 2006............................... 21 

Figure 2-4: Agricultural and total freight moving on U.S. waterways .................................... 22 

Figure 2-5: Grain movements by type of movement, 1978 to 2006 ...................................... 31 

Figure 2-6: Grain movements by mode, 1978 to 2006 ........................................................... 31 

Figure 2-7: Location of elevator storage capacity, with rail and barge systems .................... 33 

Figure 2-8: Grain and oilseed milling facilities, 2000 .............................................................. 34 

Figure 2-9: Corn surplus/deficit map with the transportation system ................................... 36 

Figure 2-10: Modal shares of corn exports, 2000-2006 ............................................................ 39 

Figure 2-11: Corn export inspections by port region, 2007 ...................................................... 39 

Figure 2-12: Soybean surplus/deficit map with transportation system ................................... 41 

Figure 2-13: Modal shares of soybean exports, 2000-2006 ..................................................... 42 

Figure 2-14: Soybean exports by port region ............................................................................ 44 

Figure 2-15: Wheat surplus/deficit map with a transportation system overlay ...................... 46 

Figure 2-16: Modal shares of wheat exports, 2000-2006 ......................................................... 47 

Figure 2-17: Wheat exports by port region............................................................................... 49 

Figure 2-18: Rice being harvested into a bankout truck ........................................................... 50 

Figure 2-19: Rice surplus/deficit map with transportation system overlay ............................. 53 

Figure 2-20: 2007 waterborne rice exports by port region ...................................................... 54 

Figure 2-21: Estimated grain-consuming animal units per county ........................................... 55 

Figure 2-22: Livestock processing facilities, 2002 ..................................................................... 56 

Figure 2-23: U.S. per-capita meat consumption ....................................................................... 58 

Figure 2-24: U.S. meat exports .................................................................................................. 59 

Figure 2-25: U.S. red meat and poultry production .................................................................. 59 

Figure 2-26: Long-term projections of U.S. meat and poultry exports ..................................... 61 

Figure 2-27: U.S. red meat surplus-deficit ................................................................................ 64 

Figure 2-28: Port regions moving beef exports, 2007 .............................................................. 66 

Figure 2-29: Port regions moving pork exports, 2007 .............................................................. 69 

Figure 2-30: U.S. poultry meat surplus-deficit .......................................................................... 71 

Figure 2-31: Top ten ports moving poultry exports, 2007 ........................................................ 72 

Figure 2-32: Dairy farms have been getting larger, driven by economies of scale .................. 74 

Figure 2-33: U.S. dairy surplus-deficit, U.S. highway system .................................................... 75 
xxi 

Figure 2-34: U.S. port regions used to move dairy exports, 2007 ............................................ 76 

Figure 2-35: Loading oranges in California ................................................................................ 80 

Figure 2-36: Fruit and vegetable processors per State ............................................................. 83 

Figure 2-37: U.S. ports used to export vegetables, 2007 .......................................................... 87 

Figure 2-38: U.S. ports used to import vegetables, 2007 ......................................................... 87 

Figure 2-39: U.S. ports used to export fruit, 2007 .................................................................... 88 

Figure 2-40: U.S. ports used to import fruit, 2007 .................................................................... 88 

Figure 2-41: U.S. apple surplus/deficit map with transportation overlay ............................... 90 

Figure 2-42: Ports used to export U.S. apples, 2007 ................................................................. 91 

Figure 2-43: Ports used to import U.S. apples, 2007 ................................................................ 92 

Figure 2-44: U.S. lettuce surplus/deficit map with transportation network ............................ 93 

Figure 2-45: Ports used to export U.S. lettuce, 2007 ................................................................ 94 

Figure 2-46: Ports used to import U.S. lettuce, 2007 ............................................................... 95 

Figure 2-47: U.S. potato surplus/deficit map with transportation overlay .............................. 96 

Figure 2-48: U.S. ports used to export potatoes, 2007 ............................................................. 97 

Figure 2-49: Ports used to import U.S. potatoes, 2007 ............................................................ 98 

Figure 2-50: Value of horticulture trade ................................................................................... 99 

Figure 2-51: Fertilizer use from 1960 to 2007 ........................................................................ 104 

Figure 2-52: Fertilizer production facilities ............................................................................. 106 

Figure 2-53: Nitrogen fertilizer use, top 10 States .................................................................. 107 

Figure 2-54: Phosphate fertilizer use, top 10 States ............................................................... 108 

Figure 2-55: Potash fertilizer use, top 10 States ..................................................................... 108 

Figure 2-56: U.S. international fertilizer trade – 10-year history ............................................ 109 

Figure 2-57: U.S. fertilizer imports, top 10 supplying countries, 2008 ................................... 110 

Figure 2-58: U.S. fertilizer export customers, top 10 countries, 2008. ................................... 110 

Figure 2-59: Fertilizer modal share ......................................................................................... 111 

Figure 3-1: People often choose to live in rural areas for a more relaxed quality of life and 

closeness to nature ............................................................................................. 115 

Figure 3-2: Rural and metropolitan counties ........................................................................ 116 

Figure 3-3: Rural America depends on trucks to move its products..................................... 117 

Figure 3-4: Composition of rural employment ..................................................................... 118 

Figure 3-5: Per-capita income gap ........................................................................................ 122 

Figure 4-1: Ethanol being loaded into rail tank cars ............................................................. 132 

Figure 4-2: U.S. ethanol production, 1981-2008 .................................................................. 133 

Figure 4-3: The U.S. ethanol market landscape in 2007 ....................................................... 134 

Figure 4-4: Ethanol Distribution ............................................................................................ 135 

Figure 4-5: The Petroleum Administration for Defense Districts (PADD) and their typical 

share of consumption of all U.S. motor gasoline consumption ......................... 136 

Figure 4-6: Corn stover being gathered for ethanol production .......................................... 137 

Figure 4-7: Projected U.S. cellulosic ethanol facilities .......................................................... 138 

Figure 4-8: Energy Independence and Security Act 2007, Renewable Fuel Standard 

(RFS-2) ................................................................................................................. 139 

Figure 4-9: Key rail corridors for shipping ethanol and DDGS .............................................. 141 

Figure 4-10: Ethanol modal shares in 2006 ............................................................................. 143 
xxii 

Figure 4-11: Quarterly carloads of alcohol and co-products terminated by major railroads 

in the United States, 4th quarter 2003-1st quarter 2009 ..................................... 144 

Figure 4-12: Loading a truck with DDGS in South Dakota ....................................................... 145 

Figure 4-13: U.S. exports of DDGS, Jan 2006–Feb 2009 ......................................................... 146 

Figure 4-14: Major destinations of U.S. DDGS exports, Jan–Feb, 2009 .................................. 146 

Figure 4-15: DOE’s estimate of intermediate saturation points ............................................. 150 

Figure 5-1: U.S. electric power industry net generation, 2007 ............................................. 153 

Figure 5-2: U.S. coal production by region, 1949-2007 ........................................................ 155 

Figure 5-3: Coal production by region, 2008, million tons and percent change from 2007 156 

Figure 5-4: Coal trains passing in Wyoming .......................................................................... 157 

Figure 5-5: Number of coal mines per state ......................................................................... 158 

Figure 5-6: Value of coal shipments per state ...................................................................... 159 

Figure 5-7: U.S. coal consumption by sector, 1987-2006 ..................................................... 160 

Figure 5-8: Share of electric power sector net generation by energy source, 2007 and 

2008 .................................................................................................................... 161 

Figure 5-9: U.S. electric industry net generation by State, 2007 .......................................... 162 

Figure 5-10: Electric power sector coal consumption by census region, 2008 ...................... 163 

Figure 5-11: Proportion of electricity capacity from coal, 1990 ............................................. 164 

Figure 5-12: Proportion of total electricity capacity from coal, 2007..................................... 164 

Figure 5-13: Number of electricity producers per State, 1990 ............................................... 165 

Figure 5-14: Number of electricity producers per State, 2007 ............................................... 166 

Figure 5-15: America’s electric cooperative network ............................................................. 169 

Figure 5-16: Total annual up-bound waterborne coal shipments, 2007 ................................ 170 

Figure 5-17: Total annual down-bound waterborne coal shipments, 2007 ........................... 171 

Figure 5-18: Density of coal shipments by rail ........................................................................ 171 

Figure 5-19: Annual rail shipments of coal in 1987-2006 by real revenue, tonnage .............. 172 

Figure 5-20: STB rail rate index, 1985 to 2007 ........................................................................ 173 

Figure 5-21: Coal rates and car ownership ............................................................................. 174 

Figure 5-22: Coal rates and shipment distance ....................................................................... 175 

Figure 5-23: Changes in average speed by railroad and train type, 1999-2005 ..................... 178 

Figure 5-24: Year-end coal stocks, 1999-2008 ........................................................................ 181 

Figure 5-25: On-time delivery index for coal shipments, 1997-2008 ..................................... 182 

Figure 5-26: On-time average for rail shipments: grain and coal ........................................... 183 

Figure 5-27: Captive vs. competitive freight rail rates ............................................................ 184 

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

years .................................................................................................................... 193 

Figure 6-2: Railroad grain origination market shares, 2007 ................................................. 196 

Figure 6-3: Railroad grain origination market shares, 1980 ................................................. 197 

Figure 6-4: Railroad wheat origination market shares, 2007 ............................................... 200 

Figure 6-5: Railroad wheat origination market shares, 1994 ............................................... 205 

Figure 6-6: Inverse HHI for grain and oilseed shipments by rail, 2003-2007........................ 211 

Figure 6-7: Inverse HHI for grain and oilseed shipments by rail, 1985-1992........................ 211 

Figure 6-8: Change in inverse HHI for grain and oilseed shipments by rail, 1985-199 ......... 212 
xxiii 

Figure 6-9: Change in R/VC for grain and oilseed shipments by rail, 1985-1992 

compared to 2003-2007 ..................................................................................... 213 

Figure 6-10: Grain and oilseeds: nominal rail revenues per ton for States with less 

transportation competition, by year .................................................................. 221 

Figure 6-11: Grain and oilseeds: nominal rail revenues per ton for States with more 

transportation competition, by year .................................................................. 222 

Figure 6-12: Grain and oilseeds: rail R/VC ratios for States with less transportation 

competition, by year ........................................................................................... 223 

Figure 6-13: Grain and oilseeds: rail R/VC Ratios for States with more transportation 

competition, by year ........................................................................................... 224 

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

with less transportation competition, by year ................................................... 228 

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

with more transportation competition, by year ................................................. 228 

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

competition, by year ........................................................................................... 229 

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

transportation competition, by year .................................................................. 229 

Figure 6-18: Inverse Herfindahl Index for rail shipments: grain products for 2003 to 2007 .. 232 

Figure 6-19: Inverse Herfindahl Index for rail shipments: grain products for 1985 to 1992 .. 232 

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

period 3 ............................................................................................................... 233 

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

period 3 ............................................................................................................... 233 

Figure 6-22: Inverse Herfindahl Index for rail shipments: food products 2003 to 2007 ........ 234 

Figure 6-23: Inverse Herfindahl Index for rail shipments: food products 1985 to 1992 ........ 234 

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

period 1 to period 3 ............................................................................................ 235 

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

period 1 to period 3 ............................................................................................ 235 

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

period 1 to period 3 ............................................................................................ 236 

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

period 1 to period 3 ............................................................................................ 236 

Figure 7-1: Wheat—average rail tariff compared to average farm price ............................. 239 

Figure 7-2: STB rail rate index ............................................................................................... 242 

Figure 7-3: Tonnage traveling at rates over 300 percent R/VC, 1985-2005 ......................... 244 

Figure 7-4: Percent of grain and oilseed tons moved at R/VC over 300 percent ................. 245 

Figure 7-5: Selected States with higher percentages of grain and oilseeds moving at R/V . 246 

Figure 7-6: Miscellaneous revenue in waybill sample, 2000-2005 ....................................... 246 

Figure 7-7: Rate changes for coal, grain, mixed shipments, and motor vehicles ................. 247 

Figure 7-8: Average freight revenue per grains and oilseeds carload .................................. 248 

Figure 7-9: Railroad fuel surcharges ..................................................................................... 249 

Figure 7-10: Average quarterly revenue per railcar for wheat ............................................... 249 
xxiv 

Figure 7-11: Grain rates and car ownership ............................................................................ 250 

Figure 7-12: Grain and oilseeds tariff revenue (current $’s) per ton-mile by shipment size . 251 

Figure 7-13: Grains and oilseeds revenue (current $’s) per ton-mile by shipment distance . 253 

Figure 7-14: U.S. grain hopper car fleet capacity .................................................................... 254 

Figure 7-15: U.S. covered hopper car fleet ............................................................................. 256 

Figure 7-16: Railroad fuel surcharges for grain by quarter ..................................................... 258 

Figure 7-17: Comparison of grain fuel surcharges to railroad fuel costs ................................ 260 

Figure 7-18: Class I railroad cost of capital and return on net investment, 1997-2007 ......... 261 

Figure 7-19: Class I railroad profitability, 1998-2007 .............................................................. 265 

Figure 7-20: Railroad industry average cost, variable cost, and fixed cost in dollars per 

ton-mile ............................................................................................................... 266 

Figure 7-21: Railroad industry average revenue and marginal costs ..................................... 267 

Figure 7-22: Grain products revenue (current $) per ton-mile by shipment size ................... 269 

Figure 7-23: Grain products revenue (current $) per ton-mile by shipment distance ........... 273 

Figure 7-24: Food products revenue (current $) per ton-mile by shipment size ................... 273 

Figure 7-25: Food products revenue (current $) per ton-mile by shipment distance ............ 274 

Figure 7-26: Fertilizer revenue (current $) per ton-mile by shipment size ............................. 274 

Figure 7-27: Fertilizer revenue (current $) per ton-mile by shipment distance ..................... 275 

Figure 7-28: Fertilizer revenue (current $) per ton mile by shipment distance ..................... 275 

Figure 8-1: Average on-time delivery index for all Class I Railroads for grain ...................... 278 

Figure 8-2: Customer service index for Class I Railroads for grain ....................................... 281 

Figure 8-3: Average on-time delivery index for grain—BNSF & UP ...................................... 281 

Figure 8-4: Customer service index for grain—BNSF & UP ................................................... 283 

Figure 8-5: Average on-time delivery index for grain – CSXT & Norfolk Southern ............... 283 

Figure 8-6: Customer service index for grain—CSXT & Norfolk Southern ............................ 284 

Figure 8-7: Customer service index for grain—CN & C ......................................................... 284 

Figure 8-8: Customer service index for grain—CSXT, NS, CN, and CP .................................. 285 

Figure 8-9: Percentage of grain and oilseeds by type of movement .................................... 286 

Figure 8-10: Grain tonnages moved by type of covered hopper car ...................................... 290 

Figure 8-11: Percentage of grain moved by type of covered hopper car ............................... 291 

Figure 8-12: Schematic of a paper barrier .............................................................................. 292 

Figure 8-13: Schematic of a paper barrier .............................................................................. 295 

Figure 9-1: Change in rail tonnage and real gross domestic product, 2000 to 2007 ............ 306 

Figure 9-2: Estimated interstate capacity to 2010 ................................................................ 307 

Figure 9-3: Rail capacity in 2007 ........................................................................................... 308 

Figure 9-4: Rail commodity flow map of total vs. agricultural component .......................... 309 

Figure 9-5: Average train speed, all trains, 1999–2003 ........................................................ 312 

Figure 9-6: Average train speed for grains, 1999-2003 ........................................................ 313 

Figure 9-7: Average train speed (all trains) from 2004-2008 ................................................ 314 

Figure 9-8: Average train speed for grains, 2004-2008 ........................................................ 315 

Figure 9-9: Average BNSF Railway train speed (all trains), 2003-2008 ................................. 316 

Figure 9-10: Average BNSF Railway train speed for grain, 2003-2008 ................................... 317 

Figure 9-11: Average Union Pacific train speed (all trains), 2003-2008 ................................. 318 

Figure 9-12: Average Union Pacific train speed for grains, 2003-2008 .................................. 319 
xxv 

Figure 9-13: Average train dwell times, 2001-2004 ................................................................ 320 

Figure 9-14: Average train dwell times, 2005-2008 ................................................................ 321 

Figure 9-15: Average train dwell times for BNSF Railway, 2003-2008 ................................... 322 

Figure 9-16: Average train dwell times for Union Pacific, 2003-2008 .................................... 322 

Figure 9-17: Average train dwell times for Norfolk Southern, 2003-2008 ............................. 323 

Figure 9-18: Average train dwell times for CSX, 2003-2008 ................................................... 324 

Figure 9-19: Average train dwell times for CN, 2003-2008 .................................................... 325 

Figure 9-20: Miles of track of Class I Railroads, 1987-2006 .................................................... 326 

Figure 9-21: Percent of track miles owned and operated by Class I Railroads, 1987-2006 ... 326 

Figure 10-1: Railroads must invest in infrastructure to keep up with increasing 

transportation demand ....................................................................................... 333 

Figure 10-2: Class I Railroad capital expenditures .................................................................. 340 

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

technology to increase efficiency ....................................................................... 343 

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

Port of LA ............................................................................................................ 346 

Figure 12-1: Ohio packet boats in the early 19th Century ...................................................... 369 

Figure 12-2: Barge tonnage by commodity group, 2007 ........................................................ 371 

Figure 12-3: Agriculturally-significant waterways ................................................................... 372 

Figure 12-4: Barge Tow on the Mississippi River .................................................................... 373 

Figure 12-5: Grain barge being loaded .................................................................................... 376 

Figure 12-6: Quarterly barge rates from St. Louis to New Orleans, 2004-08 ......................... 379 

Figure 12-7: Weekly barge rates, St. Louis to New Orleans, 10-year average (1990-1999) ... 380 

Figure 12-8: Grain barge rates in 2008 above the 4-year average ......................................... 381 

Figure 12-9: Quarterly barge rates from St. Louis to New Orleans, 1994-2009 ..................... 381 

Figure 12-10: Spot barge rates, pre- & post-Katrina ................................................................. 382 

Figure 12-11: Katrina corn basis impact in 2005 ....................................................................... 382 

Figure 12-12: Upper Mississippi River and the Illinois Waterway ............................................ 384 

Figure 12-13: Building Olmsted locks and dam on the Ohio River. Construction work began 

in 1991 and originally was scheduled to be finished by 2006 ............................ 387 

Figure 12-14: Annual commercial tonnage and lockage numbers at Lock 25, 1989-2009 ....... 388 

Figure 12-15: A barge tow on the Mississippi river in St. Louis ................................................ 390 

Figure 12-16: Missouri River ..................................................................................................... 392 

Figure 12-17: Big Bend Dam on the Missouri River, South Dakota. One of the six reservoirs 

making up the Missouri River system ................................................................. 393 

Figure 12-18: Columbia-Snake River System ............................................................................ 394 

Figure 12-19: Barge tow on the Columbia River ....................................................................... 395 

Figure 13-1: Unloading a truck. Trucks are usually the first and last links in the supply 

chain .................................................................................................................... 403 

Figure 13-2: Half of all trucking operations are owner-operator companies ......................... 405 

Figure 13-3: Potato harvest being loaded into trucks ............................................................ 408 

Figure 13-4: Trucks in line to load during a wheat harvest. Many extra drivers are needed 

during the harvest season................................................................................... 417 
xxvi 

Figure 13-5: Colorado Department of Transportation is replacing bridges on I-76 with $11 

million in Federal stimulus funds ........................................................................ 420 

Figure 13-6: Correlation between average diesel fuel prices and truck rates for fruits and 

vegetables ........................................................................................................... 427 

Figure 13-7: Diesel fuel percentage of truck rates .................................................................. 428 

Figure 13-8: National average grain truck rates by trip distance ........................................... 429 

Figure 13-9: Index of current ease of hiring grain truck capacity ........................................... 430 

Figure 13-10: Grain truck demand index .................................................................................. 431 

Figure 14-1: Bulk shipping vessel ............................................................................................ 442 

Figure 14-2: Container Shipping Vessel .................................................................................. 448 

Figure 14-3: Container rates for trans-pacific trade lanes ...................................................... 450 

Figure 14-4: Intermodal Facilities, 2002.................................................................................. 454 

Figure 14-5: Waterborne agricultural container trade ........................................................... 456 

Figure 14-6: Ports moving agricultural imports, 2007 ............................................................ 460 

Figure 14-7: Ports moving agricultural exports, 2007 ............................................................. 460 

Figure 14-8: Top 20 container ports for exports and imports ................................................ 461 

Figure 14-9: Top 20 bulk ports for imports and exports ......................................................... 463 

Figure 14-10: Mississippi Gulf ports and export grain elevators .............................................. 465 

Figure 14-11: Texas gulf ports and export grain elevators ....................................................... 466 

Figure 14-12: Map of Alameda Corridor ................................................................................... 472 

Figure 14-13: Bulk grain ocean freight rates from U.S. to Japan .............................................. 478 

Figure 14-14: Container rates for trans-pacific trade lanes ...................................................... 479 

Figure 14-15: Containerized agricultural exports ..................................................................... 480 

Figure 14-16: Containerized grain exports to Asia .................................................................... 482 

Figure 14-17: Average ocean freight rates from U.S. West Coast to Japan .............................. 483 

Figure 14-18: Monthly movements of containerized agricultural exports ............................... 484 

Figure 15-1: Trucks, trains, and ships all work together to move America's goods ............... 498 

Figure 15-2: Modal costs related to distance and relative fuel efficiency .............................. 500 

Figure 15-3: Grain modal shares, 1978-2007 .......................................................................... 500 

Figure 15-4: Average quarterly diesel fuel prices ................................................................... 501 

Figure 15-5: Percent change in fuel prices and grain rates for container, rail, and truck ...... 503 

Figure 15-6: Percent change in fuel prices and grain rates for bulk ocean and barge ........... 503 

Figure 15-7: Highway under construction ............................................................................... 514 

Figure 15-8: Truck gate at the Port of Los Angeles ................................................................. 516 

Figure 15-9: A locomotive refueling ........................................................................................ 520 

 
xxvii 

Tables 

Table 2-1: Transportation characteristics of agricultural commodities, 2002 and 2007 ........ 24 

Table 2-2: Modal transportation characteristics of agricultural commodities by 

volume, 2002 .......................................................................................................... 25 

Table 2-3: Modal transportation characteristics of agricultural commodities, 

by ton-miles, 2002 .................................................................................................. 26 

Table 2-4: Key Supply and Demand Indicators: U.S. Major eight Field Crops, (million 

metric tons) ............................................................................................................ 29 

Table 2-5: Corn usage by sector, percentage .......................................................................... 34 

Table 2-6: U.S. corn supply and use for various marketing years, million bushels ................. 35 

Table 2-7: Corn modal shares .................................................................................................. 38 

Table 2-8: U.S. soybean supply and use for various marketing years (in million bushels) ..... 40 

Table 2-9: Soybean modal shares, 2000-2006 ........................................................................ 43 

Table 2-10: U.S. wheat supply and use, (million bushels) ......................................................... 45 

Table 2-11: Wheat modal shares, 2000–2006 .......................................................................... 48 

Table 2-12: U.S. rough and milled rice (rough equivalent) supply and use (million 

hundredweights) .................................................................................................... 51 

Table 2-13: Share of private vs. for-hire truck activity, 2002 .................................................... 57 

Table 2-14: U.S. beef, pork, chicken, and turkey supply and use long-term projections ......... 62 

Table 2-15: Major U.S. cattle slaughter States, 2007 ................................................................ 63 

Table 2-16: U.S. beef supply and use, 1999-2009 ..................................................................... 65 

Table 2-17: Hogs and pigs inventory in major States on December 1, 1987-2007. .................. 67 

Table 2-18: U.S. pork supply and use, 2004-2008 ..................................................................... 68 

Table 2-19: Major U.S. chicken slaughter States, 2007 ............................................................. 70 

Table 2-20: U.S. poultry supply and use, 2007 .......................................................................... 72 

Table 2-21: Major milk producing States, 2007 ........................................................................ 75 

Table 2-22: U.S. dairy supply and use long-term projections ................................................... 78 

Table 2-23: Supply and demand of apples, lettuce, and potatoes ........................................... 89 

Table 2-24: Fruit and vegetable long-term supply and use projections ................................. 101 

Table 2-25: Chemical fertilizer movements for rail and barge ............................................... 112 

Table 3-1: Comparison of economic and demographic indicators in metropolitan and 

rural America ........................................................................................................ 119 

Table 3-2: Key economic and demographic indicators for nonmetropolitan America ......... 120 

Table 3-3: Population employed in manufacturing............................................................... 123 

Table 3-4: Rural population employed in manufacturing by State ....................................... 124 

Table 3-5: Rural manufacturing employment by sector in 1996 .......................................... 125 

Table 3-6: Major factors affecting rural manufacturers ....................................................... 127 

Table 4-1: EPA projected renewable fuel volumes (billion gallons) ...................................... 140 

Table 4-2: Summary of EPA-projected renewable fuel volumes (billion gallons) ................. 140 

Table 4-3: Ethanol capacity distribution, March 2008 .......................................................... 142 

Table 4-4: Renewable Fuels Standard-2 (as mandated by EISA 2007) and possible phases 148 

Table 5-1: Electric utility providers by type of ownership .................................................... 167 
xxviii 

Table 5-2: Sales by customer type and by type of ownership .............................................. 167 

Table 5-3: Changes in average speed by railroad and train type, 1999-2005 ...................... 177 

Table 5-4: Variability in average train speed by railroad and train type, measured by 

coefficients of variation ........................................................................................ 179 

Table 5-5: Summary of STB consumer complaint statistics, 2005-2008 .............................. 183 

Table 6-1: Number of two-party agreements required to collude ....................................... 208 

Table 6-2: Grain and oilseeds, changes in inverse HHI by number of CRD ........................... 218 

Table 6-3: Grain and oilseeds, changes in R/VC ratios by inverse HHIa .............................. 220 

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

ton-mile and R/VC by State (in $/ton) .................................................................. 226 

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

of CRDs ................................................................................................................. 237 

Table 7-1: U.S. covered hopper car fleet ............................................................................... 257 

Table 7-2: Merger of Atchison, Topeka & Santa Fe with Burlington Northern .................... 262 

Table 7-3: Union Pacific purchase of Southern Pacific .......................................................... 263 

Table 7-4: Union Pacific Purchase of Chicago Northwestern (CNW) .................................... 263 

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

June 2, 1997 through December 8, 2008 ............................................................. 287 

Table 8-2: Summary of UP/M&NA lease contract ................................................................ 297 

Table 8-3: Complaint cases by category and region, 2008 ................................................... 300 

Table 8-4: Complaint cases by category and region, 2006 ................................................... 301 

Table 8-5: Complaint cases by category and region, 2005 ................................................... 301 

Table 8-6: Complaint cases by commodity group, 2005, 2006, and 2008 ............................ 302 

Table 9-1: Percent of privately owned railcars on line, 1999–2007 .................................... 327 

Table 9-2: Freight railcar acquisitions, 1981–2007 .............................................................. 328 

Table 9-3: Selected railcar fleet statistics, 1976–2007 ......................................................... 329 

Table 9-4: Selected locomotive fleet statistics, 1992–2007.................................................. 330 

Table 9-5: Changes in annual expenditures for Class I Railroads, 1988–2006 ...................... 331 

Table 10-1: Eastern railroads, capital expenditures ($1,000) ................................................. 341 

Table 10-2: Western railroads, capital expenditures ($1,000) ................................................ 342 

Table 12-1: Covered barges on the Mississippi River system, by operator, 2008 ................ 375 

Table 12-2: Quarterly barge rates from St. Louis to New Orleans, 2004–2008 ...................... 378 

Table 12-3: Importance of Upper Mississippi River and Illinois Waterway to agriculture ..... 389 

Table 12-4: Up-bound and down-bound barge tonnage, by river, 1998–2007 ...................... 396 

Table 12-5: Current funding allocations for inland waterway projects .................................. 399 

Table 12-6: Up-bound and down-bound barge tonnage, by river, 1998–2007 ..................... 402 

Table 13-1: Commercial vehicle size limits.............................................................................. 413 

Table 14-1: Global dry bulk fleet, February 2010 .................................................................... 443 

Table 14-2: Global dry bulk orderbook, 2010-2015 ................................................................ 444 

Table 14-3: World oceangoing merchant fleet ...................................................................... 445 

Table 14-4: World merchant fleet by country of owner and type .......................................... 446 

Table 14-5: Global container ship fleet, February 2010 .......................................................... 449 

Table 14-6: Global container ship orderbook, 2010-2014 ...................................................... 449 

Table 14-7: Waterborne agricultural exports .......................................................................... 457 
xxix 

Table 14-8: Container shipping lines for agricultural exports ................................................. 458 

Table 14-9: Bulk waterborne agricultural exports .................................................................. 462 

Table 14-10: Major U.S. grain export ports ............................................................................... 464 

Table 14-11: Mississippi gulf ports and export grain elevators ................................................ 465 

Table 14-12: Texas gulf ports and export grain elevators ......................................................... 466 

Table 14-13: Comparison of port fees at Ports of Los Angeles and Long Beach ....................... 475 

Table 14-14: Fee scenarios for moving containers through Southern California ports ............ 476 

Table 14-15: Bulk grains ocean freight rates ............................................................................. 477 

Table 14-16: Comparisons of filing requirements by mode ...................................................... 485 

Table 15-1: Fuel price and freight rate changes by mode ....................................................... 502 

 
xxx 
Chapter 1

Introducti on 

& Overview
1

Chapter 1: Introduction and Overview 

The charge from Congress can best be answered by an examination of the U.S. transportation 

system and the way it affects and supports agriculture and rural communities. The first step is 

to look at the function of transportation in agricultural movements and the role of agriculture in 

the national economy and international trade. With this background, the transportation issues 

facing U. S. agriculture—the needs of agriculture for transportation—can be evaluated. Those 

discussions are presented here as a general overview; details are presented in the chapters that 

follow. The overall flow of agricultural products is shown in Figure 1-1 below. 

Figure 1-1: U.S. agricultural supply chain for raw and processed products 

Agriculture Requires Transportation 

Effective transportation was one of the necessary precursors to the development of agricultural 

productivity and, through it, the economic health of the United States. The heart of our 

country’s development was agriculture; transportation was the facilitator of that development. 

Transportation investment increases markets for goods, raises the revenue farmers receive 

from their goods, lowers consumer prices, widens consumer choices, and lowers the cost of 

farm inputs. 

The availability of transportation allows farms to locate where the soil and climate is suitable 

for their crop, and where land is less expensive. Agriculture is geographically dispersed; 
2

because of its reliance on land, it cannot simply relocate near its customers, especially since 

more and more of those customers are global. 

Agricultural production depends on a complete transportation system that includes all major 

modes of transportation (truck, rail, barge, and ocean vessel), with their complementary and 

competitive roles in transporting farm goods. The United States has been blessed with such a 

balanced system, as will be shown in this overview. 

Modern transportation facilitated agricultural specialization, driving two major societal 

changes: it permitted workers to leave agricultural areas and migrate to urban areas for 

employment, making possible the growth of the manufacturing industry. Secondly, it greatly 

increased farm productivity by allowing crops to be raised in areas where the soil and climate 

were most favorable, even when those areas were remote from their markets. 

Institutional, technological, and regulatory changes in transportation influence where 

commodities are grown and processed and livestock raised. 

• The location of wheat milling reacted to changes in rail transit rates and hopper car 

availability. 

• Refrigerated trucks, rail cars, and containers allowed California, Florida, and other States 

to become nationwide suppliers of perishable produce, meat, poultry, dairy, frozen 

food, and other processed products. 

• Ethanol can be produced near its raw material (corn) and still reach its distant markets. 

• Changes in the structure of the grain-marketing industry, with its reliance on fewer but 

larger facilities, have been facilitated by transport economies made possible by unittrains and large barge tows. 

Figure 1-2: Refrigerated trucks enable the trucking industry to provide special services. 

Source: Hank’s Truck Pictures 

 
3

Due to its special needs or during periods of growth in volume, agriculture, in turn, puts 

pressure on the transportation system. Many agricultural commodities are perishable, 

seasonal, and of relatively low value, making efficient and appropriate transportation 

challenging but critical. When the transportation system effectively responds to these needs, 

the benefits to agriculture are enhanced. 

• Entrepreneurs answered the need to transport perishable produce by developing 

mechanically refrigerated transport. 

• The advent of just-in-time delivery and off-the-shelf inventory, which lower store 

costs—and consumer prices—by reducing storage and inventory costs, required flexible 

and reliable transportation. Transportation, especially trucking, rail, and ocean, 

answered by adapting modern logistics software to increase flexibility and response 

time. 

• Because of the low value per unit of agricultural products, transportation accounts for a 

significant percentage of the cost to consumers. Enhancing transportation efficiencies 

by incorporating economies of scale and improving supply chain management practices 

can lower transportation costs, increase farm income, and reduce consumer prices. 

Increases in transportation costs to agriculture can be directly translated into decreased prices 

paid to farmers because of their lack of market power—due to the competitive nature of 

agricultural markets—and eventually even higher consumer prices for food. 

Although agricultural production is affected by weather, agricultural marketing is driven by 

price and competitive conditions outside the farmer’s power. Farm production and consumer 

demand vary from one year to the next, causing an uncertainty that often places great stress on 

the transportation system. This stress prompts difficult decisions about how much transport 

capacity is reasonable and who pays for that investment, but also who pays for missed 

marketing opportunities and lost product sales. To date, the Government has played a longstanding role in highway maintenance and improvements, and in oversight of rail and ocean 

transportation. 

Agriculture, Trade, and the Economy 

The importance of transportation in making agriculture successful is noteworthy especially 

because of the role of agriculture in the U.S. economy. The U.S. gross domestic product (GDP) 

has been $13 to 14 trillion in recent years. Of this, $125 billion (1 percent) has been 

contributed directly by agriculture and $540 billion (4.5 percent) by agriculture and its related 

industries. 

Looking at the U.S. balance of payments, the importance of agricultural trade is even more 

substantial. USDA reports that total agricultural exports averaged $82.2 billion from 2005 to 

2008, reaching $115.5 billion in 2008. Agriculture’s net contribution to the balance of 

payments that year was $36.1 billion. In May 2009, agricultural exports were forecast to 

exceed imports by $15 billion. Analysis by USDA’s Economic Research Service (ERS) of data 

from the Department of Commerce shows that every dollar of exports generates an additional 
4

$1.50 in economic activity in supporting sectors. The importance of these export markets, 

which rely on efficient transportation, varies for different commodities. For wheat, exports in 

2009/10 were projected to account for 43.5 percent of production, followed by soybeans with 

39.5 percent and corn with 16.5 percent. Poultry ships 17 percent of its production to 

international markets, and red meat 10 percent. 

If any of these international—and often highly competitive—markets are lost due to inefficient 

transportation or failures in the supply chain, jobs are lost and farmers and ranchers receive 

less income. Inefficient or costly transportation can hurt agriculture in both international and 

domestic markets, and affect the balance of payments and the U.S. economy. 

This study delves into the competition, capacity, rate performance, and modal service of rail, 

truck, barge, and ocean shipping. Policy issues affecting them depend on their operating 

attributes and their economic and regulatory environment. 

U.S. agriculture uses four major modes of transport: truck, rail, barges, and ocean vessels.*

 

Trucks are part of almost every movement, often moving crops from diverse farms to elevators 

or other collection points where they can be transferred to other modes. Trains provide the 

lowest-cost overland transport for long hauls. Barges are the least expensive transport where 

they can be used and carry large amounts of bulk grain to export terminals, where ocean 

vessels carry them to foreign markets. 

Railroads 

Agriculture and railroads have had a long and close relationship. The initial development of the 

United States was stimulated—even made possible—by the development of the major eastwest rail lines. Land grants to the railroad companies made agriculture the source of 

development dollars for these early lines. As railroads sought settlers for those lands, both to 

increase the value of the land and to increase traffic on the lines, a win-win situation, an 

arrangement of mutual interdependence arose. This interdependence remains today; 

agricultural movements are critical sources of revenue for American railroads, and rail service is 

critical to agriculture. This symbiotic relationship underlies the current friction between 

railroads and shippers as each attends to its respective needs and goals. 

Railroads carry the most ton-miles of total freight in the United States—more than trucks, and 

much more than barges. However, because truck rates are generally lower than rail rates for 

short hauls, railroads take in only about 13-15 percent of intercity freight revenue. Coal has the 

greatest proportion of total rail movements, but farm products, food, and kindred products 

make up over 15 percent of the movements and, for some railroad segments, as much as 80 

percent. 

 

*

 Air transport is important for some highly perishable agricultural commodities but is not a major mode for the 

sector as a whole. The legislative language establishing this study does not request an examination of air 

transportation for agriculture. 
5

Rail Regulatory History 

The unrestrained behavior of the railroads in the late 1800s and the dependence of many 

farmers on rail transportation led to enactment of the Granger laws. The Granger laws resulted 

in close regulation of the railroad industry. 

As the size of the railroad plant and trackage grew dramatically in the late 1800s, the role of the 

government grew from promoting rail lines to regulating the industry. This change in role was 

addressed by the Federal government in the Interstate Commerce Act of 1887, which created 

the Interstate Commerce Commission (ICC). The role of the government also was expanded to 

eliminate price discrimination, open rates, and stop short-haul rates from being greater than 

long-haul rates. 

The Transportation Act of 1920 was intended to bring financial stability to railroads; however, 

even though it granted the ICC the right to control entry, abandonment, and rates, it was 

unsuccessful. The Transportation Act of 1940, following the regulation of the motor carrier and 

waterborne transportation industries in the 1930s, sought to bring all modes under similar “fair 

and impartial regulation.” However, the financial condition of railroads continued to decline 

until policy makers began to point to the inefficient regulatory process as the culprit. Various 

acts followed, in attempts to avoid the bankruptcy or even nationalization of the railroad 

industry. The rationale of this regulatory scheme was initially to protect shippers but, as the 

financial health of the railroads was damaged, the industry’s needs for financial stability 

became a primary concern. 

Concerns about the financial health of the railroads generated deregulation attempts (see 

Chapter 6). Finally, the Staggers Rail Act of 1980 was passed, granting railroads the right to 

operate as “profit-driven businesses,” which they have done since. Rate freedom, to a large 

degree, was granted. Abandonment of unprofitable branch lines was made easier. Private 

contracts with shippers were allowed. Rate and service relief for captive shippers were made 

available under certain conditions: the ratio of revenue to variable cost had to be over 180 

percent, and the environment for shippers had to be noncompetitive. 

Legislation in 1995 abolished the ICC and created the Surface Transportation Board (STB), with 

the responsibility for helping promote railroad revenue adequacy, granting railroads greater 

flexibility in setting rates, and protecting shippers from the exercise of excessive market power 

by the railroads. However, the issues of the 1800s are still with us today; shippers claim the 

emphasis of regulatory authority is on improving railroad revenue, with less interest in 

protecting shippers from the abuse of monopoly power. 
6

Performance by the Railroad Industry 

The Staggers Act has been a resounding success for both railroads and shippers. Since passage 

of the Staggers Act there has been an unexpected increase in the concentration of the railroad 

industry. The number of Class I railroads declined dramatically—down to seven operating in 

the United States—as a result of mergers and acquisitions. The amalgamation of the railroad 

industry has decreased competition among rail lines in many corridors, increased market power 

for the railroads, and generated increasing concerns about service and alternatives for shippers. 

The ability of the railroads to abandon branch lines initially resulted in many unprofitable 

branch lines being abandoned, resulting in an overall loss of miles of track owned and operated 

by Class I railroads. This rail loss continued a trend from 1916, when line miles peaked at about 

a quarter of a million, only to drop to about 180,000 in the late 1990s. Wide-scale 

consideration of abandonment by Class I railroads soon gave way to the creation of short line or 

regional railroads, which now operate many of the lines considered for abandonment. 

The American Association of Railroads reports that about 28 percent of track miles are now 

operated by short line railroads. This abandonment, or rationalization, of the railroad system is 

generally accepted as necessary because of the early overbuilding resulting from the 

government’s desire to settle the country by promoting new rail infrastructure. Furthermore, 

government funding of public highways and inland waterway locks and dams increased 

transportation competition, making some rail lines redundant. 

Short line and regional railroads have been generally successful in providing local and regional 

hauling services and traffic consolidation for the larger railroads. They enjoy a reputation of 

being more customer-oriented and carry less overhead and fixed costs. They sometimes 

partner with the larger lines, providing a seamless service to shippers. However the market 

power of Class I railroads can affect the market access, economic performance, and livelihood 

of the short line railroads. Shipping associations, development agencies, and short line 

railroads frequently complain about lack of service, rates, and market access available to them 

because of the policies of Class I railroads. 

The railroad industry has large fixed costs; unlike barges and trucks, they provide their own 

roadbed, tracks, terminals, and facilities. The fixed costs are not affected by the volume of 

traffic on the line, so theirs is a decreasing-cost industry; these fixed costs are spread over all 

their volume. To recover all their costs, use all their capacity, and maximize profit, the railroads 

rely on differential pricing—charging different rates to different shippers, usually dictated by 

the competitive environment around those shippers rather than by the cost to serve them. By 

lowering their rates to customers with transportation alternatives, railroads can win more 

business, allowing it to recover the variable cost of the movement and some part of the fixed 

costs. This requires captive shippers—shippers with no viable alternatives—to carry more than 

their share of the fixed costs. Although shippers with more transportation alternatives pay a 

lower share of the railroad’s fixed costs, their contribution reduces the share of those costs that 

captive shippers would pay without that traffic. By employing differential pricing, the railroad 

can maximize shareholder wealth, with some captive shippers paying more than customers 

with more transportation alternatives. The Surface Transportation Board (STB) has regulatory 
7

and adjudicatory jurisdiction over railroad rate and service issues, including rate/cost ratios to 

ensure that rates are reasonable to captive shippers. 

Rail rates declined in real terms after the Staggers Act, until 2005. Since then, however, Class I 

rates have risen significantly above short-run variable costs, with considerable variation for 

different commodities and in different regions (see Chapter 6: Rail Rates). The general decline 

in rates before 2005 was often accompanied by a shift of assembly and handling costs to 

shippers, who argue that true rate decreases, if any, were marginal. They argue that bottleneck 

rates, switching constraints, paper barriers, and antitrust exemptions are impediments to 

competition. 

Figure 1-3: A unit train has more than 50 cars, all of which are shipped from the same origin 

to the same destination. 

Source: World Shipping Council 
8

Shippers are also affected by the density they bring to a rail line. Density is the volume per mile 

of line operated. To make the most efficient use of their capacity, railroads have begun running 

longer, heavier, and more frequent trains—shuttle and unit trains—over the major corridors. 

The savings have been beneficial to agricultural shippers, but they claim the railroads are 

shifting more and more of the costs of assembling the requisite volumes of product to the 

shipper, negating some of the benefits from the multiple-car rates. Shippers in remote areas 

and those needing specialized services, including short hauls, have found themselves with 

higher rates and deteriorating service because they cannot provide the density the railroads 

want. Many of the short line railroads operate in these remote service areas. 

Railroads’ attempts to create density on their lines (as manifested in a desire to “hook and 

haul”) affect agricultural shippers. Smaller shippers are losing shipping alternatives or are faced 

with higher rates as railroads move from carload to unit train configurations. Shippers without 

access to unit-train facilities are forced to do the assembly themselves, incurring trucking costs 

and sometimes new terminal costs. 

The impact of these structural changes on the railroad industry, combined with the importance 

of railroad service to the agricultural industry, results in continuing tension between carrier and 

shipper. Chapters 6 through 11 focus on the level of railroad competition, on which the STB 

was to rely in lieu of regulated rates, and the STB’s ability to address abuse of market power. 

An examination of the level of competition is the underlying thrust of these chapters. Rural 

areas, because of their seasonal need for transportation and the perishable nature of their 

products, are particularly vulnerable to lack of competition, which along with capacity issues, 

are driving debates. 

Barge Transportation

The four transportation modes—railroads, trucks, barges, and ocean vessels—all have been 

provided by some combination of private and public investments. For example, the railroads 

received the original land grants and promotional efforts of the Federal and many State 

governments. Highways and bridges are constructed and maintained for the trucking industry 

by local, State, and Federal government through fuel taxes and user fees. Harbor and river 

channels, and the locks and dams on the Nation’s major rivers require substantial Federal 

revenues for their dredging and maintenance. Port development, capital expenditures, and 

maintenance are financed mainly through port revenues from operations, but bonds and public 

funding at the local, State, and Federal levels also are used to further port operations. 

Grains are particularly dependent on barge transportation for access to international markets. 

Nationwide over the past 5 years, barges moved 30 percent of wheat, 52 percent of soybeans, 

and 59 percent of corn to all U.S. ports for export.1

 Governmental investment in waterway 

development has allowed areas far inland to compete in global markets, strengthening prices, 

lowering input costs, and providing access to more lucrative marketing opportunities. 

Barges move large volumes long distances economically. Many bulk commodities are moved by 

water: coal, petroleum products, grains, food and farm products, forest products, sand, gravel, 

and stone. For example, typical tows on the Columbia-Snake River system in the PNW, 
9

operating on a 12-foot channel, are three barges holding almost 10,000 bushels in one tow, 

equivalent to 100 railroad cars, or 400 trucks operating on the highways of the nation. On the 

Upper Mississippi River, with a 9 foot draft, typical tows move about 22,500 tons, equivalent to 

225 railcars or 870 tractor-trailer units. 

A History of Barging 

The development of the United States can be tracked by the development of its internal 

transportation system. The early paths of pioneers became connecting roads between towns, 

villages, and coastal settlements. However, it was the navigable waterways that allowed the 

Nations’ productive capacity to be realized. The early Erie Canal and the “Mighty” Mississippi 

River are parts of both our cultural and economic history. Waterways were developed before 

the railways. The first railroads often served as feeders to the waterways, just as motor carriers 

later developed as feeders to the railroads. In recent years, railways have again taken on the 

role of feeder to the waterways, both Class I railroads and, in the PNW, short line railroads. 

The inland waterway system performs a dual role in the U.S. transportation system; it 

complements other forms of transportation but also is valuable as a competitor to keep the 

rates of other modes in check. Grain must be moved to barge facilities by truck or rail. This 

cooperation allows each mode to specialize in the movement it does best. Trucks are best 

suited to short haul assembly of products for longer haul by rail or barge, with trucks’ low fixed 

costs and flexibility. Railroads and water transport are lower-cost movers of bulky shipments 

over long distances. “Water-compelled” rates on railway movements are a natural outcome of 

strong competition. 

The Barge Industry 

The barge industry’s rate structure often is cited as a free and openly competitive market, even 

though the top five companies with covered barges (the kind that move grain) on the 

Mississippi controlled 75 percent of the barges in 2008. Barge rates reflect the significant 

variation in seasonal demand for barge capacity on the river, enough to counter the high level 

of industry concentration on the supply side of the market. 

In the PNW, the concentration is even more pronounced; two firms out of five operate almost 

80 percent of the grain barges on the Columbia-Snake River system. In that region, barges and 

grain shippers write long-term contracts with tariff rates as their base. The Mississippi River 

system places more reliance on the current spot market because of the large volume of grain 

and number of shippers on the system. Spot rates reflect the supply and demand for barge 

services and balance near-term demand needs (seasonal, international, and commodityspecific) with the available supply of barges. 

Since 1998, the number of covered barges on the Mississippi River has dropped from 12,706 to 

10,727, almost 18 percent. The barge fleet is aging; the average age of grain barges is 

increasing—28 percent are older than 25 years, within five years of their expected life span. 

Furthermore, more barges are being retired than new barges are being constructed. 
10

Barge industry performance is very sensitive to the weather, time of year, and disruptions due 

to natural disasters. Anomalies in these affect operations at the locks and the overall capacity 

for barge freight movements. In the northern part of the country, the system is unusable for 

three to four months each year because of snow and ice. All of this means the industry’s overall 

performance depends on factors often outside the barge operator’s control. 

Infrastructure 

Barges are less dependent on the vagaries of the river than they used to be; the rivers in the 

inland waterway system have been tamed by dams and locks constructed to make the river 

navigable. About 12,000 miles of inland waterway are used commercially. However, many of 

the existing locks no longer meet the need of modern tows. Most of the locks on the Upper 

Mississippi River System have lock chambers 110 feet wide and 600 feet long, but a 15-barge 

tow cannot transit a 600 foot long lock in a single pass. The tows move through in two phases, 

taking twice as long as a single locking pass. This double locking substantially increases the cost 

of barge transportation and causes delays due to congestion at the locks in addition to the 

locking time itself. 

Figure 1-4: A 1,200-foot barge tow—a common length—passes through a 600-foot lock in two 

stages. 

Source: Army Corps of Engineers 

 
11

Some agricultural stakeholders believe the locks need enlargement. Federal funding, utilized by 

the U.S. Army Corps of Engineers (Corps), is constantly being requested to retrofit and enlarge 

the locks. Competing transportation modes and environmental concerns have caused the 

funding of navigation improvements to become controversial. 

In response to concerns from alternative modes, the Inland Waterway Revenue Act of 1978 set 

up the Inland Waterway Trust Fund, which is funded through a barge fuel tax. The tax is levied 

on about 11,000 miles of the most heavily used segments, referred to as the “fuel-taxed inland 

waterway system.” 

Funds authorized from this trust fund are now combined with U.S. treasury funds in a 50-50 

split to finance new construction and a major rehabilitation of the inland waterways 

infrastructure, but the trust fund is being rapidly depleted. 

The Corps is continually looking at ways to reduce or eliminate commercial traffic delays while 

restoring, protecting, and enhancing the environment. Their Navigation and Ecosystem 

Sustainability Program (NESP) is a long-term program of navigation improvements and 

ecological restoration for the Upper Mississippi River System over a 50-year period. 

Environmental impacts for the dams, locks, and estuary channelization (dredging that damages 

wildlife habitat) when reflected in the U.S. Army Corps of Engineers studies, affect the 

benefit/cost ratio of some projects, leading to delays in projects, increased costs, and 

reductions in navigational capacity. 

A healthy water transportation system is important to agriculture and electric utilities that rely 

on coal as an energy source. The availability of efficient barge transportation impacts the U.S. 

competitive position and helps reduce emissions. Barge transportation costs less per ton-mile 

and is the most energy-efficient of any major mode of transportation, point-to-point. It is the 

strongest competitor to railroads in moving the Nation’s agricultural products. 

Ocean Transportation

U.S. ports and the maritime industry provide access to existing and new, lucrative markets for 

agricultural products. Ocean shipping is an integral and critical mode for agricultural shippers 

and to the economy of the United States. 

Agriculture is expected to contribute $22.5 billion to the U.S. balance of trade, with exports of 

up to $100 billion dollars.2

 The United States exports approximately one-quarter of the grain it 

produces. On average, this includes nearly 50 percent of its wheat, 37 percent of its soybeans, 

and 18 percent of its corn.3 Approximately 62 percent of the U.S. export grain shipments 

departed through the Gulf region in 2009, and 25.5 percent left through PNW ports.4 Eighty-six 

percent of foreign grain sales used ocean transportation to reach its market.5 Fifty percent of 

the agricultural exports by value and 20 percent by volume moved in containers.6

 In calendar 

year 2009, the United States imported 23.5 million metric tons of fertilizer, mostly used by 

agriculture.7

 
12

The growth of international trade, which is expected by the U.S. Department of Transportation 

(DOT) to increase 50 percent in the next 20 years, poses a challenge to the maritime industry.8

 

Closures and inefficiencies in the maritime leg of the supply chain cause delays in movements, 

spoilage of perishable product, diversion to other ports or markets, increases in transportation 

costs, lower producer prices, and lost sales to American producers. U.S. exporters compete 

with other suppliers in the international market. Exports depend on globally competitive 

prices, so the lowest transportation costs often determine which supplier gets the business.

Structure of the Industry 

The maritime industry relies on ports and vessels to reach global markets. Port facilities include 

bulk, container, palletized break-bulk, and liquid services. Bulk handling facilities move large 

volumes of products such as grain and fertilizer. Container facilities handle a wide range of 

agricultural products, including fruit, vegetables, meat, poultry, processed food products, grain, 

peas, and hay. Palletized break-bulk services handle fruit and frozen meat and poultry 

products. 

Vessels are classified in many categories; those most relevant to agriculture are bulk and 

container vessels. Bulk vessels are chartered, unconstrained by specific route or schedule; 

container vessels operate over a fixed schedule and route. The development of the container 

vessel was instrumental in marketing high-value and valued-added U.S. commodities in 

international markets. These ships offer shorter transit times, less pilferage, reduced handling, 

offer better quality for perishable products, and increased security in identifying the source. 

Container vessel sizes are increasing dramatically. Ships of 10,000 20-foot equivalent units 

(TEU) are now common, and 12,000 TEU—and maybe even 16,000 TEU—vessels are on the 

drawing tables of construction firms. These sizes allow tremendous efficiency with many 

products carried in the same shipment, generating economies of scale for the maritime firm but 

generating some issues of capacity, handling, and delay in the ports and the land side of the 

supply chain. 
13

Figure 1-5: The Estelle Maersk has a capacity of 11,000 TEUs. 

Source: Maersk Line 

The container fleet consists of almost 4,700 container ships, with another 873 ordered and in 

various stages of manufacture. The recent recession dampened the delivery of some of these 

orders, and caused carriers to take many vessels out of service, significantly reducing the 

capacity available to shippers. Although carriers began returning vessels to service in 2010, 

capacity has not kept pace with recent rebounds in shipping demand. 

Bulk shipping is a highly competitive market with many firms, all with little market power. 

Rates are known, fluid, and available to the highest bidder, usually on a voyage charter 

(contract) for a particular vessel. Vessels move freely from commodity market to commodity 

market in response to rate changes. This chartering system increases the flexibility of bulk 

vessels to respond to varying demands. 

The vessels vary in size, with the choice of size depending on the demand of the market and the 

commodity being moved. Common sizes are handysize (20,000 to 40,000 deadweight tons 

(dwt)), panamax (60,000 to 80,000 dwt), and capesize vessels (110,000 to over 200,000 dwt). 

Panamax vessels are the size most commonly used for agricultural products. It is the largest 

size capable of traversing the Panama Canal, but this size is also active in transporting grain 

from the U.S. Gulf and PNW ports to Asian markets. 

 
14

In February 2010, over 7,100 vessels were in the dry bulk fleet, with another 3,187 being on 

order.9

 As ships are scrapped and new ones come on line, the capacity of the industry may stay 

high, which keeps maritime rates low. The industry usually reacts to lower demand by 

decreasing the number of ships in the trade lanes and idling or scrapping some of the vessels. 

Federal Agency Responsibilities and Regulatory Environment 

The oversight of the maritime industry in the supply chain involves several regulatory actors. 

Port operation is governed by local port authorities, and deep and shallow draft harbors are 

maintained by the U.S. Army Corps of Engineers. DOT, through the U.S. Maritime 

Administration (MARAD), works to promote the use of waterborne transportation, its seamless 

integration with other parts of the transportation system, and the viability of the U.S. merchant 

marine in order to meet national defense and economic objectives. MARAD also administers 

certain regulatory programs including enforcement of preference for U.S.-flag vessels in the 

carriage of certain government impelled cargoes and certain coastwise trade agreements. The 

Federal Maritime Commission (FMC) regulates the ocean common carriers, ocean 

transportation intermediaries, and marine terminal operators. The Shipping Act of 1984 

partially deregulated the industry but continued to allow the anti-trust exemption, which 

allowed liner carriers to discuss rates jointly if they file agreements and discussion minutes with 

the FMC. The subsequent Ocean Shipping Act of 1998 (OSRA) allowed the market to operate 

more competitively under confidential service contracts. 

Overall rates for bulk shipments have been high in recent years but have declined during the 

last year from the years of high demand and low supply of carriers. Container rates are 

typically negotiated in confidential service contracts, but the industry understanding is that 

increases in fuel costs resulted in some increase in overall rates before the recession caused 

those rates to fall to historic lows in 2009. Although carriers and exporters are currently 

negotiating their service contracts and rates for the next year, preliminary reports are that rates 

have begun to climb back toward pre-recession levels. Once rates have returned to a 

compensatory level for liner carriers, the continuing surplus of container vessel will likely 

impede significant additional rate increases. 

Inland and Intermodal Issues 

A continuing problem in the maritime system is the unavailability of containers for inland 

agricultural shippers. The availability of containers for exports depends on the import flow of 

containers, which are usually loaded with non-agricultural products and are not sent to rural 

areas where agricultural production takes place. Obtaining containers inland can be expensive 

and inconvenient. The willingness of ocean carriers and railroads to deadhead or position 

containers from the coastal areas to the inland points is related to their ability to load 

efficiently and pay for the deadheading. The agricultural shipper is then dependent on import 

flows, the railroads’ willingness to position the containers, and the international rate for the full 

backhaul movement. Since containers have allowed agricultural producers to access new 

markets with differentiated products, dependence on these containers and concern about their 

availability has increased. During periods of strong demand for U.S. agricultural exports and 

insufficient numbers of available containers, sales of U.S. farm products have been lost.10 
15

Port Issues 

Ports face environmental concerns and the need to match capacity with demand. Imbalance 

causes congestion or expensive unused facilities. Private and local funding are combined with 

State and Federal expenditures to provide that capacity. Concerns about air quality, water 

pollution, invasive species, and wildlife affect the development of port sites and vessel 

operations. Environmental mitigation is underway at many ports and by many governmental 

agencies. 

Truck Transportation

Every agricultural commodity and the inputs needed to grow or process it are moved by truck 

at some point. More and more cities and communities are served only by truck, further 

increasing its critical role. Trucks now move 70 percent of agricultural and food products, 

alcohols, fertilizers, lumber, wood products, paper, pulp, and paperboard articles. Trucks serve 

different roles, depending on the distance of the haul and the commodity. Locally, they move 

goods within cities from local distribution centers. They play a dominant role in some corridors 

for grain movements, especially when backhaul opportunities exist, and have long dominated 

movements of meat and milk products, fresh fruit, and vegetables because of the high value of 

the products and trucks’ speed, reliability, predictability, and ability to move goods directly 

from production points to end destinations without transshipment. Presently, they combine 

with rail in container-on-flat-car (COFC) and trailer-on-flat-car (TOFC) movements. 

The Highways 

The motor carrier industry depends on the highway system. The United States has almost 4 

million miles of public roads, of which over 46,000 miles comprise the interstate highway 

system, which carries most U.S. ton-miles. Roads, unlike railroads, are provided by government 

sources and paid for (over 80 percent) by fuel taxes, other fees and tolls. Interstate highways 

and rural arterials (generally State highways) handle up to 15 percent of total vehicle miles. 

Local roads (collectors and distributors) carry almost 80 percent of road miles but slightly less 

than 40 percent of traffic, due to the lower density of usage in rural areas. 

Figure 1-6: Highways are vital 

to the trucking industry. 

Source: USDA 
16

The Highway Trust Fund is at the lowest level in history. It depends on the Federal fuel tax at a 

time when less gasoline is being sold because the economic downturn is reducing driving miles 

and the fuel efficiency of vehicles is increasing. This decrease is combined with a policy 

decision to move some funding from maintenance of the roadways to address other issues such 

as mass transit, safety, security, economic development, and air pollution and other 

environmental concerns, even as the cost of maintenance has increased dramatically. The 

solvency of the Highway Trust Fund has led to the current debate on the sources, structure, and 

magnitude of future funding, a debate that has substantial implications for agriculture. 

Carrier Operating Costs 

The trucking industry has low fixed costs and high variable costs, largely because fuel and labor 

are such important components of the operating costs. Terminal costs, the major fixed-cost 

component for truckers, are very low for grain and a small portion of the total costs even for 

perishables. Entry to the trucking industry is easy, consisting in many cases of only a down 

payment on the truck, and further aided by the fact that an active market exists for used 

vehicles. Ease of entry and exit, along with the low fixed costs, allows the trucking industry, 

which is exempt from economic rate and route regulation, to shift capacity to areas and 

commodities of high demand, a characteristic especially useful to agriculture, with its shifting 

and seasonal changes in demand for transportation. 

However, trucks consume a lot of energy and are a major producer of emissions, concerns that 

transcend their economic efficiency. This basic issue of market efficiency versus environmental 

effects is important to future development of the transportation system. 

Structure of the Industry 

The trucking industry is comprised of private fleets owned by companies that manufacture 

and/or distribute their own goods and for-hire vehicles that haul goods for others. There are 

691,000 trucking businesses, and nearly 4.5 million trucks (including straight trucks and 

tractors). According to an American Trucking Associations’ report, in November 2009 there 

were 227,930 for-hire carriers, 282,485 private carriers, and 81,466 other interstate carriers 

that did not specify their status.11 Over 96 percent of trucking companies are small businesses 

with fewer than 20 trucks, and 87 percent have 6 or fewer trucks.12 Nearly 50 percent of 

trucking companies have only one truck (owner-operators). 

These trucking firms, which are exempt from economic regulation of rates, routes, and service, 

are small and competitive. Although it varies widely, the average ratio of operating cost to 

operating revenue is a tight 95 percent in over-the-road long-haul truckloads, demonstrating 

that this sector is highly competitive, approaching what economists call atomistic or perfect 

competition. Many studies have shown that their rates are closely aligned with their operating 

costs. Variable costs are substantial, so rates are built with variable costs as the floor but with 

little variation above this level. Rates rise in response to seasonal demand, causing trucking 

capacity to flow to the area where demand is strongest. 

 
17

Trucks have been thought to be competitive with rail for movements of 300 miles or less, but 

the recent usage of short line railroads has been shrinking that distance. In the long run, it is 

not the cost but the quality of service that gives trucks their competitive advantage in long-haul 

moves. Trucks have been heavily used in short-haul domestic markets but, with the emerging 

demands for service and flexibility in port areas, are making more long-distance movements to 

ports and terminals. The net result of the differing length of haul is that trucks move more tons 

than rail or barge but fewer ton-miles, due to their shorter hauls. Just-in-time and off-the-shelf 

inventory management practices have increased the competitive advantage of trucks, as has 

the use of COFC and TOFC configurations, because of their reliability. 

Recently, the trucking industry has been characterized by mergers, bankruptcies, and 

restructuring. Over 3,000 trucking firms have been lost in recent years, with some of that 

capacity leaving the industry and not being replaced. 

Regulatory Status 

For years, all trucking firms required a Certificate of Convenience and Necessity, with tight rate 

and route controls, to operate in the United States, a form of regulatory control by 

geographical market. This regulation was eliminated in 1980, essentially deregulating motor 

carriers in the United States. Policy makers, realizing the constraints on the market imposed by 

such entry restrictions, combined with the needs for flexibility (due to perishability and 

seasonality) of the agricultural industry, had included an agricultural exemption of livestock, 

fish, and unprocessed agricultural commodities in 1935 during the original major legislation. 

The success of agricultural shippers served as a role model for the motor carrier industry when 

deregulation occurred in 1980. The act in 1995 that terminated the Interstate Commerce 

Commission also prevented States from controlling rates, routes, service, or tariff filings. 

Hours-of-service and other safety and security rules still remain. Antitrust immunity was 

removed in 2008. 

Infrastructure and Funding 

The issues affecting trucking today include the deteriorating condition and increasing 

congestion of the highways and the need for investment in infrastructure, including bridges. 

The funding sources usually include some sort of user fee, either as fuel tax, vehicle use tax, 

sales taxes on trucks and tires, tolls, or registration fees, all of which increase operating costs. 

Poor road conditions and congestion also cause motor carriers to operate at less than optimum 

efficiency, affecting their energy use and their impact on air quality. 

Although much of the congestion and need for greater road capacity occurs in urban areas, it 

also affects rural areas. Trucks that service rural areas have to travel to and through cities to 

pick up and deliver goods and to carry exports to ports. Urban traffic problems increase the 

cost to farmers and can cause them to lose markets. 
18

Conclusions 

Transportation has been critical to the development of American agriculture and the economic 

growth of the United States. The heart of our country’s development was agriculture; 

transportation was the facilitator, and sometimes the cause, of that development. 

The railroad industry was heavily regulated for years, stifling growth and investment. The 

Staggers Act lifted this regulatory burden, allowing economic recovery but not removing the 

antitrust exemptions granted in 1914. Concentration in the industry has reduced competition 

and given the railroads greater market power, to the detriment of some captive shippers, 

especially in the Upper Midwest. 

Inland waterborne transportation is the most economical and energy-efficient mode of pointto-point transportation. Competition among barge companies is strong, keeping rates low. 

However, the barge industry is dependent on an aging system of locks and dams. Older locks 

are too small to handle modern barge tows efficiently, so they must be disassembled and taken 

through in sections. Because of their age, locks require frequent maintenance and repair, 

which is not only expensive but disrupts the flow of traffic and causes choke points and 

inefficiency. 

Two types of ocean vessels carry most agricultural products: bulk vessels that carry grain, 

oilseeds, and edible oils, and container vessels that carry high-valued products, including meat, 

fruit, vegetables, and specialty grains. Both are dependent on ports. United States ports are 

under pressure from two fronts: they need to retain and grow market share, and they need to 

control and reduce their pollution. Trucks provide a vital flexibility to agricultural 

transportation. They are the most effective method of moving goods short distances and for 

assembling quantities of products at elevators and warehouses for transloading to other modes 

of transportation. Much agricultural trucking is local; trucks are often owned by farms and 

driven by farm workers. Trucks are dependent on the Nation’s roads and highways, and 

funding to repair and keep up our roads must be found. 

Agricultural transportation in the United States is a vital and efficient network of trucks, trains, 

barges, and ships. To keep America’s agriculture strong and competitive in the global market, 

this network must be maintained and strengthened. 

 
Chapter 2

The Importance 

of Freight 

Transportati on 

to Agriculture
19

Chapter 2: The Importance of Freight 

Transportation to Agriculture 

The global economy experienced a period of unprecedented growth and relatively low inflation 

from the 1990’s through 2007. At the same time, U.S. agriculture also experienced strong 

growth. In 2007, the market value of agricultural products sold was more than $297 billion—83 

percent higher than in 1992.13 U.S. agriculture is increasingly dependent on transportation to 

deliver agricultural and food products to urban centers and coastal export facilities, most of 

which are distant from the producing regions.*

 Raw agricultural products also need to be 

moved to agricultural processing facilities such as grain mills, fruit and vegetable processors, 

and meat processors. The agricultural sector is the largest user of freight transportation in the 

United States. 

Adequate and efficient transportation is especially critical to successful marketing of U.S. 

agricultural products, which depends on transportation to deliver goods. This chapter reviews 

how agriculture uses transportation in the context of all freight transportation moving along 

major transportation corridors. It also examines the characteristics of agricultural supply and 

demand that make transportation critical to successful marketing and analyzes the supply and 

demand characteristics of several agricultural commodities for transportation implications. 

 

Figure 2-1: Peas 

being harvested 

directly into a field 

truck. Trucks are 

often the first and 

last steps in the 

transportation 

chain. 

 

 

Source: USDA 

 

*

 According to the 2000 Census, over 36 percent of the U.S. population resides in the East Coast States, 20 

percent in the West Coast States, and almost 12 percent in the Gulf Coast States. 
20

How Agriculture Uses Transportation

Agricultural freight moves by truck, rail, and barge along the nation’s vast network of highways, 

rail lines, and navigable waterways, competing with other freight for capacity. Maps in Figures 

2-1, 2-2, and 2-3 show the magnitude of agricultural shipments relative to other freight traffic 

moving along the critical transportation corridors. Colors on the maps indicate the type of 

shipment and the width indicates its volume. Orange represents all commodity movements 

and yellow indicates food and farm products as a component of all commodity movements—

areas where food and farm products predominate are mostly yellow. 

Highways 

Trucks moving food and agricultural products compete for capacity along the major interstate 

highways crossing the United States (Figure 2-2). Agriculture and food movements comprise 

most of the commodities on highways crossing several States. For example, the lines are mostly 

yellow in parts of North and South Dakota, Nebraska, Kansas, Idaho, and Washington, indicating 

that agricultural commodities make up most of the shipments on those highways. 

Figure 2-2: Agricultural and total freight moving on U.S. interstate system, 2002 
21

Railroads 

Agricultural traffic competes with other freight along key rail corridors. It plays an important 

role in several major corridors; agricultural movements are significant along many east-west 

corridors, as well as along the West Coast and parts of the Midwest (Figure 2-3).

Seven Class I railroads are in operation in the United States today, and each is important to 

agricultural movements:*,14 

• BNSF Railway (BNSF) operates in the Western corridors.

• CSX Transportation (CSX) operates in the Eastern corridors.

• Kansas City Southern Railway (KCS) operates in the South-Central region.

• Norfolk Southern Combined Railroad Subsidiaries (NS) operates in the East. 

• Union Pacific Railroad (UP) operates in the West. 

• Canadian National (CN, through its U.S. subsidiary, Grand Trunk Corporation) operates 

mainly in the central North-South corridors.

• Canadian Pacific (CP, through its U.S. subsidiary, Soo Line Railroad) operates in the 

corridors between the Northern Upper Great Plains to the Northern Midwest and 

Northeast.

Figure 2-3: Agricultural and total freight moving on U.S. rail lines, 2006 

 

*

 Class I Railroads are line haul freight railroads with 2007 operating revenue in excess of $359.6 million each. 

 
22

Waterways 

The Mississippi River system is the primary waterway for moving agricultural products by barge. 

It is especially important for transporting bulk grains and oilseeds from the Midwest to export 

ports in the New Orleans region. Other important rivers include the Columbia River in the 

Pacific Northwest, which also moves some bulk grains and oilseeds, and coastal waterways that 

supply poultry and hog operations in the mid-Atlantic region. 

Figure 2-4: Agricultural and total freight moving on U.S. waterways 

Relative Modal Importance 

Every 5 years, the U.S. Census Bureau conducts the Commodity Flow Survey (CFS), which 

collects information about the value, tons, and ton-miles moved by the U.S. transportation 

system, as well as modal share information.*

 Modal shares are modal characteristics that 

 

*

 When the analysis for this study was conducted, only the 2002 CFS detailed data (5-digit commodity code level) 

data and the 2007 preliminary general commodity data (2-digit) were available. The 2007 CFS complete report, 

with the updated detailed 5-digit data, was released in December 2009, but is not included in this report. 
23

represent those portions of total tonnages or ton-miles that move by a specific mode of 

transport—truck, rail, barge, multimodal, or other. 

In 2007, agriculture represented 22 percent of all tons and 31 percent of all ton-miles moved by 

the transportation system in the United States—almost the same as it was in 2002.*

 The 

movement of coal, in comparison, accounted for 9 percent of all tons and 21 percent of all tonmiles. Agriculture is the largest user of the U.S. transportation system. 

According to the preliminary 2007 CFS data tables, the value of all commodities transported 

grew by 41 percent, the tons by 12 percent, and the ton-miles by 11 percent in 5 years. The 

value, tons, and ton-miles of agricultural commodities moved grew by 34, 5, and 5 percent, 

respectively, from 2002 to 2007†

 (Table 2-1). 

Modal shares vary by commodity based on the quality of service and other factors, such as 

rates, availability, and customer needs. Commodities high in value or susceptible to 

deterioration or spoilage are more sensitive to handling procedures and to speed of delivery 

than less perishable commodities. For example, fresh fruits and vegetables require speed and 

careful handling above all. Trucks dominate movements of fresh fruit and vegetables, livestock, 

meats and poultry, dairy products, and bakery and confectionary products. Rail and barges 

lend themselves to bulk and lower-value products such as wheat and soybeans. Many 

commodities depend heavily on railroads, particularly grain and oilseed, alcohols, and 

fertilizers. The higher ratio of ton-miles for rail and barge indicates their efficiency at moving 

commodities longer distances, such as moving grains and oilseed to ports for export and to 

distant feedlot locations (Tables 2-2 and 2-3). 

CFS data show that in 2002 trucks were the primary mover of agricultural products, claiming 70 

percent of all agricultural tonnages and 46 percent of all agricultural ton-miles (Table 2-2). 

Railroads followed with 18 percent of tonnages and 36 percent of ton-miles (although railroads’ 

share is much higher in the heavier bulk commodities such as grains and oilseeds, milled grain 

products and animal feed, alcohols, fertilizers, and lumber). Barges have a 9 percent share of 

agricultural tonnages and a 12 percent share of agricultural ton-miles—most of which is 

accounted for by movements of grain, animal feed, and fertilizers on the Mississippi River and 

its tributaries.

 

*

 Includes movements of raw agricultural commodities (grains, livestock, timber, fruit, and vegetables), processed 

products (feedstuffs, dairy, canned foods, lumber, pulp, and paper), and agricultural inputs (fertilizer and 

pesticides). †

 The CFS data are estimated with coefficients of variance, which makes this comparison inexact. 
24

Commodity description (2-digit)

 Value 

(billion $)

Tons 

(Million)

TonMiles 

(Billion)

Average 

Miles per 

Shipment

 Value 

(billion $) 

Tons 

(Million) 

TonMiles 

(Billion) 

Average 

Miles per 

Shipment Value Tons

TonMiles 

All Commodities 8,397 11,668 3,138 546 11,832 13,017 3,491 580 41 12 11

Agricultural Products: Live animals and live fish 7 6 2 530 15 9 4 725 98 43 146

 Cereal grains 54 561 264 138 110 673 280 153 104 20 6 Other agricultural products 129 259 109 481 158 271 122 374 22 5 11

 Animal feed and products 52 228 51 167 82 231 71 383 58 2 38

 Meat, fish, seafood 201 85 41 162 259 90 44 243 28 7 7

 Grain, alcohol, and tobacco products 113 109 49 189 137 115 50 262 21 5 3

 Other prepared food; fats and oils 356 449 162 179 490 462 160 230 38 3 (1)

 Alcohol and alcoholic beverages 109 89 26 55 157 117 33 87 44 31 29

 Tobacco products 70 4 1 334 81 3 1 414 16 (23) (34)

 Fertilizers 34 264 88 157 42 137 52 162 23 (48) (41)

 Logs and Wood products 164 346 128 242 225 414 145 290 37 20 13

 Paper Pulp 102 137 78 206 129 145 80 250 26 6 3

 Paper or paperboard articles 104 69 23 282 118 82 30 392 14 18 27

Agricultural Products Sub-Total 1,497 2,607 1,022 2,002 2,749 1,072 34 5 5

 % of All Commodities 18% 22% 33% 17 21 31Coal 23 1,240 686 120 33 1,235 722 115 46 (0.4) 5

 % of All Commodities 0.3% 11% 22% 0.3% 9% 21%

2002 2007 % Change from 2002

Table 2-1: Transportation characteristics of agricultural commodities, 2002 and 2007

Source: DOT, Bureau of Transportation Statistics, U.S. Census Bureau, CFS, 2002 <http://www.bts.gov/publications/commodity_flow_survey/>
25

Commodity Groups Truck

(%) All 

Modes Rail

(%) All 

Modes Water

(%) All 

Modes

MultiModal (%) All Modes Other* (%) All Modes All Modes Total

 -- Million Tons --

Ag. and Food Products

Grains (Incl. Seeds) & Soybeans 286.3 40 197.1 27 208.5 29 15.3 2 11.4 2 719 100

Other Oilseeds 5.7 75 1.3 17 0.5 7 8 100

Fruit & Veg (incl. potatoes) 73.0 94 1.0 1 0.5 1 3.4 4 78 100

Livestock and live fish 7.0 95 - 0.4 5 7 100Meat and poultry, fresh or frozen 75.8 98 0.4 1 0.1 0.1 1.4 2 78 100

Dairy products 95.1 98 0.2 0.2 0.1 0.1 1.7 2 97 100

Processed veg., fruit, or nuts 54.6 90 2.6 4 1.5 2 2.0 3 61 100

Milled grain products; animal feed 94.8 76 23.5 19 1.2 1 0.7 1 4.1 3 124 100

Bakery products and preparations 58.0 97 0.3 0.5 0.6 1 1.0 2 60 100

Animal or vegetable fats and oils 31.6 57 17.4 31 3.1 6 3.5 6 56 100

Sugar (beet or cane); corn syrup 15.9 42 20.0 53 0.8 2 1.0 3 38 100

Confectionery, incl. cocoa 5.6 91 0.4 7 0.1 2 0.0 0 6 100

Beverages 218.3 97 2.4 1 0.5 0 4.2 2 225 100

Misc. food products 46.5 92 1.9 4 0.8 2 1.1 2 50 100

Alcohols (bev. and industrial) 7.9 64 3.6 29 0.2 2 0.7 5 12 100Fertilizers 151.2 57 95.9 36 10.6 4 6.7 3 264 100

Lumber & wood products 284.6 82 48.5 14 0.4 0.1 2.6 1 9.9 3 346 100

Paper, pulp, paperboard articles 160.8 78 38.5 19 3.0 1 3.9 2 206 100

 Farm machinery and equipment** 9.5 89 1.2 11 11Other ag. products 151.4 88 16.3 9 4.2 2 -- -- 172.5 100

-

Ag. And Food Products Total 1,824.1 70 471.2 18 228.0 9 32.7 1 51.4 2 2,607.4 100

% of All Commodities, by mode 23% 25% 33% 15% 5% 22%

Coal 149.8 12 839.5 68 39.7 3 58.3 5 152.5 12 1,239.9 100

% of All Commodities, by mode 2% 45% 6% 27% 14% 11%

All Commodities 7,842.8 67 1,873.9 16 681.2 6 216.7 2 1,053.3 9 11,667.9 100

**Unpublished estimates. May contain high levels of sampling and nonsampling error. Not included in Ag and Food Products Subtotal.*Includes suppressed modal data, other single modes (air, parcel post, or pipepines), and other and unknown modes. For additional information about the CFS, 

please see, www.census.gov/cfs.

Table 2-2: Modal transportation characteristics of agricultural commodities by volume, 2002 Source: DOT, Bureau of Transportation Statistics, U.S. Census Bureau, CFS, 2002 
26

Table 2-3: Modal transportation characteristics of agricultural commodities, by ton-miles, 2002 

Commodity Groups Truck

Source: DOT, Bureau of Transportation Statistics, U.S. Census Bureau, CFS, 2002 

(%) All 

Modes Rail

(%) All 

Modes Water

(%) All 

Modes

MultiModal (%) All Modes Other* (%) All Modes All Modes Total

 -- Billion Ton-Miles --

Ag. and Food Products

Grains (Incl. Seeds) & Soybeans 28.0 9 158.3 50 113.8 36 16.3 5 2.4 1 318.9 100

Other Oilseeds 2.9 63 1.1 24 0.6 13 4.5 100

Fruit & Veg (incl. potatoes) 33.1 81 2.1 5 1.2 3 4.4 11 40.7 100

Livestock and live fish 5.8 95 0.3 5 6.1 100

Meat and poultry, fresh or frozen 36.4 97 0.6 2 0.1 0.4 0.3 1 37.4 100

Dairy products 20.1 98 0.3 1 0.1 0.4 0.2 1 20.6 100

Processed veg., fruit, or nuts 31.5 78 5.2 13 3.1 8 0.6 2 40.4 100

Milled grain products; animal feed 19.2 39 22.4 46 0.7 1 0.6 1 5.9 12 48.7 100

Bakery products and preparations 23.8 90 0.4 2 1.0 4 1.2 5 26.5 100

Animal or vegetable fats and oils 9.7 39 12.4 49 2.4 10 0.5 2 25.0 100

Sugar (beet or cane); corn syrup 4.8 19 18.6 75 1.1 4 0.4 1 24.9 100

Confectionery, incl. cocoa 3.2 83 0.2 5 0.5 12 3.9 100

Beverages 34.3 83 2.1 5 0.8 2 4.2 10 41.4 100

Misc. food products 23.4 83 2.5 9 0.1 0 2.3 8 28.2 100

Alcohols 1.3 25 3.2 61 0.2 5 0.4 9 5.1 100

Fertilizers 45.0 50 35.2 39 6.5 7 3.2 4 89.9 100

Lumber & wood products 70.3 55 51.3 40 4.1 3 2.3 2 127.9 100

Paper, pulp, paperboard articles 64.1 63 32.4 32 3.5 3 1.5 2 101.5 100 Farm machinery and equipment** 4.2 91 0.4 9 4.6 100

Other ag. products 21.8 62 4.7 13 8.9 25 35.4 100

Ag. And Food Products Subtotal 468.3 46 360.2 36 126.7 12 38.9 4 20.1 2 1,014.3 100

% of All Commodities, by mode 37% 29% 45% 17% 18% 32%

Coal 11.7 2 590.4 86 11.8 2 72.4 11 686.3 100

% of All Commodities, by mode 1% 47% 4% 65% 22%

All Commodities Total 1,255.9 40 1,261.6 40 282.7 9 225.7 7 112.0 4 3,137.9 100

**Unpublished estimates. May contain high levels of sampling and nonsampling error. Not included in Ag and Food Products Subtotal.*Includes suppressed modal data, other single modes (air, parcel post, or pipepines), and other and unknown modes. For additional information about the CFS, 

please see, www.census.gov/cfs.
27

Moving Agricultural Commodities to Market 

Transportation demand is frequently referred to as a derived demand, suggesting that it is 

required to deliver products from producers to consumers. As such, it is an essential part of 

marketing; any change in supply or demand can affect the transport system’s efficiency by 

bringing about either shortages or surpluses in transportation capacity. Additional factors that 

impact agricultural transportation demand include weather, the seasonality of the agricultural 

cycle and the resulting commodity price fluctuations that can translate into unexpected shifts in 

transportation patterns. America’s agricultural producers depend on transportation as the 

critical link between the fields of growers and the tables of consumers, both here and abroad. 

This section presents select transportation “profiles” to show overarching transportation 

characteristics and relationships. These profiles portray the supply and demand characteristics 

of the commodities and reveal some significant transportation implications. The groups of 

profiles are: 

• Grains and Oilseeds 

o Corn 

o Soybean 

o Wheat 

o Rice 

• Livestock and Livestock Products 

o Cattle and Beef 

o Hogs and Pork 

o Poultry 

o Dairy 

• Fruits and Vegetables 

o Apple 

o Lettuce 

o Potatoes 

• Fertilizers 

The list above includes commodity groups for which transportation profiles were developed. 

The transportation profiles provide details of industry trends and transportation implications 

for each commodity. Where possible, the location of processing facilities is included in the 

profile. 

Grains and Oilseeds Profile 

The largest users of freight transportation in agriculture are the grains and oilseeds. In 2002, 

grains and oilseeds comprised 28 percent of all agricultural tons and 31 percent of ton-miles 

moved by all modes of transportation (Tables 2-2 and 2-3). 
28

Industry Trends 

Global agricultural supply and demand has changed rapidly since 1990. Table 2-4 shows 

changes in the eight major U.S. agricultural commodities between 1990/91 and 2007/08. Corn 

and soybeans have increased the most in production and demand since 1990. It is not 

surprising that they have also dominated the growth in transportation demand and account for 

most of the grain modal share. Between 2000 and 2006, corn accounted for 60 percent and 

soybeans 20 percent of all U.S. grain movements. 

U.S. rice production, domestic use, and exports have also grown over the last 17 years. 

Production and domestic demand of wheat and the other feedgrains (sorghum, barley, and 

oats) have declined since 1990. Wheat production has declined because of the slow growth in 

global demand, causing farmers to switch to more profitable crops such as soybeans and corn. 

Sorghum production has declined because many farmers have shifted to growing more 

profitable corn and soybeans. Cotton domestic use has declined as a result of the movement of 

the U.S. textile sector to Asia and because of increased cotton production in China and India.

Exports of corn and soybeans grew strongly during this time, increasing by 44 and 69 percent, 

respectively. Rice, cotton, and sorghum exports also rose. Transportation demand was the 

strongest for the three major commodities; corn, soybean, and wheat exports accounted for 89 

percent of exports of the 8 major crops. 

Transportation is impacted most by changes in crop production and export demand; domestic 

demand for the major crops tends to be relatively stable. A look at the previous 17 years and 

USDA’s long-term projections—until the 2018/19 marketing year—shows that production and 

exports for the three major grains return to a more stable growth, contrasted with the dramatic 

changes of the past 17 years (Table 2-4).15

Production Outlook for Grains and Oilseeds 

Corn production is expected to grow, but at a slower pace, increasing 12 percent by 2018/19, 

compared with the 58 percent growth over the previous 17 years. The expected growth 

reflects high levels of domestic corn-based ethanol production and gains in exports that keep 

corn demand strong and grower returns high. 

Soybean production is expected to grow rapidly, increasing 22 percent by 2018/19 compared 

with the 28 percent growth over the previous 17 years. 

Declines in the livestock sector initially reduce demand for soybean meal for livestock feed, 

lowering the domestic soybean crush in the near term. However, once meat production gains 

resume, the soybean crush will follow; long-term growth in the domestic soybean crush is 

mostly driven by domestic soybean meal demand. 

Despite an expected decrease in wheat acreage, wheat production is expected to increase by 

13 percent over the projected period. 
29

Export Outlook for Grains and Oilseed 

Following a year of record U.S. corn exports in 2007/08, exports are expected to drop in 

2008/09 but rise in the long term in response to a strengthening global demand for feed grains 

to support growth in meat production. The U.S. share of the global corn trade is expected to 

hold at around 55–60 percent. 

U.S. wheat exports also reached recent record high levels in 2007/08 but are projected to drop 

in 2008/09 and then increase slowly as competition from the European Union (EU), Canada, 

Argentina, Australia, and the Black Sea region limits further gains. 

U.S. soybean exports will hold fairly flat, increasing by 3 percent over the projection period. 

Competition from South America limits growth in U.S. exports. Consequently, the U.S. market 

share of global soybean trade is forecast to decline from 40 percent in 2009/10 to about 30 

percent at the end of the projections. 

Table 2-4: Key supply and demand indicators: U.S. major eight field crops, (million 

metric tons)

Sources: Economic Research Service, Commodity Yearbooks; USDA World Agricultural Supply and Demand 

Estimates; USDA Long-term Projections to 2018 

 

----------5-year averages------------

USDA 

Long-term 

Projections 

% 

Change 

1990-94 

% 

Change 

2007/08

 1990-94 1995-99 2000-04 2005/06 2006/07 2007/08 2018/19 

to 

2007/08 

to 

2018/19

Production 

Corn 209.7 228.8 255.4 282.3 267.5 331.2 370.3 58 12 

Wheat 64.7 64.1 56.0 57.2 49.2 55.8 62.9 (14) 13 

Soybeans 57.1 68.8 76.1 83.4 87.0 72.9 88.7 28 22 

Sorghum 16.3 15.3 11.2 10.0 7.0 12.6 10.3 (23) (19)

Barley 9.2 7.6 5.9 4.6 3.9 4.6 5.4 (50) 19 

Oats 3.9 2.3 1.9 1.7 1.4 1.3 1.5 (66) 11 

Rice 7.7 8.3 9.5 10.1 8.8 9.0 10.8 17 20 

Cotton 3.7 3.8 4.2 5.2 4.7 4.2 4.0 13 (4)

Domestic Use 

Corn 165.8 180.3 207.2 232.0 230.7 261.7 312.3 58 19 

Wheat 33.5 34.7 32.7 31.3 30.9 28.6 36.8 (15) 29 

Soybeans 34.8 41.2 44.5 47.3 49.2 49.0 51.6 41 5 

Sorghum 10.9 9.9 6.0 4.8 4.0 5.1 5.0 (53) (2)

Barley 8.5 7.3 5.6 4.6 4.6 4.4 5.4 (49) 23 

Oats 5.1 3.7 3.3 3.0 2.9 2.8 2.9 (45) 2 

Rice 4.3 5.0 5.4 5.5 5.8 5.6 6.6 30 18 

Cotton 2.2 2.3 1.6 1.3 1.1 0.9 0.8 (58) (8)

Exports 

Corn 43.1 48.0 46.5 54.2 54.0 61.9 56.5 44 (9)

Wheat 33.3 29.5 29.0 27.3 24.7 34.4 29.3 3 (15)

Soybeans 18.7 23.9 27.7 25.6 30.4 31.6 32.7 69 3 

Sorghum 6.2 5.4 5.3 4.9 3.9 7.1 5.3 13 (24)

Barley 1.69 0.98 0.68 0.61 0.44 0.90 0.5 (47) (40)

Oats 0.04 0.03 0.04 0.03 0.04 0.04 0.0 16 3 

Rice 3.61 3.85 4.67 5.21 4.12 4.89 5.9 36 20 

 Cotton 1.56 1.44 2.52 3.82 2.83 2.61 3.1 67 20 
30

Mode of Transportation of U.S. Grains, 1978-2006* 

The term “modal share” means the portion of the total tonnages of grain moved by each mode 

of transport—rail, barge, or truck. Almost all grain moves off the farm by truck to its first 

destination. However, this analysis looks only at the final mode used. Grain is frequently 

shipped by more than one mode. For example, corn may travel to St. Louis by rail and then be 

loaded on a barge to be shipped to New Orleans for export. 

Barges, railroads, and trucks compete to transport grain. Despite this competition, the modes 

also complement each other. This balance between competition and integration provides 

farmers with an efficient and low-cost transportation system. 

The most remarkable trend in grain transportation is the nearly constant annual increases in 

the amount of grain transported each year. Total grain movements increased 84 percent from 

1978 to 2006. During those 28 years, there were only 8 years in which annual grain movements 

decreased. The decreases in 1989 and 1994 are notable. The 1989 decline reflected 

production losses due to the widespread 1988 drought. The 1994 decrease was caused by 

production losses due to massive flooding in 1993. 

Grain movements have two distinct patterns, depending upon whether the final destination is 

domestic or foreign. From 1978 to 2006, all growth in grain transportation was a result of 

increases in the domestic market. During this time, the export market peaked in 1980 and 

1981, with record levels for corn in 1980 and wheat in 1981 (Figure 2-5). The trucking sector 

experienced the largest growth in grain movements from 1978 to 2006, when tonnage 

increased from 74 million to 227 million tons—growing at a compound annual growth rate 

(CAGR) of 4.1 percent. During this period, rail movements increased from 117 million to 158 

million tons (1.1 percent CAGR), and barge movements from 51 million to 60 million tons (0.6 

percent CAGR) (Figure 2-6). 

 

*

 Information for this section was developed through a preliminary update of the October 2006 report, 

Transportation of U.S. Grains: A Modal Share Analysis, 1978-2004 to include the years 2005 and 2006. This 

report is periodically updated by AMS. 
31

Figure 2-5: Grain movements by type of movement, 1978 to 2006 

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 

Figure 2-6: Grain movements by mode, 1978 to 2006 

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 
32

Location of Elevators 

The location of agricultural storage facilities—mainly grain elevators and warehouses—has 

played a key role in the development of the United States. As Eastern cities expanded and 

Midwest farms increased their capacity, an efficient system of transportation and storage was 

introduced to prevent spoilage and reduce transportation costs. In 1842, a retail merchant 

named Joseph Dart constructed what is believed to be the first grain elevator on Buffalo Creek, 

near Buffalo, NY. Since then, storage facilities have evolved to highly mechanized modern 

operations that include the grain-barge and ocean-vessel loading facilities of today. 

Two key factors play a role in the location of elevators and warehouses. The first is the need to 

store grain, oilseeds, and other agricultural products immediately after harvest to prevent 

spoilage and infestation. The second factor is the need to efficiently gather and load the 

quantities required to fill a tow of barges or an ocean-going vessel. As can be seen in Figure 2-

7, the highest concentrations are in the Midwest and West Coast—near major grain and oilseed 

producing and/or consuming areas—and the port regions of the Gulf and Pacific Northwest. 

Storage capacity is also located near the poultry and swine operations of the Mid-Atlantic and 

the dairy farms of the Northeast, West, and Southwest. 

Elevator and warehousing operations in the United States fall into two categories: those with a 

Federal license issued under the United States Warehouse Act (USWA) and those licensed by 

States. Many of these facilities also have storage agreements with USDA’s Commodity Credit 

Corporation (CCC). Either State or Federal licensing is required by many States and under some 

of the CCC storage agreements. 

The USWA authorizes the Secretary of Agriculture to license warehouse operators who store 

agricultural products. Warehouse operators must meet USDA standards established by 

Congress within the USWA and its regulations. Application is voluntary and applicants who 

agree to be licensed under the USWA observe the rules for licensing and pay associated user 

fees. The CCC enters into storage agreements with private individuals and companies to allow 

warehouse operators to store commodities owned by CCC or pledged as security to CCC for 

marketing assistance loans. Typically, these agreements are in the form of the Uniform Grain 

and Rice Storage Agreement (UGRSA). Warehouse operators that enter into these agreements 

must meet standards established by USDA, agree to comply with the terms and conditions of 

the agreement, and pay any associated user fees. In some agreements, the warehouse 

operators are required to be licensed either by the USWA or by a State authority. 
33

Transportation Implications 

Agricultural processing facilities are usually located in close proximity to the raw agricultural 

products they use, in part due to the economic advantages that include lower transportation 

costs. This is also the case with the grain and oilseed milling facilities. As the map in Figure 2-8 

shows, the processing facilities that use wheat, corn, rice, and soybeans to manufacture flour, 

vegetable oil, and other products are concentrated in the same areas as the storage facilities. 

Figure 2-7: Location of elevator storage capacity, with rail and barge systems*

Source: Farm Service Agency USWA/UGRSA database (as of January 2009) 

 

*

 This map includes storage operations that warehouse several commodity groups. Each warehouse may hold 

different commodities at different times of the year or, in multi-silo elevators, different commodities at the 

same time. However, the vast majority of the elevators on this map primarily handle grains. This map is 

estimated to represent more than 80 percent of total storage capacity. 
34

Figure 2-8: Grain and oilseed milling facilities, 2000 

Source: Econ 02 Report Series, 2002, Economic Census, U.S. Census Bureau 

Corn Profile 

 Corn produced in the United States is used mainly as animal feed, with smaller portions 

exported and used for ethanol, human food, and seed. 

Supply and Demand

Supply and demand patterns in the U.S. corn market 

have shifted dramatically since 1990. Domestic and 

export shares have decreased and the share used by 

industry has grown substantially. Feed use has 

decreased from 59 percent in the 1990/91 growing 

season to 47 percent in 2007/08; exports decreased 

from 22 to 19 percent. During the same period, 

industrial use increased from 18 percent to 34 percent 

(Table 2-5). Most of the change occurred after the rapid expansion of the ethanol sector. 

 

Table 2-5: Corn usage by sector, 

percentage 

Feed Exports Industrial

1990/91 59 22 18

2007/08 47 19 34
35

Domestic demand for feed corn has grown by only 29 percent between 1990/91 and 2007/08 

marketing years (Table 2-6). But demand for corn for food, seed, and industrial products, 

including ethanol, has surged by 206 percent. About a third of the corn used to make ethanol 

ends up as distiller grains, which are used as animal feed. Corn exports peaked in 2007/08 at a 

record 2.4 billion bushels—41 percent higher than in 1990/91. Corn exports are expected to 

decrease to 1.75 billion bushels in 2008/09 due to reduced global demand for corn feeding as a 

result of the current economic downturn. USDA projects that by 2018/19, corn exports will 

recover to 2.25 billion bushels. 

Table 2-6. U.S. corn supply and use for various marketing years, million bushels 

Source: USDA/ERS, Feedgrains database. <http://www.ers.usda.gov/data/feedgrains> 

Supply Use

Marketing Yeara

Beginning 

Stocks Production Imports Total

Food, 

seed, and 

alcohol Feed Exports Total

1990/91 1,344 7,934 3 9,282 1,425 4,609 1,727 7,761 

2000/01 1,718 9,915 7 11,639 1,957 5,842 1,941 9,740 

2001/02 1,899 9,503 10 11,412 2,046 5,864 1,905 9,815 

2002/03 1,596 8,967 14 10,578 2,340 5,563 1,588 9,491 

2003/04 1,087 10,087 14 11,188 2,537 5,793 1,900 10,230 

2004/05 958 11,806 11 12,775 2,687 6,155 1,818 10,661 

2005/06 2,114 11,112 9 13,235 2,982 6,152 2,134 11,268 

2006/07 1,967 10,531 12 12,510 3,490 5,591 2,125 11,207 

2007/08 1,304 13,038 20 14,362 4,363 5,938 2,436 12,737 

2008/09b 12,101 1,624 15 13,740 4,900 5,300 1,750 11,950 

2009/10c 12,365 1,790 15 14,170 5,400 5,200 1,850 12,450 

a Marketing Year: September 1-August 31

b Projected, WASDE, February 10, 2009

c Preliminary, February 27, 2009
36

Corn Transportation Characteristics 

In 2007, more than 60 percent of U.S. corn was harvested in five states: Iowa, Illinois, Nebraska, 

Minnesota, and Indiana. Demand for corn, however, was more diverse, creating areas of deficit 

throughout the West, Texas, the Southeast, and Northeast. Corn is also shipped to export port 

regions in the Gulf, the Pacific Northwest, the Atlantic Coast, and the Great Lakes. Figure 2-9 

demonstrates that this imbalance of surplus and deficit creates the need for long distance 

transportation. 

Figure 2-9: Corn surplus/deficit map with the transportation system 

Because of the projected trend in supply and demand, long-term transportation demand for 

corn exports can be expected to grow at a stable rate. Domestic corn transportation patterns 

will continue to be dominated by the dynamics of corn used for ethanol and distillers grain 

because the growth of the ethanol industry in the Corn Belt introduced additional 

transportation needs. More than 90 percent of ethanol production capacity is located within a 

50-mile radius of the corn producing areas, so trucks have been the primary mode of 

transportation for inbound corn. However, the newer and larger bio-refineries are able to 

receive corn shipments by rail. Chapter 4 provides more information on transportation of 

biofuels. 
37

Corn Modal Shares 

During 2000 to 2006, corn accounted for 60 percent of all grain movements. It dominates the 

bulk transportation market because of its large production volumes; it usually has the largest 

harvested acreage of any crop, although soybean acreage has risen in the last several years and 

sometimes surpasses the number of corn acres. However, the high yield-per-acre of corn 

makes it a driver in the transportation market. Corn yields can be more than three times those 

of soybeans or wheat. 

Corn is transported to distant markets in two patterns—one for domestic use and the other for 

export. Trucks supply most of the transportation for the domestic market, and barges supply 

the export market. From 2000 to 2006, trucks transported, on average, about 68 percent of the 

corn used by the domestic market (Table 2-7). During the same period, barges transported 64 

percent of the corn exports. Rail handled about 33 percent of the export market and 30 

percent of the domestic market. Barges continue to be the main mode of transportation for 

corn moving to port regions for export. But the modal share trend for exported corn has seen 

an increase in the rail share and a decrease in barges. By 2006, rail’s share of export corn 

increased to 44 percent—15 points higher than in 2000. At the same time, barge’s share had 

decreased to 50 percent after peaking at 73 percent in 2002 (Table 2-7 and Figure 2-10). 

 

 
38

Table 2-7: Corn modal shares 

CORN

Year & Type of Movement Rail Barge Truck

1,000 Tons Percent 1,000 Tons Percent 1,000 Tons Percent

TOTAL

2000 68,984 30% 37,831 16% 122,531 53%

2001 73,633 31% 38,864 16% 125,340 53%

2002 72,615 31% 41,598 18% 119,713 51%

2003 71,443 30% 36,488 15% 127,916 54%

2004 77,377 32% 37,302 15% 126,588 52%

2005 77,908 30% 31,739 12% 150,519 58%

2006 91,552 32% 34,587 12% 159,086 56%

Average 76,216 31% 36,916 15% 133,099 54%

EXPORT

2000 15,213 29% 35,150 66% 2,594 5%

2001 15,822 30% 35,904 68% 1,306 2%

2002 14,327 27% 38,125 73% Not available * 

2003 14,371 30% 32,872 69% 364 1%

2004 17,422 33% 33,974 64% 1,978 4%

2005 20,251 40% 28,778 57% 1,600 3%

2006 28,145 44% 31,941 50% 3,342 5%

Average 17,936 33% 33,821 64% 1,598 3%

DOMESTIC

2000 53,771 30% 2,681 2% 119,936 68%

2001 57,811 31% 2,960 2% 124,034 67%

2002 58,288 32% 3,473 2% 119,835 66%

2003 57,072 30% 3,616 2% 127,552 68%

2004 59,955 32% 3,328 2% 124,611 66%

2005 57,657 28% 2,961 1% 148,918 71%

2006 63,407 29% 2,646 1% 155,744 70%

Average 58,280 30% 3,095 2% 131,519 68%

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 

 
39

Figure 2-10: Modal shares of corn exports, 2000-2006 

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 

Corn Exports by Port Region 

• Most corn exports are shipped 

through the Mississippi Gulf 

region—63 percent of all corn 

volumes exported in 2007 

(Figure 2-11). 

• The Pacific Northwest accounted 

for 17 percent of all corn exports 

in 2007.

• The top five destinations—Japan, 

Mexico, Korea, Taiwan, and Egypt 

accounted for 64 percent of all 

U.S. exports in 2007/08.

• The port share of corn exports 

depends on the ocean rate 

spread (the difference between 

the cost of shipping from the Gulf to Japan and the cost of shipping from the Pacific 

Northwest). 

Figure 2-11: Corn export inspections by port region, 2007 

Source: FGIS, 2007
40

Soybean Profile 

Soybeans are used to produce soybean meal used as animal feed, soybean oil, and other 

soybean products used in food manufacturing. 

Supply and Demand 

The 65 percent growth in the global economy since 1990 has contributed to the rise in world 

demand for meat, milk, and eggs,16 which has translated into demand for U.S. soybeans and 

soymeal used as a high-protein livestock feed. Between 1990 and 2008, domestic demand for 

soybeans grew by 52 percent and soybean exports increased by 108 percent. USDA’s 

preliminary projections indicate that U.S. soybean exports could reach a record level in 

2009/10, but then continue a more stable long-term growth. A continuing demand for soybean 

exports will require efficient and reliable rail and barge transportation. 

Table 2-8: U.S. soybean supply and use for various marketing years (in million bushels) 

Source: USDA/ERS, Soybean and Oil Crops Recommended Data 

<http://www.ers.usda.gov/Briefing/SoybeansOilcrops/data.htm> 

Supply Use

Marketing Yeara

Beginning 

Stocks Production Total Crush Exports

Seed, 

Feed, 

Residual Total

1990/91 239 1,926 2,165 1,187 557 96 1,840 

2000/01 290 2,758 3,048 1,640 996 168 2,804 

2001/02 248 2,891 3,138 1,700 1,064 169 2,933 

2002/03 208 2,756 2,964 1,615 1,044 131 2,791 

2003/04 178 2,454 2,632 1,530 887 109 2,525 

2004/05 112 3,124 3,236 1,696 1,097 193 2,986 

2005/06 256 3,063 3,319 1,739 940 194 2,873 

2006/07 449 3,197 3,646 1,808 1,116 157 3,081 

2007/08 574 2,677 3,251 1,801 1,161 93 3,055 

2008/09b 2,959 205 3,164 1,650 1,150 163 2,963 

2009/10c 3,240 210 3,450 1,675 1,225 172 3,072 a Marketing Year: September 1-August 31

b Projected, WASDE, February 10, 2009

c Preliminary, February 27, 2009
41

Soybean Transportation Characteristics 

As with corn, the top soybean producing states are Iowa, Illinois, Minnesota, Indiana, Ohio, and 

Nebraska. However, demand for soybean products in feed rations is distributed around the 

U.S. markets and port regions for export (Figure 2-12). 

Figure 2-12: Soybean surplus/deficit map with transportation system 
42

Soybean Modal Share 

From 2000 to 2006, soybeans accounted for 20 percent of all grain movements. Their 

transportation pattern resembles that of corn; barges provide most of the transportation for 

export, and trucks serve most of the domestic markets. With a domestic modal share for truck 

of more than 80 percent, the domestic soybean market uses more trucks than corn, the latter 

having a modal truck share of under 70 percent (Tables 2-7 and 2-9). Soybeans used in the 

domestic market are more likely to be trucked to a crushing facility, so more trucked soybeans 

appear in the domestic market. Since 2004, the share of soybeans moved for export by rail has 

been rising, while the share of soybean export movements by barge has slowly decreased. In 

fact, by 2006, the share of export soybean movements by barge was only 3 percent above that 

moved by rail (Figure 2-13 and Table 2-9). 

Figure 2-13: Modal shares of soybean exports, 2000-2006 

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 

 
43

Table 2-9: Soybean modal shares, 2000-2006 

SOYBEANS

Year & Type of Movement Rail Barge Truck

1,000 Tons Percent 1,000 Tons Percent 1,000 Tons Percent

TOTAL

2000 17,257 22% 20,174 26% 41,225 52%

2001 20,662 24% 19,872 23% 44,813 53%

2002 19,120 22% 21,399 25% 44,848 53%

2003 20,216 24% 20,167 24% 44,409 52%

2004 16,346 22% 17,053 23% 39,337 54%

2005 17,655 22% 16,332 21% 45,501 57%

2006 21,858 25% 16,221 19% 49,557 57%

Average 19,016 23% 18,745 23% 44,242 54%

EXPORT

2000 8,591 29% 18,665 63% 2,442 8%

2001 11,711 37% 18,689 59% 1,262 4%

2002 10,602 35% 19,642 64% 263 1%

2003 12,479 37% 18,632 55% 2,878 8%

2004 9,322 34% 15,412 56% 2,977 11%

2005 11,273 40% 15,030 53% 1,815 6%

2006 14,169 46% 15,240 49% 1,654 5%

Average 11,164 37% 17,330 57% 1,899 6%

DOMESTIC

2000 8,666 18% 1,510 3% 38,783 79%

2001 8,950 17% 1,183 2% 43,552 81%

2002 8,518 16% 1,758 3% 44,586 81%

2003 7,737 15% 1,535 3% 41,531 82%

2004 7,024 16% 1,641 4% 36,361 81%

2005 6,382 12% 1,302 3% 43,686 85%

2006 7,688 14% 982 2% 47,903 85%

Average 7,852 15% 1,416 3% 42,343 82%

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 
44

Soybean Exports by Port Region 

• Most soybean exports are shipped through the Mississippi Gulf region—52 percent in 

2007 (Figure 2-14).

• The Pacific Northwest accounted for 27 percent of all soybean exports in 2007.

• The top 5 destinations—China, Mexico, Japan, EU, and Taiwan—accounted for 80 

percent of all U.S. soybean exports in 2007.

Figure 2-14: Soybean exports by port region 

Source: FGIS grain inspections, 2007 annual 

Wheat Profile 

Wheat is the most important food grain produced in the United States. Annual production 

exceeded 2 billion bushels in 4 out of the last 5 years (Table 2-10). 

Supply and Demand 

Wheat production in the United States has declined since 1990/91 because of slow growth in 

global demand, and also because farmers have found it more profitable to grow soybeans and 

corn. U.S. wheat exports surged in 2007/08 due to a weather-related shortfall in production by 

other major exporters. This reduced available world wheat supplies and resulted in importing 

countries buying more U.S. wheat than they have done in the recent past. 

 
45

Various types of wheat are grown in highly concentrated production areas of the United States 

and the grain must be dispersed for use throughout the United States. Seasonality of the types 

of wheat can affect its transportation. The harvest seasons of the two major types of wheat—

winter and spring—grown in the United States take place in May–June and August–September, 

respectively. As in the case of corn and soybeans, export demand necessitates shipping both 

winter and spring wheat to the major export regions. 

Table 2-10: U.S. wheat supply and use, (million bushels) 

Source: USDA/Economic Research Service, Wheat Yearbook Tables. <http://www.ers.usda.gov/Data/Wheat> 

Supply Use

Marketing Yeara

Beginning 

Stocks Production Imports Total Food

Feed, 

Seed, 

Residual Exports Total

1990/91 536 2,730 36 3,302 790 575 1,069 2,434 

2000/01 950 2,228 90 3,268 950 379 1,062 2,391 

2001/02 876 1,947 26 2,849 926 265 962 2,153 

2002/03 777 1,606 77 2,460 919 200 850 1,969 

2003/04 491 2,344 63 2,899 912 283 1,158 2,353 

2004/05 546 2,157 71 2,774 910 259 1,066 2,235 

2005/06 540 2,103 81 2,725 917 234 1,003 2,154 

2006/07 571 1,808 122 2,501 938 199 908 2,045 

2007/08 456 2,051 113 2,620 947 103 1,264 2,314 

2008/09b 2,500 306 110 2,916 950 310 1,000 2,260 

2009/10c 2,120 655 105 2,880 950 316 950 2,216 a Marketing Year: June 1 - May 31

b Projected, WASDE, February 10, 2009

c Preliminary, February 27, 2009
46

Wheat Transportation Characteristics 

In 2007, almost 83 percent of U.S. wheat was grown in 10 states: North Dakota, Kansas, 

Montana, South Dakota, Texas, Washington, Oklahoma, Colorado, Nebraska, and Idaho.17 

However, the demand for wheat is dispersed throughout the population centers of the 

United States. In addition, almost 45 percent of the U.S. wheat crop is exported through the 

major U.S. port regions to overseas destinations (Figure 2-15). 

Figure 2-15: Wheat surplus/deficit map with a transportation system overlay 
47

Wheat Modal Shares 

From 2000 to 2006, wheat accounted for 15 percent of all grain movements. The major wheat 

production region is in the Plains States, where rail is the dominant mode of transportation. 

Most classes of wheat are produced in areas where barge transportation is not accessible, so 

rail is the leading provider of transportation for both the domestic and export market (Figure 2-

16 and Table 2-11). 

Figure 2-16: Modal shares of wheat exports, 2000-2006 

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 

 
48

Table 2-11: Wheat modal shares, 2000-2006 

WHEAT

Year & Type of Movement Rail Barge Truck

1,000 Tons Percent 1,000 Tons Percent 1,000 Tons Percent

TOTAL

2001 33,269 52% 11,534 18% 19,668 31%

2002 32,702 56% 9,876 17% 16,081 27%

2003 34,181 53% 10,180 16% 20,428 32%

2004 37,302 56% 11,937 18% 17,625 26%

2005 39,287 63% 8,312 13% 14,759 24%

2006 38,596 67% 8,068 14% 11,302 19%

Average 35,889 58% 9,984 16% 16,644 26%

EXPORT

2000 17,934 56% 11,975 38% 1,871 6%

2001 16,549 56% 11,099 38% 1,762 6%

2002 16,988 62% 9,367 34% 1,225 4%

2003 17,983 61% 9,726 33% 1,681 6%

2004 21,045 61% 11,370 33% 2,294 7%

2005 22,452 74% 7,938 26% Not available* 

2006 18,922 71% 7,868 29% Not available 

Average 18,839 63% 9,906 33% 1,262 4%

DOMESTIC

2000 17,446 46% 416 1% 20,267 53%

2001 16,720 48% 435 1% 17,906 51%

2002 15,714 51% 509 2% 14,856 48%

2003 16,198 46% 454 1% 18,747 53%

2004 16,256 51% 566 2% 15,330 48%

2005 16,835 53% 375 1% 14,759 46%

2006 19,674 63% 200 1% 11,302 36%

Average 16,978 51% 422 1% 16,167 48%

* The methodology used in this analysis calculates the truck portion as a residual value after barge and rail values 

are derived. In the case of 2005 and 2006, wheat exports where truck values are not available as total exports 

were apportioned to only barge and rail. Values are assumed to be zero for calculating modal shares and averages. 

There were obviously some minor quantities of wheat trucked directly to export facilities but that cannot be 

calculated using current methodology. There may be a case of overcounting of railed wheat due to traffic 

disruptions that began in 2005 and continued into 2006. During that time, Hurricanes Katrina and Rita rattled the 

Gulf Coast and caused some re-routing and diversion of rail shipments, possibly causing double-counting of some 

railed wheat shipments. Also in 2006, there were high grain car loadings and higher-than-normal grain 

movements. 

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 
49

Wheat Exports by Port Region 

• In 2007, most wheat was exported through the Pacific Northwest region—37 percent, 

followed by the Texas Gulf at 27 percent, and the Mississippi Gulf at 19 percent (Figure 

2-17).

• In 2007, the major destinations of wheat exports were Japan, Egypt, and Nigeria. Wheat 

was also shipped to many other destinations in Asia, South America, Africa, and the 

Middle East. 

 Figure 2-17: Wheat exports by port region 

Source: FGIS Grain Inspections, 2007 Annual 

Rice Profile 

U.S. rice farming is a high-cost, large-scale operation that depends on the global market for 

about half its annual sales. Although domestic use of rice continues to increase, the outlook for 

rice farm incomes is tempered by rising production costs, only modest increases in farm prices, 

and strong competition in international markets from lower-cost Asian exporters. 

 
50

Although the United States produces less than 2 percent of the world’s rice, it is a major 

exporter, accounting for 12–14 percent of the annual volume of global rice trade. The 

United States is regarded as a consistent, reliable, and timely supplier of high-quality rice in 

global rice markets. By class, 75–80 percent of U.S. exports are long grain. The United States 

exports rough rice, parboiled rice, brown rice, and fully milled rice. Milled rice—including brown 

rice—typically accounts for around two-thirds of U.S. rice exports. Rough rice accounts for the 

remainder.18 

Figure 2-18: Rice being harvested into a bankout truck. 

Source: Grain Harvesters Association 

Supply and Demand 

U.S. rice production, domestic use, and exports all have grown over the last 18 years (Table 2-

12). Demand in the United States and around the world for rice has contributed to the growth 

of the rice sector. USDA forecasts the United States will be the fourth largest exporter of rice in 

2008/09 after Thailand, Vietnam, and Pakistan. Exports will account for half of U.S. rice 

production in 2008. 
51

Table 2-12: U.S. rough and milled rice (rough equivalent) supply and use (million 

hundredweights) 

Source: USDA/Economic Research Service: Rice Yearbook Tables, <http://www.ers.usda.gov/Briefing/Rice> 

Rice Transportation Characteristics 

Virtually the entire U.S. rice crop is produced in four regions: 

 

• The Arkansas Grand Prairie. 

• The Mississippi Delta (parts of Arkansas, Mississippi, Missouri, and Louisiana). 

• The Gulf Coast (Texas and Southwest Louisiana). 

• The Sacramento Valley of California. 

The Mississippi Delta is the largest producing region (Figure 2-19). Arkansas contains more than 

45 percent of U.S. rice acreage and is the largest producing State. California is the second 

largest producing State, achieving the highest yields. Louisiana is the third largest producing 

State, usually planting the second or third largest area. Mississippi is usually the fourth largest 

rice-producing State. Along with Missouri and Texas, these six States account for more than 99 

percent of U.S. rice production. Florida accounts for most of the rice grown outside these six 

States, but it is not included in USDA’s area and production estimates. The domestic rice 

market consumes more than 50 percent of total use and has more than doubled in the past 25 

years. 

Supply Use

Marketing Yeara

Beginning 

Stocks Production Imports Total

Domestic 

and 

Residual Exports Total

 - Million cwt - 

1990/91 26.3 156.1 4.8 187.2 91.2 71.4 162.6 

2000/01 27.5 190.9 10.9 229.2 117.5 83 200.7 

2001/02 28.5 215.3 13.2 256.9 123.3 95 218.0 

2002/03 39.0 211.0 14.8 264.8 113.4 125 238.0 

2003/04 26.8 199.9 15.0 241.7 115.0 103 218.0 

2004/05 23.7 232.4 13.2 269.2 122.7 109 231.5 

2005/06 37.7 223.2 17.1 278.1 120 115 235.1 

2006/07 43.0 194.6 20.6 258.2 128 91 218.9 

2007/08 39.3 198.4 23.9 261.6 124 108 232.1 

2008/09b 203.7 29.4 18.0 251.1 127 98 225.0 

2009/10c 206.5 26.2 22.0 254.7 128 101 229.0 a Marketing Year: August 1 - July 31

b Projected, WASDE, February 10, 2009

c Preliminary, February 27, 2009
52

About half of the United States rice crop is exported each year. Mexico, Central America, 

Northeast Asia, and the Middle East are the largest export markets, based on quantity shipped. 

The Caribbean, the European Union, and Sub-Saharan Africa make up the next largest tier of 

U.S. export markets. The highest-valued single-country market is Japan. Mexico is usually the 

second highest valued. The rough rice share of exports has more than doubled since the mid1990s. The United States is the only major exporter that ships rough rice. None of the major 

Asian exporters allow rough rice to be exported, preferring to keep the value added from 

milling the rice. Rough rice accounts for a very small share of global trade, typically around 4 

percent of annual quantity shipped. 

Although a major exporter, the United States regularly imports rice. Imports account for almost 

15 percent of domestic use, and this share has been rising for 25 years. The bulk of U.S. rice 

imports are aromatic (fragrant) varieties. Thailand supplies about three-fourths of U.S. rice 

imports, India and Pakistan most of the rest. Italy ships a small amount of rice to the 

United States, much of it Arborio rice used in risotto. 

Rail transportation is important to the rice industry in maintaining its competitive advantage in 

international trade. In 2006, rail moved 4.1 million short tons of major categories of rice,19* 

about 42 percent of the U.S. rice produced that year. During the same year, barges moved 

approximately 1.9 million short tons of rice—about 20 percent of the crop. 

 

 

*

 Including rough, milled, cleaned, and brewers rice, in 2006 rough equivalent basis. 
53

Figure 2-19: Rice surplus/deficit map with transportation system overlay 

Rice Exports by Port Region 

• In 2007, most waterborne rice exports were shipped through the Mississippi Gulf—

73 percent—followed by Northern California at 16 percent and the Texas Gulf at 8 

percent (Figure 2-20).

• In 2007, major destinations of rice exports included Mexico, Japan, Haiti, Canada, 

and Iraq, accounting for about 54 percent of 2007 rice exports. Other major 

markets include countries of Latin America, East Asia, Middle East, and Sub-Saharan 

Africa.20

 
54

Figure 2-20: 2007 waterborne rice exports by port region 

Source: Port Import Export Reporting Service (PIERS) 

Livestock and Livestock Products Profile 

The four major industries of the U.S. livestock agriculture sector include beef cattle, hogs, 

broilers, and milk. The livestock industry has undergone striking transformations over the last 

few decades, several of which have changed the transportation picture. The industry trends 

can be categorized into three areas: 

• Changed Regional Concentration: Cattle feeding, hog production, and the dairy sectors 

have experienced geographical changes, concentrating in fewer States than in previous 

decades due changes in the production systems. 

• Increased Concentration and Industrialization: Strong financial pressures have driven a 

shift toward large-scale industrialized production systems, resulting in increased 

productivity and lower production costs. 

• Increased International Trade: Domestic production continues to provide most meat 

and dairy products in the United States, but international trade—especially exports—

has grown rapidly in recent years and is expected to continue. 
55

Most of the domestic changes have occurred during the previous several decades, but the longterm growth in international trade is expected to continue. This creates the critical need for 

reliable and efficient domestic trucking and international ocean freight transportation. 

Recent Trends in the Livestock Industry 

The transportation needs of U.S. livestock operations depend on their location. The map in 

Figure 2-21 shows that livestock inventories in 2007 were concentrated in the Great Plains, the 

Corn Belt, parts of California and the Pacific Northwest, and areas of the mid-Atlantic. Not 

surprisingly, most of the meat slaughtering/processing facilities are located near the animal 

population. Meat and poultry consumption, however, is concentrated in the states with higher 

populations of people (Figures 2-22, 2-27, and 2-30). The meat processing locations are usually 

far removed from population centers, so the industry relies on long-haul truck transportation of 

finished products to market. 

Figure 2-21: Estimated grain-consuming animal units per county 

Source: NASS, Census of Agriculture, 2007 

 
56

Figure 2-22: Livestock processing facilities, 2002 

Source: U.S. Census Bureau, Econ 02 Report Series, 2002

Transportation Implications 

As Tables 2-2 and 2-3 at the beginning of this chapter show, almost all (95–98 percent) of 

livestock, meat, poultry, and dairy products are shipped by truck to domestic markets from the 

highly concentrated production areas. 

The trucking data in the CFS are divided into two categories: private trucks and for-hire trucks. 

Private trucks Trucks operated by employees of the establishment or the buyer/receiver of 

the shipment, including trucks providing dedicated services to the surveyed establishment. 

For-hire trucks Shipments made by common or contract carriers under a negotiated rate. 

 
57

The livestock and livestock products industry relies on independent motor carriers for most of 

the long-haul movements in the United States. The data in Table 2-13 show that in 2002, forhire trucks carried most of the ton-miles; this mode was preferred for long-distance hauling. 

For-hire trucks dominated meat and poultry hauling in both tons and ton-miles, despite the 

vertical integration trend in the industry over the past decade.

Table 2-13: Share of private vs. for-hire truck activity, 2002 

Livestock and Livestock Products 

 Tons Ton-Miles Activity 

Live animals and fish 

 For-hire truck 32% 52% Long haul 

 Private Truck 68% 48% Short haul 

Meat and Poultry 

 For-hire truck 59% 82% Short and Long haul 

 Private Truck 41% 18% 

Dairy 

 For-hire truck 39% 72% Long haul 

 Private Truck 60% 27% Short haul 

Source: DOT, Bureau of Transportation Statistics, 2002 CFS, Table 14 

Recent Trends in Meat Consumption 

U.S. consumer preferences began to shift in the mid-1980’s away from red meats and towards 

poultry. Per capita chicken consumption surpassed that of pork in 1986 and that of beef by the 

mid 1990’s. Chicken consumption is expected to continue to outpace that of red meat over the 

long term, with just a slight slowdown in consumption due to the recessionary conditions in 

2009 (Figure 2-23). 

 
58

Figure 2-23: U.S. per-capita meat consumption21

International Trade 

U.S. exports of beef, pork, and poultry have increased dramatically since 1990. Factors driving 

the international trade growth were not only rising incomes, but also the preference of 

United States and foreign consumers for a greater variety of red meat cuts, facilitated by the 

expansion of free trade agreements. Changes in currency values, including the recent 

depreciation of the dollar against the currencies of trading partners, have also helped expand 

trade in red meat products. Domestic production continues to provide most beef and pork 

consumed in the United States, but imports of lamb have increased. Although the meat and 

poultry markets have been troubled by animal disease problems over the last few years, the 

recovery and integration of trade is expected to continue. 

 
59

Figure 2-24: U.S. meat exports 

Projections for Livestock and Livestock Products 

USDA projects that high grain and soybean meal prices in 2007 and 2008 will continue to ripple 

through the livestock sector for the next several years. Demand is also expected to somewhat 

weaken due to the domestic recession and global economic slowdown. Total U.S. meat and 

poultry production is expected to decline through 2011. Production adjustments, combined 

with strengthening meat exports, are expected to reduce domestic per-capita consumption 

through 2012. The result is lower production at higher prices, with improving net returns 

providing economic incentives for moderate expansion in the sector toward the end of the 

projection period (Figure 2-26). 

Figure 2-25: U.S. red meat and poultry production 
60

Meat and Poultry Exports Outlook Although the domestic market remains the dominant source of total meat demand, exports 

account for a growing share of U.S. meat production. The economic slowdown and higher meat 

prices reduce overall meat and poultry exports in 2009 and 2010. Exports rise through the rest 

of the projection period as global economic growth resumes and the dollar remains relatively 

weak. 

Beef

Exports reflect demand for high-quality fed beef, with most U.S. beef exports going to Mexico, 

Canada, and markets in Pacific Rim nations. These projections assume a gradual recovery in 

beef exports to Japan and South Korea—export markets that were lost following the first U.S. 

case of bovine spongiform encephalopathy (BSE) in December 2003. 

Pork 

Despite rising feed costs, increased efficiency is expected to enhance the competitiveness of 

U.S. pork products. Nonetheless, long-term gains in exports will be determined by costs of 

production and environmental regulations relative to competitors; production costs are lower 

in countries that are developing integrated pork industries, such as Brazil. Pacific Rim nations 

and Mexico are expected to remain key markets for long-term growth. 

Poultry

After declining in 2009 and 2010, broiler exports are expected to rise through the rest of the 

projection period (Figure 2-26). Major export markets include China, Russia, and Mexico. Longterm gains in these markets are dependent on their economic growth and increasing consumer 

demand. Demand for poultry also remains strong because it costs less than beef and pork. 

Producers continue to face strong competition from other exporters, particularly Brazil. For 

most of the projection period, exports from avian influenza-affected countries are expected to 

be limited to fully cooked products. 

 
61

Figure 2-26: Long-term projections of U.S. meat and poultry exports 

Source: USDA Agricultural Projections to 2018 
62

Table 2-14. U.S. beef, pork, chicken, and turkey supply and use long-term projections Source: USDA, Agricultural Projections to 2018 (only major supply and use items selected) 
63

Cattle and Beef Profile 

The United States has the largest fed-cattle industry in the world, and is the world's largest 

producer of high-quality, grain-fed beef. With its abundant grasslands and large grain supply, 

the United States has developed a beef industry that is largely separate from its dairy sector. 

The industry is divided into two production sectors: cow-calf operations and cattle feeding.22

Supply and Demand

Cow-calf operations are located throughout the United States, typically on land not suited for 

crop production. Beef cows harvest forage from grasslands to maintain themselves and raise 

calves. Cows are maintained on pasture year-round; the calf remains with its mother until it is 

weaned, then is sold. The sold calves are transported by truck to cattle feeding operations 

concentrated in the Great Plains. 

Cattle operations (feeding, slaughtering, and packing) have undergone a structural change since 

the early 1970’s and are currently concentrated in the Great Plains, but are also important in 

parts of the Corn Belt, Southwest, and Pacific Northwest. In 1990, 80 percent of cattle 

slaughtering operations were located in ten States, but by 2007 just seven States are home to 

more than 80 percent of cattle slaughter operations (Table 2-15). Most livestock slaughtering 

and processing facilities are west of the Mississippi River and usually far removed from 

population centers, whereas meat consumption takes place in highly populated areas. This 

situation shows the importance of interstate highways to meat transportation (Figures 2-21 and 

2-27). 

Table 2-15: Major U.S. cattle slaughter States, 2007 

KS NE TX CO WI CA WA 7-State U.S. 

Slaughter (million head) 7.7 7.1 6.1 2.2 1.7 1.6 1.1 27.5 34.3 

Share of U.S. Total 23% 21% 18% 6% 5% 5% 3% 80% 100%

Source: NASS Quick Stats, Slaughter Annual, 2007 

 
64

Figure 2-27: U.S. red meat surplus-deficit 

Recent Trends in Beef 

In 2003, the United States had its first case of bovine spongiform encephalopathy (BSE), widely 

referred to as "mad cow disease.” Subsequently, the markets for U.S. beef slammed shut. In 

2004, beef exports dropped from more than 1 million metric tons per year to just over 200,000 

metric tons. By 2008, however, they had gradually recovered, surpassing 800,000 metric tons 

(Table 2-16). The reentry of Japan and Korea as significant markets for U.S. beef was critical to 

the recovery. Growth in sales to Canada and Mexico has been largely due to market integration 

as a result of the North American Free Trade Agreement (NAFTA) and, more recently, the 

lower-value dollar. Beef exports to Canada, for example, are higher than before the BSE 

episode. Rising incomes, the preference of domestic and foreign consumers for a greater 

variety of red meat cuts and the expansion of free trade agreements also have helped expand 

trade in red meat.23 

 
65

U.S. beef imports are usually of lean trimmings and processed beef used in fast food and frozen 

dinner preparations; they have fluctuated between 1.15 and 1.66 million metric tons annually. 

For the first time in more than a decade, the USDA forecast for 2009 predicts a drop in the 

global meat trade. Deterioration of global economic conditions, increases in restrictive trade 

policies, and the rise in U.S. dollar value are among the reasons for falling demand in major 

importing countries such as Russia, Mexico, and South Korea.24

Table 2-16: U.S. beef supply and use, 1999-2009 

Production Imports Domestic Use Exports

1999 12,124 1,303 12,325 1,094

2000 12,298 1,375 12,502 1,120

2001 11,983 1,435 12,351 1,029

2002 12,427 1,459 12,737 1,110

2003 12,039 1,363 12,340 1,142

2004 11,261 1,669 12,667 209

2005 11,318 1,632 12,664 316

2006 11,980 1,399 12,833 519

2007 12,096 1,384 12,829 650

2008 12,163 1,151 12,452 856

2009 (f) 12,105 1,256 12,554 826

(f) = Forecast, April 2009. 

Source: Production, Supply and Distribution Online, Foreign Agricultural Service, USDA 

<http://www.fas.usda.gov/psdonline/> 
66

Exports and Transportation Needs 

U.S. beef exporters rely on refrigerated containers to ship their products overseas and 

refrigerated trucks for cross-border movements. In 2007, more than 99 percent of waterborne 

beef exports moved in containers.25 

Figure 2-28: Port regions moving beef exports, 2007 

Source: Port Import Export Reporting Service (PIERS) 

Beef Exports by Port Region 

• Most waterborne beef exports are shipped through California ports—50 percent in 2007 

(Figure 2-28). 

• The second-most exports were shipped out of Texas Gulf ports—20 percent in 2007.

• The top five destinations—Canada, Mexico, South Korea, Taiwan, and 

Japan—accounted for 86 percent of the total export volume in 2007.
67

Hogs and Pork Profile 

The United States is the world's largest exporter of pork and pork products. It is also the third 

largest producer and consumer and the fifth largest importer. Pork accounts for about a fourth 

of domestic meat consumption, with imports accounting for more than 4 percent. About 14 

percent of domestic production is exported. The U.S. hog herd stands at nearly 64 million 

animals, with about 68 percent of them in the Corn Belt area, where they have access to that 

region's abundant supplies of feed grains and soybean meal. Another 20 percent of hogs are 

produced in the Southeast.26

Geographical shifts in hog production have accompanied the structural and organizational 

changes in the industry.27 Historically, hog production was concentrated in Corn Belt States, 

where an abundant supply of corn provided a cheap source of feed. During the 1980s and 

1990s, however, hog production grew dramatically in nontraditional areas, driven mainly by the 

growth of large contract operations. For example, in North Carolina the inventory of hogs and 

pigs more than doubled between 1987 and 1998, pushing the State’s rank in total hog 

inventory from seventh in 1987 to second by 1998 (Table 2-17). Rapid growth in the North 

Carolina hog industry ended after a State law enacted in August 1997 placed a moratorium on 

building or expanding hog operations. Restricted growth in North Carolina may explain some of 

the particularly rapid recent growth of the industry in Iowa, Minnesota, and Oklahoma. 

Table 2-17: Hogs and pigs inventory in major States on December 1, 1987-2007 

 1987 1992 1998 2007 1987 Rank 2007 Rank

 Million Head 1=Highest; 8=Lowest 

Iowa 13.9 14.9 15.3 19.4 1 1

North Carolina 2.58 4.5 9.7 10.2 7 2

Minnesota 4.5 4.7 5.7 7.7 4 3

Illinois 5.4 5.9 4.85 4.35 2 4

Indiana 4.5 4.55 4.05 3.7 3 5

Nebraska 4.05 4.6 3.4 3.35 5 6

Missouri 3 2.85 3.3 3.15 6 7

Oklahoma 0.2 0.24 1.92 2.35 8 8

Top 8 States 38.1 42.2 48.2 54.2 

Top 8 States as % of U.S. Total 70% 73% 78% 79% 

U.S. Total 54.4 58.2 62.2 68.2 

Source: USDA, NASS Quick Stats, Hogs and Pigs Inventory by Class, Dec 1 
68

Supply and Demand 

As does the beef industry, the pork industry relies on trucking to move its product to market. 

The importance of the Nation’s highways is highlighted once again because of the 

concentration of pork production in a handful of States that are long distances from urban 

population centers. 

Recent Trends in Pork 

From 2004 to 2008, domestic consumption of pork in the United States grew at a relatively slow 

rate of 6 percent. The growth in the pork trade surplus, however, has been tremendous—

exports grew by 71 percent and imports decreased by 16 percent (Table 2-18). Factors driving 

this trade growth are the same as those for beef: rising incomes, the preference of 

United States and foreign consumers for a greater variety of red meat cuts, expansion of free 

trade agreements, and the recent depreciation of the dollar against the currencies of key 

trading partners.28

Table 2-18: U.S. pork supply and use, 2004-2008 

 Production Imports Domestic Use Exports 

(million pounds) 

2004 20,529 1,099 19,437 2,181 

2005 20,705 1,024 19,112 2,666 

2006 21,074 990 19,048 2,995 

2007 21,962 968 19,763 3,138 

2008 23,554 925 20,686 3,735 

5-year growth 15% -16% 6% 71% 

Source: ERS. Agricultural Outlook, Table 10 
69

Exports and Transportation Needs 

U.S. exporters of pork rely on refrigerated containers to ship their products overseas and 

refrigerated trucks for cross-border movements. In 2007, more than 99 percent of U.S. pork 

waterborne exports moved in containers.29 

Figure 2-29: Port regions moving pork exports, 2007 

Source: Port Import Export Reporting Service (PIERS) 

Pork Exports by Port Region 

• Most waterborne pork exports are shipped through California ports—42 percent of pork 

exports in 2007 (Figure 2-29).

• The other key ports include the Pacific Northwest and the Southeast, accounting for 24 

and 20 percent, respectively, of pork exports in 2007.

• The top 5 destinations—Japan, Mexico, Canada, South Korea, and Russia—accounted 

for 76 percent of total U.S. pork export volume in 2007. 
70

Poultry Profile 

The U.S. is the world's largest producer and second-largest exporter of poultry meat, which is 

mostly chicken (broilers). The United States is the world's second-largest exporter of broilers 

behind Brazil. Annual broiler exports average between 5 and 6 billion pounds, about 15 

percent of U.S. production. Demand for broilers has fluctuated over the last several years due 

to changing economic conditions and currency exchange rates in major importing countries. 

Supply and Demand 

The U.S. poultry industry is concentrated in the Southeast. The top seven States account for 68 

percent of the total chicken slaughter but, of these, only Texas (7 percent) and Missouri (5 

percent) are outside of the Southeast region (Table 2-19). The rest of the poultry production is 

distributed among Mid-Atlantic States, Minnesota, and Oklahoma. The surplus-deficit map in 

Figure 2-30 indicates that most of the West is a deficit region, and demonstrates the 

importance of the U.S. interstate system to the concentrated poultry production area. 

 

Table 2-19: Major U.S. chicken slaughter States, 2007 

 GA AR AL MS NC TX MO 7-State U.S.

Slaughter 

(million head) 

 

1,321 

 

1,135 

 

1,059 

 

783 

 

718 

 

648 

 

412 6,076 8,903 

States as percent 

of U.S. 

 

15% 

 

13% 

 

12% 

 

9% 

 

8% 

 

7% 

 

5% 68% 100% 

Source: NASS, 2008 Poultry Slaughter Annual, February 2009 

 
71

Figure 2-30: U.S. poultry meat surplus-deficit 

Recent Trends in Poultry 

From 2004 to 2008, domestic consumption of chicken and turkey has increased by 6 and 9 

percent, respectively. U.S. exports of chicken and turkey, however, increased at a much higher 

rate—25 percent and 37 percent, respectively. Although turkey exports grew at a faster rate, 

total turkey export volumes were only 10 percent of total chicken exports in 2008. 

 
72

Table 2-20: U.S. poultry supply and use, 2007 

2004 2005 2006 2007 2008 

5-yr 

growth 

Broilers (million pounds) 

 Production 33,699 34,986 35,120 35,739 36,505 8% 

 Domestic 

Use 

28,837 29,607 30,139 30,034 30,629 6% 

 Exports 4,783 5,203 5,205 5,772 6,000 25% 

Turkeys (million pounds) 

 Production 5,383 5,432 5,607 5,880 6,084 13% 

 Domestic 

Use 

5,010 4,952 5,060 5,292 5,477 9% 

 Exports 442 570 547 554 605 37% 

Source: ERS <http://www.ers.usda.gov/briefing/poultry> 

Exports and Transportation Needs 

U.S. exporters of poultry use refrigerated containers and bulk refrigerated vessels to ship their 

products overseas, and refrigerated trucks for cross-border movements. In 2007, 58 percent of 

waterborne exports moved in containers and 42 percent in bulk refrigerated vessels.30 

Figure 2-31: Top ten ports moving poultry exports, 2007 

Source: Port Import Export Reporting Service (PIERS) 
73

Poultry Exports by Port Region 

• Most waterborne poultry exports are shipped through Southeastern ports (including 

Savannah, GA, Jacksonville, FL, and Charleston, SC)—45 percent of poultry exports in 

2007 (Figure 2-31). 

• The other key ports include Mississippi and East Gulf ports: Mobile, AL, New Orleans, 

and Pascagoula, MS, accounting for 34 percent of poultry exports in 2007.

• The largest importers of U.S. broiler products are Russia, China (including Hong Kong), 

and Mexico. Together, these markets accounted for more than half the exports, on a 

quantity basis. 

Dairy Profile 

Milk has a farm value second only to beef among livestock industries and equal to corn. Dairy 

products include cheese, fluid milk, yogurt, butter, and ice cream, as well as dry and condensed 

milk and whey products, which are used mostly as ingredients in processed foods. 

Key factors that have dramatically altered the U.S. dairy industry and changed the context for 

dairy policies and the sector as a whole include: 

• Shifts in consumer demands. 

• Shifts in the location and structure of milk production due to industry concentration.31

• Growth in international markets and in trade agreements. 

In the future, the U.S. dairy industry is likely to become more fully integrated with international 

markets. At the same time, dairy products such as fluid milk, butter, and cheese are likely to be 

increasingly used as ingredients for restaurants and in processed foods, as well as being sold in 

their traditional forms. 

Government policies and programs play an important role in the U.S. dairy sector. Both 

national and State dairy programs support the industry. U.S. dairy policy rests on two 

fundamental concepts—price and income support, and orderly marketing. Price and income 

support is primarily a Federal responsibility. Orderly marketing objectives, as embodied in milkmarketing orders, are pursued at both the Federal and State levels. 

Regional Changes in Milk Production

The structure and location of dairy processing and manufactured product firms depend on the 

products they make. Fluid milk processing is dominated by proprietary firms, and the fluid 

plants tend to be located near major population (consumer) centers. Production of storable 

manufactured products occurs near milk production areas, and the cooperatives play a large 

role. A geographic pattern for perishable manufactured products is more difficult to discern, 

although most are produced by fluid milk processors. However, some storable manufacturedproduct plants operate lines for the perishable products and some firms (and plants) specialize 

solely in these products (Figure 2-33).32
74

During the past few decades, many States and even some regions have reversed longestablished trends. In the 1970s, dairies in several western States (particularly California) grew 

dramatically larger than those in the rest of the country. These dairies had developed business 

organizations capable of operating large dairies, resulting in low costs. 

Figure 2-32: Dairy farms have been getting larger, driven by economies of scale.

Source: North Dakota Department of Agriculture 

The price impacts of this growth began to put pressure on higher-cost producers, resulting in a 

decline in output and a shift away from the higher-cost producing regions. Thus began a 

westward shift of milk production that still continues. Recently, however, large modern dairy 

farms similar to those built by western producers have been appearing in the Midwest and 

Northeast, where they are helping to stem the long-term decline in production. In 2007, more 

than 70 percent of U.S. milk production occurred in just 9 states (Table 2-21). California and 

New Mexico accounted for more than 26 percent of the nation’s total milk production. 

Environmental issues, such as water and air quality, traffic impacts, and odors concern the milk 

production industry. Environmental regulation, zoning, and animal nuisance laws have become 

increasingly important, particularly for large dairy farms. Except for a few areas of high animal 

density, these regulations have not yet had major effects on industry growth. However, the 

time needed to bring a new dairy farm or expansion into full production has lengthened, and 

location is increasingly likely to be affected by environmental issues and regulations. 
75

Table 2-21: Major milk producing States, 2007 

 Milk Production 

(Million pounds) 

Major States as 

Percent of Total 

California 40,683 22%

Wisconsin 24,080 13%

New York 12,103 7%

Idaho 11,549 6%

Pennsylvania 10,682 6%

Minnesota 8,656 5%

Michigan 7,625 4%

Texas 7,384 4%

New Mexico 7,290 4%

9-States 130,052 70%

U.S. 185,654 100%

Source: NASS, Quick stats, Dairy Annual 

Figure 2-33: U.S. dairy surplus-deficit, U.S. highway system 
76

Supply and Demand 

The surplus-deficit map in Figure 2-33 demonstrates the importance of the interstate system to 

the dairy industry. Most fluid milk and other dairy processing plants are located on or near the 

interstates in the milk-producing areas. The dairy sector depends on trucks for transportation 

of fluid milk. Food-grade but unrefrigerated tanker trucks transport raw milk to fluid milk 

plants; the finished products are distributed in refrigerated trucks. Cheese and other dairy 

products are shipped by refrigerated rail cars to population centers or to ports for export. In 

addition, geographic concentration of the dairy industry, as discussed above, has contributed to 

increased demand for trucking services. 

Trade and Transportation 

The United States exports large amounts of cheese and non-fat dry milk (NFDM). In 2007, the 

largest importers of U.S. cheese were Japan, Canada, South Korea, United Kingdom, and 

Dominican Republic. The largest importers of U.S. NFDM were Mexico, Philippines, Indonesia, 

Vietnam, and Thailand. USDA’s Commodity Credit Corporation and the Foreign Agricultural 

Service administer the Dairy Export Incentive Program, a policy tool that assists international 

marketing of U.S. dairy products. West Coast ports account for the majority of dairy exports 

(Figure 2-34). Dairies at a distance from a port rely on highways and railroads to get their 

products to port. 

Figure 2-34: U.S. port regions used to move dairy exports, 2007 

Source: Port Import Export Reporting Service (PIERS) 
77

Dairy Production and Export Outlook 

Strong farm-level milk prices in 2007 encouraged milk producers to increase cow numbers in 

2008, despite increased feed costs. Combined with an upward trend in output per cow, milk 

production rose relatively strongly into 2008.33 USDA’s long-term agricultural outlook for dairy 

products indicates that the number of milk cows will resume the more typical yearly declines 

after 2008 (Table 2-22). However, annual reductions are expected to be lower than in past 

decades as increasing specialization of dairy farms slows exit rates from milk production. Milk 

output per cow is projected to increase, although some slowing is expected in 2008-10 in 

response to higher feed costs. 

Domestic commercial use of dairy products is forecast to increase faster than the growth in U.S. 

population over most of the next decade. Cheese demand should benefit from the greater 

consumption of prepared foods and increased away from-home eating. However, consumption 

of fluid milk is expected to continue to decline slowly. Exports of dairy products are projected 

to decline from the levels reached in 2008, but remain high by historical standards. Global 

demand for dairy products has grown as incomes in developing countries have risen. 
78

Table 2-22: U.S. dairy supply and use long-term projections Source: USDA, Agricultural projections to 2018 (only major supply and use items selected) 
79

Fruit and Vegetables Profile 

The national debate on diet and health frequently focuses on the nutritional role of fruit and 

vegetables; this continued emphasis on the benefits of eating produce may provide 

opportunities to the industry. In the domestic market, Americans are eating more fruit and 

vegetables than they did 20 years ago, but consumption remains below recommended levels. 

The United States consumed approximately 174 pounds per capita of vegetable and melons 

(excluding potatoes) and nearly 270 pounds per capita of fresh and processed fruits in 2007. 

The top five vegetables were potatoes, tomatoes, lettuce, sweet corn, and onions.* The top 

five fruits are oranges, grapes (including wine grapes), apples, bananas, and pineapples.34 

Recent Fruit Trends

The industry faces a variety of trade-related issues, including competition with imports. 

Despite year-to-year fluctuations, fruit production in the United States during the 1990s and 

early 2000s averaged 10–20 percent higher than the 1980s. This growth was in response to 

several factors: 

• Increased domestic consumption. 

• Expanding export markets. 

• Technical changes in production, such as the adoption of close-density planting. 

• New propagation methods that decrease the time needed for new trees to reach 

bearing age from 5–6 years to 2–3 years. 

• Use of disease- and pest-resistant, high-yielding varieties. 

• Greater use of early- and late-season varieties that extend marketing seasons so 

growers can take advantage of marketing windows. 

Production declines in recent years may be attributed to weather and disease problems, mostly 

affecting citrus production. 

Total fruit production in 2007 was 29.5 million tons, down 2 percent from 2006, and the 

smallest crop since 1991. Citrus production alone was down 11 percent. Florida’s citrus 

industry is still coping with the effects of the hurricanes in 2004 and 2005. In addition, diseases 

such as citrus canker and citrus greening plague the industry. Production of fruit other than 

citrus rose 1 percent in 2007 from 2006, with 17 million tons produced. Bigger peach, pear, 

grape, sweet cherry, apricot, fig, strawberry, avocado, nectarine, and papaya crops contributed 

to the increase in non-citrus production. 

 

 

*

 Per capita consumption expressed on a fresh-weight basis. 
80

Figure 2-35: Loading oranges in California. Most fresh oranges in the United States are grown 

in California, Arizona, and Texas. Florida raises most of the juice oranges. 

Source: USDA 

The value of the 2007 fruit and tree nut crops reached $18.5 billion, 9 percent above 2006 and 

the sixth consecutive year of record high values. The value of the crop rose for citrus and noncitrus fruit, as well as for tree nuts. In 2007, record high crop values were set: $3.1 billion for 

citrus and $11.4 billion for non-citrus. The value for tree nuts was the second highest on 

record, at almost $4 billion.35 

The Nation's largest fruit-producing States are California, Florida, and Washington. California 

accounts for about half of the harvested fruit acreage, Florida almost one-fourth, and 

Washington around one-tenth. Michigan, New York, Oregon, and Pennsylvania are also 

important fruit-producing States; together they account for one-tenth of the Nation's fruit 

acreage. 

Annual per capita fruit and nut consumption averaged 271 pounds in 2007—down 2 percent 

from 2006, and the lowest level since 1992. The decline was led by reduced consumption of 

apple and orange products, two of the most popular fruits in the American diet. Contributing 

to the lower use of these fruits was lower production in 2007, which was not fully compensated 

for by imports. 
81

Recent Vegetable Trends 

U.S. production of all vegetables, potatoes, melons, and pulse crops increased 5 percent in 

calendar year 2007. Fresh and processed imports for these crops were greater than the 

previous year, plus inventories of processed vegetables coming into the year were greater. As a 

result, total vegetable and melon supplies available for domestic use and export were up 5 

percent to about 181 billion pounds in 2007. 

Larger supplies encouraged the use of all vegetables, potatoes, melons, and pulse crops, which 

increased 2 percent in 2007 to 444 pounds (on a fresh-weight basis). Potatoes (including 

potato products) remained the top vegetable crop in the United States, with 28 percent of total 

use. This was followed by tomatoes at 20 percent, lettuce at 8 percent, sweet corn at 6 

percent, and onions at 5 percent. 

State Production 

Fruit and vegetables are produced throughout the United States, with the largest acreage 

(excluding potatoes and dry beans) being in California and Florida. The Upper Midwest 

(Michigan, Minnesota, and Wisconsin) and the Northwest (Washington and Oregon) report the 

largest vegetable acreage for processing; California, Florida, and Texas harvest the largest share 

of fresh vegetable and melon acreage. 

The eastern seaboard States (from Georgia to New York) also report substantial vegetable 

acreage. With its strong output of cool-season crops, such as lettuce, broccoli, and celery, 

California remains the major producer of fresh vegetables during the winter. Florida is the top 

producer of warm-season crops (such as tomatoes, peppers, and snap beans). Potato 

production is concentrated in the Northwest (Idaho, Washington, and Oregon), but Colorado, 

North Dakota, California, Wisconsin, and Maine are also key suppliers. 

California, Florida, Washington, Texas, Michigan, New York, and Oregon have the most acreage 

in fruit orchards. California alone accounts for about half of U.S. fruit and tree nut acreage 

(including berries). Florida accounts for more than one-tenth and Washington almost onetenth. California’s mild climate gives it an advantage over other fruit-producing States. It is the 

Nation’s largest producer of grapes, strawberries, peaches, nectarines, avocados, fresh-market 

oranges, and kiwifruit. It also leads in tree nut production, including virtually all almonds, 

pistachios, and walnuts. 

Florida is the primary citrus producer, and Washington is the largest apple producer for both 

fresh use and processing. California is the leading producer of grapes for wine, juice, and raisin 

production. Midwestern and Northeastern States are key producers of processed fruit 

products, such as canned tart cherries and apple sauce, and Florida leads in the production of 

oranges for juice, and grapefruit and tangerines. 
82

Fruit and Vegetable Processing 

Commodities within the fruit and vegetable industries may be classified according to their end 

use: fresh market or processing. Processing can be further subdivided into canning, freezing, 

juicing, and dehydrating. Other than the production of certain commodities with varieties 

suitable for both uses (apples, grapes, broccoli, cauliflower, and asparagus), growing for 

processing is distinct from growing for the fresh market. Occasionally, some fruit and 

vegetables harvested for fresh use do not meet quality standards and are sold for processing 

but, in general, substitution between the markets is uncommon, even in years when crop 

output is severely reduced due to bad weather or pests. 

Most vegetable varieties grown for processing are better adapted to mechanical harvesting and 

often lack characteristics desirable for fresh market sale (for example, processing tomatoes are 

generally smaller and possess different internal attributes than fresh varieties). Most fruit 

varieties grown for processing are harvested by hand. In spite of that, strong demand for 

processed fruit products establishes the processing sector as the primary marketing outlet. 36

More than half of U.S. fruit and vegetable production is processed. Approximately 60 percent of 

non-citrus fruit production moves into processing channels, and more than 70 percent of citrus 

production is processed. Tomatoes and potatoes are the top two vegetable crops processed, 

and oranges and grapes are the top two fruit crops processed. Most citrus fruit—especially 

oranges—is processed into juice. Grapes are processed into juice, wine, and raisins. The grapes 

made into wine make up more than one-third of all fruit processed; raisins make up well more 

than half the dried fruit production.37 

The map below shows the location of fruit and vegetable processors (Figure 2-36). Most 

processing facilities are located in production centers to allow the freshest products available 

for processing. Fruit and vegetable processors are located across the country, with only a 

handful of States (Montana, Wyoming, South Dakota, New Hampshire and Vermont) having 

none. The major fruit and vegetable growing States, such as California, Florida, Texas, and the 

Pacific Northwest States, are also major processing States. 

 
83

Figure 2-36: Fruit and vegetable processors per State 

Source: U.S. Census Bureau, Econ 02 Report Series, 2002 

International Trade 

In 2007, fruit, vegetables, and tree nuts accounted for 14 percent of the value of U.S. 

agricultural exports, totaling more than $12.4 billion. However, the country is becoming 

increasing more reliant on fruit and vegetable imports which, in some cases, provide direct 

competition for domestically grown products. 

The vegetable and melon trade deficit widened in 2007, as the value of imports increased more 

than the value of exports. Nearly 17 percent of all the vegetables and melons consumed 

domestically were imported. Thirty-two percent of frozen vegetables were sourced from other 

nations, up significantly from 18 percent a decade earlier.38

Imports of all vegetables, melons, pulse crops, and seed rose 9 percent in 2007 to $7.9 billion. 

The increase was led by gains in fresh vegetables, melons, and dehydrated vegetables. Mexico 

remained the top foreign source, with 45 percent of import value (the same as a year earlier). 

This was followed by Canada at 23 percent, China at 6 percent, Peru at 4 percent, and Spain at 4 

percent. 
84

Exports of all vegetables, melons, pulse crops, and seed rose 9 percent in 2007 to $4.6 billion. 

The increase was led by gains in mushrooms, dry peas and lentils, and frozen vegetables. 

Canada remained the top foreign market with 47 percent of export value. This was followed by 

Mexico at 11 percent, Japan at 11 percent, Taiwan at 2 percent, and South Korea at 2 percent. 

About 9 percent of total U.S. vegetables and melons were exported in 2007—little changed 

from a decade earlier.39 

Although growth in U.S. fruit exports has been strong, the country remains a net fruit importer. 

Not only have imports expanded for commodities already produced domestically, creating 

competition for U.S. growers, but imports also have increased for nontraditional fruits, 

especially many tropical fruits. 

Imported fruit is increasing in importance in domestic consumption. Relative to the 1990s, 

import shares of domestic consumption rose for all fruit categories in recent years. Imports' 

role grew most rapidly for frozen fruit, but fresh and canned fruit were the most dependent on 

imports to meet domestic demand during the mid- to late-2000s. Currently, nearly half the 

fresh fruit and two-fifths the canned fruit consumed are from imports. 

Fresh fruit imports rose, as a share of domestic consumption, from 35 percent in 1990 to nearly 

50 percent during the mid- to late-2000s. Bananas claim more than 50 percent of the volume of 

fresh fruit imports. Excluding bananas, fresh fruit imports rose from 12 percent of domestic 

consumption in 1990 to more than 28 percent during the mid- to late-2000s. 

Mexico is the largest supplier of fresh and frozen fruit to the United States, accounting for more 

than 30 percent of both the volume and the value of fresh and frozen fruit imports (excluding 

bananas). Mexico ships mostly limes, tangerines, mangoes, grapes, pineapples, papayas, 

avocados, and strawberries. U.S. production of these commodities—except for tangerines, 

grapes, strawberries, and avocados—is minimal. Geographic proximity and NAFTA provide 

Mexico with a competitive advantage over other countries, with lower transportation costs and 

lower or no tariffs. 

Chile also is a major supplier of fresh fruit, with more than a 20 percent share of the U.S. import 

market. Chile enjoys the advantage of having a counter-seasonal production schedule with the 

United States. Its location in the southern hemisphere means it can provide fresh fruit at times 

when the United Sates produces little, particularly from November through March. Expanded 

trade with Chile—beginning in the mid- to late-1980s—extended the availability of certain fruits 

in the market without direct competition with domestic production and provided U.S. 

consumers with fruit choices beyond the traditional domestic winter fruits of citrus, apples, and 

pears. Important fruit imports from Chile are grapes, stone fruit, avocados, and kiwifruit. 

 
85

U.S. exports of fresh-market fruit account for about 15 percent of available supplies. Freshmarket fruit exports were valued at $3 billion each year during 2005-07, capturing more than 

half of total fruit exports. The leading fresh fruit exports are apples, grapes, and oranges 

(including tangerines), with combined sales averaging more than $1 billion annually, or about 

half the value of fresh fruit exports. Apples and grapes averaged more than $500 million each 

in annual export sales during 2005-07 and oranges averaged more than $300 million. Export 

sales of fresh berries, led by strawberries, nearly tripled between 2000 and 2007, for a 

combined value of more than $400 million. Canada is the leading destination for U.S. fresh 

fruit, generally accounting for more than one-third of all fresh fruit exports. Other major 

markets are Japan, Mexico, South Korea, Taiwan, and Hong Kong. 

Transportation of Fruit and Vegetable Products

Fresh and processed fruit and vegetables require transportation to move the products between 

the producer and the packing shed, then to wholesalers, retailers, farmers markets, or the 

export market. 

Domestic fruit and vegetables are transported from growing areas to markets via truck and rail. 

Import and export shipments are moved by truck and rail to cross-border consumers and by 

ship and air to overseas markets. Many major shipping areas for U.S. fruit and vegetables are 

located on the coastal rim of the United States in California, Florida, Texas, and the East Coast; 

different regions are active at different times of the year.40 

Trucks account for the vast majority of the domestic movement of fresh and processed 

produce. Tables 2-2 and 2-3 show that 94 percent of fresh and 90 percent of processed fruits 

and vegetables are moved by truck. In terms of ton-miles, trucks move around 80 percent and 

the railroads 5 percent of fresh products and 13 percent of processed products. 

Transporting products to market can be difficult and costly. Moving fruit and vegetable 

products often requires quick and efficient transportation because of their perishable nature, 

and fresh material needs to be kept at the correct temperature and/or humidity to ensure it 

arrives in the best condition possible. 

Some of the major transportation challenges facing fruit and vegetable shippers are: 

• A long-term decline in rail shipments and availability. 

• Frequent truck shortages in some growing areas. 

• Escalating costs for diesel fuel and labor.*

 

 

*

 Fruit and Vegetable Backgrounder, ERS 
86

The industry’s reliance on truck service leaves it vulnerable to changes in the trucking industry. 

For example, truck rates experienced a sharp increase in 2008 when faced with record-high oil 

and diesel fuel prices; the average rates increased 44 percent between the first and third 

quarter. 

Processed fruit and vegetable products (canned, frozen, dried, and juice) may be moved to 

other processing firms, which add further value by repackaging the products into consumer 

packs, combining them with meats or other products to be sold as meals, or further refining 

them into final products. Final products may be exported or stored for later sale by the 

processor, or they may be transported to warehouses after purchase by buyers, brokers, or 

buying groups. 

Fruit and vegetable trade markets rely heavily on the ocean transportation system to move 

their commodities. U.S. waterborne exports of fruits and vegetables are moved both in bulk 

and in shipping containers. In 2007, 99 percent of fruit exports and 85 percent of vegetable 

exports were moved in containers. Containers conserve quality by controlling temperature or 

humidity during transit. Commodities such as beans, peas, lentils, and potatoes as well as some 

citrus fruits and melons, may be shipped in the cargo holds of a bulk vessel. In fact, nearly 33 

percent of fruit imports and 15 percent of vegetable exports were moved in refrigerated bulk 

vessels in 2007. However, the mode of transit preferred by most fruit and vegetable exporters 

and importers is containerized transportation. 

The pie charts below show the use of U.S. ports for waterborne fruit and vegetable imports and 

exports. Because of heavy reliance on Latin and South American countries to supply our offseason fruits and vegetables, nearly 55 percent of fruit imports and 66 percent of vegetable 

imports enter through East Coast ports. Conversely, 69 percent of fruit and 66 percent of 

vegetable exports are shipped from West Coast ports close to the growing areas. 

 
87

Figure 2-37: U.S. ports used to export vegetables, 2007 

Source: Port Import Export Reporting Service (PIERS) 

Figure 2-38: U.S. ports used to import vegetables, 2007 

Source: Port Import Export Reporting Service (PIERS) 
88

Figure 2-39: U.S. ports used to export fruit, 2007 

Source: Port Import Export Reporting Service (PIERS) 

Figure 2-40: U.S. ports used to import fruit, 2007 

Source: Port Import Export Reporting Service (PIERS) 
89

Apple, Lettuce, and Potato Profiles 

The fruit and vegetable industry comprises a diverse group of agricultural commodities. The 

Census of Agriculture reports more than 100 separate fruit and vegetable commodities or 

groups of commodities. For the purposes of this study, the transportation of apples, lettuce, 

and potatoes are described as examples of the complexities of these markets and the ways 

transportation serves the industry. They are among the highest-volume fruits and vegetables 

grown in the United States. 

Table 2-23 shows historical production, import, domestic use, and export data for apples, 

lettuce and potatoes. These commodities have each experienced an increase in trade volumes 

since the early 1990s, particularly in import traffic. Fresh apple imports have increased 44 

percent since the early 1990s; lettuce imports 642 percent, and fresh and processed potatoes 

81 and 480 percent, respectively. Apple production decreased 12 percent, lettuce production 

increased by 34 percent, and potato production increased by 4 percent. 

Table 2-23: Supply and demand of apples, lettuce and potatoes 

*Calculated by adding production to imports, then subtracting exports. Stocks are not accounted for. 

Source: USDA/Economic Research Service, Yearbook 2007 
90

Apple Profile 

As the largest apple-producing State, Washington supplies 65 to 75 percent of all the apples 

sold in the fresh market. New York, Michigan, California, and Pennsylvania are also major appleproducing States, but a larger share of each of these States’ production is sold to processors. 

Together, these four States supply 15 to 20 percent of fresh-market apples and 40 to 50 

percent of processing apples. Although three-quarters of Washington’s production is for fresh 

use, it also supplies the largest quantity to processors. 

It’s no surprise that the map in Figure 2-41 below shows concentrated areas of surplus apples in 

parts of Washington and Oregon. Counties in New York and Pennsylvania also show surpluses. 

Most of the Nation experiences a slight deficit, but significant deficits appear in highly 

populated areas such as southern California, southern Florida, Chicago, and major cities in 

Texas, such as Dallas and San Antonio. 

Figure 2-41: U.S. apple surplus/deficit map with transportation overlay 
91

Trade and Transportation Needs

U.S. apples exporters use refrigerated containers almost exclusively to ship their products 

overseas. In 2007, more than 99 percent of waterborne apple exports were moved in 

containers.41 They use refrigerated trucks for cross-border movements.

Apple Export Ports 

• Most waterborne apple exports are shipped through Pacific Northwest ports (mostly 

Seattle and Tacoma, WA)—82 percent of apple exports in 2007 (see Figures 2-42 and 2-

43). 

• Other key ports include Los Angeles and West Palm Beach, FL, which together account 

for 8 percent of apple exports in 2007.

• The largest importers of U.S. apples are Mexico, Canada, Taiwan, and the United 

Kingdom. Together, these markets account for more than half the fresh apple exports. 

Figure 2-42: Ports used to export U.S. apples, 2007 

Source: Port Import Export Reporting Service (PIERS) 
92

Apple Import Ports 

• Most waterborne apple imports arrive at northeastern ports (including New York, 

Philadelphia, and Wilmington, DE)—49 percent of apple imports in 2007 (see Figure 2-

43). 

• Other key ports include Los Angeles and Long Beach, CA, accounting for 20 percent of 

apple imports in 2007. 

• The largest suppliers of U.S. apple imports are Chile, New Zealand, and Canada, which 

combined account for more than 90 percent of fresh and dried apple imports. 

Figure 2-43: Ports used to import U.S. apples, 2007 

Source: Port Import Export Reporting Service (PIERS) 

Lettuce Profile 

The top lettuce-producing States in 2006 were Arizona, California, and Colorado. Domestic 

demand for lettuce is strong. The demand for export is also strong, with more than 7 percent 

of U.S. production being exported. Both domestic use and imports have increased since the 

early 1990s—37 and 642 percent, respectively. 

 
93

Based on U.S. production and consumption rates, strong increases in domestic demand over 

the past decade have resulted in a deficit of lettuce across most of the country. Surplus 

supplies are found in California and Arizona, where significant production takes place. Lettuce 

production has increased 34 percent since the 1990s. Increased domestic production combined 

with growing but relatively small levels of imports to meet U.S. demand. 

Figure 2-44: U.S. lettuce surplus/deficit map with transportation network 

 

Trade and Transportation Needs 

Lettuce movements need both temperature and humidity control to keep the product at its 

peak quality during transportation. Its highly perishable nature requires quick and efficient 

truck transportation and the use of containers for overseas markets. More than 99 percent of 

U.S. waterborne lettuce exports were moved in refrigerated containers. 
94

Lettuce Export Ports 

• Most waterborne lettuce exports are shipped through California ports (including 

Oakland, Los Angeles, and Long Beach)—73 percent of lettuce exports in 2007 (see 

Figure 2-45). 

• Other key ports include Jacksonville and West Palm Beach, FL, accounting for 25 percent 

of lettuce exports in 2007.

• The largest importers of U.S. lettuce are Mexico, Canada, Taiwan, and the United 

Kingdom. Together, these markets accounted for more than half of U.S. fresh apple 

exports, on a quantity basis. 

Figure 2-45: Ports used to export U.S. lettuce, 2007 

Source: Port Import Export Reporting Service (PIERS) 
95

Lettuce Import Ports 

• Most waterborne lettuce is imported through the ports at Los Angeles and Tacoma—53 

percent of lettuce imports in 2007 (see Figure 2-46). 

• Other key ports include Port Everglades and Miami, FL, which accounted for 27 percent 

of lettuce imports in 2007.

• Most U.S. lettuce imports are from Mexico, Canada, Israel, and Peru. Together, these 

markets accounted for more than half of U.S. fresh lettuce imports. 

Figure 2-46: Ports used to import U.S. lettuce, 2007 

Source: Port Import Export Reporting Service (PIERS) 

Potato Profile 

The top potato-producing States in 2007 were Idaho, Washington, and Wisconsin. Though U.S. 

production has increased only minimally (4 percent) since the early 1990s, imports have grown 

significantly; processed potato imports increased by 480 percent and fresh potato imports by 

81 percent. Exports of processed potato products have also increased significantly, by 181 

percent. Most processed potato exports are frozen products. 

 
96

Potatoes are one of the most popular vegetables in the United States. Production is 

concentrated in the northwest, but pockets of production are also found in Maine, North 

Dakota, Minnesota, Wisconsin, Michigan, and Colorado. Based on production and consumption 

rates, most of the nation experiences a slight deficit, with significant deficits seen where the 

populations are dense in Southern California, Arizona, Southern Florida, the Northeast, and 

Texas. 

Figure 2-47: U.S. potato surplus/deficit map with transportation overlay 

Trade and Transportation 

Fresh and frozen potatoes are more versatile in their transportation needs than most other 

vegetables. The hardy nature of the potato allows the use of truck or rail to move them 

domestically or across borders. Most potato exporters prefer the use of containers when 

shipping overseas to keep the potatoes frozen during transit. 
97

Potato Export Ports 

• Most waterborne potato exports are shipped through Pacific Northwest ports (including 

Tacoma, Seattle, and Portland, OR)—77 percent of potato exports in 2007 (see Figure 2-

48). 

• Other key ports include Los Angeles, CA and West Palm Beach, FL which accounted for 8 

percent of potato exports in 2007.

• The largest importers are Japan, Canada, Mexico, and China. 

Figure 2-48: U.S. ports used to export potatoes, 2007 

Source: Port Import Export Reporting Service (PIERS) 
98

Potato Import Ports 

• Most waterborne potato imports are shipped through East Coast Ports (including West 

Palm Beach, FL and New York)—86 percent of potato imports in 2007 (see Figure 2-49). 

• Other key ports include Oakland, CA, Long Beach, CA, and Seattle, WA, which accounted 

for 7 percent of potato imports in 2007.

• Most potato imports are from Canada and Mexico. Together, they accounted for more 

than 99 percent of potato imports in 2007.

Figure 2-49: Ports used to import U.S. potatoes, 2007 

Source: Port Import Export Reporting Service (PIERS) 

Trends in Fruit and Vegetable Consumption 

With the increasing national concern about diet and obesity, Americans are realizing the need 

to increase fruit and vegetable consumption. This realization, combined with industry 

promotional efforts, Federal dietary emphasis, an aging and health-conscious population, and 

positive news reports on the benefits of eating fruit and vegetables, indicates that gains in fruit 

and vegetable consumption may be expected in the future. 

 
99

The economic slowdown, however, will have an impact on farm income for fruit and vegetables 

in 2009; the average annual price for fruit and tree nuts is expected to decline by 8.2 percent 

from 2008. Although the quantities sold were relatively stable from 2008 to 2009 for most fruit 

and tree nut commodities, fewer fresh oranges and grapefruit were available. Overall, fruit and 

tree nut receipts are expected to account for 10.4 percent of 2009 crop receipts. 

Vegetable and melon receipts are expected to decline more than 4 percent from 2008 as freshmarket vegetable acreage and production decline. Because of the smaller 2008 fall crop (which 

is marketed through the following summer), potatoes also are expected to decline a bit in sales 

volume, with higher prices during the first half of the year giving way to lower values later in 

2009. Cash receipts from the sale of vegetables for processing may increase in 2009 as 

processors offer higher contract prices to secure delivery. Dry bean quantities are expected to 

exceed their 2008 levels by about 1 percent but at reduced prices. In 2009, vegetables and 

melons are expected to account for 12.8 percent of total crop receipts.42

Farm sales of horticultural crops are projected to grow by 2.1 percent annually over the next 

decade, reaching $71.6 billion in calendar year 2018, up from $58 billion in 2008. U.S. 

horticultural trade continues to become increasingly important, both in terms of the export 

share of production and the import share of consumption. 

Figure 2-50: Value of horticulture trade 

Source: USDA Agricultural Projections to 2018, February 2009 

USDA, ERS
100

Fruit and Vegetable Outlook 

Here are some highlights for fruit and vegetable products from USDA’s Agricultural Projections 

to 2018: 

 

• Within horticultural products, vegetables and melons continue to rank first in farm sales 

value over fruits and nuts. Annual growth over the next 10 years is expected to be 

fastest for fruits and tree nuts, at 2.6 percent, followed by vegetables at 2.0 percent. 

• Total vegetable production volume is projected to expand at 0.6 percent annually. Fruit 

production is forecast to decline by 0.1 percent in the next decade. The gradual 

increases in vegetable production hold gains in grower prices for vegetables at an 

annual 1.3 percent through the next decade. Combined with average price increases of 

2.7 percent for fruits and nuts, farm produce prices are estimated to increase by 1.9 

percent annually during the projection period. 

• The average growth of the value of U.S. horticultural imports is forecast at 3.7 percent 

from fiscal year (FY) 2009 to 2018. The value of exports is forecast to grow at 3 percent, 

with both fruits and vegetables averaging 2.8 percent in the next 10 years. Import 

growth and export growth of fresh-market vegetables and fruits exceed that of their 

processed products. The trade deficit in horticulture crops and products increases from 

$14 billion in FY 2008 to more than $21 billion in FY 2018. Of the total $28 billion U.S. 

horticultural products exports in FY 2018, fruits and nuts contribute $12.8 billion and 

vegetables represent $6.5 billion. Total imports of $50.5 billion in FY 2018 include $16 

billion worth of fruits and nuts, and $12 billion of vegetables and vegetable products. 

• Imports will increasingly supplement the domestic supply of horticulture crops and 

products. The share of imports in the U.S. consumption of horticulture crops and 

products (based on the dollar value) is projected to climb from 48 percent in 2008 to 54 

percent by FY 2018. Horticultural exports are projected to increase their share of U.S. 

production value from 36 percent in FY 2008 to 39 percent in FY 2018. The import and 

export shares of fruits and nuts are about twice as large as the corresponding import 

and export shares of vegetables.43

 
101

Table 2-24: Fruit and vegetable long-term supply and use projections

2/ Includes melons, sweet potatoes, fresh mushrooms, and California specialty vegetables. 3/ Major processing vegetables and agaricus mushrooms. 

4/ Includes edible dry beans and peas, lentils, and other peas. 5/ Calculated by adding farm weight production to imports, then subtracting exports. 

Stocks are not accounted for. Source: USDA Long-Term Projection Tables, February 2009
102

Fertilizer Profile 

For centuries, arable land was replenished by simple fertilizers and fallowing. Fallowing is the 

practice of allowing a field to remain unplanted for one or more seasons to regain nutrients. 

Until early in the 20th century, fertilizers were limited to animal manure and scrap organic 

material. These methods had their limits because, as the manure needs increased, the land 

needed to produce livestock reduced the land available to produce crops. 

During the westward expansion of the United States and throughout much of the 19th century, 

a vast amount of land was available, but there was limited transportation infrastructure; 

manure and other simple fertilizer methods were not economically viable at the scale needed. 

When settlers noticed depleted soil fertility, they simply moved on. By the 1930s, this process 

left large parts of the Plains as depleted “dust bowls.” 

At the beginning of the 19th century, the relationship of soil nitrogen, potassium, and other 

organic minerals to plant health and yield was discovered. This discovery, coupled with a 

developing transportation infrastructure, led to the development of the modern commercial 

fertilizer industry. Since the very beginning of fertilizer use, its ability to reduce famine by 

increasing yields led to nearly immediate international acceptance and the global search for 

fertilizers began. Shortly after the first manufacture of economically viable superphosphate 

fertilizer in the 1840s, sodium nitrate from Chile entered the market. At the dawn of the 20th

century, ammonia synthesizing was developed and nitrogen fertilizers were produced through 

chemical reactions controlled by humans. Today’s crop production in the United States, and 

the high yields achieved, require large amounts of nutrients and other inputs. These nutrients 

fuel the American agricultural exports that help feed the world. 

The three primary commercial fertilizers in use today are nitrogen based (urea, ammonia, etc.), 

phosphates, and potash. However, animal manure and other organic materials are still used to 

replace nutrients. In most areas, fertilizers are applied to replace nutrients withdrawn by crops 

as they grow. In other areas, fertilizers are used to make the land more arable. Potash, urea, 

anhydrous ammonia, and other commercial fertilizers are used to replace depleted nutrients. 

The application of commercial fertilizer is a widespread and accepted practice in the 

United States and globally because of the economic benefits. 

Trends in Fertilizer Markets 

As with any industry, the fertilizer industry has had many successes and faces several 

challenges. The U.S. fertilizer industry has recently implemented changes that allow for more 

production, more security, and a greater economic viability. Some of the problems facing the 

industry are: 

• Volatility in U.S. fertilizer prices. 

• Transportation policies and procedures. 

• Long-term increases in fertilizer use. 
103

Fertilizer Price Volatility 

The prices of nitrogen, phosphate, and potash, as well as other fertilizers, have been rising since 

2002. In 2008, fertilizers reached historic highs at the same time as grain and oilseeds reached 

their own record-setting highs. Between April 2007 and April 2008, nitrogen prices increased 

32 percent, phosphate prices increased by 93 percent, and potash prices increased by 100 

percent. The price surge in 2008 was due to strong domestic and global demand for fertilizers, 

low fertilizer inventories, and the inability of fertilizer production to be ramped up quickly 

enough to meet demand.44

 

In any business, volatility in prices creates a difficult operating environment; extreme 

fluctuations make planning and inventory management difficult. Late in 2008, the fertilizer 

price environment quickly changed again, as prices fell precipitously. The price retreat had 

several causes, but chief among them was the response to the record high prices of 2007 and 

2008, which caused global fertilizer demand to fall as declining crop prices provided less of an 

incentive for farmers to boost yields. In addition, U.S. producers delayed fertilizer applications 

because of high prices, and tighter credit markets slowed fertilizer purchases.

Transportation Policies and Procedures 

In the aftermath of the 9/11 attack, the transportation of hazardous materials and the security 

environment of Toxic by Inhalation Hazards (TIH) or Poison by Inhalation Hazards (PIH) 

materials has become ever more scrutinized. TIH and PIH are toxic gases, such as ammonia, 

which are harmful if inhaled. In many cases, on their way to a distribution center or a 

manufacturing facility, fertilizer rail cars containing ammonia or other chemicals pass through 

or are delivered to high threat urban areas. Because of the dense population of these areas 

and the potential for high physical and economic loss, insuring TIH or PIH rail shipments 

through high threat urban areas has become increasingly costly, and some say uneconomical. 

Most of the debate over fertilizer transportation policies centers on the rail industry, though 

fertilizers move by other modes, such as pipeline, truck, barge, and ocean-going vessel. This 

issue was recently considered by the Surface Transportation Board (STB) in the proceeding STB 

Ex Parte 677 (Sub-No. 1) Common Carrier Obligation of Railroads – Transportation of Hazardous 

Materials. Several interested parties, including USDA and the U.S. Department of Transportation 

(DOT), submitted testimony in the hearing. 

The railroads proposed a solution modeled on the Price-Anderson Nuclear Industries Indemnity 

Act of 1957, which required Congressional action to implement. The Price-Anderson Act is 

designed to partially indemnify the nuclear industry in the event of a catastrophic nuclear 

accident. If an accident occurs, the first $10 billion in liability claims are paid from insurance 

carried by the nuclear industry. The remainder of the claims are paid by the federal 

government. The act includes other provisions that alter normal civil court proceedings, and 

requires nuclear companies to agree they cannot defend actions for damages by claiming it was 

not their fault. Action has not yet been taken on the railroads’ proposal, and the Common 

Carrier Obligation hearing is still active with the STB.45
104

The fertilizer industry forwarded a proposal to Class I railroads that would require fertilizer 

producers to pay for an extended insurance pool. The new insurance would increase the 

coverage for TIH or PIH incidents, and payouts would become available if claims grew beyond 

the amount of insurance railroads carried. In return for the expanded coverage, the fertilizer 

industry asked for new rate negotiations. As this report is published, the industry’s insurance 

plan is still under discussion, but there has been no significant movement recently. 

Long-Term Increases in Fertilizer Use 

As can be seen in Figure 2-51, U.S. fertilizer consumption increased rapidly from 1960 to 1980, 

by more than 300 percent. Since that time, the rate of increase has slowed, although still 

increasing more than 1 percent a year. The growth is due to several reasons, such as increases 

in acreage planted and higher-yielding crop varieties that require more nutrition. These 

domestic increases, combined with increases in developing countries—which resemble the 

rapid growth the United States experienced from 1960 to 1980—could put pressure on global 

fertilizer prices for years to come. 

Figure 2-51: Fertilizer use from 1960 to 2007 

Source: ERS 

0

5,000

10,000

15,000

20,000

25,000

196019621964196619681970197219741976197819801982198419861988199019921994199619982000200220042006

1000's of Nutrient Tons

Year

Nitrogen (N) Phosphate (P2O5) Potash (K2O) Total
105

Fertilizer Production 

Fertilizer production is, in most cases, based on the resources available. Nitrogen fertilizers can 

be produced in nearly every country of the globe, and are currently produced in more than 78 

countries. The primary raw material for nitrogen production is natural gas, but nitrogen can 

also be produced from coal, fuel oil, and naphtha. In the United States, 30 companies make 

nitrogen fertilizer in 29 States.46 Figure 2-52 identifies States that make nitrogen, potash, and 

phosphate fertilizers. 

Phosphate and potash are mined, so fertilizer is produced where ore is found. The raw 

materials for phosphate fertilizer are phosphate rock and sulfur. In the United States, these 

reserves are found in 14 States and are mined by 11 companies. Globally, phosphate rock is 

found in 32 countries, but only a few countries are able to extract it economically. The top 

three phosphate-producing countries account for 68 percent of global production. The top 12 

countries account for 94 percent. Potash ore reserves are identified in 21 countries worldwide, 

but extraction occurs in only 12 countries. In the United States, three companies in three States 

conduct potash ore mining and extraction (Figure 2-52).47

Production figures for fertilizers are confidential due to the nature of the business and the few 

companies that produce fertilizers. For this study, the best estimate for fertilizer production is 

domestic consumption and exports. Although it is possible to store fertilizers for long periods, 

storage is costly and demand is high enough that domestically produced fertilizers are either 

quickly utilized domestically (discussed in the next section) or exported (discussed in a later 

section). 

 
106

Figure 2-52: Fertilizer production facilities 

Fertilizer Use 

As discussed previously, the use of fertilizers increased rapidly during the early 20th century as 

farmers and producers assimilated new fertilizers and fertilizing techniques. The acceptance 

grew as evidence mounted of their economic benefits. Since then, the ever-increasing nature of 

fertilizer utilization—that acts as a proxy for the increased demand placed on the U.S. food 

supply—requires a high level of complexity in fertilizer creation and transportation. Figure 2-52 

shows the wide range of fertilizer use across the country. Every State in the contiguous 48 

States except Nevada reported some fertilizer use.48

For 2007, the most recent year with available data, the United States consumed more than 13.2 

million tons of nitrogen fertilizer, 5.1 million tons of potash, and about 4.6 million tons of 

phosphate, for a grand total of more than 22.9 million tons of fertilizer. The total amount of 

fertilizer consumed was 7.5 percent greater than 2006. The increase had two causes: higher 

commodity prices, which gave an incentive for farmers to increase their yields, and an increase 

in planted acreage. Over the past 10 years—from 1998 to 2007—the use of fertilizers has 

increased more than 2.3 percent. The small increase over the 10-year period may be due to 

what is described as “precision agriculture,” techniques that allow producers to reduce 

amounts of fertilizers used by careful placement around the plant. 
107

Over the 5-year span from 2003 to 2007, corn was the largest single user of all three major 

fertilizers. Corn accounted for 40 percent of nitrogen use and 39 percent each of phosphate 

and potash use. Several factors determine amounts used for corn, such as the percentage of 

the crop fertilized, the number of acres fertilized, and the amount applied per crop. Usually, 

more than 90 percent of corn acreage receives nitrogen, 80 percent receives phosphates, and 

60 percent receives potash. 

Wheat application rates are close to those of corn, with more than 87 percent of planted acres 

receiving nitrogen, 63 percent phosphate, and 32 percent potash. However, corn is fertilized at 

a higher rate, and more acres are fertilized. 

Illinois is the largest user of nitrogen, phosphate, and potash, and Iowa is the second largest 

user. Five other states—Indiana, Minnesota, Ohio, Missouri, and Wisconsin—are also included 

in the top ten of all three fertilizer usage categories. Most of these States are in the Corn Belt, 

and include some of the heaviest-producing corn States in the country (Figures 2-53, 2-54, and 

2-55).49

Figure 2-53: Nitrogen fertilizer use, top 10 States 

Source: USDA/NASS 

 
108

Figure 2-54: Phosphate fertilizer use, top 10 States 

Source: USDA/NASS 

Figure 2-55: Potash fertilizer use, top 10 States 

Source: USDA/NASS 
109

International Trade 

In 2008, the United States exported more than $7.5 billion worth of fertilizer to the rest of the 

world, more than twice that exported during 2007 ($3.7 billion).50 As shown in Figure 2-56 

below, fertilizer exports have steadily increased by value every year since 2000, with the only 

exception being 2006. Despite the increase in exports, the United States has a trade deficit in 

fertilizers. Over the 16-year period from 1989 to 2004, the United States had a surplus trade in 

fertilizers with the rest of the world. Between 2004 and 2005 the United States fertilizer trade 

balance switched to a deficit and has remained so since. For 2008, the deficit was $940 million, 

the second highest deficit to 2007 at $1.29 billion. 

Figure 2-56: U.S. international fertilizer trade – 10-year history 

Source: Foreign Trade Division, U.S. Census Bureau 

As also can be seen in Figure 2-52, a close relationship exists between U.S. fertilizer imports and 

exports. This is due to the United States being the largest importer of fertilizer intermediaries, 

the building blocks of finished commercial fertilizers, which are classified as fertilizers.51 This 

phenomenon makes the United States the second largest exporter and the largest importer of 

fertilizers. China’s entry into the World Trade Organization (WTO) had a significant impact on 

fertilizer trade, especially urea. In one year—between 2006 and 2007—China increased its 

imports of U.S. fertilizers by more than 330 percent, or $155 million. 

Canada has been the largest single source of fertilizer imports into the U.S. for at least the past 

20 years, with some $4.378 billion in 2008 (Figure 2-57). In 2008, the United States exported 

the largest amount of fertilizer products to India (Figure 2-58), nearly four times as much as to 

Brazil. India has been the largest U.S. fertilizer export customer for the last five years. 
110

Figure 2-57: U.S. fertilizer imports, top 10 supplying countries, 2008 

Source: Foreign Trade Division, U.S. Census Bureau

Figure 2-58: U.S. fertilizer export customers, top 10 countries, 2008 

Source: Foreign Trade Division, U.S. Census Bureau 
111

Fertilizer Transportation 

Fertilizers are transported by all major transportation modes, including pipeline, barge, rail, truck, 

and ocean vessels. Most ton-miles in the U.S. are shipped by truck (Figure 2-59). Domestically 

produced fertilizers are usually railed from the origination plant to larger distribution centers. 

They may be delivered by truck directly to end users or sent to smaller cooperatives for sale to 

local farmers. This structure helps to explain why truck transportation has such a large share of 

ton-miles; several truck shipments originate from each railcar. For example, a typical ammonia 

railcar carries 80 tons of material, which can fill four trucks. 

Figure 2-59: Fertilizer modal share 

Source: U.S. DOT, Bureau of Transportation Statistics, U.S. Census Bureau, Commodity Flow Survey 2002 

Fertilizers and raw materials imported from Canada and Mexico enter the country by truck or 

rail. These products from other international sources enter the United States by vessel. The 

next step depends on whether the product is finished or not. As can be seen in Figure 2-52, 

several fertilizer manufacturing plants are located in or near the port regions of New Orleans, 

Galveston, TX, and the Tampa Bay–St. Petersburg area. Two ammonia pipelines in the 

United States help safely distribute ammonia from production sites to manufacturing plants. 

One pipeline runs from the Texas production area into Minnesota and the other from the 

Louisiana production area to Nebraska and Indiana. 

Nitrogen fertilizer production areas are not only destinations for imported raw materials but 

are also points of departure for fertilizer exports. Phosphate and potash are tied to mining 

operations, so these materials are moved by rail or truck to export destinations. In 2007, more 
112

than 23.014 million tons of chemical fertilizer moved by rail, up 2 percent from 2006. Barges 

carried more than 8.477 million tons, up 13 percent from the previous year. These increases 

were due to the increase of 1.2 percent in the number of acres planted in the United States 

during the same period. 

Table 2-25: Chemical fertilizer movements for rail and barge 

All Chemical Fertilizer Movements (Tons) 

2003 2004 2005 2006 2007 5-year 

average 

Rail 26,331,106 22,124,653 24,339,134 22,540,141 23,014,227 23,669,852 

Barge 9,260,622 8,472,700 8,116,279 7,497,594 8,477,613 8,364,962 

 

Source: Rail: STB, Carload Waybill Sample, Barge: U.S. Army Corps of Engineers, OMNI Reports 

Fertilizer Outlook 

In 2008, the U.S. economy entered a recessionary period, which slowed output and reduced 

pressures on fertilizer demand in two significant ways: by lowering incomes and increasing 

unemployment and by making credit harder to find. 

Despite the recent economic recession, the increases in incomes throughout the developing 

world over the last ten years have triggered diet changes that include more meat, fish, fruits, 

and vegetables.52 More meat products in the diet require the developing countries to use 

larger amounts of animal feed (e.g. corn, soybean meal, etc.) resulting in an increased use of 

fertilizer to boost yields for animal feed production. If this trend continues for the next ten 

years—and the signs are that it will—the need for foodstuffs and fertilizers will continue to 

grow. 

Fertilizer Demand 

The United States needs to increase agricultural production to meet growing food and biofuel 

requirements. The newly enacted Renewable Fuel Standard will increase the need for energyproducing crops such as corn and sorghum, which will increase the demand for fertilizer. 

However, the increase in biofuels production may decelerate until new technologies such as 

cellulosic ethanol become commercially viable. The new biofuels technologies may not totally 

negate an increase in fertilizer demand. For example, a new biofuels feedstock crop such as 

switch grass may require some form of fertilization to meet the needs of biofuels producers. 

These needs, combined with food diversification in the developing world, will increase the 

demand for fertilizers. According to the International Fertilizer Association, average global 

consumption will increase by 3.1 percent annually between 2008 and 2012. 
113

Fertilizer Supply Outlook 

In 2007, the U.S. fertilizer industry entered a demand-driven period caused by high 

consumption and a global supply shortage. Fertilizer companies tried to quickly increase 

production to capitalize on high prices. However, increases in energy prices, especially natural 

gas, combined with the fertilizer price increase created a difficult operating environment. This 

lasted into 2008 when the recession took hold, reducing fertilizer and natural gas demand. 

Also, in 2008, several fertilizer exporting countries implemented export taxes, which further 

decreased the already-low supply. These taxes helped U.S. fertilizer producers compete more 

effectively on the world stage. Many of the new export taxes are expected to remain in place 

for at least the near future. 

Despite the recession, fertilizer demand is expected to grow in the long term throughout the 

world, and supply is expected to increase with it as producers try to capitalize on new and 

increasing markets in the U.S. Since transportation demand is derived, the global demand for 

transportation services for fertilizers is expected to increase in the next several years. 

Conclusions 

America’s transportation system carries the food from our farms to our tables and to a hungry 

world. That system is based on four principal modes of transportation—trucks, trains, barges, 

and ocean vessels—that make up a seamless network. They cooperate and compete with one 

another to make a balanced and flexible system that moves our food and farm products 

efficiently and economically. 

The transportation system is more heavily used by agriculture than any other business sector; 

in 2007, 31 percent of all ton-miles carried were agricultural products or inputs. Many of these 

products are bound for export. During the past 5 years, half of the U.S. wheat crop, 36 percent 

of the soybean crop, and 19 percent of the corn crop moved from farms to ports for export on 

an unbroken transportation chain. 

As the world develops, eating patterns change, with demand rising for high-quality food 

products and bulk commodities. These changes increase America’s needs for transportation. 

Domestically, during the last decade, the livestock, poultry, and dairy industries have become 

more concentrated and experienced geographic shifts. The production and consumption areas 

are geographically dispersed, creating the need for efficient long-distance transportation from 

the highly concentrated producing areas to the growing domestic and international markets. 

Raising concerns for the safety of urban areas are making fertilizer transportation more 

regulated, even as the need for fertilizers grows, increasing the demand for rail, barge, and 

trucks to transport it. 

The need for agricultural transportation will continue to increase, based on projected growth in 

demand for U.S. agricultural products domestically and overseas. 

 
114
Chapter 3

How Freight 

Transportati on 

Supports Rural 

America
115

Chapter 3: How Freight Transportation Supports 

Rural America 

The focus of this study is freight transportation, with an emphasis on agricultural 

transportation. This chapter places freight transportation in a larger context; it examines how 

freight transportation supports a strong rural America, including rural manufacturing, and how 

it sustains economic development and provides adequate and efficient services for rural 

America. 

An efficient transportation system supports rural economic development. In an efficient rural 

economy, the cost of inputs to agriculture and the cost of living for inhabitants of rural areas 

decreases, the net price to producers and manufacturers increases, market access and 

competitiveness increases, and job opportunities are increased. Successful businesses and 

producers contribute to the quality of life and increase opportunities for rural residents. 

In brief, this chapter shows that an efficient system of freight transportation is an important 

foundation for a vibrant rural economy, including rural manufacturing. Transportation, 

however, does not stand alone, but is one of several key elements that contribute to a strong 

rural economy. Many other factors also help create and support a high quality of life in rural 

communities. In this chapter, we compare some crucial economic and demographic attributes 

of rural America with metropolitan areas. We also describe variations of rural areas along 

several other dimensions, in order to explore the implications for the needs, successes, and 

benefits of freight transportation. The requirements for freight transportation vary. 

Figure 3-1: People often 

choose to live in rural 

areas for a more relaxed 

quality of life and 

closeness to nature. 

Source: Wikimedia 

Commons 

 
116

The economic institutions in rural communities are interconnected. Providing efficient freight 

transportation for a rural region has positive effects on the businesses served, and indirectly 

affects most of the other institutions and aspects of the community. The served businesses, 

whether in agricultural, manufacturing, or other sectors, are able to ship goods and receive 

inputs more quickly and more cheaply, allowing them to expand operations and add jobs and 

make purchases from the local economy. 

Rural America 

One widely accepted and straightforward definition of “rural” is “any county outside a 

metropolitan area.” Using this definition, 2,052 U.S. counties are non-metropolitan, or rural. 

Rural America constitutes about 75 percent of the nation’s land area and 17 percent of its 

population.53 See Figure 3-2 for the location of these rural counties. 

Figure 3-2: Rural and metropolitan counties 

Source: Prepared by ERS using data from the Census Bureau 

The defining difference between rural and metropolitan areas is population density. Rural 

populations are sparse (because land is the major resource of agriculture, economies of scale 

have caused consolidation of farms and a thinning of population), and metropolitan 

populations are dense. 
117

The stereotype of the rural economy focuses on agriculture but, in reality, the picture is more 

complex. As shown in Figure 3-4, agriculture is far from the largest employer in rural America. 

Four other economic sectors—services, government, retail and wholesale trade, and 

manufacturing—comprise 80 percent of rural employment. Agriculture is responsible for less 

than one in ten rural jobs. However, because agriculture is so capital intensive, the economic 

activity generated by it is greater than the job opportunities it creates. The interaction of 

agriculture and the off-farm jobs it supports provides a solid base for many rural communities. 

A solid transportation system is a critical foundation for success in all the economic sectors of 

rural America. 

Figure 3-3: Rural America depends on trucks to move its products. 

Source: USDA 

Rural transportation serves a continuum from the countryside of isolated settlements to the 

urban fringe. Rural production requires farm-to-market or mine-to-power plant movements at 

one end of the continuum, and the urban fringe requires local distribution of medicines, food, 

and clothing similar to core urban areas. Rural transportation is becoming more complex all the 

time. 

 
118

Figure 3-4: Composition of rural employment*

 

Source: BEA, 2006 

The defining difference between rural and metropolitan areas is population density. 

Metropolitan America has, on average, fifteen times as many persons per square mile as rural 

America. Many additional differences exist along economic and demographic dimensions. 

Some key differences are the higher poverty and unemployment rates in rural areas. Rural 

America also experiences lower income and lower high school and college graduation rates. 

Table 3-1 presents these comparisons. 

 

 

*

 Employment can be measured by either the residence or the workplace of the employee. The American 

Community Survey (ACS) uses the residence; the Bureau of Economic Analysis (BEA) uses the workplace. In 

areas where many employees commute to work from rural to metropolitan areas or vice versa, the rural 

employment information can be substantially different depending on the approach. 
119

Table 3-1: Comparison of economic and demographic indicators in metropolitan and rural 

America 

Demographic Category Rural Metropolitan U.S. Total 

Population Density (per square mile) 18.94 280.45 85.26 

Population Change 2.2% 6% 5.3% 

Median Household Income $40,532 $53,066 $51,658 

Poverty Rate 15.7% 12.4% 13.0% 

Unemployment Rate 5.4% 5.0% 5.1% 

High School Graduation Rate 82.0% 85.1% 84.5% 

College Graduation Rate 17.7% 29.5% 27.5% 

Sources: Population data: U.S. Census Bureau, April 2000-July 2005; Income, poverty and graduation rates: 2007 

American Community Survey; Unemployment data: BLS, 2005 

Rural America is not homogeneous, so the transportation needs vary, with wide variations 

occurring across the nation. Rural areas vary along many dimensions. Table 3-2 shows Stateto-State comparisons and reveals some of these variations. 

Population densities in rural areas differ widely among states. Rural counties in five States (AK, 

MT, NV, UT, and WY) have fewer than five people per square mile. On the other end of the 

spectrum, rural areas in three States (CT, DE, and MA) have more than 170 people per square 

mile. Some rural areas are growing; others are losing population. For instance, the rural areas 

of three States (DE, FL, and NV) had a growth rate of over 10 percent from 2000 to 2005, while 

11 States lost rural population over that same period. 

Income differences also vary widely. Four States (CT, DE, MD, and WY) have a recent rural 

median household income exceeding $50,000, while in five States (AR, KY, LA, MS, and WV) it is 

less than $35,000. Poverty rates, too, vary widely. In five States (AR, KY, LA, MS, and NM), 20 

percent or more of the rural population is below the poverty level; in contrast, in seven States, 

less than 10 percent of the rural population is below the poverty level. 

Local unemployment rates also vary. In December 2005, five States (HI, MA, NE, NH, and WY) 

had rural unemployment rates of 3.5 percent or less, and three States (AK, MS, and SC) had 

rates of eight percent or higher. 

Education levels also vary across rural America. In Wyoming, over 90 percent of the adult 

population holds a high school diploma, but six States (GA, KY, LA, NV, TN, and TX) have a rate 

of less than 75 percent. 

Note that, as striking as these differences across rural America are, the differences would be 

even more dramatic if we were comparing rural counties instead of the rural portions of states. 
120

Table 3-2: Key economic and demographic indicators for nonmetropolitan America, State-by 

State Breakdown 

State 

Non-metro 

Population 

Density 

Non-metro 

Population 

Change3

Non-metro 

Median 

Household 

Income4 

Non-metro 

Poverty 

Rate5

Non-metro 

Unemployme

nt Rate6

Non-metro 

High School 

Graduation 

Rate7

Non-metro 

College 

Graduation 

Rate8

Units Per square 

mile Percent Dollars Percent Percent Percent Percent 

AL 43.1 0.9 35,012 19.16 4.4 75.10 15.12 

AK1 0.4 -0.2 - 12.24 8.9 87.18 21.53 

AZ 11.5 9.1 39,311 19.45 6.1 79.31 15.51 

AR 30.1 -0.5 32,694 20.00 5.9 77.24 13.39 

CA 14.8 5.3 43,789 14.29 6.5 85.38 20.67 

CO 8.4 4.8 47,814 13.24 4.6 87.04 28.56 

CT 213.1 4.8 63,023 6.10 4.9 88.90 28.30 

DE 196.6 12.5 50,976 9.20 3.7 83.50 19.90 

FL 56.5 10.7 39,464 15.88 4 77.43 13.80 

GE 52.5 5.1 35,936 19.57 5.7 74.91 13.94 

HI1 64.9 9.9 - 8.80 2.9 88.60 26.50 

ID 8.3 4.2 42,372 14.13 4.3 86.03 21.20 

IL 47.8 -1.3 41,114 13.81 5.4 84.95 16.52 

IN 79.1 0.3 43,567 12.34 5.9 82.74 13.95 

IA 30.1 -1.7 43,657 10.92 4.8 88.25 17.51 

KS 14.3 -3.0 40,368 12.72 4.5 86.67 21.33 

KY 62.2 2.1 32,553 21.81 6.7 73.64 13.71 

LA 46.1 -0.6 33,652 23.88 7.8 74.36 13.29 

ME 22.0 2.4 39,934 14.24 5.8 88.29 22.40 

MD 103.2 6.5 58,430 9.40 4.5 84.89 24.36 

MA1 171.6 4.8 - - 3.3 - - 

MI 45.9 2.0 40,975 14.49 7.1 86.84 18.68 

MN 23.1 1.7 45,091 10.58 4.5 87.98 19.90 

MS 44.5 -0.8 31,262 24.62 8.4 75.60 15.42 

MO 31.4 2.2 36,403 16.45 5.7 80.01 15.06 

Source: American Community Survey, 2007 

Table Notes: 

1 Some data are not reported due to small percentage of nonmetropolitan population; 2 NJ and RI 

have no nonmetropolitan counties; 3 population percent change in non-metro portions, April 2000-July 2005, U.S. 

Census Bureau, Population Estimates Program (metropolitan status as of 2005 was used): 4

 Median household 

income in the past 12 months by metropolitan, U.S. Census Bureau, 2007, Micropolitan Statistical Area Status and 

State, 2007, or American Community Survey, 2007; 5

 percent of people below poverty level in the past 12 months 

(for whom poverty status is determined), Universe: population for whom poverty status is determined, Data Set: 

2007 American Community Survey 1-Year Estimates, Survey: American Community Survey; 6

 Non-metro 

Unemployment Rates, 2005, Bureau of Labor Statistics, Local Area Unemployment Statistics; 7 Percent of People 25 

Years and Over Who Have Completed High School (includes equivalency), Universe: population 25 years and over, 

Data Set: 2007 American Community Survey 1-Year Estimates, Survey: American Community Survey; 8

 Percent of 

people 25 years and over who have completed a Bachelor's Degree, Universe: population 25 years and over, Data 

Set: 2007 American Community Survey 1-Year Estimates, Survey: American Community Survey. 

 
121

State 

Non-metro 

Population 

Density 

Non-metro 

Population 

Change3

Non-metro 

Median 

Household 

Income4 

Non-metro 

Poverty 

Rate5

Non-metro 

Unemployme

nt Rate6

Non-metro 

High School 

Graduation 

Rate7

Non-metro 

College 

Graduation 

Rate8

Units Per square 

mile Percent Dollars Percent Percent Percent Percent 

MT 4.6 3.7 42,512 14.96 4.3 89.51 25.83 

NE 10.3 -1.4 41,107 12.04 3.5 87.55 19.04 

NV1 2.8 11.5 - 9.36 4.6 69.12 13.60 

NH1 70.5 6 - 7.07 3.2 79.63 26.48 

NJ2 - - - - - - 

NM 6.7 0.1 36,227 20.68 5.8 79.77 18.56 

NY 59.6 0.1 43,056 13.85 5.2 85.60 19.55 

NC 95.7 4.3 38,860 16.85 6 78.16 16.23 

ND 5.3 -5.2 42,482 11.93 4 86.19 19.86 

OH 96.8 0.8 42,138 13.57 6.4 84.61 13.75 

OK 24.5 0.6 36,545 18.78 4.4 81.88 18.24 

OR 10.6 3.4 40,620 14.75 7.3 85.75 17.90 

PA 81.7 1.3 40,955 12.33 5.3 84.54 16.36 

RI2 - - - - - - 

SC 70.8 2.6 36,787 19.25 8.5 77.55 17.48 

SD 6.5 -1.5 39,722 16.46 4.2 85.74 22.58 

TN 64.9 3.7 35,231 18.41 6.9 74.48 11.87 

TX 15.4 2.5 37,208 18.52 5.5 74.78 14.36 

UT 4.7 5.9 43,980 14.16 4.5 87.87 19.02 

VT 51.8 1.8 46,822 11.14 3.6 89.61 31.30 

VA 60.2 2.2 39,585 14.85 4.5 76.24 15.92 

WA 21.1 6.2 42,952 15.46 6.5 86.47 21.42 

WV 48.4 -1.2 33,285 19.33 5.4 77.81 14.16 

WI 40.1 2.4 46,041 10.61 5 87.94 18.13 

WY 4.1 2.5 53,905 9.43 3.5 ` 24.07 

U.S. Total 18.9 5.3 40,532 15.68 5.4 81.98 17.75 

Source: American Community Survey, 2007 

Table Notes: 

1 Some data are not reported due to small percentage of nonmetropolitan population; 2 NJ and RI 

have no nonmetropolitan counties; 3 population percent change in non-metro portions, April 2000-July 2005, U.S. 

Census Bureau, Population Estimates Program (metropolitan status as of 2005 was used): 4

 Median household 

income in the past 12 months by metropolitan, U.S. Census Bureau, 2007, Micropolitan Statistical Area Status and 

State, 2007, or American Community Survey, 2007; 5

 percent of people below poverty level in the past 12 months 

(for whom poverty status is determined), Universe: population for whom poverty status is determined, Data Set: 

2007 American Community Survey 1-Year Estimates, Survey: American Community Survey; 6

 Non-metro 

Unemployment Rates, 2005, Bureau of Labor Statistics, Local Area Unemployment Statistics; 7 Percent of People 25 

Years and Over Who Have Completed High School (includes equivalency), Universe: population 25 years and over, 

Data Set: 2007 American Community Survey 1-Year Estimates, Survey: American Community Survey; 8

 Percent of 

people 25 years and over who have completed a Bachelor's Degree, Universe: population 25 years and over, Data 

Set: 2007 American Community Survey 1-Year Estimates, Survey: American Community Survey. 

Figure 3-5 presents a different perspective on a key variation across rural America. The income 

gap between the rural portion of the state and the metropolitan portion varies widely. In 

Massachusetts, the rural per-capita income exceeds the metropolitan. On the other hand, in 13 

States the rural per capita income is less than 75 percent of the metropolitan income. As 

policymakers strive to decrease this gap, transportation access to jobs and markets is critical. 
122

Figure 3-5: Per-capita income gap 

Rural Vitality 

When asked why they live in rural America, residents give a variety of reasons. For example, 

the responses might be: 

“It’s a great place to raise my kids!” 

“I love living close to the land!” 

“The outdoor opportunities are wonderful—fishing, canoeing, and so on!” 

“I love the small town atmosphere!” 

What remarks like this indicate is that rural quality of life goes well beyond the economy, 

covering a broad range of factors. The rural economy is critical because it allows people to 

choose where to live, enabling them to consider other factors that contribute to a high quality 

of life. 

 
123

A vital rural community offers more than good jobs and income. Beyond—but part 

of—economic development, a vital rural community offers personal security for residents, 

enhances their skills and knowledge, provides adequate income, a good setting, and a strong 

civic foundation. 

A strong economy is a base that allows a successful rural area—one with a high quality of 

life—to thrive in other qualities, such as a low crime rate, good health care, significant 

educational opportunities, information access, high environmental quality, and strong civic 

participation. One of the key qualities is accessibility, reflected in convenient and affordable 

transportation. See the Rural Quality of Life Index in Appendix 3-1 for more information about 

aspects of a vital rural community. 

Many rural communities find that using a community development process helps improve their 

conditions or maintain a high quality of life. Community development addresses three key 

questions: 

1. Where are we now? 

2. Where do we want to go? 

3. How are we going to get there? 

Components of community development include community assessment, visioning, and 

strategic planning. Communities can use their scarce resources more effectively if these 

resources are all considered in a single coherent plan, and all are aimed at the same target for 

an improved community. Freight transportation should be an integral component of such a 

plan. 

Rural Manufacturing 

The transportation system that contributes to the long-term success of rural agriculture is the 

same system that supports rural manufacturing. Although the stereotypical view of rural 

America is dominated by agriculture, it is, in fact, manufacturing that is critical. Manufacturing 

employs 15 percent of the rural workforce. As a share of total employment, manufacturing is 

42 percent more important in rural America than in metropolitan America (Table 3-3). 

Table 3-3: Population employed in manufacturing 

Area of the U.S. Manufacturing Sector’s Share of Employment 

Rural 15.0% 

Metropolitan 10.6% 

U.S. Total 11.3% 

Source: 2007 ACS*

 

*

 Employment can be measured by either the residence or the workplace of the employee. The American 

Community Survey (ACS) uses the residence; the Bureau of Economic Analysis (BEA) uses the workplace. 
124

The importance of manufacturing to the local economy varies from place to place. In six States 

(AZ, CO, MT, NV, NM, and WY) manufacturing’s share of rural employment is less than 5 

percent; in five States (AL, IN, OH, TN, and WI) the percentage in manufacturing exceeds 20 

percent (Table 3-4). 

Table 3-4: Rural population employed in manufacturing by State 

State Percent of Rural Employed in 

Manufacturing* State Percent of Rural Employed in Manufacturing 

Alabama 20.44 Montana 4.96 

Alaska 9.82 Nebraska 13.38 

Arizona 4.11 Nevada 4.64 

Arkansas 19.46 New Hampshire 10.47 

California 5.22 New Jerseyb - 

Colorado 4.56 New Mexico 4.31 

Connecticut 15.30 New York 12.53 

Delaware 10.50 North Carolina 17.08 

Florida 6.01 North Dakota 8.11 

Georgia 15.82 Ohio 23.03 

Hawaii 3.30 Oklahoma 11.23 

Idaho 9.79 Oregon 11.72 

Illinois 15.82 Pennsylvania 17.39 

Indiana 29.04 Rhode Islandb - 

Iowa 19.39 South Carolina 17.73 

Kansas 14.64 South Dakota 9.89 

Kentucky 15.41 Tennessee 22.14 

Louisiana 10.07 Texas 10.92 

Maine 11.47 Utah 8.76 

Maryland 6.02 Vermont 10.61 

Massachusetts† - Virginia 13.42 

Michigan 17.77 Washington 8.96 

Minnesota 16.73 West Virginia 9.53 

Mississippi 17.61 Wisconsin 21.44 

Missouri 15.03 Wyoming 4.68 

U.S. Total 14.99 

Source: 2007 ACS*

 

*

 GCT2404. Percent of Civilian Employed Population 16 Years and Over in the Manufacturing Industry 

Universe: Civilian employed population 16 years and over 

Data Set: 2007 American Community Survey 1-Year Estimates 

Survey: American Community Survey †

 Data are not reported due to small percentage of rural population. 
125

The composition of the manufacturing sector also varies across rural America. For instance, 

textile and apparel firms provide about 25 percent of all manufacturing jobs in the South, but 

less than 10 percent in each of the other regions (Table 3-5). Such differences result in 

different demands for freight transportation. Studies have shown that the availability of rail, 

air, and highway services is one of the most commonly cited requirements of manufacturing 

and commercial establishments. 

One of the benefits of transportation is that it enables specialization in the production and 

manufacture of goods. Since communities and regions vary in characteristics, the ability to 

produce or manufacture items will also vary. A region that specializes in one type of product 

can often produce it at a lower cost, giving it a competitive advantage. 

Even more dramatic place-to-place differences in composition of the local manufacturing sector 

would be shown if comparisons were made across States or counties. 

Table 3-5: Rural manufacturing employment by sector in 1996 

 *

 Employment can be measured by either the residence or the workplace of the employee. The American 

Community Survey (ACS) uses the residence; the Bureau of Economic Analysis (BEA) uses the workplace. 
126

Manufacturing’s Contribution to Rural Vitality 

Manufacturing wages and benefits are generally higher than 

wages and benefits in other economic sectors. Average weekly 

earnings in manufacturing are more than 20 percent higher 

than in other non-farm private economic sectors.54 Income 

and benefits are a key foundation for a strong rural community, 

so manufacturing jobs created by access to markets from rural 

areas are major contributors to sustained development and 

quality of life. It is not just another job; it is a particularly 

attractive job.

As manufacturing moves from region to region, the demands 

on the transportation system shift from region to region as 

well, either before the shift, or to support the shift. Without 

adequate transportation, such shifts will not occur or, if they 

do occur, the shift will be constrained. 

Table 3-6 shows results from a study conducted in 1996 that 

found “quality of available labor” was listed as the most 

pressing problem of rural manufacturers, with 34 percent 

describing it as a “major problem.” Other problems identified 

as major by more than 20 percent of rural manufacturers were 

“State and local taxes” and “environmental regulations.” Four 

transportation factors were cited, but each was identified as a 

“major problem” by fewer than 10 percent of rural 

manufacturers, suggesting the current system was providing 

adequate service. 

A substantial example of the effect of transportation on 

economic opportunity and development is the impact of the 

Appalachian Regional Commission, whose charge was to foster 

and promote the economic and social development of the 

Appalachian Region. A study by Wilbur Smith and Associates 

found economic efficiency increased by the planned and 

partially implemented, 3,440-mile network of highways.55 The 

constant dollar economic return was 7.87 percent and the 

benefit cost ratio was 1.18. For economic development results, 

the economic return was 8.29 percent and the benefit cost 

ratio was 1.32 percent. This study projected that the 

investment will yield 16,279 jobs in 1995 and 42,190 in 2015. 

Wilbur Smith states, “These jobs occurred because the new 

highway system had made the Region a better place to invest, 

live, and work.” 

The location strategy of 

manufacturing plants has 

evolved over recent decades 

Manufacturing has traditionally 

located in rural areas to take 

advantage of lower labor and 

land costs. Since the late 

1980’s, some manufacturers, 

competing based on low-cost 

production, shifted their 

production overseas. Other 

manufacturers took advantage 

of new technologies and 

management practices and 

began to compete based on 

product quality. This shift 

resulted in a need for more 

highly skilled labor, so 

manufacturing moved to rural 

areas with better schools and 

fewer high school dropouts. 

Such changes in strategy were 

reflected in a shift in the 

location of manufacturing 

employment. Manufacturing 

jobs grew by about 7 percent in 

low-education counties during 

the 1980’s, reflecting the search 

for lower labor costs. In the 

1990’s, the pattern reversed 

and low-education areas lost 

jobs, as manufacturers sought a 

more highly skilled labor pool. 

Areas with high rates of high 

school completion are found 

largely in the Great Plains and 

parts of the rural West and 

these areas have been most 

attractive to employers. Areas 

with the lowest rates of high 

school completion are found 

throughout the rural South.*

 

*

 ERS, Amber Waves, Feb 2003. 
127

Table 3-6: Major factors affecting rural manufacturers 

Wide variations occur even within regions. A study of rural counties in the South found that 

counties with substantial manufacturing employment are less likely to have high poverty 

rates.56 

Freight Transportation’s Role in Supporting Rural Vitality 

As has been discussed previously, freight transportation plays a significant role in supporting 

the vitality of rural communities, but the economic core varies across rural America. In some 

places, agriculture is the primary economic sector. Elsewhere, manufacturing or services may 

be central, so freight transportation’s role varies from place to place. Manufacturing and 

agriculture both need transportation—for inputs, to move output, and to find and access 

markets. The same transportation system can serve both, thus increasing the development 

possibilities and opportunities. 
128

Even in places that appear to be similar, the freight transportation situation may turn out to be 

different. For instance, just knowing that an area’s economy is heavily dependent on 

agriculture is not sufficient. An agricultural county in the Midwest may concentrate on 

producing grain, perhaps with a heavy dependence upon barge and rail transport to ship the 

product. Another county in the same state may focus almost exclusively on the production of 

corn for ethanol, with truck transportation needed for assembly of the corn feedstock for a 

nearby ethanol plant. Another agricultural county (perhaps in California or Pennsylvania) may 

concentrate on high-value perishable fruits and vegetables, relying largely upon air transport 

and overnight trucking to ship to domestic, European, and Japanese metropolitan markets. 

It is worth noting that a strong freight transportation system is able to serve changing 

economies. Thus, an agricultural region served effectively and efficiently by truck and rail 

transport will be able to make a smooth transition to more manufacturing, since the 

transportation infrastructure is in place and ready to accommodate the new composition of the 

local economy. 

The manufacturing process, just like production agriculture, takes inputs and then transforms 

them, using labor and machinery, to produce an output. Freight transportation plays a critical 

role in getting the inputs to the manufacturing facility and in moving the outputs from the 

manufacturing plant to their next destination. Strong transportation facilities make a rural area 

more attractive for manufacturing plants, but a range of other community attributes that 

contribute to a high quality of life and business success also influence manufacturing location. 

A rural community interested in retaining or attracting manufacturing will consider its ability to 

serve the freight transportation needs of these manufacturers but also pay careful attention to 

these other factors.

Freight transportation requirements vary from one manufacturer to the next. Smaller, lighter, 

more perishable or more expensive inputs and outputs are likely to require air transportation; 

larger, heavier, less perishable, and less expensive inputs and outputs are likely to require 

ground transportation. In most instances, having more than one transport mode readily 

available will result in better service and rates; rural development is often enhanced by the 

availability of competitive and complementary transportation modes. 

Given the variations in community characteristics and manufacturing plants, there is no 

universal answer to the question of what freight transportation infrastructure is required to 

support rural manufacturing effectively. 

 
129

Regardless of its economic composition, a rural community will do better by integrating its 

consideration of freight transportation into the larger picture, thinking about how freight 

transportation, in conjunction with other aspects of the community, can best support the 

community’s overall strategic plan. For example, truck transportation requires a highway with 

sufficient capacity; but if this is the same highway that will be used by tourists coming into 

town, then the community will need to think about tourism as well as freight transportation 

needs in deciding preferences for the route and design specifications of the state highway into 

town. The wide, straight road best for big trucks is not the scenic, winding road most attractive 

to tourists. 

Transportation infrastructure is largely regional rather than local. For instance, the rail line that 

links western Nebraska with Denver serves many communities, not just one. Single 

communities or rural counties will be more successful if they join other communities in a 

regional approach to freight transportation. 

Combining these two principles (thinking broadly and thinking regionally), the most effective 

way for a rural community to approach freight transportation’s role in supporting rural vitality 

is via a regional and comprehensive approach. 

Conclusions 

An efficient transportation system supports rural economic development. In an efficient rural 

economy, the cost of inputs to agriculture and the cost of living for inhabitants of rural areas 

decreases, the net price to producers and manufacturers increases, market access and 

competitiveness increases, and job opportunities are increased. Successful businesses and 

farmers contribute to the quality of life and increase opportunities for rural residents. 

The economic institutions in rural communities are interconnected. An efficient system of 

freight transportation is an important foundation for a vibrant rural economy, including rural 

manufacturing. Transportation does not stand alone but is one of several key elements that 

contribute to a strong rural economy; many other elements work with transportation to 

support a high quality of life in rural communities. 

Rural communities are unique and different from one another, and their needs for freight 

transportation vary. An efficient transportation system is defined by the needs of each 

community. 
130

Appendix 3-1 

Rural Quality of Life Index 

Economy 

Economic vitality: The community can generate revenue from several economic sectors. 

Entrepreneurship: Business creation and expansion is widespread, supported, and celebrated. 

Business ownership: The community’s economy is substantially under local ownership. 

Natural resources: Natural resources are valued and effectively managed to assure the community’s continuing 

economic well-being. 

Income: Most workers in the community earn enough to sustain a family and receive good benefits, and most nonworkers have enough income to live above the poverty level. 

Personal Security 

Food: Almost everyone has easy access to sufficient nutritious food. 

Shelter: Almost everyone lives in safe, clean, uncrowded, and affordable housing with basic utilities. 

Crime: Persons and property are safe. 

Health: Almost everyone is in good health, and those that aren’t have access to good health care. 

Safety net: Effective services are available for those in personal or financial jeopardy. 

Dependent care: The vulnerable (children and dependent adults) have access to high-quality, affordable care. 

Skills and Knowledge 

Education: Community schools provide high-quality K-12 education for all children. 

Skills development: Job and skills training is up-to-date, supports viable economic development strategies, and is 

readily available. 

Information access: Most persons have access to a variety of modern, rapid, and affordable information sources. 

Setting 

Accessibility: Important services are easily reached regardless of a person’s mobility or income, either by being 

nearby or by use of convenient and affordable transportation. 

Environmental quality: The air is clean, the ground is uncontaminated, drinking water is pure, and waterways can 

be used for recreational purposes. 

Appearance: The community looks good, and almost everyone helps keep it attractive. 

Civic Foundation 

Civic participation: Social, artistic, cultural, religious, and recreational opportunities are readily available, and most 

persons have the time and resources to participate in them regularly. 

Decisions: Decisions on key community issues generally reflect a consensus, arrived at through serious and open 

discussion of new and time-tested ideas, and involving a broad spectrum of participants. 

Can-do attitude: Discussions focus on opportunities, not problems, with the belief that the community’s future is 

largely in its own hands. 

Reality check: Most key institutions regularly conduct both internal and external assessments. 

Diversity: All persons are accepted and well integrated into the community, including in leadership positions. 

Gathering places: The community has easily accessible and frequently used gathering places where key 

community activities and events occur. 

Migration choice: Most persons live in the community by choice; they feel it is a good place and is moving in the 

right direction. 

Regional integration: The community acts as part of a larger region, generally collaborating with nearby 

communities. 

Source: USDA, presentation to International Society of Quality of Life Studies, Annual Conference, November 

2004. 
Chapter 4

Biofuels 

Transportati on
131

Chapter 4: Biofuels Transportation 

Government ethanol policy began in the 1970’s. Since the beginning of the 21st Century, 

legislation, tax incentives,*

 and the switch from MTBE† to ethanol have been among the major 

drivers in the increased production and use of biofuels in the United States. Biofuel use 

contributes to the broad policy goals of addressing climate change, assisting with domestic 

economic development, and decreasing the nation’s dependence on imported petroleum. In 

fact, by 2008, U.S. ethanol production reached 9.3 billion gallons—equivalent on an energy 

basis to approximately 36 percent of the gasoline produced from 

crude oil imported from Persian Gulf countries.57 The U.S. 

Government’s broad energy policy includes strong support and 

funding for the development of biofuels. 

The agricultural sector has played a critical role in the 

development of the biofuel infrastructure. The current system is 

sometimes referred to as “first-generation,” reflecting the fact 

that the system will be improved over time. It includes biofuel 

production facilities and distribution infrastructure, such as 

transportation, blending, and storage facilities. Many feedstock 

options are being explored in addition to corn for the next 

generation of biofuels. Factors that are likely to influence future 

transportation needs include location of feedstocks and 

production facilities, the lifecycle greenhouse gas (GHG) 

emissions associated with biofuel production, and the extent to 

which the next generation biofuels can use existing distribution 

infrastructure. 

The United States is implementing the Energy Independence and 

Security Act of 2007 (EISA 2007) through the Renewable Fuels 

Standard (RFS2). On February 3, 2010, the Environmental Protection Agency (EPA) finalized 

regulations for the National Renewable Fuel Standard Program (RFS2) for 2010 and beyond. 

EPA’s detailed analysis of transportation for feedstocks and renewable fuels are included in the 

Renewable Fuel Standard Program Regulatory Impact Analysis.58 EPA analyzed transportation 

issues ranging from feedstock logistics for cellulosic ethanol and distillate fuels to biofuel 

distribution solutions. It found that, to reach the RFS targets by 2022, more unit train receipt 

facilities and storage tanks would be needed, E-85‡ use must increase substantially, and large 

volumes of ethanol imports would be needed. 

 

*

 Volumetric Ethanol Excise Tax Credit (VEETC) of 45 cents per gallon to petroleum blenders for blending ethanol 

with gasoline. 

†

 Methyl tert-butyl ether (MTBE) is a gasoline additive that pollutes groundwater when gasoline containing it is 

spilled or leaked at gas stations. In spring 2006, the petroleum industry began to switch from MTBE to ethanol. ‡

 Each gallon of E-85 consists of 85 percent denatured ethanol and 15 percent gasoline. 

Recent U.S. Biofuels-related 

Legislation: 

• 2002: Farm Security and 

Rural Investment Act 

• 2005: Energy Policy Act 

• (EPAct 2005, RFS-1) 

• 2007: Energy 

Independence and 

Security Act of 2007 

(EISA 2007, RFS-2) 

• 2008: Food, Conservation, 

and Energy Act of 2008 
132

Energy independence, climate change, and economic development issues are expected to 

dominate the U.S. energy policy objectives in the foreseeable future. To fulfill these policy 

goals, the biofuel industry will continue to depend on transportation services for reliable and 

efficient distributing of feedstocks to biorefineries, and for transporting biofuels and their coproducts to end-user markets. 

This chapter provides: 

• An overview of the current distribution system for fuels, biofuels, and co-products. 

• EPA’s biofuel distribution analysis and conclusions. 

• The current status of ethanol and co-product transportation. 

o Potential phases of biofuels expansion from the transportation infrastructure 

perspective. 

• Factors widely believed to influence uncertainty in biofuel supply and demand and their 

implications for infrastructure investment. 

The Current Distribution System 

The biofuels commonly used in the United States include ethanol and biodiesel. The primary 

feedstock for ethanol is corn. Most biodiesel is made from soybean oil, but some is made from 

other plant and animal fats and recycled greases. Both ethanol and biodiesel are blended with 

gasoline and diesel at petroleum blending terminals. Currently, the distribution infrastructure 

for ethanol and biodiesel in the United States is not compatible with the pipeline-based 

petroleum distribution system. This chapter focuses on the ethanol and multi-modal portions 

because: 

• Much more ethanol is 

produced than biodiesel. In 

2008, over 9 billion gallons of 

ethanol and less than 500 

million gallons of biodiesel 

were produced. 

• Because ethanol use is 

projected to more than triple 

by 2022, distribution 

infrastructure issues will 

affect ethanol much more 

than biodiesel. 

• Production areas for ethanol 

are more concentrated than 

those of biodiesel. 

o Both, ethanol and biodiesel have blending characteristics that may have an impact 

on pipeline integrity. DOT and the petroleum pipeline industry are conducting 

research into mitigating strategies for both ethanol and biodiesel. 

Figure 4-1: Ethanol being loaded into rail tank cars.

Source: USDA
133

The U.S. ethanol industry started before 1980 and has grown rapidly since 2002 (Figure 4-2). It 

utilizes all modes of transportation—truck, rail, barge, and, in one case, an existing pipeline*

—

to distribute its products and co-products. Almost all ethanol production is concentrated in the 

Midwest—mostly west of the Mississippi River—but most gasoline and E-10† is consumed in 

areas with high population densities, the East Coast, the West Coast, and along the Gulf Coast 

(Figure 4-3 and 4-4). 

Figure 4-2: U.S. ethanol production, 1981-2008 

Source: Energy Information Administration 

 

*

 In December 2008, for the first time, a commercial pipeline company successfully sent batches of ethanol 

between Orlando and Tampa, FL, in its pre-existing petroleum pipeline. 

†

 E-10 fuel consists of 10 percent denatured ethanol and 90 percent gasoline. 

Crude Oil Imports 

U.S. Crude Oil Imports from Persian Gulf Countries reached 856 million barrels, or 36 

billion gallons in 2008. Approximately 17 billion gallons of gasoline can be produced from 

this amount of crude oil. 

U.S. Crude Oil Imports from Saudi Arabia in 2008 reached 550 million barrels, or 23 billion 

gallons. Approximately 11 billion gallons of gasoline can be produced from this amount of 

crude oil. 
134

Figure 4-3: The U.S. ethanol market landscape in 2007Source: DOE, Biomass Programs, 2007 Ethanol Review 
135

Figure 4-4: Ethanol Distribution 

Legend

(1) Feedstocks via truck or rail to the biorefinery. 

(2) Ethanol, which is denatured at the biorefinery, is shipped via truck, rail, or barge to a storage hub, petroleum 

or blending terminal, or rail-to-truck transloading (truck-to-rail, and truck- or rail-to-barge are intermediate 

moves.) 

 (a) Ethanol via truck, rail, barge, or pipeline from storage to blending terminal. 

 (b) Ethanol imports via ocean tanker vessel to storage or blending terminals. 

 (c) Ethanol via truck from rail-to-truck transloading to storage or blending. 

(3) Ethanol and gasoline are blended at the meter and shipped via gasoline trucks from blending terminal to 

service stations. 

(4) E85 blends are currently typically blended at the service stations serving E85, implying that ethanol is also 

delivered via truck to the service stations. 

Source: AMS, with data from National Bioenergy Center, National Renewable Energy Laboratory, and Energy 

Information Administration 
136

The distribution system for U.S. transportation fuels evolved over many decades. Fuels are 

distributed from the major refining areas in the U.S. Gulf and, to a lesser extent, from ports to 

consumer markets. Petroleum fuels are transported by pipeline, ship, barge, and truck from 

petroleum refineries to petroleum terminals. For analysis purposes, the U.S. Energy 

Information Administration (EIA) reports fuel data by Petroleum Administration for Defense 

Districts or PADDs (Figure 4-5). Almost 70 percent of U.S. gasoline is consumed in the East 

Coast, West Coast and the Gulf States (PADDs 1, 3, and 5). Future demand for biofuels can 

reasonably be expected to be in the same geographical areas. In 2009, almost 500 petroleum 

terminals had storage for ethanol, but only 88 of those had access to rail—the mode that 

transports most ethanol today.59 

Figure 4-5: The Petroleum Administration for Defense Districts (PADD) and their typical share 

of consumption of all U.S. motor gasoline consumption 

Source: National Commission on Energy Policy’s Task Force on Biofuels Infrastructure. 

<http://www.bipartisanpolicy.org/ht/a/GetDocumentAction/i/10238> (PDF) 

 

3.5%

PADD 4

Percentage of US Fuel Demand

PADD 5

17.5% PADD 3

15.4%

PADD 2

28%

PADD 1

35.7%
137

Ethanol production is expected to remain concentrated in the Midwest (PADD 2) even as 

cellulosic production expands. The Renewable Fuels Association (RFA) estimates that cellulosic 

production is currently under development in 26 places in the United States, with total 

production capacity of potentially 456 million gallons.60 Cellulosic feedstocks may come from a 

variety of locations and sources, but EPA and the ethanol industry believe that the initial 

cellulosic ethanol is likely to appear from agricultural residues near current corn-based ethanol 

biorefineries and near papermills. Additionally, cellulosic and advanced biodiesel plants may be 

located near major cities where high levels of refuse, recycled oils, and greases can be collected 

(see Figure 4-6). EPA’s expects that agricultural residue such as corn stover will make up a large 

portion of the cellulosic feedstocks used for biofuel production by 2022.61 EPA estimates that 

by 2022, 7.8 billion gallons per year (bgy) of the projected 16 bgy cellulosic biofuel production 

will come from corn stover; 3.8 bgy from forestry biomass; 2.2 bgy from urban waste; and, the 

rest from other agricultural residues (1.3 bgy) and dedicated energy crops (.9 bgy).

62

Figure 4-6: Corn stover being collected for ethanol production. 

Source: National Renewable Energy Lab 

 
138

Expanding production of ethanol will increase the demand for transportation services for 

feedstocks, biofuel, and co-products. In addition, feedstocks such as corn stover and woody 

biomass that have a lower density than corn may require different transportation than corn, 

with associated higher costs. EPA notes several alternative methods that could be developed to 

reduce the cost of biomass collection systems. Further discussion of feedstocks logistics can be 

found in EPA’s FRIA.63 

Figure 4-7: Projected U.S. cellulosic ethanol facilities 

Source: EPA, FRIA, p. 198 

EPA’s Biofuel Distribution Analysis 

In its FRIA report, EPA published the results of a study recently completed for EPA by Oakridge 

National Laboratories (ORNL), which modeled the transportation of ethanol from 

production/import facilities to petroleum terminals. The ORNL model optimizes freight flows 

over rail, marine, and road distribution networks, and addresses the use of multiple shipping 

modes. The following section summarizes the EPA analysis and integrates USDA’s analysis of 

the current status. 
139

Projected Biofuel Consumption 

EISA 2007 requires a fairly rapid increase in use of biofuels in the transportation fuel mix, 

reaching 36 billion gallons per year by 2022. In the Final Regulatory Impact Analysis, issued in 

February 2010, EPA developed a control case – a likely scenario of annual biofuel use projected 

to 2022 (Figure 4-8 and Tables 4-1 and 4-2). In this scenario: 

• Corn-based ethanol use can grow to a capped-15 billion-gallon level by 2015. 

• The cellulosic biofuels can consist of either ethanol or cellulosic biodiesel and are set to 

increase to 16 billion gallons by 2022. 

• The remainder of the RFS2 required biofuel consumption is expected to come from 

imported ethanol and other biodiesel. 

Figure 4-8: Energy Independence and Security Act 2007, Renewable Fuel Standard (RFS-2), EPA 

 

Source: EPA, Table 1.2-1. Control Case Projected Renweable Fuel Volumes (billion gallons) Final Regulatory 

Impact Analysis, <http://www.epa.gov/otaq/renewablefuels/420r10006.pdf> (PDF), page 69 

 
140

Table 4-1: EPA projected renewable fuel volumes (billion gallons) 

Source: EPA, Table 1.2-1. Primary Control Case Projected Renweable Fuel Volumes (billion gallons) Regulatory 

Impact Analysis, <http://www.epa.gov/otaq/renewablefuels/420r10006.pdf> (PDF), page 71 

Table 4-2: Summary of EPA-projected renewable fuel volumes (billion gallons) 

Source: EPA, FRIA, page 69 <http://www.epa.gov/otaq/renewablefuels/420d09001.pdf> (PDF)
141

Based on the ORNL model, EPA projects that 40 unit train rail receipt facilities will be needed to 

achieve this goal.64 Additional unit-train destinations would likely create more ethanol 

corridors on the rail network, possibly alleviating congestion points that could develop with 

increased biofuel shipments. In addition to unit trains, EPA expects manifest rail cars 

(shipments of less than 80–100 railcar unit trains) will continue to be used to ship ethanol and 

cellulosic biofuels. EPA estimates a total ethanol distribution infrastructure capital costs to 

total $12.066 billion.65 When amortized, this translates to 6.9 cents per gallon of additional 

ethanol attributed to the RFS standards.66 Developing unit train destinations is a timeconsuming process, usually taking 3 to 5 years. The industry has responded to this challenge by 

developing rail-to-truck transloading facilities for smaller-than-unit train shipments of ethanol 

(see Text Box Schematic). Almost every Class I railroad is developing these facilities, but the 

number in existence today is difficult to determine. 

In 2006, rail movements of ethanol and co-products were mainly along several distinct 

corridors, with fewer than the current 13 unit train destinations (Figure 4-9). To achieve EPA’s 

objective of 40 unit train destinations in the next 13 years, the industry will need to determine 

future locations, permitting and financing availability, and increase the pace of building these 

unit train terminals. While these are not insurmountable challenges, the timeframe is short for 

development of this capital-intensive infrastructure. Terminals must be developed in tandem 

with other biofuel infrastructure expansion—more Flex Fuel Vehicles (FFV’s), more retail 

stations offering higher blends, and more blending and storage capacity. 

Figure 4-9: Key rail corridors for shipping ethanol and DDGS 
142

Ethanol and Co-product Transportation 

The primary feedstock for U.S. ethanol is corn, which is shipped to local biorefineries by truck—

usually about 50 miles (Figure 4-9). Prior to the rapid growth of the ethanol industry, most 

ethanol plants produced 50 million gallons per year (mgy) or less. Most of the plants that have 

come online since 2005 have had a greater production capacity—typically 100 mgy or more. 

Larger plants now comprise almost 50 percent of total U.S. production capacity (Table 4-3). 

They use more corn, expanding the draw area for many plants well beyond the 50-mile radius 

normal with older plants. According to an article in the April 2009 issue of Ethanol Producer 

Magazine, this has provided an opportunity for railroad service that is still short-haul in nature 

and is suitable for the regional (shortline) railroads and, at times, Class I railroads. Analysis of 

the 2006 Waybill Sample showed that both regional and Class I railroads shipped corn to 

several of the large ethanol plants. According to the Renewable Fuels Association, a 100-mgy 

ethanol plant can expect to receive 60 percent of its corn by rail, or 17 railcars per day. It 

produces enough to ship 10 tank cars of ethanol and nine hopper cars of distillers dried grains 

with solubles (DDGS) per day. 

Table 4-3: Ethanol capacity distribution, March 2008 

Category by 

mgy Capacity 

Number of 

Plants 

Total 

Capacity 

Percent of 

Total 

Average 

Capacity 

100+ 53 6,409 49.8% 121 

56-99 32 2,271 17.6% 71 

5-55 101 4,192 32.6% 42 

Total 186 12,872 100% 69 

Source: Developed by AMS, based on data from the RFA and Ethanol Producer Magazine, April 2009

After ethanol is produced, it is denatured at the biorefinery with up to 5 percent natural 

gasoline and then is moved to storage or blending terminals via rail, trucks, or barges (step 2 (a) 

in Figure 4-4). As can be seen in Figure 4-10, Class I railroads are the predominant mode of 

moving ethanol to distant markets; 66 percent of the ethanol produced in 2006 was moved by 

rail. Barges moving on the Mississippi River can ship some (about 5 percent in 2006) to the U.S. 

Gulf region but, since most ethanol plants are not near a navigable waterway, ethanol moved 

by barge is first shipped by truck or rail from a biorefinery and is then transloaded to a tank 

barge to be shipped to the terminal for storage or blending. Rail’s share of ethanol movements 

is expected to increase as ethanol penetrates markets farther from producing regions.

 
143

Figure 4-10: Ethanol modal shares in 2006 

Sources: Freight Commodity Statistics, Escalation Consultants; Surface Transportation Board, Waybill Sample, 

2006; U.S. Army Corps of Engineers, Waterborne Statistics, 2006 

Current Status of Ethanol Transportation 

Despite the turbulent economic conditions that have recently dampened the ethanol industry, 

railroads continue to play a major role in the ethanol supply chain and have been able to keep 

up with rapid ethanol production increases. According to the Freight Commodities Statistics 

(FCS), railroads moved almost 260,000 carloads of alcohols in 2008–almost 70,000 carloads or 

36 percent more than in 2007, while U.S. ethanol production increased by over 40 percent. The 

railroads also shipped almost 61,000 carloads of DDGS for feed in the United States and abroad. 

According to the most recent FCS data, during first quarter of 2009, major railroads in the 

United States delivered over 70 thousand carloads of alcohols (over 2 billion gallons) to their 

final destinations—20 percent higher than the first quarter of 2008 and 173 percent higher 

than the fourth quarter of 2003. (Ethanol accounts for over 80 percent of alcohols shipped by 

rail.) This implies that over 70 percent of ethanol produced in the first quarter 2009 was 

shipped by rail, slightly higher than in 2006 (the last available annual modal share data). 

Railroads also have increased their shipments of DDGS, a major co-product of ethanol 

production that is used as animal feed. During the first quarter, railroads terminated over 15 

thousand carloads of DDGS—about 20 percent of the estimated quarterly distillers grains 

production (on a dried basis). This is up 12 percent from first quarter of 2008 and 209 percent 

higher than in the fourth quarter of 2003, the first available quarterly data (Figure 4-11). 

Class I railroads (UP, BNSF, NS, and CSX) have been involved in developing more unit train and 

transloading receiving facilities, as well as investing in more track and improving interchanges 

at critical locations. This investment is necessary for their overall networks and helpful for 

moving the increasing quantities of ethanol expected in the near future. 
144

Figure 4-11: Quarterly carloads of alcohol and co-products terminated by major railroads in 

the United States, 4th quarter 2003–1st quarter 2009 

Source: Railratechecker.com, based on Quarterly Freight Commodity Statistics. First Available Data is the 4th Q 

2003

According to the Association of American Railroads, the vast majority of ethanol is carried in 

30,000 gallon all-purpose rail tank cars. In 2008, more than 50,000 of these cars were in 

service, but it is not clear what percentage of the cars are used to move ethanol, versus those 

used to move petroleum products and other chemicals. The EPA estimates that by 2022, 

43,398 railcars will be needed solely for moving biofuels.67 The EPA estimate is based on their 

assumption that 70 percent of the ethanol rail movements will be moved by unit trains, 

reducing cycle times, and increasing the utilization rates of existing rail cars. The remaining 30 

percent will move in single car shipments, possibly requiring additional tanker cars. If unit train 

destinations do not materialize as quickly as EPA projects, it is possible that even more railcars 

and network capacity will be needed to move ethanol to all the needed market destinations. 
145

Transportation of DDGS 

About a third of every bushel of corn used to manufacture ethanol 

becomes DDGS, which contributes to the profitability of the 

biorefinery and reduces the impact of ethanol production on feed 

supplies. Railroads, trucks, and barges move this product to 

domestic feedlots, and to ports for export. The ethanol industry 

has successfully marketed DDGS overseas and exports have been 

growing in tandem with ethanol production (Figure 4-13). Figure 

4-14 shows that the main destinations for exported DDGS are 

across our borders to Mexico and Canada. These movements are 

primarily land-based, by rail or truck. Ocean vessels ship the 

product in bulk or in containers to overseas destinations, including 

Korea, Thailand, Turkey, Japan, and other countries. 

Figure 4-12: Loading a truck with DDGS in South Dakota.

Source: USDA 

DDGS as Animal Feed 

Historically, the mash 

remaining after distilling 

alcohol was divided into two 

products: distiller’s dried 

grains (the insoluble 

portion), and distiller’s dried 

solubles (the soluble portion 

with the water evaporated). 

Modern ethanol plants 

blend these dried products 

to make distiller’s dried 

grains with solubles (DDGS). 

Only the starch portion of 

the corn is used to make 

ethanol; the mash contains 

all the protein, oil, and fiber 

of the corn and the yeast 

used to distill the ethanol, 

and makes a nutritious feed. 

Eighty percent of DDGS 

used in the United States is 

fed to cattle. The remainder 

is fed to poultry and swine.* 

* University of Minnesota 

Department of Animal Science 
146

Figure 4-13: U.S. exports of DDGS, Jan 2006–Feb 2009 

Source: USDA/FAS/U.S. Trade Data 

Figure 4-14: Major destinations of U.S. DDGS exports, Jan–Feb, 2009 

Source: USDA/FAS/U.S. Trade Data 

Mexico

34%

Canada

Korea 14%

7%

Thailand

6%

Turkey

6%

Japan

6%

Cuba

5%

Taiwan

3%

Indonesia

3%

Philippines

3%

Other

13%
147

Potential Phases of Biofuels Expansion from the 

Transportation Demand Perspective 

The National Commission on Energy Policy (NCEP) convened a Task Force on Biofuels 

Infrastructure, consisting of representatives from the petroleum and ethanol industries, 

academia, and the Federal Government. After three all-day meetings over the course of 6 

months in 2008, a report was developed and released by the NCEP on April 16, 2009. The Task 

Force identified the need for infrastructure investments over 3 distinct phases: 

Phase I (by 2010) 

Ethanol production increases to 12 billion gallons per year. The existing multi-modal 

transportation network will be used to transport ethanol from production centers in the 

Midwest to demand centers on the coasts, with rail continuing to play a major role. 

Phase II (2011–2015) 

Corn ethanol use increases to 15 billion gallons per year. The additional 5.5 billion gallons of 

ethanol targeted to be produced from cellulosic feedstocks may not be commercially available. 

Assuming minimal imported ethanol, absorbing even the 15 billion gallons of corn-based 

ethanol would require 100 percent nationwide market penetration of E10 or a higher-ratio 

blend, with expanded use of E85. Transportation networks and receiving terminals may require 

additional infrastructure investment to prevent bottlenecks. Retail fueling infrastructure would 

probably need modification to accommodate higher-ratio ethanol blends. 

Phase III (after 2015) 

Ethanol and advanced biofuel production expands beyond 15 billion gallons per year. Further 

evolution of the associated transportation and distribution infrastructure will depend on 

several factors: 

• Geographic distribution of supply and demand centers. 

• Certainty in the RFS targets. 

• Flex-Fuel Vehicle (FFV) production. 

• Market penetration of E85 or higher-ratio fuels—especially when cellulosic ethanol 

production is brought to commercial scale. 

After 2015, non-ethanol biofuels—often referred to as bio- or renewable hydrocarbon, which 

are similar to existing gasoline and diesel fuel—could potentially be developed. These would 

satisfy the RFS-2 requirements and mitigate many of the distribution infrastructure challenges 

because they would be fully compatible with conventional fuels and existing auto engines and 

distribution infrastructure. 

 
148

Table 4-4: Renewable Fuels Standard-2 (as mandated by EISA 2007) and possible phases 

Year 

TOTAL 

RENEWABLE 

BIOFUELS 

 

Conventional* TOTAL 

ADVANCED 

BIOFUEL Cellulosic Unidentified 

Advanced 

Biomass-based 

Diesel 

Phase I 

2008 9 9 

2009 11.1 10.5 0.6 0.1 0.5

2010 12.95 12 0.95 0.1 0.2 0.65

Phase II 

2011 13.95 12.6 1.35 0.25 0.3 0.8

2012 15.2 13.2 2 0.5 0.5 1

2013 16.55 13.8 2.75 1 1.75 

2014 18.15 14.4 3.75 1.75 2 

2015 20.5 15 5.5 3 2.5 

Phase III 

2016 22.25 15 7.25 4.25 3 

2017 24 15 9 5.5 3.5 

2018 26 15 11 7 4 

2019 28 15 13 8.5 4.5 

2020 30 15 15 10.5 4.5 

2021 33 15 18 13.5 4.5 

2022 36 15 21 16 5 

*

Ethanol derived from starch feedstocks, such as U.S. yellow corn #2. 

Source: P.L. 110-140, Sec. 201, 202, and 205 (EISA, 2007) 

Market Uncertainty and its Implications for Infrastructure 

Investment 

EISA’s Renewable Fuels Standard mandates increased biofuel consumption levels, but several 

supply and demand factors create uncertainty for the market to reach the RFS levels. Resolving 

these uncertainties is important to stimulate further investment into the capital-intensive 

distribution infrastructure. As discussed above, the short time-frame for meeting the RFS-2 

targets will require coordination and collaboration between the petroleum industry, biofuel 

producers, and finance entities, as well as State and Federal Governments. Currently, the 

factors potentially limiting demand for biofuels—and the impact on biofuel producers and 

infrastructure developers—could be of greater concern than the factors influencing the supply 

of biofuels. 
149

Sources of Demand Uncertainty 

The long-term viability of the biofuels industry and the 

achievement of national energy policy goals require that market 

and policy signals work together to provide a stable environment 

for demand and supply growth. Resolving uncertainties on the 

demand side can help smooth the way for achieving the goals set 

by EISA. Market uncertainty about ethanol demand stems from: 

• The reduction in U.S. consumption of transportation fuels 

as a result of both the current economic downturn and 

because of increased fuel efficiency and production of 

hybrids. 

• The ability of the current blending infrastructure to reach 

nationwide use of E-10 and potentially higher ethanol 

blends—these are the “blend wall” issues. Recent trends in 

gasoline consumption suggest that the E10 blend wall will 

probably be reached by 2012, if not sooner, accelerating 

the need to modify existing policies and transportation 

infrastructure. 

• The expected reduction in consumption of total transportation fuels as fuel efficiency 

and production of hybrids is expected to increase. 

The recent economic crisis and high petroleum prices have reduced gasoline demand in the 

United States. The EIA is now forecasting that U.S. gasoline consumption in 2009 will reach 136 

billion gallons, down from a previous forecast of over 140 billion gallons. Projected decreases 

in long-term demand are also driven by increased vehicle efficiency standards and a projected 

increase in electric hybrids. The concept of a “blend wall” stems from the idea that only a 

certain quantity of ethanol can be absorbed into the existing gasoline demand at the E10 blend 

level—12 to 13 billion gallons (about 10 percent of all blenders are exempt from the RFS). 

Investments in receiving and blending infrastructure would improve the ability to reach 

nationwide use of E-10 and higher ethanol blends. Creating a market for the increased longterm biofuel target levels at the same time as expanding blending infrastructure are critical to 

achieving the RFS goals. DOE has developed the following timeline for market saturation (the 

blend wall) of ethanol. It expects that the E10 blend wall may occur as early as 2010, when the 

RFS target is 12.1 billion gallons of ethanol. In spring 2009, EPA received a request to increase 

the blend level from the current E10 maximum and is currently reviewing public comments to 

this request. From the blend wall issue perspective, if the EPA issues a waiver, allowing blend 

levels to go to 12 percent ethanol and 88 percent gasoline, the blend wall shifts to a 2011–2012 

timeframe. It moves to 2015–2016 with E15 and to 2018–2022 with an E20 blend. This 

timeline implies that the E85 distribution infrastructure would need to grow in order to help 

create a ready-made demand for ethanol even if EPA decides to approve higher blends of 

ethanol; it is currently considering approving ethanol blends up to E15. 

Blend Wall 

The blend wall is the limit of 

annual ethanol use that is 

constrained by the legal 

blending limit with gasoline 

(currently 10 percent for 

regular engines and 85 

percent for Flex Fuel 

engines). It is the volume of 

ethanol that can be expected 

to be marketed at current 

blending limits. 
150

Figure 4-15: DOE’s estimate of intermediate saturation points 

Source: Presentation by Joan Glickman, DOE, at the Transportation Research Board, 2009 Annual Meeting. 

<http://projects.battelle.org/trbhazmat/Presentations/TRB2009-JG.pdf> (PDF) 

Sources of Supply Uncertainty 

Sources of uncertainty that may affect ethanol supplies and impact the pace of transportation 

infrastructure development include the production location and timing of the commercial scale 

availability of new biofuels, including cellulosic ethanol. The EPA expects most of the new 

facilities will be able to benefit from the efficiency of unit train shipments; however, smaller 

scale biorefineries may depend on trucking as the best mode of transporting the biofuels to 

petroleum terminals. The EPA’s annual review of these supply factors will help clarify 

transportation demand and the need for further distribution infrastructure development. 

Current Transportation Infrastructure 

In addition to the additional unit train destinations that EPA estimates will be necessary by 

2022, all modes of transportation will need extra capacity to distribute the increased ethanol by 

the RFS timeline. Fuel markets tend to be a least-cost commodity business; the petroleum 

industry will seek the least expensive options in providing fuel to the market. Improving 

transportation efficiency could lead to better prices for consumers. However, the cost of 

improving the long-term capital assets of the distribution infrastructure may offset some of the 

benefits gained in transportation efficiencies. 
151

The Geographic Distribution of Biofuel Production 

U.S. ethanol production is concentrated in the Midwest Corn Belt. Proximity simplifies the 

logistics for transporting feedstock inputs, such as corn, and DDGS from ethanol distillation. 

Location criteria that are often cited are a maximum of 50 miles from corn supplies and the 

intersection of two class I railroads that can be used for transporting ethanol and DDGS. 

Depending on location, inbound and outbound transportation costs for biorefineries can 

amount to as much as 20 percent of operating costs, suggesting the critical nature of strategic 

siting near transportation. 

Location of future biorefineries and the successful deployment of the next generation ethanol 

will also rely on a structured cross-country transportation infrastructure. This infrastructure 

will be needed soon to integrate existing mid-continent biofuels facilities and the new cellulosic 

biorefineries with the existing petroleum industry facilities. Although co-products of future 

generation ethanol production are not known, the expansion of corn-based ethanol production 

to 15 billion gallons per year will create the need for a market for DDGS. Planning the location 

of feedlots capable of receiving unit trains of DDGS will benefit the industry by reducing 

transportation costs and improving the potential for profitability. 

Conclusions 

U.S. policies addressing climate change, supporting the domestic economy, and decreasing the 

nation’s dependence on imported petroleum have driven the increased production and use of 

biofuels. By 2008, U.S. ethanol production had reached 9.3 billion gallons—equivalent on an 

energy basis to approximately 36 percent of the gasoline produced from crude oil imported 

from Persian Gulf countries. EPA expects U.S. production of cellulosic ethanol to become 

commercially available in 2010. Renewable Fuel Standard goals project increasing biofuel 

production to 36 billion gallons by 2022—a very brief time in which to develop the distribution 

infrastructure. 

Collaboration between carriers, producers, marketers, and Federal and State governments will 

be needed for planning terminals capable of receiving unit trains of ethanol. In addition, 

expanding E85 infrastructure and increasing the number of Flex Fuel Vehicles will help increase 

the demand base for ethanol, which is needed to resolve the blend wall issues. Although the 

railroads have so far been able to handle ethanol production expansion, more destination 

terminals will have to be developed for the rail system to be able to accommodate continued 

rapid growth. 

The long-term viability of the biofuels industry and the achievement of national energy policy 

goals require that market and policy signals work together to provide a stable environment for 

demand and supply growth. Resolving uncertainties on the demand and supply sides can help 

smooth the way for achieving the goals set by EISA. 

 
152
Chapter 5

Coal 

Transportati on
153

Chapter 5: Coal Transportation 

This chapter focuses on coal transportation issues, especially on the importance and 

performance of transportation in providing coal for generating electricity in rural areas. 

Coal is a major source of energy in the United States. In 2006, it was responsible for about onethird of domestic energy production,68 and almost half the electric power generation 

(Figure 5-1). 

Because coal plays such an important role as an energy source for the generation of electricity, 

its costs—including delivery costs—significantly impact the price the consumer pays for 

electricity. The cost of coal delivered to electric plants has increased every year since 2000; the 

delivered cost of coal was 9.7 percent higher in 2006 than in 2005.69

Figure 5-1: U.S. electric power industry net generation, 2007 

Source: EIA, Power Plant Operations Report, Form EIA-923

 
154

Coal production in the United States has been increasing since the oil embargo, and the 

subsequent oil price increase, of 1974. In 2006, a record 1,163 million tons were produced. All 

this increase has been west of the Mississippi River. Production in the historic coal-mining 

regions of Appalachia and the Midwest have been in slow decline. Although U.S. production is 

shifting to the Western States, the places coal is used have remained much the same, resulting 

in changed coal transportation flows. 

The rapid growth of Western coal production (mostly from Wyoming and Montana) means that 

most coal is transported by rail; water transportation is unavailable in western coal-producing 

areas. Coal is the primary rail commodity in both tonnage (46 percent) and revenue (23 

percent) of Class I railroads and is second only to mixed shipments, which are mostly 

intermodal, in carloads.70 

Railroads have made major investments to carry Western coal. In 1979, an entirely new rail line 

(the longest newly constructed line in the U.S. since World War I) was opened in the Powder 

River Basin of Wyoming. Originally single track, this line is now mostly triple track, with some 

sections having a fourth track. Thousands of miles of mainline railroad connecting the Powder 

River Basin to coal-consuming areas have been rebuilt or upgraded. Other rail shippers have 

benefitted from these investments as well, since few rail lines carry only coal. However, 

shippers and the electric power industry are unsure that railroads will be able to continue 

investing in capacity at the needed pace, as energy demand increases.71 

The following sections describe where coal is produced, where it is consumed, and the 

transportation system that ties together the production and consumption areas of the nation, 

especially to the rural areas. 
155

Production 

U.S. coal production has been increasing since the early 1970s. Production growth shifted 

significantly during that period to the Western States (Figure 5-2). The three major coalproducing areas in the U.S. today are the Appalachian area, the Interior area, and the Western 

area. At present, the Appalachian area produces 33.3 percent of the country’s coal, the Interior 

area 12.5 percent, and the Western area 43.2 percent (Figure 5-3). All the growth in U.S. coal 

production since the 1970s has been in the West, mostly low-sulfur coal from Wyoming and 

Montana. This is in part the result of low mining costs (the coal is in very thick seams, close to 

the surface, and can be strip-mined), and in part because of the increased demand for cleaner 

coal resulting from provisions in the Clean Air Act that limit sulfur dioxide emissions. 

Figure 5-2: U.S. coal production by region, 1949-2007 

Source: EIA, Annual Energy Review 2007; Report No. DOE/EIA-0384 (2007). June 2008 

 
156

Figure 5-3: Coal production by region, 2008, million tons and percent change from 2007 

Source: EIA, U.S. Coal Supply and Demand: 2008 Review 

<http://www.eia.doe.gov/cneaf/coal/page/special/feature08.pdf>

Significant coal mining occurs in 20 States in these three regions, with three States being 

responsible for most of the production. In 2001, Wyoming, West Virginia, and Kentucky 

accounted for 70 percent of the coal shipped by rail. By 2006, Wyoming was the largest coalproducing state, at 446.7 million tons—about 40 percent of U.S. coal production. Over half of 

U.S. coal is now produced west of the Mississippi River (Figure 5-2). Campbell County in 

Wyoming produces the most coal of any of the Powder River Basin (PRB) counties. It is located 

far away from the demand centers for PRB coal. 

 
157

Census data from 2002 provides a snapshot of the distribution of coal mines (in terms of 

numbers and value of coal shipments) by State and the relative positioning of these States and 

mines to the transportation system (inland waterway system and main line railroads). The 

established Appalachian coal-producing States have many mines and are positioned close to 

the river system and main rail lines (see Figure 5-5). The growing production areas in Montana 

and Wyoming are characterized by fewer mines, and by their great distances from a river 

system to transport the coal and their limited access to main line railroads. Only BNSF and 

Union Pacific (UP) have access to the PRB. Canadian Pacific Railway (CP) (through its purchase 

of Dakota, Minnesota and Eastern Railroad) has the option of building a line into the PRB, and 

has received approval from the Surface Transportation Board to do so. However, the uncertain 

future demand for coal and the current recession have caused CP to defer any construction 

plans indefinitely. 

Figure 5-4: Coal trains passing in Wyoming. 

Source: Union Pacific Railway 

 
158

Figure 5-5: Number of coal mines per state 

Source: U.S. Census Bureau, Econ 02 Report Series. 2002. 

The transportation issues associated with the western movement of the coal industry are even 

more evident in Figure 5-6, which maps the value of coal shipments by State. Many shipments 

originate in parts of the West that have limited transportation. An illustration of the efficiency 

problems that result from limited transportation access occurred in 2004 and 2005, when 

disruptions in the railroad and water systems, and hence to coal delivery, led to coal stock 

drawdowns. 

 
159

Figure 5-6: Value of coal shipments per state 

Source: U.S. Census Bureau, Econ 02 Report Series. 2002 

A Case Study of Rail Disruption: The Joint Line* 

The Joint Line Railroad, jointly owned and operated by BSNF and UP, is a 103 mile stretch of railway 

in the PRB dedicated to coal, serving 8 of the 14 active coal mines in the region. It is the most 

heavily used section of rail line in the world. Although it runs three tracks for most of its length, 

and four tracks on steep hills, it is the only rail line serving these mines. 

In May 2005 a combination of heavy rain and coal dust accumulation in the roadbed destabilized 

tracks, causing two trains to derail within days of each other and disrupting traffic for almost two 

years while the roadbed was repaired. The stoppage caused the railroads to default on contracts 

to transport coal to several power companies, causing the power companies to draw down their 

stockpiles of coal to unprecedented levels, buy more expensive coal from other sources, and buy 

electricity from other generators to meet demand. 

* U.S. Department of Energy, Deliveries of Coal from the Powder River Basin: Events and Trends 2005-2007

<www.oe.netl.doe.gov/docs/Final-Coal-Study_101507.pdf> 
160

Demand and Utilization 

The demand for coal derives from its use in generating electricity. The total U.S. consumption 

of coal in 2006 was 1,163 million tons, with the electric power sector consuming 1,027 million 

tons or 88 percent of the total.72 The remainder is utilized by coke plants and other industrial 

users. Figure 5-7 shows the total consumption over the period 1987–2006. In a typical year, 

very little coal is imported (approximately 3 percent of total U.S. consumption) and exports 

usually are about 4–5 percent of total U.S. consumption. Transportation demand for coal is 

influenced by factors such as weather (within and between years) and the economy. In 2008, 

imports jumped to over 7 percent of domestic consumption because of increased international 

demand, demonstrating that the international market should not be ignored. 

Figure 5-7: U.S. coal consumption by sector, 1987-2006 

Source: EIA, Annual Energy Review 2007; Report No. DOE/EIA-0384 (2007) 

<http://www.eia.doe.gov/emeu/aer/coal.html> 

In 2008, 49.8 percent of the electric power in the U.S. was generated from coal (Figure 5-8). 

The next largest contributors to the electricity supply were nuclear, with 20.3 percent of the 

total, and natural gas, with 20 percent. Minor contributors to the total—but important sources 

in some areas of the country—include hydro-electric, with 6.4 percent, and petroleum and 

other, with 3.5 percent. Note that these percentages are relatively unchanged from 2007 but 

have been changing somewhat over the past decade. 
161

Figure 5-8: Share of electric power sector net generation by energy source, 2007 and 2008 

Source: EIA, Form EIA-906, Power Plant Report and Form EIA-923, Power Plant Operations Report

Most coal production is concentrated in a few States, but the coal must be transported to 

electric power plants throughout the country. Total U.S. electricity net generation in 2007 was 

4,156.7 million megawatt hours, and has been increasing for the past five decades.73 States 

vary significantly in their contribution to the total, as can be seen in Figure 5-9. Texas, 

Pennsylvania, Florida, California, and Illinois generate the most electricity, and Texas, California, 

and Florida consume the most. In 2005, total U.S. energy consumption was 100,369 trillion Btu; 

over 10 percent was consumed by Texas alone, and almost a quarter by Texas, California, and 

Florida.74 
162

Figure 5-9: U.S. electric industry net generation by State, 2007 

Note: Data is displayed as 5 groups of 10 States and the District of Columbia. 

Sources: EIA, Power Plant Operations Report, Form EIA-923 

Regions differ in their consumption of coal for electric power just as States do. Figure 5-10 

shows consumption levels in 2008 by census region and the percent change from 2007. For 

example, the East North Central Region used 239.2 million tons of coal to produce electric 

power in 2008, up 0.9 percent from the previous year. The low coal demands in the Pacific 

Contiguous and the New England Regions are worthy of note. 

The Pacific Region relies more on hydroelectric generation and natural gas for electric power 

than other regions. Despite the fact that the Pacific Region includes California—one of the 

heaviest-consuming states—the electric power sector only consumed 9.2 million tons of coal in 

2008. Although California is the fourth largest generator of electricity, coal accounts for only 1 

percent of its generation. 
163

Figure 5-10: Electric power sector coal consumption by census region, 2008 

The demand for coal for electricity is increasing or remaining steady, more of the increase in 

demand for electricity is being satisfied by other sources of energy, especially natural gas.75 

From 1990 to 2007, several States have reduced the proportion of electricity they make from 

coal and have relied more on other sources for electricity. As illustrated in Figure 5-11, in 1990 

eight States generated over three-fourths of their total electricity capacity from coal. By 2007, 

only three States relied this heavily on coal (Figure 5-12). This figure also shows that more 

States fell into the two lowest proportion categories (0–12 percent and 12–31 percent) in 2007 

than in 1990. 

 
164

Figure 5-11: Proportion of electricity capacity from coal, 1990 

Source: EIA, Net Generation by State, Type of Producer and by Energy Source (EIA-906) 

Figure 5-12: Proportion of total electricity capacity from coal, 2007 

Source: EIA, Net Generation by State, Type of Producer and by Energy Source (EIA-906) 
165

Electric power providers can be characterized in various ways. This discussion highlights the 

importance of an efficient and reliable transportation system to U.S. customers, particularly in 

rural communities, for affordable and reliable electricity. 

Producers of electric power are classified into two sectors: 

• The electric power sector, which includes electric utilities and independent power 

producers 

• The combined heat and power sector, which includes electric power, commercial, and 

industrial providers. 

Electricity providers are located far from where coal is mined, requiring a vigorous 

transportation system to link coal producers to electricity generators. In 2008, approximately 

3,150 electric utility providers were dispersed across the United States. Figures 5-12 and 5-13 

show the numbers of electricity producers and coal producers by State in 2007 and 1990. 

Figure 5-13: Number of electricity producers per State, 1990 

Source: EIA, Net Generation by State, Type of Producer and by Energy Source (EIA-906) 
166

Figure 5-14: Number of electricity producers per State, 2007 

Source: EIA, Net Generation by State, Type of Producer and by Energy Source (EIA-906) 

Table 5-1 shows the 3,150 Electricity Utility providers in 2008 were owned in three different 

ways: 

• Investor-Owned Utilities (IOUs) 

• Publicly Owned 

• Cooperatively Owned (Coops) 

 
167

Table 5-1: Electric utility providers by type of ownership 

InvestorOwned Publicly 

Owned Cooperatives Total 

Number of Organizations 220 2,000 930 3,150 

Number of Total Customers 102 m 20 m 17 m 140 m 

Size (median number of customers) 400,000 2,000 12,500 

Customers, % of total 73% 15% 12% 

Revenues, % of total 76% 14% 10% 

kWh sales, % of total 74% 16% 10% 

Source: EIA, RUS Data, CFC. 2005 

About 73 percent of the total customers, 76 percent of the total revenue, and 74 percent of the 

kilowatt hours (kwh) sales are attributed to the IOUs. Only 7 percent of providers are IOUs, but 

they tend to be larger and serve many more customers—with the median number of customers 

served by an investor-owned utility being about 200 times as many as served by publicly-owned 

utilities. 

The customer base also varies by type of provider; IOUs and Publicly Owned Utilities play a 

large role in commercial and industrial electricity provision, and Cooperatives’ main customers 

are the residential market (Table 5-2). 

Table 5-2: Sales by customer type and by type of ownership 

Sales (billion kilowatt hours) InvestorOwned 

Publicly 

Owned Cooperatives Total 

Residential 937 202 213 1,360 

Commercial 1,017 207 75 1,285 

Industrial 725 153 83 954 

Other 4 3 0 7 

Total 2,683 564 372 3,619 

Source: EIA, RUS Data, CFC. 2005; NRECA Strategic Analysis. February 2008

 
168

Cooperatives play an important role in providing electricity to farms and families in rural areas. 

They serve the most rural areas, have the fewest customers and the lowest revenue per mile of 

transmission line. In February 2008, the 864 distribution and 66 generation and transmission 

cooperatives served:76

• 40 million people in 47 States. 

• 17.5 million businesses, homes, schools, churches, farms, irrigation systems, and other 

establishments. 

• Some 2,500 of 3,141 counties in the US (80 percent of the nation’s counties). 

• About 12 percent of the U.S. population. 

• These cooperatives: 

• Own assets worth $100 billion. 

• Own and maintain 2.5 million miles, or 42 percent, of the nation’s electric distribution 

lines, covering three-quarters of the nation's landmass. 

• Deliver 10 percent of the total kilowatt hours sold in the United States each year. 

• Generate nearly 5 percent of the total electricity produced in the United States 

each year. 

• Employ 67,000 people. 

• Retire more than $500 million in capital credits annually. 

• Pay more than $1.2 billion in State and local taxes.77

 
169

Figure 5-15 shows the distribution of the Electric Cooperative Network across the U.S. 

Figure 5-15: America’s electric cooperative network 

Source: EIA, RUS Data, CFC, NRECA Strategic Analysis. 2005. <http://www.nreca.org/AboutUs/Coop101/CooperativeFacts.htm> 

Despite the increased importance of alternative sources of energy, forecasts by the Energy 

Information Administration indicate that coal will continue to be the primary fuel for energy 

generation in the United States though 2030. They project that the Rocky Mountain, Central 

West, and East North Central regions will show the largest increases in coal demand, by about 

100 million tons each, from 2005 through 2030. 
170

Transportation Flows 

Railroads move most of the coal from where it is produced to where it is converted to electric 

power. In 2006, 71 percent of the total tonnage of coal was hauled by railroads, 11 percent by 

trucks, 9 percent by river barges, and the remainder by other or mixed modes of 

transportation.78 

Rail’s share of total coal transportation has increased about 5 percent from 2001 to 2006, with 

most of this increase coming at the expense of river barges and other modes. From a cost 

perspective, water transportation is least expensive way to transport coal, but it is not available 

at most mines or destination points, particularly in the growing coal-producing mining regions 

of the West. For example, Campbell County, Wyoming, is the largest PRB County, but is not 

close to either water or its destinations. Rail is the only feasible transportation mode for coal 

shipped out of this county.79 In 2004, 98 percent of all coal shipped from Wyoming to other 

areas was via rail. 

Access to water transportation for coal shipments, either upriver or downriver, is limited to a 

few western areas in Washington, Oregon, and California; along the East Coast; down from the 

Midwestern and Southern States to the Gulf of Mexico; and areas around the Northern States 

through the Great Lakes. The coal waterborne transportation flows throughout the country in 

2007 are shown in Figures 5-15 (up-bound) and 5-16 (down-bound). 

Figure 5-16: Total annual up-bound waterborne coal shipments, 2007 
171

Figure 5-17: Total annual down-bound waterborne coal shipments, 2007 

Access to rail for coal transportation is more dispersed, as shown in Figure 5-18. The largest 

volumes of coal shipped by rail from the PRB area in Wyoming are shown by the more solid 

lines in the map. The finer lines in the map show the transport of smaller volumes of coal 

around the country, particularly moving towards the demand areas in the Midwest and Eastern 

States. 

Figure 5-18: Density of coal shipments by rail 

Source: Federal Railroad Administration analysis of STB Rail Waybill Sample 
172

In the Carload Waybill Sample (CWS) Christensen analyzed for 1987-2006, more coal was 

transported by rail than any other commodity. Figure 5-19 shows the trends in real revenue, 

tonnage, ton-miles, and real revenue per ton-mile (RPTM) for this 20-year period.80 

By comparing coal production (Figure 5-2) to tonnage (Figure 5-19) it can be seen that coal 

tonnage increased almost twice as fast as production, reflecting a modal shift towards rail. 

Also, coal ton miles increased faster than tonnage as the overall length of haul increased 

(reflecting the western movement of coal production). As noted by Christensen, in 2006 the 

median coal waybill originating in an Appalachian State was 409 miles, while the median coal 

waybill originating in Campbell County was 1,113 miles. 

Figure 5-19: Annual rail shipments of coal in 1987-2006 by real revenue, tonnage, ton-miles, 

and real revenue per ton-mile 

Source: CWS data for 1987-2006. Graphic from Laurits Christensen Associates 

There have been major changes in the composition of coal shipments over the past two 

decades, partially reflecting the increased use of large unit trains for long distance coal 

shipments.81 The average distance hauled (weighted by tonnage) increased over 50 percent; 

tons per carload have increased moderately; ton-miles in shipments greater than 100 carloads 

increased from 60 to 89 percent of the total movements; and the share of shipments in 

privately owned cars increased from the mid-1990s to the early 2000s and spiked in 2006. This 

latter change is due to PRB shipments being primarily in privately owned cars and Appalachian 

shipments in railroad-owned cars. However, in 2004-2005, privately owned car shipments from 

Appalachian States also increased. Average shipment sizes increased dramatically over this 

period: 

• 583 tons and 6 carloads per waybill in 1987 

• 5,080 tons and 46 carloads per waybill in 2005 

• 9,634 tons and 86 carloads per waybill in 2006 

0

0.5

1

1.5

2

2.5

3

19871988198919901991199219931994199519961997199819992000200120022003200420052006

Index (1987=1)

Revenue Tonnage Ton-miles RPTM
173

The large change in 2006 from the levels in the previous year is probably an aberration rather 

than a significant change in the trend. Recall that there were significant rail and water 

transportation disruptions in 2004–2005. Hence the figures reported above for railroad 

shipments represent lower than usual shipments in 2005 and higher than usual shipments in 

2006 as the utility providers used up their stockpiles in 2005 and built them back up in 2006. 

Rail Rates 

Coal purchases by utility companies are usually controlled by long-term contracts with mines, 

but corresponding long-term transportation contracts are not common.82 In the past, coal 

transportation contracts were often for 10 years, but now they are usually 1–5 years long. 

Because of the importance of the railroad system in transporting coal from production to 

power generation areas, rail rates and their vacillations are of deep concern to the electric 

generation industry. 

The most recent study of railroad rates by the STB from 1985–2007 found that inflationadjusted rail rates increased in the last 3 years of their study, but had declined in every year but 

one between 1985 and 2004.83 Their results suggest that in 2007 alone shippers spent $7.8 

billion more than they would have with the 2004 rates. Citing the Christensen study, they 

conclude that most of the recent rate increases reflect input price increases (mainly fuel) and 

declining productivity, rather than enhanced market power. Figure 5-20 shows the decline in 

the STB Rail Rate Index from 1985 to 2000, the flattening out of the index until 2004, and then 

the increase in the index since 2004. 

Figure 5-20: STB rail rate index, 1985 to 2007 

Source: STB, Office of Economics, Environmental Analysis & Administration, Section of Economics, Study of 

Railroad Rates: 1985–2007. 2009. 
174

The STB conducted additional analyses of grain and coal rates because these shippers are 

concerned about service and rates as they relate to rail car ownership and length of haul. Coal 

rail rates over the 1987 to 2007 period, by car ownership, are presented in Figure 5-21. Rates 

are presented as real rates per ton-mile. This figure shows a consistent decline in rates for both 

railroad-supplied and privately owned cars until 2004, when both increased. It should be 

noted, however, that these are only the point-to-point rates, and do not show underlying 

changes. For example, shippers have been carrying more of other costs, such as the costs for 

their own railcars, storage costs, and siding and track costs. This cost-shifting effectively 

increased the rates from 1987 to 2004, partially nullifying the effect of the rate decline that 

otherwise would have resulted from increased efficiency. 

Part of the discount for privately owned equipment might reflect differences in the mix of 

shipment sizes and distance hauled. Privately owned equipment is used almost exclusively in 

shuttle train service between a single mine and a single destination, trips that pay the lowest 

rates. Railroad-owned equipment, however, is more likely to be used for smaller shipments, 

and often for shorter hauls, which incur higher rates. The discount for privately owned 

equipment hovered between 34 and 40 percent for the period.84 

Figure 5-21: Coal rates and car ownership 

Source: STB, Office of Economics, Environmental Analysis & Administration, Section of Economics, Study of 

Railroad Rates: 1985–2007. 2009. 

 
175

Rates for all shipment distances declined from 1988 to 2001. After 2001, rates in the shortdistance category increased dramatically—32 percent between 2001 and 2007—but the 

increases in other categories were not so extreme. The trends in coal rates per ton-mile, by 

shipment distance, are shown in Figure 5-22. Four distance categories are analyzed: short 

(<500 miles), medium (500–1,000 miles), long (1,000–1,500), and very long (>1,500 miles). 

Figure 5-22: Coal rates and shipment distance 

Source: STB, Office of Economics, Environmental Analysis & Administration, Section of Economics, Study of 

Railroad Rates: 1985–2007. 2009. 

In Christensen Associates’ 2008 study, a pricing model was developed to analyze the impact of 

cost characteristics and market structure (railroads and their modal competition) indicators on 

railroad rates for various commodity groups (measured as revenue per ton-mile (RPTM)). 

Christensen found that length of haul was associated with a large negative effect on RPTM and 

shipment size was associated with a small positive effect. However, the combined effect of 

increasing shipment size (by both tons and tonnage per car) might be associated with a 

decreased rate per ton-mile, depending upon the relative change considered. Their model 

allowed them to estimate the implicit payment (in the form of rate reduction) for privately 

owned (shipper-supplied) cars. The implicit payment was found to be $223 per carload from 

2001 to 2003 and $214 from 2004 to 2006—about a 15 percent discount from the average 

carload rate for 2007.*

 

 

*

 An average carload of coal in 2007 carried 113.5 tons at an average rate per ton of $13.50, so an average rate 

per carload of coal was $1,532. 
176

The market structure indicators they considered were: 

• Distance from origin to nearest port or waterway facility 

• Distance from destination to nearest port or waterway facility 

• Railroad competitors at origin 

• Railroad competitors at destination. 

Based on the model, Christensen calculated the effects on railroad rates of increasing the 

distance to the water. Their results indicate that a distance of 100 miles from water at points of 

origin cost 8 percent, and a distance of 500 miles from water at points of origin was worth 11 

percent higher rates. Interestingly, when the period from 2004 to 2006 was examined, the 

distance impact on rail rates was essentially zero. 

A similar analysis done in the same Christensen study for distance of points of termination from 

water, found that 100 miles was worth 7–9 percent higher rates, and that most of this effect 

occurred at 50 miles. They found that the RPTM is lower in counties with railroad competitors 

present than in counties served by a single railroad. Their results also suggest that the marginal 

effect of an increased number of railroad competitors at the termination county is larger than 

the effect of increased numbers of competitors at the origination county. 

In summary, Christensen’s pricing model results for coal suggest that coal rail rates are 

impacted by shipment cost and market structure characteristics. Increased competition at the 

origin modestly reduces rates while increased competition at the destination results in sizable 

rate reductions. Also, rail rates are impacted by water transportation competition, with a 

greater impact at the destination end than at the origin end. 

Christensen Associates also calculated adjusted marginal costs (adjusted MC) and Lerner 

Markup Indexes (LMI) for non-interchanged shipments, using the results from the various 

commodity pricing models. They found very low adjusted MCs for commodities hauled in largescale bulk shipments such as coal (and grain), which was consistent with expectations because 

these are generally less time-sensitive from a quality deterioration perspective. The railroadspecific markup calculations show below-average markups for coal shipments carried by BNSF 

and UP, suggesting effective competition at the point of origin via joint lines serving the South 

PRB area. Christensen points out that while industry MCs increased in 2004–2006, some 

commodities like coal avoided generic cost increases by cost-saving changes, such as increased 

average car loadings and the length of haul. Hence the overall MCs remained fairly constant for 

coal, but the shippers may have incurred higher costs due to the adjustments that were made. 

The shippers note that their adjustments and incurred costs stemmed from the expiration of 

many long-term, lower-priced contracts during this period and their inability to renegotiate 

favorable contracts. 
177

Service 

This section examines rail service components and markers, such as train speed, reliability, 

capacity and stockpiles, on-time delivery statistics, and consumer complaints. 

Train Speed 

Average train speeds are frequently used as a proxy for service quality. Variability in speeds can 

also be a marker for service quality; large variations in speed indicate problems (unpredictable 

performance). Christensen used Association of American Railroads Railroad Performance 

Measures (RPM) data to calculate average train speed for different train types across a 

railroad’s network, and compared changes in average speed across train types to assess 

reliability. Their data led them to the following observations: 

• Between 1999 and 2005, average train speed for large Western railroads decreased 

while the speed for their Eastern counterparts increased. 

• In 2003 and 2004, declines in average train speed and increases in dwell time occurred 

for most railroads. 

• The intermodal trains are the fastest (followed by multilevel trains). 

• Coal unit trains tend to be the slowest (manifest and grain units are sometimes slower). 

Stakeholder interviews by Christensen revealed the concern that intermodal trains are given 

preferential treatment (with respect to speed) but the aggregate-level data in the study did not 

support this claim. 

Table 5-3 and Figure 5-23 show the changes in average train speed by railroad and train type 

for the period from 1999-2005. These data also do not support any large bias towards 

intermodal trains, as this train type generally experienced speed declines over the period. 

Table 5-3: Changes in average speed by railroad and train type, 1999-2005 

All Inter modal Manifest Multi level Coal Unit Grain Unit 

BNSF -0.8% -1.6% -0.2% -2.0% 0.3% 0.7% 

CN 0.3% -0.3% 0.2% 1.7% -0.6% 0.3% 

CP -3.0% -3.3% -4.6% -1.4% -1.5% -3.2% 

CSX 1.1% -0.1% 1.1% 1.3% 0.5% 1.1% 

KCS 0.2% -0.4% 0.6% -0.4% 2.8% 2.5% 

NS 2.9% 1.2% 3.8% 1.9% 0.8% 2.5% 

UP -2.5% -3.7% -2.4% -3.2% -0.6% -2.6% 

Source: Laurits Christensen Associates 
178

Figure 5-23: Changes in average speed by railroad and train type, 1999-2005 

Source: Laurits Christensen Associates 

A coefficient of variation (CV) is often used as a measure of the variability in average train 

speed. It is the ratio of the standard deviation to the average train speed, and is useful when 

comparing train types that have different average speeds. Table 5-4 presents CVs by railroad 

and train type. These data show that grain and coal units have the greatest variation and 

intermodal has the lowest CV. From this Christensen concluded that even though the average 

speed for all train types declined over this period, coal and grain units received the least 

reliable service and intermodal received the most reliable service. 

 

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

BNSF CN CP CSX KCS NS UP

All Inter modal Manifest Multi level Coal Unit Grain Unit
179

Table 5-4: Variability in average train speed by railroad and train type, measured by 

coefficients of variation 

Inter modal Manifest Multi level Coal Unit Grain Unit 

1999-2005 

BNSF 3.6% 3.6% 4.2% 4.9% 4.6% 

CN 3.9% 5.1% 6.1% 8.0% 9.4% 

CP 5.1% 5.6% 6.8% 5.9% 7.3% 

CSX 3.5% 5.1% 6.3% 4.4% 6.3% 

KCS 5.5% 7.0% 5.6% 8.2% 8.9% 

NS 3.2% 4.4% 5.4% 4.5% 7.1% 

UP 3.6% 3.5% 3.9% 4.9% 5.1% 

2006-2007 

BNSF 3.8% 4.3% 3.9% 4.4% 4.4% 

CN 3.5% 3.5% 5.3% 5.9% 4.5% 

CP 4.0% 3.6% 5.9% 8.9% 5.2% 

CSX 3.4% 3.8% 4.5% 3.4% 4.3% 

KCS 6.0% 4.6% 6.0% 6.5% 5.2% 

NS 3.6% 4.1% 5.1% 3.6% 5.7% 

UP 3.6% 3.1% 3.2% 4.2% 3.7% 

Source: Laurits Christensen Associates 

Reliability 

A Congressional Research Service (CRS) report for Congress on September 26, 2007, addressed 

reliability issues in rail transportation of coal to power plants.85 The study identified 11 

episodes since 1990 that caused disruptions in coal supply to power plants due to rail 

transportation problems. They were caused by weather, surges in demand, difficulties with rail 

system integration subsequent to railroad mergers, and major unplanned maintenance. 

2005-2007 

Train derailments in May 2005 triggered a large-scale maintenance project on the PRB Joint 

Line, causing delays and coal delivery shortfalls through most of the year on the UP and BNSF 

systems. Delivery shortfalls for some shippers linger into 2006. UP imposes an embargo on 

accepting new customers for PRB coal shipments that continues until March 27, 2007. 
180

2004 

Rail system capacity is stressed by sharp increases in intermodal and grain traffic. UP 

experiences shortfalls in Colorado and Utah coal shipments and some problems in the PRB due 

to being short-staffed and needing more locomotives. NS and CSX have shortfalls in shipments 

of eastern coal to domestic generators due to a surge in coal export demand and capacity 

limitations exacerbated by hurricane damage. 

2003 

Delays in the UP shipments of coal from Colorado and Utah due to shortage of staff and 

locomotives. 

1999-2000 

Severe congestion and delivery shortfalls in the East due to problems with the integration of 

the Conrail system into NS and CSX. 

1997-1998 

Severe delivery shortfalls throughout the UP system because of problems with the integration 

of SP after the merger. 

Mid-year 1998 shortfalls in eastern coal shipments on the NS system, reportedly due to 

insufficient locomotives. 

Early 1996 

Eastern coal shipments are disrupted by harsh winter weather and difficulty meeting a surge in 

power plant demand for coal. 

1994-1995 

Surge in demand for PRB’s low-sulfur coal stemming from passage of the Clean Air Act of 1990 

leads to congestion and delivery shortfalls on the UP and BNSF systems. 

In the first part of 1994, delivery shortfalls of eastern coal are experienced on the Conrail 

systems due to harsh winter weather and difficulties implementing a maintenance program. 

1993 

Coal shipment shortfalls, primarily in the Midwest, due to widespread summer flooding. 

1991 

PRB coal delivery shortfalls due to congestion on the UP system. 

This CRS Report also identifies other, more persistent, indicators of service issues in 

transporting coal by railroads. The decline in rail speed discussed above is a leading issue. 

Capacity limits on the rail system contribute to service problems. After experiencing 

uneconomic excess capacity for years, the railroads have brought capacity and demand for 

services into better alignment. But unexpected events, such as weather and sudden demand 

increases, still result in periodic congestion. Also, the electric power industry and other 
181

industrial shippers claim that railroads are increasingly unwilling to offer strong service quality 

guarantees. 

Capacity & Coal Stockpiles 

Capacity also has a bearing on service. The historic uneconomic excess capacity in the railroad 

industry has been brought more into alignment with demand, but at the cost of limited buffer 

capacity. When rail system capacity is constrained it can be a factor in allowing railroads to 

raise rates. 

Coal stockpiles also serve as a buffer to shortages of rail capacity and disruptions to service 

(Figure 5-24). The stockpiles declined from 2002 to 2005, probably due to efforts by power 

companies to cut costs and to improve their financial profiles. These stockpile declines have 

occurred over a time in which more coal is being shipped longer distances from Western 

mines, making the power industry (and their ability to provide power to their customers) more 

vulnerable. However, since the end of 2005, coal stocks have increased, which may possibly 

reflect the difficulty that the power industry (and other industries) have had in obtaining strong 

service guarantees from the railroads and their recognition of the risk of being caught with 

short supplies. 

Figure 5-24: Year-end coal stocks, 1999-2008

(Million Tons) 

Sources: EIA, Quarterly Coal Report, October-December 2008, DOE/EIA-0121(2008/Q4) (Washington, DC, April 

2009); and Coal Industry Annual, DOE/EIA-0584, various issues." 
182

On-time Delivery 

The Argus on-time delivery indexes provide a measure of the reliability of railroads in delivering 

a product to the final destination.86 The on-time indexes for coal and grain were calculated for 

each quarter from June 1997 through September 2008. Figure 5-25 shows the index for four 

major railroads and the average for the railroads for coal shipments. Burlington Northern and 

Union Pacific are generally better, with average index values of 3.68 and 3.34, respectively. CSX 

is generally slightly less consistent with on-time delivery performance, with an index value of 

3.28. Variations in on-time delivery can be evaluated using the Coefficient of Variation (CV), a 

statistic which measures the variation in on-time deliveries for a railroad relative to the average 

on-time delivery for that railroad. The CV expresses the variability of on-time deliveries for a 

railroad in percent terms, where the variability is that which occurred over the 1997 – 2008 

time period. On the basis of the reliability of on-time deliveries, BNSF was the most reliable 

over the time period 1997-2008, with a CV of 13 percent while UP was less reliable with a CV of 

18 percent. Figure 5-26 shows the on-time delivery index (across four Class I railroads) for coal 

and grain, for the same time period. In the earlier years in this data series, coal deliveries were 

more reliable than grain. Since around 2002, coal on-time delivery experienced a fairly steady 

decrease, until coal deliveries were less reliable than grain deliveries in about ten of the years. 

Both grain and coal deliveries have increased in on-time delivery and reliability since about 

2006. 

Figure 5-25: On-time delivery index for coal shipments, 1997-2008 

Source: Argus Media Group, Coal, On-Time-Delivery Index 

 
183

Figure 5-26: On-time average for rail shipments: grain and coal 

Source: Argus Media Group, Coal, On-Time-Delivery Index 

Consumer Complaints 

Consumer complaint statistics kept by the STB are another indicator of service by the railroads. 

Table 5-5 below summarizes the number of complaints to the STB by commodity group, from 

2005–2008. Fewer complaints have been lodged against coal shipping than against other 

commodities, possibly because coal is a major source of revenue for the railroads, and because 

it has fewer origination and destination pairs, enabling more efficient shipping. 

Table 5-5: Summary of STB consumer complaint statistics, 2005-2008 

Complaint Per Commodity Group 2008 2007 2006 2005 

Forest Products* 8 8 17 17

Agricultural 23 23 13 17

Metals and Minerals 4 11 9 11

Industrial 3 0 NA NA

Chemicals 21 13 10 5

Intermodal 5 0 5 2

Coal 5 0 1 2

Automobile 2 0 0 0

*Prior to 2007, this category was labeled paper products.

Source: STB, Rail Consumer Complaint Statistics, 2005–08 
184

Paper Barriers 

Captive rail customers are shippers, typically moving bulk commodities such as coal or grain 

that must rely on a single railroad to deliver their products because there is no other costeffective transportation mode. Historically, 20–30 percent of the Nation’s rail movements have 

been “captive,” with many of these movements covering rural America.87 Shippers continue to 

express concerns that the system Congress established to ensure competition in the national 

rail system and to protect rail customers in captive markets is not working as intended. A 

Government Accounting Office (GAO) report in 2007 also concluded that “concerns about 

competition and captivity remain as traffic is concentrated in fewer railroads” and that “[the 

STB’s] rate relief processes are largely inaccessible and rarely used.”88

On a per-ton basis, rates paid by shippers in a captive area are at least twice the rate as those 

for shippers in non-captive areas. Figure 5-27 illustrates the freight rail rate differences across 

four commodities, in captive and non-captive markets. 

Figure 5-27: Captive vs. competitive freight rail rates 

Source: Testimony before Senate Commerce, Science and Transportation Committee, Subcommittee on Surface 

Transportation and Merchant Marine Infrastructure, Safety, and Security, October 23, 2007, Glenn English, CEO, 

National Rural Electric Cooperative Association , Captive vs. Competitive Freight Rail Rates 
185

Chapter 11 of this study examines STB processes for rail rate grievances and shippers’ concerns 

about those processes. Shippers believe the rate grievance processes take too long, are too 

costly, and are ineffective in providing practical rate relief to captive shippers. They are 

concerned about the limited eligibility of rail rates to be challenged, and from the limited use of 

the process by those eligible.*

 The STB itself indicated that only 12 percent of rail rates are 

subject to their review. 

In addition to shippers’ belief that the rate process does not work as Congress intended, captive 

shippers are also concerned that rulings of the STB have reduced rail competition, especially 

two rulings—the paper barriers, or tie-in agreements, and the bottleneck decision, both of 

which are discussed in this chapter, but also in Chapter 8—on rail service performance. 

Paper barriers refer to a restriction in an agreement by Class I railroads to lease or sell lines to a 

smaller railroad that prohibits the smaller railroad from interchanging traffic with any other 

connecting railroad. According to the GAO in 2007, about 500 short line railroads have been 

created since the 1980s by Class I railroads selling a portion of their lines. Paper barriers in 

these sales are believed to be widespread, but their extent is not actually fully known because 

they are included in confidential contracts. 

Although this type of agreement prevents access to competitive service, the GAO suggests that 

elimination of paper barriers could reduce the overall capacity of the railroad industry because 

Class I railroads might abandon lines rather than selling them to smaller railroads. Railroads are 

required to consider “reasonable” offers of financial assistance when abandoning a line. 

However, paper barriers are sometimes put in place so that a large railroad can sell or lease a 

line on attractive terms to a smaller carrier, and still retain the revenue from interchange 

traffic. If the large railroad were forced to compete for the interchange traffic, it might demand 

a higher price or lease payment, possibly resulting in abandonment rather than sale of a line. 

In general for most industries, restrictions on a purchaser’s ability to conduct business with 

other parties would violate antitrust law. Many shippers believe that were it not for the 

antitrust exemption on STB-approved transactions, paper barriers put in place by some 

railroads also would violate antitrust law. Due in part to the anticompetitive nature of paper 

barriers and the incongruity of deregulating an industry while at the same time allowing 

antitrust exemptions to remain, Congress is now considering legislation to remove all antitrust 

exemptions from the railroad industry. 

Shippers argue that the regulatory system established by Congress to ensure competition in the 

railroad industry is not working as intended, and that many vital industries (such as coal, 

agriculture and farming, and chemical manufacturers and processors) have faced deteriorating 

service and excessive rates for the rail service available to them. Mr. Glenn English, CEO of the 

National Rural Electric Cooperative Association and Chairman of Consumers United for Rail 

 

*

 Movements exempt from STB jurisdiction include any rail movement for which there is a contract and other 

traffic specifically exempted from regulation, including inter-modal and boxcar movements. 
186

Equity, has testified before many House and Senate Committees. He argues that memberowned, not-for-profit organizations such as his have the obligation of providing an affordable 

and reliable supply of electricity to consumers. He further argues that there is a national public 

interest in the operation of the rail system. Of course, if railroads cannot earn an adequate 

return on their assets, investments will not be made and both capacity and service quality 

will fall. 

Coal delivery problems add costs to consumers. For example, the two railroads delivering PRB 

coal to Eastern States fell short on their deliveries by 15 percent over the three year period, 

2005-2007, forcing the utilities to switch domestic sources, import coal, and use more natural 

gas; and as a result, raise their electric prices. NRECA estimated that in 2006 alone, the cost of 

replacing the PRB coal deficit was over $2 billion. 

Because many of the short line railroads are interconnected with more than one major railroad, 

the existence of paper barriers can create an impediment to competition. With less 

competition, shippers believe railroads are able to charge higher rates and provide less service 

for transporting coal to electric generation facilities, resulting in higher electricity rates for 

consumers, particularly rural consumers. 

Most coal moved by rail to electric generating stations does not move on short line railroads, so 

paper barriers are not typically an issue in coal movements. However, where a utility power 

plant has access to only one railroad, in some cases utilities have constructed costly “build out” 

rail lines to reach competing railroads and so secure lower rail rates for their coal movements. 

Bottleneck Rates 

According to the GAO study in 2006, bottlenecks occur when “some shippers have more than 

one railroad that serves them at their origin and/or destination points, but have at least one 

portion of a rail movement for which no alternative rail route is available.”89 This portion is 

referred to as the “bottleneck segment.” The rate for the bottleneck segment is referred to as 

the bottleneck rate. 

The STB has ruled that railroads do not have to provide a rate for the bottleneck segment. 

Since the 1996 bottleneck decision, the discussion has focused on differential pricing, 

protection for captive shippers, and the financial health of the railroads.90 The STB’s rationale 

was that the statute and case law preclude it from requiring a railroad to provide service on a 

portion of its route when the railroad serves both the origin and destination points (and 

provides a rate from the origin to the destination on their railroad alone). 

An example of the issue of bottleneck rates is Powder River Basin coal moving from Wyoming 

to Rodemacher, LA. As a result of the STB bottleneck decision, Lafayette, LA, homeowners pay 

an additional $300 per year and Lafayette educational institutions pay an additional $1.5 million 

per year for their electricity.91 Coal moves via the UP which has track for the entire trip, 

including the last crucial and exclusive leg of about 20 miles, from Alexandria, LA, to 

Rodemacher. 
187

If the shipper could get quotes from competing carriers, the coal could be brought from 

Wyoming to Kansas City via BNSF. It then could be switched to KCS or to UP, to Alexandria, LA, 

and finally to UP for the last leg of the movement. 

In the bottleneck ruling, a contract with a competing carrier must be in place before the STB 

will force the railroad to do the interchange, but shippers have found they can not get a 

contract quote, saying that these duopoly railroads will not compete because of a fear of 

retaliation on other segments of their own railroad. Hence, shippers believe no remedy or 

relief is available to them through lower rates brought about by competition. 

Further, requiring a rate challenge over the entire length of haul is not felt by shippers to be 

reasonable or fair, as the rate over the entire length of haul could be determined to be 

reasonable, even though the rate over the bottleneck segment alone could be quite high. From 

the shippers’ point of view, rates should be challengeable in the bottleneck segment alone. 

An example from the grain industry points out the impact of these bottleneck rates. One 

shipper told USDA that the market has wanted corn to move from eastern Illinois to domestic 

markets in the East, but it has instead been moving to the Gulf because a premium is paid for 

export, and because of high rail rates to eastern markets. An affected shipper asked the 

originating carrier to quote a rate to a junction point that could theoretically allow the grain to 

move into more lucrative eastern markets, but the rate to the junction was almost precisely the 

difference in the eastern premium and Gulf rates, thus negating any possible benefit of a 

competitive market. 

The legality of bottleneck practices was confirmed in a seminal court case involving coal rates 

and MidAmerican Energy Co. in the 8th Circuit Court in 1999.92 In this case, the ruling was that a 

railroad did not have to offer a bottleneck rate (for the short-haul portion) when it served the 

entire route. The 8th Circuit affirmed STB’s previous decision in 1996 that separately 

challengeable bottleneck rates can be required whenever a shipper has a contract over the 

non-bottleneck segment of a through movement. 

The concern shippers have expressed about bottleneck rates is similar to concerns they have 

about paper barriers—a reduction in competition raises rates and lessens service. The 

bottleneck ruling allows railroads to engage in a “tying” arrangement that would be prohibited 

by antitrust law were it not for the antitrust exemption for railroads. A “tying” arrangement is 

one in which a firm will not sell product/service A without also selling product/service B.93 

Some shippers also believe bottleneck rates can also cause a loss in efficiency, resulting in 

longer routes and greater fuel consumption. A recent report prepared by Nelson in 2008 

focuses on economic efficiency (including the use of fuel). His research finds “that the 

bottleneck rule fosters conduct that is supportive of the perceived short-term economic selfinterests of individual railroads, but is inconsistent with economic efficiency and the public 

interest. The conduct is detrimental to captive and competitive shippers as well as to the 

longer-term interests of railroads.” The Nelson study concludes that the impact on economic 
188

efficiency is major, conservatively $1.3 billion per year, and that it leads to an extra 

consumption of over 103 million gallons of diesel fuel per year (and associated carbon 

emissions and environmental, national energy policy, and security problems). In addition, the 

study concludes that bottleneck practices cause railroad reliability problems. 

The Nelson study was not specific to coal but applies to it. Bottleneck rates are an important 

issue for coal producers and utility companies. Dairyland Power Cooperative testified before 

the U.S. Senate Judiciary Subcommittee on October 3, 2007, with regard to railroad 

competition (and S.772—Railroad Antitrust Enforcement Act).94 Dairyland burns coal in three 

plants in western Wisconsin, most of which comes from the PRB in Wyoming. For their coal 

delivery, they are “captive” to the only two railroads that serve the PRB and argued that the 

market power of these railroads has resulted in them paying more and receiving less. Paper 

barriers and bottlenecks are included on their list of concerns. They cite 2005 figures, in which 

Dairyland experienced a 13 percent shortfall of scheduled shipments and then faced a rate 

increase averaging 23 percent in the following year. They estimate this to have resulted in a 

$35 million annual increase in costs. 

A policy proposed by GAO would require railroads to offer a rate and service for a bottleneck 

segment. GAO states, “On the one hand, requiring railroads to establish bottleneck rates would 

force short-distance routes on railroads when they served an entire route and could result in 

loss of business and potentially subject the bottleneck segment to a rate complaint. On the 

other hand, this approach would give shippers access to a second railroad, even if a single 

railroad was the only railroad that served the shipper at its origin and/or destination point, and 

could potentially reduce rates.” 

The AAR maintains that forcing rates on bottleneck segments would cause the total rate for 

through movements to be below the costs of operation on that movement. This could, 

according to the AAR, lead to a net revenue loss of several billion dollars a year. 

The Nelson study concluded: “The original bottleneck decision acknowledged the Congressional 

intent that in rationalizing interchange practices, carriers should retain efficient routes. Carriers 

have used the bottleneck decision to insulate themselves from competition through 

intermediate participation by other carriers, even where such participation would improve 

efficiency. This has produced private benefits at the expense of economic efficiency and the 

public interest.” 
189

Recent Decision by STB in Favor of Coal Shippers 

A recent decision by the STB in the Western Fuels Association, Inc. and Basin Electric 

Cooperative, Inc. case (February 2009) was made in favor of the utilities and consumers.95 The 

utilities had challenged the rates charged by BNSF from mines in the PRB to their electric plant 

in Moba Junction, WY. The utility plant is captive to BNSF and provides electricity for grids 

serving consumers in nine States. The STB found that the railroad was charging a rate that was 

unlawfully high (roughly six times the variable cost). BSNF was ordered to lower its rates by 

about 60 percent. The order awards $100 million in past overcharges to utilities and an 

additional $245 million through reduced coal transportation rates through 2024. Electricity 

consumers in the nine States will benefit directly from this ruling. 

This case has been referred to by some shippers as a very important rail rate case that may 

represent a turning point in the effort to protect captive shippers from monopoly pricing. 

Shippers have pointed out this is the single largest award to a captive shipper by the STB, and is 

the first meaningful relief awarded to a captive rail customer through a full, contested rate case 

since 2001. However, they also indicate this decision came more than 4 years after filing, and 

the plaintiffs spent approximately $9 million prosecuting their case. Concern still remains by 

shippers that most captive rail customers will be denied access to meaningful rate relief 

because of the cost in both time and money; and the complexity of the STB rate challenge 

process. 

Conclusions 

Coal is a major source of energy in the United States and is an important commodity for the 

transportation system. Despite the growth of alternative energy sources, coal will continue to 

be a major source of power for rural consumers. Because coal plays such an important role in 

generating electricity, its costs—including its delivery costs—are reflected in the price 

consumers pay for electricity. 

Coal is produced in 20 States around the country. In recent years production has moved 

westward due to the demand for coal with lower sulfur content. Because coal is primarily used 

for generating electricity, demand is distributed around the country. With concentrated 

production areas and dispersed demand, an efficient and effective transportation system is 

critical for consumers to have an affordable and reliable supply of electricity. 

Railroads are the most important mode of transportation for moving coal from areas of 

production to areas of energy generation. As production moved west, the average distance of 

shipment, size of shipment, and private-car ownership have all increased. Railroads have 

concentrated on the more profitable long-haul unit-train movements, abandoning or selling 

less-used track and facilities. Shippers often find it necessary to own their rail cars and loading 

facilities to get connecting service to main lines, shifting the costs of siding, track, storage, and 

loading to them from the railroads. 
190

Rail rates declined from 1985-2004, but have increased steeply since then. Coal shippers are 

concerned that limited competition at origin and destination points has allowed railroads to 

charge higher rates than are justified and to pass on more costs to shippers, while reducing the 

level of service (speed, reliability, capacity). Of particular concern are paper barriers, which 

constrain shortline railroads from interchanging with competing mainline railroads, and 

bottleneck rates, which eliminate competition and potential efficiencies among railroads that 

should be available to shippers. 

Railroads have made substantial investments since the 1970s in facilities for handling Western 

coal, including 103 miles of new railroad line in Wyoming and the upgrade or rebuilding of 

many thousands of miles of mainline track. These investments have added capacity to the rail 

network and benefitted all shippers, not just coal shippers. 

Analysis using industry average data conceals problems that occur for captive shippers. Despite 

the recent decision by the STB in the Western Fuels and Basin Electric case (made in favor of 

the utilities and consumers), captive rail customers fear that the cost and complexity of the STB 

process still will deny them access to the process set up by Congress to ensure competition. 

Railroads are vital to coal transportation, and coal is the largest single commodity handled by 

railroads. Over the past 35 years, railroads have made substantial investments in track, signals, 

freight cars, and locomotives to handle this traffic. Railroads are entitled to a return on this 

investment. On the other hand, shippers are entitled to reliable service at reasonable rates, 

and this has not always been consistently provided by the railroads. In those instances when 

service is poor or rates are unreasonably high, rural electricity rates are impacted. 

 
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 
202

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 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 

 
210

• 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. 
Chapter 7

Rail Rates
239

Chapter 7: Rail Rates 

An examination of the effects of deregulation and the performance of the Surface 

Transportation Board (STB) under that deregulation usually includes an analysis of rail rates 

that have evolved since implementation of the Staggers Act of 1980 (Staggers Act). This 

chapter looks at the rail rate structure for agricultural commodities and compares it to rates for 

other commodities. Changes in agricultural rail rates are evaluated against shipment size and 

distance shipped to understand how they affect agricultural shippers. Railroads transferred 

costs to agricultural shippers and over-recovered fuel costs with surcharges. Shippers question 

the reasonableness of rail rates in the light of railroad revenue adequacy and rail costs, and of 

bottleneck rates. 

Importance of Reasonable Rail Rates 

Because grain and oilseeds are bulk commodities with a low value in proportion to their weight, 

the costs of rail transportation to market represent a significant percentage of the average onfarm price of the commodities (Figure 7-1). For example, average rail tariff rates as a percent of 

the farm price of wheat have varied from 11.3 percent in 2007, when wheat prices were high, 

to 23.1 percent in 1999, when wheat prices were low. Rail transportation costs for individual 

movements of agricultural products have been as much as 40 percent of the delivered price.146

 

Figure 7-1: Wheat—average rail tariff compared to average farm price 

* Marketing year ending May 31 

Sources: AMS, Rail Tariff Data: STB Waybill Samples, 1995-2007; Average Farm Price: USDA/NASS, Crop Value 

Summary 
240

 

Agricultural producers are “price takers” rather than “price makers,” with little control over the 

price they receive for their products. They are unable to pass cost increases on to customers, 

and must absorb them because of their lack of market power. Consequently, increases in 

transportation costs result in decreased producer profit. For agricultural shippers with no costeffective alternative to rail, and located far from markets, rail is the only transportation 

available. The rail rate determines the net price the producer receives. 

Lower prices and incomes hinder farmers from borrowing funds to purchase fertilizer, seed, 

and machinery, reducing economic prosperity in rural areas. Higher transportation costs also 

affect the competitive position of U.S. agricultural products in highly competitive export 

markets. The rates agricultural shippers pay for rail transportation can facilitate or inhibit 

American competitiveness in world agricultural markets. 

Despite these concerns, rates for land transportation of agricultural commodities in the 

United States remain among the lowest in the world. Although rail rates for agricultural 

commodities have not fallen as much as rates for some other products (such as coal), Figure 7-1 

shows that the rail transportation cost during 2007, as a percentage of the price of a bushel of 

wheat, was at a 13-year low. Agricultural shippers have had some legitimate complaints about 

rail rates—and especially rail service quality—following some of the large rail mergers of the 

1990s. However, service has improved in recent years; in fact, the rail share of agricultural 

exports has actually increased over the last 2 decades. This is probably the result of several 

factors: 

• Following the merger-related service disruptions of the 1990s, rail service quality 

recovered. 

• Although rail rates have risen, truck rates have risen even faster over the last several 

years. 

• The STB took action to restrain railroad fuel surcharges. 

• Railroad grain car capacity and productivity increased. 
241

Rates and Railroad Deregulation 

For nearly 100 years, the performance of railroads reflected the constraints put on them by 

Federal regulation. The Interstate Commerce Commission Act of 1887 (ICC Act) created the 

Interstate Commerce Commission (ICC). ICC implemented the provisions of the ICC Act, 

working for “just and reasonable” rates without price discrimination. The regulatory 

environment created by the ICC Act and subsequent statutes required railroads to employ costof-service pricing and to price at average cost, with some variation usually allowed by 

commodity and length of haul. Cost-of-service pricing at average cost caused movements to be 

lost to competitive transportation modes in many corridors. 

Pervasive regulation interfered with the ability of railroads to react to competitive situations 

and efficiently manage their firms. Rate adjustments were slow, innovations were stymied, and 

rationalization of rail infrastructure was expensive and time-consuming. The unwieldy 

regulatory framework, along with increased competition from other modes—in part due to 

government promotion of competing transportation modes—led to a loss of market share of 

intercity freight and the attendant revenue. The railroads were unable to maintain their 

infrastructure, were close to bankruptcy, and were not competitive. 

Regulatory reform happened slowly. The most important legislation was the Staggers Act of 

1980. Railroads seized on their new regulatory freedom to actively pursue profits and return on 

investment, using differential pricing, cost efficiencies, abandonment of un-remunerative rail 

lines, mergers with other railroads, and the rate innovations of contracts and multiple-car 

pricing. 

Railroads have also successfully controlled and reduced costs by abandoning rail lines, creating 

short line railroads, reducing labor in operations and administration, making longer hauls, 

increasing traffic density on rail lines, and using new technologies imaginatively. Increasing 

shipment and car sizes, running directionally, and sharing dispatching have also contributed to 

efficiency. 

Railroads adopted differential pricing to use their capacity efficiently and recover their high 

fixed and common costs. If a railroad charged the same prices to all shippers, some shippers 

would find it more profitable to ship by another mode. As these shippers withdrew, the 

railroad would have to raise prices on its remaining customers to cover its fixed costs. 

Differential pricing also gives railroads the flexibility to react to differences in modal 

competition. 

 
242

Consequently, the variable cost of providing rail transportation serves only as a floor below 

which rates should not go and bears little relationship to individual rail rates. Instead, rail rates 

are based on the price and service characteristics of competing transportation modes. 

Figure 7-2: Differential pricing means that rail shippers with fewer choices pay more 

or service. 

Source: Jeremy Lasater <www.wheatfarm.com> 

With differential pricing, shippers are charged different rates for the same service based on the 

shipper’s dependence upon rail service. Differential pricing results in unequal rates and 

revenue-to-variable cost ratios for different commodities, geographical locations, and 

producers, even in similar circumstances. Consequently, with differential pricing, captive 

shippers bear a higher proportion of a railroad’s fixed and common costs than non-captive 

shippers. 

 
243

The Staggers Act relies on competition to limit rail rates, but includes rate appeal procedures to 

limit the rates railroads could charge captive shippers (who have no competitive choice). A 

shipper must meet three conditions to appeal rail rates: 

• Shippers may appeal only tariff rates. The STB has no jurisdiction over contract rates 

and rates for exempt movements.* 

• The movement must have a revenue-to-variable cost ratio that exceeds 180 percent. 

• The shipper must show that the railroad has market dominance, which is the lack of 

effective intermodal and rail-to-rail competition. 

Although differential pricing offers shippers the benefit of having viable and stable rail service, 

reaction to rail deregulation from shippers has not been all positive. Shippers feel 

responsiveness to shipper needs has been lost, rail costs have been shifted to the shipper, 

overall rail service and capacity have decreased, rates are generally increasing, and rates have 

been “unfair and inequitable” in some corridors and for some commodities. Such shippers 

often charge that railroads unreasonably raise their rates to levels that are far beyond those 

that should be charged. 

Shippers fully understand that under the Staggers Act and the differential pricing policy 

established by Congress they are required to pay higher rail rates if they have few or no 

transportation options. However, they balk at excessive rates that are well in excess of the 

regulatory threshold of STB review. Shippers have also expressed concern about the costeffectiveness of the rate appeals processes. Chapter 6 examined in detail the impact of 

competitive conditions on rail pricing. 

Recent Rail Rate Levels 

STB waybill rate data are used in Figure 7-3 to examine the real revenue per ton-mile for the 

period 1985 to 2007. STB uses the Tornqvist Index to track rail rates. The Tornqvist index 

measures the change in prices in categories and assigns a percentage weight to each category 

based on its share of total revenue. The index is essentially the weighted average of price 

changes within the various categories. Both the prices within the various categories and the 

weights assigned to each category can vary. 

 

 

*

 Some movements have enough competition to limit rail rates and are exempt from regulation. Exemption of 

particular movements or exempt commodities can be appealed before the STB, and the STB may remove the 

exemption if competition no longer adequately constrains rates. 
244

Figure 7-3: STB rail rate index 

Source: STB, Study of Railroad Rates: 1985-2007 

The downward pressure on rates identified above as a result of railroad efficiency 

improvements and competitive pricing is evident. From 1985 to 2004 the rail rate index fell 

almost continuously, with only a slight increase being noted in 2002. However, as frequently 

stated to the STB by shippers, the years since 2004 have seen rapidly increasing rates for 

shippers. Starting in 1985, rail rates dropped about 10 percent in the first two years, continued 

dropping at nearly that rate through 1992, and then declined at a slower rate during the period 

between 1992 and 2000. Over the next few years, the rates hovered in a narrow range, varying 

both positively and negatively until 2004. From 2004 to 2007, the rate index has increased 

nearly 12 percent, from 56.8 to 65.5. 

Various studies have agreed with the findings that overall rail rates decreased substantially 

from the mid-1980s to the early 2000s. The causes of the decrease included: 

 

• The rationalization of the rail network, with abandonments and creations of short line or 

regional railroads decreasing costs while maintaining much of the original traffic. 

• The ability of railroads and shippers to engage in long-term contracting as provided by 

the Staggers Act of 1980. 

• The increase in trainload shipments. 

• The shifts to larger-capacity rail cars and technology innovations. 
245

The recent STB study of railroad rates from 1985 to 2007 found that “inflation-adjusted rates” 

increased from 2005 to 2007. STB wrote: “This represents a significant change from prior years, 

given that inflation-adjusted rail rates declined in every year but one from 1985 through 2004.” 

STB further elaborated “In fact, adjusting for the purchasing power of the dollar, shippers spent 

$7.8 billion more in 2007 than they would have if the rate levels of 2004 had remained in 

place.” The STB rate study further points out that well over half the increase in rail rates 

between 2004 and 2007 could be attributed to higher fuel costs. Yet, even after consideration 

of fuel costs, railroad rates have been steadily increasing during the last few years.147 

The Government Accountability Office (GAO) has reported that the percentage of traffic in tons 

traveling at rates above a revenue-to-variable cost ratio (R/VC) of 300, which is substantially 

above the statutory level of 180, has generally increased from 1985 through 2005.148 Figure 7-4 

shows that, although the tonnage of such traffic decreased during 2003 and 2004, it increased 

again in 2005. The share of tonnage traveling at rates over 300 percent R/VC increased from 

6.1 percent in 2004 to 6.4 percent in 2005. 

Figure 7-4: Tonnage traveling at rates over 300 percent R/VC, 1985-2005 

Source: GAO analysis of STB data

Figure 7-5 shows a slight downward trend from 1988 to 1998 in the percent of grain and oilseed 

tonnage traveling above an R/VC of 300 percent. The increase in the percentage of tons 

moving at R/VC greater than 300 percent began in 1999 and peaked at 7.7 percent in 2002, 

then decreased to 2.8 percent in 2006 and to 2.4 percent in 2007. In some States, however, a 

much greater percentage of grain and oilseed tonnage moves at R/VC ratios greater than 300 

percent (Figure 7-6). These States include Iowa, Montana, and North Dakota. 

 
246

Figure 7-5: Percent of grain and oilseed tons (tariff only) moved at R/VC over 300 percent 

Source: Surface Transportation Board, Confidential Waybill Samples 

Figure 7-6: Selected States with higher percentages of grain and oilseeds moving at R/VC over 

300 percent 

Source: Surface Transportation Board, Confidential Waybill Samples 
247

As discussed in Chapter 6, the USDA analysis was limited to tariff rates, since contract rates are 

confidential and unregulated. However, several limitations in Waybill Sample data mean that 

tariff rates should be used with some caution. Volume discounts and rebates for use of nonrailroad equipment are not included in tariff rates. Fees for guaranteeing delivery of rail 

equipment on specific dates, or “certificates of transportation” payments, are not included. 

Also, in some instances contract rates can differ substantially from tariff rates, while in other 

instances there can be little if any difference between contract and tariff rates. Thus, the use of 

Waybill Sample tariff data and costs for the calculation of R/VC ratios can provide a misleading 

picture for some comparisons. Rates and R/VC ratios for movements of agricultural 

commodities can differ from State to State for numerous reasons, and can change significantly 

from year to year, as Figure 7-6 shows. While these anomalies can distort the R/VC calculations 

for some comparisons, the results presented in the rate analysis for this chapter are thought to 

be generally representative of rate trends over the period. 

In Figure 7-7, GAO reports that the railroad industry revenue reported as miscellaneous income 

during 2005 increased tenfold from 2000, rising from $141 million to over $1.7 billion. This 

revenue includes some fuel surcharges, congestion fees, and revenue derived from railcar 

auctions. These revenue streams are in addition to rate increases. 

Figure 7-7: Miscellaneous revenue in waybill sample, 2000-2005 

Source: GAO analysis of STB data
248

Agriculture Rates are Higher Than Those of Other Commodities 

In an October 2006 study, the GAO found that “although rates have declined since 1985, they 

have not done so uniformly, and rates for some commodities are significantly higher than rates 

for others.”149 (Figure 7-8). Specifically, GAO found that “grain rates declined from 1985 

through 1987, but then diverged from the other commodity trends and increased, resulting in a 

net 9 percent increase by 2004.” 150 In 2005, rates for all commodities increased by 9 percent 

over 2004 rates, the largest annual increase in twenty years. Rail rates for grain increased 8.5 

percent over 2004.151 

Figure 7-8: Rate changes for coal, grain, mixed shipments, and motor vehicles 

Source: GAO analysis of STB data

According to the AAR Freight Commodity Statistics, agricultural rates not only are higher than 

those of other commodities, but also have increased more rapidly (see Figure 7-9). For 

instance, rail rates for grain and oilseeds increased to $2,809 per carload in 2008, up 73 percent 

from 2003; rates for all other commodities increased to $1,556 per carload, up 50 percent. In 

addition, grain and oilseed rates during 2008 were 81 percent higher than those paid by all 

other commodities, compared to 50 percent higher in 1997. 
249

Figure 7-9: Average freight revenue per grains and oilseeds carload 

Source: Association of American Railroads, Freight Commodity Statistics 

Rail rates have increased rapidly since 2003 due to rail congestion and high fuel costs. Figure 7-

10 shows that fuel surcharge rates have gone down, but these changes—both up and 

down—usually lag the price of fuel by two months. 

Figure 7-10: Railroad fuel surcharges† 

†

 Weighted by each Class I railroad's proportion of grain traffic for the prior year. 

* Mileage-based fuel surcharges for March and April 2007 are estimated. Beginning January 2009, the Canadian 

Pacific fuel surcharge is computed by a monthly average of the bi-weekly fuel surcharge. 

Sources: Data collected from the websites of the Class I railroads and <www.eia.doe.gov> 
250

Although the recession has generated substantial unused rail capacity, rail tariff rates have 

increased slightly, even though fuel surcharge decreases have resulted in lower overall rail 

rates. Figure 7-11 shows that average revenues per carload of wheat have decreased from a 

high of $2,961 during the third quarter of 2008 to $2,573 during the first quarter of 2009, a 

decrease of $388. However, based upon a 2004-06 average length of haul for wheat of 968 

miles, fuel surcharges should have decreased the overall rail rate by $412 for the same period. 

Thus the average tariff rates increased $24 per carload during this period. 

Figure 7-11: Average quarterly revenue per railcar for wheat 

Source: STB, Quarterly Freight Commodity Statistics 

Grain Rates and Railcar Ownership 

An analysis of the Waybill sample shows the discount for shippers that provided their own 

railcars disappeared in 2003.152 Figure 7-12 shows that from 1987 through 1996, this discount 

was generally from 14 to 15 percent. In 1997, however, the rate differential declined to 8 

percent, by 2001, it was only 1 percent and, since 2004, grain shipped in privately-owned 

railcars has paid a rate premium ranging from 0.8 percent to 3.8 percent. Normally, this 

situation could arise in times of low demand because railroads want to reward shippers for 

moving grain in railroad-owned cars, keeping their fleet busy and decreasing the use of shipperprovided cars. This time, however, it occurred during a period of high grain car demand. 
251

Figure 7-12: Grain rates and car ownership 

Source: Surface Transportation Board 

It is important to recognize, however, that volume discounts paid later in the year, after the bill 

is paid, are not captured by the Waybill sample. In addition, privately-owned grain cars receive 

a per-diem fee for their use, which is based upon the time used and the miles traveled. This 

per-diem fee, however, may not be compensatory because it is set by the Class I railroads with 

no meaningful shipper input or negotiations. 

Coal shippers supplying their own railcars, by comparison, have paid rates 35 to 40 percent less 

than coal shippers using railroad-supplied cars since 1987. Part of the differential in rates may 

reflect the fact that railcars owned by coal shippers are used almost exclusively in shuttle train 

service between one destination and one origin; shuttle trains move at lower rates. In addition, 

coal has different shipping characteristics than grain. Privately-owned grain cars, although used 

often in shuttle service between one origin and many destinations, also move smaller 

shipments, which have higher rail rates than shuttle movements. 

 
252

Nevertheless, the loss of the rate discount on privately-owned grain cars may reflect the market 

power of railroads over grain shippers for the following reasons: 

• Grain shippers and receivers are smaller and more numerous than coal shippers, and 

the tonnage of coal moved in 2007 was 5.5 times that of grain,153 giving grain shippers 

much less market power than coal shippers. 

• Grain cars are substantially less productive than coal cars. A typical grain hopper makes 

12 to 15 round trips per year on single car movements, and up to 36 round trips per year 

for shuttle movements. A coal hopper shuttle may make 50 or more annual round trips. 

• Coal shippers often use the costly Stand Alone Cost rate appeals procedures for large 

volumes shipped between one origin and one destination. Grain shippers, due to the 

dispersion of shippers and the multitude of origin-destination pairs, cannot costeffectively use Stand Alone Cost procedures. Even after the STB modified the small-rate 

appeals procedures, no grain shipper has used the less costly rate appeals procedure 

because the benefits may not outweigh the costs. 

• Coal shippers not only own nearly all the railcars they utilize but also often own the 

entire train set, including the locomotives. 

Comparison of Rates by Shipment Size and Distance Shipped 

The STB waybill sample allows specific analysis of grains and oilseeds, which is presented in 

detail in the following section. Figures showing the rates per ton-mile for grain products, food 

products, and fertilizers may be found in Appendix 7-1: Rail Revenues for Agricultural Products. 

USDA did not have access to the unmasked confidential waybill data, which report the rail rates 

for contract movements as well as for tariff movements. Consequently, only tariff rail rates are 

analyzed in this section. In addition, samples with fewer than 30 observations are not included 

in the figures to increase the statistical reliability of the analysis. 

As discussed in other chapters of this report, shippers believe they have been called upon to 

provide railcars, assemble large movements, and incur costs that previously were borne by the 

railroads, with the effect that costs have been shifted from the rail carrier to the shipper. Also, 

the STB has noted that “grain shippers have also alleged that certain longer-haul shipments are 

charged a lower rate than shipments that move a shorter distance on the railroad.”154 For that 

reason the following analysis examines shipment size and distance of haul in nominal rates to 

learn how these shipment characteristics cause differences among commodities. 
253

Grain and Oilseeds 

The rates for grain and oilseeds reflect a significant advantage for large trainload shipments. As 

can be seen in Figure 7-13, rates for all shipment sizes have risen steadily and rapidly since 

2003. The rates for the smallest shipment size have increased 21 percent since 2003, compared 

to 25 and 23 percent, respectively, for 6–49 car and 50+ car shipments, keeping the relative 

relationships between shipment size categories about the same over the last 5 years analyzed. 

However, since 1988, the rates for the smallest shipment sizes have increased by only 13 

percent, while the rates for 6–49 car shipments and 50+ car shipments have increased by 40 

percent and 43 percent, respectively. This shows that the rates for larger sized shipments have 

increased relatively more than for smaller shipments over the entire period. 

Rates for large shipments are nearly 2.1 cents per ton-mile, contrasted to about 3.0 cents for 

smaller movements. Rates for large shipments are about 1 cent—33 percent—lower than the 

smallest shipment size. In 1988, though, large shipments were 46 percent less than small 

shipments. The discount for medium-size shipments relative to small shipments has decreased 

substantially—from 23 percent in 1988 to only 5 percent in 2007. 

 

Figure 7-13: Grain and oilseeds tariff revenue (current $s) per ton-mile by shipment size 

Source: Surface Transportation Board, Confidential Waybill Samples 

 
254

A similar situation holds for shorter movements, whose rates are consistently about double the 

rates for movements over 751 miles in length—4.6 cents versus 2.15 cents per ton-mile in 

2007. Rates for short hauls started increasing in 2000, but longer hauls didn’t see sharp 

increases until the last four years (see Figure 7-14 below). 

Figure 7-14: Grains and oilseeds revenue (current $’s) per ton-mile by shipment distance 

Source: Surface Transportation Board, Confidential Waybill Samples 

General Agricultural Rates 

This detailed examination of the grain and oilseeds commodity group shows the effect of 

distance on railroad rates. As railroads seek to increase the usage and revenue generation of 

their rolling stock, it is often in their best interest to give price/rate incentives to shippers with 

long hauls. Also, the cost disadvantages in equipment utilization make the short hauls more 

expensive for the carriers. 

 

It is widely acknowledged that railroads have used trainload or multiple car rates to encourage 

shippers to consolidate shipments, thereby increasing the efficiency of the capital stock, power, 

and labor. The analyses above demonstrate that the longer the movement, the lower the rate 

charged by the railroads. However, the analysis does not consider the costs that have been 

shifted to the shipper so they could access these rates. 

The same progression in rates identified in other studies is found in this analysis. Rates 

decreased until about 1998–2000, when they began to increase. The last four years have seen 

dramatic increases in rates for grains and oilseed. 
255

Transfer of Railroad Costs to Shippers 

Rail rates have decreased since deregulation in the early 1980’s. Inflation-adjusted rates have 

decreased by slightly over 30 percent since 1985. However, a broad and consistent increase in 

rail rates over at least the last 4 years—and for some commodities the last 7 years—indicates 

the railroads have used rates to achieve profit levels previously unseen in the industry. 

Moreover, the overall decrease in revenue per ton-mile for railroads does not reflect the actual 

impact on shippers. The logistical cost to shippers—and to the public—has increased over that 

time. 

The Christensen study defined cost-shifting as additional costs incurred by shippers as a result 

of changes in railroad operations. Examples of cost-shifting identified in that study include: 155

• A shift in railcar ownership and its associated expenses, such as maintenance and 

insurance, from railroads to shippers or other private firms. 

• Increased railcar maintenance standards being required by railroads as necessary to 

maintain service and capacity. 

• Increases in and additions to accessorial charges, such as finance charges, “no bill” 

charges, charges for faxing versus electronic transmission, higher demurrage charges, 

private car storage charges, and car cleaning charges. 

• Deterioration in railroad service, causing the increased use of shipper labor to monitor 

railroad performance or to unload railcars. 

• The use of trucking to transport goods to distant terminals to access multiple-car rates. 

• Increased highway congestion and maintenance because of the increased use of 

trucking. 

The average rate per ton-mile has decreased because all shippers—and especially grain 

shippers —are assuming greater responsibility for car supply and other functions that railroads 

have traditionally provided. Many shippers, in times of short railcar supply, use guaranteed 

rail-ordering systems, paying fees in addition to tariff rates to guarantee car delivery within a 

specified time period rather than risking a delay in receiving railcars on a first-come-first-served 

basis.156 

The attractiveness of unit and shuttle trains due to the railroad’s rate structure has caused 

shippers to invest in sidings, inventory, storage capacity, and loading facilities to access these 

more cost-effective rail services. Shippers note that, after investing in equipment to handle 50–

54-rail-car shipments, the railroads have changed some rate structures to emphasize 100–110-

car shipments, requiring further investments. 

The costs of railcar ownership have shifted from railroads to shippers, adding further to costs 

not reflected in tariff rates. Figure 7-15 below indicates the growth in overall grain hopper fleet 

capacity and in the number of cars. Both measures declined steadily until about 1992, then 
256

increased until around 1999. From 1999 to 2005, the number of covered hopper cars for grain 

again decreased to 256,648 cars. The last two years in the figure show a 9 -percent increase in 

the number of covered hopper cars dedicated to the grain fleet. 

For the entire covered hopper railcar fleet, the number of cars has increased from 377,055 in 

2004 to 411,503 in 2007, an increase of 34,448 cars. The private sector contributed 37,870 new 

cars to this increase; the number of Class I railroad cars stayed about the same, with a net 

increase of 30 cars; and smaller railroads lost 3,452 cars. 

Figure 7-15: U.S. grain hopper car fleet capacity 

Source: AAR, Rail Transportation of Grain 

The ownership and investment in railcar capacity is a critical issue. As can be seen in Table 7-1 

and Figure 7-16, private ownership has been the source, in a steady increase, of new covered 

hopper railcar capacity. In 1981, private ownership accounted for 41 percent of the total 

covered hopper cars, with the Class I railroads providing 56 percent and the smaller railroads 

contributing 3 percent of the capacity. By 2007, hopper car ownership was 68 percent private, 

27 percent Class I railroad and 5 percent smaller railroads. Another way of looking at rail car 

ownership is to see that from 1981 to 2007 privately owned cars increased from 128,394 to 

280,630, or 119 percent, as Class I railroads decreased their ownership by 36 percent. The 

costs of car ownership have been shifted to the shippers or their agents. 
257

Table 7-1: U.S. covered hopper car fleet 

Year Total Covered 

Hoppers Privately Owned Class I Owned Small Railroad Owned 

1978 246,087 

1979 268,919 

1980 299,986 

1981 311,378 128,394 173,628 9,356 

1982 306,222 130,736 166,150 9,336 

1983 303,172 129,074 164,466 9,632 

1984 302,522 131,421 159,686 11,415 

1985 299,172 131,279 155,594 12,299 

1986 291,489 129,187 149,407 12,895 

1987 285,822 127,344 144,864 13,614 

1988 284,566 117,659 154,514 12,393 

1989 292,430 130,019 150,233 12,178 

1990 296,635 135,454 148,072 13,109 

1991 292,935 137,711 142,340 12,884 

1992 295,728 144,850 140,403 10,475 

1993 302,903 148,904 142,993 11,006 

1994 311,910 152,223 148,611 11,076 

1995 325,882 164,980 148,860 12,042 

1996 350,611 183,143 151,583 15,885 

1997 365,196 194,820 150,121 20,255 

1998 382,316 208,990 151,879 21,447 

1999 401,217 227,436 150,156 23,625 

2000 408,106 241,343 141,636 25,127 

2001 390,444 245,029 122,067 23,348 

2002 385,461 245,804 113,157 26,500 

2003 378,354 241,182 110,527 26,645 

2004 377,055 242,760 110,330 23,965 

2005 382,779 249,308 111,797 21,674 

2006 395,843 262,879 112,773 20,191 

2007 411,503 280,630 110,360 20,513 

Source: AAR Railroad Equipment Report
258

Figure 7-16: U.S. covered hopper car fleet 

Source: AAR, Railroad Equipment Report 

Fuel Surcharges versus Fuel Prices 

Rates per-ton-mile decreased from the time of deregulation until around 2002. Over the last 

four years, these rates have significantly increased. Recently, railroad fuel charges have added 

to the shipper’s cost burden. These surcharges are designed to allow railroad firms to recover 

from shippers the impact on costs caused by abnormally high fuel prices. Basic fuel charges 

have always been included in rail rate determination but the recent spikes and variation in fuel 

prices caused railroads to search for ways of recapturing these costs in the near term. 

 
259

The fuel cost increases were first estimated as a percentage of tariff rates, but shippers felt any 

errors in estimation were on the side of the railroad carrier. As fuel prices and the attendant 

fuel surcharges were implemented, shippers felt that carriers were using these surcharges as 

profit centers, whether the fuel costs were going up or down. They also believed that ratebased fuel surcharges did not fairly apportion the additional cost of the fuel among shippers. 

Reports by financial analysts that railroad net income benefitted from fuel surcharges added to 

shipper concerns. Subsequent to a regulatory proceeding on rail fuel surcharges, the Surface 

Transportation Board (STB) on January 25, 2007, ruled that: 

• Computing rail fuel surcharges as a percentage of a base rate is an unreasonable 

business practice because rail rates do not accurately reflect the additional cost of fuel 

used in individual movements. STB reasoned that a rate-based fuel surcharge would 

result in shippers who pay higher rail rates also paying higher fuel surcharges. 

• The fact that a railroad may not be able to recover its increased fuel costs from some of 

its traffic does not provide a reasonable basis for shifting those costs onto other traffic. 

• Railroads are prohibited from “double dipping”—charging a fuel surcharge in addition to 

increasing rates using an index that includes fuel costs as a component. 

• Railroads operating in the United States had until April 26, 2007, to change their fuel 

surcharge programs to comply with the STB ruling. 

When examining the performance of fuel surcharges in recovering fuel cost increases, wide 

differences among fuel surcharge rates cause concern about the accuracy of surcharge 

formulas. For instance, during September 2008, when surcharges peaked, they varied among 

railroads from 46.58 cents to 87 cents per car mile, a difference of nearly 87 percent. The 

weighted average surcharge was 59 cents per car mile or $590 for a car moving 1,000 miles. 

Shippers contend that fuel surcharges should reimburse railroads for only the incremental 

increase in fuel costs and not the base, since the base fuel costs are already in the rate. The 

average fuel surcharge per grain carload during the 4th quarter of 2007 was $292.68, contrasted 

to the growth in railroad fuel costs from 2001 till 2007 of $188.54, a difference of 55 percent 

over the incremental increase in the cost of fuel (see Figure 7-17). Figure 7-18 shows that the 

percentage by which grain fuel surcharges exceed the growth in railroad fuel costs since 2004 

ranges from 55 percent to 137 percent. 

 
260

Figure 7-17: Railroad fuel surcharges for grain by quarter*

* For the 7 Class I railroads operating in the United States. Weighted average fuel surcharges per carload were 

estimated by multiplying the average length of haul for grain by the quarterly weighted average fuel surcharge per 

carload mile. Weighted average fuel surcharge per carload mile prior to 2Q '06 was estimated using mileage-based 

fuel surcharge formulas for individual railroads. 

Source: Class I Railroad quarterly filings to the Security and Exchange Commission 

 
261

Figure 7-18: Comparison of grain fuel surcharges to railroad fuel costs 

Source: AMS

Railroad Revenue Adequacy 

An evaluation of railroad rate reasonableness requires consideration of both the relative 

profitability and costs of railroads. Such an evaluation must also consider merger premiums 

and how they relate to STB revenue adequacy measures, and the revenue adequacy and 

profitability of Class I railroads over time. 

Merger Premiums and STB Revenue Adequacy 

The STB annually measures the revenue earned from the rate structure against the adequacy of 

that revenue stream to infuse capital into the industry. To determine the annual revenue 

adequacy, the carrier’s return on net investment (ROI) is compared to the rail industry’s aftertax cost of capital for that year. If ROI is greater than the cost of capital, revenue is determined 

to be adequate. 

ROI is normally determined by dividing net income from railroad operations by the depreciated 

original cost, or book value, of the railroads’ assets. This ROI is then compared with the railroad 

industry cost of capital. The STB seeks to ensure that a railroad has the capability to invest in its 

infrastructure and provide a reasonable return to its investors. 

 
262

The costs to be included in determining the critical ROI have been examined in various 

proceedings and shipper testimonies. If the depreciated book value, or original cost, is 

increased, then calculated ROI decreases and revenue adequacy is negatively affected, allowing 

railroads to charge higher rates. Shippers and shipper representatives have become concerned 

about the premiums being paid to newly formed railroads when a merger is granted. The 

ICC/STB has been consistent in allowing such premiums, usually above the current stock or 

book price prior to the merger, to be included in the depreciated cost figure. Shippers have 

argued that railroads should not be allowed to pay acquisition premiums if these costs are then 

used to decrease the railroad firm ROI, which is used for revenue adequacy determination. This 

can result in the railroads being allowed to charge higher rates than would have been possible if 

the premiums had not been paid, resulting in economic impact and harm to the shippers. 

The extent of these premiums is difficult to determine, but some information is available. As 

Tables 7-2, 7-3, and 7-4 below indicate, merger detail shows several recent significant 

premiums paid by the merging railroads. These estimated premiums range from $1.4 billion for 

the UP purchase of CNW in 1996 to $2.7 billion for the ATSF/BN merger in 1995 and $3.7 billion 

for UP’s purchase of SP in 1996. Consultants estimate that the premium paid for Conrail by NS 

and CSX was about $6.9 billion. 

Table 7-2: Merger of Atchison, Topeka & Santa Fe with Burlington Northern 

ATSF/BN Merger (implemented Sept. 22, 1995) 

Balance sheet values December 31, 1994 (million $)

ATSF BN As % of Both 

Assets 

As % of Both 

Net Equities 

Net Asset Values 5,742.40 7,088.20 

Net Equity 2,544.10 2,953.00 

Premium added to URCS* 4,393.70 

Less: Deferred Taxes 1,665.00 

Net Premium included in URCS 2,728.70 21.30% 49.60%

Source: Personal communication, Tom Crowley, L.E. Peabody & Co. 

 

 

*

 URCS stands for Uniform Rail Costing System, which is a STB accounting method. 
263

Table 7-3: Union Pacific purchase of Southern Pacific 

UP Purchase of SP (implemented 12/31/1996)

Balance sheet values December 31, 1996 (million $)

SP UP 

As % of 

SP 

Assets 

As % of 

SP Net 

Equity 

As % of 

Both 

Assets 

As % of 

Both Net 

Equities 

Net Asset Values 6,255.90 16,949.50 

Net Equity 2,247.10 5,622.70

Premium added to URCS* 4,404.10 

Less: Deferred Taxes 751.2 

Net Premium included in URCS 3,653.00 58.40% 162.60% 15.70% 46.40%

Source: Personal communication, Tom Crowley, L.E. Peabody & Co. 

Table7-4: Union Pacific Purchase of Chicago Northwestern (CNW) 

UP Purchase of CNW (implemented 4/27/1995)

Balance sheet values December 31, 1994

CNW UP 

As % of 

CNW 

Assets 

As % of 

CNW Net 

Equity 

As % 

of 

Both 

Assets 

As % of 

Both Net 

Equities 

Net Asset Values 1,848.70 10,907.80 

Net Equity 187.7 4,995.70

Premium added to URCS* 2118.4 

Less: Deferred Taxes 695.3 

Net Premium included in URCS 1,423.10 77.00% 758.20% 11.20% 27.50%

Source: Personal communication, Tom Crowley, L.E. Peabody & Co. 

Other estimates also have been generated, but the relevant point is that these premiums, if 

added to the book value of the merger, affect the ROI value used for revenue adequacy 

purposes. 

The railroad industry and the STB are the only industry and regulator that use book value for 

determining ROI and add merger premiums into the rate base. For example, the Federal Energy 

Regulatory Commission will not allow regulated entities to pass through to the customer 

acquisition or merger premiums unless the effect of the transaction has a net benefit (typically, 

a rate reduction) to the customers of the acquired entity. If it does permit the pass-through, it 

does so because the overall impact of its approval is to protect the customers, who had nothing 
264

to do with choosing to pay a premium or determining its amount, from being required to pay 

higher rates because of the premium. The net result is that this approach discourages the 

payment of large premiums because they are not likely to be permitted to be passed through to 

customers. 

The net effect of merger premiums, which increase both variable and fixed costs of the 

railroads, is that some rates that would have been above 180 percent of variable costs might no 

longer meet that criterion and would no longer be subject to STB regulation. 

A contrasting opinion on the ROI calculation is offered by the railroad industry and the AAR. 

The railroads, through the AAR, have argued that the ROI calculation should be based not on 

depreciated value but on the replacement cost of the rail assets used to provide transportation. 

This would, of course, have the effect of decreasing ROI. 

STB Measures of Rail Revenue Adequacy 

Class I railroad revenue adequacy is determined by comparing the ROI to the cost of capital. 

The STB determines the cost of capital for each year and determines which Class I railroads are 

revenue adequate. STB used a simple discounted cash flow (DCF) method to determine the 

industry’s weighted average cost of capital through 2005. After shippers requested public 

hearings to examine the methodology, STB then changed to a capital asset pricing model 

(CAPM) for the years 2006 and 2007. After another public hearing, STB decided to use a simple 

average of CAPM and a multi-stage discounted cash flow model (MSDCF) in 2008. 

Since the Staggers Act, the ROI for the railroad industry has increased from an average of 2.5 

percent during the 1970s to an average of 10 percent during 2006 and 2007. 

Based upon the CAPM methodology, Figure 7-19 shows that the Class I railroads have been 

revenue adequate during 2005 and 2006 and nearly revenue adequate for the other years since 

2002. In contrast, the Christensen study, which used return on equity, found that the Class I 

railroads could be considered revenue adequate since 2001. 

 
265

Figure 7-19: Class I railroad cost of capital and return on net investment, 1997-2007 

Source: AAR, Railroad Facts; Surface Transportation Board 

Financial Measures of Railroad Profitability 

Whether measured by commonly used financial measures or by STB-determined revenue 

adequacy standards, the profitability of the railroad industry has improved considerably since 

deregulation. The Christensen study used various measures of profitability to compare the 

railroad industry with other industries and with the Standard & Poor’s 500. Since 2004, railroad 

profitability was found to be comparable to that of most other industries.157 

The rapid increase in rail rates since 2004 contributed to the surge in railroad profitability at 

that time. The increase in rail rates is the result of aggressive pricing as rail capacity constraints 

appeared, and the over-recovery of fuel costs. The higher rail rates also reflect higher rail costs 

since 2004 (Figure 7-20). 

Railroad financial measures of profitability increased at a moderate rate through 2004, and 

then surged from 2005 through 2007. Net profit, earnings before interest and taxes (EBIT), and 

earnings before interest, taxes, depreciation, and amortization (EBITDA) are commonly used 

financial measures of profitability. Net profit, EBIT, and EBITDA changed 2, -5, and 5 percent, 

respectively, over the 6-year period from 1998 to 2004. Over the 3-year period from 2004 to 

2007, net profit, EBIT, and EBITDA increased 137, 119, and 81 percent, respectively. 
266

Figure 7-20: Class I railroad profitability, 1998-2007 

Source: AAR, Analysis of Class I Railroads 

Factors Affecting Railroad Industry Costs 

Several factors affecting railroad costs are often overlooked when analyzing those costs. 

Railroad management decisions affect some of these factors, which include merger premiums, 

size of operation, traffic density, amount invested in capacity, and successful integration of 

operations during mergers. Other factors, such as unusually high fuel costs and extreme 

weather events, are factors that railroad management are unable to control. 

As discussed in an earlier section, merger premiums can add substantially to the average fixed 

and variable costs*

 of the new railroad firm. The effects of these mergers—including increased 

costs due to merger implementation difficulties—are visible in Figure 7-21, showing average 

railroad industry costs. Variable costs for the railroad industry increased from 1997 through 

2000 and fixed costs increased from 1995 through 1997. 

 

 

*

 Merger premiums add to variable costs when the premiums are paid on assets included in the calculation of 

variable costs. 
267

Variable and total costs for the merged railroads increased after each of these major rail 

mergers or acquisitions: 

• The merger of the Atcheson, Topeka, & Santa Fe with the Burlington Northern 

(September 1995) 

• The Union Pacific with the Southern Pacific (implemented December 1996) 

• The split of Conrail between CSXT and Norfolk Southern (June 1999) 

In each of these mergers the railroads had difficulties merging operating systems and lines, 

resulting in congestion that drove up average total and variable costs for the merging railroads. 

Figure 7-21: Railroad industry average cost, variable cost, and fixed cost in dollars per tonmile (adjusted for inflation in 2000 dollars)158

Source: Laurits Christensen Associates 

A recent study of railroad cost curves concluded that four of the Class I railroads—BNSF, CSXT, 

NS, and UP—may have surpassed the optimal size of operation and may be experiencing 

diseconomies of scale.159 This means that the average costs for those railroads are higher than 

they would be if the firms were smaller. Based upon 2005 data, the optimal size of a railroad 

was estimated to be slightly less than 21,000 route miles. BNSF and UP operate more than 

32,000 route miles, while CSXT and NS operate more than 21,000 route miles. The three 

smaller Class I railroads, Kansas City Southern, Canadian National, and Canadian Pacific, all 

appear to be operating with constant or increasing returns to scale. 

$0.000

$0.005

$0.010

$0.015

$0.020

$0.025

$0.030

$0.035

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

ATC AVC AFC
268

Excess traffic density on the railroad also affects railroad average costs by slowing train speeds 

and increasing terminal dwell times. The slower train speeds and reduced terminal efficiency 

further reduce the effective capacity of the railroad, compounding the problem. When a 

railroad has excess capacity, fixed costs are higher than necessary. As railroads near capacity 

and capacity constraints appear, variable costs increase. The effects of railroad capacity 

constraints—beginning in 2005—are also visible in the above figure, which shows average 

railroad industry costs. 

Another factor affecting average railroad fixed and variable costs is the amount the railroad 

industry invests in rail capacity. From 2004 through 2006, the railroad industry invested heavily 

in capacity, which is shown in the average cost data in Figure 7-22 as increased fixed costs for 

the industry after 2004. As capacity bottlenecks are removed, however, variable costs should 

be reduced by these investments. 

Unusually high fuel costs occurred from 2004, peaking in September of 2008. Fuel is a major 

component of railroad costs, so high fuel costs result in increased operating costs. This can be 

seen in the figure above, where high fuel costs and capacity constraints resulted in rapidly 

increasing variable costs in 2005 and 2006. 

Extreme weather events can also increase railroad industry costs by adding the costs of repair 

and rerouting traffic. For instance, Hurricanes Katrina and Rita resulted in substantial damage 

to the rail network in Louisiana and Mississippi. Damages to the CSX coastal line, which had the 

most damage, required nearly $250 million to repair. Likewise, a massive mudslide on the UP 

line between Klamath Falls and Eugene, OR, swept track, ties, and ballast halfway down the 

mountain and buried over 3,000 feet of mainline track in 20 feet of mud, snow, and downed 

trees. 

Railroad Industry Revenue Compared to Marginal Costs 

Railroad industry revenue per ton-mile decreased slowly through 1996, rose slowly through 

2004, and then increased rapidly in 2005 and 2006. Marginal costs (i.e., the addition to total 

cost attributable to the addition of one ton-mile) rapidly increased in 2005 and 2006, probably 

due to rail congestion as capacity constraints in the rail network and higher fuel costs drove 

marginal costs up (see Figure 7-22). Average revenue increased more rapidly than marginal 

costs in 2005 and 2006, indicating aggressive pricing due to capacity constraints and over 

recovery of fuel costs. 

 
269

Figure 7-22: Railroad industry average revenue and marginal costs 

Source: Laurits Christensen Associates 

Bottleneck Rates and Rules 

When the railroad industry was deregulated by the Staggers Rail Act it was expected that 

competitive markets would serve as the effective alternative to rate and route regulations. The 

rate structure was to generate enough return so railroads could improve and invest in 

infrastructure, thereby providing capacity to meet the demands of shippers. Expectations that 

some captive shippers would exist were inherent in that regulatory change. The regulatory 

power of the ICC/STB was designed to examine and evaluate such rates under a fairness 

criterion, having jurisdiction only on those rates having an R/VC ratio above 180 percent. 

Railroads prefer long hauls that generate high traffic densities because they increase revenue. 

The effort to increase long hauls on their own lines has generated one of the more 

controversial rate issues—bottleneck rates. 

Bottleneck rates, in contrast to physical bottlenecks that result in congestion and delays, occur 

because of an STB ruling that restricts the ability of a shipper or receiver served by only one 

railroad to use that rail line serving its plant or warehouse to reach competitive services offered 

by other railroads.160 The GAO states, “Some shippers have more than one railroad serving 

them at their origin and/or destination points, but have at least one portion of a rail movement 

for which no alternative rail route is available.”161 This portion is referred to as the “bottleneck 

segment” and the rate for the bottleneck portion is referred to as the “bottleneck rate.” 

$0.000

$0.005

$0.010

$0.015

$0.020

$0.025

$0.030

$0.035

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

RPTM MC
270

The STB interpreted the statute and case law as not requiring railroads to quote bottleneck 

rates except where the non-bottleneck railroad has provided the shipper a contract for its 

portion of the movement. Since the legality of bottleneck practices has been upheld by the 

courts, the STB has consistently ruled that a railroad cannot be compelled to participate in a 

routing that runs contrary to its long-haul preference unless the shipper first obtains a contract 

over the alternative route from the non-bottleneck railroad. Nelson points out that the STB’s 

interpretation makes no mention of various provisions that explicitly permit the STB to shorten 

a carrier’s length of haul to promote efficiency or if it is in the public interest to do so.162 

Shippers seldom attempt to utilize competitive access procedures to mitigate routing 

inefficiencies resulting from the bottleneck rule, and have not been successful when they do. 

This rule has grown more important as rail carriers have increased their length of haul, used 

mergers and abandonments to decrease the number of competitive railroads, and as rail traffic 

has increased.163 Bottlenecks result in the loss of competition, hence an increase in rates and 

decrease in service. Economic efficiency also may be decreased because longer routes may be 

used and more fuel consumed. 

Since the 1996 bottleneck decision, discussion has focused on differential pricing, protection for 

captive shippers, and the financial health of the railroads.164 Nelson further found that “the 

bottleneck rule fosters conduct that is supportive of the perceived short-term economic selfinterests of individual railroads, but is inconsistent with economic efficiency and the public 

interest. The conduct is detrimental to captive and competitive shippers as well as to the 

longer-term interests of railroads.” An estimated efficiency loss of at least $1.3 billion is 

suggested in that study, with an extra consumption of over 103 million gallons of fuel per year, 

along with the associated carbon emissions, and the impacts on environmental, national energy 

policy, and security issues. 

Most of the examinations of the effects of these rates have dealt with coal, but agricultural 

traffic also is affected. Coal movements from the Powder River Basin were examined by Nelson 

to show the effects of bottleneck constraints on efficiency, shipper transportation bills, and 

market share.165 Other estimates note that Dairyland Electric cooperative experienced a 13 

percent shortfall of scheduled shipments and a rate increase of 23 percent the following year, 

resulting in a $3 million annual increase in costs for one shipper.166 

 
271

Agricultural grain shippers note that the bottleneck rule affects competition and creates 

inefficiencies in these cases: 

• BNSF, UP, and KCS all have routes leading to Mexico. BNSF and UP will not allow cars to 

be switched to the KCS at Kansas City, even though KCS’s rates from Kansas City are 

competitive. 

• No switch-offs are allowed between BNSF and UP for grain going to the West Coast. 

• Short line railroads are kept from serving customers who have expressed interest in 

being served. 

• Some shippers have indicated that quoted rates are so high they force traffic back onto 

the road. 

• Also, because coal movements are not allowed efficient routing, captive grain shippers 

also will be denied the efficient routing that would reduce transport costs. 

Relief from this monopoly power would occur if a rule was instituted requiring a railroad to 

establish a rate providing service between any two points on the railroad’s system where traffic 

originates, terminates, or can be interchanged. Such a rule would give shippers access to a 

second railroad, even if a single railroad was the only railroad at its origin and/or destination 

points. Such competition could lead to greater efficiencies and lower rates. 

The AAR maintains that forcing rates on bottleneck segments would cause the total rate for 

through movements to be below the costs of operation on that movement. This could, 

according to the AAR, lead to a net revenue loss of several billion dollars a year. 

Conclusions 

Captive shippers have carried a large part of railroad fixed and common costs since railroads 

were deregulated, and expected their rates to drop as railroads gained economically stability, 

but that has not happened. Because individual farmers cannot raise the prices of their 

commodities to reflect rising costs, any increase in costs reduces their profit. High rail rates 

damage the economic health of the farming sector and rural communities, and also make it 

more difficult for America to compete in export markets. 

Not only are rail rates for agricultural products higher than those for other commodities, but 

the rates have increased more rapidly from 2004 to 2007. 

Railroad rate structures favor large movements. There is a significant rate advantage for the 

largest trainload shipments of grain and oilseeds. Rates are 30 percent lower for shipments of 

more than 50 cars. Rates for long hauls have a similar structure; movements less than 500 

miles are about twice the rates for movements over 751 miles. 
272

Shippers bear increasing responsibility for car supply and other functions historically provided 

by the railroads. Car ownership by Class I railroads has decreased from 56 percent in 1981 to 

27 percent in 2007. 

Rail rates have increased rapidly since 2004 resulting in a surge of railroad profitability. The 

increase reflects not only increased rail costs, but aggressive pricing and over-recovery of fuel 

costs. Fuel surcharges seemingly should reimburse railroads for the increase in fuel costs, not 

be sources of additional revenue. Fuel surcharges per grain carload in 2007 were 55 percent 

higher than the incremental increase in the cost of fuel. 

Billions of dollars in premiums paid as part of mergers are included in the determination of 

railroad revenue adequacy, resulting in higher rail rates for shippers than otherwise would be 

the case. 

Bottleneck rates place an artificial limit on options open to shippers, increasing the number of 

captive shippers and increasing railroads’ monopoly power. Economic efficiency is sacrificed, 

shipper costs are increased and fuel consumption is increased under bottleneck situations. 

Mandating that rates for bottleneck segments be provided and subjecting them to appeal 

would make the market more competitive. 

However, despite the cost increases and shifting of costs to shippers, the rail share of grain and 

oilseed exports has risen over the last 2 decades. 

 
273

Appendix 7-1: Rail Revenues for Agricultural Products 

Figure 7-23: Grain products revenue (current $) per ton-mile by shipment size 

Source: Surface Transportation Board, Confidential Waybill Samples 

Figure 7-24: Grain products revenue (current $) per ton-mile by shipment distance 

Source: Surface Transportation Board, Confidential Waybill Samples 
274

Figure 7-25: Food products revenue (current $) per ton-mile by shipment size 

Source: Surface Transportation Board, Confidential Waybill Samples 

Figure 7-26: Food products revenue (current $) per ton-mile by shipment distance 

Source: Surface Transportation Board, Confidential Waybill Samples 
275

Figure 7-27: Fertilizer revenue (current $) per ton-mile by shipment size 

Source: Surface Transportation Board, Confidential Waybill Samples 

Figure 7-28: Fertilizer revenue (current $) per ton-mile by shipment distance 

Source: Surface Transportation Board, Confidential Waybill Samples 

 
276

 
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. 
300

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
302

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. 
303

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
Chapter 9

Rail Capacity
305

Chapter 9: Rail Capacity 

Moving many agricultural products to market in an efficient and cost-effective manner requires 

adequate rail capacity. Rail capacity constraints can force traffic from rail to barge or truck. 

When traffic is forced to trucks, it usually results in increased transportation costs and 

increased damage to the highway system. Because agricultural shippers are price-takers, who 

receive a price for their commodity net of transportation costs, increased transportation costs 

come directly out of producer incomes. Increased damage to the local and state highway 

systems is paid for by taxes, which comes from local residents, many of whom are agricultural 

producers. 

Agricultural shippers and consumers have been concerned about the capacity of railroads to 

serve their needs for several years. Forecasts of demand for rail transportation for growing 

fields such as energy and intermodal transportation predict increasing demand. Some studies, 

such as one by Cambridge Systematics, indicate that railroads currently have few constraints in 

infrastructure capacity.181 The same study found capacity will be constrained in the future 

unless investments are made in infrastructure. The recession, however, has delayed the effect 

of such constraints as much as 5 years.182 A March 2009 report by Christensen Associates 

states that, although projections by individual researchers and agencies vary, the overall growth 

of traffic is widely accepted and only the magnitude of growth is in question.183 The magnitude 

may be largely determined by railroad pricing policies, which can either encourage or 

discourage traffic growth. 

Rail capacity requirements must be examined in light of the characteristics of agricultural 

movements rather than aggregate models and investment strategies. The production and 

marketing characteristics of agricultural products create special needs and different criteria to 

evaluate capacity. Testimony and shipper complaints emphasize the seasonal needs of 

agriculture, the density of those movements in specific corridors, and the perishable nature of 

the products being moved. 

Determining rail capacity is not simple; it reflects the complexity of the issue. Capacity depends 

on the availability and productivity of trackage, power units, the size of the railcar fleet by type 

of railcar, terminal capacity, intermodal facilities, engineers and crew, and more. It is not 

enough to evaluate capacity at the aggregate rail corridor level, which has been done in various 

studies. The needs of agriculture and the regional variation of agricultural production, and 

often nodes of congestion on the rail line, require attention to specific components in the 

capacity framework. Building capacity for peak movements is expensive and could be 

inefficient. Any excess capacity during some times of the year has to be balanced against the 

value of peak service needs. 

 
306

Investing in the system to provide capacity occurs in various ways. The Christenson study 

identified three components needed to achieve necessary rail capacity: 

• Investment in technology to improve the productivity and efficiency of the current 

infrastructure 

• Repairs, maintenance, and replacement of current infrastructure 

• Investment in new infrastructure184 

 

The first two components are examined in this chapter to determine the performance of the 

rail system relative to the needs of agriculture. The chapter pays attention to miles of track, 

average train speed, train and car type, terminal dwell times, and railcar fleet availability, now 

and in the future. The third component, investment, will be discussed in Chapter 10: Rail 

Investment. 

Demand and Transportation Capacity 

The growth in rail tonnage, except for 2007, closely follows the growth of production—real 

(inflation adjusted) gross domestic product (GDP)—in the United States (Figure 9-1). This trend 

is consistent with various estimates of expected growth in the overall demand for 

transportation services, as is discussed in other sections of this report. During 2007, however, 

due to high fuel prices and roadway congestion, freight traffic would have been expected to 

shift from truck to rail. Consequently, rail traffic should have increased rather than decreased 

as shown in Figure 9-1. 

Figure 9-1: Change in rail tonnage and real gross domestic product, 2000 to 2007 

Source: Norbridge, Inc. analysis of BEA data 

Rail Tonnage Change vs. Real GDP Change 

2000 = 1
307

In January 2009, Norbridge, Inc. examined the inhibitors to rail carload and intermodal share 

growth.185 The Norbridge study found that other factors besides rail capacity constrain the 

movement of traffic from highway to rail: a lack of service and high rail prices. Lack of service 

and high rail prices are issues that can be associated with both rail capacity and railroad market 

power. For example, railroads are moving 20-25 percent less traffic in 2009, but tariff rates 

have remained high. 

The following two figures are estimates used in a Federal Highway Administration study of 

interstate highway capacity and rail capacity. By 2010, interstate highway capacity is expected 

to be constrained in areas with dense population and commercial activity, denoted by the red 

lines in Figure 9-2. Much of the highway system in the Western U.S. is still under capacity, even 

projected to 2010. As highways reach capacity constraints, increased pressure may result in 

shipments moving to railroads, at least to some degree. 

Figure 9-2: Estimated interstate capacity to 2010 

Source: FHA, National Rail Freight Infrastructure Capacity and Investment Study; Texas Transportation Institute 

Interstate Capacity Issues 

(estimated 2010) 
308

Figure 9-3 depicts rail capacity in the year 2007. Few sections of the rail network were above 

aggregate capacity at that time. The brown lines indicate rail lines in the United States where 

traffic is at capacity; the yellow lines are lines approaching capacity. Only in extreme rural or 

agricultural areas was there much track that was below capacity (green lines). Again, this 

evaluation is based on annual aggregate volumes, not peak or seasonal movements or 

congestion nodes. 

Figure 9-3: Rail capacity in 2007 

Source: FHA, National Rail Freight Infrastructure Capacity and Investment Study; Texas Transportation Institute 

Rail Capacity Issues 

(2007) 
309

Agricultural Demand and System Usage 

The overall rail system may be unconstrained in the aggregate, but agriculture cares about 

constraints to specific corridors. The ratio of annual tonnage of agricultural commodities to 

total rail flows on all major corridors in the United States for 2006 is shown in Figure 9-4. 

Agricultural commodities are by far the majority of the movements in some sections of the 

nation, such as on many Midwestern secondary rail lines and several primary rail corridors. The 

long distance movements of agricultural products from the Midwest production areas to the 

Pacific Northwest and to Los Angeles/Long Beach, CA, dominate the movement on the northern 

BNSF rail line and its line from Chicago through the Southwest. Agricultural products also 

dominate traffic on the BNSF and UP rail lines from Chicago and Kansas City to the Houston 

region. The heavy total shipments out of Wyoming to the Midwest locations near or on the 

Mississippi are due to the volume of coal shipments for energy and power plants. 

Figure 9-4: Rail commodity flow map of total vs. agricultural component 

Source: U.S. Department of Transportation, Waybill Sample 
310

Factors Influencing Rail Performance 

These factors influence train speeds and terminal dwell times: 

• Changes in demand for rail transportation leading to rail line congestion 

• Rail merger integration resulting in operational difficulties and congestion 

• The availability of train-crew personnel 

• Extreme weather 

As train speed increases and terminal dwell times decrease, rail capacity increases. Although 

general inferences are possible, comparisons between years and railroads must be made with 

care given changing data definitions and individual operating characteristics of the railroads. 

Demand-Based Rail Congestion 

Excess demand for rail transportation often results in congestion on rail lines and in switching 

yards. Because rail capacity cannot be expanded rapidly, congestion on the rail lines and at 

switching terminals slows trains. As rail lines and switching yards become congested, their 

capacity is lower than when the lines are fluid, in much the same way that traffic backs up on a 

busy highway due to crowding. Access to rail lines and switching yards, however, is more 

tightly controlled than access to the highway; rail traffic controllers keep trains a specified 

distance apart and control entry to the rail network. 

Relative efficiency decreases and marginal costs could increase rapidly as portions of the rail 

network approach capacity. For instance, train speeds slowed in 2006 as demand increased in 

response to a robust economy (see discussion below). Since then, the demand for rail 

transportation has slowed, particularly during the last half of 2008 and early 2009, and train 

speeds have increased. This reduction in demand eliminated the congestion that slowed 

service from 2003 through 2006. 

Rail Mergers 

Although reporting on train speeds and terminal dwell times did not begin until 1999, nearly all 

major rail mergers since 1990 have resulted in operational difficulties that have slowed train 

speeds and increased terminal dwell times for the merging railroads, and sometimes for the 

entire railroad network. For example, the western rail crisis of 1997–98, which occurred as a 

result of the September 1996 merger of Union Pacific (UP) and Southern Pacific railroads, 

involved a severe railroad operational meltdown. Operational difficulties stemming from the 

merger slowed rail service on UP and other railroads over the entire West. Many UP lines—

particularly in the Houston region—came to a near-standstill for months. Another example is 

the merger difficulties that occurred subsequent to the June 1, 1999, division of Conrail 

between CSX Transportation (CSXT) and Norfolk Southern (NS). These operational problems 

lasted about a year. The merger of the Burlington Northern and the Atchison, Topeka, and 

Santa Fe railroads in 1996 also resulted in integration difficulties. 
311

Availability of Train Crews 

The lack of train crew members also results in congestion and slower train speeds. Due to 

changes in Federal law in 2003 allowing railroad employees to retire 2 years early, at age 60, 

the number of retiring train crews increased substantially—just prior to the 2004 economic 

recovery. During late 2003 and 2004, UP, CSXT, and Canadian Pacific Railways (CP) experienced 

more line congestion and service issues due to early retirement than the other major railroads 

because they did not begin hiring replacement crews as soon as the other railroads; they did 

not anticipate the increased rail demand stimulated by the 2004 economic expansion. 

Newly hired train crews require approximately 6 months of training before they are qualified as 

conductors and another 6 months of training before they can operate trains as engineers. 

Because there were too few crew personnel, trains occupied sidings awaiting crew. This slowed 

train speeds because sidings are used to allow moving trains to wait while a train traveling in 

the opposite direction passes. Filling the sidings with trains awaiting crews meant that there 

were fewer sidings available to accommodate passing trains. 

Weather Events 

Extreme weather events affect train speeds and congestion. One of the best examples was the 

aftermath of Hurricanes Katrina and Rita from September 2005 through March 2006. After the 

hurricane, rail lines, bridges, and yards in the New Orleans region had to be repaired or 

replaced. In addition, there was a spike in demand for rail transportation of bulk commodities 

because navigation on the lower Mississippi River was halted for a month. Other weather 

events affecting short-term railroad performance and capacity include floods, mudslides, 

buckling of rail due to excessive heat, and blizzards. 

Train Speed 

Rail capacity constraints were common from 2003 through the first half of 2006. Weaker 

demand for rail freight transportation beginning in late 2006 and a recession beginning in 

December 2007 resulted in adequate capacity for agricultural products during the harvest of 

2006, and from 2007 through the first half of 2009.186 However, capacity constraints are 

expected to occur again when the economy recovers. The following data on train speeds and 

terminal dwell times shows the effects of these capacity constraints. 
312

Train Speeds 1999-2003 

An evaluation of rail capacity includes consideration of the effective utilization of tracks and 

rolling stock by the speed of the trains. Faster trains mean more output per dollar spent in 

rolling stock, less congestion, and more rail capacity to handle the demand. The following 

series of graphs from the AAR Rail Performance Measures reveals the various dimensions of 

performance in realized train speed.187 

Train speed rose consistently for every single year except 2003, especially from the low 

performance in 1999 where the average train speed never reached 19 miles per hour (Figure 9-

5). Average speeds reached almost 23 miles per hour for several months in 2002, and over 22 

miles per hour in late 2001, both of which are almost 30 percent faster than 1999 speeds. Note 

the seasonal variation each year. 

Figure 9-5: Average train speed, all trains, 1999–2003 

Source: AAR 

 
313

The average speed of grain trains during the same period is significantly lower than that of all 

trains, but with the same improvement over time (Figure 9-6). Grain trains were moving at 

speeds sometimes below 16 miles per hour in 1999 but improved to as much as 20 miles per 

hour in 2002. Again, there was a consistent improvement in speed from year to year except 

2003, when rail capacity constraints first became apparent. 

Figure 9-6: Average train speed for grains, 1999-2003 

Source: AAR 
314

Train Speeds 2004-2008 

For the last five years, train speeds have been more stable, both within the year and from year 

to year. Although it may appear that the economies of current technology and logistics have 

been exhausted, gains in train speeds and rail capacity are expected due to positive train 

control and electronically-controlled pneumatic braking technologies. The average speed of all 

trains, with the exception of the last five months in 2008, shows a decrease since 2004 due to 

demand-based rail congestion—particularly during the harvest months of 2005—and early 

railroad retirements (Figure 9-7). Train speeds averaged about 20 miles per hour. 

Figure 9-7: Average train speed (all trains) from 2004-2008 

Source: AAR 

 
315

The performance of grain trains was similar to that of other trains from 2004 to 2008 (Figure 9-

8). Improvement is seen in 2008, almost all year. The earlier years were stable, consistently 

around 18 miles per hour, again slightly less than other trains. Rail traffic declined during 2008. 

Combined with prior investments in new rail capacity, this eliminated congestion on the rail 

network, resulting in faster trains. 

Figure 9-8: Average train speed for grains, 2004-2008 

Source: AAR 
316

BNSF and UP Train Speeds 

The two railroads that move the most grain—BNSF and UP—are examined below. Train speeds 

on BNSF over the past five years have been significantly better than that of the overall rail 

industry. BNSF trains averaged about 24 to 25 miles per hour, compared to 20 to 23 miles per 

hour for the rail industry, 10 to 20 percent faster (Figure 9-9). This higher speed probably 

reflects earlier investments in rail capacity as well as the increased use of unit trains and the 

longer hauls on this line. It is interesting that 2003 was the year of the best train speed 

performance, followed by 2008. Even though capacity constraints began to appear in 2003 for 

the railroad industry as a whole, BNSF benefitted from prior investments in “excess” rail 

capacity. BNSF train speeds during the last quarter of 2008 were even faster than those during 

the last quarters of 2003 and 2007, both good years for BNSF. 

Figure 9-9: Average BNSF Railway train speed (all trains), 2003-2008 

Source: AAR 

 
317

Figure 9-10 shows grain trains on BNSF had the highest speeds in 2008, followed by 2007. 

Demand-driven rail congestion was particularly bad in 2004 and continued through much of 

2006. The effects of Hurricanes Katrina and Rita in 2005 can be seen in October through 

December of 2005 and early 2006. Winter storms during February 2006 caused a sharp drop in 

train speeds. Demand-driven congestion due to abnormally high wheat and sorghum exports 

combined with fertilizer imports drove grain train speeds down from July to October 2007. 

Grain train speeds have been abnormally high since September 2008 due to the drop in 

demand for rail transportation, which reduced congestion. 

Figure 9-10: Average BNSF Railway train speed for grain, 2003-2008 

Source: AAR 

 
318

The Union Pacific’s fastest year was 2003, but speeds since the last half of 2008 have surpassed 

prior levels (Figure 9-11). The speeds in 2008 have shown dramatic improvements over the 

years from 2004 to 2007, increasing from an average of 21 miles per hour from May 2004 to 

August 2007 to nearly 24 miles per hour in 2008, with a high of 26 in December. The steady 

deterioration of train speeds during 2003, which continued through 2005, were due to crew 

shortages combined with increased demand for rail transportation during 2004 through 2005. 

Figure 9-11: Average Union Pacific train speed (all trains), 2003-2008 

Source: AAR 

 
319

Grain train speed on UP varied more by year and within the year than the speed of other UP 

trains; 2003 was the best year until 2008 (Figure 9-12). UP’s grain train speed, however, is still 

about 2 miles per hour, or 10 percent, slower than BNSF grain trains. The effects of Hurricanes 

Katrina and Rita can be seen during the last quarter of 2005. Demand-driven rail congestion 

continued through most of 2006 resulting in slow grain trains. Speeds began to recover during 

late 2007 and continued throughout 2008. By the end of 2008, train speeds on UP exceeded 

prior levels as decreased demand reduced congestion and investments were made in rail 

capacity during that time. Note the demand-driven seasonal decrease in train speeds during 

the last quarters of 2003 and 2004. 

Figure 9-12: Average Union Pacific train speed for grains, 2003-2008 

Source: AAR

Overall, it is evident that the railroads have been successful in improving the speed of their 

trains, for all trains as well as for grain movements. The improvement from year to year is not 

as evident within the past five years, though 2008 did offer some improvements. This suggests 

that past speed improvements may not be sustainable unless positive train control and 

electronically-controlled pneumatic brake technologies fulfill their potential. 
320

Dwell Times in Terminals 

When cars and power units are not moving, they are not available to provide service and 

capacity to shippers. The length of time that cars spend in switching terminals is an indicator of 

lost capacity if the dwell time is more than that necessary to switch the car to the proper train. 

Dwell time is an indication of efficiency within the terminal and it discloses problems, such as 

terminal congestion, that are affecting the efficiency and performance of the railroad. Terminal 

dwell time, though, does not pinpoint the cause of any such inefficiency. The AAR Railroad 

Performance Measures (RPM) information utilized for train speeds also tracks and reports the 

terminal dwell times for the industry and individual railroads. The series of graphs below 

provide a review of that performance. 

Railroad Industry Terminal Dwell Times 

The first two graphs below examine the dwell times for two time periods. From 2001 to 2004, 

dwell times steadily increased, which causes the capacity of the rail system to decline (Figure 9-

13). The subsequent period sees a steady improvement in terminal dwell times, with 2008 

having the lowest average dwell times (Figure 9-14). The years 2003, 2004, and parts of 2005 

saw higher average dwell times, especially for BNSF and UP.188 The causes of the overall and 

seasonal variation in dwell times will be discussed later in this section. 

Figure 9-13: Average train dwell times, 2001-2004 

Source: AAR

 
321

Figure 9-14: Average train dwell times, 2005-2008 

Source: AAR

BNSF Terminal Dwell Times 

The average dwell times for individual railroads are shown in the figures below. BNSF changed 

its method of calculating terminal dwell time from January 2005 through July 2005, resulting in 

reported dwell times in early 2005 that are not comparable to the rest of its reported data 

(Figure 9-15). It averages 24 hours of terminal dwell time in recent years, with a steady 

performance for the past four years. As with the overall industry, 2003 and 2004 saw high 

dwell times, possibly due to demand-driven traffic increases or the effects of early railroad 

retirement. Note that the dwell times increase at the end of each year, when substantial 

amounts of grain and Christmas merchandise demand is being shipped. 

 
322

Figure 9-15: Average train dwell times for BNSF Railway, 2003-2008 

Source: AAR

UP Terminal Dwell Times 

UP has a similar performance over the years but spends more overall time in terminals than 

does BNSF, recently averaging 24 to 25 hours, but with more seasonal variation (Figure 9-16). 

Again, higher dwell times during 2003–04 appear related to early retirements and increased 

demand, resulting in increased time railcars spend in the switching yard. UP also shows a 

consistent increase in terminal dwell times at the end of each year, when demand increases. 

Figure 9-16: Average train dwell times for Union Pacific, 2003-2008 

Source: AAR
323

Terminal Dwell Times for NS, CSX, and CN 

Data for the three eastern railroads are presented in the following graphs. The dwell time for 

NS and CSX both average 22 to 23 hours in the terminal in recent years (Figures 9-17 and 9-18). 

CSX has shown the greatest improvement in terminal dwell times over the years, although both 

railroads have improved, especially in recent years. 2003 and 2004 were less efficient, though 

to a lesser degree than the western railroads. Railroad retirements, and possibly increased rail 

demand, may have resulted in the higher terminal dwell times during those years. Both 

railroads show marked increases in dwell time during the high demand Christmas season. 

Figure 9-17: Average train dwell times for Norfolk Southern, 2003-2008 

Source: AAR

 
324

Figure 9-18: Average train dwell times for CSX, 2003-2008 

Source: AAR

 
325

CN has had the most consistent performance of all the railroads. Its terminal dwell time is 

currently about 12 hours, significantly below the other railroads, and it has been at almost this 

level throughout the entire six-year period, with the exception of 4 months during 2004 (Figure 

9-19). The sharp increase in terminal dwell time in April 2003 may be due to a rail strike. The 

increase in 2004 could be due to either increased demand or a short period awaiting 

replacement train crews to be trained. 

Figure 9-19: Average train dwell times for CN, 2003-2008 

Source: AAR

Miles of Track 

One of the primary influences on overall capacity is the amount of track available to the 

railroad system. The Christensen study used the R-1 annual reports of the Class I railroads to 

examine capacity at the aggregate level. Selected tables and graphs from this study are shown 

below.189 Note that these are only aggregate indicators and the geographical dispersion, 

seasonal availability, or functional use (switching or line haul, for example) of the tracks is not 

examined here. These latter characteristics determine the amount of rail capacity actually 

available for agricultural shipments, not just aggregate miles. However, the total miles are still 

indicators of capacity over the system. 

Total miles of Class I railroad track decreased rather dramatically and steadily from 1987 to 

about 1998 and has remained steady at about 200,000 miles since then (Figure 9-20). The 

miles of main-line track decreased until 1993 and have remained steady, at slightly more than 

140,000 miles, since then. 
326

Figure 9-20: Miles of track of Class I Railroads, 1987-2006 

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

260,000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Total Main

Source: Laurits R. Christensen Associates, Inc. 

The percentage of track miles owned by Class I railroads decreases through 1999, then 

increases due to the purchase of several regional railroads by Class I railroads (Figure 9-21). By 

the end of 2007, short line and regional railroads operated nearly 46,000 main line miles of 

track, a little more than 30 percent of the U.S. railroad network. Short line and regional 

railroads often provide rail service to rural shippers on lines that otherwise would have been 

abandoned. 

Figure 9-21: Percent of track miles owned and operated by Class I Railroads, 1987-2006 

Source: Laurits R. Christensen Associates, Inc. 

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

% Operated % Owned
327

The ton-miles handled by the railroads have increased from 919 billion in 1980 to 1,771 billion 

in 2007, a rise of 93 percent. During this same period, the route miles operated have decreased 

from 197,804 miles in 1980 to only 140,695 miles in 2007.190 Each route mile during 2007 

carried an average of 171 percent more ton-miles—nearly triple the traffic—than in 1980. This 

shows an increased usage of rail lines, which has benefited the railroads financially, but has also 

contributed to rail congestion. 

Analysis of Rail Equipment Statistics 

Rail capacity is also a function of the number of railcars and locomotives available to shippers. 

This section discusses the ownership of railcars and looks at freight car acquisitions, the railcar 

fleet, and locomotives. 

Percentage of Privately-Owned Railcars 

Railroads are relying more and more on privately-owned cars to provide the capacity to handle 

shipper demand, shifting the investment burden from carriers to shippers. The total share of 

privately-owned cars on line for these Class I railroads has steadily increased every year from 

48.4 percent in 1999 to 52.7 percent in 2007 (Table 9-1). The major railroads—BNSF, CSX, KCS, 

and UP—rely on privately-owned cars for over 50 percent of their traffic: 56.8, 54.4, 56.4 and 

58 percent, respectively. The number of system-owned cars on line has decreased 

proportionally. 

Table 9-1: Percent of privately owned railcars on line, 1999–2007 

Year BNSF CN CP CSX KCS NS UP Total 

1999 51.1% 38.1% 36.2% 48.4% 54.1% 39.1% 58.0% 48.4% 

2000 51.4% 43.9% 37.2% 47.8% 54.9% 41.1% 57.5% 48.9% 

2001 51.8% 45.1% 40.8% 48.0% 53.2% 41.7% 59.6% 50.2% 

2002 51.8% 47.3% 43.2% 48.3% 55.2% 38.8% 60.6% 50.5% 

2003 52.6% 48.0% 41.3% 49.5% 54.0% 39.1% 60.8% 51.0% 

2004 53.0% 45.1% 41.1% 50.4% 55.6% 40.5% 61.3% 51.4% 

2005* 53.8% 46.1% 42.5% 50.5% 56.1% 41.5% 62.4% 52.1% 

2006 55.1% 46.5% 40.5% 52.0% 55.8% 44.4% 56.3% 51.2% 

2007 56.8% 46.3% 41.5% 54.4% 56.4% 45.8% 58.0% 52.7% 

 *Statistics for 2005 only cover January through September. 

Source: Laurits R. Christensen Associates, Inc.
328

Freight Car Acquisitions 

The shift of railcar investments to non-Class I firms is also dramatically shown in the following 

table from the AAR as developed in Christensen (Table 9-2). They identified six different time 

periods for analysis, but the major finding is that Class I railroads have not been significant 

contributors to the freight car acquisitions in the industry. The highest years of Class I railroad 

purchases were in the 1981-85 period, at 23 percent of the acquisitions, while the last five time 

periods have averaged slightly over 12 percent. It can be noted that in the 1996-2000 period 

significant increases occurred by both Class I railroads and the other investors. Overall, other 

investors provided about 88 percent of all new acquisitions. 

Table 9-2: Freight railcar acquisitions, 1981–2007 

Year Total Class I 

Railroads Others % Class I Railroads 

% 

Others 

1981-85 18,651 5,549 13,101 23.0% 77.0% 

1986-90 21,871 2,794 19,078 11.2% 88.8% 

1991-95 39,070 4,882 34,188 11.4% 88.6% 

1996-00 62,794 10,728 52,067 15.7% 84.3% 

2001-05 39,928 5,850 34,078 12.6% 87.4% 

2001-07 48,218 6,647 41,571 12.5% 87.5% 

Source: Laurits R. Christensen Associates, Inc. 

The Railcar Fleet 

Table 9-3 shows characteristics of the car fleet that have implications regarding capacity and 

the provision of capacity. Total cars in the fleet have decreased from 1.7 million in 1976 to 1.39 

million in 2007. A modest increase has occurred from 2004 through 2007. The number of new 

cars has varied widely, from 12.4 to 86.7 thousand. The average from 2005 through 2007 has 

been a little less than 70 thousand per year, a significant increase over the average for the 

thirty-year period. 

The capacity of the car fleet in tons has increased nearly 14 percent, even though the number 

of railcars has decreased by more than 18 percent. The number of ton-miles, however, 

increased nearly 93 percent from 1980 through 2007. It is apparent that railcars in 2007 were 

loaded more often than in 1976, with shorter cycle times. Due to the increase in the number of 

shuttle trains and unit trains since 1976, and their widespread use, this appears to be a 

reasonable conclusion. 

 
329

Although the number of cars has decreased, the average age of the cars has increased, 

indicating that older cars are still being maintained on the lines. Overall, the number of cars on 

line is swelling, increasingly paid for by shippers, as the average car gets older. Both the 

average and total capacity in tons is increasing. 

Table 9-3: Selected railcar fleet statistics, 1976-2007 

Source: Laurits R. Christensen Associates, Inc. 

Year 

Total 

Cars 

(millions) 

New 

Cars 

(thousands) 

Avg. 

Age 

(years) 

Avg. 

Capacity 

(tons) 

Fleet 

Capacity 

(million 

tons) 

1976 1.70 53.6 14.6 73.8 125.5 

1980 1.71 86.7 14.9 78.5 134.2 

1984 1.49 12.4 16.3 84.1 125.3 

1988 1.24 22.5 17.7 87.4 108.4 

1992 1.17 25.8 19.2 90.6 106.0 

1993 1.17 35.2 19.5 91.3 106.8 

1994 1.19 48.8 19.7 92.0 109.5 

1995 1.22 60.9 19.9 92.9 113.3 

1996 1.24 57.9 19.9 95.6 118.5 

1997 1.27 50.4 20.0 96.5 122.6 

1998 1.32 75.7 19.8 97.2 128.3 

1999 1.37 74.2 20.1 98.2 134.5 

2000 1.38 55.8 20.4 98.7 136.2 

2001 1.31 34.3 20.9 99.1 129.8 

2002 1.30 17.7 21.2 99.7 129.6 

2003 1.28 32.2 21.9 100.1 128.1 

2004 1.29 46.9 22.3 100.5 129.6 

2005 1.31 68.6 22.3 101.2 132.6 

2006 1.35 74.7 22.5 102.0 137.7 

2007 1.39 63.2 22.5 102.8 142.9 
330

Locomotives 

The number of power units available to Class I railroads has increased in most years, and is up 

34 percent since 1992. The aggregate horsepower of those locomotives also has steadily 

increased, 71.5 percent greater today than in 1992. Most of these units are new rather than 

rebuilt, and the average power has increased to 3,516.5 horsepower. Four percent of the fleet 

has consisted of new units, with some annual variation (Table 9-4). 

Table 9-4: Selected locomotive fleet statistics, 1992-2007 

Year Units In 

Service 

Aggregate 

Horsepower 

(millions) 

Purchased 

& Leased 

New 

Rebuilt 

Acquired HP/Unit %New 

1992 18,004 49.5 321 139 2,749.4 1.8% 

1993 18,161 50.4 504 203 2,775.2 2.8% 

1994 18,505 52.4 821 393 2,831.7 4.4% 

1995 18,812 55.1 928 201 2,929.0 4.9% 

1996 19,269 57.5 761 60 2,984.1 3.9% 

1997 19,684 60.2 743 68 3,058.3 3.8% 

1998 20,261 63.3 889 172 3,124.2 4.4% 

1999 20,256 64.8 709 156 3,199.1 3.5% 

2000 20,028 65.3 640 81 3,260.4 3.2% 

2001 19,745 64.7 710 45 3,276.8 3.6% 

2002 20,506 69.3 745 33 3,379.5 3.6% 

2003 20,774 70.9 587 34 3,412.9 2.8% 

2004 22,015 76.1 1121 5 3,456.7 5.1% 

2005 22,779 79.0 827 84 3,468.1 3.6% 

2006 23,732 82.7 922 158 3,484.7 3.9% 

2007* 24,143 84.9 902 167 3,516.5 3.7% 

*Preliminary values are reported for 2007. 

Source: Laurits R. Christensen Associates, Inc. 

The three most common indicators of capacity are the miles of rail line, the cars on line, and the 

power units. Investments or changes in these categories indicate the growth or shrinkage of 

rail capacity. For example, the aggregate railcar capacities in tons and the aggregate 

locomotive horsepower have both increased. 
331

Annual Class I Railroad Capital Expenditures 

Table 9-5 indicates changes in annual expenditures for major capacity indicators. Investment 

choices vary in any one year but significant variation occurs from year to year. The averages 

reveal that variation, suggesting investment decisions are at least partially responsive to shortterm market pressures. 

Table 9-5: Changes in annual expenditures for Class I Railroads, 1988-2006 

Year Road Locomotive Cars Total Equipment Grand Total 

1988 13.9% 87.5% 24.7% 44.7% 14.4% 

1989 -4.7% 14.9% 43.5% 13.1% 8.5% 

1990 4.1% -12.9% -31.7% -16.2% -7.3% 

1991 -11.0% 13.6% -11.2% 7.0% -4.3% 

1992 14.4% -43.0% 13.0% -20.0% 6.8% 

1993 2.1% 51.3% 55.3% 45.8% 20.2% 

1994 12.0% 19.4% 30.2% 22.7% 11.2% 

1995 14.7% 32.5% 33.5% 30.1% 12.7% 

1996 6.6% 5.8% -28.7% -6.2% 13.6% 

1997 5.5% 12.7% -29.7% -2.6% 2.8% 

1998 16.8% 0.5% 22.9% 7.9% 8.8% 

1999 -9.2% -12.1% 1.2% -6.1% -17.2% 

2000 2.3% -60.8% 2.5% -37.0% -15.8% 

2001 -2.8% -13.5% -98.4% -39.8% -3.4% 

2002 4.9% 13.7% -65.5% 0.8% 9.2% 

2003 -1.8% 31.4% 6.9% 24.1% 6.6% 

2004 8.0% -19.1% 32.5% 0.1% 5.8% 

2005 8.2% -32.1% 9.2% -23.7% 10.8% 

2006 26.4% 32.2% 50.2% 36.0% 14.3% 

Averages Road Locomotive Cars Total Equipment Grand Total 

1987-1992 3.4% 12.0% 7.7% 5.7% 3.6% 

1992-1997 8.2% 24.3% 12.1% 18.0% 12.1% 

1997-2002 2.4% -14.4% -27.5% -14.9% -3.7% 

2002-2006 10.2% 3.1% 24.7% 9.1% 9.4% 

Source: Laurits R. Christensen Associates, Inc. 

In a recent study, Cambridge Systematics used DOT’s Freight Analysis Framework to examine 

overall railroad infrastructure needs compared to expected rail transportation demands. They 

found that only 1 percent of lines were over capacity and that 88 percent were below capacity. 

However, that study did not examine the multiple components of capacity as was done above. 

Aggregate analysis is an incomplete evaluator of the specific capacity needs of shippers, 

especially agricultural shippers. 
332

Rural rail network lines have declined, and abandonments by Class I railroads, short lines, and 

regional companies continue. The push to trainload operations has increased overall capacity 

while making individual shippers and smaller elevator firms carry the cost of assembly of those 

unit train volumes. Guaranteed railcar ordering systems provide efficiency, but at increased 

cost. Determining effective capacity available to agriculture is complex and cannot be 

separated from service issues, rate levels, structure, and competition for traffic. 

Conclusions 

Adequate rail capacity is necessary to move agricultural products to market in an efficient and 

cost-effective manner. Rail capacity constraints force traffic from rail to truck, increasing 

transportation costs and damage to highways. 

Capacity constraints were common from 2003 through the first half of 2006. Weaker demand 

for rail freight transportation beginning in late 2006, and a recession that began in December 

2007 resulted in adequate rail capacity for agricultural products during the harvest of 2006, and 

from 2007 through the first half of 2009. However, capacity constraints are expected to occur 

again when the economy recovers. 

Increased use of the rail lines, which has benefited the railroads financially, has also contributed 

significantly to rail congestion. Each route mile during 2007 carried, on average, 171 percent 

more traffic in ton-miles—nearly three times the traffic—than in 1980. 

By the end of 2007, short line and regional railroads operated nearly 46,000 main line miles of 

track, a little more than 30 percent of the U.S. railroad network. Short line and regional 

railroads often provide rail service to rural shippers on lines that otherwise would have been 

abandoned. 

The capacity of the car fleet in tons has increased nearly 14 percent from 1976 to 2007, even 

though the number of railcars has decreased by more than 18 percent. The ton-miles increased 

nearly 93 percent from 1980 through 2007, indicating that railcars in 2007 were loaded more 

frequently than in 1976 due to shorter cycle times. The number of engines available to the 

Class I railroads has increased 34 percent since 1992. The aggregate horsepower of those 

locomotives also has steadily increased, up 71.5 percent since 1992. 

Railroads are relying more and more on privately-owned cars to provide the capacity to handle 

shipper demands, shifting the investment burden from the carriers to the shippers. Since 1981, 

shippers and other investors have provided 88 percent of all new railcar acquisitions. 

Rail capacity requirements need to be examined and considered in light of the characteristics of 

agricultural movements rather than aggregate models and investment strategies. Testimony, 

shipper complaints and economic analysis indicates the seasonal needs of agriculture and the 

density of those movements in specific corridors, as well as the perishable nature of the 

products being moved. 
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. 

 

 
350
Chapter 11

Rail Relief 

Processes for 

Shippers
351

Chapter 11: Rail Rate Relief 

Processes for Shippers 

In the legislative language requiring this study on agricultural transportation issues, Congress 

requested a discussion on “the accessibility to shippers in rural areas of Federal processes for 

the resolution of grievances arising within various transportation modes.”217 Our reading of 

this requirement is that Congress desired information about how shippers can contest rates, 

and whether these processes are practical and 

effective. Over the years, shippers have raised 

many concerns about the grievance processes 

for rail rates. It is important to note that truck 

and barge rates are not regulated by the Federal 

government and are driven by competitive 

markets. Captive rail rates—those where there 

is no cost-competitive transportation 

alternative—are subject to regulation by the 

Surface Transportation Board (STB). A grievance 

process is available to shippers who use oceangoing common carriers, and is described in 

Chapter 14. This chapter limits its scope to the 

rate relief processes for rail shippers. 

 

Regulating Railroads 

The Interstate Commerce Commission (ICC) began regulating railroads in 1887. Those early 

regulations controlled rail rates, prohibited most forms of price discrimination, published tariffs 

and enforced adherence to them, and prohibited the practice of pooling. Over time, ICC 

regulation of the railroads evolved to the point where almost every action by a railroad 

required prior approval by the ICC, including track construction, route abandonment, rates, and 

even the method for depreciation of capital investment. By the latter half of the twentieth 

century, railroads had begun to decline, at least in part due to stifling economic regulation; by 

the 1970s the industry was in desperate straits. 

The Railroad Revitalization and Regulatory Reform Act of 1976 and the Staggers Rail Act of 1980 

(Staggers Act) sought to revitalize the financial health of railroads by minimizing Federal 

regulatory control and providing flexibility in establishing rates, which could allow railroads to 

generate adequate revenues. When Congress enacted the Staggers Act, it made clear that it 

wanted to alter significantly the balance between regulation and the forces of the competitive 

marketplace. 

Figure 11-1: The STB seal 

Source: Department of Transportation
352

To improve the financial prospects of railroads, the 

Staggers Act transformed the regulatory process, 

allowing, “to the maximum extent possible, 

competition and demand for services to establish 

reasonable rates for transportation by rail.”218 In this 

regard, the Act provided for confidential contracts 

between shippers and their rail carriers, authority for 

the ICC to exempt classes and types of rail 

transportation from regulation when not needed to 

foster competitive rates and service, and set rate 

thresholds below which the Commission had no 

jurisdiction to regulate rates. These reforms 

effectively exempted a substantial percentage of 

traffic (estimates range from 75 to 85 percent) from 

economic regulation. Residual rate regulation 

focused on maintaining reasonable rates where 

there was an absence of effective competition. 

Some regulatory provisions were, however, retained. 

At a very basic level, U.S. carriers retained a 

“common carrier obligation,” requiring them to 

provide transportation services on “reasonable 

request.” Railroads remain under general 

obligations to serve all customers without 

discrimination, charge reasonable rates, and 

interchange traffic with connecting carriers. 

Notwithstanding this requirement, shippers have 

frequently complained that railroads can—and quite 

often do—price movements beyond the range of 

economic feasibility to discourage or eliminate traffic 

they want to avoid. 

Differential Pricing 

Flexibility in setting rates also afforded railroads the 

opportunity to use differential pricing to raise 

sufficient revenues to operate, maintain, and (where 

appropriate) expand their networks. To recover 

fixed costs more effectively across the system, 

differential pricing allows a railroad to impose higher 

rates on traffic with fewer transportation 

alternatives, even though the characteristics of the 

movement may be the same as those for a shipper 

facing more competitive transportation options. 

The ICCTA 

The Interstate Commerce Commission 

Termination Act of 1995 (ICCTA) 

replaced the ICC with a much smaller 

STB.*

 The ICCTA imposed time limits on 

rate proceedings and required the STB 

to establish rate reasonableness 

standards to apply to cases involving 

smaller shippers. In December 1996, 

the STB adopted Simplified Guidelines 

that used three revenue-to-variable cost 

benchmarks as starting points for rate 

reasonableness analysis. These 

Simplified Guidelines were not used by 

shippers as they did not consider them 

cost-effective and were unsure how the 

benchmarks would be applied. In 2008, 

STB established new small rate appeals 

procedures, which have been affirmed 

by the district court after appeals from 

both railroad and shippers. 

In addition, the ICCTA eliminated the 

requirement for railroads to file tariffs 

with the STB and does not allow the STB 

to suspend any rail rates except to 

prevent irreparable harm. A railroad’s 

common carriage rates and service 

terms for all commodities have to be 

disclosed upon request and published in 

some form for agricultural products and 

fertilizer. Increases in these rates or 

changes in service terms require that 20 

days advance notice be given to any 

person who had requested such rates or 

made arrangements for shipment under 

the rate. 

*

 TP.L. 104-88, December 29, 1995 
353

Differential pricing assumes that when it 

lowers its rates, the railroad can attract 

additional business from shippers who 

may otherwise transport via alternate 

modes. Generally these lower rates 

under differential pricing cover the 

directly attributable variable costs of the 

movement and a relatively minor 

contribution to the railroad’s overall fixed 

costs. 

Customers with few or no practical 

alternatives to the railroad—captive 

shippers—are asked to pay a greater 

proportion of fixed costs. Although those 

with more transportation alternatives 

pay a lower share of the railroad’s fixed 

costs, their smaller contribution reduces 

the share of those costs that captive 

shippers would pay absent that traffic. 

Despite the fact that the presence of 

competitive traffic on the railroad 

effectively lowers the captive shipper’s 

share of fixed costs, the concept of 

differential pricing is viewed by some 

shippers as inherently discriminatory. 

Differential pricing does not mean, 

however, that a railroad can charge a 

captive rail customer any price they wish. 

Under the Staggers Act, railroads can 

generally charge any customer whatever 

rate they want, but if the railroad has 

market dominance for the shipment and 

the rate exceeds 180 percent of the 

variable (direct) cost to the railroad, the 

rate can be challenged at the STB. The 

fact that Congress directed the ICC, then 

later the STB, to establish a rate 

challenge process means Congress 

intended to place limits on differential 

pricing to prevent unrestrained rail rates 

for captive customers. The debate 

 

Railroads Are No Longer a Decreasing-cost Industry 

Recent data indicates that railroads are no longer a 

decreasing cost industry, which is an industry in which 

average costs per unit of output decrease as output 

expands. While revenue ton-miles of output 

decreased 15 percent during the first 9 months of 

2009 compared to the same period in 2008, operating 

costs decreased 25 percent. Although these 

percentage changes varied for each of the U.S. Class I 

railroads, all seven U.S. Class I railroad operating costs 

decreased more rapidly than output. 

According to this recent data, costs will increase—

rather than decrease—as the economy recovers from 

recession unless the railroads make sufficient 

investments in additional capacity. It is apparent that 

the rapid growth of rail traffic since 2004 has 

exhausted the economies of traffic density available 

to railroads. In addition the Christensen study 

commissioned by STB in 2008 found that recent 

railroad rate increases were largely the result of 

increased costs. 

Historically, railroads have been a decreasing-cost 

industry. Since railroads were a decreasing cost 

industry, some economists were concerned that the 

presence of too much rail-to-rail competition could 

result in prices decreasing to the extent that their 

fixed costs would not be covered. Railroads face high 

fixed and common costs to maintain an extensive 

network, including the costs of right-of-way 

acquisition, roadbed preparation, installation of track 

and signals, etc. This network must be in place before 

any freight can move. Once an initial investment has 

been made to provide a given level of capacity, 

per-unit costs decline as production increases, up to 

capacity. As output increases to that point, per-unit 

fixed costs and common costs decrease because they 

are spread over more and more units. Conversely, as 

railroad traffic shrinks, fixed and common costs are 

spread over a smaller traffic base, resulting in higher 

costs per unit. As traffic expands beyond capacity, as 

indicated by recent data, per-unit costs rise as output 

expands. 
354

before Congress and the Executive today is whether this rate challenge process is workable and 

allows captive rail customers a reasonable chance to obtain relief from rates that are 

unreasonably high. 

Differential pricing is credited with fostering a viable railroad industry with average rates that 

have declined for twenty years, but it has not meant universally lower rates for every shipper. 

Captive shippers generally have not shared in the rate reductions that shippers with 

transportation alternatives have enjoyed. Consequently, captive shippers feel that they have 

borne a disproportionate part of the burden of revitalizing the rail industry and have 

complained that rate relief remedies have been unavailable in practice due to the cost and time 

required to resolve rate complaints. Some believe that the rail regulation remaining today is 

still too expensive and time-consuming for carriers, shippers, and the STB. 

Balancing the conflicting objectives of ensuring reasonable rates for shippers against the 

railroads’ needs to obtain adequate revenues has not been easy. Rates that are too high can 

harm rail-dependent businesses, while rates that are too low deprive railroads of the revenues 

necessary to fund the infrastructure investments necessary to promote efficient service and 

improve rail capacity. Shippers—particularly grain and coal shippers—have called for 

regulatory relief, including removal of burdensome, costly, and unresponsive barriers to 

regulatory relief. In response, Congress in 1995—through the ICCTA—added a new provision to 

the rail transportation policy calling for the “expeditious handling and resolution of all 

proceedings.”219 It ordered the STB to establish procedures to ensure expeditious handling of 

rail rate challenges, focusing on resolving delay in the discovery and evidentiary phases of 

proceedings. Congress also directed the STB to establish a simplified and expedited method for 

determining reasonableness in cases where a full stand-alone cost analysis is too costly, given 

the value of the relief sought.220 

STB’s Rate Regulation 

To alleviate concerns about the imposition of differential pricing, the Staggers Act established a 

rate relief process whereby shippers could contest rates they believed to be unreasonable. To 

successfully pursue a rate challenge, a shipper must first demonstrate that the rate for the 

traffic is subject to STB jurisdiction—that the traffic has not been exempted and is not under 

contract (with the exception of some specific agricultural commodities). After clearing these 

hurdles, the rate must meet the statutory jurisdictional threshold, set at 180 percent of the 

variable cost to the railroad for the movement in question, and the shipper must show that the 

railroad has market dominance over the traffic at issue. 
355

Jurisdiction 

Under federal rules, railroads are required, upon request, to 

quote to shippers a rate for common carriage 

transportation.221 The STB has jurisdiction (subject to some 

exceptions for exempt commodities) over disputes arising 

out of common carriage (non-contract tariff) rates.222 

Contract rates are generally not subject to challenge before 

the STB; the exclusive remedy for any alleged breach of a 

contract is in an appropriate State court or United States 

district court, unless the parties otherwise agree. Grain or 

grain product contract issues can be arbitrated through the 

National Grain and Feed Association’s (NGFA) rail 

arbitration system if either the shipper or the carrier is an 

NGFA member and both parties agree to arbitration. 

Although STB has no jurisdiction over contract rail rates or 

service terms, it has oversight responsibilities on contracts 

for the movement of agricultural commodities (including 

grain, soybeans, sunflower seeds, grain products, and 

fertilizer) that are not specifically exempted from 

regulation. Rail carriers are required to file with the STB a 

summary of each contract for the transportation of 

agricultural products.223 Any shipper or port has 18 days 

after the contract summary is filed to file a complaint with 

the STB. The STB may disapprove the contract if it finds the 

contract unreasonably discriminates against a port or 

shipper, the contract impairs the ability of the railroad to 

meet its common carrier obligation to a shipper, or that it 

constitutes a destructive competitive practice.224 With such 

a finding, the STB can also order the rail carrier to provide 

rates and service substantially similar to the contract with 

such differentials in terms and conditions as are justified by 

the evidence. However, some assert this oversight is 

limited because there is often too little time to file a 

complaint and not enough information in the contract summary. 

Many agricultural commodities—but not grain, soybeans, and sunflower seeds—are exempt 

from STB regulation. This includes such items as meat, poultry, fish, sugar beets, and dairy 

products.225 However, according to the 2006 Waybill Sample, grain, soybeans, and sunflower 

seeds constitute almost 95 percent of the tonnage of farm products carried by rail. The STB 

also has exempted certain boxcar movements from rate regulation. In addition, intermodal rail 

transport of commodities has been exempted from STB rate regulation. However, STB has the 

authority, upon receipt of a request from a complainant, to revoke the exemption for specific 

traffic where necessary to achieve the regulatory objectives of the statute. 

Contracts 

More recently, railroads have 

offered contracts that are priced at 

tariff rates and the same service 

terms as shipments moving at tariff 

rates. Due to shipper concerns 

regarding this practice, and the 

inability to appeal contract rates, 

this practice resulted in a STB 

proceeding regarding the definition 

of contracts. Although contract 

service terms as well as rates 

historically have been negotiated—

which has differentiated contracts 

from tariff rail rates—railroads 

have begun to exercise their 

market power by not negotiating 

with shippers regarding contract 

service terms. Without rate or 

service benefits, there is nothing to 

distinguish many of these contracts 

from service under tariff rail rates, 

except for the inability to file rate 

appeals with the STB. In 2009, the 

STB proposed a rule that would 

require the railroad to specify that 

it is a contract on the front page for 

it to be considered a contract. 
356

Rate Reasonableness Complaints—Finding Market Dominance 

For complaints involving the reasonableness of tariff (non-contract) rates, the STB first 

determines if the specific rail carrier has market dominance over the transportation to which 

the rate applies.226 Market dominance is defined as an absence of effective competition from 

other rail carriers or modes of transportation (trucks, barge, and pipelines) for the movement 

to which a rate applies.227 

The second prerequisite for the STB’s jurisdiction is whether the proposed rate produces 

revenues that exceed 180 percent of the movement’s variable costs. Consideration of product 

or geographic competition—the availability of substitute products from other carriers or the 

ability to ship the same product from other sources or to other destinations—was repealed by 

the STB in a December 1998 decision. In the decision, STB determined that discovery regarding 

product and geographic competition had become a source of process abuse, unduly 

complicating the market dominance determination and acting as a litigation obstacle to a 

shipper's ability to pursue a rate complaint. The burden of proof is on the shipper to show that 

there is no effective form of competition. If intermodal competition exists, the STB has no 

authority to review the rate challenge, even if the revenues exceed 180 percent of the variable 

costs of providing the service. 

If the two conditions are met, the STB may then consider if a common carrier rate is 

unreasonable, via appropriate tests. Should the STB ultimately determine that the challenged 

rate is unreasonable, it will order the railroad to pay reparations to the complainant for past 

movements, and prescribe the maximum rate the carrier is permitted to charge for future 

movements.228 Some examples of when the STB has ordered reparations and set new rates for 

the future are provided in Coal Rate Guidelines. 

However, the STB may not set the maximum reasonable rate below the level at which the 

carrier would recover 180 percent of its variable costs of providing the service. The STB must 

recognize that rail carriers should have an opportunity to earn “adequate revenues,” defined as 

those sufficient, under honest, economical, and efficient management, to cover operating 

expenses, support prudent capital outlays, repay a reasonable debt level, raise needed equity 

capital, and otherwise attract and retain capital sufficient to provide a sound rail transportation 

system. 

Types of Cases 

The STB distinguishes two types of rate cases: “coal rate” and “non-coal-rate.” Coal rate cases 

are those involving large volumes of traffic; non-coal-rate cases involve shippers that transport 

either smaller shipments or large shipments transported infrequently. To provide greater 

flexibility for shippers in challenging a rate, recent STB reforms allow a complainant to select 

the methodology under which it wants the rate to be judged: Full Stand-Alone Cost (SAC), 

Simplified SAC, or Three-Benchmark. However, a limit is imposed on the rate relief available 

under each method. 
357

Standard Guidelines for Assessing Rate Reasonableness— 

Coal Rate Guidelines

To assess whether rates are reasonable, the STB whenever possible uses a concept known as 

“constrained market pricing” (CMP) set forth in the Coal Rate Guidelines.229 CMP principles 

limit a carrier's rates to levels necessary for an efficient carrier to make a reasonable profit. 

CMP principles recognize that, in order to earn adequate revenues, railroads need the flexibility 

to price their services differentially by charging higher mark-ups on captive traffic, but the CMP 

guidelines impose constraints on a railroad's ability to price differentially. 

Stand-Alone Cost 

The most commonly used CMP constraint is the Stand-Alone Cost (SAC) test. Under the SAC 

test, a railroad may not charge a shipper more than it would cost to build and operate 

efficiently—at current costs—a hypothetical new railroad, tailored to serve a traffic group that 

includes the complainant's traffic. CMP protects the captive shipper from bearing the cost of 

any facilities or services from which it derives no benefit and from cross-subsidizing other 

traffic. The SAC analysis requires that the shipper construct a hypothetical, perfectly efficient 

railroad that would replace the shipper’s current carrier, and simulate the competitive rate that 

would exist in a “contestable market” free from legal or financial barriers to entry and exit. 

To replicate less than the existing rail infrastructure used to serve the captive shipper, the 

complainant must demonstrate that there would still be sufficient capacity to handle expected 

demand. This requires the complainant first to select an appropriate subset of the railroad’s 

traffic for the hypothetical stand-alone cost railroad (SARR) to serve, design an operating plan 

that shows how an efficient railroad would serve this traffic group, and determine the optimal 

network configuration. Parties use complex computer programs to simulate the hypothetical 

SARR and test the operating plan and configuration against the forecast traffic group. The 

parties must then develop detailed evidence to calculate both the direct operating expenses 

(such as the costs of locomotives, crew, and railcars) and the indirect operating expenses (such 

as general and administrative and maintenance-of-way). 

STB compares the challenged rate to a newly derived contestable market rate. As part of the 

lengthy rate relief process, both the railroad and the shipper have the opportunity to seek 

discovery of evidence, and present facts and views to STB. Although the STB has used this test 

to resolve rate complaints, the time and expense associated with the process have encouraged 

settlement of some rate complaint cases and discouraged others entirely. Although the standalone cost is a conceptually sound methodology, the regulatory process involved in a maximum 

rate case can be daunting, long, and costly. The complexity and costs of litigating an SAC case 

have increased over time; shippers’ litigation costs in recent Full-SAC cases have approached $5 

million and consumed 2–4 years. 

 

Over time, the STB has modified, refined, and endeavored to reduce the burden associated 

with the SAC analysis. Recently, the STB revised procedures for deciding large rate relief cases, 

imposing restraints on the evidence and arguments allowed in these cases, replacing the 
358

percent reduction approach with a "maximum markup methodology" to calculate maximum 

lawful rates, adopting an "average total cost" approach to allocate revenue from cross-over 

traffic, and shortening the analysis period to 10 years. The revisions reflect STB’s ongoing effort 

to reduce litigation costs, create incentives for private settlement of disputes, and shorten the 

time required to develop and present large rail rate cases to the STB. 

From the shippers’ perspective, however, the STB’s efforts have not provided effective, 

practical, or worthwhile relief under the SAC standard. Whenever it takes a shipper 2 to 4 years 

and millions of dollars to bring a case, the rate challenge is too burdensome for most rail 

customers, who deem it to be patently unfair. Furthermore, because agricultural production is 

widely spread and is shipped to many destinations there are too many origin-destinations pairs 

to analyze to make the SAC test workable for agricultural shippers. 

Other CMP Constraints 

Constrained market pricing embodies two additional constraints: the revenue adequacy 

constraint ensures that a captive shipper will “not be required to continue to pay differentially 

higher rates than other shippers when some, or all, of that differential is no longer necessary to 

ensure a financially sound carrier capable of meeting its current and future service needs”—i.e., 

when a carrier is revenue adequate. Although several railroad firms have been revenue 

adequate when using the Capital Asset Pricing Model for a number of years, STB has still not 

determined how long a railroad has to be revenue adequate before using this constraint. The 

management efficiency constraint protects captive shippers from paying for avoidable 

inefficiencies (whether short-run or long-run) that are shown to increase a railroad’s revenue 

need to a point where the shipper’s rate is affected. 

SAC Process is Complex and Expensive 

The complexity and evolution of the SAC process is best illustrated by the landmark McCarty 

case.230 Originating as a class action suit in the United States District Court for the District of 

Montana on behalf of approximately 10,000 Montana farmers and grain elevators (the McCarty 

group), the court referred the matter to the ICC where a formal complaint was filed on March 

27, 1981.*

 The McCarty group sought reparations on past shipments of wheat transported by 

Burlington Northern (BN) from origins in Montana to ocean ports in the Pacific Northwest 

(PNW) and establishment of reasonable rates for future moves. In an initial decision served 

December 14, 1981, an Administrative Law Judge found that BN had market dominance over 

the wheat and barley traffic at issue, and that the rates assessed were unreasonable. 

Numerous delays and challenges ensued while the parties pursued discovery and the ICC 

reevaluated its rate reasonableness standards. It was not until May 27, 1987, that the ICC 

found that BN had market dominance over the movement of wheat and barley from Montana 

to PNW ports and subsequently ordered reparations and rate prescription. BN further 

contested this decision and in August 1997, STB reversed itself, concluding that the rates had 

not been shown to be unreasonable, and dismissed the complaint. 

 

*

 In 1981, the ICC had not yet settled on its rate challenge guidelines. The coal rate guidelines were not adopted 

until 1985. The STB did not establish non-coal guidelines until 1996. 
359

The shippers sought judicial review, but ultimately the 

decision was reaffirmed almost 20 years after the initial 

complaint. This complaint action cost the producers and 

the State over $3.4 million in out-of-pocket costs for 

economic modeling; attorney fees were estimated to 

reach millions of dollars more. 

For years, shippers complained that ICC and STB rate 

reasonableness decisions seemed to be skewed in favor 

of the railroads. The record shows that since 1996 seven 

SAC cases have been decided in favor of shippers and 

eight SAC cases decided against shippers.231 

An example of a favorable shipper ruling is the West 

Texas Utilities Company decision in May 1996, using the 

SAC test. The STB found a Burlington Northern Santa Fe 

Railway (BNSF) rate from a mine near Gillette, Wyoming, 

to a generating station in Vernon, TX, to be unreasonably 

high. As a consequence, the STB limited the rate that 

could be charged for that transportation in the future, 

and required payment of approximately $11 million in 

reparations for past shipments. STB’s decision was 

challenged by the railroad and affirmed in court. 

Finding the challenged rates unreasonably high, the STB 

also ruled in favor of shippers in various other cases, 

including its July 1997 decision for the Arizona Public 

Service Commission against BNSF, and its 2003 decision 

in favor of the Texas Municipal Power Agency (TMPA) against BNSF. 

In May 2008, STB issued its first decision under the 2007 revisions to rules calculating the rail 

industry’s cost of capital. In a rate challenge by Kansas City Power & Light (KCPL) against Union 

Pacific (UP), STB found that the rates paid by KCPL's Montrose Generating Station for coal 

moves from Wyoming's Powder River Basin were unreasonable. STB ordered UP to pay an 

estimated $30 million to the shipper in reduced rates and reparations. Approximately half of 

the referenced relief in this case was attributable to the STB's revision of the calculation of the 

railroad industry’s cost of capital, using a Capital Asset Pricing Model (CAPM) instead of the 

single-stage Discounted Cash Flow (DCF) model that had been used in the past. 

In February 2009, STB ruled in favor of Basin Electric Power Cooperative and the Western Fuels 

Association on what it called “the single largest reduction in rail rates ever ordered by the 

agency.” In its decision, STB found the transportation rates BNSF charged were roughly six 

times the variable cost of providing service and the rates were ruled to be unlawfully high. 

Using the SAC test, STB required BNSF Railways to reduce rates by about 60 percent, through 

Cost of Capital Models 

In January 2009, STB modified their 

initial decision to exclusively use 

CAPM and decided instead to use a 

simple average of CAPM and a 

multi-stage DCF to determine revenue 

adequacy. Although initially this 

change results in a higher estimated 

cost of capital, over time the use of 

this average is expected to minimize 

the variability in the cost of capital 

calculations. In addition, there may 

be years when the use of the average 

results in a lower cost of capital than 

estimated with CAPM alone. 

Theoretically, over the long term, the 

cost of capital estimates should 

average out to be nearly the same 

under either method. 
360

2024, for the coal delivered from mines in Wyoming’s Powder River Basin to the Laramie River 

Station, near Wheatland, WY, and provide reparations and rate reductions of an estimated 

$345 million. 

STB also has reversed its decisions in several cases where additional evidence was submitted 

that altered an initial determination of rate reasonableness. In a May 26, 2006, decision, the 

STB found on reconsideration that the BNSF rate challenged by Otter Tail Power Company232

was not unreasonably high. In October 2004, STB issued a decision reversing its prior finding 

that rates had been unreasonable for three cases referred to collectively as the Eastern cases, 

which were consolidated for consideration due to similarities in the evidence and issues at 

hand.233 STB revisited its calculations of cost of capital, and tonnage and revenue projections 

for Appalachian coal, which altered the findings of the SAC test. 

In the course of reviewing complaints, the STB has made a number of alterations to the SAC 

analysis to perfect the model’s ability to reflect more accurately the actual railroad operating 

environment. For the STB, rate relief consideration is a dynamic process. 

New Simplified Guidelines for Assessing Reasonableness—

Non-Coal Rate Guidelines, or Small Dispute Cases 

Although the CMP guidelines provide the most authoritative procedures for evaluating the 

reasonableness of rail rates from an economic perspective, a rate challenge using CMP 

(particularly SAC) can be quite complex, expensive to litigate, time consuming and impractical; 

often the money at issue is not enough to justify the expense of such an evidentiary 

presentation. The Interstate Commerce Commission Termination Act of 1995 (ICCTA) directed 

STB to develop a simplified alternative procedure to CMP.234 

Accordingly, in December 1996, STB adopted Simplified Guidelines that, although upheld in a 

court challenge, provided no perceived effective relief.235 Shippers expressed concerns about 

the uncertainties of the new rules, and brought no cases under them. Subsequently, in 

September 2007, the STB issued revised Simplified Guidelines with the intent of streamlining 

and expediting procedures to make the rate relief process more feasible for those with smaller 

disputes. 

 
361

These revised Simplified Guidelines provide two avenues 

to pursue in seeking rate relief; the first is geared toward 

medium sized disputes. It uses a modified and simplified 

SAC test, is to be decided by the STB within 17 months of 

complaint, and limits potential cost recovery to $5 million 

over 5 years. The second vehicle, called the Three 

Benchmark approach, is an abbreviated process that is to 

be decided within 8 months of filing a complaint and limits 

recovery to $1 million over five years. While neither 

approach offers as much precision and degree of 

confidence as a Full-SAC analysis, these alternative dispute 

resolution procedures address the concerns of many 

shippers that they cannot challenge rail rates because the 

costs of litigation would exceed the amount in dispute. 

Both shippers and railroads have appealed the STB’s 

decision in district court. Shippers contended that the 

monetary limits for each simplified rate appeal procedure 

were set too low, which could result in shippers receiving 

little, if any, more than the cost of using these procedures 

if they win the rate appeal. Furthermore, the shipper risks 

losing the rate appeal while investing the cost of pursuing 

the simplified rate appeals procedures. The Court affirmed 

the STB decision in this case.236

For both simplified approaches, STB requires the parties to 

engage in non-binding mediation for 20 days before it will 

consider the case. The mediation requirement encourages railroads and shippers to reach 

consensus on issues and avoid costly litigation. For example, a small rate case involving 

Williams Olefins, LLC, and Grand Trunk Corporation was resolved privately within only a few 

weeks pursuant to mediation by STB staff. 

STB staff are appointed to mediate these disputes. To protect the confidentiality of mediation 

discussions, the appointed STB staff is recused from all subsequent involvement in the case if it 

is not fully resolved through mediation. The entire mediation process is confidential, including 

all material used or exchanged and positions taken by the parties. The mediation period can be 

extended at the consent of the parties. Designated representatives from the parties with 

authority to settle the dispute participate in all meetings unless the STB-appointed mediator 

concludes such involvement is not necessary. To facilitate settlement, STB releases the 

confidential Waybill Sample, subject to the proper protective orders, before mediation begins. 

 

STB Analysis of Simplified 

Procedures 

The STB performed an analysis of a 

Waybill Sample, and concluded that 

a Full-SAC presentation would be 

impractical for 73 percent of 

potentially captive traffic and a 

Simplified SAC presentation would 

be too costly for 45 percent of 

potentially captive traffic. STB 

estimated that Simplified 

Procedures would provide a 

meaningful forum for the resolution 

of rail rate disputes arising out of 

the at least 73 percent of traffic that 

previously was prevented from 

bringing rate complaints to the STB 

due to the high costs of developing 

a Full-SAC presentation. 
362

To simplify the process compared to a standard rate case, the Simplified Guidelines use 

standard industry averages for revenue data, rather than construction of a hypothetical 

efficient railroad. Accuracy suffers somewhat but time is expedited. For both processes, the 

STB has established limits on discovery to avoid protracted delays in deciding the case. 

Simplified SAC 

Constrained Market Pricing, with its SAC constraint, has been affirmed by courts and is deemed 

the most accurate procedure available for determining the reasonableness of rail rates where 

there is an absence of effective competition. As indicated earlier, the rigors of the procedure 

lead to great expense in both litigation and time. And while the reforms adopted for the FullSAC procedure in the Coal Rate Guidelines (see previous section) are intended to reduce 

litigation costs, the potential reductions are still insufficient to provide a feasible vehicle to 

contest rates for medium-sized shipments.237 Simplified SAC attempts to create a cost-effective 

alternative for smaller rail rate disputes. However, challenging a rate under the Simplified SAC 

methodology is still estimated to cost about $1 million. 

The Simplified SAC approach retains some of the advantages of a standard SAC analysis to 

detect market abuses. It focuses on whether the captive shipper is being forced to subsidize 

parts of the defendant’s rail network from which it derives no benefit. To maintain simplicity, 

STB assumes that given current rail system capacity constraints, all existing infrastructure along 

the predominant route used to haul the complaint traffic is needed to serve the traffic moving 

over that route. Simplified SAC incorporates new capital investments (no gold plating) and 

ensures that the maximum lawful rate incorporates a reasonable return on the replacement 

cost of those investments. This process assumes that competition will force railroads to make 

prudent capital investments to meet forecast increases in demand for transportation services 

but provides only limited opportunity for the shipper to dispute costs associated with 

inefficiencies. For example, a shipper might successfully dispute costs in a case where some 

existing facilities along the selected route have fallen into disuse and should not be included in 

the analysis. 

The Simplified SAC presentation differs from a Full-SAC presentation by eliminating or 

restricting the evidence parties can submit on certain issues. The core analysis in a simplified 

SAC proceeding addresses the replacement cost of the existing facilities used to serve the 

captive shipper and the return on investment that a hypothetical SARR would require to 

replicate those facilities. STB then determines whether the traffic using those facilities is paying 

more than needed to cover operating expenses and gain a reasonable return on their 

replacement value. To constrain the cost of a simplified SAC presentation, STB has established 

various simplifying assumptions and standardization measures, including: 

• The reasonableness of the challenged rates for a single year (the four quarters 

preceding the filing of the complaint) on the predominant route used to transport the 

contested traffic; no rerouting of traffic is permitted. 
363

• The revenue from cross-over traffic is apportioned between the on-SARR and off-SARR 

portions of the movement based on the revenue allocation methodology used in FullSAC proceedings. 

• The analysis includes the existing facilities (including all track, sidings, and yards) along 

the analyzed route, unless the complainant can demonstrate a facility is unnecessary or 

in disuse. 

• The total operating and equipment expenses will be estimated using the STB’s Uniform 

Rail Costing System (URCS); depreciation on equipment is excluded when calculating 

operating expenses. 

• Because the railroad is not allowed to use the shipper’s traffic to cross-subsidize other 

shippers, traffic moving at higher rates is not allowed to cross-subsidize the shipper’s 

traffic. 

• The maximum lawful rate will be expressed as a ratio of revenue to variable costs 

(R/VC), with variable costs calculated using unadjusted URCS. This maximum R/VC ratio 

would then be prescribed for a maximum 5-year period. 

• The entire process will conclude in a decision by the STB within 510 days. 

Simplified SAC also imposes procedural requirements to expedite the processing of the 

complaint. To streamline the discovery process, certain standardized discoveries are required 

to be submitted by both parties with the complaint and answer. Technical conferences 

facilitated by STB staff are held to resolve factual disputes within 7 business days after the 

required mediation period ends. 

At the initial filing, the complainant provides to the railroad its preliminary estimate of the 

variable cost of the challenged movements, using the unadjusted figures produced by the URCS 

program, demonstrating that the STB’s jurisdictional threshold has been met. In addition, the 

complainant provides documenting evidence with its complaint, and a narrative addressing 

whether there is any feasible transportation alternative for the challenged movements. The 

railroad will provide to the complainant its preliminary estimate of the variable cost of each 

challenged movement. For its second disclosure, the railroad will provide identification of all 

traffic that moved over the routes replicated by the SARR in the test year, information 

aggregated by origin-destination pair and shipper, volume, and total revenues from each 

movement. They will also provide total operating and equipment cost calculations for each of 

those movements, revenue allocations for cross-over traffic, and total trackage rights 

payments. 

If the STB finds the rate unreasonable, the limit on relief applies to the difference between the 

challenged rate and the maximum lawful rate, either in the form of reparations or a rate 

prescription, or a combination of the two. Any rate prescription automatically terminates once 

the complainant has exhausted the relief available, even if, due to large volumes, that period is 

less than 5 years. The complainant is barred from bringing another complaint against the same 

rate for the remainder of the 5-year period. 
364

Three Benchmarks 

For some shippers who have smaller disputes with a carrier, even this Simplified SAC method 

would be too expensive, given the more limited potential return for a successful rate challenge. 

These shippers can avail themselves of a less rigorous, more expedited relief process with a less 

lucrative potential remedy. The Three Benchmarks approach looks at the carrier’s overall 

revenue needs, how the railroad prices its other captive traffic, and how comparable traffic is 

priced. 

Under Simplified Guidelines, the reasonableness of a challenged rate is to be determined by 

evaluating that challenged rate in relation to three benchmarks. Each benchmark is expressed 

as a ratio of revenues generated from particular traffic to the variable costs of providing the rail 

service—the revenue-to-variable cost, or R/VC ratio, using the STB’s Uniform Rail Costing 

System (URCS). 

First Benchmark 

The first benchmark is the Revenue Shortfall Allocation Method (RSAM). It allows the STB to 

account for the defendant railroad’s overall revenue needs by measuring the average markup 

above a carrier’s variable cost that the carrier would need to charge all its potentially captive 

traffic (traffic priced above 180 percent of variable costs) in order for the carrier to recover all 

of its non-variable costs under URCS. RSAM accounts for a railroad’s need to earn adequate 

revenues, as required by law.238 Simplified Guidelines provided for the calculation and 

publication of an RSAM range. The upper end of the range reflects the average markup above 

variable cost the railroad would need if it replaced all its assets as they wear out. The lower 

end subtracts out any shortfall related to movements priced below the 100 percent R/VC level. 

The lower end is an attempt to capture managerial inefficiencies. In Simplified Guidelines, 

however, the STB recognized that an R/VC ratio below 100 percent does not necessarily reflect 

improper pricing or a money-losing service. The RSAM benchmark the agency would use was 

therefore left unresolved, but was expected to fall within this range. 

Second Benchmark 

The second benchmark is called R/VC>180. The R/VC>180 percentage represents the average 

mark-up above variable cost that a carrier receives on its captive high-rated traffic (traffic 

priced above 180 percent of variable cost). It could be more narrowly tailored to focus on a 

subset of the railroad’s traffic that has transportation characteristics similar to the traffic 

moving under the challenged rate. 

Third Benchmark 

The third benchmark is called R/VCCOMP. This benchmark is used to compare the markup being 

paid by the challenged traffic to the average markup assessed on other potentially captive 

traffic involving the same or a similar commodity moving similar distances. 

 
365

STB described these three benchmarks as “the starting point for a rate reasonableness analysis, 

not the end result.”239 STB anticipated that both the shipper and railroad would present 

“whatever additional information is available that bears on the reasonableness of the pricing of 

the traffic at issue.”240. The agency expressed confidence that careful analysis of these three 

benchmarks, together with whatever supplementary evidence is provided in a case, should 

enable the agency “to make at least a rough determination as to rate reasonableness in those 

cases where a more precise determination is not possible.”241 

STB updates the RSAM and R/VC>180 tables annually for each Class I railroad, as well as 

regional averages. The R/VCCOMP ratio for appropriate comparison traffic is to be computed 

after a shipper files a rate complaint, using traffic data from the rail industry Waybill Sample 

and applying URCS costing. Upon filing a complaint, the shipper is provided access to the 

unmasked, confidential Waybill Sample for the traffic of the defendant carrier. Non-defendant 

traffic is excluded from comparison group analysis. STB then calculates the variable cost of the 

traffic covered by the complaint, as well as the variable costs of all movements included in the 

comparison group using the URCS model. To maintain simplicity and eliminate extensive delays 

in discovery and litigation over movement specific adjustments, STB does not consider 

movement-specific costing. 

The entire process concludes in a decision by the STB within 240 days. 

To calculate the R/VCCOMP benchmark, the parties to the complaint are required to submit initial 

evidence regarding an appropriate comparison group of movements of traffic. Any movement 

set forth in both sides’ initial tenders would be automatically included in each side’s final 

comparison group, unless the parties later agreed to exclude the movement. After a 

conference with the STB staff to resolve disputes in the selection of an appropriate comparison 

group, each party submits its final offer, contests the opponent’s traffic selections, and STB 

selects the most reasonable comparison group, which is then be used to calculate the R/VCCOMP

benchmark. 

In Three-Benchmark cases, STB limits the number of discovery requests that either party can 

submit to the other party without obtaining advance authorization from STB. Each party is 

limited to ten interrogatories (including subparts), ten document requests (including subparts), 

and one deposition. 

The first rate case considered pursuant to the simplified Three Benchmark test was filed on 

May 23, 2005, by BP Amoco challenging the reasonableness of rates for the shipment of 

paraxylene from Decatur, AL, to Kingsport, TN.242 Shortly after filing, the complaint was 

dismissed when resolution was reached via mediation. 

 
366

The first substantive test of the revised Three Benchmark approach was an amended complaint 

filed on October 30, 2007, wherein DuPont challenged the reasonableness of rates charged by 

CSX Transportation for three movements: 

• The movement of synthetic plastic powder from Ampthill, VA, to Wyandotte, MI, a 

distance of approximately 820 miles 

• The movement of plasticizers from Heyden, NJ, to Duart, NC, a distance of 

approximately 714 miles 

• The movement of plasticizers from Heyden, NJ, to Washington, WV, a distance of 

approximately 646 miles 

STB found the rates challenged to be unreasonable and prescribed maximum reasonable rates 

and reparations (with interest) for DuPont. DuPont followed up its victory with the first three 

cases filed under Three-Benchmark rules by filing a large number of rate complaints covering 

commodities moving over most of a single Class I railroad’s network, a case that would have 

been impossibly complex and expensive to address using SAC or Simplified SAC. Before the 

proceeding could begin, agreement between DuPont and the railroad was reached in 

arbitration. 

The Three-Benchmark procedures were specifically designed to address movements from a 

variety of origins to diverse destinations, by avoiding the need to specify a route as in SAC and 

Simplified SAC. STB believes agricultural shippers should be able to make effective use of the 

Three-Benchmark process, which is simple and relatively quick, to address rate disputes with 

railroads. While this procedure was essentially designed for agricultural shippers, they have not 

taken advantage of it to date because they are concerned that the resulting rate relief, if any, 

would not adequately compensate for the time and expense of bringing such a case. 

Conclusions 

Tariff rail rates can be challenged before the STB when revenue exceeds variable cost by 180 

percent and the railroad has market dominance. Rail rates for contract and exempt 

movements may not be challenged; STB has no jurisdiction over those movements. 

STB has developed three methods to appeal rate cases: 

• The Stand-Alone Cost (SAC) method takes millions of dollars and two to four years to 

pursue. There are no restrictions on the amount of the award if the rate is higher than 

180 percent of the railroad’s variable costs. 

• The Simplified SAC method requires a mandatory 20-day non-binding mediation before 

the case can be filed. It is limited to a potential cost recovery of $5 million over five 

years and must be decided within 17 months of the complaint. 

• The Three-Benchmark approach also requires non-binding mediation. It limits recovery 

to $1 million over five years and must be decided within 8 months of the complaint. 
367

Development of the latter two procedures was mandated by Congress in response to shipper’s 

complaints about the cost in both time and money required by the SAC method. STB hopes 

that by improving the Full-SAC approach, creating the Simplified SAC process, and refining the 

Three-Benchmark approach, it has provided meaningful relief for rail shippers. 

Shippers contend that the monetary limits for the Simplified SAC and Three-Benchmark 

procedures are too low and could result in shippers receiving little more than the cost of using 

these procedures. In addition, shippers believe that the cost of pursuing these rate appeal 

procedures is too expensive for many agricultural shippers, eliminating them from effective 

relief. Chemical companies have successfully used the Simplified Procedures, but no 

agricultural shipper has yet appealed rates using them. 

 
368

 
Chapter 12

Barge 

Transportati on
369

Chapter 12: Barge Transportation 

Before there were locks and dams on the Nation’s rivers, the early commercial vessels were 

designed to travel in shallow waters and had flexible cargo capability to handle passengers, 

freight, or livestock. Some were equipped with second decks for additional carrying capacity. 

These boats, called packets, made regular trips between river cities and were a primary mode 

of transportation in the central United States for the first half of the 1800s. Packets were 

propelled by steam-driven paddle wheels that permitted shallow-draft navigation on the 

constantly changing and unpredictable rivers. Early steamboat traffic was most prevalent 

during the spring, when high water permitted travel along most of the river system. The 

topography of the valley on the lower Mississippi River, combined with water flows from the 

Upper Mississippi, Missouri and Ohio Rivers, produced conditions for year-round navigation. 

The steamboat era ended as railroads began to cross the United States. Railroads offered lower 

rates and provided more city-to-city routes, especially to western destinations. In an effort to 

become more competitive, packets added barges to the sides of the vessels to increase cargo 

capacity. Before the addition of side barges, most packets were side-wheeled paddle boats. To 

accommodate the side barges, the paddle wheel was moved to the stern of the boat. 

Eventually, the packet evolved into today’s diesel-powered tow boat with propellers that 

pushes barges up and down the rivers.243 However, it became evident that improvements to 

the river system were necessary to allow safe and dependable movements on the river. 

Figure 12-1: Ohio packet boats in the early 19th Century 

Source: © 2006 History of Akron & Summit County 
370

As early as the 1830s, the Federal Government began making navigation improvements to the 

rivers. In the early years, improvements were limited to the removal of river hazards, such as 

submerged rocks, shoals, and sandbars. In 1878, Congress authorized a 41⁄2-foot deep channel 

with canals and locks that allowed boats to bypass rapids and other obstructions. In 1907, 

Congress authorized an increase in the channel depth to 6 feet. This increase was 

accomplished by the construction of hundreds of wing dams that extend from the shore to 

force the flow of the river towards the main navigation channel during low water. Finally, in 

1930, Congress authorized the U.S. Army Corps of Engineers (Corps) to construct and maintain 

a navigation channel 9 feet deep with a minimum width of 400 feet. Passage of this 

authorization marked the beginning of a massive dam-building program that built the 29 locks 

on the Upper Mississippi River and 8 locks on the Illinois River. The lock farthest downriver on 

the Mississippi is near St. Louis. There are no locks between St. Louis and New Orleans. There 

are also four locks on the Columbia River and four locks on the Snake River. 

The original purpose of the Federal involvement in inland navigation was to assist in the 

development of the frontier. Today, the Federal government’s role stems from an interest in 

helping to facilitate commercial navigation by providing safe, reliable, highly cost-effective, and 

environmentally sustainable waterborne transportation systems.244 The Federal agencies most 

directly involved in the development and operation of the Nation’s navigation system are the 

U.S. Army Corps of Engineers, the U.S. Department of Transportation (DOT), the Department of 

Homeland Security (DHS), and the Department of Commerce (DOC). The DHS, through the U.S. 

Coast Guard, has responsibility for vessel and navigation safety and provides navigation aids 

and search and rescue services. DOT’s Maritime Administration supports the development of 

U.S. ports, intermodal systems, and domestic shipping, and DOT’s St. Lawrence Seaway 

Development Corporation supports the operation of that waterway in partnership with 

Canadian authorities. DOC’s National Oceanic and Atmospheric Administration provides 

surveys, tidal information, and coastal charts.
371

Barge Traffic 

In 2007, 622 million tons245 of goods moved on the inland waterways, which include all 

movements within the boundaries of the contiguous 48 states and Alaska. The primary 

commodity moved on the waterways is coal, accounting for 29 percent of all tonnages (Figure 

12-2). Petroleum is the next largest commodity group with 27 percent; crude materials (forest 

products, sand, gravel, ores, scrap, and salt) are next largest with 18 percent; and food and 

farm products are fourth, with 12 percent. 

Figure 12-2: Barge tonnage by commodity group, 2007 

Source: Waterborne Commerce Statistics, U.S. Army Corps of Engineers

The Importance of the Inland Waterways to Agriculture 

The Army Corps of Engineers operates and maintains about 12,000 miles of rivers, canals, and 

other inland and intracoastal waterways (inland waterways) in the United States. The 

Mississippi River and the Illinois Waterway are the primary waterways for moving agricultural 

products by barge. They are especially important for transporting bulk grains and oilseeds from 

the Midwest to export ports in the New Orleans region. Other important rivers include the 

Columbia River in the Pacific Northwest, which also moves some bulk grains, oilseeds, and 

fertilizer/chemicals; and coastal waterways that supply poultry and hog operations in the midAtlantic region (Figure 12-2). 
372

Across the inland waterways, there are 191 active lock sites with 237 lock chambers. Some 

locks are equipped with more than one chamber, adding more capacity to that site. In 2006-

2008 the Ohio River carried 18 percent of southbound grain barge movements through the 

locking portion of the river system, the Upper Mississippi River 76 percent and the Arkansas 

River the remaining 6 percent. 

Barges have a 9 percent share of agricultural tonnages and a 12 percent share of agricultural 

ton-miles—most of which is accounted for by movements of grain, animal feed, and fertilizers 

on the Mississippi River and its tributaries. A complete discussion of the importance of the 

inland waterways to agriculture can be found in Chapter 2: The Importance of Freight 

Transportation to Agriculture. 

Figure 12-3: Agriculturally-significant waterways 

Source: AMS 

 
373

Figure 12-4: Barge Tow on the Mississippi River 

Source: USDA 

Today’s Barge Industry 

Today’s barge industry is driven by the fundamental forces of supply and demand, influenced 

by a variety of factors, including local weather patterns, navigation circumstances, domestic 

and international consumption of agricultural and industrial products, crop production, trade 

policies and the price of steel.246 

The demand for dry-cargo freight on the inland waterways is driven by the production volumes 

of dry bulk commodities that require competitive barge transportation. Historically, the major 

commodity groups for dry-cargo barge freight have been: 

• Coal for domestic utility companies, industrial and coke producers, and export markets. 

• Construction commodities, such as cement, limestone, sand, and gravel. 

• Grain and oilseeeds, such as corn and soybeans, for export markets. 

Other commodities include products used in the manufacturing of steel, finished and partially 

finished steel products, ores, salt, gypsum, fertilizer, and forest products. The demand for liquid 

freight is driven by the demand for bulk chemicals used in domestic production, including 

styrene, methanol, ethylene glycol, caustic soda, and other products. It is also affected by the 

demand for refined petroleum products and agricultural-related products such as ethanol, 

vegetable oil, bio-diesel, and molasses. 

 
374

Freight rates in both the dry and liquid freight markets are a function of the relationship 

between the demand for these commodities and the supply of barges available at any given 

point in time. 

U.S. Grain and Tank Barge Fleet 

According to the Corps publication Waterborne Transportation Lines of the United States,247

there were 32,211 non-self propelled vessels (barges of all categories) on the inland waterways 

in 2006. Of this number, 13,062 were covered barges, which haul most of the grain. About 36 

percent of the covered barges were greater than 25 years old. The average economic useful life 

of a dry cargo barge is generally estimated to be between 25 and 30 years. There were 8,673 

open barges, which are mostly used for coal, and 4,250 tank barges, which carry liquids. 

Of all non-self propelled vessels, 86 percent operated on the Mississippi River System and 

connecting waterways, 14 percent in the Atlantic and Pacific regions, and less than 1 percent on 

the Great Lakes. 

Informa Economics—which annually surveys the 

barge industry—reports that from 1998 to 2008, the 

covered barge fleet size for the Mississippi River 

System was reduced from 12,706 to 10,727 barges, 

an 18 percent reduction.248 

When fewer barges are available, carrying capacity is 

lower and competition becomes more intense for 

available barge transportation. Table 12-1 shows the 

five largest barge companies own or operate about 

75 percent of the grain barges. The eight largest own 

or operate 88 percent of the grain barges. Informa 

estimates that 28 companies own or operate barges 

capable of hauling grain. 

 

 

Barge Counts 

The Informa Economics annual 

survey of the barge fleet looks at the 

number of barges that are operated 

by individual companies; the Corps 

barge fleet data tracks vessel 

ownership. Some barge companies 

lease, rather than own, their 

equipment, so the number of barges 

reported differs between the Corps 

and Informa. Leased barges often 

are owned by a financial institution 

and not counted as belonging to a 

barge operator. 
375

Table 12-1: Covered barges on the Mississippi River system, by operator, 2008 

Number Percent of 

Total Fleet

Cumulative 

Total 

Average 

Age 

(years) 

American River Transportation 

Co.249 2,034 19.0% 19.0% 25.0

American Commercial Lines, LLC 1,873 17.5% 36.4% 19.4

Ingram Barge Lines 1,816 16.9% 53.4% 10.4

AEP River Operations 1,477 13.8% 67.1% 13.5

Cargill Marine and Terminal, Inc. 829 7.7% 74.8% 15.0

SCF Marine, Inc 626 5.8% 80.7% 6.8

Bunge North America 457 4.3% 84.9% 22.2

Alter Barge Line, Inc. 332 3.1% 88.0% 8.2

Total Major Operators 9,444 88.0% 16.5

All others 1,283 12.0% 11.6

Total 10,727 100.0% 15.9

Source: Barge Fleet Profile, Informa Economics, March 2009. 

A grain barge is typically 195 or 200 feet long by 35 feet wide, with a draft of 9 feet. An average 

barge holds 1,500 tons of grain. The barge is covered by removable sections that protect the 

cargo from damage during transit, and are removed during loading and unloading. One barge 

holds as much as 15 railcars or 58 semi-trailers of grain. A tow is a group of barges pushed by a 

towboat. On the section of the Mississippi River with locks, tows typically consist of 15 barges, 

grouped 3 abreast by 5 barges long. On the lower Mississippi River, where there are no locks 

and the river is larger, tows can consist of 30 to 40 barges pushed by one towboat. Movements 

on this larger scale increase the efficiency of barge movements. 

 
376

Figure 12-5: Grain barge being loaded. 

Source: USDA 

Barge Rates 

Grain barge rates have changed significantly during the last several years. The size of the barge 

fleet at any given point in time can influence the rates. The number of new barges built each 

year reflects a response to anticipated levels of future supply and demand. After a period of 

sustained rate increases, the industry builds more new barges to take advantage of the strong 

rates. Barge building is also encouraged by investment credits that offer barge owners tax 

advantages. 

When tax advantages brought many new barges into the fleet in the early 1980’s, the surplus of 

barges depressed rates. Because barges are designed to last 25 to 30 years, the surplus period 

lasted a long time. However, as barges reached their life expectancy and were retired, they 

have not been replaced, causing rates to rise in recent years. 

 
377

Barge rates can be volatile as they react to sudden increases in demand. Some shippers react 

to higher rates by postponing shipments until rates go down or choose to ship by an alternate 

mode. When there were surpluses of barges, any increase in demand was handled by the 

oversupply of equipment. Demand can also be boosted by crops being planted and harvested 

late because of bad weather, as occurred in 2008, continuing the volatility of the industry’s rate 

structure. However, most crops are first stored in the Midwest after harvest. Shippers 

generally will move the crops from there in stages over the course of the next year, by rail, 

barge, or truck to intermediate points and end users. 

As shown in Table 12-1, the barge market is highly concentrated. Barge operators are not price 

takers and no one company is considered a price leader. With only a few sellers of barge 

service for grain shippers, the market could be classified as an oligopoly, which implies 

imperfect competition. However, the barge industry is generally considered to be highly 

competitive—perhaps not as competitive as the truck industry, but more competitive than rail. 

Rates are determined by market conditions and no one company dominates the market. 

Theoretically, entry into the barge industry would require leasing or owning one barge and 

finding customers. However, success in the industry would likely require more than one barge 

and the operators would also need extensive industry knowledge and contacts to survive. 

In addition to the charge for freight movements, barge companies add charges for various 

services. For example, demurrage charges result when a barge is not loaded or unloaded within 

the agreed-upon time. Grain elevators typically have three days to load a barge and three days 

to unload it included in the contracted rate. If the grain elevator takes too long to use the 

barge, the barge operator requires some reimbursement because its barge is not being moved 

to the next customer. When this situation occurs, a demurrage charge, which is typically about 

$200 per day per barge, is applied to the final bill. 

Demurrage charges tend to be similar among barge companies across the industry. It is difficult 

to ascertain if this similarity is explicit or implicit among barge companies. However, past 

experience demonstrates that if a company raises demurrage charges too much, market 

dynamics kick in and bring the charges back into line with the rest of the industry. For example, 

in 2007, one of the major barge companies raised its demurrage charges in an effort to make 

more efficient use of their barge fleet. However, the immediate reaction by their customers 

was to avoid the higher demurrage charges by exclusively using other companies that had not 

raised demurrage charges. Eventually, the company dropped the increased demurrage charge 

to the same level as the rest of the industry. 

Barge operators on the Mississippi River System utilize a percent-of-tariff system to establish 

barge freight rates. The tariffs were originally set by the Bulk Grain and Grain Products Freight 

Tariff No. 7, which was issued by the Waterways Freight Bureau (WFB) of the Interstate 

Commerce Commission (ICC). In 1976, the United States Department of Justice entered into an 

agreement with the ICC that made Tariff No. 7 no longer applicable. Today, the WFB no longer 

exists and the ICC has become the Surface Transportation Board, which does not have 

jurisdiction over barge rates on the inland waterways. However, the barge industry continues 

to use the tariffs as benchmarks for rate units. To calculate the rate in dollars per ton, the 
378

industry multiplies the percent of tariff rate by the 1976 benchmark. As an example, a 271 

percent tariff for a St. Louis grain barge would equal 271 percent of the St. Louis benchmark 

rate of $3.99, or $10.81 per ton. Each river segment has its own bench mark, with the 

northernmost segments having the highest benchmarks. 

From 2004 to 2008, first quarter to second quarter rates decreased except for a slight increase 

in 2008 (Table 12-2). Rates for all years increased significantly from the second to the third 

quarter. For the fourth quarter, there were mixed outcomes, with decreases in 2006 and 2007. 

Over the past 5 years, grain barge rates have increased significantly and have trended up on a 

quarterly basis since 2004 (Figure 12-6). 

Table 12-2: Quarterly barge rates from St. Louis to New Orleans, 2004–2008250

 1st Quarter 

Jan–Mar 

2nd Quarter 

Apr–June 

3rd Quarter 

July–Sep 

4th Quarter 

Oct–Dec 

2004 138 119 225 287 

2005 261 186 409 474 

2006 355 279 503 385 

2007 240 218 557 348 

2008 357 361 490 541 

2009 289 198 271 - 

5-year average 270 233 437 407 

Source: AMS

 
379

Figure 12-6: Quarterly barge rates from St. Louis to New Orleans, 2004-08* 

*Rates expressed as a percent of tariff. The St. Louis tariff is $3.99 per ton.

Source: AMS 

During the 1990’s there was an ample supply of barges. Barge rates usually increase slightly in 

late winter and early spring when the Upper Mississippi River reopens after been closed in the 

winter and then dip until early summer (Figure 12-7). During the summer, rates gradually 

increase as old crop grain is sold to make room for the new crop. Rates peak during harvest 

time and then drop again toward the end of the year. 

 
380

Figure 12-7: Weekly barge rates, St. Louis to New Orleans, 10-year average (1990-1999)*

*Rates expressed as a percent of tariff. The St. Louis tariff is $3.99 per ton.

Source: AMS 

The beginning of the upward swing in barge rates started in fall 2004, due to a decrease in the 

barge fleet size and an increase in the demand to transport non-grain commodities on the 

waterways. Barge rates continued their increase the following year when Hurricane Katrina 

disrupted barge logistics in the third quarter of 2005. During the mid-2000s, barges began 

shipping large quantities of non-grain commodities, such as steel and cement. They could ship 

them up-river to manufacturing facilities in the interior of the country, generating additional 

revenue. The up-bound shipments spread the limited number of barges over a greater 

geographical area. With the barges out of position for loading grain, barge availability for grain 

shipments decreased, causing an upward pressure on barge rates. Historically, during the 

fourth quarter in any given year, barge rates can swing in either direction depending on export 

demand combined with the activity of non-grain commodities that compete with grain for 

barge capacity. 

Average quarterly grain barge rates from St. Louis to New Orleans for 2008 were consistently 

above the 4 year average as barge operators contended with a continuous string of navigation 

disruptions and pressing economic concerns (Table 12-6). Navigation was affected by flooding 

for much of the year, a July oil spill in New Orleans limited vessel movements, and two Gulf of 

Mexico hurricanes affected the industry in the third quarter. Barge shippers also had to deal 

with elevated commodity prices that limited economic opportunities. In addition, rates 

changed significantly every week. In 2008, the rate changed 100 points or more in 11 weeks. A 

more typical swing during a non-volatile period is 15 to 20 points per week. 
381

Figure 12-8: Grain barge rates in 2008 above the 4-year average*

*Rates expressed as a percent of tariff. The St. Louis tariff is $3.99 per ton.

Source: AMS 

Figure 12-9 shows a pattern beginning in 1994 of relatively stable rates for 10 years—

fluctuating between 100 and 200 percent of tariff—and then a substantial increase from the 

mid-2000’s on. In the period from 2003 to 2008, at times, the barge rates exceeded 500 

percent of tariff. During this period, the rates are characterized by dramatic swings from peak 

to valley, at times in excess of 300 percent of tariff. Since 2004, barge freight rates have been 

especially volatile as a reaction to high energy costs and competing uses for barge 

transportation. Rates began to decrease in 2009 and, by the end of second quarter, were 

about 200 percent of tariff, back in the upper end of the range that was prevalent in the mid-tolate 1990s. The 2009 decrease may result from the overall economic downturn affecting many 

industries and the smaller barge fleet adjusting to market conditions. 

Figure 12-9: Quarterly barge rates from St. Louis to New Orleans, 1994-2009* 

*Rates expressed as a percent of tariff. The St. Louis tariff is $3.99 per ton.

Source: AMS 
382

Barge Rates and Corn Basis in the Aftermath of Hurricane Katrina 

The Mississippi Gulf port area depends on the Mississippi River for grain barge transportation. The cost of 

shipping corn increases when the river is impassable. With no barge transportation, demand for truck and 

rail services increases. The transportation system is fluid—when one mode is disrupted, the competitive 

pressure to keep the prices of other modes in line is disrupted by the high demand. When river traffic was 

halted by Hurricane Katrina, freight rates responded immediately—barge, rail, and truck rates surged. Barge 

rates spiked to more than 900 percent of tariff for grain shipped from St. Louis to New Orleans and averaged 

more than 500 for the remainder of 2005 (See Figure 12-10). Barge rates decreased subsequent to the 

recovery in the Gulf, but remained higher than the pre Katrina levels throughout most of 2006 because of 

higher fuel and labor costs. 

High transportation costs also translated into lower farm level prices as evidenced by the drop in basis in the 

major production areas of the interior Midwest and a surge in the basis at the Gulf (Figure 12-11). Prior to 

the hurricanes, the weekly corn basis in Illinois was averaging 20 cents per bushel below the futures. It 

dropped to almost 40 cents per bushel after the hurricanes. At the same time, the export basis surged to 

almost 70 cents per bushel above the futures, indicating a strong export demand, and reflecting the higher 

transportation costs. By the end of 2005, transportation disruptions were resolved and both markets 

gradually returned to normal patterns. 

Figure 12-10: Spot barge rates, pre- & post-Katrina 

Source: AMS 

Figure 12-11: Katrina corn basis impact in 2005 

Source: AMS

0

200

400

600

800

1,000

1/7/043/7/045/7/047/7/049/7/04

11/7/04

1/7/053/7/055/7/057/7/059/7/05

11/7/05

1/7/063/7/065/7/067/7/06

Index

St. Louis Spot Barge Rates 

(1/7/04-7/19/2006)

St. Louis Weekly Rate

St. Louis Average Rate

'04 Avg: 

Pre-Katrina 

Last Half 

'06 - Jul 

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

8/5/05

8/12/058/19/058/26/05

9/2/059/9/05

9/16/059/23/059/30/0510/7/05

10/14/0510/21/0510/28/05

11/4/05

11/11/0511/18/0511/25/05

12/2/0512/9/05

12/16/0512/23/05

$/bushel

Illinois (interior) Gulf (export)

Hurricane

Katrina 

8/29

Hurricane 

Rita

9/24
383

Condition of the Nation’s Inland Waterways 

Commercial navigation is one of the three main missions* of the Corps civil works program.251 

The Corps supports commercial navigation on the inland waterways through locks, dams, 

developed channels, and other features. Although much attention has been drawn to the age 

of the locks and dams on the system, they are generally viewed as reliable for transportation. 

As locks age, however, their maintenance becomes more extensive and expensive. The 

investment to continue to maintain the locks and dams and other features that make barge 

transportation possible on these waterways is facing potential financial difficulties. 

Many agricultural interests are concerned over the current condition of the Nation’s 

waterways, especially the Upper Mississippi River and Illinois Waterway (UMR-IW). It is 

commonly thought that these locks have exceeded their design life. For example, the American 

Society of Civil Engineers (ASCE), which produces an annual Report Card for America's 

Infrastructure, said in 2009: “The average age of all federally owned or operated locks is nearly 

60 years, well past their planned design life of 50 years.” Such statements are common, but 

misunderstand the nature and purpose of the Corps project planning process. 

The Corps designs and builds its locks and dams to last much longer than 50 years. However, 

these structures typically require significant rehabilitation about every 25 to 30 years 

depending on local operating conditions, such as degree of barge impact to gates and concrete 

and weather-related deterioration. The Corps, following 10 years of study, produced a report 

on the UMR-IW which said: 

... the life of existing locks and dams and their components can be extended 

with normal periodic rehabilitation for another 50 years and match the 

design life of any new construction being considered as part of the “with 

project”†

 conditions.252

The Corps uses a 50-year period in planning a project, but only for purposes of the economic 

evaluation of a proposed water resources investment. The time frame for this economic 

analysis reflects the fact that the economic benefits and costs beyond 50 years generally are 

negligible when expressed in net present value terms, and therefore do not significantly affect 

the net return to the Nation from the proposed investment. 

In 2007, more than a third of our Nation’s corn exports and almost 17 percent of our soybean 

exports were barged to New Orleans from the UMR-IW. Agricultural interests are concerned 

that the lock capacity on the UMR-IW may not be able to adequately handle grain traffic in the 

 

*

 The other two main missions of the civil works program are flood and storm damage reduction, and aquatic 

ecosystem restoration. †

 Corps studies begin with a description and analysis of the current condition of the water and related land 

resources for a project. The Corps uses this snapshot of the current resources to forecast how the condition of 

the water and land resources would change in the future, both “with” and “without” the proposed federal 

action. 
384

future. They are also concerned that congestion on the river could lead to delays, and thus 

adversely influence barge rates and the competitiveness of U.S. grain in international markets. 

The Corps evaluated these concerns in its September 2004 study of seven proposed new locks 

and other navigation measures for the UMR-IW and in its revaluation of these locks and 

measures in its March 2008 follow-on study. 

Upper Mississippi River and the Illinois Waterway 

The UMR consists of an 854-mile segment of the Mississippi River from the confluence with the 

Ohio River at Cairo, IL, through the Upper St. Anthony Falls Lock in Minneapolis-St. Paul. The 

southernmost set of locks (Locks 27) on the Mississippi is located in Granite City, IL (St. Louis), 

about 185 miles upstream of the junction of the Mississippi and Ohio Rivers (Figure 12-12).

The IW is the 327-mile portion of the Illinois River from its confluence with the Mississippi River 

at Grafton, IL, to the T.J. O’Brien Lock in Chicago. Together, the UMR and the IW represent 

1,181 miles of navigable waterways, about 10 percent of all the inland waterways.

Figure 12-12: Upper Mississippi River and the Illinois Waterway 

Source: U.S. Army Corps of Engineers 
385

The locks on the UMR-IW were built starting in the 1930s and were designed to accommodate 

the size of the most common vessels used in waterways commerce on these rivers at that time. 

The UMR-IW locks built during that period were 600 feet long by 110 feet wide. Since then, 

however, more powerful and efficient towboats have been built. Modern towboats on the 

Upper Mississippi River can push a 1,200-foot-long tow of 15 barges. To transit a 600 foot lock, 

the tow is disassembled or “cut” into two sections, one of nine barges and one of six. The two 

sections transit the lock separately, one at a time. After passing through the lock, the tows are 

reassembled and continue to the next lock. In most cases, the 

process takes 11⁄2 to 2 hours. Transiting a 1,200-foot lock takes 

only about 45 minutes. 

Tows originating at the same lock or at other locks can add 

further to the length of a trip if there are enough of them to 

cause congestion, especially during peak periods. The lockage 

time associated with splitting the tow can then produce 

queuing delays for other barges. Due to the reduction in 

traffic levels over the past 20 years, lengthy delays and long 

queues on the UMR-IW are now much less common.253 When 

they occur, however, they reduce productivity and can 

sometimes cause barge rates to increase. Because farmers do 

not have market power and are price takers, these rate 

increases are felt most by the farmer as higher basis* and 

lower margins. 

In addition to the lockage time associated with getting 1,200-

foot tows through 600-foot locks, and the delays caused by 

congestion, lock maintenance and breakdowns can cause 

delays. To ensure reliability, locks are periodically shut down 

for maintenance. Because maintenance shut-downs are 

usually scheduled during slow traffic periods, barge companies 

can plan for them. Emergency repairs of locks, such as those 

caused by a barge hitting a lock structure, require 

unscheduled shut-downs. Shutdowns due to emergency 

repairs are more detrimental to barge operations than 

planned shutdowns. Delays cause the towboat to use more fuel. If they were to stretch into 

weeks or months, rates would go up and farmers’ net prices could shrink. The longer the delay, 

the greater the impact is on farmers’ incomes. The age and condition of the inland waterways 

infrastructure can thus have an effect on farmers’ livelihoods. 

 

*

 Basis is the difference between the current cash price of a commodity and its futures price (Basis = Cash Price 

less Near-Month Futures Price). The basis accounts for the difference in the supply and demand relationships 

in the local market relative to the futures market. 

Costs of Delays 

A typical towboat is equipped 

with an engine that develops 

from 1,800 to 6,000 horsepower 

(hp).* As a rule of thumb, these 

vessels burn 0.75 gallons of fuel 

per hp per day. For example, a 

towboat with 4,000 hp engines 

may use up to 3,000 gallons of 

fuel per day. Costs other than 

fuel are also increased by delays, 

including barge ownership costs, 

leasing costs, and crew wages 

and benefits. 

*

 Ingram Barge Company, 

Transportation Research Board, 87th 

Annual Meeting, Washington, D.C., 

January 14, 2008. 
386

The Corps gives priority to the maintenance of the locks and dams of the UMR-IW and to their 

periodic rehabilitation. It also has a good track record of responding to equipment breakdowns 

when they occur. Preventable causes (i.e. closures other than due to water conditions from 

drought or flood, and accidents) are infrequent and tend to be relatively short in duration. 

However, when breakdowns do occur, they increase the costs to shippers. 

Wildlife Protection Areas

In addition to federally created and maintained navigation projects, four parts of the UMR-IW 

serve as national wildlife protection areas, creating some potential conflicts among the 

purposes of the river. 

The Upper Mississippi River National Wildlife and Fish Refuge was established in 1924 by 

Congress to preserve the river for fish, migratory birds, other wildlife, and people. Today it 

consists of 200,000 acres of land and water along 260 miles of the UMR from Wabasha, MN, to 

near Rock Island, IL. 

Trempealeau National Wildlife Refuge consists of 5,900 acres on the Wisconsin side of the 

UMR near La Crosse, WI. 

 

Mark Twain National Wildlife and Fish Refuge is on 23,500 acres along the UMR between 

Davenport, IA, and St. Louis. 

Chautauqua National Wildlife Refuge occupies 8,000 acres along and on the Illinois River. 

The Mississippi River is required by law to serve both wildlife and fish protection and 

commercial navigation. The Federal Government is responsible for maintaining and improving 

environmental conditions as well as navigation on the UMR-IW. 

Improvements to the Upper Mississippi River and the Illinois Waterway 

Since 1993, the Army Corps of Engineers has been evaluating options for developing navigation 

improvements on the UMR-IW. In 2001, it added an evaluation of options for environmental 

improvements to this study. In 2004, the Corps proposed a Navigation and Ecosystem 

Sustainability Program (NESP), which is a long-term program of navigation improvements and 

ecological restoration for the UMR-IW that is designed to be implemented in increments over a 

50-year period through integrated, adaptive management. 

The improvements are intended to improve the flow of barge movements, among other things 

such as ecosystem protection, flood plain restoration, water level management, etc. Lockage 

times are longer as a result of barge tows that are longer than the locks, and therefore have to 

be split into two sections for transit. Only 3 of the 37 locks on the UMR-IW—Melvin Price 

Locks, Locks 27, and Lock 19—have 1,200 foot chambers. The splitting process adds time and 

costs to barge movements, and also causes delays for barges waiting for use of a lock that is 

being used by another barge. Delays can result from both traffic backups due to congestion 

and to a lesser extent from closures for operation and maintenance or breakdowns. 
387

The 2004 NESP study recommended the construction of seven new locks and some small-scale 

improvements on the river to facilitate the movement of barge traffic. The proposal was 

contained in the Water Resource Development Act of 2007 (WRDA 2007), which authorizes the 

proposal, but does not provide funding. The proposed small-scale improvements, at Locks 12, 

14, 18, 20, 22, and 24 on the UMR, and La Grange Lock on the IW, include mooring facilities and 

helper towboats to help barges thorough existing locks. Initial costs for the small-scale 

improvements are $274 million. With the proposed new 1,200-foot locks at Locks 20, 21, 22, 

24, and 25 on the UMR and at La Grange and Peoria Locks on the IW, the navigation 

improvements would have an initial total cost of $2.1 billion. 

WRDA 2007 also authorizes an initial 225 ecosystem restoration projects to address the 

cumulative impact of the navigation operations. These programs to improve the ecological 

integrity will total $1.58 billion. Federal funds will pay most of the ecosystem restoration costs 

with cost sharing from other sources. 

Figure 12-13: Building Olmsted locks and dam on the Ohio River. Construction work began in 

1991 and originally was scheduled to be finished by 2006. It will replace Locks and Dams 52 

and 53. 

Source: U.S. Corps of Engineers 
388

Much of the justification for navigation improvements centers on the projected level of river 

traffic that will occur over a period of 50 years. Critics of the improvements believe that future 

traffic will not increase sufficiently to justify the investment needed to construct larger locks. 

Proponents believe that investments in navigation improvements on the UMR-IW will produce 

increases in barge traffic, making the improvements a desirable option.254 

Figure 12-14 shows the commercial tonnage and lockage numbers at Mississippi River Lock 25 

from 1989 to 2009. Overall, this period is characterized with a trend of declining tonnage and 

lockage numbers, especially since the period from 1999 to 2002, when the lockage numbers 

averaged about 3,338. The steep drop in traffic and tonnage in 1993 and 1994 reflects the two 

year effect of major and widespread flooding in the Midwest in 1993. The flooding in 1993 

severely impacted barge traffic and also reduced that year’s grain production, which impacted 

barge movements in the following year. Traffic levels largely recovered by 1995, but have 

declined since 2002 and are now even below the 1993 level. In 1990 the lockage numbers 

were highest at 3,966. By comparison in 2009 the lockage numbers had declined to only 2,350. 

It is interesting to note that most of the variability of the tonnage figures over the period is 

from the farm and food category, which implies the other categories—that add to the total 

tonnage, such as coal, petroleum, chemicals, and manufacturing goods, etc.—have been 

relatively stable over the period. These tonnage figures also show that farm and food products 

are a significant part of the total tonnage on the UMR-IW. 

Figure 12-14: Annual commercial tonnage and lockage numbers at Lock 25, 1989-2009 

Source: U.S. Army Corps of Engineers, LPMS/OMBIL 

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

0

5

10

15

20

25

30

35

40

45

19891991199319951997199920012003200520072009

Million Tons

Lockages

All Commercial Lockages (#)

Food and Farm Products (tons)

All Commodities (tons)
389

Tonnages and Commodities Moved on the UMR-IW 

On average, food and farm products represent about 39 percent of all IW tonnage and 24 

percent of all Mississippi River tonnage (see Table 12-6, in Appendix 12-1). The most important 

agricultural commodities moved on the UMR-IW are corn and soybeans. Almost all grain 

originated in the UMR-IW moves to New Orleans for export. Table 12-3 shows that during the 

period from 2003 to 2007, the UMR-IW supplied 32-52 percent of all U.S. corn exports and 17-

24 percent of all soybean exports. 

Table 12-3: Importance of Upper Mississippi River and Illinois Waterway to agriculture255

 Barged Grain to New Orleans Total Exports 

From Upper 

Miss-IL 

Rivers 

From All River 

Origins 

All Ports and 

Borders 

Percent from Upper 

Miss. & Ill. Rivers 

Crop Year ------- million tons ------ Percent 

Corn 

2003 24.7 32.9 47.3 52.2% 

2004 22.1 34.0 53.6 41.2% 

2005 17.8 28.8 50.1 35.5% 

2006 20.1 32.0 63.2 31.8% 

2007 21.4 34.7 62.7 34.1% 

Soybeans 

2003 8.2 18.7 34.0 24.2% 

2004 4.7 15.5 27.7 17.1% 

2005 5.2 15.1 28.1 18.6% 

2006 5.3 15.3 31.1 17.0% 

2007 5.5 15.3 32.8 16.8% 

Source: U.S. Army Corps of Engineers; Foreign Agricultural Service 

New Orleans is the primary port for exporting corn and soybeans. During 2003 to 2007, about 

65 percent of all export corn and 58 percent of soybeans were shipped to foreign counties 

through New Orleans. New Orleans receives about 90 percent by barge, with the remaining 10 

percent arriving by rail and truck. Other than the UMR-IW, major barge origins for corn and 

soybeans to New Orleans include the Mississippi River below Granite City, MO, the Ohio River 

and its tributaries, and the Arkansas River (officially called the McClellan-Kerr Arkansas River 

Navigation System). 

 
390

The decline in the market share of UMR-IW originations of corn and soybeans for the export 

market was partly due to the increase in barge rates that has occurred since 2004. When barge 

rates are elevated, the UMR-IW is less attractive to exporters. However, ethanol plants in the 

major production areas compete with export buyers of corn, so ethanol production has played 

a role in the decline of grain shipped by barge to New Orleans. Thus, because less grain in this 

area of the country now needs to be moved to distant markets, export related barge 

movements via the UMR-IW may continue to be at lower than historical levels, if this 

phenomenon continues. 

Regional Competition between Barge and Alternate Transportation 

for Export Grain 

A survey conducted by the Navigation Economics Technologies (NETS) program of the Corps 

identified and examined the full range of alternate transportation available to agricultural 

shippers in the Midwest. The study found that most of the agricultural shippers surveyed have 

a range of alternatives, both in terms of the means of transportation and in terms of the end 

markets for their products. For each of these alternatives, the study surveyed the prices that 

shippers said they could receive for their goods, net of the cost of transportation, and 

concluded the economic value created by a single transportation mode is moderated by the 

presence of other alternatives. The Corps used the results of this NETS survey in estimating 

potential national economic development benefits in its March 2008 revaluation of the 

proposed new locks and other navigation measures for the UMR IW.256

 

Figure 12-15: A barge tow on the Mississippi river in St. Louis 

Source: Wikemedia Commons 

 
391

Critics argue that some of these national economic development benefits can be attributed to 

the fact that the operational and maintenance costs of the waterway system are covered 

entirely by the government through appropriations to the U.S. Army Corps of Engineers, which 

is responsible by law for maintaining the Nation’s inland waterways infrastructure. Further, 

they argue barge companies currently pay for only half of new waterway infrastructure through 

a fuel tax. Barge interests contend that the waterways provide benefits to other users, such as 

hydropower, water supply, municipalities, and recreational users, among others. In contrast, 

others contend that most of the benefits ascribed to other “users” of the UMR-IW and the Ohio 

River would have likely accrued anyway in the absence of the existing locks and dams. 

Competing modes, such as rail and trucks, also pay a much greater proportion of the 

operational and maintenance costs of the infrastructure they use, as well as the capital costs of 

expanding that infrastructure. For example, railroads generate from revenues almost all of the 

funds needed for capital improvements and maintenance of their infrastructure. 

Environmental and Economic Uses of the Missouri River 

A divisive debate has developed over the management of water levels on the Missouri River. 

Recreational, environmental, hydroelectric power, navigation, and flood control uses all 

compete for water. The States have different interests, depending on their predominant use of 

the river system. Northern states such as Montana and North Dakota are keenly interested in 

the recreational economy generated from the impounded lakes, and in hydroelectric power. 

Closer to the Mississippi River, States are more concerned with navigation and flood control. 

The Missouri River is important to agriculture, but agricultural traffic on it is small relative to 

that on the Mississippi. During normal flow conditions, it is not the volume of traffic moving on 

the Missouri that makes it so critical to agriculture—although that is certainly important to the 

farmers who depend on the Missouri to move their grain—but its ability to store Missouri River 

water and release it later in the season to augment the supply of the Mississippi River and 

thereby benefit Mississippi River navigation, and by doing so, ensuring that grain can move 

from the Upper Mississippi River to the Gulf of Mexico. 

The Missouri River system is the largest reservoir system in the United States. The river is 2,341 

miles long and drains one sixth of the United States, consisting of 6 dams and reservoirs (lakes) 

located in Montana, North Dakota, South Dakota, and Nebraska (Figure 12-16). The Corps 

operates the reservoir system as a project to serve congressionally authorized purposes—flood 

control, navigation, irrigation, hydropower, water supply, water quality, recreation, and fish 

and wildlife. 

 
392

Figure 12-16: Missouri River 

Source: U.S. Army Corps of Engineers

Navigation is only possible on a 732-mile stretch of the Missouri River from Sioux City, IA, to St. 

Louis. Runoff from above the reservoir system dams is stored in the 6 lakes, where it serves the 

project’s many purposes. The Corps manages the system of dams and reservoirs according to 

the water control plan contained in its Missouri River Mainstream Reservoir System Master 

Water Control Manual,257 first published in 1960 and revised most recently in 2006. 

One of the major concerns with the Missouri River system is that during droughts, limited water 

is available for the upstream and downstream users. Also, three Missouri River species (the 

interior least tern, piping plover, and pallid sturgeon) are listed under the federal Endangered 

Species Act. The Corps considered these issues in its recent changes to the Master Manual. 
393

Missouri River Traffic 

According to a January 2009 report by the Government Accountability Office (GAO), the State 

of Missouri is the predominant user of Missouri River navigation.258 Missouri accounted for 83 

percent of the tonnage shipped on the Missouri River between 1994 and 2006, Kansas 

accounted for 12 percent, Nebraska 3 percent, and Iowa 2 percent. 

Figure 12-17: Big Bend Dam on the Missouri River, South Dakota, one of the six reservoirs 

making up the Missouri River system. 

Source: U.S. Army Corps of Engineers 

The four States of Iowa, Nebraska, Kansas, and Missouri are adjacent to the Missouri River and 

are served by barge and other vessel traffic along the river. Iowa and Missouri are served by 

navigation on both the Missouri and Mississippi Rivers. During the 13-year period from1994 to 

2006, 108 million tons of commodities were shipped on the Missouri River, or about 8.3 million 

tons per year. During the study period, the majority of the shipments on the Missouri River 

were sand and gravel—84 percent of the tonnage. Most of the sand and gravel was 

transported 1 mile or less. The distance traveled is so short because sand and gravel is taken 

from the river and shipped to nearby processing facilities. On average, about 215,385 tons of 

food and farm material per year were shipped to or from Missouri or Iowa on the Missouri 

River. In contrast, on an annual basis, about 14.5 million tons of food and farm material were 

shipped on the Mississippi River to or from the same States. 
394

The Columbia-Snake River System 

The Columbia-Snake River System can be navigated from the Pacific Ocean to Lewiston, ID, 465 

miles from the open sea (Figure 12-18). There are eight primary competing uses of the river 

system: 

• Navigation 

• Flood control 

• Irrigation 

• Electric power generation 

• Fish migration 

• Fish and wildlife habitat 

• Recreation 

• Water supply and quality.259 

Figure 12-18: Columbia–Snake River System 

Source: Pacific Northwest Waterways Association. 

While most uses, such as irrigation, are beneficial to agriculture, some uses conflict. The best 

example is the need to allow anadromous fish, such as salmon, to migrate up and down the 

river system. Salmon live most of their lives in the ocean, and breed in fresh water. Dams 

were built to store water to turn turbines for electric power generation, but stopped fish from 

travelling up or down the river system. In an effort to meet the multiple authorized purposes of 

these dams, which include navigation, the Corps constructed fish ladders and other facilities 

and has taken other measures to help the fish to swim up and down the river. 
395

Certain salmon species on the West Coast experienced dramatic declines during the past 

several decades as a result of human-induced and natural factors.260 Several of the species 

were classified as endangered or threatened, and required corrective action as mandated by 

the Endangered Species Act. To keep the dams operational, procedures were implemented to 

aid in fish migration, including adding screens to prevent the fish from entering the turbines, 

and the use of barges to transport the fish around the dams. The effort to balance conflicting 

demands for uses of the river has generated a lively controversy. For example, some 

environmentalists are so concerned that the construction and operation of the dams on the 

Snake River is damaging salmon breeding they have called for restoring the Snake to its natural 

flow. 

Figure 12-19: Barge tow on the Columbia River 

Source: Wikimedia Commons 

Table 12-4 shows 10 years of tonnage moved on the Columbia and Snake Rivers. About 29 

percent of the tonnage on the Columbia and 60 percent on the Snake is farm and food 

products. The predominant commodity is wheat, making up nearly two-thirds of the farm and 

food traffic on the Columbia and more than 90 percent on the Snake. Other grains and oilseeds 

make up most of the remainder of the farm and food traffic. 

Because the Columbia-Snake system river is deeper than the Mississippi System, barges have a 

greater cargo capacity. Most barges carry 3,500 tons, whereas Mississippi River barges carry 

only 1,500 tons. There are eight locks and dams on the Columbia and Snake Rivers that were 

developed principally for hydroelectric purposes.261 The oldest facility is Bonneville Lock and 

Dam on the Columbia River, which went into service in 1938 and had a new and larger lock 

installed in 1993. The other locks and dams were constructed from the 1950s through the 

1970s. 
396

Table 12-4: Up-bound and down-bound barge tonnage, by river, 1998-2007 

Columbia 

River Million Tons Percent 

 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 10-year 

avg. 

% of 

total 

Total 17.22 17.68 22.02 19.13 15.51 15.95 17.44 17.56 17.89 18.51 17.89 100.0% 

Petroleum 5.37 7.07 10.35 7.88 6.11 5.74 5.92 6.13 6.58 6.56 6.77 37.8% 

Chemicals .54 .54 .45 .45 .34 .18 .20 .22 .12 .09 .31 1.7% 

Crude 

Materials 4.70 4.32 4.69 5.11 5.10 4.69 5.17 5.65 5.48 5.75 5.07 28.3% 

Farm & 

Food (F&F) 5.85 5.07 6.05 5.17 3.48 4.96 5.66 5.06 5.06 5.48 5.15 28.9% 

Other 0.76 .68 .49 .51 .48 .39 .48 .51 .65 .62 .58 3.1% 

% F&F 34.0% 28.7% 27.4% 27.0% 22.4% 31.1% 32.5% 28.8% 28.3% 29.6% 28.9% 

Snake 

River Million Tons Percent 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 10-year 

avg. 

% of 

total 

Total 5.84 5.84 6.70 5.64 4.28 5.34 5.72 5.29 5.24 5.42 5.53 100.0% 

Petroleum 1.56 1.74 2.12 1.65 1.70 1.82 1.52 1.61 1.92 1.91 1.76 31.7% 

Crude 

Materials .56 .44 .31 .24 .14 .20 .26 .27 .21 .19 .28 5.1% 

Farm & 

Food (F&F) 3.54 3.46 4.16 3.59 2.25 3.19 3.79 3.29 2.92 3.10 3.33 60.2% 

% F&F 60.6% 59.2% 62.1% 63.7% 52.6% 59.7% 66.3% 62.2% 55.7% 57.2% 60.2% 

Source: Waterborne Commerce Statistics, U.S. Army Corps of Engineers. Totals may not add due to rounding. 
397

Inland Waterways Funding 

According to the Inland Waterways Users Board (IWUB), there is a growing gap between 

Congressional appropriations for capital water infrastructure projects and the needed funding 

levels for these projects.262 Although there has been an increase in spending over the past few 

years, there has not been a corresponding growth in the completion of high-priority projects. 

Cost overruns and delayed construction, they say, have disrupted the capability of the Corps to 

improve the nation’s water infrastructure. The projects are almost always multi-year projects, 

but Congressional appropriations are given in 1-year increments. When annual appropriations 

for a given project are less than the Corps estimate of the maximum amount that it can 

efficiently spend in a fiscal year, the completion date is considered extended. 

As an example, the IWUB points to Olmstead Locks and Dam, located on the Ohio near its 

confluence with the Mississippi River. Olmstead was authorized in 1988, funded for $775 

million dollars, and was estimated to be completed in 7 years. By 2008, the project had been 

underway for 15 years and is now estimated to take 22 years. A recent estimate of the cost of 

the completed project is $2.067 billion, almost three times the original estimate. The IWUB 

stated, in its 22nd annual report, released in May 2008, that consistent underfunding has left 

annual shortfalls in the original construction needs.263 

A Corps study of the history of this project reached a different conclusion. In a July 2008 report 

to the IWUB, the Corps found that that Olmsted costs, measured in real terms, had increased 

by 58.6 percent. Typical engineering and construction factors accounted for 69 percent of the 

increase. Specifically, design changes following the initial, rough cost estimate accounted for 30 

percent; omissions and re-estimates from the initial estimate accounted for 35 percent; and 

site conditions that were different than expected accounted for 4 percent. Less than one-third 

of the increase (31 percent, or $226.5 million) involved the appropriated funding levels.264

Funding mechanisms for construction of new structures and major rehabilitation of existing 

navigation structures are specified by Section 102 of the Water Resource Development Act of 

1986 (WRDA 86). WRDA 86 directs the cost of these inland navigation capital improvements to 

be paid from the general fund of the U.S. Treasury and a matching amount from the Inland 

Waterways Trust Fund (IWTF). The sources for the IWTF are taxes imposed on fuel for vessels 

engaged in commercial waterways transportation and any interest accrued by the trust fund. 

The current tax is 20 cents per gallon of fuel. 

During the late 1990’s, IWTF tax revenues were greater than expenditures, creating a surplus in 

the Trust Fund that peaked at $413 million in FY 2002. The balance in the trust fund has been 

declining since FY 2002. This occurred primarily because expenditures increased; however, 

revenues also decreased during this period. By the end of 2009, the balance in the IWTF was 

$14.3 million. At this level, the IWTF can only fund twice the amount of annual receipts 

because under current law the trust fund pays 50 percent of capital investments. In short, the 

decline in the trust fund since 2002 reflects a longer term trend, a structural imbalance 

between receipts and expenditures. The users of these waterways now pay a total of roughly 
398

$85 million per year. By comparison, the amount financed from the trust fund, reflecting their 

share of the capital cost under current law, was $205 million in FY 2007 and $205 million in FY 

2008. 

The primary question is, “how will the funding be provided?” Several sources of additional 

revenues have been suggested, such as a fuel tax increase, a user fee for using the locks 

(possibly including a congestion fee), a ton-mile charge, and expanding the list of waterways 

designated in law265 as “inland and intracoastal Waterways of the United States” to include all 

such waterways. The users have suggested instead that Congress should redefine their cost 

sharing responsibilities by excluding some or many types of projects from cost sharing. If the 

funding mechanisms are not resolved, new construction and the rehabilitation of inland 

navigation structures will slow down. 

In April 2008 and May 2009, the Army submitted legislative proposals to the Congress to 

resolve this issue. The Congress enacted the current cost-sharing in the landmark Water 

Resources Development Act of 1986. While the 2008 and 2009 legislative proposals differed in 

certain respects, both of these proposals aimed to raise sufficient revenue to meet the 1986 

cost-sharing, in a way that would be more efficient and more equitable than the fuel tax. 

The Congress has not acted on these proposals. The lack of a clear path forward is of significant 

concern to the farmers that depend on the inland waterways to move their crops to market. 

However, in the short-term, the current level of annual funding is not likely to cause significant 

delays or closures to the UMR-IW, lead to substantially higher transportation costs, or reduce 

farmers’ margins or their incomes. 

Current Investment Needs 

The Corps develops and maintains navigation on the inland waterways infrastructure through a 

system of locks, dams, channel improvements, and dredging. More than half the locks and 

dams operated by the Corps are over 50 years old. As facilities grow older, the need for repairs 

and preventative maintenance increases, and eventually some facilities need to be replaced. 

Table 12-5 shows current major projects on the Nation’s inland waterways that are included in 

the budget for the U.S. Army Corps of Engineers. Funding is broken into two categories: new 

construction and major rehabilitation. New construction projects are more expensive than 

major rehabilitation. As can be seen from the table, the total cost of new construction projects 

is over $6.5 billion, of which $3.4 billion had been allocated through FY 2008. This leaves $3 

billion to complete these projects. The total cost for projects for major rehabilitation projects is 

over $617 million, of which $261 million has been allocated through FY 2008, leaving some 

$356 million needed to complete these rehabilitations. 

The most expensive project is the construction of the Olmsted Locks and Dam. Olmsted will 

eventually replace the last two locks on the Ohio River, where there are some of the highest 

traffic levels on the waterway system. Of the top twelve new construction projects, Olmsted 

will take about a third of the total costs of the projects for its completion. 
399

Table 12-5: Current funding allocations for inland waterway projects 

Total 

Cost of 

Project 

Allocated 

through 

FY 2008 

Funding 

Needed to 

Complete 

 1,000 Dollars 

New Construction Projects * 

 1 Olmsted Locks and Dam Ohio River 2,067,000 992,946 1,074,054 

 2 John T Myers Locks and Dam Ohio River 232,400 9,017 223,383 

 3 Greenup Locks and Dam Ohio River 245,000 8,236 236,764 

 4 Kentucky Lock and Dam Tennessee River 663,500 256,782 406,718 

 5 McAlpine Locks and Dam Ohio River 429,280 423,010 6,270 

 6 Inner Harbor Navigation Canal Lock New Orleans, LA 733,300 140,653 592,647 

 7 Grays Landing Lock and Dam Monongahela River 178,046 177,446 600 

 8 Locks and Dam 2,3, and 4 Monongahela River 750,000 487,914 262,086 

 9 Point Marion, Lock and Dam 8 Monongahela River 113,574 112,974 600 

 10 Chickamauga Lock Tennessee River 364,600 93,775 270,825 

 11 Marmet Locks and Dam Kanawha River 405,822 396,820 9,002 

 12 Robert C. Byrd Locks and Dam Ohio River 383,500 372,968 10,532 

 Total New Construction 6,566,022 3,472,541 3,093,481 

Major Rehabilitation Projects ** 

 1 Lock and Dam 11 Mississippi River 46,800 40,512 6,288 

 2 Lock and Dam 19 Mississippi River 31,600 31,576 24 

 3 Lock and Dam 24 Mississippi River 85,300 69,772 15,528 

 4 Lock and Dam 27 Mississippi River 33,800 6,837 26,963 

 5 Lockport Lock and Dam Illinois Waterway 132,400 20,618 111,782 

 6 Markland Locks and Dam Ohio River 30,518 6,720 23,798 

 7 Lock and Dam 3 Mississippi River 66,000 7,404 58,596 

 8 Emsworth Locks and Dam Ohio River 163,800 77,667 86,133 

 9 Lower Monumental Lock and Dam Snake River 27,509 0 27,509 

 Total Major Rehabilitation 617,727 261,106 356,621 

* 50 percent of total costs will be derived from the Inland Waterways Trust Fund; the other 50 percent is from the 

general treasury 

** Funding sources for most major rehabilitation projects is generally the same as for new construction. 

Source: U.S. Army Corps of Engineers. 

 
400

The cost for new construction and repairs is expected to exceed the amount of revenue that 

can realistically expect to be generated solely by commercial users of the waterways. Because 

the waterways promote other worthwhile activities that benefit the entire Nation, Congress has 

traditionally shared with the users the costs of funding new construction and major 

rehabilitation, roughly on a 50/50 basis. However, this shared funding arrangement is facing 

increasing criticism from interested parties. Pro-navigation groups want the government to pay 

a higher share of these projects. Some environmental organizations and taxpayer groups 

question the continued development of the Nation’s rivers for navigational purposes, 

particularly with regard to economically marginal investments, and would also prefer for the 

Congress to require the commercial users to pay more. 

The annual receipts from the fuel tax now cover less than 10 percent of the total cost that the 

Corps incurs to support commercial navigation on these waterways, when taking into account 

the operation and maintenance costs, all of which the general taxpayer pays. Some opponents 

of this approach to cost-sharing believe the general public should not pay for benefits that 

primarily will be enjoyed by commercial interests. In addition, some opponents contend that 

the decades of governmental support of navigation have caused significant harm to the 

environment, and that environmental priorities should take precedence over any navigation 

improvements. In fact, some environmental groups have called for the removal of four dams 

on the Snake River to reduce extinction risks to endangered or threatened fish. This action 

would cause the loss of navigation on the Snake River, and would thereby have impacts on 

other transportation systems. 

Overall, there seems be little consensus in determining an optimal level or mechanism for 

funding inland waterways. Authorized projects require years of investigative preparations to 

evaluate the benefits and costs, more years to obtain funding, and are may be underfunded. 

Agricultural waterway shippers believe significant funding should be provided, with assistance 

from public funds. However, others argue that despite the public expenditures on waterways 

over the last 20 years, traffic has declined significantly. The funds to maintain and rehabilitate 

the existing structures are a priority; the question is whether a substantial further public 

investment in new infrastructure is called for at this time. 
401

Conclusions 

Much of U.S. agricultural production occurs in the middle of the country, far from coastal 

export facilities. The river system provides bulk long-haul transportation economically, keeping 

U.S. products competitive in the global economy. From the perspective of the shippers, barges 

offer a low-cost transportation alternative for bulk goods in the areas near these waterways. In 

some areas, they offer competition to other long-haul modes, keeping rates down. Moving 

more bulk commodities on barges could free capacity of other transportation modes, reducing 

congestion. 

More barges are being retired than are being constructed, shrinking the size of the barge fleet. 

The market is currently adjusting to the number of barges in operation. 

Although aging, the locks and dams on the river system are generally reliable. As locks age, 

however, repairs and maintenance becomes more extensive and expensive. Funding for new 

construction projects is nearly depleted, with the trust fund down to $14.3 million at the end of 

2009. Roughly half of the funding for capital investments in the inland waterways comes from 

the commercial users of the system through a fuel tax; the other half comes from Congressional 

appropriations from the General Fund of the Treasury. There is a growing gap between the fuel 

tax receipts and the funding needed to meet the authorized non-Federal cost-share for ongoing 

capital projects. There is currently no clear path forward on the funding shortfall and this is a 

significant concern to farmers that depend on the inland waterways for transportation. 
402

Appendix 12-1 

Table 12-6: Up-bound and down-bound barge tonnage, by river, 1998-2007 

Illinois 

Waterway Million Tons Percent 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 10-year 

avg. 

% of 

total 

Total 41.80 43.72 44.22 43.49 43.03 44.99 45.23 44.02 43.58 41.11 43.52 100.0% 

Coal 3.03 2.77 2.50 2.11 1.44 3.92 4.21 5.37 6.17 5.44 3.70 8.5% 

Petroleum 6.22 5.69 5.79 6.59 5.18 6.19 6.35 6.31 6.40 6.76 6.15 14.1% 

Chemicals 4.97 4.63 4.78 4.52 4.50 4.51 4.43 4.15 4.17 4.80 4.55 10.4% 

Crude 

Materials 5.76 6.11 6.54 7.44 7.21 7.85 8.24 8.51 8.15 6.53 7.23 16.6% 

Manufactured 

Goods 4.41 4.79 5.64 4.26 4.96 4.51 5.46 5.90 5.59 4.02 4.95 11.4% 

Farm & Food 

(F&F) 17.38 19.71 18.95 18.51 19.72 17.97 16.35 13.69 13.05 13.49 16.88 38.8% 

Other 0.03 0.03 0.02 0.05 0.03 0.05 0.18 0.09 0.05 0.08 0.06 0.1% 

% F&F 41.6% 45.1% 42.9% 42.6% 45.8% 39.9% 36.1% 31.1% 29.9% 32.8% 38.8% 

Mississippi 

River Million Tons Percent 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 10-year 

avg. 

% of 

total 

Total 324.48 329.64 327.40 316.55 316.21 308.21 312.81 299.14 313.51 311.67 315.96 100.0% 

Coal 52.24 47.28 47.65 46.46 44.09 39.08 41.31 42.20 46.30 47.00 45.36 14.4% 

Petroleum 77.44 76.70 76.83 79.75 77.16 78.83 79.33 78.93 82.92 84.56 79.25 25.1% 

Chemicals 38.05 37.79 37.38 34.79 35.52 37.81 37.88 37.02 35.24 38.06 36.95 11.7% 

Crude 

Materials 54.01 55.47 53.59 50.36 51.38 52.81 55.85 51.12 55.49 48.73 52.88 16.7% 

Manufactured 

Goods 24.36 25.93 27.97 20.45 21.02 20.00 22.76 24.40 25.28 20.97 23.31 7.4% 

Farm & Food 

(F&F) 76.22 85.12 82.59 83.28 86.15 78.76 74.15 64.76 66.92 71.16 76.91 24.3% 

Other 2.15 1.35 1.39 1.46 0.89 0.92 1.53 0.72 1.36 1.20 1.30 0.4% 

% F&F 23.5% 25.8% 25.2% 26.3% 27.2% 25.6% 23.7% 21.6% 21.3% 22.8% 24.3% 

Source: Waterborne Commerce Statistics, U.S. Army Corps of Engineers. Totals may not add due to rounding. 
Chapter 13

Truck 

Transportati on
403

Chapter 13: Truck Transportation 

Transportation facilitates agricultural development, allowing production to be specialized, rural 

communities to develop, and economies to grow. Trucking was the first mode of 

transportation widely available in the nation. It is easily obtained everywhere and offers 

flexible service. Several aspects of the relationship between the trucking industry and 

agriculture/rural areas are examined in this chapter, with particular focus on the capacity and 

services provided by the trucking sector as well as issues affecting the movement of agricultural 

commodities. Capacity, economic competition, rates, and investments in rural roads, bridges, 

and other facilities are discussed. The trucking industry is outlined and some issues important 

to the agricultural sector are examined. 

Importance of Trucking to Agriculture 

Trucking is a critical mode of transportation for rural America. It carries 70 percent of 

agricultural and food products, alcohols, fertilizers, lumber, wood products, paper, pulp, and 

paperboard articles.266 It links farmers, ranchers, manufacturers, and service industries to grain 

elevators, ethanol plants, processors, feedlots, markets, ports, intermodal, rail, and barge 

facilities. Trucking’s efficiency enables the United States to be competitive in the global 

marketplace for agricultural products. The linkage with barge and rail facilities is especially 

important because of the complementary and competitive relationship among modes of 

transport. 

In the supply chain that stretches from the farm to the consumer, trucking provides the first 

miles, the last miles, and sometimes all the transportation miles. This is as true for agriculture 

as it is for other industries. Trucking is heavily used for farm inputs such as chemicals, feed, 

fertilizer, seeds, and equipment. More than 80 percent of cities and communities are served 

exclusively by trucks.267 Flexibility, timeliness, and door-to-door service are vital to shippers 

who handle perishable agricultural products. 

Figure 13-1: Unloading a 

truck. Trucks are usually 

the first and last links in 

the supply chain. 

Source: © 2009 World Shipping 

Council 
404

Nationwide, trucking carries 10.8 billion tons of freight—68.8 percent of all domestic freight 

tonnage.268 It accounts for 83.1 percent of the total transportation bill for all types of freight, 

earning $660.3 billion in gross freight revenue in 2008. By comparison, agricultural freight 

accounted for 23 percent of all commodities transported by truck in 2002, the latest 

agricultural modal share data available.269 Trucking is a critical link for the national economy, 

and moving agricultural products is a significant portion of total trucking activity. 

Trucking competition moderates freight rates. Trucking is both a complement and a competitor 

to air, rail, intermodal, barge, coastal, and ocean shipping. The lack of, decline of, or 

withdrawal of rail service, restrictions on access and routings to competing railroads, and rail 

rate increases, especially for grain and forest products, have increased dependence on trucking 

in rural areas. Disruptions in barge traffic and sharp increases in barge rates divert cargo to 

trucks as well as rail. 

A highly competitive trucking industry benefits agriculture by keeping costs down and 

expanding markets domestically and abroad. Trucking is competitive because of: 

• The ease of entry and exit of the business. 

• The large number of owner-operator drivers. 

• The large number of used trucks, tractors, and trailers available. 

When combined, these phenomena enhance competition, squeezing profit margins for truckers 

and lowering freight rates for shippers. Although it varies widely, the average ratio of operating 

cost to operating revenue is a tight 95 percent in over-the-road long-haul truckloads, 

demonstrating that the sector is highly competitive, approaching what economists call 

atomistic or perfect competition.270 The average marginal cost of operating a truck is $1.73 per 

mile and $83.68 per hour.271 

 

Because of agriculture’s reliance on trucking, the availability of drivers, especially during critical 

times such as planting and harvest, is critical to farmers’ profitability. The economic downturn, 

volatility in fuel prices, tolls, traffic congestion, delays in loading and unloading, regulations, 

lower freight rates, and taxes on fuel, trucks, trailers, and tires, all affect the viability of trucking 

and the industry’s ability to recruit and retain drivers. Over 96 percent of trucking companies 

are small businesses with fewer than 20 trucks; 87 percent have 6 or fewer trucks.272 Nearly 50 

percent of trucking companies have only one truck (owner-operators), with an average annual 

net income of $37,000 annually.273 The average port drayage truck driver nets $30,000.274 

Most long-haul drivers are paid by the mile, by a flat fee, or portion of the gross revenue, not by 

the hour. The estimated average driver’s pay is $0.44 per mile or $16.59 per hour.275 

 
405

Fuel costs also affect driver 

availability. Although fuel surcharges 

are part of many contracts, some 

drivers have difficulty recovering the 

full cost of diesel fuel because of 

inadequate contracts, competition, 

decreases in economic activity, and 

reliance on third parties. When 

drivers can’t fully recapture fuel costs, 

it affects the pool of drivers available 

for agriculture and can cause serious 

problems, especially during critical 

periods of planting and harvest when 

the sector’s demands on trucking 

capacity are the greatest. 

According to recent reports by 

Avondale Partners on carriers with five 

or more trucks, some 3,065 carriers 

with 137,650 tractors went out of 

business in 2008 and 480 additional 

carriers went out of business in the 

first quarter of 2009.276 Many smaller 

carriers and owner-operators with 

only one to four trucks probably went 

of business as well, reducing 

availability to agricultural shippers. 

High diesel fuel prices, the declining 

economy, fewer products to be 

transported, increased competition, 

lower freight rates, and the lack of full reimbursement for increased fuel costs all played a role 

in putting truckers out of business. If the trucking industry is not healthy and vibrant, 

agriculture suffers because of its dependence on trucking. 

During 2008, fuel and engine oil became the single largest marginal expense, at $0.63 per mile, 

or 36 percent of total marginal operational costs.277 Additional costs, for diesel particulate 

filters, auxiliary power units for idling, aerodynamic tires and skirts to save fuel, or new trucks, 

tractors, trailers, and refrigeration units needed to meet California environmental rules add to 

the costs of small and large trucking companies alike. Federal, State, and port grant programs 

are available to defray a portion of these costs, but the available resources are limited in 

comparison to the needs of the trucking industry. These issues are especially important to 

agricultural exporters because of the sector’s heavy dependence on foreign trade. 

Source: Luann Johnson, StockXchng 

Figure 13-2: Half of all trucking operations are 

owner-operator companies. 
406

Because agriculture needs large amounts of fertilizers and chemicals, it needs motor carriers 

that can safely haul hazardous materials. Federal statistics show that over 4.7 million 

commercial drivers are licensed, and 1.7 million of these are authorized to haul hazardous 

materials.278 

There are 691,000 trucking businesses, and nearly 4.5 million trucks (including straight trucks 

and tractors), many of which are available to carry agricultural products and inputs. These data 

include over-the-road for-hire truckload and less-than-truckload carriers, private fleets that 

carry property for their own companies, owner-operators, local pickup and delivery carriers, 

and service vehicles. However, many farm drivers and farm trucks are not included in the 

Motor Carrier Management Information System, and this type of data is no longer part of the 

Economic Census which profiles the U.S. economy every 5 years. 

Trucking is vital to agriculture—it is the sector’s most-used mode of transportation, it provides 

a critical link between rural areas and distant markets, it links farms to other modes of 

transportation, it is efficient, it is competitive and provides reasonable rates, and it is widely 

available in all areas of the country. 

Trucking Capacity and Service 

Trucking rates are kept low by the number of trucks available—the capacity of the trucking 

industry. Truck capacity depends on three components: drivers, the roads they travel on, and 

their vehicles and their operation. 

Availability of Drivers 

To understand agricultural truck capacity, it is important to understand the structure of the 

industry and the commercial drivers’ license (CDL) classifications that apply to all commercial 

carriers. The formal definition of commercial motor carriers is given in Appendix 13-2, 

Commercial Drivers’ License Classifications. 

This section discusses several issues that concern the trucking industry and agricultural 

shippers, including the need for operating flexibility, agricultural exemptions, vehicle capacity, 

driver availability, and issues affecting roads. The agricultural sector is interested in the 

outcome of these issues because of their potential impact on the availability of service. 

 
407

Trucking Industry Structure 

The trucking industry is broken into two broad categories: the over-the-road long-haul trucking operations, 

where the principal occupation of the driver is driving (and often being away from home for long periods), 

and local operations, including farm trucks, where the driver often has other duties in addition to driving 

and may not be required to have a CDL.* 

Long-haul interstate operations can be for-hire carriers, that contract to transport goods owned by others, 

or private fleets, that primarily carry their own company’s goods. According to an American Trucking 

Associations’ report, in November 2009 there were 227,930 for-hire carriers, 282,485 private carriers, and 

81,466 other interstate carriers that did not specify their status.** Interstate carriers earned $660.3 billion 

in revenue in 2008.† 

For-hire trucking operations may have employees and/or owner-operator independent drivers. 

Owner-operators lease their services to carriers, driving their own tractors, and in some cases, providing 

their own trailers. 

For-hire carriers specializing in full truckload (TL) operations move full loads of freight from origin to 

destination on regular schedules or provide random service, going where the loads are located. These 

companies operate on a regional or national basis. 

For-hire less-than truckload (LTL) carriers move small shipments from 500 to 2,000 pounds in regularly 

scheduled moves that involve both local and long haul operations. Local trucks pick up shipments from 

many shippers and consolidate them at terminals for long haul trucking to destination terminals, where 

the full loads are broken down for local delivery to many receivers. Most agricultural shipments are full 

truckloads; food and some farm inputs arrive in LTL shipments. 

Private fleets, which include some of the nation’s largest food and beverage manufacturers, distributors, 

grocery stores, restaurant chains, and retailers, accounted for over $288 billion of gross freight revenue in 

2008.‡ Engaged in manufacturing or distribution operations, such carriers move their own freight on 

regular schedules to meet customer service requirements. They sometimes offer for-hire capacity in their 

trailers to reduce costly empty backhauls. Some private fleet operations are similar to for-hire LTL 

operations in that their freight is transported from a manufacturing plant to distribution centers, and/or 

multiple local retail stores. 

Local operations can also be for-hire carriers or private fleets, which include farm trucks. These operations 

spend less time driving on the road than over-the-road carriers. They make more stops to pick up or 

deliver goods and provide customer services such as applying a pesticide or providing consultation, usually 

on regular routes that are less than 150 miles, as defined by the Federal Motor Carrier Safety 

Administration (FMCSA).+

 Port drayage trucking companies moving containers on chassis are the key link 

for U.S. imports and exports. Local trucks in rural areas provide crucial services such as utility work, well 

drilling, custom harvesting, delivery to grain elevators and processing plants, and moving farm supplies 

such as feed, seeds, fertilizer, herbicides, and pesticides to the farm or ranch from nearby distribution 

points, often on a seasonal basis. In some cases, driving may not be the principal occupation. 

* FMCSA. Regulatory Impact Analysis for Hours of Service Options. November 2008. ** ATA, Standard Trucking and Transportation Statistics, Volume 16, Issue 1, January 2010. † ATA. U.S. Freight Transportation Forecast to... 2020. 2009. 

‡ ATA. U.S. Freight Transportation Forecast to... 2020. 2009. 

+ FMCSA. Regulatory Impact Analysis for Hours of Service Options. November 2008. 
408

Operating Flexibility for Agricultural Operations 

Maintaining operating flexibility for distribution of harvests and farm supplies is always 

important, but is especially important during the busy planting and harvest seasons. In the 

spring, grain farmers need a substantial amount of fertilizer during a 3- to 4-week period during 

the planting season. Fertilizer delivery and application is dependent on the weather, making it 

difficult to hire and schedule temporary drivers for short periods of work. During the harvest, 

weather, field conditions, and crop maturity create variability in the need to harvest and store 

billions of bushels of grain during a 3- to 4-week period.279 In aggregate, this massive amount 

of seasonal transportation is needed in a concentrated period of time. For example, for the 

2007/08 marketing year, the Nation’s farmers harvested 13.038 billion bushels of corn, 

equivalent to about 15.2 million truckloads; 2.677 billion bushels of soybeans, equivalent to 

about 3.34 million truckloads; and 2.051 billion bushels of wheat, equivalent to about 2.56 

million truckloads.280 

Figure 13-3: Potato harvest being loaded into trucks. Agriculture makes heavy use of 

transportation during planting and harvest seasons. 

Source: Gene Hanson 

Once the seasonal needs of planting and harvest are met, demand lessens for the rest of the 

year. Because of the specialized seasonal transportation services it requires, agriculture needs 

operating flexibility. 

 
409

Most farming States are rural and sparsely populated. Distances from farms to suppliers, grain 

elevators, ethanol plants, storage facilities, and markets have increased because of the 

consolidation of farms and facilities. The pool of available part-time seasonal drivers is small, 

and the usual activity of the farmer or supplier is farming or customer services, rather than fulltime long-haul year-round commercial driving. 

Agricultural Exemptions 

These legal exemptions increase the operating flexibility of trucks servicing agriculture: 

• Exemption from the hours-of-service rules for drivers transporting agricultural 

commodities or farm supplies for agricultural purposes within a 100 air-mile radius from 

the source or distribution point during planting and harvest seasons, and for drivers 

transporting livestock feed at any time of the year.281

• Temporary exemption from hours-of-service rules for drivers in response to natural 

disasters and disruptions in fuel supplies, often in rural areas, enabling timely rescue 

and recovery operations, including the delivery of food, shelter, fuel, and other supplies, 

under emergency declarations by the President, the Governor, or FMCSA.282 

• Exemption from the CDL requirement for drivers of farm vehicles used to transport 

agricultural products, farm machinery, or farm supplies, to or from a farm within 150 

miles of the farmer’s farm.283

• Exemption from the minimum qualifications for drivers engaged in custom harvest 

operations transporting farm machinery or supplies to and from a farm, or custom 

harvested crops to storage or market and seasonal transportation of bees.284

• Exemption from the freeze on longer combination vehicles for custom harvest 

operations in Nebraska. 

During the busy planting and harvest seasons, farmers and retail farm suppliers spend 

substantial on-duty time on activities other than driving, necessitating the agricultural hours of 

service exemption. By law, as determined by each State, the agricultural exemption is limited 

to an area within a 100 air-mile radius from the source of the agricultural commodity or the 

distribution point for the farm supplies during the planting and harvest seasons. 

Requiring a farmer or supplier to go off duty would disrupt critical planting and harvest 

activities, especially for perishable crops subject to volatile weather and market conditions. 

In 2005, Congress clarified the 100 air-mile radius agricultural exemption from the hours of 

service rules, first granted in 1995.285 It means that drivers transporting an agricultural 

commodity or farm supplies for agricultural purposes are exempt from the maximum driving 

and on-duty time provisions required of long-haul drivers. 

The Agricultural and Food Transporters Conference (AFTC) of the ATA, and 49 other food and 

agricultural organizations support maintaining the exemption. AFTC has published the 

Manager's Guide to Safe Trucking During Agricultural Planting and Harvest Season.

286 The 
410

Commercial Vehicle Safety Alliance 

(CVSA) wants Congress to sunset all 

Federal exemptions and encourage 

States to do the same.287 CVSA 

contends that trucks operating under 

the agricultural exemption may be 

more likely to be involved in accidents 

than those following standard Hours of 

Service regulations. CVSA also believes 

that no exemptions should be 

provided to simplify enforcement of 

driver rules. Agricultural trucking 

interests, however, maintain that the 

needs and nature of agricultural 

trucking is very different from that of 

long-haul trucking and therefore 

special flexibility is needed. 

Issues Affecting Local 

Agricultural Movements 

The application of Federal motor 

carrier safety regulations to the 

intrastate and interstate movement of 

farm trucks as small as 10,001 pounds 

is of concern to many in the 

agricultural community because of the 

cost and recordkeeping burden for 

seasonal use of their vehicles over 

relatively short distances. In general, 

most haulers of farm products do not 

believe they should be under the same 

regulatory scrutiny and requirements 

as year-around commercial long-haul 

truckers. They believe to do so is 

unfair, unnecessarily burdensome, and 

is impractical because of the 

seasonality and nature of the hauling 

that is done for agriculture. 

The Oregon Wheat Growers League 

and Washington Grain Alliance report 

that farmers who use their own farm 

trucks to move their own commodities 

Historical Perspective on Agricultural Hours of 

Service Exemption 

In 1994, Congress required DOT to conduct a 

rulemaking on the maximum driving and on-duty time 

requirements that could be waived for farmers and 

retail farm suppliers for agricultural purposes within a 

50-mile radius of their farm or distribution point.* 

USDA filed comments in February 1995 in support of a 

150 air-mile exemption, rather than the 50-air mile 

radius that was proposed, in light of the relatively 

small safety risk presented by farm and retail farm 

supply drivers relative to other types of commercial 

vehicle operations on low volume rural roads. ** 

USDA considered that a 150 air-mile radius exemption 

would coincide with the waiver authority granted in 

1988 that allows States to exempt from the 

Commercial Drivers License requirements operators 

of farm vehicles that are used to transport agricultural 

products, farm machinery, or farm supplies, to or 

from the farm within a 150 air-mile radius of the farm, 

including adjoining States with reciprocity 

agreements. 

In November 1995, Congress directed DOT to provide 

a 100 air-mile radius exemption in its hours of service 

regulations for drivers transporting agricultural 

commodities or farm supplies for agricultural 

purposes.

†

 In August 2005, the exemption, including 

definitions of “agricultural commodity” and “farm 

supplies for agricultural purposes,” was made 

permanent in law. ‡

* Government Printing Office. Hazardous Materials 

Transportation Authorization Act of 1994. Public Law 103-311, 

Sec. 113. Washington, DC. August 26, 1994.

** Regulations.gov. United States Department of Agriculture 

Marketing Service – Comments. Maximum Driving and On Duty 

Time Waiver; Farmers and Farm Suppliers, Request for 

Comments. FHWA-1997-2312-0018 [formerly FHWA MC-94-32-

36] Washington, DC. February 6, 1995. 

† Government Printing Office. National Highway Designation Act 

of 1995. Public Law 104- 59, Sec. 345. Washington, DC. 

November 28, 1995.

‡ Government Printing Office. Safe, Accountable, Flexible, 

Efficient Transportation Equity Act: A Legacy for Users. Public 

Law 109-59, Sec. 4130. Washington, DC. August 10, 2005. 
411

for short distances within a State are considered to be engaged in interstate commerce if the 

commodity is part of trade originating or terminating outside the State or the United States 

(see Appendix 13-1). These farmers are required to register as interstate carriers with the 

FMCSA and obtain a USDOT number. 

 

Farmers must undergo safety audits, follow hours of service rules, mark all vehicles, maintain 

an accident register, and establish preventive maintenance and inspection procedures, even for 

trips as short as 2 miles to a local elevator. Drivers of farm trucks of 26,001 pounds or more 

must obtain a CDL and implement a drug and alcohol testing program. These are the same 

regulations that apply to commercial for-hire long-haul interstate trucking companies and fulltime truck drivers. 

Even when commodities are sold with transfer of title within the State, FMCSA regulations and 

Unified Carrier Registration Agreement procedures consider that the commodities eventually 

could be destined for another State or country, defining it as “interstate commerce.” Prior case 

law supports this interpretation. In a Michigan sales tax case, the Court agreed with the ATA 

that “interstate commerce is defined by the overall movement of the freight, not whether a 

truck crosses a State’s borders.”288 

Oregon farmers have been faced with this situation for many years. The deadline for 

compliance in Washington was June 30, 2009, for commercial motor vehicles with a gross 

vehicle weight of 26,001 pounds or more, and June 30, 2012, for commercial motor vehicles 

with a gross vehicle weight of 16,001 pounds or more.289 The Oregon Wheat Growers League is 

calling on the U.S. Congress for a national exemption from interstate commerce regulation for 

the movement of commodities from farm to market.290 On February 26, 2009, Representatives 

Boren and Fallin, with 18 co-sponsors from nine other farm States, reintroduced H.R. 1220 to 

exempt intrastate farm trucks from many regulations and raise the threshold for interstate 

regulation to 26,001 pounds, without the loss of Federal grant funds.291 On March 19, 2009, 

Senators Inhofe, Merkley, and Coburn reintroduced S. 639 to allow States to exempt farm 

trucks with a gross vehicle weight under 26,001 pounds from the burden of interstate 

regulation, without the loss of Federal grant funds.292 

Thirty-two States define a commercial motor vehicle as 26,001 pounds or more, compared with 

the Federal definition of 10,001 pounds or more. At the lower weight threshold, a 1⁄2-ton farm 

pickup truck with a livestock trailer, crossing a State line, is subject to the same interstate 

regulations as a year-round long-haul commercial tractor-trailer weighing up to 80,000 pounds. 

This regulation affects farmers and ranchers located near the borders of adjoining States, 

where the closest market for their products and livestock or source of their farm supplies is 

over the State line.293 Although this bill is supported by farm organizations, the ATA, arguing 

truck safety, supports extending the 10,001 pound threshold for Federal regulation to all 

vehicles, even those operating in intrastate commerce. 

 
412

Issues Affecting National Vehicle Capacity: Vehicle Size and Weight294 

A debate is under way concerning the appropriate size and weight limits for commercial motor 

vehicles on the Nation’s highways. National weight standards apply to commercial vehicle 

operations on the Interstate Highway System, a 46,876-mile system of divided highways with 

limited access that spans the nation. Off the Interstate Highway System, States may set their 

own commercial vehicle weight standards. 

The current Federal commercial vehicle weight restrictions on the Interstate Highway 

System are: 

Single axle: 20,000 pounds 

Tandem axle: 34,000 pounds 

Gross vehicle weight: 80,000 pounds 

However, the gross vehicle weight is also controlled by Federal Bridge Formula B. The bridge 

formula was introduced in 1975 to reduce the risk of damage to highway bridges. The formula 

calculates allowable weights based on the number, weight, and spacing of the axles in 

combination vehicles295 that may result a lower gross vehicle weight than 80,000 pounds. 

These weight restrictions, and the size restrictions noted below, reflect the balance between 

vehicle productivity, safety, and system preservation that Congress determined were 

appropriate in the early 1980s. Since the early 1980s, the makeup of the trucking industry has 

changed and there have been many technological advances. In addition, our country now faces 

serious environmental and energy challenges that might be assisted by larger vehicles. 

However, the current weight and size restrictions reflect the design capacities of interstate 

highway pavement and bridges. Any revisions to size and weight standards must address the 

costs of maintenance and capital replacement of highways as well as the operating costs of 

truckers. These factors are precipitating a debate over changes to commercial motor vehicle 

size and weights. 

National vehicle size standards, as shown in Table 13-1, apply on about 200,000 miles of what is 

known as the National Network of Highways, which includes the Interstate Highway System and 

highways capable of safely handling larger commercial motor vehicles, as certified by States to 

FHWA. These latter highways were formerly called Primary System routes. 

 
413

Table 13-1 provides the Federal commercial vehicle size limits on the National Network. 

Table 13-1: Commercial vehicle size limits 

Overall vehicle 

length

No federal length limit is imposed on most truck tractor-semitrailers 

operation on the National Network. 

Exception: On the National Network, combination vehicles (truck 

tractor plus semitrailer or trailer) designed and used specifically to 

carry automobiles or boats in specially designed racks may not exceed 

a maximum overall vehicle length of 65 feet, or 75 feet, depending on 

the type of connection between the tractor and trailer.

Trailer length

Federal law provides that no state may impose a length limitation of 

less than 48 feet (or longer if provided for by grandfather rights) on a 

semitrailer operating in any truck tractor-semitrailer combination on 

the National Network. (Note: A state may permit longer trailers to 

operate on its National Network highways.) 

Similarly, federal law provides that no state may impose a length 

limitation of less than 28 feet on a semitrailer or trailer operating in a 

truck tractor-semitrailer-trailer (twin-trailer) combination on the 

National Network.

Vehicle width

On the National Network, no state may impose a width limitation of 

more or less than 102 inches. Safety devices (e.g., mirrors, handholds) 

necessary for the safe and efficient operation of motor vehicles may 

not be included in the calculation of width.

Vehicle height No federal vehicle height limit is imposed. State standards range from 

13.6 feet to 14.6 feet.

Agricultural and forest products shippers are generally in favor of increasing the truck weight 

limits for the Nation’s Interstate highways. They believe size and weight limits should be 

increased because: 

• Agricultural and forest products are generally heavy and bulky. 

• The markets for these products are highly competitive. 

• A high percentage of the final price of the products is spent on transportation. 

• Trucking is the largest single mode for transporting these products. 

The current gross vehicle weight limit on Interstate highways is 80,000 pounds, with some 

exceptions. Forty-eight States routinely permit heavier axle weights and higher gross vehicle 

weights for trucks on some of their non-Interstate highways. Thirty-eight States have 

grandfather rights or statutory exemptions that allow such trucks to operate on their portions 

of the Interstate.296
414

States must allow 48-foot-long trailers, and every State allows trailers 53 feet or longer on 

Interstate highways.297 Only the District of Columbia does not. However, many States do not 

allow 53-foot trailers on non-Interstate highways, reducing the value of this trailer type. 

Twenty-two States allow longer combination vehicles—tractors with 2 trailers with a total 

combined weight over 80,000 pounds or 3 trailers of any weight—with their length, weight, and 

routes of operation frozen in place under the Intermodal Surface Transportation Efficiency Act 

of 1991.298 Proponents and opponents of increasing sizes and weights have testified before the 

110th and 111th Congresses, and legislation for and against increases is before the 111th

Congress as part of the highway reauthorization process. 

Some States already permit the operation of trucks heavier than 80,000 lbs. on local roads, 

including areas where rail service is not available or is uneconomical over shorter distances. 

Advocates of heavier trucks believe that allowing these vehicles to use Interstate highways 

rather than rural roads could potentially improve safety, since the Interstate highways are built 

to higher geometric standards and have wider shoulders, slide resistant pavements, better 

guard rails, signs, and markings, better sight distances, and breakaway sign posts and utility 

poles. On the other hand, if the use of heavier trucks caused more freight to move by truck and 

less by rail, safety could get worse. Moreover, these heavier trucks still have to use local roads 

to access the Interstates, and many local roads are simply not built or maintained to support 

heavy truck traffic. These local roads are also supported by local taxes, which fall most heavily 

upon rural communities. Even on Interstate highways, heavier trucks would increase the rate 

of deterioration of pavements and bridges. 

A coalition of over 60 agricultural and forest products trade associations and companies has 

requested Congress to allow a limit of 97,000 pound gross vehicle weight for trucks with a sixth 

axle on Interstate highways. The coalition believes the change would improve productivity and 

safety, stem forest product industry job losses, minimize pavement wear due to the sixth axle, 

and reduce vehicle miles traveled, fuel use, and emissions.299 While the sixth axle would reduce 

pavement wear (if properly designed), these heavier trucks would still violate Federal Bridge 

Formula B, leading to accelerated deterioration of bridges. The coalition has proposed a sixth 

axle user fee to be dedicated to bridge repair. On March 30, 2009, Representatives Mike 

Michaud and Jean Schmidt introduced H.R. 1799, the Safe and Efficient Transportation Act, to 

allow States to authorize six-axle vehicles up to 97,000 pounds on their Interstate Systems, and 

provide for an overweight vehicle tax and trust fund for bridge modifications and repair.300 The 

bill had 53 cosponsors as of April, 2010. 

 
415

Opponents of increasing size and weight limits cite the following concerns: 

• The need for highway system preservation 

• Wear and tear on underfunded roads and bridges 

• Highway safety 

• Competition between large and small trucking companies 

• The need to buy new equipment in order to compete 

• The need for fewer drivers 

• Competition between truck and rail 

• The environmental benefits for shifting truck traffic to rail.301 

On March 19, 2009, Representative James McGovern, with 48 cosponsors, introduced H.R. 

1618, the Safe Highways and Infrastructure Preservation Act, to freeze the size and weight of 

trucks on the 160,000 miles of the National Highway System (NHS), which includes the 46,876 

mile Interstate Highway System.302 As of April, 2010, the number of cosponsors increased to 

123. 

H.R. 1618 would prohibit States from permitting the operation of trailers longer than 53 feet or 

longer combination vehicles that were not in actual operation on a regular or periodic basis on 

or before June 1, 2008. Grandfather rights, granted to States in 1956 and 1974, and statutory 

exemptions allowing the issuance of permits for heavier gross vehicle weights and axle weights, 

would be terminated and any permits issued after June 1, 2008, would be revoked. Under this 

legislation DOT would define the term “vehicles and loads which cannot be easily dismantled 

and divided,” list the commodities affected, and apply regulations to all vehicles and loads 

operating on the National Highway System. 

Safety Regulations 

Drivers must comply with a variety of safety regulations, often at their own expense. The 

cumulative impact of regulatory requirements affects the availability of drivers and trucks in 

rural areas. The driving is often seasonal, the labor pool for drivers is smaller, and such drivers 

may pursue full-time work elsewhere. Under some circumstances driving is just one part of a 

person’s daily responsibilities, which may include delivering seeds, fertilizer, pesticides, advising 

farmers and ranchers, planting, and harvest. 

Drivers need a CDL if they operate in interstate, intrastate, or foreign commerce, and drive a 

vehicle that meets one of the definitions of a commercial motor vehicle (see Appendix 13-2: 

Commercial Drivers’ License Classifications for a listing of CDL classifications). Entry-level 

commercial drivers receive training in four major areas—hours of service regulations, driver 

wellness, driver qualification requirements, and whistleblower protections—in order to meet 

Federal standards and pass a CDL test related to the type of vehicle to be operated.303 The 

implications for agricultural truck drivers are discussed below. 
416

In the CDL rules, exemptions and waivers may be provided for the following drivers: active duty 

military drivers, firefighters, emergency response vehicle drivers, farmers, drivers removing 

snow and ice, seasonal drivers in farm-related services, and remote drivers in Alaska. 

States may issue learner's permits for purposes of behind-the-wheel training on public 

highways as long as learner's permit holders are required to be accompanied by someone with 

a valid CDL appropriate for that vehicle and the learner's permits are issued for limited time 

periods. Under these restrictions the days of a farmer’s son or daughter helping on local roads 

at harvest or planting times may be a thing of the past. 

Driver Training 

A proposed rule by FMCSA would require 110 hours of training for entry-level drivers of heavy 

trucks seeking a Class A CDL. It would require 80 hours for those seeking either a Class B or C 

license. The program of instruction would include both classroom and behind-the-wheel 

training. The behind-the-wheel driving component would require at least 44 hours for Class A 

and 32 hours for Classes B and C.304

Custom harvesters, rural electric cooperatives, farm suppliers, and other rural businesses have 

expressed concerns over whether the proposed rule would apply to them in light of existing 

CDL exemptions. Concerns were also expressed that the rule would potentially exclude them 

from training their own drivers unless they were accredited to do so. Custom harvesters are 

responsible for 50 percent of the wheat, 25 percent of the feed corn, 50 percent of the corn 

silage, and 25 percent of the cotton harvested in the United States.305

In comments to FMCSA, custom harvesters and others noted the relatively limited pool of 

drivers and the seasonal nature of the work. They noted the high costs of training for U.S. 

residents, and for non-resident temporary H2-A visa holders who are hired when a sufficient 

number of U.S. resident drivers are not available, and the approximately 50 percent turn-over 

rate of newly-trained U.S. resident drivers who leave to take year-round steady employment 

with a trucking company. Customs harvester trucks are driven less than 20,000 miles per year 

and for relatively short distances (less than 30 miles) from farm to farm, except when moving 

equipment across State lines.306

 
417

Figure 13-4: Trucks in line to load during a wheat harvest. Many extra drivers are needed 

during the harvest season. 

Source: Jeremy Lasater <www.wheatfarm.com> 

Hours-of-Service Rules 

The hours-of-service rules are based on extensive research to provide long-haul drivers with 

enough rest and for flexibility in making pickups and deliveries while assuring highway safety. 

These benefits are achieved by limiting drivers to a maximum of 11 hours of driving within a 14-

hour window of on-duty time. Once on duty, the time drivers spend waiting to load and 

unload, and the time they spend at meals, rest areas, or refueling counts against the 14 hours 

on duty. Delays in loading and unloading are of concern to long-haul drivers, who are often 

paid by the mile. 307

Drivers must spend at least 10 consecutive hours off duty between shifts. They cannot operate 

a truck if they have been on duty for a total of 60 hours in 7 consecutive days or 70 hours in 8 

consecutive days. Drivers that rest for at least 34 consecutive hours can restart their weekly 

work schedule. A lack of adequate truck parking, and a patchwork of State, city and county 

restrictions on truck engine idling impact drivers with sleeper berths trying to get their 

mandated rest in safety and comfort. 
418

Driver salespersons, well-drilling operators, farm drivers not required to have a CDL within a 

150 air-mile radius, local short-haul drivers operating within a 100 air-mile radius, and drivers in 

Alaska and Hawaii are provided with specific exceptions and increased flexibility under the 

hours-of-service rules. Likewise, drivers transporting an agricultural commodity or farm 

supplies within a 100 air-mile radius for agricultural purposes and utility service vehicle drivers 

are exempt from the maximum driving and on-duty time provisions. 

 

The rule has been repeatedly challenged by Public Citizen Advocates for Highway and Auto 

Safety, the International Brotherhood of Teamsters, and the Truck Safety Coalition. On January 

16, 2009, DOT denied their petition for reconsideration, citing no significant increase in fatiguerelated crashes, and the fact that drivers value the 34-hour restart because it gives them more 

rest and time off duty, including more time at home. FMCSA noted that it “is highly unlikely 

that drivers could, in practice, maximize their driving and on-duty time and minimize their offduty time” due to delays in loading and unloading, traffic and weather- related delays, and 

mechanical and equipment problems.308 

DOT noted that the number of large truck fatalities declined for the fourth year in a row in 2008 

with 4,229 fatalities, down from 5,240 in 2005.309 Meanwhile, safety data show that between 

2004 and 2006, only one fatigue-related fatality occurred between the tenth and eleventh hour 

of driving.310 On March 9, 2009, Public Citizen et al filed their third lawsuit with the U.S. District 

Court of the District of Columbia.311 The Court reviewed the rule in 2004 and 2007; FMCSA 

addressed procedural issues as required and reissued the rule in 2005 and 2008. 

Loading and Unloading 

Since most drivers are paid by the mile, and earn an average of $37,000 per year, time spent 

waiting to load and unload, or at ports to pick up or deliver a container, reduces income and 

increases emissions. In protest, port drayage truck drivers have temporarily blocked or stayed 

away from several ports in the United States and Canada in the past few years. When such 

movements are of a perishable or time-sensitive nature, as are many agricultural movements 

by container, significant impacts are felt. 

FMCSA is responsible for investigating documented loading and unloading abuses, where 

drivers are illegally coerced to hire someone to assist them. FMCSA also investigates truck 

brokers who refuse to pay truckers after loads have been delivered. The $10,000 bond that 

brokers provide when registering with the FMCSA is a fraction of the value the cargo, and is 

insufficient to satisfy the claims and costs of litigation. 

Guidelines and initiatives have been developed to reduce delays in loading and unloading, treat 

drivers with respect, provide adequate parking for mandatory hours-of-service rest periods, 

and resolve freight claims.. The potential gain to carriers in overcoming inefficiencies include 

$3 billion per year by reducing loading and unloading times, $2.7 billion by reducing empty 

miles, $900 million by reducing time waiting in ports, and $8,200 per driver by reducing 

turnover.312
419

Effective December 17, 2009, ocean carriers, railroads, chassis pool operators, and other 

intermodal chassis providers are required to register and establish a systematic inspection, 

repair, maintenance, and recordkeeping program to ensure the safe operating condition of 

chassis before they are offered for use.313 All chassis must be marked with DOT identification 

numbers or other acceptable methods permitted under the final rules by December 17, 2010. 

Drivers must inspect the chassis before beginning their trips and complete a driver vehicle 

inspection report when they return the chassis. Drivers must document problems in order to 

file complaints with FMCSA. The industry is taking positive steps to ensure the safety of chassis 

by establishing chassis pools at port and inland terminals. The pools contribute to efficient use 

of fuel, labor, and equipment, by reducing repositioning costs and driver time at terminals. 

Congress initiated a $25 million Truck Parking Pilot Grant Program in 2005. States, 

metropolitan planning organizations, and local governments are eligible for funds to construct, 

open, promote, or improve access to parking facilities. DOT selected two Intelligent 

Transportation System projects at a cost of $11 million in the I-95 (seven States) and I-5 (CA) 

Corridors to quantify truck parking availability in the corridors and disseminate the information 

to truckers using those corridors.314 

Lowering Minimum Age to Increase Driver Pool 

Prior to the economic downturn in 2008, driver retention and driver shortages were top 

concerns.315 Driver pay, uncompensated delays in loading and unloading, and lifestyle 

issues—including time away from home—are among the reasons for driver turnover. As the 

economy improves, additional drivers will be needed as older drivers continue to retire, and 

drivers find other work that pays better without the need to be away from home. 

One solution for the driver shortage focuses on the minimum age for interstate drivers, which is 

now 21. Farm vehicle drivers of articulated commercial motor vehicles can now be age 18-20 

but are confined to intrastate operations.316 The Truckload Carriers Association petitioned the 

FMCSA in 2000 to grant a graduated CDL pilot program for 18- to 20-year-old drivers.317 

However, due to concerns expressed by safety groups and others, the FMCSA denied the 

petition. Concerns were raised that younger drivers would be less safe and more expensive to 

insure. 

Driver Credentialing 

Because substantial amounts of agricultural products are exported to overseas markets, access 

to the Nation’s ports is very important. Drivers must now undergo new Federal security checks 

to receive a Transportation Worker Identification Credential (TWIC), which is necessary to gain 

unescorted access to port areas. As of June 12, 2009, nearly 15,000 drayage truck drivers that 

regularly serve the Nation’s ports and over 214,000 other truck drivers have enrolled in the 

TWIC program.318 

 
420

Two separate, similar, background checks for a hazardous material endorsement and TWIC are 

required, and drivers must bear the cost of paying separate fees and time away from driving 

while at TWIC enrollment centers. The trucking industry has requested that only one 

background check be required. 

Issues Affecting Capacity of the Roads 

Maintaining the trucking industry’s ability and capacity to serve agriculture and rural areas 

requires more than drivers and vehicles. It also requires a road and bridge infrastructure, and 

the funds to maintain and improve them. 

Maintenance and Improvement of Roads and Bridges 

According to Federal data in 2004, 77 percent of the Nation’s bridges, 75 percent of the 4 

million miles of public roads, and 36 percent of all vehicle miles traveled are in rural areas 

(those with populations less than 5,000).319 Only 23 percent of rural road mileage is eligible for 

Federal grants; the rest is maintained by State and local funding. Over one-half of the Federalaid highways are in less-than-good condition, and more than one-quarter of the Nation’s 

bridges are structurally deficient or functionally obsolete.320

Figure 13-5: Colorado Department of Transportation is replacing bridges on I-76 with $11 

million in Federal stimulus funds. 

Source: Colorado DOT 

 
421

To fund some of this shortfall in infrastructure investment, quantified below, the American 

Recovery and Reinvestment Act of 2009 appropriated $27.5 billion in grants to the States for 

maintenance and improvement of roads and bridges. The law authorizes the Secretary of 

Transportation to make an additional $1.5 billion in grants, including between $20 million to 

$300 million for highway or bridge projects, port connections, etc. Smaller grants may be made 

for significant projects in smaller cities, regions, or States.321

The Omnibus Appropriations Act of 2009 authorizes up to $41.44 billion in spending from the 

Highway Trust Fund and rescinds $3.15 billion in unobligated balances from the States. The law 

provides for a USDA Rural Business Program grant not to exceed $500,000 to a qualified 

national organization to provide technical assistance for rural transportation to promote 

economic development. It also allows the Forest Service to spend up to $40 million to 

decommission roads no longer needed, after public notice and comment.322

Substantial funds could be provided in the highway reauthorization bill that will succeed the 

current authorization, Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy 

for Users (SAFETEA-LU), Public Law 109-59, which expired September 30, 2009. The National 

Surface Transportation Infrastructure Financing Commission in February 2009323 and the 

National Surface Transportation Policy and Revenue Study Commission in December 2007324

both recommended increasing fuel taxes and alternative ways of raising revenue to address the 

backlog of road, bridge, and transit system maintenance and improvement needs. 

The financing commission stated the average annual Federal, State, and local revenue needed 

for maintenance of highway and transit systems was $172 billion per year. The average annual 

revenue needs for improvements was an additional $42 billion per year. Based on these 

revenue needs, the estimated average annual gaps in funding over 28 years were $96 billion for 

maintenance, and $42 billion for improvements. 

Funding 

Rural agriculture, manufacturing, and service industries depend on access to the national 

highway network. Maintenance and improvement of the Nation’s roads and bridges affects 

congestions, productivity, and the competitiveness of rural agriculture, manufacturing, and 

service industries in world markets. The annual cost of congestion in the Nations’ 437 urban 

areas was estimated to be $87.2 billion in 2007, including 4.2 billion hours waiting in traffic 

while wasting 2.8 billion gallons of fuel.325 Many of agriculture’s movements are through these 

congestion bottlenecks which need to be maintained and improved. 

 

The trucking industry has expressed concern about diversion of Federal highway trust funds for 

non-highway uses such as mass transit. Some in industry support increased fuel taxes if they 

are dedicated to maintenance and improvement of highways. 

The reauthorization of SAFETEA-LU, provides an opportunity for discussion of highway funding 

mechanisms. At present, all highway users pay a tax per gallon of fuel used. The way in which 

this tax is assessed leads to various inefficiencies. For example, users of crowded highways do 
422

not pay the marginal costs they impose on the network, except to the extent that they are 

delayed. A relatively small part of the road network (less than a third) carries three quarters of 

all traffic; so many rural roads do not generate sufficient revenue to provide for their upkeep. 

Various financing mechanisms are being discussed, including congestion pricing and vehiclemile tolling. Historically, the trucking industry has been opposed to highway tolls. However, 

there is a need to make the process of recovering the costs of highway maintenance more 

equitable for all users. 

One possible solution is the creation of a single transportation trust fund to cover necessary 

investments in highways, freight railroads, public transportation systems, ports, and harbors. In 

this way, the efficiency of the nation’s transportation system could be maximized across all 

modes. For example, States might find it more economical to subsidize rail branch lines than to 

improve rural highways to support heavier trucks. 

Investment Needs 

As discussed above, the Commissions found that the Federal, State, and local investment needs 

for maintenance and improvements of roads and bridges are substantial. The debate on how 

to pay for them continues. The trucking industry must invest substantial funds in retrofitting or 

replacing equipment to meet environmental regulations, as discussed in the next section. 

Trucking companies also must hire and train new drivers and purchase additional equipment as 

the economy improves. 

On June 18, 2009, the House Transportation and Infrastructure Committee proposed, through a 

publically released Committee Print, $337.4 billion for highway construction investment over 

six years in The Surface Transportation Authorization Act of 2009, including at least $100 million 

for the National Highway System, $50 billion to reduce congestion, and $25 billion for projects 

that focus on goods movement and freight mobility. Some of the relevant text may be found in 

Appendix 13-3: Excerpts from the Surface Transportation Authorization Act of 2009.

326 On 

June 17, the Administration requested that Congress instead focus on an 18-month 

reauthorization that will replenish the Highway Trust Fund to prevent it from becoming 

insolvent.327 On August 7, the President signed H.R. 3357 to restore $7 billion to the Highway 

Trust Fund. 

Impact of New Environmental Regulations 

Because agriculture is a significantly competitive industry with narrow profit margins and high 

transportation costs, and is dependent on distant export markets, agricultural shippers are 

conscious of costs. As a matter of survival in their businesses, they routinely and carefully 

scrutinize all costs, and are concerned with any regulatory or other requirements that can 

impact their competitiveness. National and State environmental regulations to reduce exhaust 

emissions of ozone precursors, particulate matter, and greenhouse gases are adding substantial 

capital costs for truck owners, the majority of which are small businesses. 
423

New requirements for trucks entering ports have been 

imposed. These are examined in detail in Chapter 14: 

Ocean Transportation, and summarized here. 

California regulations limit idling and require lower 

emissions from truck engines and transport 

refrigeration units by phasing in prohibitions on older 

model trucks and refrigeration units. Ultimately, 

diesel particulate filters will be required on virtually all 

diesel trucks operating in the State. In order to reduce 

fuel use, reduce greenhouse gas emissions, and assist 

the trucking industry with some of the costs of 

retrofitting or upgrading equipment, the EPA offers a 

voluntary SmartWay tractor and trailer program.328

This program encourages the use of low-rollingresistance tires and aerodynamic technologies on 53-

foot trailers and the tractors pulling them. Beginning 

in 2010, California has mandated portions of this 

program. 

California Air Resources Board estimates their diesel 

emission, greenhouse gas reduction, and TRU rules 

will cost the entire business sector over $15 billion, 

which is justified by fuel savings and improvements in 

public health.329 Given the number of trucking 

companies that went out of business in 2008 and the 

current state of the economy, there is concern about 

shortages of tractor-trailers and drivers, and elevated 

freight rates in 2010 as the economy improves and 

simultaneously more stringent rules come into force. 

Several port, State, and Federal grant, fee, and tax 

credit programs have been established to reduce 

emissions and help defray the costs of upgrades, 

especially for port drayage truck drivers and long-haul 

owner-operators, whose average net incomes are 

$30,000 to $37,000 per year. Some $300 million of 

Recovery Act funding for clean diesel activities are 

available, including $30 million for the SmartWay 

Clean Diesel Finance Program. Seventy percent of the 

funding will be distributed nationally by EPA and 30 

percent by States. Some $156 million of the 

$300 million will be available as competitive grants. 

The funds can be used toward the purchase of new 

Cost of Environmental Compliance 

Auxiliary power units to eliminate truck 

engine idling while providing driver 

heating and cooling comfort during 

mandatory rest periods cost between 

$6,000 to $8,500; diesel particulate 

filters cost $10,000 or more and 

generally incur a fuel economy penalty; 

aerodynamic fairings for trailers to 

reduce drag, fuel consumption, and 

emissions cost approximately $2,400; 

and a set of aluminum wheels for single 

wide tires to reduce rolling resistance, 

fuel consumption, and emissions cost 

$5,600.*

 

The capital costs of the initial transport 

refrigeration unit (TRU) retrofits to 

reduce diesel particulate emissions have 

a suggested retail price of $4,000. 

Compliance with the more stringent 

California standard taking effect in 2010 

is expected to further increase TRU 

compliance cost. Manufacturer’s 

estimates for new TRU engines are 

$10,000 with a new TRU costing as much 

as $20,000. † Although these capital 

costs may be recouped over time 

through increased efficiencies, lower fuel 

consumption, and better motor 

performance, they do require substantial 

up-front capital investments. 

* EPA. What SmartWay Can Do For You: 

SmartWay Tractor and SmartWay Trailers. 

Technologies, Strategies and Policies: Upgrade 

Kits 

http://www.epa.gov/smartway/transport/whatsmartway/tractor-trailer.htm.

† Air Resources Board. Staff Report: Initial 

Statement of Reasons for Proposed Rulemaking. 

Airborne Toxic Control Measure for In-use Diesel 

Fuel Transport Refrigeration Units (TRU) and TRU 

Generator Sets and Facilities where TRUs 

Operate. October 2003.
424

tractors, diesel particulate matter filters, auxiliary power units to provide driver heating and airconditioning while waiting to load or unload, or during mandated rest periods, SmartWay tires 

and aerodynamic tractor trailer fairings and skirts, and other retrofits for older equipment.330 

The OffPeak PierPASS traffic mitigation fee is charged during daytime hours at the ports of 

Los Angeles and Long Beach to encourage the movement of containers by drayage trucks at less 

congested times.331 For perishable agricultural products that must move during peak periods to 

meet vessel loading and customer requirements, fees affect the competitiveness of exports and 

imports. To the extent that grants, fees, and tax credits help trucking companies adapt, reduce 

fuel consumption, and stay in business to allow adequate competition, agriculture and rural 

America will benefit. 

Twenty-five States restrict idling while drivers are resting, or waiting to unload or unload, and 

within these States the regulations are specific to 46 counties and cities.332 Time limits, fines, 

and exemptions vary across jurisdictions, creating a patchwork of border, compliance, and 

comfort issues for interstate drivers who need heating, air-conditioning, and power in their 

cabs. The Energy Policy Act of 2005 gave States the option to grant a 400 pound weight 

tolerance to vehicles equipped with on-board auxiliary power units over the 80,000 pound 

weight limit.333 While several States have enacted laws or are exercising discretion, the 

trucking industry has asked Congress to specifically pre-empt State law to ensure a national 

weight tolerance for the benefit of interstate commerce. 

In summary, environmental regulations give rise to higher capital—and sometimes 

operational—costs for the trucking industry, the majority of which is composed of small 

businesses. Should more trucking companies go out of business because they are not able to 

afford or pass on the capital costs of upgrading their equipment through higher freight rates, 

agriculture and rural America could be adversely affected. 

Economic Regulation and Rates 

To some degree, agricultural trucking has always benefited from exemptions from interstate 

economic regulation. Interstate truck transportation of most unmanufactured agricultural 

commodities has never been subject to Federal economic regulation. Prior to deregulation of 

the entire trucking industry, studies showed that rates for exempt commodities were 20 to 40 

percent lower than regulated movements. 

Deregulation 

Agriculture benefited further when The Motor Carrier Act of 1980 progressively eliminated 

Interstate Commerce Commission (ICC) restrictions on entry, expansion, rates, routes, stops, 

backhauls, and commodities carried. The increased competition from thousands of new 

trucking companies led to lower freight rates, lower inventory costs, increased intermodal 

shipments, just-in-time shipping, and economic growth. According to Thomas Gale Moore, 

truckload rates fell 25 percent from 1977—the year before ICC Commissioners appointed by 

Presidents Ford and Carter began making changes—to 1982.334 
425

The Interstate Commerce Commission Termination Act of 1995 further deregulated the 

trucking industry by prohibiting States other than Hawaii from regulating intrastate rates, 

routes, services, and tariff filing. After restricting motor carrier bureau collective ratemaking, 

routes, rules, classification, mileage guides, and pooling activities for many years, the Surface 

Transportation Board removed antitrust immunity on January 1, 2008.335

Carriers of non-exempt commodities must apply for operating authority with FMCSA, which 

reviews the carrier’s fitness, financial responsibility, surety bonds, and designation of legal 

process agents. However, FMCSA approval of operating authority requires only the finding that 

the applicant is fit, willing, and able to perform the involved operations and to comply with all 

applicable statutory and regulatory provisions. Applications can be opposed only on the 

grounds that applicant is not fit—is not in compliance with financial responsibility and safety 

fitness requirements.336

Truck Rates 

Truck rates affect the viability of trucking companies, the majority of which are small 

businesses, and the viability of agriculture, manufacturing, and service industries that use this 

transportation mode. Rate information is limited due to the deregulated nature of the trucking 

industry; truck rates and services, including fuel surcharges, are privately negotiated by the load 

or by contract, with no Federal regulation, and typically treated as confidential. Consequently, 

comprehensive government data are not available for truck rates. Nevertheless, some private 

companies offer truckload and less-than-truckload (LTL) rate analysis to subscribers via the 

Internet based on confidential bill of lading information voluntarily provided to them by some 

trucking companies.*

 In addition, C. H. Robinson Worldwide† provides confidential rates and 

services to members of many major agricultural shipper trade associations, based on a network 

of owner-operators and trucking companies. 

Even though truck rates are not widely available, they are generally believed to be competitive 

due to the nature of the industry. The average ratio of operating cost to operating revenue is 

95 percent in long-haul truckloads.337 The total marginal costs of operating a truck were $1.73 

per mile.338 From a market power perspective most analysts believe truck rates are not 

excessive and are governed by market factors that influence rates. 

 

 

*

 For example, Truckloadrate.com. Freight Rates. <http://www.truckloadrate.com/market_truck_rates.htm> †

 <http://www.chrobinson.com/logistics.asp> 
426

Due to the high fuel rates in 2008, the current economic recession, and lower freight rates, 

3,065 carriers with five or more trucks went out of business in 2008, and 480 additional carriers 

went out of business in the first quarter of 2009, according to Avondale Partners.339 Many 

smaller carriers and owner-operators that haul fruit, vegetables, and grains with only one to 

four trucks could have gone out of business as well, but Avondale Partners do not report them. 

As the economy and demand for trucking improves, fuel costs may rise, causing driver and 

equipment shortages to materialize and rates to increase again. 

Truck Rates for Fruit and Vegetables 

The Fruit and Vegetable Market News Branch of USDA’s Agricultural Marketing Service (AMS) 

compiles the weekly Fruit and Vegetable Truck Rate Report based on voluntarily provided 

information.340 The weekly range of rates represents spot market prices that shippers or 

receivers pay for the most usual truckload volume, in 48–53 foot refrigerated trailers, including 

broker’s fees. The rates are from the point of origin to markets in Atlanta, Baltimore, Boston, 

Chicago, Dallas, Los Angeles, Miami, New York, Philadelphia, and Seattle. The Transportation 

Services Division of AMS further analyses the same rate and truck availability data to compile 

the Agricultural Refrigerated Truck Quarterly.

341

Fuel prices are a major component of truck operating costs, especially while they are high, 

when they can be the dominant cost of operation. Because fuel is a variable cost of operation, 

there is a strong correlation between fuel prices and rates. 

Truck rates, however, also are determined by the supply of, and the demand for, trucking 

services. Because of the seasonal nature of agricultural production, demand for agricultural 

trucking services can vary much more than trucking availability, resulting in truck rates that do 

not always correlate with fuel prices. 

In cases where the going rate for truck services does not cover all costs, the variable cost of 

operation is the floor price for the transportation of goods. Due to the government provision of 

highways, truck transportation has relatively lower fixed costs than other modes of 

transportation. 

The rapid rise in diesel fuel prices from the first quarter of 2007 through the second quarter of 

2008 caused a surge in truck rates in the second and third quarters. However, when fuel prices 

declined in the fourth quarter—along with the world economy—truck rates for fruit and 

vegetable hauling dropped significantly. During that period, many trucking businesses ceased 

operation. Figure 13-6 shows the strong correlation between average fuel prices and truck 

rates for fresh fruit and vegetables from 2006 through 2008. Beyond fuel costs and surcharges, 

the seasonal nature of rates is influenced by a wide range of variables, including import 

demand, harvest dates, prior year prices, production volumes, weather, holidays, consumer 

demand, and the availability of higher paying, less perishable cargo. 

 
427

As can be seen in Figure 13-6, fuel prices and dollars per mile were closely correlated until the 

second quarter of 2007, when fuel price volatility started to add increased uncertainty to the 

truck market. After that point, fuel prices and truck rates were still somewhat correlated, but 

not to the same degree as before. As is shown in Figure 13-7, during most of 2006 and 2007 

diesel fuel accounted for 28 percent of the truck rate. It climbed in 2008—in the first quarter, 

fuel reached 36 percent of the truck rate. This may demonstrate the inability of produce 

truckers to levy fuel surcharges. Truck rates did not move as quickly as fuel costs, accounting 

for the increased share of fuel costs in truck rates during the period. 

Figure 13-6: Correlation between average on-highway diesel fuel prices and truck rates for 

fruits and vegetables 

Sources: Diesel Fuel: Weekly Retail On-Highway Diesel Prices, Energy Information Administration. 

<http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp> EIA; Truck Rates: USDA, Fruit and Vegetable Market 

News 

 
428

Figure 13-7: Diesel fuel percentage of truck rates 

*Based on 5.3 mpg average fuel economy 

Sources: Diesel fuel: Weekly Retail On-Highway Diesel Prices, Energy Information Administration. 

<http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp>; Truck Rates: USDA, Fruit and Vegetable Market News; 

Average Fuel Economy: National Commission on Energy Policy, Policy Discussion – Heavy-Duty Truck Fuel 

Economy 

Truck Rates for Grain 

AMS also compiles a quarterly Truck Transportation report based on information voluntarily 

provided to the Upper Great Plains Transportation Institute at North Dakota State University. 342 

Grain elevators across nine States designated by their State grain and feed organizations as 

leaders in truck grain-hauling provide responses on truck availability, anticipated truck demand, 

and rates. These States are the major producers of corn, wheat, and soybeans. They report 

rate information for local hauls of 25 miles and for longer trips of 100 and 200 miles. In 

addition, they report current and expected levels of truck demand, compared with the same 

period last year. 

The primary source of truckload rates and services for grain transportation is communication 

between the shipper and local trucking companies. Locality is important in grain truck 

transportation; a bulk movement of grain is usually only price-competitive with rail up to 300 

miles (but the distance may extend to 500 miles under some market conditions). Trucking 
429

companies may range from a single truck owner-operator to a global transportation company 

that runs a trucking operation as a part of another business. Some of the larger publicly traded 

agricultural processing and trade companies own and operate their own truck fleets to ensure 

rates, availability, and consistency. 

Figure 13-8, shows the national truck rate averages for hauling grain, by three categories of 

hauling distance, from 2004 through the first quarter of 2009. Underlying the grain truck rates 

are factors such as ease of hiring truck capacity (Figure 13-9) and the demand for trucks 

(Figure 13-10), all of which are influenced by ownership, fuel prices, surcharges, the region of 

operation, seasonal harvest and storage practices, world and domestic demand, competition 

for drivers, truck availability, and competition with other cargo, as well as trip distance. 

Figure 13-8: National average grain truck rates by trip distance 

*Data for Q1 2007 is unavailable; however, data is extrapolated from the historical series 

Source: AMS

 

As indicated in Figure 13-8, shorter hauls pay more per mile than do longer hauls, reflecting the 

economies of scale of distance on the cost of operation. Rates for hauls of 25 miles or less are 

higher because of the time spent loading and unloading, which is the same for any length trip. 

Longer hauls spread the cost for loading and unloading over more miles. As can be seen from 

the figure, there also is more variability in the rates for shorter hauls than those for hauls of 100 

or 200 miles. In general, the rates rose during the period shown, especially for shorter 

distances. The long-haul rates were more stable. 
430

Figure 13-9 shows an index for the ease of hiring grain truck capacity on a quarterly basis from 

2004 through the first quarter of 2009. The ease of finding and hiring truck capacity is related 

to changes in seasonal demand which peaks in the third quarter, the start of the harvest 

season. The region does not seem to make much difference in trucking availability, although 

the South Central region is a little more variable. This could be due the closer proximity of 

export ports. 

Figure 13-9: Index of current ease of hiring grain truck capacity 

*Data for Q1 2007 is unavailable; however, data is extrapolated from the historical series 

Source: AMS 

Figure 13-10 shows the patterns and trends in the demand for grain trucks from 2004 through 

the first quarter of 2009, compared with the same quarter the year before. Demand is higher in 

the North Central region, which contains the major grain-producing States. The index of the 

demand for trucks is related to changes in seasonal and export demand for grain. 

Over the period observed, the demand for grain trucks for the Nation and the North Central 

region generally peaked in the fourth quarter, following the harvest of corn and soybeans, and 

was lowest in the first quarter. An interesting anomaly to this pattern occurred between 2005 

and 2006. During this period, the peak occurred during the second quarter of 2006, probably 

because exports were higher than normal due to recovery from Hurricanes Katrina and Rita. 

The hurricanes struck the Gulf Coast in the early fall of 2005; even though infrastructure 
431

recovered faster than expected, Gulf grain exports were below normal for the rest of 2005, 

then above normal for the first half of 2006. Corn for ethanol movements also may have 

contributed to trucking demand because the gasoline industry began to replace methyl tertiary 

butyl ether (MTBE) with ethanol in April 2006. 

The demand for grain trucks rose to its highest level in the fourth quarter of 2008 but dropped 

in the next quarter to its lowest level because a drop in ethanol production reduced the 

demand for corn. It is interesting to note that the peak in the fourth quarter of 2008 is 

substantially higher than the peak in the fourth quarter of 2007. The growth in truck’s modal 

share for grain (see Chapter 2: The Importance of Freight Transportation to Rural America) 

helped increase truck demand over this period and is another indication of truck’s 

competitiveness with rail and barge in moving grains, especially for short hauls. The drop in 

fuel prices also contributed to the increased truck demand in the fourth quarter of 2008; high 

fuel prices created a pent-up demand that was relieved once fuel costs declined. 

Figure 13-10: Grain truck demand index 

*Data for Q1 2007 is unavailable; however, data is extrapolated from the historical series 

Source: AMS 
432

Farmer-Owned Trucking Capacity for Grain and Produce 

Farm ownership of commercial-sized trucks influences rates, competition, and availability. 

Trucks used for hauling from fields to the point of first storage or to other modes are not 

usually in short supply because many farmers now own their own trucks to haul grain and other 

products. There are no reliable statistics for this ownership nor is it known to what extent 

farmers with trucks haul grain for other farmers. 

Farm trucks probably stabilize the supply and availability of trucks for this first movement as 

long as the variable costs are covered. Fewer farm businesses are likely to go out of business 

due to the pressures faced by full-time truckers because farm businesses derive their income 

from farming, not trucking. Farm trucks are part of the farming operation, not a full-time focus. 

Grain or produce agribusiness companies that have their own fleets are in the same favorable 

position; trucks are not their primary business, so are less apt to leave the market during hard 

times for the trucking industry. 

Conclusions 

Trucking is critical for American agriculture. It carries 70 percent of agricultural and food 

products, linking farmers, ranchers, manufacturers, and service industries to grain elevators, 

ethanol plants, processors, feedlots, markets, and ports. More than 80 percent of America’s 

communities are served exclusively by trucks. The first and last movements in the supply chain 

from farm to grocery store are usually trucks. Trucking is a critical link for the national 

economy, and moving agricultural products is a significant portion of total trucking activity. 

Agriculture needs a highly flexible trucking system. Its needs are seasonal, requiring frequent 

hauling during planting and harvest, but with less need during the rest of the year. Many 

agricultural products are perishable, requiring the efficiency, special handling, and refrigeration 

best provided by trucks. 

The trucking industry is highly competitive. Half of all trucking companies own one truck, 

driven by the owner. Truckers require only a Commercial Drivers License, DOT registration, 

insurance, and a down payment on a used truck to enter the business. Because there is a lively 

market for used trucks, the industry is relatively easy to enter or exit. This competitiveness 

keeps rates low; the average operating costs are 95 percent of operating revenue. 

Competitiveness also addresses the flexibility agriculture requires. As the need for trucking 

dropped during the 2008 recession, over 3,000 trucking companies with five or more trucks 

went out of business and probably many more with fewer than five trucks went out of business 

as well. 

 
433

The capacity of the trucking industry is governed by three main components: drivers, trucks, 

and the roads they travel. Many of the drivers are part-time workers, driving trucks during the 

busy planting and harvest seasons, and then working at something else the rest of the year. 

Congress, recognizing the needs of farmers and ranchers, provided a seasonal 100-air-mile 

radius exemption from hours-of-service rules for drivers transporting agricultural commodities 

or farm supplies for agricultural purposes. 

The 100 air-mile radius exemption, exemption from CDL requirements within 150 miles, and 

exemption for custom harvest, offer the flexibility that agriculture needs. Any changes to driver 

rules and farm truck regulations will directly affect the cost and benefits to our Nation’s farmers 

and ranchers and the small businesses dependent on them. 

The second component of the trucking industry, the trucks themselves, is governed by National 

law limiting axle and gross vehicle weights on the Interstate Highway System. Agricultural 

interests argue that farm and forest products are heavy, bulky, and of low value, making 

transportation a large component of their final price, and would like to see higher weight limits 

on the Interstates. Heavier vehicles are currently restricted to non-Interstate highways and 

State and local roads. 

America’s roads are vital to truck transportation. Federal data in 2004 reported that over half 

of Federal-aid highways are in less-than-good condition and more than one quarter of the 

Nation’s bridges are structurally deficient or functionally obsolete. Although additional funds 

for highways and mass transit have been made available under the American Recovery and 

Reinvestment Act, Omnibus Appropriations Act, and the restoration of $7 billion to the Highway 

Trust Fund, average annual gaps in funding are still $96 billion for maintenance and $42 billion 

in improvements. 

Closing this funding gap is necessary, but so is a careful consideration of the mechanisms for 

raising the necessary funds. It appears likely that some mechanism (or combination of 

mechanisms) other than the fuel tax may be necessary. The historical opposition of truckers to 

highway tolls is well known. However, segment tolls, congestion pricing, and a tax based on 

miles driven rather than on fuel use may be a more equitable solution than the current flat tax 

per gallon of fuel. 

Environmental concerns impact the trucking industry. Meeting recent EPA and State 

regulations requires substantial investments in upgrades or new equipment. Because many 

companies are small businesses without capital to invest, compliance has become a challenge. 

It is difficult for companies that remain in business to pass on the increased costs in the form of 

higher freight rates. Agriculture is impacted by shortages of trucks. 

Because many agricultural products are exported, reducing congestion in urban and port areas 

will provide national benefits in reduced emissions and transportation costs and also will lower 

costs for agricultural exports and improve the competitiveness of U.S. farm products in world 

trade. 
434

Appendix 13-1: Commercial Motor Vehicle Definitions

The definitions of commercial motor carriers are provided in FMCSA regulations Part 390.5: 

Commercial Motor Vehicle Definitions: 

Commercial motor vehicle means any self-propelled or towed motor vehicle used on a 

highway in interstate commerce to transport passengers or property when the vehicle: 

(1) Has a gross vehicle weight rating or gross combination weight rating, or gross 

vehicle weight or gross combination weight, of 4,536 kg (10,001 pounds) or more, 

whichever is greater; or 

(2) Is designed or used to transport more than 8 passengers (including the driver) for 

compensation; or 

(3) Is designed or used to transport more than 15 passengers, including the driver, and 

is not used to transport passengers for compensation; or 

(4) Is used in transporting material found by the Secretary of Transportation to be 

hazardous under 49 U.S.C. 5103 and transported in a quantity requiring placarding 

under regulations prescribed by the Secretary under 49 CFR, subtitle B, chapter I, 

subchapter C. 

Interstate Commerce Definition: 

Interstate commerce means trade, traffic, or transportation in the United States: 

(1) Between a place in a State and a place outside of such State (including a place 

outside of the United States); 

(2) Between two places in a State through another State or a place outside of the 

United States; or 

(3) Between two places in a State as part of trade, traffic, or transportation originating 

or terminating outside the State or the United States. 
435

Appendix 13-2: Commercial Drivers’ License Classifications 

The Federal standard requires States to issue a CDL to drivers according to the following 

license classifications: 

Class A – Any combination of vehicles with a GVWR of 26,001 or more pounds provided 

the GVWR of the vehicle(s) being towed is in excess of 10,000 pounds. 

Class B – Any single vehicle with a GVWR of 26,001 or more pounds, or any such vehicle 

towing a vehicle not in excess of 10,000 pounds GVWR. 

Class C – Any single vehicle, or combination of vehicles, that does not meet the 

definition of Class A or Class B, but is either designed to transport 16 or more 

passengers, including the driver, or is placarded for hazardous materials. 

Drivers who operate special types of commercial motor vehicles also need to pass additional 

tests to obtain any of the following endorsements on their CDL: 

T – Double/Triple Trailers (Knowledge test only) 

P – Passenger (Knowledge and Skills Tests) 

N – Tank Vehicle (Knowledge Test only) 

H – Hazardous Materials (Knowledge Test only) 

X – Combination of Tank Vehicle and Hazardous Materials 

 
436

Appendix 13-3: Excerpts from the Surface Transportation 

Authorization Act of 2009 

• Redefines the Federal role and restructures Federal surface transportation by 

consolidating or terminating more than 75 programs; 

• Consolidates the majority of highway funding in four, core formula categories designed 

to bring our highway and bridge systems to a state of good repair; improves highway 

safety; develops new and improved capacity; and reduces congestion and greenhouse 

gas emissions and improves air quality; 

• Focuses the majority of transit funding in four core categories to bring urban and rural 

public transit systems to a state of good repair; provides specific funding to restore 

transit rail systems; provides mobility and access to transit-dependent individuals; and 

provides for planning, design, and construction of new transit lines and intermodal 

facilities; 

• Directs Federal highway safety investments to specific activities demonstrated to reduce 

fatalities and injuries on our roads; 

• Establishes new initiatives to address the crippling congestion in major metropolitan 

regions, and eliminates bottlenecks in freight transportation; 

• Creates a National Transportation Strategic Plan, based on long-range highway, transit, 

and rail plans developed by States and metropolitan regions, to develop intermodal 

connectivity of the nation’s transportation system and identifies projects of national 

significance; 

• Reforms the U.S. Department of Transportation to require intermodal planning and 

decision-making; ensures that projects are planned and completed in a timely manner; 

and ensures that DOT programs advance the livability of communities; 

• Requires States and local governments to establish transportation plans with specific 

performance standards; measures their progress annually in meeting these standards; 

and periodically adjusts their plans as necessary to achieve specific objectives; 

• Improves the project delivery process by eliminating duplication in documentation and 

procedures; 
437

• Establishes a new program to finance planning, design, and construction of high-speed 

rail; 

• Creates a National Infrastructure Bank to better leverage limited transportation dollars; 

• The Surface Transportation Authorization Act: 

o Provides funding of $450 billion over six years – the minimum amount needed to 

stop the decline in our surface transportation system; begins to make 

improvements, and restore and enhance the nation’s mobility and economic 

productivity. 

o Doubles the investment in highway and motor carrier safety to $12.6 billion; 

provides $337.4 billion for highway construction investment, including at least 

$100 billion for Capital Asset Investment to begin to restore the National 

Highway System (including the Interstate System) and the nation’s bridges to a 

state of good repair. 

o Provides $87.6 billion from the Mass Transit Account of the Highway Trust Fund 

and $12.2 billion from the General Fund for public transit investment to restore 

the nation’s public transit systems to a state of good repair, and provide access 

and transportation choices to all Americans from large cities to small towns. 

o Within this $450 billion investment, the Act provides $50 billion for Metropolitan 

Mobility and Access to unlock the congestion that chokes major metropolitan 

regions; and $25 billion for Projects of National Significance to enhance U.S. 

global competitiveness by increasing the focus on goods movement and freight 

mobility. 

o In addition to this $450 billion investment, the Act provides $50 billion over six 

years to develop 11 authorized high-speed rail corridors linking major 

metropolitan regions in the United States. The high-speed rail initiative will 

provide greater consideration for projects that: encourage intermodal 

connectivity; produce energy, environmental, and other public benefits; create 

new jobs; and leverage contributions from state and private sources. 

 
438

o The $450 billion for highway, highway safety, and transit investment over six 

years is a 38 percent increase above the current funding level ($326 billion). The 

Surface Transportation Authorization Act also provides an additional $50 billion 

investment for high-speed rail. Together, this $500 billion investment will create 

or sustain approximately six million family-wage jobs.*

• In sum, the Surface Transportation Authorization Act of 2009 transforms the nation’s 

surface transportation framework and provides the necessary investment to carry out 

this vision. This increased investment is accompanied by greater transparency, 

accountability, oversight, and performance measures to ensure that taxpayer dollars are 

being spent effectively and in a manner that provides the maximum return on that 

investment. 

 

*

 This estimate is based on 2007 Federal Highway Administration data on the correlation between highway 

infrastructure investment and employment and economic activity, and assumes a 20 percent state or local 

matching share of project costs. The Federal Highway Administration estimates that $1 billion of Federal 

investment creates or sustains 34,799 jobs. 
Chapter 14

Ocean 

Transportati on
439

Chapter 14: Ocean Transportation 

The agricultural community uses the ocean transportation network extensively to serve its 

global customers. An estimated 70 percent of all agricultural exports in 2007 were moved via 

ocean transportation to their foreign destinations. U.S. agriculture is known for its high 

standards, quality, and the efficient movements of its goods to customers all over the world, 

and the marine transportation system is critical to its continued growth. 

For the purposes of this study, the ocean transportation system is defined as the combination 

of ocean ports, rail and highway infrastructure adjacent to the port area, and the waterborne 

trade routes used to transport cargo to and from foreign markets. Intermodal transportation—

defined as the movement of marine shipping containers between two or more transportation 

modes—is also described in this chapter. 

A recent study by the U.S. Department of Transportation’s (DOT) Maritime Administration 

(MARAD) reports one of its findings: 

America’s ports and Marine Transportation System are critical to the national 

economy. The importance of our port system will only grow as globalization 

continues and the American economy becomes more integrated into the world 

economy. Increasing world trade has resulted in record levels of cargo entering and 

leaving our ports. This cargo flow has become a large part of the U.S. economy. In 

2006, foreign trade accounted for nearly 22 percent of the nation’s gross domestic 

product.343

This chapter focuses on the ocean transportation industry for both bulk and containerized 

movements, the importance of ocean transportation to agriculture, rate structures and 

influences, capacity availability and constraints, and service challenges. 

Today’s Ocean Transportation Industry 

Three themes in today’s ocean transportation industry affect agricultural shippers: 

• Capacity limits and congestion 

• Environmental stewardship and expansion conflicts 

• Container availability 

This section broadly sketches out these themes and sets the stage for later discussion of why 

they are important to agricultural shippers. 

Port Capacity Limits and Congestion 

Most major ocean ports in the United States are approaching their capacity limits. Congestion 

at the ports and the availability of landside infrastructure is a major concern of U.S. exporters 

and importers. The challenge to the marine transportation system lies in the projected growth 

of the nation’s international trade, and the ability of the marine, highway, and rail systems to 

accommodate the increased volumes of freight shipments so vital to our nation’s continued 
440

economic growth. DOT projects total freight volumes will increase by more than 50 percent in 

the next 20 years. U.S. international container traffic is projected to at least double from 2001 

to 2020. Nowhere will this pressure be felt more than at U.S. ports. As trade volumes increase, 

the capacity of America’s intermodal transportation system must increase in order to maintain 

and expand the nation’s economy.344 

Environmental Stewardship & Expansion Conflicts 

Promoting, developing, and implementing environmental stewardship while expanding to 

accommodate increased volume is a challenge for the maritime industry, particularly for the 

ports. The property available for marine development in and around existing port facilities is 

limited. Port expansion plans face competing development issues and environmental concerns 

that limit expansion activities. Property that may be suitable for port development is subject to 

pressures for non-port uses, such as office, residential, or recreational development.345 

Vessel Capacity and Container Availability 

Shippers of containerized cargo are faced with these challenges to container availability: 

• Growing economies in developing countries demand U.S. agricultural exports, but fewer 

containers being available in locations suitable for export can result in lost sales and 

unreliable service to overseas buyers. 

• Importers have increased the use of distribution centers near ocean ports. This practice 

has constrained the number of containers that are moved to inland locations and 

therefore limits container availability for agricultural exporters in the heartland. 

• The increased demand for vessel capacity and container supplies can push up freight 

rates. 

• Increasing demand in other trade lanes (Asia-Europe and Intra-Asia) more profitable to 

ocean carriers could further reduce vessel calls and, as a result, vessel capacity and 

container availability for U.S. exports. 

• The use of the largest container ships in the U.S. trade lanes reduces the number of 

vessel calls at U.S. ports, but decreases costs for carriers when vessels are full due to 

economies of scale. Larger ships carry more containers per trip; therefore, the vessel 

makes fewer trips. 

• The continued ocean container carrier consolidation and vessel sharing agreements do 

their part in reducing vessel calls at some U.S. ports and the number of carriers serving 

the U.S. market, ultimately affecting competition in the market. 

• The potential for a rise in bulk ocean freight rates relative to container rates to increase 

the demand for ocean container service. 
441

Characteristics of the Ocean Shipping Industry 

The demand for ocean transportation is a function of global supply and demand for basic 

commodities and finished goods. Therefore, the condition of the world economy, which 

determines the level of international trade, is a primary factor in ocean shipping demand. 

Other economic factors that influence the demand for shipping include currency exchange 

rates, shifts in interregional trade patterns, and seasonal variations in production or 

consumption. 

Ocean transportation is composed of two major commercial markets: “tramp” and “liner.”346 

Tramp vessels are contracted to shippers on an as-needed basis; they do not have regularly 

scheduled routes. These vessels are usually deployed 

by their owners when and where they can find the 

greatest profit. Many tramp vessels are designed to 

carry dry bulk cargo such as grain, ore, coal, or 

fertilizer. Some are designed to carry either dry bulk 

cargo or liquid bulk cargo. Four basic types of tramp 

vessel charter (lease) agreements govern bulk ocean 

grain transportation: voyage charter, time charter, 

bareboat charter, and contract of affreightment. In 

the dry bulk industry, the voyage and time charters are 

the most common. 

The liner shipping market is composed of carriers that 

provide service over fixed time and route schedules. 

Vessels in this market are designed to carry 

containerized cargo, including such agricultural 

commodities as meat, hay, horticultural cargo, highvalue specialty grains, etc. 

The operation and management of liner and bulk 

vessels are significantly different. Liner vessels carry 

containers uniform in size, shape, and function with a 

variety of cargos. Also, the ocean container carrier is 

legally bound to the container after it is discharged in a 

country; part of the ocean container carrier’s 

operational costs requires the carrier to follow the 

container through the inland transportation system to 

its final destination. Bulk ocean carriers do not have 

the extra responsibility and costs associated with 

inland transportation. 

Shipping Charters 

Voyage (or trip) Charter: An agreement 

to lease a vessel to complete one trip 

between a specified origin and 

destination. 

Time Charter: An agreement to lease a 

vessel for a period of time (months or 

years). 

Bareboat Charter: An agreement similar 

to a time charter agreement, except the 

charterer operates and controls the use 

of the vessel during the term of the 

agreement. 

Contract of Affreightment: An 

agreement with a ship owner to carry 

cargo at a set rate, within a set time 

period, without the ship owner 

obligating a specific vessel. 
442

Bulk Shipping 

The ocean shipping industry—especially the bulk transportation market—is governed by a 

complex set of economic relationships. The bulk transportation market is marked by high 

competition, frequent changes in charter rate levels, and the relative absence of economic 

regulations. Some characteristics of the bulk market are:347 

• Many firms and vessels compete; no single operator or cartel dominates or influences 

the market. 

• Rates are determined in a competitive environment. 

• Current information about freight rates, trade patterns, and vessel availability is 

publicized. 

• Vessels can be rapidly shifted into different markets and can generally be used to 

transport a wide array of bulk products. 

• Vessel operators have minimal shore-side fixed costs. 

• Barriers to entry for ship owners are relatively low. 

Figure 14-1: Bulk shipping vessel 

Source: Wikimedia Commons 
443

Global Dry Bulk Vessel Fleet Capacity 

The total capacity of the dry bulk fleet depends on vessel size and number. Bulk vessels are 

categorized by size: 

• Handysize vessel 

• Handymax vessel 

• Panamax vessel 

• Post-Panamax vessel 

• Capesize vessel 

• Very large ore carrier (Vloc) 

Due to the high volume of trade and shipping economies of scale, Panamax vessels are 

commonly used to transport grain from the United States to markets in Asia since they are the 

largest ships that can transit the Panama Canal at its current size. Handysize vessels are 

frequently used to transport grain from the Great Lakes to ports situated in shallow waters or 

on other lower-volume trade routes. 

The capacity of the world fleet is determined by fleet performance, ship building, and ship 

scrapping activities. The addition of new vessels to the fleet increases the supply, and the 

retirement or scrapping of older vessels diminishes it. Fleet performance is influenced by vessel 

traffic congestion at major ports, vessel operating speed, occurrence of vessel breakdowns, and 

other factors. As of February 2010, the total bulk vessel operating fleet (both dry and liquid 

bulk vessels) was 10,258 vessels, resulting in 833.6 million deadweight tons (mdwt).348 About 

7,121 vessels, accounting for 55 percent (462.3 mdwt) of the total deadweight, were dry bulk 

carriers (Table 14-1). During the same period, the Panamax bulk vessel fleet was estimated at 

1,841 vessels, accounting for a total of 131.2 mdwt. The dry bulk Panamax vessel fleet was 

1,483 vessels, representing 100.1 mdwt. Approximately 76 percent of the Panamax vessels are 

allocated to dry bulk shipments. 

Table 14-1: Global dry bulk fleet, February 2010 

Type of Vessel Size (dwt) No. of Vessels Capacity in mdwt 

Handysize 10,000-40,000 2,636 72.0 

Handymax 40,000-60,000 1,801 89.2 

Panamax 60,000-80,000 1,408 101.1

Post-Panamax 80,000-110,000 311 27.7

Capesize 110,000-200,000 793 131.0

Vloc 200,000+ 172 41.4

Total 7,121 462.4 

Source: Drewry Shipping Consultants

 
444

Indicators of expansion in the fleet size are the industry orderbook for new vessels and new 

building activity; demolition activity is a good measure of the vessels’ retirement rate. 

Orderbook statistics represent the scheduled delivery date for newly built vessels (Table14-2). 

Owners were encouraged by the relatively high ocean freight rates during the 2004–2008 

period to order additional vessels. 

During February 2010, 1,779 bulk vessels were on order and scheduled for delivery, totaling 

about 168.5 mdwt. Just over 73 percent of these vessels were dry bulk carriers, about 124.3 

mdwt total. However, demolition activity was almost non-existent. Only 23 bulk vessels were 

scrapped during February, representing about 1.9 mdwt. About 0.411 mdwt of the scrapped 

vessels were dry bulk vessels. Dry bulk vessels on order until 2015 totaled 287.9 mdwt and 

represent about 63 percent of the existing fleet (Table14-2). The implication of a lower 

scrapping rate and a robust orderbook is that vessel supply will keep increasing and may keep 

the cost of shipping and return on vessel assets low if the demand for vessel loading activity 

does not catch up. 

Table 14-2: Global dry bulk orderbook, 2010-2015 

Type of vessel Size (dwt) No. of vessels Capacity (mdwt) % of fleet

Handsize 10,000-40,000 793 25.878 35.4%

Handymax 40,000-60,000 884 50.418 55.9%

Panamax 60,000-80,000 273 20.316 20.2%

Post-Panamax 80,000-110,000 461 40.459 153.0%

Capesize 110,000-200,000 625 106.997 83.0%

Vloc 200,000+ 151 43.785 109.8%

Total 3,187 287.852 62.7% 

Source: Drewry Shipping Consultants. 

Global Network Impact of Vessel Allocation 

Although bulk ocean vessels are owned and operated by many companies in many nations, the 

majority are registered in just ten countries: Panama, Hong Kong, Malta, China, Cyprus, Liberia, 

Bahamas, Greece, Marshall Island, and Singapore (Table14-3). 

Vessel owners often consider financial, regulatory, and other inducements offered by the 

respective countries when registering their vessels under a national flag. Analysts have found 

that U.S.-flag merchant vessels have higher operating costs than foreign-flag ships, partly due 

to federal regulations relating to ship construction, repair, and on-board labor. In addition, 

some governments operate or subsidize their national-flag ships to create or grow market 

share. Because of higher U.S. flag operational costs, commercial grain exporters usually prefer 

foreign-flag vessels.349 In 2006, over 74 percent of the vessels in the world bulk fleet were 

registered in the 10 countries listed above, totaling about 296 mdwt. Panama registered the 

largest bulk fleet, with 1,865 vessels and a total deadweight capacity of over 124 million tons. 
445

Table 14-3: World oceangoing merchant fleet 

Source: Clarkson Research Studies, Vessel Registers, London: Clarkson Shipbrokers, 

<www.clarksonresearch.com>
446

Similarly, about 75 percent of the vessels (totaling about 308 mdwt) in the world bulk vessels 

were owned by just 10 countries: Greece, Japan, China, Germany, United States, Singapore, 

Norway, United Kingdom, South Korea, and Taiwan (Table 14-4). Greece and Japan owned the 

two largest bulk fleets, totaling 1,362 (83 mdwt) and 1,150 (85 mdwt) vessels, respectively. 

Table 14-4: World merchant fleet by country of owner and type 

Source: Clarkson Research Studies, Vessel Registers, London: Clarkson Shipbrokers, 

<www.clarksonresearch.com>
447

Container Shipping 

The container phenomenon began in the 1950’s, allowing shippers to save time and money 

using marine shipping containers to transport their goods. Containers reduce the need for 

products to be handled several times between modes of transportation. Less handling also 

results in a higher-quality product upon arrival at the destination. Containers provide product 

segregation, which allows buyers to be specific about the type and quantity of product they are 

buying. Containers provide added safety and reliability during the transportation process, thus 

reducing product deterioration, pilferage, and exposure to the elements during transport. 

Containers also facilitate just-in-time delivery, which reduces inventory costs and increases 

efficiencies of production. 

Most marine containers are a standard length of either 20 or 40 feet long. Container 

movements are often described in terms of equivalent units. A Twenty-foot equivalent unit 

(TEU) is equal to a 20-foot container and a 40-foot container is equal to 2 TEUs. Other sizes of 

containers exist, including 45, 48, and 53-foot containers, but slot availability on ocean vessels 

is limited for them. A 20-foot container holds maximum of 22–25 metric tons of cargo and a 

40-foot container holds 32–36 tons. 

The industry refers to ocean container carriers in several categories, including liner carriers, 

shipping lines, and common carriers. An ocean container carrier is a company that provides 

ocean transportation service for containerized cargo on vessels operating on fixed itineraries or 

regular schedules and provides established rates available to all shippers.350 

Freight rates were historically based on the ocean carrier's tariff. A tariff is a document 

published by the carrier setting forth applicable rules, rates, and charges for the movement of 

goods. The document sets up a contract of carriage between the shipper, consignee, and 

carrier. The term “tariff” is sometimes confused by those outside the industry with a tariff 

assessed in the form of a customs duty that is payable on imported merchandise. In the 

context of ocean shipping rates, they have distinctly different meanings and should not be 

confused. Additionally, ocean ports sometimes use the term “tariff” to refer to a document or 

set of rules that sets forth terms of port services and charges. Since the passage of OSRA in 

1998 the general rate in a shipping company’s tariff has become less indicative of actual rates 

charged, as the vast majority of ocean freight rates are now individually negotiated in 

confidential annual “service contracts” between shippers and carriers. Tariff rates and 

conditions are made available by the carrier to all comers; service contracts, on the other hand, 

are confidential, individually negotiated agreements between shipper and carrier. Tariffs are 

required by U.S. law to be published by the carrier; service contracts are filed confidentially 

with the Federal Maritime Commission (FMC). Freight charges are discussed in more detail 

later in the chapter. 

 
448

Figure 14-2: Container Shipping Vessel 

Source: USDA 

Container vessels come in various sizes and configurations. In 1956, the first container ship 

carried 58 reinforced highway trailers on the deck of an old World War II tanker vessel. The 

voyage took 6 days to go from Newark, NJ, to Houston, TX. Today a standard container vessel 

can cross the Pacific Ocean from Los Angeles to Tokyo in 9 days carrying as many as 10,000 

TEUs. Because of the nature of containerization, one vessel could be carrying car parts, 

motorcycles, personal electronics, apparel, oranges, grain, wastepaper, scrap metal, or any 

number of varied and unrelated products, all on the same ship. These cargo combinations 

would be impossible to move on a bulk vessel. The newest generation of container vessels can 

carry as many as 12,000 TEUs. These large ships allow shipping lines to create greater 

economies of scale with large amounts of cargo on one voyage. 

Global Container Ship Fleet Capacity 

At the end of February 2010, the global container ship fleet consisted of more than 4,680 

vessels with more than 12.9 million TEU in capacity. Much like the bulk fleet, the container ship 

fleet is organized in categories ranging from a feeder vessel, which has capacity of less than 

1,000 TEU to the very large Post-Panamax*

 vessels that can carry more than 15,000 TEU. 

Orderbook statistics also show that the number of vessels on order and scheduled to be 

delivered between February 2010 and 2014 is estimated to be 873 total vessels, with an 

 

*

 A Panamax vessel is the largest vessel that can currently fit through the Panama Canal. A Post-Panamax vessel 

is too large to fit through the Panama Canal at its current size. 
449

additional capacity of 4.87 million TEU. The Very Large category is slated to experience the 

largest increase in capacity—163 vessels with capacity of 2.1 million TEU, more than 444.5 

percent of the current fleet of ships of this size. Demolition or scrapping activity statistics are 

not available for container ships. However, as larger vessels join the fleet, smaller vessels are 

often reallocated to the intra-Asia trade lanes where feeder vessels are needed to access 

smaller ports. 

Table 14-5: Global container ship fleet, February 2010 

Type of Vessel Size (TEUs) No. of Vessels Capacity 

(thousand TEUs)

Feeder <1,000 1,167 677

Handsize 1,000-1,999 1,186 1,705

Intermediate 2,000-2,999 718 1,820

Panamax 3,000-4,999 869 3,516

Post-Panamax 5,000-7,999 513 3,079

Large 8,000-9,999 192 1,650

Very Large 10,000+ 41 463

Total 4,686 12,910

Source: Drewry Shipping Consultants 

Table 14-6: Global container ship orderbook, 2010-2014 

Type of Vessel Size (TEUs)

No. of 

Vessels

Capacity 

(thousand TEUs)

% increase in 

fleet size

Feeder <1,000 82 62 9.2%

Handsize 1,000-1,999 142 207 12.1%

Intermediate 2,000-2,999 73 182 10.0%

Panamax 3,000-4,999 211 881 25.1%

Post-Panamax 5,000-7,999 114 729 23.7%

Large 8,000-9,999 88 756 45.8%

Very Large 10,000+ 163 2,056 444.5%

Total 873 4,872 37.7%

Source: Drewry Shipping Consultants

As with bulk vessel capacity, the U.S. agricultural community can benefit from this additional 

container vessel capacity. If demand is slow to recover from the recent economic downturn, 

the additional capacity will help to keep rates low. However, carriers must earn an adequate 

return on vessel assets to continue to offer service; otherwise, they will lay up or scrap their 

vessels. 

 
450

In 2009, some carriers cancelled newbuilding orders as the economic slowdown diminished the 

carriers’ confidence in the global trade arena. According to a report by Drewry Consulting,351

the revised orderbook figures in February 2010 showed the orderbook numbers have dropped 

26 percent from March 2009 reflecting vessel deliveries, some newbuilding cancelations, and 

less overall demand for vessel capacity. 

In addition to canceling newbuilding orders, ocean container carriers are implementing several 

strategies to decrease costs during these challenging economic times: 

• Employee layoffs—fewer customer service employees could reduce the quality of 

service to customers. 

• Slow steaming—by reducing vessel speeds, carriers can greatly reduce bunker fuel costs 

(and associated emissions). Recently, numerous carriers have announced slow steaming 

initiatives. While slow steaming increases the amount of time for an individual voyage, 

carriers have generally added vessels to routes with slow steaming so that they can 

maintain the previous frequency of vessel calls at each port. 

• Routing vessels around the Panama and Suez Canals to access East Coast ports to avoid 

canal transit fees. Intermodal transit by rail from the West Coast is more expensive than 

the Panama Canal option. All-water routes around the tips of Africa and South America 

are being used as cheaper alternatives. 

• Using their ability to form alliances among the carriers to share vessel and container 

capacity. If the carrier doesn’t have to operate its own vessel, but instead shares the 

cost of another company’s vessel, both companies save money. However, this reduces 

vessel capacity for exporters. 

• Pulling vessels from scheduled routes for dry docking, which reduces the total fleet 

capacity available to shippers. 

In 2009, ocean carriers began idling vessels in response to the collapse in shipping rates and 

demand. According to the Paris-based AXS Alphaliner, the number of idled vessels reached a 

peak of 581 in January 2010352, but carriers have recently been reactivating vessels, and the idle 

number dropped to 474 as of March 15, 2010.353 

Global Impact on Container and Container Ship Allocation 

The ocean container industry works within a global network of vessels, ports, routes, and 

container allocation. The strength of demand for service in a certain trade lane can impact the 

availability of service, vessels, and containers in another. For example, if ocean container 

carriers are able to receive high rates for cargo moving in the Asia-to-Europe trade lane, they 

will probably allocate service and equipment to that trade lane, reducing service and container 

supplies in other trade lanes. In essence, the U.S. shipper is competing for reliable ocean 

container service with other countries and the freight rates they are willing to pay. 

 
451

However, over the long term, even as carriers acquire new vessels to support sustained 

demand around the world, unexpected shifts in demand to one country can strain the vessel 

and container pool for another country’s service needs. For example, increased demand in the 

Asia-Europe trade lanes can pull vessel and container equipment away from U.S. trade lanes 

and increased rates, particularly in the Trans-Pacific trade lanes. During times of slow demand 

for ocean container service, the carriers are faced with overcapacity in the current fleet, and 

any new vessels being commissioned into the market only add to the surplus in capacity. Such 

times of overcapacity can provide shippers opportunities to negotiate lower rates, as they do 

through the service contract process or by “spot” rates. 

Government Oversight 

FMC has the authority under the Shipping Act of 1984 (Shipping Act) and its predecessor 

statutes to regulate the ocean common carriers, ocean transportation intermediaries, and 

marine terminal operators. The Shipping Act of 1984 was passed in order to reduce 

government intervention and regulatory costs in ocean transportation and to achieve a 

competitive and efficient liner fleet through greater reliance on the marketplace consistent 

with international shipping practices. FMC can influence the level of competition in maritime 

trade by policing and moving to block carrier agreements that are exempted from antitrust 

laws. 

Most liner carriers that operate in the U.S. trade lanes participate in “discussion agreements” 

and other cooperative agreements regulated by FMC under the Shipping Act, as amended by 

the Ocean Shipping Reform Act of 1998 (OSRA). Discussion agreements are the forum through 

which carriers exercise their anti-trust exemption to discuss market conditions and establish 

voluntary rate guidelines. Several other types of agreements are filed with the Federal 

Maritime Commission and immunized by the Shipping Act from the antitrust laws, such as 

agreements among carriers to share vessels and equipment (e.g., the Ocean Carrier Equipment 

Management Agreement) and agreements among marine terminal operators to discuss rates 

and to coordinate practices and policies (e.g., the California Association of Port Authorities and 

the Los Angeles and Long Beach Port Infrastructure and Environmental Programs Cooperative 

Working Agreement). 

The Shipping Act was crafted in an attempt to make the ocean liner industry more responsive 

to shipper needs. The legislation was designed to: 

• Establish a nondiscriminatory regulatory process for the transportation of trade by sea. 

• Provide an efficient and economic system to carry ocean commerce. 

• Encourage the development of the U.S. flag liner fleet. 

• Promote the growth and development of U.S. exports through competitive and efficient 

ocean transportation. 

 
452

As a result of the Shipping Act, members of the discussion agreements (which have come to 

replace the liner conferences, which had mandatory rates set through a common tariff, that 

were common before the Ocean Shipping Reform Act amendments) can collectively agree on 

voluntary guidelines for rates and services.354 

OSRA modified portions of the Shipping Act associated with collective rate setting and the use 

and confidentiality of service contracts negotiated between the shipper and carrier. Previously, 

tariff and contract rates were provided to the public; OSRA required that service contract rates 

be filed confidentially with the FMC. This allows shippers to enter into contracts with carriers 

individually without the carrier being influenced by other members of the discussion 

agreement. Member carriers may still discuss rates and develop rate guidelines, but it is up to 

individual carriers to decide on a customer-by-customer basis whether to implement a 

guideline wholly, in part, or not at all in their confidential service contract negotiations. These 

new regulations helped to increase the competitive nature of the industry. 

OSRA went into effect on May 1, 1999. The biggest effects of OSRA were the increased 

competition among the ocean carriers and stabilization of rates particularly in the U.S. 

westbound Transpacific trade lanes. As shown in Figure 14-3, average westbound rates 

remained fairly flat for nearly 7 years after OSRA went into effect. However, as a result of 

record export demand in 2008, rates rose dramatically to levels not seen since the mid 1990’s. 

In the first half of 2009, the economic downturn caused rates to drop significantly, but by early 

2010, rates have begun to rebound to approach their pre-2008 levels. 

Figure 14-3: Container rates for trans-pacific trade lanes 

Source: Containerization International 
453

Some U.S. shippers would like to do away with the liner carriers’ antitrust exemption for rate 

discussion agreements, hoping to realize increased competition in the industry through the 

workings of the market. However, the carriers question whether adequate ocean services 

could be maintained without discussion agreements. Carriers feel that open competition might 

prove destructive, and ultimately lead to additional industry consolidation.355 Carrier 

consolidations in 2005 and 2006 already reduced capacity available to agricultural shippers on 

some trade routes, particularly on the all-water routes from the U.S. West Coast to Europe. In 

October 2008, Europe eliminated its antitrust exemption for container carrier conferences, but 

retained some exemptions for “consortia agreements,” which all carriers to agree to share 

vessel space. The FMC is in the process of studying the effects of Europe’s repeal. 

Negotiating Service Contracts

As a result of OSRA, exporters and importers typically negotiate confidential service contracts 

with ocean container carriers. These contracts stipulate the volume and type of cargo to be 

moved over a determined period of time between agreed-upon origin and destination port 

regions. Service contracts allow shippers and carriers to enter into agreements wherein 

shippers obtain rate and service concessions in return for cargo volume commitments. The 

negotiations are said to start with the carrier’s tariff, but are refined to meet the service and 

operational needs of the carrier and shipper. Rates are partially determined by the value of the 

cargo being moved. 

The confidential element of the service contract allows the shipper and carrier to develop rates 

in a more competitive environment; however, the carriers’ antitrust exemption allows the 

carriers to discuss the market conditions and establish voluntary rate guidelines. 

FMC Complaint Resolution Process 

FMC is charged with administering the Shipping Act, as revised by OSRA. Under Sections 10 and 

11 of this law, FMC provides both formal and informal complaint resolution processes for 

importers and exporters that believe ocean common carriers have violated the Shipping Act. 

FMC provides mediation services for disputes between individual importers and exporters and 

the ocean carrier. Additionally, FMC conducts investigations if it feels a carrier is in violation of 

the Shipping Act. Finally, any person can file a formal complaint or lawsuit with FMC alleging a 

violation of the Shipping Act. For more information about the FMC complaint resolution 

process see Appendix 14-1: FMC Complaint Resolution Process. 
454

Intermodal Facilities 

The use of landside intermodal facilities is essential when moving containerized cargo into 

international commerce. Intermodal facilities are locations where containers are moved from 

one conveyance to another to reach the ultimate destination. These facilities are located just 

outside the ports and throughout the country, mostly in major cities. Some of the intermodal 

hub locations are in Chicago, Memphis, Kansas City, Dallas, and Columbus (Figure 14-4). 

Figure 14-4: Intermodal Facilities, 2002 

Agricultural exporters in the heartland use these facilities to access container pools. Over the 

past few years, major importers such as Wal-Mart, Home Depot, and Target have developed 

distribution centers near ports. These distribution centers allow companies easy access to the 

ports of import where the cargo arrives. The cargo is moved by truck a relatively short distance 

to the distribution center, where the containers are emptied. They are then taken back to the 

ocean port. As a result, shippers located near the ports or within a few hours by truck are 

provided with a consistent pool of containers. 

Over the years, ocean carriers in the U.S. transpacific trade lanes have fed the U.S. import cargo 

business (mostly high-valued electronics, apparel, and footwear), also known as the headhaul

cargo, with sufficient container supplies since these cargoes bring higher rates for the carriers 
455

than the lower-valued export cargo (the backhaul cargo, typically agricultural products, 

wastepaper, and scrap metal). The headhaul is the leg of a round trip that generates the 

greatest revenue to the carrier and greater volume. The backhaul is considered secondary 

because it generates less revenue. In recent years, the higher value of imported cargo has 

brought higher revenues for the carriers, making it the headhaul cargo and relegating the 

exported cargo to backhaul status. The import cargo can be so profitable for the carrier, that 

they return containers to Asia empty in order to more quickly and efficiently supply the 

eastbound cargo with sufficient equipment. Rates for westbound cargo in the Transpacific 

trades have not been sufficient to attract abundant container supplies to inland locations. 

As a result, exporters located further inland struggle to get enough containers; there aren’t as 

many import containers moving inland, as containers are unloaded at distribution centers 

closer to ports. For example, containerized grain shippers in the Midwest rely on import 

containers to supply the container pool for export movements. Even at large container hubs, 

such as Minneapolis and Chicago, containers are becoming increasingly scarce for the export 

community. 

Railroads have increased the rates for picking up loaded containers or dropping off empty 

containers at some rural intermodal hubs. As a result, shippers have to collect containers from 

a major transportation hub, move them to the production site, load them, then move them 

back to the city to get rail service to the port of export. These additional transits increase 

transportation costs for agricultural shippers compared to what they would have been if 

containers had been available at their local rail terminal. An example of this is a rural hub near 

Dilworth, MN/Fargo, ND, where the railroads now quote rates more than three times higher 

than they did just a few years ago. Because of this higher rate, it is now cheaper for exporters 

to use the Minneapolis transportation hub with the additional truck costs than to use the rail 

hub in their local community. When the value of the cargo cannot sustain the extra 

transportation costs, the shipper either loses the sale or loses profit from the sale. 

Transportation options for agricultural exporters are also constrained by the fact that ocean 

carriers in U.S. trade lanes have a practice of only transporting “carrier-owned” containers, 

which are containers that they own or lease themselves. Ocean carriers sailing from U.S. ports 

often impose prohibitive charges for containers that are owned or leased by shippers or thirdparties (“shipper owned” containers), or they refuse them altogether. By contrast, the same 

carriers routinely transport shipper-owned containers from exporters in Europe.356

Transload Facilities 

With increased frequency in recent years, some shippers use transload facilities located at 

major inland intermodal hubs or at facilities by ocean ports. Agricultural commodities are 

transported in bulk by railcar from the production area to the transloading facility. The 

commodity is then transloaded into a marine shipping container. This eliminates the added 

transportation costs to reposition containers and can provide the shipper the opportunity to 

take advantage of the benefits of container transportation even when containers are not 

available in the local production area. Transload facilities near ports also offer the advantage of 
456

loading containers slightly heavier than they could be loaded at an inland location due to 

highway and railway weight restrictions. 

Containerized Transportation of Agricultural Products 

More than half of U.S. agricultural exports by value move in marine shipping containers each 

year. Containers are used to haul all types of products, including both low and high-valued 

agricultural products and grains. Whether it is U.S. grains to Asia, poultry to Russia, or wine to 

Europe, the container facilitates the movement of U.S. agricultural products all over the world. 

Figure 14-5 shows the overall upward trend in using containers for waterborne agricultural 

imports and exports. 

Figure 14-5: Waterborne agricultural container trade 

Source: Port Import Export Reporting Service (PIERS) 

Agricultural shippers regularly take advantage of container benefits in the market place. 

Containers have opened many doors previously not available to U.S. agricultural exporters, 

allowing all types of products, both perishable and non-perishable, to move around the world. 

In 2007, 19 percent of U.S. waterborne agricultural exports on a tonnage basis were moved in 

containers—up from 8 percent in the early 1990s357. Technological advances in the design and 

construction of refrigerated containers minimize loss in commodity quality by slowing 

deterioration of fresh, perishable commodities and, in some instances, assist in the ripening 

process during transit. These specialized refrigerated containers also can maintain a constant 

temperature to ensure frozen products do not thaw. 
457

Table 14-7: Waterborne agricultural exports 

Source: Port Import Export Reporting Service (PIERS) 

In terms of volume, nearly 20 percent of waterborne agricultural exports in 2007 were moved 

in containers358. Grains and grain products made up 35 percent of waterborne containerized 

agricultural exports359 (see later discussion of containerized grain). Other agricultural products, 

such as food preparations, cotton, and frozen poultry, also use containers extensively to reach 

export markets. Containers provide the protection, temperature controls, traceability, and 

convenience needed to serve the foreign demand for U.S. agricultural products. 

U.S. agricultural exporters moved nearly 2.5 million TEUs in 2007. Table 14-8 lists the top 20 

shipping lines used to move these containers. It is not surprising that the largest container 

ocean carrier in the world, Maersk, ranks first on the list of carriers for agricultural products as 

well. 
458

Table 14-8: Container shipping lines for agricultural exports 

Source: Port Import Export Reporting Service (PIERS) 

Agricultural Shippers Use of Containers 

U.S. agricultural exporters use marine shipping containers for several reasons: 

• To reduce handling, which provides a higher quality product at destination 

• To preserve the identity of the product based on buyer specifications 

• To service small niche markets 

• To supply relatively small amounts of the product, compared to bulk shipping, to buyers 

hoping to reduce inventory costs 

• To take advantage of cost benefits when container freight rates are competitive with bulk 

freight rates. Grain exporters, in particular, monitor ocean rate fluctuations of container 

and bulk movements, hoping to realize the most competitive rates 
459

Ocean Ports 

U.S. ports and the maritime industry offer agricultural shippers and exporters access to a vast 

global marketplace. Ports are the fixed infrastructure by which exports, imports, and domestic 

movements of waterborne commerce are loaded onto or discharged from maritime vessels. 

The maritime industry is the dominant mode for the transport of commerce to all international 

markets except Canada and Mexico. Approximately 90 percent of America’s overseas foreign 

trade tonnage is moved by ship. 

The goods our country consumes and the economic growth it enjoys are connected to the 

ability of the ocean ports to deliver goods. As our economy has become interdependent with 

the global economy, the U.S. Gross Domestic Product (GDP) has grown exponentially. This 

global interdependence among trade nations has brought prosperity, but also has placed 

additional demands on our ports and the end-to-end delivery system of imports and exports.360 

Although foreign trade accounted for only 13 percent of U.S. GDP in 1990, it had grown to 

nearly 22 percent by 2006. Recent projections indicate that foreign trade will be 35 percent of 

GDP by 2020 and may grow to 60 percent in 2030.361 As foreign trade continues to grow, 

marine transportation will become even more important to our economy. 

According to the MARAD, 6,867 ocean-going vessels made 63,804 calls at U.S. ports during 

2007, up 13 percent for 5 years earlier. Of these calls, 34 percent were tankers, 31 percent 

container ships, 17 percents were dry bulk vessels, and 10 percent were Roll on-Roll offs (a type 

of ship designed to permit cargo to be driven on at origin and off at destination362). About onethird (20,203) of the vessel calls were made at the U.S. Gulf ports. 363 About one-quarter 

(4,988) of the U.S. Gulf vessel calls were made by dry bulk vessels. Usually, close to 54 percent 

of the U.S. grain exports are shipped through the U.S Gulf. 

At ocean ports today, practically every mode of transportation, equipment, handling service 

and inspection service is used to meet shippers’ needs. However, most agricultural products 

are not produced near these centers of transportation and trade. Unfortunately, all the 

benefits of business done close to the ports are not available to most of the agricultural 

community without extra transportation costs. For example, grain, cotton, and meat products 

are produced primarily in the nation’s heartland, and require substantial transportation to 

reach export ports on the West, East, and Gulf Coasts. Even those shippers within States that 

contain major transportation and trade hubs need to reposition equipment to get 

transportation service and must bear the additional costs associated with that repositioning. 

Importance of Ocean Ports to Agricultural Movements 

U.S. ocean ports provide the gateway for an estimated 70 percent of U.S. agricultural exports 

and 60 percent of agricultural imports. Approximately 49 percent of U.S. waterborne 

agricultural exports move through the U.S. Gulf Region, which moves substantial amounts of 

grain and frozen poultry. More than 45 percent of U.S. agricultural imports move through the 

East Coast ports. Imports of fruit, vegetables, and canned products move through New 
460

York/New Jersey, Philadelphia, and Wilmington, DE. The top 10 import and export ports for 

U.S. waterborne agricultural trade are shown in Figures 14-6 and 14-7. 

Figure 14-6: Ports moving agricultural imports, 2007 

Note: Chart depicts all waterborne agricultural imports, bulk and container combined, based on tonnage moved. 

Source: Port Import Export Reporting Service (PIERS) 

Figure 14-7: Ports moving agricultural exports, 2007 

Note: Chart depicts all waterborne agricultural exports, bulk and container combined, based on tonnage moved. 

Source: Port Import Export Reporting Service (PIERS)
461

Containerized Agricultural Movements 

The top ocean ports used to move U.S. containerized agricultural commodities (both imports 

and exports) were the Los Angeles/Long Beach port complex, New York, Oakland, Seattle and 

Tacoma, and Norfolk. Approximately 38 percent of waterborne containerized agricultural trade 

moves through the two busiest port complexes in the country, Los Angeles/Long Beach and 

New York/New Jersey. 

Figure 14-8 displays the top 20 U.S. ports used to move container agricultural imports and 

exports. It’s clear that waterborne agricultural import traffic is concentrated on the East Coast 

and export movements are concentrated on the West Coast. 

Figure 14-8: Top 20 container ports for exports and imports 

Port specialization differs with commodities. For example, waterborne containerized poultry 

exports are moved mostly through East Coast ports due to the dense production of poultry in 

the southeastern portion of the country. Nearly 75 percent were moved through East Coast 

ports in 2007. More than 80 percent of the waterborne containerized grain exports moved 

through the West Coast ports of Los Angeles/Long Beach and Seattle/Tacoma. 
462

Bulk Agricultural Movements 

Grain and soybean exports make up about 86 percent by volume of waterborne bulk 

agricultural exports. Other agricultural commodities, such as poultry, oils, and some fruit and 

vegetables, are moved in bulk as well. The United States exports approximately one-quarter of 

the grain it produces. This includes nearly 45 percent of its wheat, 35 percent of its soybeans, 

and 20 percent of its corn. 

Table 14-9: Bulk waterborne agricultural exports 

Top 10 U.S. Bulk Waterborne Agricultural Exports, 2007 

Commodities Metric Tons Share 

Bulk grains 74,823,151 63% 

Soybeans 27,227,285 23% 

Grain products, flour 5,946,118 5% 

Animal feed 2,966,875 3% 

Rice 2,144,429 2% 

Vegetables 1,207,970 1% 

Poultry 1,177,329 1% 

Tallow, grease 751,112 1% 

Soybean oil 542,265 0% 

Corn oil 286,363 0% 

Grocery items, canned foodstuffs 282,565 0% 

Fish 182,326 0% 

Fungus, moss 176,334 0% 

Molasses, treacle 170,022 0% 

Vegetable oil & shortening 127,553 0% 

Beverages 74,054 0% 

Frozen fish 69,871 0% 

Oranges 46,594 0% 

Citrus fruit juices 45,781 0% 

Millet seed 37,119 0% 

Other 280,235 0% 

Total 118,565,352 100% 

Source: Port Import Export Reporting Service (PIERS) 

 
463

Figure 14-9 displays the top 20 ports for imports and exports of U.S. bulk agricultural 

commodities. 

Figure 14-9: Top 20 bulk ports for imports and exports 

The importance of exports to the U.S. global grain trade underscores the significance of grain 

export elevators with the ship-loading and storage capacities to keep up with export 

requirements (Table 14-10). The majority of export elevators are located in the Louisiana port 

region. According to USDA’s Grain Inspection, Packers and Stockyard Administration data, 57 

percent of the U.S. export grain shipments departed through the U.S. Gulf region in 2008. 

Figures 14-10 and 14-11 show major grain export elevators in the Mississippi and Texas Gulf 

ports. 
464

Table 14-10: Major U.S. grain export ports 

Source: USDA/FGIS 
465

Figure 14-10: Mississippi Gulf ports and export grain elevators

Source: AMS 

Table 14-11: Mississippi gulf ports and export grain elevators 

Source: USDA/GIPSA

Map Reference Location Storage Capacity 

(million bushels) 

Load capacity 

(bushels/hour) 

1 Myrtle Grove 6.5 90,000

2 Westwego 4.3 100,000

3 Ama 5.0 80,000 

4 Destrehan 6.2 80,000 

5 Destrehan 6.3 80,000 

6 Destrehan Floating Rig 30,000 

7 Reserve 3.6 80,000 

8 Reserve 7.7 100,000 

9 Saint Elmo 2.0 60,000

10 Convent Floating Rig 60,000 

11 Convent 4.0 120,000 

12 Darrow Floating Rig 30,000 

13 Baton Rouge 7.0 60,000 

Total 52.6 970,000 
466

Figure 14-11: Texas gulf ports and export grain elevators 

Source: AMS 

Table 14-12: Texas gulf ports and export grain elevators 

Source: USDA/GIPSA

Map Ref. # Location Storage Capacity 

(mil bu) 

Load capacity 

(bu/hour) 

1 Lake Charles, LA .75 25,000 

2 Beaumont, TX 3.5 50,000 

3 Channelview, TX 6.0 190,000 

4 Galena Park, TX 6.0 75,000 

5 Galveston, TX 2.8 80,000 

6 Corpus Christi, TX 6.3 60,000 

7 Corpus Christi, TX 5.0 150,000 

8 Brownsville, TX 3.0 50,000 

Total 33.35 680,000 
467

Port Capacity Constraints 

Until recently, port capacity demands could be met by building another terminal or adding 

another highway lane. That is no longer the case because the land necessary to build them is 

no longer available. Today, our Nation’s ports and international systems face a growing 

capacity crunch.364 

Competing land-use issues adversely impact port expansion efforts. Limited acreage is 

available for marine development around existing port facilities and port expansion plans face 

competing development issues and environmental concerns that further limit expansion. 

Property that may be suitable for port development is subject to constant pressures for nonport uses, such as office, residential, or recreational.365

Ports could experience pockets of congestion as space available for increasing amounts of 

import and export cargo is limited by environmental and community concerns. Congestion also 

occurs when vessels arrive at the same time rather than spread through the week. Most ports 

must look to operational improvements to increase capacity and reduce congestion, such as 

reducing the period of demurrage allowed for containers at terminals; instituting chassis pools, 

which make chassis available for truckers at the port; and using stacked container 

operations.366 

Port Infrastructure Expansion and Environmental Implications 

Ports must supply capacity to handle the increasing amounts of cargo coming in and going out 

of the country while ensuring expansion does not have detrimental effects on their local 

community. Ports are, more than ever, under pressure to clean up the pollution created by 

vessels, trucks, cranes, and rail service, and expand only when measures are taken to reduce 

emissions and protect the air quality in their local community. 

Although the Federal Government has paid for much of the transportation infrastructure of the 

U.S. highways and airports, ocean ports and marine terminals have historically been financed 

by local taxes or private sector investment. Many container ports in the U.S. continue to 

develop new terminals and implement projects to reduce port congestion and accommodate 

bigger ships. However, not all ports and terminal operators are able to do so. A recent report 

by the American Society of Civil Engineers states: 

Although U.S. ports are currently comparable to foreign ports in terms of overall 

port infrastructure, more effort needs to take place in terms of dockside 

infrastructure, i.e., larger and more substantial berths, newer and larger cranes, and 

improved intermodal access to inland transfer areas.367 

Port development, capital expenditures, and maintenance are financed through port revenues, 

general obligation bonds, revenue bonds, and public funding at the local, State, and Federal 

levels. Port revenues are generated through fees charged to vessel owners, stevedore 

companies, and shipping customers for use of facilities and services. As public support for port 
468

development has diminished, some ports are financing 

environmental cleanup and congestion programs through 

per-container fees. 

MARAD’s recent publication America’s Ports and 

Intermodal Transportation System says: 

America’s Marine Transportation System faces 

growing congestion challenges. The U.S. Marine 

Transportation System has managed to accommodate 

our rising levels of international trade. Trade growth, 

however, has begun to strain our waterways, ports 

and key road and rail freight corridors. Our Nation’s 

gateway ports, typically located in some of our most 

populous urban areas, face serious capacity 

expansion challenges—such as congestion, 

community, environmental, and competing land use 

issues.368

Port Infrastructure Funding 

Port authorities and marine terminal operators are 

spending substantial sums to build, improve, and expand 

terminals to handle the current and anticipated increases 

in cargo. Billions of dollars have been and are being 

expended to improve terminals to accept and process 

cargo. During fiscal years 2006–2010 alone, $8.6 billion is 

projected to be invested: over $3 billion in the U.S. 

southern Pacific Coast ports, $2 billion in the South 

Atlantic, and over $1 billion each in the North Atlantic and 

the Gulf regions.369 Specific investment plans by port are 

provided in Appendix 14-2: Port Expansion Plans. 

Recently opened terminals, such as the Maersk Terminal 

in Portsmouth, VA, and planned terminals such as the 

Yusen Terminal in Tacoma, WA; the Coos Bay Terminal in 

Coos Bay, OR; the Dames Point Terminal in Jacksonville, 

FL; the Maersk/CMA CGM Terminal in Mobile, AL; the 

North Carolina International Terminal in Wilmington, NC; 

and the Craney Island Expansion Project in Norfolk, VA, 

are responding to the need for expanded berths, newer 

and larger cranes, and improved intermodal capabilities. 

These terminals will add approximately 12 million TEUs of 

capacity to the national port system within the next few 

years.370 

Congestion at Southern California 

Ports in 2004 

The Southern California port 

complex of is the busiest port 

complex in the United States 

because of its huge volume of 

containerized trade. In 2004, the 

port complex experienced a period 

of severe congestion when an 

unexpected rush of import cargo 

pushed port and rail capacity to its 

limit. The congestion began in late 

June and became progressively 

worse as the peak season 

approached in the fall. The 

complex experienced extremely 

slow cargo handling and a backlog 

of waiting vessels. This period of 

severe congestion was blamed on a 

lack of available longshoremen, an 

earlier-than-usual peak season, and 

a significant growth in container 

volume, particularly import traffic. 

Since 2004, these ports have 

expanded, hired additional labor, 

and avoided further severe 

congestion. Nevertheless, some 

wonder if it is only a matter of time 

before the future increases in U.S. 

trade will once again overflow the 

bounds of the port complex.*

 Since 

the extreme episode in 2004, 

shippers have diversified the ports 

they use instead of relying on just a 

few ports or one port region. They 

learned that relying on one major 

port was potentially costly during 

times of strong demand and 

pressed capacity. 

*

 America’s Ports and Intermodal 

Transportation System, MARAD, January 

2009.
469

Part of the strategic plans at several ports is to deepen ship channels to make safer navigation 

conditions and to accommodate the newest and largest container ships in the market. 

Ports—particularly on the East Coast—are making plans to receive such vessels as the Panama 

Canal is widened to accommodate them. The maintenance and improvement of Federal 

coastal harbors and channels is the responsibility of the Army Corps of Engineers 

The Corps deepens, widens, or lengthens coastal harbors and channels based on an 

economic evaluation. It has several significant coastal harbor construction projects 

underway: Mobile Harbor, AL; Los Angeles Harbor Main Channel Deepening, CA; Port of 

Long Beach, CA; Oakland Harbor (50 Foot Project), CA; Delaware River Mainstem and 

Channel Deepening, DE, NJ & PA; Jacksonville Harbor, FL; New York and New Jersey 

Harbor, NJ & NY; Gulfport Harbor, MS; Columbia River Channel Improvements, OR & 

WA; Houston-Galveston Navigation Channels, TX; and Texas City Channel, TX. 

The American Association of Port Authorities asserts: 

As a result of federal underinvestment, the 59 most-utilized federal channels only 

have authorized depths available for the center half of the channel 30-40% of the 

time. This limits efficient use of our waterways and increases transportation costs. 

The annual need for maintenance dredging, which is in the range of $1.3 to $1.6 

billion according to the Army Corps of Engineers, is comparable to the funds 

collected. However, over the past five years, annual expenditures for channel 

maintenance have averaged less than $800 million, creating a surplus of funds and 

leaving users with inadequately maintained channels. The net result is increased 

costs for waterborne transportation users, higher prices to consumers, and reduced 

competitiveness of U.S. exports in the global marketplace. Jobs and income 

produced are adversely impacted as well.371

The Corps evaluates the competing demands for funding among its programs and strives to 

make the best use of the available funds from a national perspective. Under its performancebased allocation process, the Corps allocates a significant portion of total operation and 

maintenance (O&M) funding to coastal harbor maintenance. The 2011 Budget requested $764 

million from the Harbor Maintenance Trust Fund for such work.372 This represents about onethird of the total O&M program for the Corps, which includes the inland waterways, flood and 

storm damage reduction projects, multi-purpose dams and other programs nationwide. 

Within program areas, the Budget allocates funding using objective performance criteria. For 

example, the Corps is developing an improved methodology to rank dredging needs based on 

an assessment of its economic return. The Corps gives priority to the maintenance of the 59 

coastal harbor projects with 10 million tons or more of commercial cargo per year. It typically 

dredges a portion of a project in a given year, with emphasis on places where shoals that could 

affect navigation have formed. 
470

 

Improvements to gate systems, technology, cranes, equipment, ship channels, management 

processes and information technology are costly. They do not alleviate all issues associated 

with cargo movement, but they can improve port viability, distribution of benefits and costs, 

environmental quality, and the overall effectiveness and efficiency of the national 

transportation system. 

Expansion of the Panama Canal 

Recently developed expansion plans at ports along the U.S. Gulf and East Coast are partly in 

response to the expected increase in vessel traffic from the Panama Canal expansion currently 

underway.373 

The Panama Canal is reaching the limits of the number of vessels it can handle. It handles more 

traffic than its builders forecast and does not have the infrastructure to handle Post-Panamax 

vessels, which carry 27 percent of the world’s containerized maritime shipments.374 On 

December 9, 2009, the Panama Canal Authority received financing to begin a Canal expansion 

program that will increase its cargo capacity and allow for the transit of larger vessels. The 

project is expected to be finished by 2014.375 

The U.S. intermodal system* is the main competitor of the Panama Canal, particularly for cargo 

moving in the Northeast Asia†

–East Coast route.376 The Canal route is less costly and highly 

reliable but takes longer than the U.S. Intermodal System route. 

The major advantage of the U.S. Intermodal System is the opportunity to develop economies of 

scale in the transpacific maritime route. This route frequently uses Post-Panamax container 

ships, so only five ships are needed for a weekly service rotation instead of the eight ships 

required by the Panama Canal route.377 However, the port and railroad reliabilities have been 

affected by labor problems (strikes and shortage of labor to handle new cargo) and capacity 

expansion challenges such as congestion, as well as community and environmental land uses.378 

As trade increases, many of the top ten U.S. container ports‡ are reaching the limits of existing 

capacity.379 

The Panama Canal’s expansion will allow for the use of Post-Panamax vessels in the trade lanes 

between Asian and U.S. Gulf and East Coasts, likely increasing container capacity in those trade 

lanes. A deeper and wider Panama Canal will offer shippers an alternative to West Coast ports 

for their import and export needs. U.S. Gulf and East Coast ports are preparing to take 

advantage of the increased demand for port services. 

 

 

*

 Cargo moved by rail from the port to the inland portions of the country or from one coast to the other. 

†

 Northeast Asia includes: China, Hong Kong, Mongolia, Macau, Taiwan, Japan, South Korea, and North Korea. 

‡

 Top 10 U.S. container ports: LA/LB, New York/New Jersey (NY/NJ), Seattle/Tacoma, Savannah, Houston, Norfolk, 

Oakland, Charleston, Port Everglades and Miami (DOT 2008). 
471

Southern California Environmental and Infrastructure Initiatives 

In addition to port funding sources from port revenues, general obligation bonds, revenue 

bonds and public funding (local, State and Federal), the ports of Los Angeles and Long Beach 

have instituted per-container fee programs to mitigate congestion, pollution, and improve 

infrastructure. For example, these ports, along with the California Air Resources Board, 

adopted the San Pedro Bay Ports Clean Air Action Plan (CAAP) in November 2006. The plan 

eliminates older, less-clean diesel trucks by helping to finance a new generation of clean or 

retrofitted vehicles and equipping all major container cargo and cruise ship terminals with 

shore-side electricity so that vessels at berth can shut down their diesel-powered auxiliary 

engines. The plan also calls for reducing ship speeds when entering or leaving the harbor, using 

low-sulfur fuels, and other emissions-reduction measures and technologies. Some estimates 

project that implementation of this plan would cut particulate matter pollution by 47 percent, 

nitrogen oxides (NOx) emissions by more than 45 percent, and sulfur oxides by 52 percent. The 

port complex currently is responsible for 10 percent of the region’s emissions levels.380 

Several other communities and ports around the country, such as Seattle and Oakland, are 

considering variations of this plan. In addition, some states, municipalities, and ports are 

contemplating various fees to finance the cost of this environmental remediation.381 

The ports of Los Angeles and Long Beach consistently rank among the top three U.S. ports for 

containerized waterborne movements of agricultural imports and exports. In 2007, the 2 ports 

combined moved nearly 30 percent of waterborne agricultural exports and 17 percent of 

waterborne agricultural imports in terms of a TEU calculation. They have established percontainer fees on cargo owners to help fund their environmental programs. In the past 5 years, 

importers and exporters using these ports have been faced with an increasing array of potential 

container fees to reduce congestion and improve environmental conditions and infrastructure. 

Some of these fees can be avoided by changing practices, such as moving cargo in off-peak 

times or using clean trucks. 

These fees include: 

• Alameda Corridor Fee 

• PierPass Mitigation Fee (assessed during peak traffic periods) 

• Clean Truck Fee (only on older, higher emission trucks) 

• Port Infrastructure Cargo Fee (to be determined) 
472

The Alameda Corridor 

The Alameda Corridor is a 20-mile-long rail cargo expressway linking the ports of Long Beach 

and Los Angeles to the transcontinental rail network near downtown Los Angeles 

(Figure 14-12). It is a series of bridges, underpasses, overpasses, and street improvements that 

separate freight trains from street traffic and passenger trains, facilitating a more efficient 

transportation network. The project’s centerpiece is the Mid-Corridor Trench, which carries 

freight trains in an open trench 10 miles long, 33 feet deep, and 50 feet wide between State 

Route 91 in Carson and 25th Street in Los Angeles. Construction began in April 1997 and it 

opened in April 2002.382 

Figure 14-12: Map of Alameda Corridor 

Source: <www.acta.org>
473

The Corridor is used extensively by the shipping industry. More than 10,000 TEUs move 

through it daily. A per-container fee of $18 per TEU is assessed to the cargo owner for use of 

the Corridor.383 

PierPASS Off-Peak Program

In an effort to reduce congestion at the ports of Los Angeles and Long Beach and improve air 

quality in the community, the marine terminal operators created an extended gate hours 

program designed to encourage truck cargo to use non-peak terminal gate hours at night and 

on weekends. It imposes a Traffic Mitigation fee on the cargo owner for each loaded container 

moved in or out of the terminals during peak daytime hours (3:00 AM to 6:00 PM). No fee is 

charged for use during off hours. PierPASS is a non-profit organization created by the marine 

terminal operators to administer the “off peak” program and collect the fees. 

When the PierPASS program began in July 2005, the fees were set at $40 per TEU and $80 per 

40-foot container (FEU). Since then, the fee has increased to $50 per TEU, or $100 a FEU. 

PierPASS does not assess a fee for empty containers and chassis, domestic containers, or 

transshipment to other ports. Nor does it assess a fee for containers that depart or arrive via 

on-dock rail or the Alameda Corridor. 

The program has diverted nearly 40 percent of the port complex’s truck traffic to off-peak gate 

hours, resulting in a noticeable reduction in congestion on the freeways leading to and from the 

ports during peak traffic times. Turn times for trucks once inside the gates are now 35–40 

minutes for both peak and off-peak, down from more than 45 minutes, creating further 

flexibility, agility, and efficiency.384

Clean Trucks Program

The ports of Los Angeles and Long Beach began the Clean Trucks Program in October 2008. The 

Clean Trucks Program is part of a larger Clean Air Action Plan, which includes several strategies 

to reduce emissions and improve the environment. The Clean Trucks Program is designed to 

ban the use of trucks at the ports that do not meet the more stringent 2007 Environment 

Protection Agency’s (EPA) emissions standards by January 1, 2012. As of February 18, 2009, a 

per-container fee called the Clean Trucks Fee is being assessed on each container moved in or 

out of the port complex by a “dirty” truck. The program has come under scrutiny by the 

American Trucking Associations, shipper organizations, and the Federal Maritime Commission. 

Even the Department of Justice has weighed in on the competitive implications of the program. 

The goal of the program is to have all trucks using the ports meet the EPA’s 2007 clean air 

standards by January 1, 2012, and reduce truck emissions by 80 percent. The initial phase, 

which began on October 1, 2008, bans trucks built prior to 1989—about 2,000 trucks that 

previously serviced the ports. More than 16,000 trucks in total will need to be replaced or 

retrofitted by the deadline. 

 
474

As part of the Clean Trucks Program, shippers are charged a Clean Trucks Fee on each loaded 

inbound and outbound container moved by truck that does not meet the 2007 emission 

standards. The fee will help pay for a port-sponsored grant subsidy to help drivers purchase 

new “clean” trucks or retrofit older trucks. The cargo owner is responsible for a fee of $35 per 

TEU and $70 per FEU. These fees are expected to generate revenue of about $1.6 billion, or 72 

percent of the total needed for the grant subsidy. The fees are not charged for cargo moved 

through the ports by rail. 

As part of the program, each harbor trucker must sign an agreement with each port. The 

agreements establish the environmental, operational, and security provisions of the Clean 

Trucks Program. Cargo moved by trucks that meet the “clean” standards do not have to pay 

the Clean Trucks Fee, but are still required to enter into an agreement with the ports. The ports 

have different requirements and it is important that shippers understand these differences 

when doing business at the respective ports. 

The agreements are being challenged. Some requirements are seen as reducing competition by 

restricting the trucks or drivers that can call at the port, and others as increasing the cost for 

trucks to do business at the ports. The American Trucking Associations have taken court action 

to at least temporarily enjoin the program or portions of the agreements deemed unreasonable 

or illegal by the litigants. 

Port Infrastructure Cargo Fee

The Ports of Los Angeles and Long Beach have proposed an Infrastructure Cargo Fee, which was 

originally scheduled to begin in January 2009. Implementation of the fee has been postponed 

several times due to the economic slowdown, challenges facing the shipping community, and 

delays in State funding. The latest deadline was July 2010; however, the ports are currently 

reassessing this deadline to either postpone implementation again or revisit the idea in a few 

years after cargo movements have fully recovered from the recession. When implemented the 

Infrastructure Cargo Fee is proposed to initially be $15 per TEU and will fluctuate over time as 

port infrastructure projects are approved. This fee will be tied directly to funds needed for 

projects the ports have identified to improve infrastructure and, as a result, reduce congestions 

and emissions. 

 
475

Table 14-13 summarizes the fees mentioned above, which are either currently in place or are 

expected to be initiated at the Ports of Los Angeles and Long Beach. 

Table 14-13: Comparison of port fees at Ports of Los Angeles and Long Beach 

Existing Fees Time frame Mode Per 20ft 

Container 

Per 40ft 

Container 

PierPass Mitigation Fee Currently in 

force Truck $50 $100

Alameda Corridor Fee Currently in 

force Rail $18 $36

Clean Trucks Fee Currently in 

force Truck $35 $70 

Upcoming Fees 

Port Infrastructure Cargo 

Fee 

To be 

determined 

Truck & 

Rail $10-18 $20-36 

Source: <www.pierpass.org, www.acta.org>, 

<http://www.cleanairactionplan.org/strategies/cleantrucks/default.asp> and <www.portoflosangeles.org>

Impact on Agricultural Movements 

In 2007, more than 723,000 agricultural export containers and more than 407,000 agricultural 

import containers moved through the Ports. Based on these numbers, the Clean Trucks Fee 

alone could cost the agricultural export community more than $20 million per year and the 

agricultural import community nearly $12 million per year. Per-container fees either reduce 

profits for agricultural shippers or reduce their ability to remain competitive in the global 

marketplace. 

However, flexibility in the transportation network could, over time, allow shippers to adjust to 

the new system and find ways to avoid the Clean Trucks Fee. Trucks currently classified as 

“clean” by the Ports are not required to pay the fee. However, agricultural shippers will have to 

find these clean trucks or increase their use of rail transportation to avoid paying the new fee. 

As the program progresses, truckers and trucking companies that take advantage of the Ports’ 

grant subsidy by providing clean trucks will become more plentiful. 

The agricultural shipper could use any of the scenarios listed in Table 14-14 based on the 

urgency of the cargo delivery demands. However, making arrangements or changes to 

established business practices to strive for the Best Case Scenario (Scenario 1) is timely and 

costly to the agricultural shipper, and in some cases may cost more than the Worst Case 

Scenario (Scenario 3). 
476

Table 14-14: Fee scenarios for moving containers through Southern California ports 

Scenarios PierPass Alameda 

Corridor 

Clean 

Trucks 

Fee 

Port 

Infrastructure 

Cargo Fee 

Total Fees 

Per 

Container 

% of the Value of 

an Average 

Export Container 

Scenario 1: 

“Clean” truck 

used. 

Delivered to 

the port 

during offpeak hours. 

 X $30 0.2% 

Scenario 2: 

Shipper uses 

rail to deliver 

cargo to the 

Ports. 

 X X $66 0.4% 

Scenario 3: 

“Unclean” 

truck used. 

Delivered to 

the port 

during peak 

hours of 

operation. 

X X X $200 1.1% 

Source: Table developed by USDA, data sources are: PierPASS, <www.pierpass.org>; Alameda Corridor 

Transportation Authority, <www.acta.org>; Clean Trucks Program, 

<http://www.cleanairactionplan.org/strategies/cleantrucks/default.asp>; Port of Los Angeles 

<www.portoflosangeles.org>, and Port Import Export Reporting Service (PIERS) <www.piers.com> 

Rates, Competition, and Service 

Ocean freight rates are a determining factor in deciding whether to ship commodities as bulk or 

in containers. Containerized shipments of agricultural products, particularly grain products, 

have gained popularity because of the relatively high bulk ocean freight rates over the past 5 

years. However, the fundamental market conditions for bulk ocean and container shipping are 

different. Because of these differences, their respective freight rates are normally determined 

independently. 

Bulk Freight Rates 

Bulk ocean freight rates are volatile, at least in the short run, since the total supply of vessel 

space is relatively inelastic in that time frame. While it may take a long time for a newly built 

vessel to be delivered, the demand for vessel space can vary greatly. Ocean freight rates for 

shipping bulk grain and other agricultural products are determined in competition with the 

shipments of other bulk commodities such as coal, iron ore, steel, cement, fertilizer, sugar, salt, 
477

and forest products. In recent years, ocean freight rates for shipping bulk grain from the 

United States to export destinations have increased because the global demand for bulk 

commodities has increased. For instance, world seaborne trade of iron ore increased by almost 

50 percent from 2002 to 2006, from 481 million metric tons (mmt) to 721 mmt.385 Waterborne 

coal shipment increased by 34 percent to 544 mmt during the same period. Waterborne 

shipment of grain increased about 8 percent to 292 mmt. 

Before the dramatic drop in rates during the later part of 2008, ocean freight rates for shipping 

grain from the U.S. Gulf and the Pacific Northwest to Japan had been relatively high since 2004. 

The high ocean freight rates were consistent with increases in global shipments of bulk 

commodities, especially coal and iron ore during these periods. Prior to 2004, rates were 

considerably lower than the 5-year average during the period 1999-2003 (Table 14-15 and 

graph in Figure 14-13). However, the freight market was not immune to the global economic 

crisis; rates returned to pre-2004 levels and lower. 

Table 14-15: Bulk grains ocean freight rates 

Source: Baltic Exchange, Inc/Drewry Shipping Consultants Ltd/O'Neil Commodity Consulting 

1999 - 1999 -

2003 Avg 2004 2005 2006 2007 2008 2009 2003 Avg 2004 2005 2006 2007 2008 2009

Jan. 20.42 58.56 60.01 36.41 53.70 99.00 26.30 14.50 43.58 36.44 24.64 38.40 58.00 14.60

Feb. 20.51 70.56 59.90 34.91 54.40 102.40 39.25 14.29 44.31 36.99 25.69 38.00 59.40 19.75

Mar. 21.99 72.75 63.04 35.82 57.00 111.25 42.25 14.97 44.05 39.18 27.71 40.15 66.50 22.00

Apr. 22.82 69.83 60.55 34.70 59.15 113.25 14.81 39.88 33.12 25.31 42.05 64.75

May 24.00 56.88 54.90 34.70 63.60 133.10 15.16 32.94 27.53 25.38 43.80 72.00

Jun. 22.28 43.05 49.40 37.16 63.90 127.25 15.01 26.25 25.08 28.85 42.75 80.25

Jul. 22.39 47.05 38.25 39.67 82.00 127.50 15.00 32.66 20.79 30.42 58.25 72.50

Aug. 22.71 51.52 36.26 44.82 90.75 115.80 13.94 32.07 21.84 32.72 64.60 60.00

Sep. 24.22 52.92 40.62 50.15 97.00 88.00 14.41 33.85 24.53 37.16 66.45 51.50

Oct. 26.78 56.78 46.36 48.74 112.60 40.40 18.15 37.72 25.22 38.23 86.70 23.60

Nov. 26.88 63.06 44.44 49.44 118.00 27.63 19.07 42.44 23.60 40.87 86.50 17.38

Dec. 26.88 64.82 40.27 52.54 124.20 23.33 20.11 44.17 25.66 40.07 79.35 13.33

Avg 23.49 58.98 49.50 41.59 81.36 92.41 15.79 37.83 28.33 31.42 57.25 53.27

U.S. Gulf to Japan Pacific Northwest to Japan
478

Figure 14-13: Bulk grain ocean freight rates from U.S. to Japan 

Source: Baltic Exchange, Inc/Drewry Shipping Consultants Ltd <www.drewry.co.uk>/O'Neil Commodity 

Consulting 

Containerized Freight Rates 

The long-term nature of service contracts provide a relatively stable rate structure that protects 

rates from sharp market flucucations. However, at any point during the term of the contract, 

the two parties can agree to amend the contract based on current market conditions. In 

addition, the ocean carriers over the years have added stipulations to the contracts that allow 

for rates to flucuate within a reasonable and agreed-upon range. Some contracts allow for 

surcharges, such as a fuel surcharge, to flucuate throughout the life of the contract based on 

current fuel market conditions. Sharp increases in fuel prices, such as those experienced in 

2007 and the first part of 2008, would significantly increase an exporter’s or importer’s rates if 

the contract allows. 

Since containerized freight rates are kept confidential under the OSRA, it is difficult to analyze 

rates for specific commodities and trade routes. However, some private consulting firms collect 

avereage ocean container rates for all commodities and all trade routes. These rates provide an 

overall trend of container rates, but do not show the specific flucutations or impacts on 

individual commodities or commodity groups. 

 
479

Figure 14-14 shows overall average container rates per TEU in the trans-Pacific trade lanes. 

Overall, rates were stable in the U.S. to Asia trade lane from 2000 until 2008, when rates rose 

quickly in response to increased demand for U.S. exports. 

Figure 14-14: Container rates for trans-pacific trade lanes 

Source: Containerization International 

The westbound or export movements to Asia from the U.S. are usually lower-valued goods such 

as agricultural products, waste paper, and scrap metal. Carriers move fewer export containers 

than import containers. Over the years, the ocean container carriers have viewed export 

container movements as backhaul cargo which brought lower revenue, but was preferrable 

over the absence of revenue associated with moving the container back to Asia empty. 

However, as the U.S. demand for consumer goods from Asia has increased, carriers have 

chosen to move containers back to Asia empty to facilitiate a quicker turnaround time for the 

container’s reuse in the eastbound market. This constricts the available container pool for U.S. 

exporters. 

The following section describes the problems exporters face with container availability as well 

as the rate and capacity impacts of the 2007 export boom. 
480

Container Service Challenges: Container Availability and the 2007 Export Boom 

Since 2005, economic growth in developing countries has increased the demand for 

containerized agricultural products such as meats, fruit, vegetables, and nuts. These increases 

in demand accelerated sharply in 2007 and to a record level in 2008 (Figure 14-15). The 

unprecedented demand for export ocean container service caught the ocean carriers by 

surprise and left the export community with insufficient container equipment to deliver the 

amount of product demanded. Demand for export container service subsided in early 2009, 

but returned in late 2009 and early 2010, again straining container supplies for the export 

community. 

Figure 14-15: Containerized agricultural exports 

Source: Port Import Export Reporting Service (PIERS) 

 
481

Impact on Agricultural Exporters 

Agricultural exporters took advantage of the 

weak dollar in 2007, which made U.S. products 

more competitive in foreign markets. However, 

the opposite happened to import traffic; the 

weak dollar made imports more expensive in the 

United States. This effectively reduced demand 

for import cargo while demand for export cargo 

was increasing. Fewer imports resulted in fewer 

containers supplying the agricultural export 

container pool. 

Increased export sales resulted in an export 

boom and further strained the available 

container pool. Exporters who could not find 

enough containers lost sales in foreign markets 

and scrambled to locate containers. Shippers 

reserved vessel slots with multiple ocean carriers, 

sent trucks to distant rail hubs to obtain empty 

containers, transloaded cargo from rail to 

containers at the ports where containers were 

more plentiful, and used third party logistics 

providers to improve their chances of finding 

available equipment. Shippers reported they 

were provided a fraction of the containers 

requested from the carriers. 

In addition, 2007 brought weak global supplies of 

grain due to bad weather in other grainproducing countries, increasing the demand for 

U.S. grain. U.S. bulk grain shipments competed 

globally with strong demands for other bulk 

commodities, such as steel and coal, for bulk 

carrier capacity. This competition for bulk service 

pushed rates to record levels. In response, many 

bulk grain exporters started using containers to 

move their products. Containerized movements 

offered a cost advantage compared to the rising 

cost of the bulk ocean transportation. 

 

Containers and Agricultural Shipping 

• U.S. import containers make up a 

significant portion of the available 

container pool for U.S. containerized 

exports. 

• Imports are considered headhaul*

cargo in the Trans-Pacific trade lanes. 

Ocean carriers have traditionally 

subsidized the export movements, 

which is used to gain partial cost 

recovery for the return of container 

equipment to Asia. 

• Marine shipping containers are usually 

more plentiful at ocean ports, 

particularly in Southern California. 

• The use of near-port distribution 

centers by major container importing 

companies has increased. 

• The pool of available containers at 

inland locations is limited. 

• Rail transportation is cheaper than 

trucks for long-distance movements, 

so containers pass through major rail 

hubs to access ocean export ports. 

• Exporters incur additional 

transportation costs obtaining 

containers because they are only 

available at major rail hubs and ocean 

ports. 

*

 Headhaul cargo was recently defined by an ocean 

container carrier as cargo that provides enough 

revenue to pay for the initial transportation to the 

buyer and the return transportation of the empty 

container. In contrast, backhaul cargo is unable to pay 

for both legs of the transportation. 
482

After several months of using containers to export grain, some traditional bulk shippers decided 

they liked the product protection and higher quality at the destination that containers 

delivered. Figure 14-16 shows that containerized grain exports to Asia grew dramatically in 

2007; an average of more than 31,000 containers of waterborne grain exports moved each 

month, 87 percent more than the previous year. The trend continued into 2008; containerized 

grain exports to Asia reached record levels in February, at nearly 53,000 TEUs. The introduction 

of bulk grain shipments into the container market combined with the export boom made the 

export container supply even further strained. 

Figure 14-16: Containerized grain exports to Asia 

Source: Port Import Export Reporting Service (PIERS) 

Figure 14-17 shows that from June 2007 to July 2008, average ocean freight rates for bulk 

movements increased 73 percent. In late 2007, the peak average rate reached more than $86 

per metric ton—more than double the rate just 6 months earlier. Container rates remained low 

until the first quarter of 2008 then peaked in July at more than $55 per metric ton—88 percent 

higher than at the beginning of the year but still 23 percent lower than bulk ocean freight rates. 

Rates for containerized transportation increased in response to the unprecedented demand for 

U.S. exports in containers that began in late 2007. However, by September 2008, rates for both 

bulk and container movements responded to the economic slowdown, as container rates fell 13 

percent and bulk rates fell 29 percent—and have since continued to fall. 
483

Figure 14-17: Average ocean freight rates from U.S. West Coast to Japan 

Source: Baltic Exchange, Drewry, and O'Neil Commodity Consulting (bulk rates), Drewery Supply Chain Advisors 

(container rates) 

Rate Competition Between Bulk and Containers 

During the 3rd and 4th quarters of 2007, many grain exporters wondered why the container 

carriers were not reducing rates as quickly as the bulk carriers. Until then, container carriers 

did not see bulk service as competition. The increased use of containers by traditional bulk 

shippers such as grain exporters was a reaction to record-high bulk rates and the perceived 

abundance of containers due to the large amount of containers used for importing consumer 

goods into the United States. This increased the use of containers and further strained the 

container pool. This strain on the container pool eventually pushed container rates higher. 

Rates began to fall in the 3rd and 4th quarters, but tight container supplies kept them high 

longer than bulk rates. 

Exporters faced strong demand and a limited supply of containers through the first 6 months of 

2008. By summer, the dollar began to strengthen, the first signs of the global economic 

slowdown kicked in, and bulk ocean rates began to fall; containerized grain export volumes 

slowed as well. The question in the containerized shipping industry shifted from: “Where are 

all the containers?” to “Who wants containers?” By the 4th quarter of 2008, the global 

economic slowdown had brought U.S. container trade to a slow crawl. U.S. agricultural exports 

fell 38 percent from the record high in March and even fell below the 3-year average by the end 

of the year (Figure 14-18). 
484

Figure 14-18: Monthly movements of containerized agricultural exports 

Source: Port Import Export Reporting Service (PIERS) 

The downward path experienced during the second half of 2008 continued for container trades 

through the first half of 2009. 

Container Shortages 

With the emerging economic recovery, the container “shortage” situation, that accompanied 

the export boom in 2007 and early 2008 has begun to return. As the economy recovers and 

growing economies overseas continue to demand high-quality food, wastepaper, coal, iron ore, 

and scrap metals, demand for U.S. containerized exports could return to their former levels and 

once again strain container availability and affect rates. In fact, even during the recession in 

2009 some agricultural exporters (particularly shippers moving non-refrigerated cargo) 

experienced some container availability challenges because import cargo was lower than it had 

been for 5 years and ocean carriers continued to reduce vessel capacity. 

Foreign Trade Regulations 

The new Foreign Trade Regulations (FTR) were put into effect on July 2, 2008; enforcement 

began October 1, 2008. The new regulations require exporters to file their export 

documentation with the Census Bureau electronically through the Automated Export System 

(AES). According to the Census Bureau, more than 95 percent of exporters were using the AES 

system before the new regulations came into effect (previously, exporters could submit a paper 

Shippers Export Declaration to the Bureau). The new rules are briefly explained below and the 

implications for agricultural shippers discussed. 
485

The new regulations brought the Customs and Border Protection (CBP) to the forefront of 

export filing enforcement. Shippers will be more closely monitored by CBP for accuracy and 

timely filing of export information to the Census Bureau. Steep fines have been established for 

noncompliance. Penalties, both civil and criminal, from $1,100 to $10,000 may be imposed per 

violation of the FTR for delayed filing, failure to file, false filing of export information, or using 

the AES to further any illegal activity. Also, all AES filers face new filing deadlines by mode of 

transportation for reporting export information.386 The table below shows the filing 

requirements for each mode of transportation. 

Table 14-16: Comparisons of filing requirements by mode 

Vessel cargo 24 hours prior to loading cargo on the vessel at the U.S. port 

where the cargo is laden. 

Air cargo 2 hours prior to the scheduled departure time of the aircraft. 

Truck cargo 1 hour prior to the arrival of the truck at the United States border 

to go international 

Rail cargo 2 hours prior to the time the train arrives at the U.S. border to go 

international 

Mail 2 hours prior departure of exporting carrier 

Pipeline Within 4 calendar days following the end of the month. 

In addition, transportation providers are required to report proof that the shipper has 

submitted an AES filing before they can load cargo onto the vessel (see Appendix 14-3 for 

regulation language). As a result, many carriers instituted a “No docs, no load” policy that 

requires shippers to have a completed bill of lading and proof of AES filing or exemption status 

within a timeframe decided by the ocean carrier. The timeframes are different for each ocean 

carrier; the regulation requires that carriers submit the shipping documentation, including the 

proof of AES filing, 24 hours before the vessel sails. 

Impact of New Trade Rules on Agricultural Shippers 

Some agricultural commodities are still in the field 48 hours before they are scheduled to be on 

the ship, so it is impossible to meet the carriers’ requirements with complete and accurate 

information such as value or weight required on the documentation. When specific pieces of 

required information are unavailable at the time of filing, an estimate is used instead; when 

accurate information is available, the shipper is allowed to file an amendment to the filing. 

Each amendment requires the shipper to submit the paperwork twice, knowing that any 

mistakes or delay could result in significant penalty from CBP. Late filing is only permitted for 

those shippers that have been granted post-departure filing provision. 
486

Post-departure filing—previously called Option 4—is part of the FTR that allows exporters to 

file documentation up to 10 days after the vessel sails. This provision was put on hold in 2003 

when the new regulations were being developed. The Census Bureau and CBP have agreed 

that the hold placed on post-departure filing in August 2003 will remain in effect pending 

further review of this option for shippers. However, current Option 4 filers were grandfathered 

in with the new regulation. 

Conclusions 

The U.S. marine transportation system is a critical component in the movement of agricultural 

goods. Each component of the marine transportation system—ocean carriers, ports, 

intermodal facilities, transload facilities, export elevators, and landside transportation—work 

together to move agricultural trade effectively and efficiently. The current system is keeping 

pace with the continual increases in cargo volumes, but as trade continues to increase, the 

marine transportation system must continue improving to provide globally competitive service. 

Recent boom cycles of trade have shown that the system, although currently adequate, is 

fragile. In 2004, an unexpected increase in import traffic caused severe and prolonged 

congestion and delays at the ports of Los Angeles and Long Beach. In 2007 and 2008, demand 

for U.S. exports and competition for ocean service sent freight rates to record highs, caused 

significant container availability challenges, and resulted in lost sales for many agricultural 

exporters. 

Physical, environmental, and financial considerations constrain ports from growing larger, 

raising the possibility of congestion, delay, and increases in shipping expenses. Port expansion 

plans are required to improve air quality and practice environmental stewardship. These 

requirements, though important, increase costs and delay infrastructure improvements, putting 

additional pressure on the current system to sustain increasing traffic flows. Some of the 

busiest ports in the country have instituted per-container fees to pay for environmental and 

other port improvements. However, per-container fees add cost to the transportation of 

agricultural products and impact shippers’ narrow profit margins. 

The expansion and growth of developing countries continues to swell the demand for U.S. 

agricultural commodities. Shippers believe ocean container carriers need to reassess the 

strength of the westbound trans-pacific trade lane and allocate enough equipment to serve the 

demand. Agricultural exports are often seen by the ocean carriers as backhaul cargo, 

dampening their incentive to provide sufficient equipment. The higher-valued import cargos of 

retail goods can support a higher freight rate, so carriers in the Transpacific trades cater to the 

equipment needs for eastbound movements instead of westbound movements. As demand for 

U.S. agricultural products grows, the issue of carrier equipment adequate to meet the export 

shipping needs of U.S. agriculture will continue to grow as well. 

 
487

The recent economic downturn put the ocean transportation industry under heavy stress. 

Cargo volumes fell sharply worldwide, rates were at all-time lows, and carriers reduced staff, 

vessel capacity, and service. The U.S. agricultural export community was affected by the 

economic slowdown, but cargo continued to move. Overall, shippers have to adjust to the 

conditions of the infrastructure, recent loss of capacity, and volatile rates, all of which increase 

unpredictability in the transportation system for agricultural shippers and make U.S. 

agricultural products less competitive in the global market. 

 
488

Appendix 14-1: FMC Complaint Resolution Process 

The Federal Maritime Commission (FMC) is charged with administering the Shipping Act, as 

revised by OSRA. Under Sections 10 and 11 of this law, FMC provides both formal and informal 

complaint resolution processes for importers and exporters that believe an ocean common 

carrier or carriers have violated the Shipping Act. 

Local Area Representation 

FMC maintains a presence in Houston, Los Angeles, New Orleans, New York, Seattle, and South 

Florida through Area Representatives, who are based in each of those areas. Besides the ports 

in the cities where the Area Representatives are located, they serve other major port cities and 

transportation centers within their respective areas. Area Representatives serve a number of 

functions: 

• Representing FMC within their jurisdictions 

• Providing liaison between FMC and the local maritime industry and the shipping public 

• Collecting and analyzing information of regulatory significance 

• Monitoring and investigating functions 

• Assessing industry conditions 

Liaison activities involve: 

• Cooperating and coordinating with other Federal, State, and local government agencies 

and departments. 

• Providing regulatory information, including educational seminars. 

• Relaying FMC policy to the shipping industry and the public. 

• Handling informal complaints. 

FMC’s Bureau of Enforcement attorneys work closely with Area Representatives to be sure the 

industry is in compliance with the Shipping Act.387
489

The Informal Process 

Individual importers or exporters can make an informal request to FMC to act as a mediator 

between the ocean carrier, ocean transportation intermediary (OTI), or other industry entities, 

and themselves to resolve a dispute. FMC’s Office of Consumer Affairs and Dispute Resolution 

Services (CADRS) is responsible for administering this process. CADRS can: 

• Act as an "honest broker" between parties to disputes. 

• Provide information relevant to the resolution of particular problems. 

• Advise firms and individuals of options that the relevant statutes make available. 

• Intercede with carriers and other parties to obtain new examinations of rejected claims. 

• Advise passengers how to file claims against cruise operators. 

• Assist individuals who have encountered difficulties in moving their personal effects or 

automobiles.388

Some examples of disputes brought before the CADRS include: 

• Shipper's inability to learn the location of a particular cargo. 

• Shipper's problem with defaulting ocean transportation intermediaries, such as freight 

forwarders and non-vessel operating common carriers. 

• Shipper's difficulty in processing damage and loss claims. 

• Freight forwarder’s inability to collect rightful compensation from carriers. 

• Trucker's dispute with terminal operator's interpretation of equipment detention rule. 

• Terminal operator's complaint concerning the interpretation of a lease agreement. 

• Carrier's objection to a shipper's or forwarder's document preparation.389

FMC Investigations and Private Actions 

FMC, upon complaint or upon its own initiative, may investigate any conduct that it believes 

may be in violation of the Shipping Act.390 Section 10 of the Shipping Act prohibits ocean 

common carriers, OTIs and marine terminal operators from engaging in a variety of 

unreasonable and discriminatory practices.*

 These prohibited acts can be enforced either by 

FMC investigation or by the filing of a private complaint to FMC. 

 

 

*

 For example, section 10 (d) (1) of the Shipping Act states that common carriers, ocean transportation 

intermediaries and marine terminal operators may not fail to establish, observe and enforce just and reasonable 

rules and regulations relating to or connected with receiving, handling, storing , or delivering property; section 

10 (d)(2) prohibits marine terminal operators from unreasonably discriminating in the provision of terminal 

services to common carriers; section 10(d) (4) prohibits marine terminal operators from giving undue or 

unreasonable preferences or advantages or unreasonable prejudice or disadvantage with respect to any person; 

and Section 10 (b)(10) prohibits common carriers from unreasonably refusing to deal or negotiate. 
490

Pursuant to Section 11, any person, including shippers, OTIs, or trade associations may petition 

FMC to initiate an investigation of an alleged violation. The result of such an investigation could 

be the assessment of civil penalties if a violation is found. However, under this authority the 

petitioner would not be eligible to receive reparations as a result of a FMC investigation. 

The Bureau of Enforcement represents FMC during formal and informal investigations. 

Attorneys in the Bureau serve as trial attorneys in formal administrative proceedings instituted 

before FMC under Section 11 of the Shipping Act. Bureau attorneys work closely with the Area 

Representatives in investigations of potential violations of the Shipping Act and FMC 

regulations. 

Any person may also file a private complaint (a private lawsuit) with FMC alleging a violation of 

the Shipping Act. This process can be the lengthiest and most costly of all the available 

grievance processes. However, if the private complainant is successful in establishing a 

violation of the Shipping Act, pursuant to Section 11 (g), the complainant could receive 

reparations amounting to up to two times their actual injuries plus reasonable attorney fees. 

Enforcement actions and investigations into alleged violations of the Shipping Act include the 

prohibited acts in section 10 and the Commission’s regulations. Examples of the types of 

activities that have been investigated in the past include: 

• Rebating 

• Misdescriptions or misdeclarations of cargo 

• Unfilled agreements 

• Abuses of antitrust exemptions 

• Unlicensed OTI activity 

• Untariffed cargo carriage 

• Unbonded passenger vessel operations 

• Various types of consumer abuses, including failure of carriers or intermediaries to carry 

out transportation obligations, resulting in cargo delays and financial losses for shippers 

• Unfair or unjustly discriminatory practices of ocean carriers and OTIs 

• Unreasonable refusals to deal or negotiate391
491

Appendix 14-2: Port Expansion Plans 

This information was compiled and published in January 2009 by MARAD in a report called 

“America’s Ports and Intermodal Transportation System.” The Gateway (including near-port) 

and Corridor projects have a national significance because they play a key role in the U.S. 

Marine Transportation System. Projects are divided into key east/west rail exchanges and 

corridors that support the seven groups of Gateway Ports as described in the Strategy. 

New York/New Jersey 

Gateway and Near-Port Projects:* 

1. Increase NY/NJ water depth to 50 feet (Completion due 2009) 

2. Add new container terminal capacity in NJ area, including Brownfield 

development and access 

3. Construct on-dock/near-dock rail infrastructure at Port of New York/New Jersey 

4. Complete North Avenue Corridor Improvement Project (connector ramp and 

grade separations) 

5. Build/improve truck-only highway connectors between NJ turnpike (including 

exits 12, 14, 14A, and 15) and marine terminals, and on I-78 and north of port 

area in NJ 

6. Construct new Passaic River road crossing 

7. Increase vertical clearance of the 75-year-old Bayonne Bridge to accommodate 

modern ships 

Corridor Projects:*

 

1. Fund and complete four long-term rail route improvements—the River and 

Chemical Coast Lines to the north (double and triple-track and grade crossings), 

the Lehigh Line to the west (triple-track) and West Trenton Line to the south. 

Hampton Roads 

Gateway and Near-Port Projects: 

1. Develop the Craney Island Marine Terminal and Rail Corridor 

2. Construct Hampton Roads Third Crossing Tunnel 

3. Complete State Road 164 Rail Corridor Relocation Project (in progress) 

4. Conduct Elizabeth River Southern Branch Navigation Channel Deepening 

 

 

*

 Port projects marked with an asterisk were identified by the Department of Defense as rail capacity 

improvements in individual port master plans that will prove beneficial to military operations. Department of 

Defense Report to Congress on Projected Requirements for Military Throughput at Strategic Seaports, Under 

Secretary of Defense (Acquisition, Technology & Logistics), April 2007. 
492

Corridor Projects:

1. Expedite completion of the Heartland rail corridor connecting the Port of Virginia 

to the Midwest. This will allow high speed, high capacity freight movements and 

shorten the distance traveled between the rapidly growing port and western 

destinations. 

2. Fund and develop the I-81 Crescent rail corridor, which includes plans for new 

terminals in Pennsylvania, Western Maryland, and Alabama, and upgrades to 

Roanoke, VA, and Memphis, TN, intermodal yards. 

III. Charleston/Savannah 

Gateway and Near-Port Projects: 

1. Expand the port in the former Charleston Navy Base (including road connectors 

and 280-acre container terminal, scheduled for completion in 2013) 

2. Deepen Savannah Harbor and approach channel from 42 to 48 feet 

3. Complete turning basin component of Charleston Harbor Deepening Project (to 

45 feet) 

Corridor Projects: 

1. Widen State Road 17 (Savannah Highway) southward to link with I-95. 

 Houston 

Gateway and Near-Port Projects: 

1. Develop Port of Houston Bayport Terminal 

2. Improve connections between the port, State Highway 146, and I-69 

3. Improve State Highway 146 

4. Improve rail connections between terminals and Class I rail lines at Pasadena, 

Strang, and Deer Park Yards and double-track main line across Buffalo Bayou 

5. Develop Grand Parkway loop around central business district (State Highway 99 

to I-45) 

6. Develop Pelican Island Terminal (long term project) to increase future container 

capacity 

Corridor Projects: 

1. Develop I-69 (Designated as a DOT Corridor of the Future) to improve 

north/south freight movements to Canada and Detroit 

2. Improve I-10 between Houston and San Antonio to facilitate freight movements 

westward. This includes widening a key section from 4 to 10 lanes each direction 

 
493

IV. Seattle/Tacoma 

Gateway and Near-Port Projects: 

1. Develop additional container terminals along the Blair waterway in Tacoma. 

2. Develop Pacific Northwest regional intermodal yard support capacity. 

3. Complete Lower Columbia River Navigation Channel and improve Tacoma 

Harbor Channels 

4. Resume maintenance of Snake River Navigation Channel 

5. Build Stevedore Services of America (SSA) Terminal in Tacoma 

6. Build Tacoma-Olympia South Sound Logistics Center 

7. Improve Columbia/Snake River Locks. 

8. Extend SR 167 in Tacoma and State Road 509/99 in Seattle 

9. Reconfigure/improve Seattle Terminal 30 

Corridor Projects:* 

1. Add grade separations and track additions for rail service between Seattle and 

Tacoma, creating unobstructed urban corridor access while improving safety 

2. Upgrade Stampede Pass tunnel to accommodate double stack trains 

3. Reopen rail line between Ellensburg and Lind, WA 

4. Eliminate single-track line between Portland and Troutdale 

5. Construct additional track between Seattle and Tacoma 

6. Double-track between Seattle and Everett, WA 

V. Oakland 

Gateway and Near-Port Projects:*

 

1. Increase Oakland navigation channel to 50-foot depth 

2. Develop Outer Harbor Terminal in Oakland 

3. Improve access to the Port of Oakland and Union Pacific rail facility 

4. Rehabilitate the Oakland–Martinez line to provide a third mainline into Oakland 

5. Re-align Maritime Street in Oakland 

6. Improve 7th Street grade separation and roadway to relieve road and rail 

congestion at the port 

Corridor Projects:* 

1. Upgrade Donner Pass rail tunnels to accommodate double stack containers and 

double track the line from Reno to Salt Lake City 

2. Double track San Joaquin Valley to eliminate freight/passenger competition for 

the single track 

3. Improve the Tehachapi Trade Corridor Rail line; augment rail connections 

between northern and southern California 
494

VII. Los Angeles/Long Beach 

Gateway and Near-Port Projects:*

 

1. Replace Gerald Desmond Bridge in Long Beach (to allow larger ships and increase 

lane capacity for truck traffic). 

2. Expand TraPac Marine Terminal 

3. Construct Port of Los Angeles/BNSF Southern California International Gateway 

Intermodal Rail Yard 

4. Build SR-47 Expressway project 

5. Expand capacity of I-710 between Long Beach and I-10 

6. Expand UP ICTF rail yard in Wilmington 

7. Improve/construct on-dock rail at LA/LB 

8. Increase Los Angeles Harbor navigation channel to 55 feet 

9. Develop Pier B Rail Yard in Long Beach 

10. Develop West Basin Rail Yard in LA 

Corridor Projects:*

 

1. Increase mainline rail capacity (triple track) through Cajon Pass 

2. Complete grade separations along “Alameda Corridor East” to establish the Los 

Angeles–Colton corridor 

3. Build Colton Crossing grade separation project 

4. Double track between Colton, CA, and El Paso, TX 

5. Upgrade Rail connector between Port Hueneme and main line 

Major projects approved by the California Transportation Commission include: 

• Gerald Desmond Bridge replacement at the Port of Long Beach – $250 million 

• SR 47 Expressway and Schuler Heim Bridge Replacement in LA/LB ports – $158 

million 

• LA/LB ports rail improvements – $175.1 million 

• San Gabriel Valley Grade Separations, Alameda Corridor East – $336.6 million 

• U.S. 101-Rice Avenue Interchange near Port of Hueneme – $30.4 million 

• I-15 widening and Devore Interchange reconstruction – $118.0 million 

• Port of Oakland 7th Street Grade Separation – $175 million 

• Port of Oakland Outer Harbor Intermodal Terminals – $110.0 million 

• Union Pacific track and tunnel improvements at Donner Summit – $43 million 

• I-880 freeway reconstruction in Oakland – $73.0 million 

• Highway 4 Cross-Town Freeway extension in Stockton – $96.8 million 

• I-580 freeway eastbound truck climbing lane – $64.3 million 

• Tehachapi trade corridor rail improvements – $54.0 million 

• Stockton Ship Channel dredging – $17.5 million 

• Sacramento River channel dredging – $10.0 million 
495

• National City Marine Terminal Wharf Extension, Port of San Diego – $15.0 million 

• Port of San Diego grade separations – $81.6 million 

VIII. Key East/West Rail Exchanges 

1. Expedite the Chicago CREATE rail project that facilitates major east/west freight 

movement and local congestion relief. This project includes 25 new roadway 

overpasses or underpasses at locations where auto and pedestrian traffic currently 

cross railroad tracks at grade level, six new rail overpasses or underpasses to 

separate passenger and freight train tracks, viaduct improvements, grade crossing 

safety enhancements, and extensive track, switch, and signal system upgrades. 

2. Support the New Orleans gateway infrastructure improvement projects that create 

grade-separated multiple track corridors through this vital chokepoint. This publicprivate partnership between the Nation’s six Class I railroads and State and local 

government will include replacing track, eliminating one underpass, and several 

grade crossings and upgrading junction switches. 

Appendix 14-3: Foreign Trade Regulations: Carrier 

Responsibility 

The regulation for carriers reads, Section 30.7 (b) “. . . the U.S. Principal Party of Interest (USPPI) 

or the authorized agent is responsible for annotating the proper proof of filing citation or 

exemption legend on the first page of the bill of lading, air waybill, export shipping instructions, 

or other commercial loading documents. The USPPI or the authorized agent must provide the 

proof-of-filing citation or exemption legend to the exporting carrier. The carrier must annotate 

the proof-of-filing citation, exemption or exclusion legends on the carrier’s outbound manifest 

when required. The carrier is responsible for presenting the appropriate proof-of-filing citation 

or exemption legend to CBP Port Director at the port of export as stated in Subpart E of this 

part.”392 

 
496

 
Chapter 15

Multi modal 

Issues
497

Chapter 15: Multimodal Issues 

The productivity and economic viability of U.S. agriculture relies on a vast national 

transportation system with its networks of highways, railroads, waterways, and ocean ports—a 

multimodal* transportation system that delivers agricultural products and food to domestic and 

international markets. The previous chapters of this study analyzed the importance of each 

freight mode and its sufficiency of competition, capacity, services, rates, facility investment, 

and its impact on rural economic development. This chapter synthesizes some of the 

crosscutting transportation issues that affect all modes and discusses the interrelationship of 

transportation modes. It examines these multimodal issues: 

• Freight rates, fuel costs, and transportation choices 

• Capacity and service 

• Investment and funding 

The final part of this chapter identifies some transportation issues affecting the agricultural 

sector and rural America. This analysis focuses on issues that may require coordinated efforts 

to support the competitive advantage of U.S. agriculture. 

Freight Transportation Modes and Multimodal Issues 

Each transportation mode has advantages and disadvantages for agricultural shippers. The 

truck industry takes pride in its flexibility of service, its competitive nature, and its status of 

being the primary mode for agricultural products in terms of tons moved (see Table 2-2, 

Chapter 2). On the other hand, long-distance trucking is not as efficient or environmentally 

friendly as other transportation modes and truck traffic is less welcome in congested metro 

areas. Rail and barge are more environmentally friendly than trucks, and are frequently more 

cost-effective methods of long-distance shipping when those services are available, but they 

rely on expensive terminals and fixed rail and river routes. 

Ocean transportation depends on interior transportation. Many U.S. and world ports are 

working at or near capacity, and expanding them is problematic because of their urban 

locations. Improvements to port capacity and productivity must come not only through 

physical port expansion, but also through technological upgrades, on-dock rail service, and fluid 

highway access. 

 

 

*

 In this study, the term multimodal refers to the total transportation system. Intermodal refers to containers 

carried by truck, rail, and ocean vessels. 
498

Figure 15-1: Trucks, trains, and ships all work together to move America's goods. 

Source: Federal Highway Administration 

The U.S. transportation system is a “system of systems” made up of different transportation 

networks that need to work together. The system’s statutory and regulatory framework is 

largely modal-based, providing our Nation with rules and regulations focused on singular modal 

solutions even though many of our challenges are associated with a multi-modal transportation 

system.393 
499

Congress and the transportation industry have recognized the need for a multimodal or 

systems approach to freight transportation. Pending legislation—The Surface Transportation 

Authorization Act of 2009—calls for establishment of a new Office of Intermodalism at DOT, 

with an accompanying Under Secretary. This new mission area would be charged with 

developing and implementing a strategic plan to address the long-term needs of the surface 

transportation network. Shippers and carriers welcome this collaborative approach to find 

solutions at a system level. Both depend on multiple modes to serve their customers. 

Freight Rates and Fuel Costs Help Determine Transportation 

Choices

Transportation costs, as expressed in freight rates, are a primary influence on shippers’ choice 

of mode. Additional influencing factors include: 

• The quality and frequency of transportation service 

• The ability and willingness of the carrier to meet the shippers’ needs 

• The reliability of transit time 

• The size and distance of the shipment 

• The availability of capacity and intermodal connections 

• The ability to serve both the origin and destination businesses 

The supply chain for agricultural products often depends on multiple modes of transportation, 

each with its own price dynamics. Figure 15-2 illustrates the relative cost structure of each 

mode compared to the distance shipped, and the efficiencies of each mode. For example, on 

shorter hauls, trucks are less expensive than rail or barges. Where available, barge is the most 

fuel-efficient and cost-efficient mode for long-distance hauls; it moves 576 ton-miles per gallon 

of fuel. Rail is next most efficient, at 413 ton-miles, and truck is least, at 155 ton-miles.394 Not 

all agricultural shippers, however, are located near the inland waterways or able to take 

advantage of the efficiency of barge transportation, and even grain shippers who use barge or 

rail transportation for most of the movement depend on trucks to get the grain to the elevator, 

barge or rail terminal. 

 
500

Figure 15-2: Modal costs related to distance and relative fuel efficiency 

Total Cost 

 Truck 

 Rail 

 Barge 

 

 Truck Rail Barge 

 (155) (413) (576) =>Ton-Miles/Gallon

 Distance 

Source: USDA, Agricultural Transportation Challenges for the 21st Century, and Modal Fuel Efficiency: Texas 

Transportation Institute 

Rail is the best transportation choice for grain shippers unable to access barge transportation 

for long distance movements, both from the economic and environmental impact perspectives. 

However, the recent escalating rail rates and declining service for some shippers has pushed 

more grain transportation onto trucks in recent years (see figure 15-3). Many high-value 

agricultural products depend on refrigerated trucking because of their service and rapid 

delivery. 

Figure 15-3: Grain modal shares, 1978-2007 

Source: AMS, Transportation of U.S. Grains: A Modal Share Analysis, 1978-2006 (not yet published as of printing) 
501

Fuel Costs Affect Freight Rates 

Increases in fuel costs affect rates in all freight modes, although to varying extents. Diesel fuel 

prices increased significantly from the third quarter of 2003, peaked in the second quarter of 

2008 and then fell rapidly during the last quarter of 2008. By the first quarter of 2009, 

however, fuel prices remained 49 percent above prices seen at the end of 2003 (Figure 15-4). A 

variety of factors has pushed up the freight rates of all transportation modes since the end of 

2003—the earliest year for which freight rate data are available (see Table 15-1). Although fuel 

costs affect all freight rates, the extent of the correlation varies. Agricultural shippers need 

stability in transportation costs because it helps fiscal planning and improves transportation 

and marketing decisions. 

Figure 15-4: Average quarterly diesel fuel prices 

Source: EIA 
502

Truck Rates Correlate with Fuel Prices

Fuel costs are a large part of the total costs in trucking, more so than in any other mode; 

operating expenses in the trucking industry are 95 percent of gross revenue. Consequently, 

truck freight rates correlate strongly with fuel prices. Between the third quarter of 2003 and 

the first quarter of 2009, truck rates evidenced a strong correlation with fuel prices with a 

coefficient of 0.93 (see Table 15-1).* 

Truck rates are more volatile than rail or ocean rates. They tend to fluctuate more frequently 

because the railroads are required to provide a 20-day advance notice of tariff rate and fuel 

surcharge changes, and the contractual nature of the ocean container market dampens its 

volatility. When fuel prices were increasing rapidly, truck rates also increased, remaining 68 

percent higher during the first quarter of 2009 than during the first quarter of 2003. However, 

truck rates did not rise as much as fuel costs during the rapid fuel price rise in 2008. Truck rates 

increased 91 percent by the second quarter of 2008, while fuel prices almost tripled during the 

same time. Because of the competitive nature of the trucking sector, some trucking 

companies’ profit margins were squeezed and others went out of business or declared 

bankruptcy (see Table 15-1, Figure 15-5, and Chapter 13). 

 

Table 15-1: Fuel price and freight rate changes by mode395

 Freight Rates Correlation 

to the Fuel 

Price 

Rank 

1 = most 

5 = least 

Standard 

Deviation†

or 

Variability 

Rank 

1 = most 

5 = least Q3 2003 Q1 2009 Change 

Diesel Fuel ($/gal) 1.46 2.19 49% 13.2 

Truck ($/mile) 2.03 3.41 68% 0.93 1 9.0 3 

Rail (tariff + fuel 

surcharge) 2,489 3,722 50% 0.86 2 2.5 5 

Bulk Ocean ($/mt) 33.35 45.34 36% 0.67 3 27.8 2 

Barge (St. Louis Index) 163 289 77% 0.64 4 54.0 1 

Container ($/TEU) 839 1,200 43% 0.37 5 6.5 4 

 

 

*

 Correlation indicates the strength of a relationship between two variables. A perfect correlation would be 1.0. 

A coefficient of .93 shows the relationship is very close. 

†

 Standard deviation is a measure of the spread of data around the mean. A high standard deviation shows the 

data spread widely from the mean; a low standard deviation shows they are grouped close to it. The higher the 

number, the more variable the correlation between freight rates and fuel price. 
503

Figure 15-5: Percent change in fuel prices and grain rates for container, rail, and truck 396

Figure 15-6: Percent change in fuel prices and grain rates for bulk ocean and barge397

Sources for both figures: Rail, barge, and bulk ocean rates: AMS Grain Transportation Report 

 Container ocean rates: Containerization International 

 Truck rates: AMS Grain Transportation Quarterly Updates Truck Advisory 

 Fuel Prices: EIA 
504

Rail Rates Remain Above Average

Grain rail freight rates have increased rapidly since 2003, reacting to increased fuel and other 

costs, and to a shortage of capacity. Although the recession has produced excess rail capacity, 

grain rail rates are still 50 percent higher in the first quarter of 2009 than they were in third 

quarter of 2003. Total rail freight rates (tariff rates plus fuel surcharge) have shown a high level 

of correlation with fuel prices, as shown by a coefficient of 0.86 since the third quarter of 

2003—second only to trucks (see Table 15-1). In fact, rail fuel surcharge rates peaked in 

September 2008 and have decreased with the price of fuel (see Figure 7-10 in Chapter 7). 

Grain Barge Rates Exhibit Highest Volatility 

By the first quarter of 2009 grain barge rates in St. Louis had increased 77 percent from the 

third quarter of 2003 (see Table 15-1). Grain barge rates have also experienced the greatest 

volatility during this period, ranking first among the four major modes, as a result of higher 

demand, network disruptions, and higher fuel and labor costs. Barge rates are not as closely 

correlated with fuel prices as rail and truck, but still exhibit a correlation coefficient of 0.64. 

The age and size of the barge fleet help determine rates. New barges are built each year in 

response to demand. When tax advantages brought many new barges into the fleet in the 

early 1980s, the surplus depressed rates. Because barges are designed to last 25 to 30 years, 

the surplus has lasted a long time. However, as barges reached their life expectancy and were 

retired, they have not been replaced, contributing to increasing rates in recent years. 

Since 2003, barge rates have experienced the greatest volatility due to a variety of factors, 

including water levels, weather-related disruptions to the network, and demand from non-grain 

shippers (see Figure 15-6). Interestingly, the variability of barge rates was more than 6 times 

that of truck, and bulk ocean was nearly three times that of truck—indicating the high volatility 

in barge and bulk ocean freight rates. Barge rates are volatile because they react quickly to 

sudden changes in export demand, weather constraints on the rivers, or larger-than-expected 

crops. Some shippers react to high rates by postponing shipments until rates go down or by 

choosing an alternate transportation mode. 

Bulk and Container Ocean Rates Face Different Market Dynamics 

Bulk ocean freight rates increased in the summer of 2007 because an increase in global trade 

pushed demand for ocean service and to a smaller degree, because fuel prices increased. As 

fuel prices rose, so did rates, resulting in a correlation coefficient of 0.67, slightly higher than 

the barge correlation (see Table 15-1). As bulk rates increased, grain exporters increased their 

use of containers (either at inland points or transloading from railcars to containers at the 

ports), which is usually a more expensive method of exporting grain. Even when bulk rates 

began to decline at the end of 2007 in comparison to container rates, the convenience and 

higher quality grain delivered at destination encouraged many exporters to continue using 

containers. 

In 2008, both bulk and container ocean rates increased, peaking in the summer of 2008 

because of record demand for bulk shipping by China. Containerized grain rates were also 

pulled up by demand for U.S. agricultural products; surprisingly, they had a low correlation with 
505

fuel price changes and low volatility (see Table 15-1). By the end of that year, however, bulk 

ocean rates had fallen much below container rates, and most traditional bulk grain exporters 

switched back to bulk shipments. Grain exporters that can use either bulk or container ocean 

service will continue to compare container to bulk ocean rates to discover the least expensive 

of the two shipping options. 

Multimodal Rate Analysis Conclusions 

When it comes to transportation, agricultural producers are almost always price takers—their 

transportation options for moving their products to market are limited, but their buyers often 

have many sources from which to select. This market structure results in producers paying 

most of the transportation costs, which directly affects their incomes. 

Increases in fuel costs raise transportation costs for all modes: trucking, rail and, to a lesser 

degree, barge and ocean. As expected, movement in grain truck and rail rates has the greatest 

correlation to movement in fuel prices, but the relationship sometimes weakens due to 

variations in supply, demand, and capacity. Changes in ocean rates—both bulk and container—

and barge rates do not correlate as closely with changes in fuel prices. In addition to higher 

fuel efficiency, these sectors are more heavily influenced by global shipping market dynamics. 

Agricultural shippers have become sensitive to fuel price fluctuations and their impact on 

overall transportation costs. Their transportation and marketing decisions are made more 

difficult in situations where fuel surcharges are higher and last longer than the actual fuel price 

swing. 

Transportation Capacity and Service 

Transportation capacity and the quality of service are influenced by the regulatory and market 

structures of the transportation sector, the seasonality of the agricultural production cycles, 

unpredictable weather, and economic cycles. Transportation needs peak during and 

immediately after the grain harvest, from mid-September through October. 

Disruptions and challenges to transportation service since 2002 have included port congestion, 

tight capacity along rail and barge networks, equipment and driver shortages in the trucking 

industry, and consolidation among ocean common carriers. 

From 2002 to 2006, for the first time in recent history, all transportation modes serving 

agriculture were strained. This was a period of strong economic growth, mushrooming global 

trade, and record grain harvests, all of which increased the demand for transportation. 

Capacity was reduced in 2002 when labor contract disputes shut down West Coast ports. In 

2003, early retirement of train crews caused a shortage of trains; almost immediately, rail rates 

increased rapidly as railroads began to ration available crew. At the same time, fuel prices 

skyrocketed. 

Over the same 5-year period, barge capacity was increasingly constrained as the demand for 

barge service from imported cement and steel grew to feed the growing construction and 

manufacturing industries. The increased upriver barge traffic and slower turnaround of barges 
506

strained grain movements to export points. Agricultural shippers in many regions had trouble 

finding trucks and drivers. Larger ocean carriers acquired smaller ones, reducing the number of 

ships. Many agricultural shippers struggled to find vessel capacity because ships called less 

frequently. And the U.S. transportation system was tested by two major hurricanes in 2005. 

Regulatory Structures Impact Service and Rates 

Railroads and ocean carriers have specific antitrust exemptions. When an industry is 

economically regulated, competition is not an important control on rates because the 

government acts to provide a stable market for carriers and reasonable rates for shippers. 

When an industry is deregulated, however, competition and antitrust enforcement are the 

major forces protecting the consumer from unfair business practices. Decreased competition 

combined with antitrust immunity can lead to the unrestrained use of market power, especially 

in highly concentrated industries such as railroads and, increasingly, ocean carriers. This 

situation can cause some agricultural shippers to lose service and pay higher rates. 

The use of market power by carriers can result in unnecessarily high freight rates and a 

limitation on the number of markets available for shippers. Most farmers receive a price net of 

transportation, so higher rail and ocean rates and reduced market selection cuts their income. 

The preservation and protection of competition in transportation is vital for the economic 

prosperity of agricultural producers and shippers, the rural communities they support, and the 

markets they serve. 

Seasonality 

Agriculture especially needs transportation during planting and harvest, when capacity depends 

not only on having enough railcars, barges, trucks, and containers, but on their location and 

turnaround cycles. Capacity is sometimes a local problem because agricultural production is 

concentrated in several high-producing States (see Chapter 2 surplus-deficit maps). In addition, 

some products need specialized forms of transport—refrigerated railcars, specialty grain 

railcars, containers, and refrigerated trucking. Consistent and dependable transportation, 

especially seasonally, is critical for agriculture. 

Performance During Network Disruptions 

The U.S. transportation system has been tested in a variety of natural and man-made disasters 

since 2002. The West Coast port shutdown in 2002 due to a labor dispute led to a prolonged 

disruption in rail and truck service throughout the country. Major hurricanes, which struck the 

Gulf Coast in 2005, disrupted barge and rail transportation. Upper Midwest floods in 2008 

caused logistical problems for rail and barge transportation for several months. Economic 

cycles could also be classified as a test of the transportation system’s resiliency—its ability to 

respond to disruptions and keep traffic flowing. 

Disruptions Caused by Natural Disasters

The transportation system is fluid—when one mode is disrupted, freight shifts to other modes, 

pushing up their cost with the additional demand. For example, when river traffic in New 

Orleans was halted by Hurricane Katrina, freight rates along the river system and other modes 

reacted immediately—barge, rail, and truck rates surged. Barge rates spiked to more than 900 
507

percent of tariff on the St. Louis index and 

averaged more than 500 for the remainder 

of 2005. They decreased as the Gulf 

recovered, but remained higher than the 

pre-Katrina levels throughout most of 2006 

because of higher fuel and labor costs and 

reductions in the size of the barge fleet. 

Ocean port facilities are most often directly 

impacted by major weather events such as 

hurricanes. Depending on the severity of 

the storm, ports can be operational within 

hours after the storm or, as in the case of 

the ports hit by Hurricane Katrina, some are 

still recovering 4 years later. Ocean port 

disruptions typically require ships and cargo 

to be redirected to other ports resulting in a

significant logistical burden and 

transportation expense. 

Extreme weather events such as hurricanes 

can be especially damaging to transportation 

infrastructure. The Chicago and New 

Orleans rail interchanges are particularly 

important; they have recently shown how 

quickly local weather events can increase 

freight rates, decrease railcar availability, 

and reduce train speeds to the entire 

country as choke points—locations prone to 

delays because of congestion and lack of 

capacity—build up. Approximately 60 

percent of rail traffic passes through 

Chicago, creating periods of congestion 

during network disruptions. Hurricane 

Katrina, a devastating hurricane that hit New 

Orleans in August 2005, severely disrupted 

all modes of transportation. Recovery 

included railroad and highway 

reconstruction, refloating barges and 

recovering submerged infrastructure, 

rebuilding terminal warehouses and dock 

facilities, and significant clean up 

operations. All of these efforts cost the 

shippers and carriers time and money to 

Katrina and the Price of Grain 

A clear example of how delays and closures in the 

river system can cost farmers revenue can be seen 

in the aftermath of Hurricane Katrina. The 

Mississippi Gulf port area depends on barges for 

grain delivery. When the river became 

impassable, traffic switched to truck and rail and 

the cost of shipping grain increased. 

High transportation costs translated into lower 

farm-level prices as evidenced by the drop or 

widening in basis in the major production areas of 

the interior Midwest and a surge in the basis at 

the Gulf.*

 Prior to the hurricanes, the weekly corn 

basis in Illinois averaged 20 cents per bushel below 

the futures. It dropped another 20 cents per 

bushel after the hurricanes, effectively reducing 

the local price by the same amount. At the same 

time, the export basis surged to almost 70 cents 

per bushel above the futures, indicating a strong 

export demand, and reflecting the higher 

transportation costs. The drop in cash prices 

triggered the mechanism of counter-cyclical 

payments, in which farmers received subsidies in 

the form of price support. By the end of 2005, 

transportation disruptions were resolved and 

prices in both markets gradually returned to 

normal patterns. † 

*

 For agriculture, and especially for grain, basis is the 

difference between the futures price for a commodity and 

the local cash price offered by grain buyers—typically below 

the futures price. The futures price used for determining 

basis depends on the commodity. For some types of wheat, 

the futures price is from the Kansas City Board of Trade or 

the Minneapolis Grain Exchange. For corn, soybeans, and 

other types of wheat, the Chicago Board of Trade is used. 

Basis is quoted in cents per bushel as the difference between 

prices in the two locations—the futures exchange and the 

local market. 

†

AMS, Grain Transportation Report, Basis and Transportation 

Cost Primer, July 2, 2009. 
508

redirect cargo and facilitate the logistics to ensure the 

flow of commerce continued. In addition, there was a 

spike in demand for rail transportation of bulk 

commodities because navigation on the lower 

Mississippi River was impaired for a month following 

Hurricane Katrina. 

On the positive side, the major weather events that 

have tested the U.S. transportation system have also 

created opportunities to improve logistical operations 

of shippers and carriers. Subsequent events have 

shown a quicker recovery due to better planning and 

coordination. 

Disruptions Due to Cyclical Economic 

Conditions

Unexpected changes in the growth rates of global or 

domestic economies due to macroeconomic conditions 

can disrupt the transportation system. When the global 

economy experienced a period of unprecedented 

economic growth from 2000 to 2007, transportation 

capacity was constrained and freight costs increased 

rapidly. In December 2007, the United States entered 

into recession and by the end of 2008 railroad traffic in 

intermodal, construction, and new automobiles 

decreased sharply. Truck, barge, and ocean freight 

volumes also plummeted. On the positive side, 

transportation capacity constraints began to ease. Rail 

and barge traffic congestion subsided, truck freight 

capacity constraints decreased, and ocean carriers had 

unused vessel capacity. 

Agricultural products are not as sensitive to economic cycles as consumer products, and the 

soft demand elsewhere in the economy for transportation services benefited agriculture. 

Carriers responded to the economic slump by parking equipment and cutting labor expenses. 

However, transportation capacity has quickly become strained again as the economy has 

returned to normal, creating conditions similar to the tight capacity years between 2004 and 

2006. 

Intermodal Shipping 

Export containers can be loaded from 

railcars or trucks near the port or at 

inland locations. Commodities that are 

moved this way include grain, meat, 

poultry, and frozen food. 

Import container shipments destined 

for local delivery, multiple stops, or to 

parts of the country where rail service 

is not practical are off-loaded or 

transloaded into larger trucks or larger 

domestic containers at distribution 

centers, consolidated with other cargo, 

and shipped out to inland distribution 

centers and retail outlets. 

Some carriers do not want their 

containers to go to inland destinations, 

and require that they be off-loaded in 

proximity and returned to the port. 

With the decline in U.S. imports and 

downward pressure on freight rates 

since 2007, exporters have had 

difficulty obtaining containers. 
509

Intermodal Services 

Many U.S. agricultural exporters of specialty grains and high-value products rely on intermodal 

transportation service—containers that are moved by truck, rail, and ocean vessels. The 

reliability of this transportation service has a direct impact on the balance of agricultural trade. 

High-value agricultural products accounted for 37 percent of the $115 billion in U.S. agricultural 

exports in calendar year 2008. 

Container Availability 

Because demand for U.S. agricultural exports remains strong, the need for available containers 

to move these products is essential. The use of near-port distribution centers by large 

importers has reduced the number of containers available to agricultural exporters at interior 

locations. Exporters rely on import containers to supply an available container pool. When 

imports are down, exporters at inland locations are unable to find a sufficient number of 

containers. 

During these difficult economic times, carriers have decreased vessel calls, reducing the 

container pool for exporters. Containerized agricultural exporters continually report container 

availability as their most difficult challenge. In the United States, container availability is 

determined by the ocean carrier that owns or leases the containers because ocean carrier 

transport of third-party or shipper-owned containers is uncommon. Ocean carriers contend 

that rail costs are too high relative to the revenue earned to send many containers to inland 

destinations to serve the agricultural community. Containers are plentiful at ocean ports, 

particularly in California. Apart from the coastal port areas, agricultural exporters must rely on 

the major inland transportation hubs such as Chicago, Kansas City, Dallas, and Memphis as 

sources of empty containers. 

Investment and Funding 

Investment in transportation infrastructure has been specific to each mode, with sources of 

funding varying by mode. A January 2005 CRS report said “Analyzing transportation investment 

from a supply chain perspective can lead to a more coordinated or integrated approach. 

However, an integrated strategy is difficult to develop because transportation is still operated, 

administered, and funded along modal lines.”398 Although current economic conditions have 

eased supply chain issues, transportation constraints are expected to reappear as the economy 

recovers. 

The supply chain is only as effective as its weakest link. A system-wide viewpoint could focus 

attention on the weakest links such as rail access, locks and dams, dredging, port capacity, or 

highway congestion and strengthen them, freeing the entire system to handle the growing 

transportation demand. 

 
510

Such a perspective could take into account the interdependent role of public and private 

sectors, drawing on all available resources to maintain and improve the transportation part of 

the supply chain. Public and private sectors could usefully work together to identify and 

prioritize the needs. 

The supply-chain perspective might logically begin at a national level, with funding focused on 

critical regions, where transportation infrastructure improvements would benefit the rest of 

the nation. For example, a national overview of the rail network could identify critical 

chokepoints, and funding to free them would be based on the interrelationship of that region’s 

rail needs with the nation’s highways, waterways, and ports. 

The U.S. agricultural supply chain is a major user of the nation’s transportation system, so its 

needs, especially in rural areas, could be taken into account in this planning process. A systemwide perspective could improve the efficiency of the entire transportation system and ensure 

that the United States maintains its competitive advantage in the global marketplace. 

Better Data, Better Decisions 

Policy and business decision-making can benefit from more and better data on transportation activity, 

rates, and infrastructure needs. In the United States, the Federal government is responsible for 

gathering economic data that can answer transportation sector questions, and then setting an 

appropriate course of action for national infrastructure planning and funding.* DOT provides a vast 

array of transportation statistics and USDA provides select reports on agricultural transportation. 

However, there are still gaps. More data, quantitative research, and analysis can improve 

decision-making for the transportation sector. 

The biggest gaps in transportation data, research, and analysis are in the areas of rates, commodity 

flows, and real-time information on container availability. Access to additional data that could improve 

transportation analysis includes: 

• More timely data on commodity flows by transportation mode 

• Closer to real-time information on container, railcar, and other equipment availability 

• Better information on transportation rates in the trucking and ocean sectors 

USDA reports provide some primary source data for transportation costs and volumes important to the 

agricultural sector, but more timely information on more commodities could be gathered by increased 

data collection through collaboration with shippers, carriers, and the government. Collecting individual 

pieces of information to reveal a bigger market picture could help policy makers and industry 

representatives develop better long-term infrastructure plans. 

* Abraham, Katharine G. “What We Don’t Know Could Hurt Us: Some Reflections on the Measurement of Economic 

Activity.” Journal of Economic Perspective, Volume 19, Number 3, Summer 2005. 
511

Growth in Transportation Demand 

Recent research predicts substantial growth in freight transportation demand, although 

estimates of the rate of growth differ. For example, the Freight Analysis Framework (FAF) 

Version 2.2 projects total freight volumes to increase 93 percent from 2007 to 2035.399 A 

similar study performed by the American Association of State Highway and Transportation 

Officials predicts that total freight will grow 67 percent from 2000 to 2020, domestic tonnage 

will increase 57 percent and import-export tonnage 99 percent.400 These projections may be 

overestimated because they were made before the recent recession, but transportation activity 

is considered to be the leading indicator of economic recovery, so it will rise as the economy 

lifts. As the economy begins to recover, demand pressure on the U.S. transportation system 

will resurface. 

Agricultural production and trade is projected to continue to increase as world economic 

recovery, population growth, and higher incomes increase demand for high-quality U.S. 

agricultural commodities and food products. In addition, the rapid expansion of biofuels that 

currently move along a few key corridors, will require a corresponding expansion in 

transportation and distribution infrastructure. Investment in the transportation system will 

benefit U.S. agriculture, and additional biofuel distribution infrastructure will help achieve the 

energy policy objectives of our country. 

Investment Needs 

The National Chamber Foundation released a study in April 2008 called The Transportation 

Challenge: Moving the U.S. Economy that concluded more investment in the transportation 

system is needed to support the growth of trade and population in the United States.401 

According to the report, underinvestment contributes to congestion and is costing U.S. 

businesses and consumers time and money. 

Funding sources usually address the needs of individual transportation modes. Highways and 

waterways are supported by federal funding. Railways are privately owned, with 18 percent of 

their revenue being spent on capital expenditures. The railroad industry contends that public 

funding of infrastructure for barge and truck transportation puts rail at a competitive 

disadvantage and provides a precedent for governmental funding of rail capacity. Funding for 

transportation infrastructure would benefit from a systems-based approach. 

Railroads 

Any increase in demand will require substantial investment in rail system capacity. Using FAF 

projections of freight demand, Cambridge Systematics estimated that U.S. railroads would need 

to invest $148 billion by 2035 to handle projected freight demand.402 Of this amount, Class I 

railroads would need to invest $135 billion and smaller railroads $13 billion. Despite investing 

record amounts in infrastructure the last several years, Class I railroads estimate that they 

would be able to invest only $96 billion of the required $135 billion, leaving a shortfall of $39 

billion. 
512

Christensen Associates, in their Supplemental 

Report, noted that the Cambridge study 

probably overestimated railroad demand and 

investment needs because its projections of 

grain and coal movements exceeded those of 

USDA and the Energy Information 

Administration.403 In addition, the Cambridge 

study did not take into account the current 

economic downturn. According to Christensen, 

using a lower projection of grain and coal 

movements could lead to a lower estimate of 

projected investment needs and the resulting 

investment shortfall. Whatever the shortfall in 

railroad funding, the railroad industry suggests 

that it be covered from railroad investment tax 

incentives, public-private partnerships, or other 

sources. 

Those arguing against governmental funding of 

rail infrastructure say that access to the rail 

system is controlled by the owner of the track, 

with the owner being able to limit access, 

restrict competition, and charge excessive 

rates, especially in areas where competition 

from other modes is sparse. In contrast, access 

to highways and inland waterway systems is 

open to all, so the benefits from governmental 

support of highways and waterways flows 

directly to the public, whereas private parties 

benefit from rail infrastructure improvements. 

Public-private funding of rail infrastructure 

projects, to the degree the public benefits, has 

been an accepted practice. For example, the 

Alameda Corridor has eliminated several 

highway crossings and benefitted both the 

public (by eliminating waiting time and 

increasing safety) and railways (by speeding the 

movement of freight). Another example is 

public investment to preserve railroad branch 

lines, which prevents the additional cost of 

highway maintenance and the increased 

accidents that would occur if the lines are 

abandoned.

Public Benefits of Rail Transportation 

Here are some arguments put forth for public 

support of railroads:*

Less Demand for Foreign Fossil Fuels 

On average, railroads are three times as fuel 

efficient as trucks. In 2007, U.S. railroads 

moved a ton of freight an average of 436 

miles per gallon of fuel. If 10 percent of the 

freight that currently moves by truck moved 

by rail instead, more than one billion gallons 

of fuel would be saved each year, reducing 

our nation’s demand for foreign fossil fuels. 

Less Highway Congestion 

Highway congestion costs the U.S. more than 

$87.2 billion a year in wasted fuel and time. A 

single train can carry the freight of 280 or 

more trucks. Moving freight by rail reduces 

highway congestion, the costs of maintaining 

existing highways, and the pressure to build 

more highway capacity.

Fewer Greenhouse Gas Emissions 

Moving freight by rail instead of truck reduces 

greenhouse gas emissions by at least 

two-thirds. 

 

Less Pollution 

According to the Environmental Protection 

Agency, a typical truck emits three times 

more nitrous oxides and particulates per 

ton-mile of freight than a locomotive.

Increased Safety 

Rail freight experiences about 12 percent of 

the fatalities and 6 percent of the injuries that 

trucks do per ton-mile. In addition, 99.99 

percent of fertilizer and hazardous materials 

shipments arrive without accident—by far the 

highest rate of any transportation mode. 

* Association of American Railroads, Tax Incentives for 

Investments to Revitalize Freight Railroad 

Infrastructure, January 2009. 
513

Inland Waterways 

The inland waterways provide the most fuel-efficient mode, point to point, for transporting 

commodities such as grain, grain products, oilseeds, fertilizer and coal. Our Nation has 191 

active locks with 237 lock chambers.* As facilities grow older, the need for repairs and 

preventative maintenance increases, and eventually some facilities need to be replaced or 

undergo major rehabilitation. 

Agricultural shippers rely heavily on the Upper Mississippi River system. Without this shipping 

alternative, more grain would need to be shipped by rail or truck to the section of the river 

below the locks, because most of the grain exported through the Gulf travels there by barge. 

The grain barge industry and agricultural shippers would benefit by investments to increase the 

capacity and efficiency of this system. 

Funding mechanisms for new construction and major rehabilitation of inland waterway 

navigation structures are specified by law, which directs the cost of navigation improvements to 

be paid from the general fund of the U.S. Treasury with a matching amount from the Inland 

Waterways Trust Fund (IWTF). The funding source for the IWTF is the tax imposed on fuel for 

commercial vessels using the system. The current tax is 20 cents per gallon. Expenditures from 

the IWTF have increased from 2002 to present, causing the 2008 end-of-year balance to fall to 

$44.6 million from an average of $352.8 from 1995 to 2004. Unless an additional funding is 

found, the IWTF could face a deficit in the immediate future. 

Highways 

Food and agricultural producers rely heavily on trucking to move products from the farm or 

processing facility to market. Improvements in the Nation’s highways increase the efficiency of 

agricultural transportation and reduce costs to producers and consumers. 

Over half of the Federal-aid highways are in less-than-good condition and more than onequarter of the Nation’s bridges are structurally deficient or functionally obsolete.404 The 

National Surface Transportation Infrastructure Financing Commission stated in February 2009 

that the average annual Federal, State, and local revenue needed for maintenance of highway 

and transit systems was $172 billion per year, and another $42 billion per year was needed for 

improvements.405 Based on these revenue needs, the commission estimated the average 

annual gaps in funding are $96 billion for maintenance and $42 billion for improvements. The 

commission recommended increasing fuel taxes and alternative ways of raising revenue to 

address the backlog of road, bridge, and transit system maintenance and improvement needs. 

 

 

*

 Some locks are equipped with more than one chamber, adding capacity. Many of the aging locks are in a 

constant state of maintenance. The extra chamber allows traffic to continue if the other chamber is out of 

operation for repairs, instead of stopping all barge traffic. Of the 37 locks on the UMR-IW, only 3 have more than 

one chamber, but all of the 20 locks on the Ohio River have two chambers. 
514

Figure 15-7: Highway construction. Improvements to the highway system makes 

transportation faster and less expensive. 

Source: Caltrans 

In the short term, the Omnibus Appropriations Act of 2009 authorized up to $41.44 billion in 

spending from the Highway Trust Fund. Longer term, the funding for maintenance and 

improvements to the Nation’s highways and bridges will likely be addressed by Congress when 

it considers the next highway authorization bill. The House Transportation and Infrastructure 

Committee proposed $337.4 billion for highway construction investment over six years, 

including at least $100 billion for the National Highway System, $50 billion to reduce 

congestion, and $25 billion for projects that focus on goods movement and freight mobility.406 

The Administration requested that Congress focus on an 18-month reauthorization that will 

replenish the Highway Trust Fund.407 On August 7, the President signed H.R. 3357 to restore 

$7 billion to the Highway Trust Fund. 

Ports 

U.S. ports are the doorway to the world, the forefront of world trade, affecting the efficiency 

and competitiveness of the U.S. economy, including agriculture. A recent report by the 

American Society of Civil Engineers stated that “Although U.S. ports are currently comparable 

to foreign ports in terms of overall port infrastructure, more effort needs to take place in terms 

of dockside infrastructure, i.e., larger and more substantial berths, newer and larger cranes, 

and improved intermodal access to inland transfer areas.”408 Although the Federal government 
515

has paid for much of the transportation infrastructure of the U.S. highways and airports, ocean 

ports and marine terminals have mostly been financed by local taxes or the private sector. 

Many container ports in the U.S. continue to develop new terminals and implement projects to 

reduce port congestion and accommodate bigger ships. However, some ports and terminals 

are not able to enlarge because they are in urban areas without space to expand. 

The maintenance of ship channels is the responsibility of the Army Corp of Engineers through 

the Harbor Maintenance Tax assessed on import cargo and some domestic shipments and 

deposited in the Harbor Maintenance Trust Fund (HMTF). The American Association of Port 

Authorities states that, “As a result of federal under-investment, the 59 most utilized federal 

channels only have authorized widths and depths available for the center half of the channel 

30–40 percent of the time. This limits efficient use of our waterways and increases 

transportation costs.” Inadequate depths can lead to higher transportation costs because 

vessels cannot be loaded to capacity. When harbor channels are at less than authorized 

depths, S-Class container vessels lose 320 tons of cargo capacity per inch, Panamax bulk grain 

carriers lose 179 tons per inch, and Great Lakes ocean-bound vessels lose 115 tons per inch. 

Because of the multimodal and interdependent nature of the U.S. transportation system, 

efficiency in one mode has an impact on other modes. The extent to which ports are able to 

utilize their capacity most effectively has a direct impact on the efficiency of inland 

transportation; imports and exports move through the Nation’s ports to be carried by interior 

railroads, highways, and waterways. 

The Ports of Los Angeles and Long Beach, the nation’s busiest port complex, have proposed 

per-container fees to pay for improvements to their port facilities. They worked with the 

California Air Resources Board to adopt the San Pedro Bay Ports Clean Air Action Plan (CAAP) in 

November 2006. This Plan includes components for truck, rail, and vessel traffic. Proposed 

financing would be with per-container fees. 

 
516

Figure 15-8: Truck gate at the Port of Los Angeles 

Source: ©Port of Los Angeles 

Environment stewardship is important, although the associated requirements and percontainer fees increase costs and create logistical challenges for agricultural shippers. These 

fees, charged to importers and exporters, range from $15 to $100 per container (see Chapter 

14 for more details). This type of fee distributes the cost evenly throughout the trade, but 

imposes a greater burden on low-valued cargo such as agricultural shipments. When the value 

of the import or export and revenue derived from it are taken into consideration, the lowervalued cargo absorbs a greater burden from a flat per-container fee than from a value-based 

cargo fee. 

Transportation Issues Affecting Agricultural Shippers 

Agriculture—the largest U.S. industry that relies on the transportation system—could benefit 

from more holistic multimodal transportation policies. This study has brought to light several 

transportation system issues affecting agriculture and rural America: 

• The modal focus of transportation planning and funding 

• Carrier antitrust exemptions 

• Railroad practices that reduce competition 

• Availability of containers and transport equipment 

• Compliance-driven cost increases 

• Trucking hours of service exemptions for agriculture 
517

Changing the Focus of Transportation Planning and Funding 

Because the overall transportation system consists of connected networks, choke points on one 

network caused by inefficiencies in logistics or infrastructure reverberate throughout the 

system. The agricultural supply chain starts at a farm and may end as far away as the other side 

of the globe. It relies on a transportation system that starts with a rural road, continues along 

highways, railways, and waterways to a port and, after an ocean voyage, ends at a consumer’s 

table overseas. Choke points and other impediments to the smooth and efficient working of 

this interlocked transportation system hamper access to the global market for U.S. food and 

agricultural products. 

Federal transportation policy and funding could benefit from a supply-chain perspective that 

includes all modes. The benefits of each mode could be taken into account, as could their 

linked relationship to other modes in servicing production supply chains, and the infrastructure 

of each network funded with consistent, long-term funding sources. 

Reevaluating Carrier Antitrust Exemptions 

Railroads and ocean carriers arguably benefit from exemptions from antitrust laws. Antitrust 

exemptions permit ocean carriers to coordinate service and discuss market conditions and 

rates. If not for the exemptions, collective actions among competing companies that, on 

balance, harm competition could be in violation of the U.S. antitrust laws. Improving 

competition by reevaluating these exemptions could help agricultural shippers by reducing 

transportation costs. 

Ocean Container Carrier Antitrust Exemptions 

Under the Shipping Act, ocean container carriers are given an antitrust exemption that allows 

them to discuss market conditions, share vessels, and establish rate guidelines. This exemption 

weakens the industry’s competitive environment, decreasing the power of competition to 

moderate rates. Container unavailability and some recent volatility in rates have caused 

agricultural shippers to question these exemptions. Further analysis of the effects of antitrust 

exemptions would help determine whether this exemption decreases competitive options for 

agricultural importers and exporters and whether its benefits in preserving service levels 

compensate for any adverse effects on competition. The Federal Maritime Commission (FMC) 

is currently studying the effect of Europe’s 2008 repeal of its block antitrust exemption for 

ocean carrier conferences. 

Railroad Antitrust Exemptions 

Antitrust regulations in the United States require that mergers and acquisitions be reviewed to 

determine if the resulting larger company would increase its market power and that of its 

competitors to a level that could harm consumers. Railroad mergers and acquisitions are 

reviewed and allowed by the Surface Transportation Board (see Chapter 6). 

U.S. antitrust laws prohibit collusive behavior. In a market with as few as two sellers, there may 

be inadequate competition to produce effective rail-to-rail competition. Even with multiple 

carriers competing in a single market, if they collude or tacitly cooperate, prices could be 
518

expected to be higher than when competition is open.409 It is increasingly being argued that 

today’s environment of reduced competition is giving cause for a reexamination of the antitrust 

exemptions for railroads. 

Railroad Practices Reduce Competition 

Some railroad practices impede the efficiency and effectiveness of the U.S. agricultural sector, 

domestically and in global trade. Prior to deregulation, the railroad industry was characterized 

by open interchange and cooperation among railroads in the interests of serving the shipper. 

The rapid consolidation of the industry through mergers has resulted in a decrease in the 

uninhibited interchange of traffic, routing choices, and cooperation among railroads. Some of 

these changes that decrease the competition and efficiency of the rail industry are discussed 

below. 

Railroads Restrict Interchange 

Since railroad consolidation, railroads have closed many gateways, terminated interchange 

agreements with other railroads, and closed lanes. The net result has been decreased rail-torail competition and the elimination of shipper’s rail access to some markets. Railroad policies 

often limit the routes and destinations shippers can select when only one railroad serves their 

origin, even when other lines are connected to the originating railroad. Such limits on 

competition increases rates and reduces the efficiency of the transportation system. 

Rate Challenge Processes are not Cost-Effective 

Agricultural shippers are affected by the less-than-cost-effective means for challenging rail rates 

that are currently provided. In 1996, Congress mandated that cost-effective small-rate-case 

procedures be available to small shippers. Current small-rate appeal procedures, although 

improved, still exclude a great many small agricultural shippers, which could be the reason no 

agricultural shipper has used them to appeal rail rates. When factoring in the probability of 

winning a rate-appeal case, the expected returns for these agricultural shippers would not 

cover their costs in most cases. In addition, most agricultural shippers serve multiple markets, 

making it less cost-effective to appeal rates to individual origin-destination pairs. The inability 

of agricultural shippers to appeal excessive rail rates is borne by farmers, who are paid prices 

for their grain that are net of shipping costs. Excessive rail rates, in turn, reduce the economic 

vitality of nearby rural communities. 

Paper Barriers 

Paper barriers* restrict the markets and rates available to agricultural shippers and producers, 

interfering with their ability to obtain the best price and increasing their transportation costs. 

They restrict the flow of interstate commerce and reduce the benefits arising from the rail 

network as a whole. 

 

*

 Paper barriers are agreements between two railroads that restrict the ability of one party, usually a short line or 

regional railroad, to exchange freight traffic with railroads that compete with the larger railroad. 
519

Antitrust law generally prohibits businesses from selling assets with conditions that restrict the 

buyer as to whom they can do business with, how they conduct business, or how they price 

their services. When exceptions to antitrust law are allowed by the courts, they require 

barriers to be reasonable and as limited as possible, and the public benefits must outweigh the 

anticompetitive effects. Paper barriers lasting into perpetuity are difficult to defend, and the 

penalties for interchanging with competing railroads are often punitive, serving only to restrict 

competition. Many paper barriers are not transparent to shippers, who bear the increased 

costs of this practice. 

Reciprocal Switching 

Many railroads have cancelled reciprocal switching agreements with competing railroads prior 

to railroad mergers, and have cancelled reciprocal switching agreements with shippers. This 

has restricted shipper options and rail-to-rail competition. Switching rates have increased 

dramatically in recent years and now often exceed $500 per carload. Class I railroads 

frequently refuse to provide competitive rates and service to captive short line railroads, which 

provide essential rail service to rural communities that otherwise would have none. Canada 

sets mandatory reciprocal switching rates based upon costs for specific distances, preventing 

railroads from setting rates so high they restrict rail-to-rail competition. 

Consistent Service and Rates to Captive Shippers 

Lack of service at rural intermodal facilities forces agricultural shippers to truck empty 

containers long distances from urban intermodal yards and then haul the loaded containers 

back to those urban yards. In 2006, this practice added nearly $1,100 per 40 foot container to 

the cost of cotton shippers located near Lubbock, Texas. The higher trucking cost due to the 

lack of rail service hinders the ability of farmers to compete in domestic and international 

markets. Agricultural shippers need consistent rail service to rural intermodal facilities. 

Bottleneck Decision 

Bottleneck rates occur because of an STB ruling that restricts the ability of a shipper or receiver 

served by only one railroad to use that rail line serving its plant or facility to reach competitive 

services offered by other railroads. Under the ruling, railroads are not required to quote rates 

on the bottleneck portion of the movement unless the shipper first obtains a contract over the 

alternative route from the non-bottleneck railroad. Because most of the Nation is served by 

railroad duopolies that do not vigorously compete with each other, non-bottleneck railroads 

rarely agree to a contract over the alternative route. 

The effect of the bottleneck ruling has been a loss of competition, an increase in rates, and a 

decrease in service. Economic efficiency also may be decreased; longer routes are used and 

more fuel consumed. One study has estimated the loss in annual efficiency caused by the 

bottleneck ruling at $1.3 billion with an increased consumption of more than 103 million gallons 

of fuel.410 
520

Excessive Fuel Surcharges 

Fuel surcharges are designed to allow railroad firms to recover the costs caused by abnormally 

high fuel prices; normal fuel costs have always been included in the rail rate determination. 

Fuel surcharges, however, have become profit centers for railroads. During September 2008, 

when fuel surcharges peaked, they varied from 46.58 cents per car mile to 87 cents, a 

difference of 87 percent. USDA has shown (in Chapter 7: Rail Rates) that the fuel surcharges 

railroads have collected exceed the additional cost of the fuel by 55 percent. 

Figure 15-9: A locomotive refueling 

Source: ©R. Franz 

Increasing Awareness of Regulatory Costs 

Regulations dealing with homeland security, environmental mitigation, and safety help the 

agricultural sector’s long-term sustainability, but increase operating costs for carriers, adding to 

the transportation costs ultimately borne by agricultural producers. Increased awareness of 

the added costs these programs bring could help with the coordination of regulatory policymaking and raise awareness of the impacts on transportation options for rural America. 

 
521

Port expansion plans face competing residential development issues and environmental 

concerns that limit expansion activities.411 Because of the urban setting of many ports, space to 

expand is limited. Ports on the outskirts of town frequently find that available land is wetlands 

or other protected environment, so environmental concerns make expansion difficult, 

expensive, and time-consuming. 

Recent security regulations such as the Transportation Workers Identification Credential (TWIC) 

and the new Foreign Trade Regulations have added to the cost of doing business for agricultural 

exporters. The TWIC program was formed to be sure persons needing unescorted access to 

maritime facilities were not a threat to those facilities, but has increased the cost for truck 

drivers and port employees. 

The Foreign Trade Regulations that went into effect in 2008 also have added logistical burdens 

to agricultural exporters. The new regulations require carriers to have proof of export 

documentation filing in advance of the vessel sailing. Ocean carriers have interpreted this 

differently, sometimes imposing deadlines that are impossible for agricultural exporters to 

meet because their products are high perishable and the volatility of the international market. 

Hours-of-Service Exemptions for Agriculture 

During the busy planting and harvest seasons, farmers and retail farm suppliers spend 

substantial time on activities other than driving, necessitating the agricultural hours-of-service 

exemption. By law, as determined by each State, the agricultural exemption is limited to an 

area within a 100 air-mile radius from the source of the agricultural commodity or the 

distribution point for the farm supplies during the planting and harvest seasons. Without the 

exemption, farmers and suppliers would be required to go off duty, disrupting critical planting 

and harvest activities, especially for crops subject to volatile weather, crop maturity, and 

market conditions. 

In 2005, Congress clarified the 100 air-mile radius agricultural exemption from the hours of 

service rules, first granted in 1995. It means that drivers transporting an agricultural 

commodity or farm supplies for agricultural purposes are exempt from the maximum driving 

and on-duty time provisions required of long-haul drivers. Because of agriculture’s unique 

needs, exemptions from the hours-of-service rules are highly important. 

Funding the Inland Waterways 

The Nation’s locks and dams are generally reliable, but many of them were built in the 1930s. 

As they have aged, repairs and maintenance have become more frequently necessary and more 

expensive. Repairs and improvements have been authorized by Congress, but funding for new 

construction projects is nearly depleted and there is a growing gap to fund ongoing projects. 

 
522

Barges offer the most economical and environmentally-friendly mode of transportation, 

keeping U.S. agricultural products competitive in the global economy. They carry 12 percent of 

agriculture’s ton-miles. They offer competition to other long-haul modes, keeping rail rates 

competitive. Moving more bulk commodities on barges could free capacity of other 

transportation modes, reducing congestion. A consensus on the best way to tackle inland 

waterway funding issues is needed. 

Conclusions 

The supply chain for agricultural products often depends on multiple modes of transportation, 

each with its own price dynamics and relative fuel efficiencies. In grain transportation, fuel 

costs have the greatest impact on truck and rail rates, followed by ocean and barge. 

Agricultural shippers pay most of the transportation costs and frequently have limited 

transportation options, because they are generally price takers in the transportation market. 

Transportation costs directly affect their incomes and access to destination markets. 

Long-term economic trends indicate growing demand for freight transportation services, the 

largest user of which is the U.S. food and agriculture sector. To keep the U.S. economy 

competitive in the global economy and ensure that the transportation share of domestic food 

prices remains reasonable, transportation planning and investing needs to shift from its modecentric approach to a supply-chain, multimodal, systems approach. Although each mode has its 

own characteristics, they interrelate to form an integrated system. 

Some policies need to address mode-specific issues, such as antitrust exemption status and 

carrier practices related to rates and service; others can be directed at improving cargo flow by 

identifying remedies to network choke points. 

 
Abbrevia

ti ons
523

Abbreviations 

3-R Act Regional Rail Reorganization Act of 1973 

4-R Act Railroad Revitalization and Regulatory Reform Act of 1976 

AAR Association of American Railroads 

AASHTO American Association of State Highway and Transportation Officials 

AES Automated Export System 

AFTC Agricultural and Food Transporters Conference 

AMS Agricultural Marketing Service, USDA 

ASCE American Society of Civil Engineers 

ATA American Trucking Association 

BEA Bureau of Economic Analysis 

BLS Bureau of Labor Statistics 

BN Burlington Northern Railroad 

BNSF Burlington Northern Santa Fe Railway 

BSE Bovine spongiform encephalopathy, popularly called “mad cow 

disease” 

Btu British thermal unit 

CAAP San Pedro Bay Ports Clean Air Action Plan 

CADRS Consumer Affairs and Dispute Resolution Services, FMC 

CAGR Compound annual growth rate 

CAPM Capital Asset Pricing Model, a method of estimating the cost of equity 

CARB California Air Resources Board 

CBO Congressional Budget Office 

CBP Customs and Border Protection 

CCC Commodity Credit Corporation 

CFS Commodity Flow Survey 

CMP Constrained Market Pricing 

CN Canadian National Railways 

COFC Container on flat car, shipping container carried by rail 

Corps U.S. Army Corps of Engineers 

CP Canadian Pacific Railway 

CRD USDA’s Crop Reporting Districts 

CSX CSX Transportation, a Class I railroad 

CVSA Commercial Vehicle Safety Alliance 

CWS Carload Waybill Sample 

DCF Discounted Cash Flow, a method of estimating the cost of equity 

DDGS Dried distillers grains with solubles, a co-product of distilling corn 

ethanol 

DOT U.S. Department of Transportation <www.dot.gov> 

DRIA Draft Regulatory Impact Analysis 

dwt Deadweight tonnage; The total carrying capacity of a ship in metric 

tons. 
524

EBIT Earnings before interest and taxes 

EBITDA Earnings before interest, taxes, depreciation, and amortization 

EIA U.S. Energy Information Administration, DOE <www.eia.doe.gov> 

ERS Economic Research Service, USDA <www.ers.usda.gov> 

EPA U.S. Environment Protection Agency 

EU European Union 

FAO Food and Agriculture Organization of the United Nations 

<http://www.fao.org> 

FGIS Federal Grain Inspection Service, GIPSA, USDA 

FAF Freight Analysis Framework, a DOT database 

FAS Foreign Agriculture Service, USDA <www.fas.usda.gov> 

FATUS Foreign Agricultural Trade of the United States 

<http://www.fas.usda.gov/ustrade/USTExFatus.asp?QI> 

FCS Freight Commodities Statistics 

FHWA Federal Highway Administration, DOT 

FIPS Federal Information Processing Standards, geographic region used by 

Commerce’s NIST 

FEU Forty-foot equivalent unit, a standard size of shipping container. 

Equivalent to two TEUs 

FFV Flex Fuel Vehicles 

FMC Federal Maritime Commission 

FRA Federal Railway Administration, DOT 

FTR Foreign Trade Regulations 

FY Fiscal year 

GAO Government Accountability Office 

GDP Gross Domestic Product 

GIPSA Grain Inspection, Packers and Stockyards Administration, USDA 

GIS Geographic Information System; map-making software 

HHI Herfindahl-Hirschman Indices, an economic analysis tool 

HMTF Harbor Maintenance Trust Fund, 

hp Horsepower 

ICC Interstate Commerce Commission 

ICCTA The Interstate Commerce Commission Termination Act of 1995 

ILUC Indirect Land Use Change 

IWUB Inland Waterways Users Board 

IWTF Inland Waterways Trust Fund 

KCPL Kansas City Power & Light 

KCS Kansas City Southern Railway, a Class I railroad 

kwh Kilowatt hours 

LCFS Low Carbon Fuel Standard 

LMI Lerner Markup Indexes 

M&NA Missouri & Northern Arkansas Railroad 

MARAD Maritime Administration, DOT 

mdwt Million deadweight tons 
525

mgy million gallons per year 

mmt Million metric tons 

MSDCF Multi-stage discounted cash flow model, a method of estimating the 

cost of equity 

NAFTA North American Free Trade Agreement 

NASS National Agricultural Statistics Service, USDA 

<http://www.nass.usda.gov> 

NCEP National Commission on Energy Policy 

NESP Navigation and Ecosystem Sustainability Program 

NIST National Institute of Standards and Technology, Commerce 

NFDM Non-fat dry milk 

NGFA National Grain and Feed Association 

NOx Nitrogen Oxides. Gases produced during combustion of fossil fuels in 

motor vehicles, power plants, industrial furnaces, and other sources. 

NOx is a pre-cursor to acid rain and ground-level ozone. 

NPRM Notice of Proposed Rulemaking 

NRECA National Rural Electric Cooperative Association 

NS Norfolk Southern, a Class I railroad 

OASDI Old-Age and Survivors Insurance and Federal Disability Insurance Trust 

Funds 

ORNL Oak Ridge National Laboratories 

OSRA Ocean Shipping Reform Act of 1998 

OTI Ocean transportation intermediary, also known as freight forwarders or 

non-vessel operating common carriers 

PCI per capita income 

PIERS Port Import Export Reporting Service <www.piers.com> 

PNW Pacific Northwest 

PRB Powder River Basin Region, a coal-producing region of Wyoming and 

Montana 

RBOB Reformulated gasoline blendstock for oxygenate blending, unfinished 

gasoline that will be blended with ethanol to make finished gasoline 

RFA Renewable Fuels Association 

RIA Railroad Industry Agreement 

RD Rural Development, USDA 

ROI Return on investment 

RO-RO Roll on-Roll off. A type of ship designed for wheeled cargo that is 

driven on at the origin and off at the destination. 

RPM AAR’s Railroad Performance Measures 

RPTM Revenue per ton-mile, a measure of the cost to transport commodities 

RRIF Railroad Rehabilitation and Improvement Financing, a Federal loan 

program 

RSAM Revenue Shortfall Allocation Method, an STB test used in rate disputes 

R/VC ratio Revenue-to-variable cost, used by the STB 
526

SAC Stand-Alone Cost, a method used to estimate the fair cost of running a 

railroad in rate disputes 

SAFETEA-LU Safe, Accountable, Flexible, Efficient Transportation Equity Act: A 

Legacy for Users, Public Law 109-59 

SARR Stand-Alone Cost Railroad, a hypothetical railroad used to estimate 

shipping costs in railroad rate disputes 

Soo line U.S. subsidiary of Canadian Pacific railroad 

Staggers Act Staggers Rail Act of 1980 

STB Surface Transportation Board. A regulatory agency charged with 

resolving railroad rate and service disputes and reviewing proposed 

railroad mergers. The STB is decisionally independent, but affiliated 

with the Department of Transportation. <www.stb.dot.gov>, The STB 

replaced the Interstate Commerce Commission in 1997. 

STCC code Standard Transportation Commodity Code. A Standard numerical code 

used by the railroads and motor carrier to classify products. 

TEU Twenty-foot equivalent unit, a standard size of shipping container used 

in describing container ship capacity. 

TOFC Trailer on flat car, truck trailers transported on trains 

TRG Transportation Research Group, WSU 

TMP Transportation and Marketing Programs, AMS, USDA 

TSD Transportation Services Division, AMS, TMP, USDA 

TTI Texas Transportation Institute 

UMR-IW Upper Mississippi River and Illinois Waterway 

UP Union Pacific Railroad 

URCS Uniform Regulatory Costing System, an STB accounting method. 

USDA U.S. Department of Agriculture <www.usda.gov> 

USPPI U.S. Principal Party of Interest 

USWA United States Warehouse Act 

VEETC Volumetric Ethanol Excise Tax Credit 

Vloc Very large ore carrier; a bulk cargo ship with a capacity of over 200,000 

deadweight tons 

WRDA 86 Water Resource Development Act of 1986 

WFB Waterways Freight Bureau 

WRDA 2007 Water Resource Development Act of 2007 

WSU Washington State University 

WTO World Trade Organization <www.wto.org> 
Glossary
527

Glossary 

Affreightment A Contract of Affreightment is an agreement between a ship owner and a 

shipper to carry cargo at a set rate, within a set time period, without the 

ship owner obligating a specific vessel. 

Aggregate 

capacity 

The optimum traffic a road or rail line can bear without overcrowding. 

Average cost The average total cost of providing transportation services per unit of 

freight. 

Average revenue 

per ton-mile 

Average freight revenue for hauling 1 ton 1 mile. 

Backhaul Cargo carried after the previous load was discharged, to earn revenue to 

cover costs of repositioning trucks, containers, barges, and vessels. 

Backhaul cargo is often defined by ocean container carriers as the portion of 

a round trip that brings the least revenue. 

Basis The difference between the current cash price of a commodity and its 

futures price. The basis accounts for the difference in the supply and 

demand relationships in the local market relative to the futures market. 

Biofuel A fuel made from biological matter, such as ethanol or biodiesel. Different 

than fossil fuels, such as gasoline and diesel. 

Bio-refinery A plant that makes fuel out of agricultural products. Ethanol plants distill 

ethanol from corn, and biodiesel plants make biodiesel fuel from soybean 

oil. 

Bottleneck 

segment 

A segment of a rail route controlled by a single railroad, in situations where 

two railroads compete for the rest of the route. 

Bottleneck rates Abnormally high rates charged for bottleneck segments, designed to force 

the entire haul to the controlling railroad’s line and eliminate competition 

on that route. 

Break-bulk Heterogeneous cargo in various forms: pallets, barrels, bags, etc. All cargo 

that is not in bulk or containers. 

Bulk cargo Cargo not shipped in packages or containers, but shipped loose in the hold 

of a ship. Grain, coal, and sulfur are usually bulk cargo. 

Brewer’s rice Broken grains of rice, a by-product of rice milling. Primarily sold as a pet or 

dairy feed ingredient. 

Capesize vessel A cargo vessel with a capacity of 110,000–200,000 dwt. 
528

Captive shippers Rail customers who have no practical shipping alternatives to a single 

railroad 

Carload 

shipments 

Rail shipments less than 27 railcars. 

Cattle operations Cattle feeding, slaughtering, and packing operations, generally near sources 

of grain in the Midwest. Also called feed lots. Cattle are raised in cow-calf 

operations to be finished in cattle operations. 

Chassis 

(shipping) 

A wheeled frame to which a shipping container can be locked for storage or 

movement. (Plural chassis) 

Class I railroads The largest railroads, those having annual revenues in 2008 of $359.6 

million (adjusted annually for inflation) or more. Class II and III are smaller. 

Seven United States and Canadian Class I railroads operate in the United 

States. 

Common carrier 

obligation 

In public law, and in the ICCTA, railroads and other modes of transportation 

have an obligation to serve the public at reasonable rates and without 

discrimination. They cannot refuse to carry some goods or refuse service to 

some members of the public. 

Common cost A cost that cannot be directly assigned to particular segments of the 

business but is incurred for the business as a whole. 

Container 

(shipping) 

A steel box, 8 feet wide by either 8 feet 6 inches or 9 feet 6 inches high, and 

either 20, 40, or 45 feet long, used for transporting dry or refrigerated 

goods. Shipping containers can be carried by—and transferred between—

trucks, railcars, barges, and ships. 

Cooperative An organization of farmers formed to buy supplies or market products 

collectively. An agricultural company owned by its farmer members. 

Cost-of-service 

pricing 

Pricing based upon the average total cost per unit of providing the 

transportation service. 

Cow-calf 

operations 

Cattle-raising operations that produce calves to be finished in feed lots 

Demurrage The charge levied when a shipment is not loaded or unloaded within the 

allowed time. 

Differential 

pricing 

Pricing system in which rates vary with customer, volume, location, etc., 

often also referred to as differential pricing. 

Directional 

running 

An agreement between railroads with parallel rail lines, allowing shared use 

of one line in each direction. 
529

Distiller grains A by-product of making ethanol from corn. Sold for animal feed, they 

enhance the profitability of ethanol plants. 

Ethanol A renewable fuel produced from agricultural feedstocks such as corn and 

other grains in the United States and sugar cane in Brazil. 

Fallowing The practice of allowing a field to remain unplanted for one or more seasons 

to regain nutrients. 

Feed Food for livestock. 

Feeder ship A relatively small container ship, usually with a capacity less than 1,000 TEU, 

that moves containers between regional ports to gain access to a larger port 

or to serve a smaller port region. 

Feedgrains Grains used for animal feed, also known as coarse grains. 

Feedstocks Raw material for industry. For example, corn is the major feedstock for 

ethanol production in the United States. 

Fixed costs Costs of running an operation that do not depend on volume of business, as 

opposed to variable costs, which vary with the volume of business done. 

Gateway A major rail interchange point. 

GDP price 

deflator 

An economic measure used to account for inflation. The ratio of the sum of 

a country’s output for a given year at current prices (nominal GDP) divided 

by the GDP in a selected base year. The GDP deflator shows how much a 

change in the nominal GDP relies upon changes in prices. Also known as the 

"GDP implicit price deflator." 

Grain elevator A warehouse facility that uses vertical conveyors to elevate grain, where 

grain is stored before being marketed. Grain is moved from elevators into 

trucks, rail cars, barges, or ships by gravity flow. Elevators are usually 

owned privately or by an agricultural cooperative. The term “elevator” 

often is used to refer to any grain storage facility, even if the grain is not 

elevated. 

• County elevators are where farmers deliver grain. 

• Terminal elevators are major transshipment facilities. 

• Export elevators are at port facilities. 

Handymax vessel A cargo vessel with a capacity of 40,000–60,000 dwt. 

Handysize vessel A bulk cargo vessel with a capacity of 10,000–40,000 dwt, or a container 

vessel with a capacity of 1,000–1,999 TEUs. 

Headhaul Cargo that provides enough revenue to pay for the initial transportation to 

the buyer and the return transportation of the empty container. In contrast, 

backhaul cargo is unable to pay for both legs of the transportation. 
530

Horticultural 

crops 

In this report, used to refer to fruit, vegetable, and nut crops 

Inelastic demand Transportation demand is relatively unresponsive to changes in price. 

Inland 

waterways 

All waterways within the contiguous 48 States and Alaska. 

Intermediate 

vessel 

Container ship with a capacity of 2,000–2,999 TEUs. 

Intermodal Shipping freight in containers, which may be moved from one mode of 

transport to another. 

Joint-line rate A tariff rate over a route involving two or more rail carriers. 

Landed cost The total cost of goods to a buyer, including the cost of transportation 

Line-haul 

railroads 

Railroads that offer point-to-point service. Local line haul railroads have less 

than 350 miles of track. 

Liner vessels Container ships that provide service with fixed schedules and routes. 

Lock and dam A mechanism for moving vessels past obstructions or fast water in a river or 

canal. It consists of a dam, which controls the flow of water, and one or 

more locks to raise or lower vessels past the obstruction. 

Lock chamber A section of a canal that can be closed to control the water level, raising or 

lowering vessels. 

Maintenance of 

way 

Maintenance of railroad rights-of-way. (Often abbreviated as M of Way, 

MOW, or MW) 

Marginal cost The cost to produce one additional unit of output. 

Market power The extent to which a firm can dictate prices and terms of service. 

Merger premium The price of an acquisition in excess of its net book value 

Milled rice Rice from which the husk and bran has been removed. Also called white 

rice. 

Mode, modal A form of transportation, including truck, rail, barge, or ocean vessel. 

Multimodal Using multiple modes of transportation. 

Newbuilding Vessels newly built or under construction, 

Nominal GDP Gross Domestic Product not adjusted for inflation. Expressed as an amount 

in current dollars, i.e. 2008 nominal GDP was $10 trillion. 

Oilseed Seeds or legumes from which oil is pressed, such as soybean, canola, and 

cottonseed 
531

Orderbook Scheduled delivery of newly built vessels. 

Packet Early river barge. 

Panamax vessel A cargo vessel with a capacity of 60,000–80,000 dwt, or a container ship 

with a capacity of 3,000–4,999 TEUs. 

Paper barrier A restriction on a railroad that buys or leases lines from another railroad. 

The selling or leasing contract restricts the rights of the buying railroad to 

interchange traffic with other than the selling railroad. Also called an 

interchange commitment. 

Post-Panamax 

vessel 

A cargo vessel with a capacity of 80,000—110,000 dwt, or a container ship 

with a capacity of 5,000–7,999 TEUs. These vessels are too large to fit 

through the Panama Canal at its current width and depth. 

Price maker Sellers in non-competitive markets who have the market power to set prices 

because there is little competition. 

Price taker A buyer in highly competitive markets that has no market power to 

influence prices, so must accept what the market offers. 

Also, a seller in a highly competitive market that can increase or decrease its 

production or services offered without a significant impact on the market. 

Pulse crops Leguminous vegetables: beans, peas, chick peas, black-eyed peas, and 

lentils. 

Rail-to-trails Abandoned rail lines converted by STB to biking and hiking trails for public 

use. 

Rationalization 

(railroads) 

Making railroads more profitable by abandoning unprofitable (less-used) 

lines. 

Reciprocal 

switching 

agreement 

A railroad gives shippers access to a second rail carrier in return for the 

second rail carrier giving the first railroad access to some of its shippers. 

Real GDP Gross Domestic Product adjusted for inflation. Expressed as an amount of 

GDP in the dollars of a base year, i.e. 2000 Real GDP was $6.5 trillion in 2008 

Dollars. 

Regional 

railroads 

Railroads with more than 350 miles of track, but which are too small to be 

classified as Class I. 

Roll on-Roll off A type of ship designed for wheeled cargo that is driven on at the origin and 

off at the destination. Also referred to as RO-RO. 
532

Rough rice Unprocessed rice. The grains are covered with a tough husk. Rice is not 

eaten in this form, but requires further milling to remove the husk. Also 

called paddy rice. Brown rice has had the husk removed, but retains the 

bran. White rice has had the bran removed. 

Semi-trailer A trailer without a front axle; the weight of the front is supported by the 

tractor that pulls it. The combination of tractor and semi-trailer is 

colloquially called a “semi.” It is the largest and most common type of truck 

transporting cargo on the highway. 

Shuttle train A dedicated train, usually of 75 or 100 cars, that shuttles between a single 

origin and a single destination. 

Soybean crush Soybeans destined for milling into oil and meal. 

Soymeal Also called soybean meal, a byproduct of soybean oil extraction. A highprotein ingredient for animal feeds. 

Stand-Alone Cost A method used to estimate the fair cost of running a railroad in rate 

disputes 

Switching rates Rates charged by a railroad to move its cars to another railroad’s line. 

Tariff (ocean 

shipping) 

A document published by the carrier setting forth rules, rates, and charges 

for the movement of goods. 

Tariff (barges) Barge rates are expressed as a percent of tariff. Tariff rates were originally 

set by the Bulk Grain and Grain Products Freight Tariff No. 7 in 1976. 

Although that tariff is no longer applicable, the industry uses it as a 

benchmark to describe rates. 

Tariff rates 

(railroads) 

Non-contracted standard shipping rates, as opposed to contracted rates, 

which are individually negotiated. 

Through route A route that, from origin to destination, involves more than one rail carrier. 

Ton-mile A ton of freight transported one mile. A measure of quantities plus the 

distance they are carried. 

Tornqvist index An economic index that measures the change in prices in categories and 

assigns a percentage weight to each category based on its share of total 

revenues. The total index is essentially the weighted average of price 

changes within the various categories. 

Tow boat Self-propelled river vessel that moves barges. Often referred to as a 

pushboat. Tow boats are generally designed for shallow water operations 

and push groups of barges (see tow of barges). 
533

Tow of barges A group of barges tied together. From 15 to 40 barges are tied together for 

transport by a single tow boat. A barge can carry 1,500-1,800 tons of grain; 

a tow can transport as much as 72,000 tons. 

Tramp vessels Ships that are contracted by shippers as needed, rather than running on a 

regular schedule. 

Transload To move cargo from one method of transportation to another, such as from 

a railcar into a container or trailer. A transload facility is a transfer point 

with equipment for making such a transfer. 

Treble damages The ability of a court to triple the amount of damages, often used in 

antitrust cases as a penalty if the action was found to be willful. 

Unit trains Trains in which all cars (more than 50 cars) are shipped from the same origin 

to the same destination, without being split up en route. 

Variable costs Costs of running an operation that vary with the volume of business done. 

As opposed to fixed costs, which do not depend on volume. 

 
534

 
Index
535

Index

AASHTO study 307 

agricultural commodities 23 

agriculture 

importance to U.S. economy 3 

need for flexible transportation 367 

need for transportation 1 

Alameda Corridor 424 

funding requirements 458 

antitrust exemptions 

ocean carriers 463 

railroads 464 

apples 78 

Army Corps of Engineers See Corps 

barges 6, 337, See also Inland waterways, 

See also locks and dams 

cost of delays 350 

demurrage charges 342 

description 341 

history 7, 336 

industry structure 7, 339 

number of barges 340 

rates 341 

tariff rates 342 

traffic 337 

historical 351 

Barges 

Tariff 477 

beef 55 

exports 57 

biodiesel 118 

biofuels 118, See also ethanol 

demand uncertainty 133 

expansion of demand 131 

projected consumption 123 

BNSF 288 

terminal dwell times 294 

Booz/Allen study 308 

bottleneck rates See railroads,bottleneck 

rates 

bridges 

maintenance 377 

bulk vessels 396 

sizes 397 

C-114 covered hoppers 267 

Cambridge Systematics 279, 304 

captive shippers 5, 322, See also paper 

barriers 

charters See shipping charters 

Christensen Associates 279 

pricing model 158 

Christensen study 310 

Clean Trucks Program 426 

coal 137 

demand 142 

production 138 

western movement of 141 

transportation 152 

transportation mode 152 

use for electricity 142 

Columbia River 337 

Commodity Credit Corporation (CCC) 27 

Commodity Flow Survey 18 

competition 180 

Compound annual growth rate (CAGR) 26 

containers 400 

availability 11, 395, 431, 457 

effect on exporters 433 

shortages 436 

cooperatives, electric power 150 

corn 29 

exports 33 

modal shares 31 

supply and demand 29 

transportation 30 

Corps 336, 337, 347, 351 

Corps of Engineers See Corps 

Coumbia-Snake River System 356 

dairy 64 

exports 66 

regional changes 64 

supply and demand 66 

DDGS 127, 130 
536

demurrage charges 

barges 342 

density, railroad 6 

disruptions to service 455 

economy 

recent changes 15 

EISA 117, 132 

electricity 144 

consumption of coal 142 

providers 148 

elevators 27 

storage capacity 28 

environmental regulations 

cost of 379 

effect on trucking 379 

environmentat issues 

cost of compliance 466 

ethanol 117, See also biofuels 

and crude oil imports 118 

blend wall 134 

cellulosic 122 

distribution 118 

transportation status 128 

exemption 

hours-of-service requirement 466 

exports 

filing requirements 436, 446 

fees 

per-container 424, 462 

fertilizers 90 

consumption 94 

international trade 97 

outlook 100 

price 91 

production 93 

transportation 91, 99 

trends 91, 92 

FMC grievance process 439 

Freight Analysis Framework Study 307 

freight rates 

affected by fuel costs 449 

ocean bulk and container 453 

volatility 451 

fruit and vegetables 69 

exports 72 

production by State 70 

transportation 74 

fruits and vegetables 

trends in consumption 87 

fuel 

surcharges 239 

fuel costs 

affect on freight rates 449 

funding requirements 457 

highways 461 

inland waterways 460 

ports 462 

railroads 459 

public funding of 460 

grains 

railroad rates for 233 

grains and oilseeds 23 

exports 24 

production outlook 24 

transportation 25 

Hepburn Act 177 

Herfindahl-Hirschman Index 192 

analysis of grain shipments 194 

calculating 192 

Highway Trust Fund 11 

highways 11, 15, See also roads 

capacity 280 

funding of 461 

Hurricane Katrina, barge traffic disruption

 346 

hurricanes 

effect on transportation 455 

ICC 177, 223, 322 

ICC Act 223 

ICCTA 322 

Infrastructure Cargo Fee 427 

Inland Waterway Revenue Act of 1978 8 

inland waterways 337, See also barges 

funding of 358 

funding of 460 

investment needs 359 

Inland Waterways Trust Fund 359 

intermodal facilities 407 
537

rural 408 

intermodal shipping 456 

Interstate Commerce Commission See ICC 

Interstate Commerce Commission 

Termination Act of 1995 178 

inverse HHI See Herfindahl-Hirschman Index 

lettuce 81 

liner vessels 396 

livestock 47 

export outlook 52 

international trade 51 

projections 51 

transportation 49 

locks and dams 8, 336, 349 

locomotive availability 302 

MARAD 394 

Maritime Administration See MARAD 

maritime transportation See shipping 

meat consumption, trends 50 

merger premiums 

effect on rail rates 242 

Mississippi River 336 

Missouri River 354 

reservoirs 354 

traffic 355 

modal share 18, 25 

MTBE 117 

multimodal 

capacity and service 

history 453 

multimodal issues 447 

freight rates and 448 

fuel efficiency and 449 

Navigation and Ecosystem Sustainability 

Program 351 

Norbridge study 280 

Ocean Shipping Reform Act of 1998 405 

ocean transportation See shipping 

ocean transportation system 

definition 394 

Olmstead Locks and Dam 358 

Omnibus Appropriations Act of 2009 377 

Packets 336 

Panama Canal 

expansion of 422 

paper barriers See railroads, paper barriers, 

See railroads, paper barriers 

PierPASS program 425 

policy issues 463 

railroads 464 

pork 58 

exports 60 

supply and demand 59 

ports 411 

bulk 414 

capacity 394 

capacity constraints 419 

environmental issues 420 

container 413 

expansion plans 441 

fees 420, 424, 425, 427 

funding 421 

funding of 462 

limitations to expansion 395 

Los Angeles/Long Beach 421 

Los Angeles/LongBeach 423 

major U.S. grain 416 

Mississippi Gulf 418 

Texas Gulf 419 

traffic 412 

use by agriculture 412 

potatoes 84 

poultry 61 

exports 63 

supply and demand 61 

profile 

grains and oilseeds 23 

profiles 

apples 78 

beef 55 

corn 29 

dairy 64 

fertilizers 90 

fruit and vegetables 69 

lettuce 81 

livestock 47 

pork 58 

potatoes 84 
538

poultry 61 

rice 43 

soybeans 34 

wheat 39 

R/VC ratios 196 

railcar ownership 232, 300 

railroads 3 

agriculture, importance to 174 

antitrust exemptions 464 

anti-trust immunity ix, 186 

as a decreasing-cost industry 323 

bottleneck rates 169, 249 

capacity 279 

AASHTO study 307 

Booz/Allen study 308 

Cambridge Systematics study 310 

Christensen study 310 

Freight Analysis Framework study 307 

capital expenditures 303, See also

railroads, investments 

captive shippers See captive shippers 

Class I railroads 16 

competition 174 

and collusive behavior 185 

and distance to barges 202 

effective 181 

geographic 185 

intermodal 181 

rail-to-rail 182 

with barges 202 

complaints 256, 274 

concentration of 188 

congestion 283 

contracts 325 

cost transfer to shippers 235 

costs 246 

crew shortages 284 

demand 280, 307 

by agriculture 282 

demurrage charges 257 

differential pricing 322 

fuel surcharges 239 

funding requirements of 459 

Government promotion of 176 

history of regulation 223 

investment 306, 311, See also railroads, 

capital expenditures 

sources 317 

lane closures 264 

line abandonment 268 

market dominance 325 

mergers 

problems with 284 

paper barriers 269, See also captive 

shippers 

coal 167 

performance 5, 255 

profitability 

measures of 245 

railcar fleet size 301 

railcar size 267 

rate appeals 321, 335 

Coal Rate Guidelines 326 

Cost of Capital Models 329 

Simplified Guidelines 329 

Simplified Procedures See Simplified 

Guidelines 

rates 5, 222 

appeals 224 

contract and tariff 203 

effect of size and distance 233 

effects of merger premiums 242 

for agriculture 229, 252 

for coal 155 

importance of reasonable 222 

recent 225 

Stand-Alone Cost test See SAC 

rationalization 5, 268 

regulation 177 

deregulation 179 

regulatory history 4, 176, 321 

revenue 252 

adequacy 244 

compared to costs 248 

service 255, 315 

capacity 163 

complaints 166 

disruptions 256 
539

for coal 159 

on-time delivery 164, 257 

reliability 162 

terminal dwell times 292 

train speed 160, 285 

short line 5 

shuttle trains 265 

track availability 298 

regulations 

effect on service and rates 454 

rice 43 

exports 46 

supply and demand 43 

transporation 44 

rivers 

navigation 336 

road damage by trucks 266 

roads See also highways 

investment needs 378 

maintainence 377 

funding 378 

rural economy 103 

rural manufacturing 109 

rural populations 

compared to metropolitan 103 

nature of 102 

rural Quality of Life Index 109, 116 

rural vitality 

freight transportation and 113 

SAC 326, 328 

salmon 356 

San Pedro Bay Ports Clean Air Action Plan

 423 

security 

cost of compliance 466 

ship construction 403 

shipping 9, 394 

anti-trust exemption 405 

backhaul cargo 408 

bulk shipping 396 

rates 428 

bulk vessels 9 

capacity 394 

charters 396, 406 

container shipping 400 

competition 404 

fleet capacity 402 

rates 430 

headhaul cargo 408 

industry structure 9, 395 

rates 428, 435 

grievance process 407 

regulation 10, 404 

tariff rates 405 

vessel registration 398 

shipping containers See containers 

ships 395 

shuttle trains 265 

Simplified SAC 330, See also SAC 

soybeans 34 

exports 38 

modal share 36 

transportation characteristics 35 

Staggers Act 222, 321 

Staggers Rail Act of 1980 178 

Stand-Alone Cost test See SAC 

STB 178, 185, 186, 244, 249, 321, 322, 324 

and deregulation 222 

jurisdiction 324 

Surface Transportation Authorization Act of 

2009 378, 392 

Surface Transportation Board See STB 

talking agreements 405 

tariff 

shipping 401 

tariff rates 

barges 342 

Tariff, barges 477 

Three Benchmark test 330, 332 

trade growth, United States 307 

tramp vessels 396 

transload facilities 408 

transporation data 458, 467 

transportation 

agriculture's need for 1 

Transportation Act of 1920 177 

transportation demand 458 

transportation network 15 
540

Transportation Worker Identification 

Credential See TWIC 

truck rates 

correlation with fuel cost 450 

trucking 364 

agricultural exemptions 368 

capacity 366 

commercial drivers license 374 

minimum age 376 

requirements 390 

competitiveness 365 

deregulation 381 

driver availability 366 

driver training 374 

environmental regulations 379 

flexibility 367 

funding 13 

hours of service requirement 368, 369, 

374 

importance to agriculture 364 

industry structure 12, 365, 366 

loading and unloading 375 

rates 381 

fruit and vegetables 382 

grain 384 

safety regulations 373 

trucks 11 

chassis 376 

costs 365 

farm-owned 387 

fuel costs 365, 382 

hours-of-service requirement 466 

operating costs 12 

size and weight limits 370 

TWIC 376 

cost of compliance 466 

UMR-IW 347 

agricultural traffic 353 

wildlife protection areas 350 

Uniform Grain and Rice Storage Agreement 

(UGRSA) 28 

unit trains 265 

United States Warehouse Act (USWA) 27 

UP 288 

terminal dwell times 295 

Upper Mississippi River and Illinois 

Waterway See UMR-IW 

vessels 

sizes 10 

waterways 17 

wheat 39 

exports 43 

modal share 41 

supply and demand 39 

transportation 40 
Notes
541

Notes 

 

1

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

Analysis, 2003-07, unpublished. 2

 U.S. Department of Agriculture, Economic Research Service, Foreign Agricultural Service, Outlook for U.S. 

Agricultural Trade, February 18, 2010. 3

 Data Source: U.S. Department of Agriculture, Economic Research Service, 

<http://www.ers.usda.gov/Data/Wheat/YBtable05.asp>; 

<http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1290>; 

<http://www.ers.usda.gov/Data/FeedGrains/Table.asp?t=04> 4

 Data Source: U.S. Department of Agriculture, Grain Inspection, Packers and Stockyards Administration. 5

 Data Sources: Journal of Commerce, Port Import Export Reporting Service; and U.S. Department of Commerce, 

U.S. Census Bureau, Foreign Trade Statistics. 6

 Data Source: Journal of Commerce, Port Import Export Reporting Service. 

7

 U.S. Department of Commerce, U.S. Census Bureau, Foreign Trade Statistics. 

8

 U.S. Department of Transportation, Maritime Administration, U.S. Intermodal Freight System Overview, Report 

to Congress on the Performance of Ports and the Intermodal System, June 2005. 9

 Drewry Shipping Consultants, Ltd., Shipping Insight, April 2009. 10 Levits, Jennifer, Tamara Audi, and John W/ Miller, “Exports Revival Threatened By Shipping Bottlenecks,” The 

Wall Street Journal, March 12, 2010. 11 American Trucking Associations, Standard Trucking and Transportation Statistics, Volume 16, Issue 1, January 

2010. 12 American Trucking Associations, American Trucking Trends 2009-2010, 2009. 13 USDA, 2007 Census of Agriculture. <http://www.agcensus.usda.gov/>. (Does not account for inflation.) 14 Association of American Railroads, Class I Railroad Statistics. 

<http://www.aar.org/~/media/AAR/Industry%20Info/Statistics.ashx> 15 <http://www.ers.usda.gov/Briefing/Baseline/crops.htm> 16 World Perspectives, Inc. 

17 NASS. 

18 ERS. Rice Backgrounder. December 2006. 19 STB. 2006 Waybill Sample. 

20 FAS. FATUS Export Trade Statistics. 

21 ERS. <http://www.ers.usda.gov/Briefing/baseline/livestock.htm> 22 ERS. <http://www.ers.usda.gov/Briefing/Cattle/Background.htm> 

23 Jones, K. and M. Shane. Factors Shaping Expanding U.S. Red Meat Trade. ERS. February 2009. 24 Livestock and Poultry: World Markets and Trade. FAS. April 2009. 25 PIERS, 2007. 

26 Briefing Room, Hogs. ERS. 27 ERS. The Changing Economics of U.S. Hog Production / ERR-52, October 2007. 28 Jones, K. and M. Shane. Factors Shaping Expanding U.S. Red Meat Trade. ERS. February 2009. 29 PIERS, 2007. 

30 Ibid. 31 ERS. Profits, Costs, and the Changing Structure of Dairy Farming / ERR-47 32 ERS. Dairy Backgrounder, July 2006. 33 Agricultural Baseline Projections: U.S. Livestock, 2009-2018. 

 <http://www.ers.usda.gov/Briefing/Baseline/livestock.htm> 34 Fruit and Vegetable Yearbook, 2007, Economic Research Service 

35 ERS. Fruit and Tree Nut Yearbook Summary, 2008. 36 ERS. Fruit and Vegetable Backgrounder. 

<http://www.ers.usda.gov/publications/vgs/apr06/vgs31301/vgs31301.pdf > 
542

 37 Ibid. 38 ERS. 

39 ERS. Vegetable Yearbook Summary, 2008. 40 ERS. Fruit and Vegetable Backgrounder 41 PIERS, 2007. 

42 ERS. Farm Income and Costs: 2009 Farm Sector Income Forecast 43 ERS. Agricultural Baseline Projections: Baseline Presentation, 2009-2018. 

http://www.ers.usda.gov/briefing/Baseline/present2009.htm 44 ERS. Recent Volatility in U.S. Fertilizer Prices, Amber Waves, March 2009. 45 USDA comments before the Surface Transportation Board, July 22, 2008. 46 Fertilizer Institute. U.S. Fertilizer Production and Mining Facilities at a Glance, 2009. 47 Ibid. 48 ERS. Census of Agriculture, 2007. 49 NASS, Statistics by State http://www.nass.usda.gov/Statistics_by_State 50 Foreign Trade Division, U.S. Census Bureau. Commodity Code H.S. – 31 Fertilizers 51 FAO. Current World Fertilizer Trends and Outlook 2007/2008, Food and Agriculture Organization of the United 

Nations. <ftp://ftp.fao.org/agl/agll/docs/cwfto12.pdf> 52 International Fertilizer Industry Association. Medium Term Outlook for Global Fertilizer Demand 2008-2012, 

Summary Report, 2008. 53 U.S. Census, 2000. <http://censtats.census.gov/pub/Profiles.shtml>. 54 Bureau of Labor Statistics, 2008. <www.bls.gov/oes/2000/oes_nat.htm> 55 Wilbur Smith Associates, July 1998, Appalachian Development Studies, prepared for the Appalachian Regional 

Commission. 56 ERS, 1995 data. <www.ers.usda.gov>. 57 Energy Information Administration, U.S. Department of Energy. 

<http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbbl_a.htm>; (42 gallons/barrel; 

approximately 19.5 gallons of gasoline can be produced from one barrel of crude oil, gross energy content of 

3.539 million Btu per barrel for ethanol and 5.253 million Btu of unoxygenated gasoline). 58 Renewable Fuel Standard Program (RFS2) Final Regulatory Impact Analysis (FRIA), Section 1.3 Feedstock 

Harvesting, Transportation and Storage; Section 1.6 Biofuel Distribution, and Section 4.2 Renewable Fuel 

Distribution Costs. <http://www.epa.gov/otaq/renewablefuels/420r10006.pdf (PDF)>. 59 OPIS, Inc. Petroleum Terminal Encyclopedia, 2009. 

60 RFA, April 2009. 

61 EPA, FRIA, Section 1.3.1.3 Agricultural Residue Harvest, page 82. 

62 EPA, FRIA, Table 1.8-13, page 275. 

63 EPA, FRIA, Section 1.3 

64 Ibid, pp. 217 and 576. 65 EPA, FRIA, Table 4.2-1, page 574. 

66 EPA, FRIA, p. 573. 

67 Ibid, p. 219. 68 U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2008 (Report No.: 

DOE/EIA-0383[2008]), Table 1. 69 U.S. Department of Energy, Energy Information Administration, Electric Power Annual 2007 (DOE/EIA0348(2007), <http://www.eia.doe.gov/cneaf/electricity/epa/epa_sum.html>. 70 Waybill Sample Data, 1987-2006. 

71 U.S. Department of Transportation, Surface Transportation Board Public Hearing, Rail Capacity And 

Infrastructure Requirements, STB Ex Parte No. 671, April 11, 2007. 72 Laurits R. Christensen Associates, Inc. A Study of Competition in the U.S. Freight Railroad Industry and Analysis 

of Proposals that Might Enhance Competition, Executive Summary of Final Report Prepared for Surface 

Transportation Board. Madison, WI. November 2008, p 12-2. 
543

 73 U.S. Department of Energy, Energy Information Administration, Form EIA-923, "Power Plant Operations Report" 

and predecessor form(s) including Energy Information Administration, Form EIA-906, "Power Plant Report;" and 

Form EIA-920, "Combined Heat and Power Plant Report." 74 Ibid. 75 U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2008 (Report No.: 

DOE/EIA-0383[2008]). 76 National Rural Electric Cooperative Association (NRECA), <http://www.nreca.org/> 77 Source: 2005 EIA, RUS Data, CFC; NRECA Strategic Analysis. Last Updated: February 2008, 

<http://www.nreca.org/AboutUs/Co-op101/CooperativeFacts.htm>. 78 Laurits Christensen Associates, 2008 

79 Ibid. 

80 Ibid. 

81 Ibid. 

82 Ibid. 

83 Surface Transportation Board, Office of Economics, Environmental Analysis and Administration Section of 

Economics. Study of Railroad Rates: 1987-2007. Washington, DC. January 2009. 84 Private conversation with Bill Brennan, Surface Transportation Board, May 20, 2009. 85 Kaplan, Stan. Congressional Research Service Report for Congress, Rail Transportation of Coal to Power Plants: 

Reliability Issues. RL34186. September 2007. 86 Argus Rail Business, Argus Media, Ltd., <www.argusmedia.com> 

87 <http://www.railcure.org> 

88 U.S. Government Accountability Office. Testimony before the Subcommittee on Surface Transportation and 

Merchant Marine, Committee on Commerce, Science, and Transportation, U.S. Senate: Freight Railroads, 

Updated Information on Rates and Other Industry Trends. Statement of JayEtta Z. Hecker. GAO-08-218T. 

Washington, DC. October 2007. 89 U.S. Government Accountability Office. Report to Congressional Requesters: Freight Railroads, Industry Health 

Has Improved, but Concerns about Competition and Capacity Should Be Addressed. Washington, DC. GAO-07-

94. October 2006. 90 Nelson, Michael A. Review and Analysis of Public Interest Considerations Associated with Rail “Bottleneck” 

Issues. Prepared for Consumer United for Rail Equity (CURE). March 12, 2008. 91 Huval, Terry, Lafayette Utilities System, testimony before the House of Representatives Judiciary Committee, 

October 3, 2007. 92 Central Power & Light Co. v. Southern Pacific, et al., 1 S.T.B. 1059 (1996), clarified, 2 S.T.B. 235 (1997), aff'd sub 

nom. MidAmerican Energy Co. v. STB, 169 F.3d 1099 (8th Cir. 1999). 93 Kahn, Alfred, oral testimony before the Surface Transportation Board in a public hearing, Ex Parte No. 575, 

Review of Rail Access and Competition Issues, April 2, 1998, pg. 73. 94 William L. Berg, President and CEO, Dairyland Power Cooperative. Testimony – United States Senate 

Committee on the Judiciary. An Examination of S. 772, the Railroad Antitrust Enforcement Act, October 3, 

2007. 95 Surface Transportation Board, News Release, Surface Transportation Board Orders $345 Million in Rate Relief & 

Damages for a Captive Utility Plant, February 18, 2009. 96 P.L. 110-246, Sec. 6206. 

97 “Railroads and Grain”, Association of American Railroads, Economics and Policy Department, 2009. 98 Ibid. 99 Tolliver, Denver, and Alan Dybing, Impacts of Transportation Infrastructure on the Economy of North Dakota,

April 2007, a report to the North Dakota Legislative Council by the Upper Great Plains Transportation Institute, 

pg. 37. 100 Cutler, John, Andrew Goldstein, G. W. Fauth III, Thomas Crowley, and Terry Whiteside, Railroad Rates and 

Services Provided to Montana Shippers: A Report Prepared for the State of Montana, February 2009. 101 Harper, D., Transportation in America: Users, Carriers, Government. Englewood Cliffs, NJ: Prentice-Hall, Inc., 

Second Edition, 1982. 
544

 102 U.S. Department of Agriculture, Agricultural Transportation Challenges for the 21st Century: A Framework for 

Discussion, July 1998. 103 Ibid. 104 Prater, Marvin and Keith Klindworth, Long-Term Trends in Railroad Service and Capacity for U.S. Agriculture, 

USDA, AMS, November 2000, pg. 7. 105 Antitrust Modernization Commission, Report and Recommendations, 2008, pg. 333. Source: Hovenkamp, 

Herbert, The Antitrust Enterprise: Principle and Execution, 2005, pg. 237-238. 106 Meyer, John R., Chair of Task Force, et. al., Improving Railroad Productivity: Final Report of the Task Force on 

Railroad Productivity, A Report to the National Commission on Productivity and the Council of Economic 

Advisors, Washington, November 1973. 107 Public Law 104-88, §10101 (1), (3), (4), (5), (6), and (12). 108 Grimm, Curtis M., and Clifford Winston, “Competition in the Deregulated Railroad Industry: Sources, Effects and 

Policy Issues, in Sam Pelzman and Clifford Winston, editors, Deregulation of Network Industries, Brookings 

Institution Press, Washington, DC, 2000. 109 Laurits R. Christensen Associates, Inc., A Study of Competition in the U.S. Freight Railroad Industry and Analysis 

of Proposals That Might Enhance Competition, November 2008, p. 8-54. 110 Grimm, Curtis and Clifford Winston, “Competition in the Deregulated Railroad Industry: Sources, Effects, and 

Policy Issues,” in Sam Pelzman and Clifford Winston, editors Deregulation of Network Industries, Brookings 

Institution Press, Washington, DC, 2000. 111 Babcock, Michael W., Marvin E. Prater, John Morrill, and Eugene R. Russell, “Short-Line Railroads’ 

Performance,” Transportation Quarterly, Vol. 49, No. 2, Spring 1995, pp. 73-86. 112 Bitzan, John, Kimberly Vachal, Tamara VanWechel, and Dan Vinge, The Differential Effects of Rail Rate 

Deregulation: U.S. Corn, Wheat, and Soybean Markets, Upper Great Plains Transportation Institute, June 2003. 113 GAO, Freight Railroads: Industry Health Has Improved, but Concerns about Competition and Capacity Should Be 

Addressed, October 2006, GAO-07-94, p. 14. 114 Grimm, Curtis M., Testimony before the U.S. House of Representatives, Committee on Transportation and 

Infrastructure, Subcommittee on Railroads, March 31, 2004. 115 National Commission for the Review of Antitrust Laws and Procedures, Report to the President and the 

Attorney General, 1979, pg. 177. 116 Antitrust Modernization Commission, Report and Recommendations, 2008, pg. 333. Source: Lewis, William W., 

The Power of Productivity, Wealth, Poverty, and the Threat to Global Stability, 2004, pg. 91. 117 Porter, Michael, The Competitive Advantage of Nations, 1990, pp. 117-20, 225-238, 416, 708. 118 Marathon, Nick, Tamera VanWechel, and Kimberly Vachal, Transportation of U.S. Grains: A Modal Share 

Analysis, 1978—2004, USDA, AMS, TSD, September 2006. 119 Ibid. 120 USDA/AMS/TSD, Grain Transportation Report, “Grain Transportation Update and Winter Outlook,” November 

27, 2008, pg. 3; “Grain Exports Waver Between Bulk and Container,” November 20, 2008, pg. 3. 121 Transportation Economics & Management Systems, Inc., Impact of High Oil Prices on Freight Transportation: 

Modal Shift Potential in Five Corridors, U.S. Department of Transportation, Maritime Administration, October 

2008. 122 DOE, Oak Ridge National Laboratory, Transportation Energy Data Book: Edition 25, 2006. Table 2.14, Energy 

Intensities of Freight Modes, 1970—2003. 123 Texas Transportation Institute, Center for Ports and Waterways, A Modal Comparison of Freight Transportation 

Effects on the General Public. 2008. 124 U.S. Department of Agriculture, STB Ex Parte No. 627: Market Dominance Determinations—Product and 

Geographic Competition, May 29, 1998, pg. 4. 125 Tye, William B., The Transition to Deregulation: Developing Economic Standards for Public Policies, Quorum 

Books, 1991. 126 Prater, Marvin and Keith Klindworth, Long-Term Trends in Railroad Service and Capacity for U.S. Agriculture,

USDA/AMS, November 2000, pg. 27. 127 Ibid. 
545

 128 MacDonald, James M., “Railroad Deregulation, Innovation, and Competition: Effects of the Staggers Act on 

Grain Transportation,” Journal of Law and Economics, Vol. 32, 1989, pp. 63-96. 129 Bitzan, John, Railroad Cost Conditions—Implications for Policy, Upper Great Plains Transportation Institute, 

North Dakota State University, May 2000, pg. 115. 130 Prater, Marvin, and Keith Klindworth, Long-Term Trends in Railroad Service and Capacity for U.S. Agriculture, 

USDA/AMS, November 2000, pg. 16. 131 Association of American Railroads, Railroad Ten-Year Trends, various editions. 132 USDA comments before the Surface Transportation Board, Ex Parte No. 627, Market Dominance 

Determinations—Product and Geographic Competition, May 29, 1998. 133 Prater, Marvin and Keith Klindworth, Long-Term Trends in Railroad Service and Capacity for U.S. Agriculture,

USDA/AMS, November 2000, pg. 26. 134 Verkammen, J., “The Freight Rate Setting Process,” Module B-2 in The Economics of Western Grain 

Transportation and Handling, J. Vercammen, M. Fulton, and R. Gray, Editors. 1996 Van Vliet Publication Series, 

Department of Agricultural Economics, University of Saskatchewan. 

Also, PRR Transportation Consulting Services, Inc. and Travacon Research, Ltd., An Estimate of the Contributions 

Earned by the Federal Railways in 1997 and 1998 From Handling of Statutory and Grain Products, Canadian 

Wheat Board, June 1999. 135 Ferguson, Allen R., “U.S. Agricultural Interests and the Merger of the Burlington Northern and the Atcheson, 

Topeka, and Santa Fe Railroads,” July 1995, pg. 7. 136 Kahn, Alfred, oral testimony before the Surface Transportation Board in a public hearing, Ex Parte No. 575, 

Review of Rail Access and Competition Issues, April 2, 1998, pg. 75. 137 Ferguson, Allen R., “U.S. Agricultural Interests and the Merger of the Burlington Northern and the Atcheson, 

Topeka, and Santa Fe Railroads,” July 1995, pg. 8. 138 American Bar Association, Section of Antitrust Law, “Comments Regarding the Railroad Antitrust Enforcement 

Act, H.R. 1650,” December 10, 2008, pg. 6-7. 139 Kahn, Alfred, oral testimony before the Surface Transportation Board, Ex Parte 575: Review of Rail Access and 

Competition Issues, April 2, 1998, pp. 67-68. 140 Railroad-Shipper Transportation Advisory Council, Surface Transportation Board, White Paper on New 

Regulatory Changes for the Railroad Industry, October 16, 2009, pg. 2. 141 Association of American Railroads, Railroad Facts, 2008 Edition, pg. 3. 142 USDA, Agricultural Resource Management Survey (ARMS), <http://www.ers.usda.gov/Briefing/ARMS/>. 143 MacDonald, James M., internal USDA communication with Marvin Prater, February 12, 2009. 144 MacDonald, James M., Railroad Deregulation, Innovation, and Competition: Effects of the Staggers Act on Grain 

Transportation, Journal of Law and Economics, Vol. 32, 1989, pp. 63-96. 145 Harbor, Anetra L., Competition in the U.S. Railroad Industry: Implications for Corn, Soybean, and Wheat 

Shipments, presentation given by Marvin E. Prater at the 2008 Transportation Research Forum in Fort Worth, 

Texas, March 17, 2008. 146 USDA, comments to the STB during Ex Parte No. 658, The 25th Anniversary of the Staggers Rail Act of 1980: A 

Review and Look Ahead, October 19, 2005, pg. 6. 147 STB, Study of Railroad Rates: 1985-2007, January 2009. 148 GAO, Freight Railroads: Updated Information on Rates and Other Industry Trends, October 2007, pg. 12. 149 GAO, Freight Railroads: Industry Health Has Improved, but Concerns about Competition and Capacity Should Be 

Addressed, October 2006, pg. 3. 150 Ibid, pg. 13-14. 151 GAO, Freight Railroads: Updated Information on Rates and Other Industry Trends, October 2007, pg. 2. 152 STB, Study of Railroad Rates: 1985-2007, January 2009, page 8. 153 AAR, Railroad Ten-Year Trends, 1998-2007, pg. 45. 154 STB, Study of Railroad Rates: 1985-2007, January 2009, pg. 7. 155 Laurits R. Christensen Associates, Inc., A Study of Competition in the U.S. Freight Railroad Industry and Analysis 

of Proposals That Might Enhance Competition, November 2008, pg. 5-14, 5-15. 
546

 156 Prater, Marvin and Keith Klindworth, Long-Term Trends in Railroad Service and Capacity for U.S. Agriculture, 

USDA/AMS, November 2000, pg. 22. 157 Laurits R. Christensen Associates, Inc., A Study of Competition in the U.S. Freight Railroad Industry and Analysis 

of Proposals That Might Enhance Competition, November 2008, pg. 8-41 through 8-46. 158 Laurits R. Christensen Associates, Inc., A Study of Competition in the U.S. Freight Railroad Industry and Analysis 

of Proposals That Might Enhance Competition, November 2008, pg. 10-4. 159 Bereskin, C. Gregory, Railroad Cost Curves Over Thirty Years: What Can They Tell Us?, presentation at the 

Transportation Research Forum 49th Annual Forum, Fort Worth, Texas, March 18, 2008. 160 STB, No. 41242 Central Power & Light Company v. Southern Pacific Transportation Company; No. 41295, 

Pennsylvania Power & Light Company v. Consolidated Rail Corporation; and No. 41626, MidAmerican Energy 

Company v. Union Pacific Railroad Company and Chicago and North Western Railway Company, decided 

December 27, 1996. 161 GAO, Freight Railroads: Industry Health Has Improved, but Concerns About Competition and Capacity Should Be 

Addressed, GAO-07-94, October 2006, pg. 48. 162 Nelson, Michael A., Review and Analysis of Public Interest Considerations Associated With Rail “Bottleneck” 

Issues, Transportation/Management Consulting, prepared for Consumers United for Rail Equity, March 2008. 163 Nelson, Michael A., Review and Analysis of Public Interest Considerations Associated With Rail “Bottleneck” 

Issues, Transportation/Management Consulting, prepared for Consumers United for Rail Equity, March 2008. 164 Ibid. 165 Ibid. 166 Berg, William L., Testimony before the United States Senate Committee on the Judiciary, An Examination of S. 

772, the Railroad Antitrust Enforcement Act, October 3, 2007. 167 Argus Media, Ltd., data published in Rail Business, Washington, DC, <www.argusmedia.com>. 168 DOT, Federal Highway Administration, 1997 Federal Highway Cost Allocation Study, Washington, DC, 1998. 169 AAR, Railroad Facts, 2008 edition. 170 Zeta-Tech Associates, Inc., An Estimation of the Investment in Track and Structures Needed to Handle 286,000 

lb. Rail Cars,” May 26, 2000. 171 Casavant, Ken, and Denver Tolliver, for the Washington State Department of Transportation, Impact of Heavy 

Axle Loads on Light-Density Lines in the State of Washington, March 2001. 172 Iowa Department of Transportation, 286,000# Upgrading Report for Iowa Branchlines, July 1998. 173 Martens, Bobby Joel, An Economic Analysis of Heavy Axle Loads: The Effects on Short Line Railroads and the 

Tradeoffs Associated With Heavy Cars, a thesis, North Dakota State University, March 1999 and Casavant, Ken 

and Denver Tolliver, op cit. 174 Babcock, Michael W., and James Sanderson, The Impact of Jumbo Covered Hopper Cars on Kansas Short Line 

Railroads, a study done for the Kansas Department of Transportation, September 2004. 175 AAR, Railroad Ten-Year Trends, various years. 176 Babcock, Michael W., Eugene R. Russell, Robert E. Burns, Economic Development and Transportation Impacts of 

Railroad Branchline Abandonment in South Central Kansas, February 1992, p. 126; Baumel, C. Phillip, John J. 

Miller, and Thomas P. Drinka, “The Economics of Upgrading Seventy-one Branch Rail Lines in Iowa,” American 

Journal of Agricultural Economics, Vol. 59, No. 1, February 1977, p. 61-70. 177 STB decision, STB Ex Parte No. 575, Review of Rail Access and Competition Issues—Renewed Petition of the 

Western Coal Traffic League, decided October 29, 2007. 178 Entergy Arkansas, Inc. and Entergy Services Inc. v. Union Pacific Railroad Company and Missouri & Northern 

Arkansas Railroad Company, Inc., Surface Transportation Board Docket No. 42104. 179 AAR, Railroad Facts, 2008 Edition. 180 AAR, Interchange Agreements: A Win-Win-Win Situation, January 2009. 181 Cambridge Systematics, Inc., National Rail Freight Infrastructure Capacity and Investment Study, September 

2007. 182 Conversation with John Gray, AAR. 183 Laurits R. Christensen Associates, Inc., Supplemental Report to the U.S. Surface Transportation Board on 

Capacity and Infrastructure Investment, March 2009. 
547

 184 Ibid. 185 Norbridge, Inc., Inhibitors to Rail Carload and Intermodal Market Share Growth, January 2009. 186 National Bureau of Economic Research, <http://www.nber.org/cycles.html>, (the source of the date the 

recession began). 187 AAR, Railroad Performance Measures, <http://www.railroadpm.org/>. 188 Laurits R. Christensen Associates, Inc., Supplemental Report to the U.S. Surface Transportation Board on 

Capacity and Infrastructure Investment, March 2009. 189 Laurits R. Christensen Associates, Inc., A Study of Competition in the U.S. Freight Railroad Industry and Analysis 

of Proposals That Might Enhance Competition, Chapter 16, November 2008. The R-1 annual reports contain 

extensive financial, operational, and infrastructure information for each Class I railroad operating in the United 

States. 190 Association of American Railroads, Railroad Facts, various years. 191 FHWA, Freight Story 2008, November 2008. 192 AAR, Freight Railroad Capacity and Investment; Information for June 2008, from Cambridge Systematics, 

National Rail Freight Infrastructure Capacity and Investment Study, September 2007. 193 Norbridge, Inc., Inhibitors to Rail Carload and Intermodal Market Share Growth, January 2009. 194 AAR, Freight Railroad Capacity and Investment, June 2008. 195 Ibid. 196 Rose, Matt, Chairman of BNSF Railway, STB Ex Parte 671, Rail Capacity and Infrastructure Requirements, in 

response to a Commissioner’s question during a public hearing, April 11, 2007. 197 Logistics and Transportation National Plan (PNLT), Brazilian Ministry of Transportation, 

 <http://www.transportes.gov.br > 

198 GAO, Freight Railroads: Industry Health Has Improved, but Concerns About Competition and Capacity Should Be 

Addressed, GAO-07-94, October 2006. 199 Ibid. 200 FHWA, FAF2, the Second Generation of the Freight Analysis Framework, July, 2007. 201 American Association of State Highway and Transportation Officials, Freight Rail Bottom Line Report, 2003. 202 Ibid. 203 American Trucking Association, U.S. Freight Transportation Forecast to 2016, 2005. 204 Booz Allen Hamilton, Study Reveals Shippers’ Ongoing Concerns About North American Freight Railroad 

Capacity, May 2009. 205 FHWA, Freight Facts and Figures, 2006. 206 FHWA, FAF2, The Second Generation of the Freight Analysis Framework, July, 2007. 207 Cambridge Systematics, National Rail Freight Infrastructure Capacity and Investment Study, September 2007. 208 Laurits R. Christensen Associates, Supplemental Report to the U.S. Surface Transportation Board on Capacity 

and Infrastructure Investment, March 2009. 209 Laurits R. Christensen Associates, A Study of Competition in the U.S. Freight Railroad Industry and Analysis of 

Proposals That Might Enhance Competition, November 2008. 210 Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. 211 Laurits R. Christensen Associates, Supplemental Report to the U.S. Surface Transportation Board on Capacity 

and Infrastructure Investment, March 2009. 212 AAR, Freight Railroad Capacity and Investment, June 2008. 213 Ibid. 214 AAR, Railroad Ten-Year Trends, 2007. 215 Traffic World, “Adding Up Infrastructure Costs,” August, 2008, p. 15. 216 National Surface Transportation Policy and Revenue Study Commission, Report: Transportation for Tomorrow, 

December 2007. 217 P.L. 110-246, Sec. 6206. 218 49 U.S.C. 10101. 219 49 U.S.C. 10101(15). 220 49 U.S.C. 10704(d). 
548

 221 49 C.F.R .1300. 222 49 U.S.C. §10701. 223 49 U.S.C. 10709. 224 49 C.F.R. § 1313.3. 225 49 C.F.R.§ 1039.10 and.§ 1039.11. 226 49 U.S.C. 10701(d)(1). 227 49 U.S.C. 10707(a). 228 49 U.S.C. 10704(a)(1). 229 Coal Rate Guidelines, Nationwide, 1 I.C.C.2d 520 (1985) (Guidelines), aff'd sub nom. Consolidated Rail Corp. v. 

United States, 812 F.2d 1444 (3d Cir. 1987). 230 ICC Docket No. 37809. 231 <http://www.stb.dot.gov/stb/industry/Rate_Cases.htm> 232 Otter Tail Power Company v. BNSF Railway 233 Duke Energy v. Norfolk Southern Railway, Duke Energy v. CSX Transportation, and Carolina Power & Light v. 

Norfolk Southern Railway. 234 49 U.S.C. 10704(d). 235 Rate Guidelines–Non-Coal Proceedings, (Ex Parte No. 347 (Sub-No. 2), December 27, 1996. 236 CSX Transportation, Inc., et al., v. Surface Transportation Board, U.S. Court of Appeals for the District of 

Columbia Circuit, No. 07-1369, June 9, 2009. 237 Major Issues in Rail Rate Cases, STB Ex Parte No. 657 (Sub-No. 1). 238 49 U.S.C. 10704(a)(2). 239 Simplified Guidelines, 1 S.T.B. at 1022. 240 Ibid. 241 Ibid. at 1041. 242 BP Amoco Chemical Company v. Norfolk Southern Railway Company, STB Docket No. 42093. 243 Big Load Afloat, The History of the Barge and Towing Industry, The American Waterways Operators, Inc., 

Arlington, VA, 1981. 244 Analytical Perspectives, Budget of the U.S. Government, Fiscal Year 2011, page 86. 245 The word “ton” in this report refers to short tons, or 2,000 pounds. Long tons, or 2,240 pounds, are often used 

in describing ship displacements. 246 American Commercial Lines, Quarterly Report for the United States Securities and Exchange Commission, 

November 7, 2008. 247 <http://www.iwr.usace.army.mil/NDC/veslchar/pdf/wtlusvl1_07.pdf>. 248 Barge Fleet Profile, Inland River Barges for the Mississippi River System and Connecting Waterways, Informa 

Economics, March 2009, www.bargefleet.com. 249 American River Transportation Company, or ARTCO, is a subsidiary of the Archer Daniels Midland Company 250 Rates expressed as a percent of tariff. The St. Louis tariff is $3.99 per ton. 251 Budget of the U.S. Government, Fiscal Year 2011, page 121. 252 Final UMR-IW System Navigation Feasibility Study: Integrated Feasibility Report and Programmatic 

Environmental Study, September 29, 2004, main volume, page 85 (quotation marks added to “with project” for 

clarification). 253 U.S. Army Corps of Engineers, Institute for Water Resources Navigation Data Center, Summary of Lock statistics. 

<http://www.ndc.iwr.usace.army.mil/lpms/lpms.htm>. 254 Re-evaluation of the Recommended Plan: UMR-IW System Navigation Study - Interim Report, U.S. Army Corps 

of Engineers, March 2008. 255 Barge grain as measured from downbound traffic at the last lock on the Mississippi River 256 Transportation Demand for Agricultural Products in the Upper Mississippi And Illinois Basin, May 2007, Kenneth 

Train and Wesley W. Wilson, Navigation Economics Technologies Program, prepared for Institute for Water 

Resources, U.S. Army Corps of Engineers, IWR Report 07-NETS-R-2 www.corpsnets.us 257 <http://www.nwd-mr.usace.army.mil/mmanual/mast-man.htm>. 
549

 258 Data on Commodity Shipments for Four States Served by the Missouri River and Two States Served by Both the 

Missouri and Mississippi Rivers – GAO-09-224R Missouri River Navigation. 

<http://www.gao.gov/new.items/d09224r.pdf (PDF)> 259 The Columbia River System: The Inside Story, U.S. Department of Energy, U.S. Army Corps of Engineers, U.S. 

Department of the Interior, September 1991. 260 Office of Protected Resources, National Marine Fisheries Service, NOAA. 

<http://www.nmfs.noaa.gov/pr/species/fish/chinooksalmon.htm>. 261 Inland Waterborne Transportation – An Industry Under Siege, Ken Casavant, paper prepared for the USDA, 

Agricultural Marketing Service, November 2000. 262 Inland Waterways Users Board, 22nd Annual Report, Inland Waterways Users Board, May 2008. 263 Ibid. 264 U.S. Army Corps of Engineers, Great Lakes and Ohio River Division, Inland Navigation Construction Selected Case 

Studies: Marmet Locks & Dam, Monongahela River Locks and Dams 2, 3, 4, and Olmsted Locks and Dam (July 

17, 2008). 265 Section 206 of the Inland Waterways Revenue Act of 1978, as amended (33 U.S.C. §1804). 266 U.S. Census Bureau, Commodity Flow Survey, 2002. 267 ATA. U.S. Freight Transportation Forecast to... 2020. Arlington, VA. 2009. 268 Ibid. 269 DOT Bureau of Transportation Statistics, U.S. Census Bureau, Commodity Flow Survey, 2002 270 FMCSA. Regulatory Impact Analysis for Hours of Service Options. Docket No. FMCSA-2004-19608-3510.1. 

November 2008. 271 American Transportation Research Institute. An Analysis of the Operational Costs of Trucking. 2008. 272 ATA. American Trucking Trends 2008-2009. Arlington, VA. 2008. 273 Owner-Operators Independent Drivers Association. Before the Environmental Protection Agency. Comments of 

the Owner-Operators Independent Drivers Association in Response to an Advance Notice of Proposed 

Rulemaking. Regulating Greenhouse Gas Emissions under the Clean Air Act. Docket ID No. EPA-HQ-OAR-2008-

0318. November 28, 2008. 274 Air Resources Board. Evaluation of Port Trucks and Possible Mitigation Strategies. April 2006. 275 American Transportation Research Institute. An Analysis of the Operational Costs of Trucking. 2008. 276 ATA. American Trucking Trends 2008-2009. Standard Trucking and Transportation Statistics. Volume 15. Issue 

2. 2008 and 2009. 277 American Transportation Research Institute. An Analysis of the Operational Costs of Trucking. December 2008. 278 FMCSA. NAFTA Safety Stats. Motor Carrier Management Information System March 27, 2009 snapshot. May 

2009. 279 USDA, National Agricultural Statistics Service. Usual Planting and Harvesting Dates for U.S. Field Crops, 

Agricultural Handbook Number 628. 1997. 280 DOT. Comprehensive Truck Size and Weight Study. Volume 2. Chapter 3. Truck Fleet and Operations. Table III-4. 

Average Payload and Loaded Weight of Common Truck types (Pounds). August 2000. 281 Government Printing Office. Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users. 

Public Law 109-59, Sec. 4130. Washington, DC. August 10, 2005. 282 The Albany Herald. DOT works to stabilize gas supply.

<http://www.albanyherald.com/stories/20080930n7.htm> September 30, 2008. 283 FMCSA. Commercial driver's license standards; requirements and penalties 49 CFR Part 383.3 Applicability. 284 FMCSA. Qualifications of drivers and longer combination vehicle (LCV) driver instructors 49 CFR Part 391.2 

General exemptions. 285 Government Printing Office. Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users. 

Public Law 109-59, Sec. 4130. Washington, DC. August 10, 2005. 286 ATA, Agricultural and Food Transporters Conference. Guide to Safe Trucking During Agricultural Planting and 

Harvest Season. 2009. 287 Commercial Vehicle Safety Alliance. Reauthorization Policy Position. Issue #3: Exemptions from Federal Motor 

Carrier Safety Regulations. 2009. 
550

 288 ATA. Litigation Efforts. 2009. http://www.truckline.com/AdvIssues/Litigation/Pages/default.aspx. 289 Washington State Patrol. New Intrastate DOT Number Requirements for Commercial Motor Vehicles.

<http://www.wtatrucking.com/documents/150028_DOT_Requirements_for_Commercial_Vehicles_electronic.p

df> March 2008. 290 Oregon Wheat Growers League. The Time is NOW to Secure an Exemption for Farm Trucks from Interstate 

Commerce Regulatory Enforcement for “Farm to market” Movements. March 2009. 291 Hon. Mary Fallin. Boren, Fallin Introduce Farm Truck Bill. News Center. March 4, 2009. 292 Hon. James M. Inhofe. Inhofe Introduces Farm Truck Weight Legislation. Press Room – Press Releases. March 

19, 2009. 293 Mike Spradling. Statement of the American Farm Bureau Federation. Truck Weights and Lengths: Assessing the 

Impact of Existing laws and Regulations. House Committee on Transportation and Infrastructure. July 9, 2008 294 DOT, Federal Highway Administration. Freight Management and Operations. Commercial Vehicle Size and 

Weight Program. FHWA-OP-03-099. May 2003. <http://ops.fhwa.dot.gov/freight/sw/overview/index.htm>. 295 U.S. Department of Transportation, Federal Highway Administration, Bridge Formula Weights. Washington, DC. 

August 2006. 296 ATA. Statement of Michael J. Smid, President and CEO, TRC North American Transportation. Truck Weights and 

Lengths: Assessing the Impact of Existing Laws and Regulations. House Committee on Transportation and 

Infrastructure. July 9, 2008 297 DOT. Comprehensive Truck Size and Weight Study. Volume 2. Chapter 2. Truck Size and Weight Limits. August 

2000. 298 Government Printing Office. Intermodal Surface Transportation Efficiency Act of 1991. Public Law 102-240. 

Washington, DC. 1991. 299 Coalition for Transportation Productivity. Home Page. 2008. <http://www.transportationproductivity.org/>. 300 Hon. Mike Michaud. Michaud Introduces Bill to Address National Patchwork of Truck weight Laws. March 31, 

2009. 301 Owner-Operators Independent Drivers Association. Testimony of Bill Farrell, Owner, Bill Farrell, LCC, Missoula, 

Montana. Truck Weights and Lengths: Assessing the Impact of Existing Laws and Regulations. Testimony to the 

House Committee on Transportation and Infrastructure. July 9, 2008 302 Government Printing Office. Safe Highways and Infrastructure Preservation Act, H.R. 1618. Washington, DC. 

March 19, 2009. 303 Regulations.gov. FMCSA-2007-27748-0001. 72 FR 73236. Minimum Training Requirements for Entry-Level 

Commercial Motor Vehicle Operators. December 26, 2007. 304 Regulations.gov. FMCSA-2007-27748-0001. 72 FR 73226. Minimum Training Requirements for Entry-Level 

Commercial Motor Vehicle Operators. December 26, 2007. 305 Regulations.gov. Russell Custom Harvesting – Comments. FMCSA-2007-27748-0304. Proposed Rule. Minimum 

Training Requirements for Entry-Level Commercial Motor Vehicle Operators. March 1, 2008. 306 Ibid. 307 FMCSA. Hours of service of drivers 49 CFR Part 395.1 Scope of rules in this part. 308 Regulations.gov. FMCSA Response to Petition for Reconsideration from Public Citizen. FMCSA-2004-19608-

3525.1 Final Rule on Hours of Service of Drivers, 73 FR 69567. January 16, 2009. 309 National Highway Transportation Safety Administration. Traffic Safety Facts. June 2009. 310 FMCSA. Nation's Truck Drivers to Be Limited to Eleven Hours Behind the Wheel Each Day Under New, ScienceBased Federal Rules. News Release FMCSA 07-08. November 18, 2008. 311 Public Citizen. Safety Advocates Ask Court to Overturn Bush ‘Midnight Regulation.’

<http://www.citizen.org/pressroom/release.cfm?ID=2841>. March 9, 2009. 312 FMCSA. Motor Carrier Efficiency Study Phase I. Table 7. Washington, DC. February 2009. 313 FMCSA. FMCSA-2005-23315-0077. 49 CFR Parts 385, 386, 390, et al. Requirements for Intermodal Equipment 

providers and for Motor Carriers and Drivers Operating Intermodal Equipment; Final Rule. December 17, 2008. 314 DOT, Federal Highway Administration. SAFETEA-LU Section 1305, Truck Parking Facilities.

<http://ops.fhwa.dot.gov/freight/safetea_lu/1305_tpf.htm> 315 American Transportation Research Institute. Critical Issues in the Trucking Industry—2008.
551

 316 FMCSA. Qualifications of Drivers and Longer Combination Vehicle (LCV) Driver Instructors. Subpart G—Limited 

Exemptions 49 CFR 391.67. Farm vehicle drivers of articulated commercial motor vehicles. 317 Truckload Carriers Association. The Truckload Carrier Report. Vol. 03, No.25. Alexandria, VA. June 24, 2003. 318 U.S. Department of Homeland Security TWIC Dashboard. March 11, 2009. 

<http://www.tsa.gov/assets/pdf/twic_dashboard.pdf> 319 DOT, Federal Highway Administration. 2006 Status of the Nation’s Highways, Bridges, and Transit: Conditions & 

Performance. March 2007. <http://www.fhwa.dot.gov/policy/2006cpr/es02h.htm> 320 Ibid. 321 Government Printing Office. American Recovery and Reinvestment Act of 2009. Public Law 111-5. Washington, 

DC. February 17, 2009. 322 Government Printing Office. Omnibus Appropriations Act, 2009. Public Law 111-8. Washington, DC. March 11, 

2009. 323 National Surface Transportation Infrastructure Financing Commission. Paying Our Way. A New Framework for 

Transportation Finance. Washington, DC. February 2009. 324 National Surface Transportation Policy and Revenue Study Commission. Transportation for Tomorrow. 

Washington, DC. December 2007. 325 Texas Transportation Institute. The 2009 Urban Mobility Report. July 2009. 

<http://tti.tamu.edu/documents/mobility_report_2009.pdf> 326 U.S. House of Representatives. Committee on Transportation and Infrastructure. The Surface Transportation 

Reauthorization Act of 2009. A Blueprint for Investment and Reform. Executive Summary. June 18, 2009. 327 DOT. Press Release DOT 82-09. Statement from U.S. Transportation Secretary Ray LaHood on the Highway 

Trust Fund. June 17, 2009. 328 U.S. Environmental Protection Agency. What SmartWay Can Do For You: SmartWay Tractor and SmartWay 

Trailers. <http://www.epa.gov/smartway/transport/what-smartway/tractor-trailer.htm>. 329 Air Resources Board. Diesel Activities—Mobile Vehicles and Equipment. (Staff Reports: Initial Statement of 

Reasons for Proposes Rulemaking) <http://www.arb.ca.gov/diesel/mobile.htm>. 330 Government Printing Office. Omnibus Appropriations Act, 2009. Public Law 111-8 Washington, DC. March 11, 

2009. 331 PierPASS Inc. <http://www.pierpass.org/> 332 American Transportation Research Institute. Compendium of Idling Regulations. January 2009. 333 Government Printing Office. Energy Policy Act of 2005. Public Law 109-58. Sec. 756. Reduction of Engine Idling. 

119 STAT. 830. Washington, DC. August 8, 2005. 334 Moore, Thomas Gale. Trucking Deregulation. The Concise Encyclopedia of Economics. Library of Economics and 

Liberty. 2002. 335 Surface Transportation Board. Decision STB Ex Parte No. 656 Motor Carrier Bureaus—Periodic Review 

Proceeding. June 28, 2007. 336 FMCSA. Rules governing applications for operating authority Part 365.107. Types of application. 337 FMCSA. Regulatory Impact Analysis for Hours of Service Options. November 2008. 338 American Transportation Research Institute. An Analysis of the Operational Costs of Trucking. December 2008. 339 ATA. American Trucking Trends 2008-2009. Standard Trucking and Transportation Statistics. Volume 15. Issue 

2. 2008 and 2009. 340 USDA, Fruit and Vegetable Market News. Fruit and Vegetable Truck Rate Report. 

<http://search.ams.usda.gov/mnreports/fvwtrk.pdf>. 341 USDA, Transportation Services Division. Agricultural Refrigerated Truck Quarterly. 342 USDA, Transportation Services Division. Truck Transportation . Quarterly Updates. 343 America’s Ports and Intermodal Transportation System, MARAD, January 2009. 344 U.S. Intermodal Freight System Overview, from the Report to Congress on the Performance of Ports and the 

Intermodal System June 2005, U.S. Department of Transportation, Maritime Administration. 345 America’s Ports and Intermodal Transportation System, MARAD, January 2009. 346 Neenan, R., International Grain Shipments: Recent Ocean Freight Trends, USDA/AMS/ TMP, May 1995. 347 Ibid.
552

 348 Drewry Shipping Consultants Ltd. www.drewry.co.uk. 349 Neenan, R., International Grain Shipments: Recent Ocean Freight Trends, USDA/AMS/ TMP, May 1995. 350 Glossary of Maritime Terms, <www.insurexchange.com/glossary/maritime.htm>. 351 Shipping Insight: Monthly Analysis of the Shipping Markets, Drewry Publishing, April 2009 352 Alphaliner Weekly Newsletter, Volume 2010, Issue 1, AXS Alphaliner, <www.alphaliner.com>. 353 Containerization International Staff Writer, “Mothballed boxships begin to move”, Containerization 

International, March 19, 2010. 354 www.fmc.gov 355 Hearing on Antitrust Immunity Provided Under the Shipping Act of 1984, The Antitrust Modernization 

Commission, Oct. 2006. <govinfo.library.unt.edu/amc/report_recommendation/toc.htm>. 356 Mongelluzzo, Bill, “How to find an export box,” Journal of Commerce, June 30, 2008. 357 Port Import Export Reporting Service (PIERS) 358 Port Import Export Reporting Service (PIERS) 359 Port Import Export Reporting Service (PIERS) 360 America’s Ports and Intermodal Transportation System, MARAD, January 2009. 361 Ibid. 362 Global Supply Chain Terminology, WCL Consulting. 363 U.S. Water Transportation Statistics Snapshot, MARAD, May 2008. 364 America’s Ports and Intermodal Transportation System, MARAD, January 2009. 365 Ibid. 366 Department of Transportation, Federal Highway Administration, Freight Story 2008. 367 America’s Ports and Intermodal Transportation System, MARAD, January 2009. 368 America’s Ports and Intermodal Transportation System, MARAD, January 2009. 369 Ibid. 370 Ibid. 371 American Association of Port Authorities, www.aapa-ports.org, “Harbor Maintenance Tax”, March 2009. 372 The Harbor Maintenance Trust Fund is funded through an ad valorem tax on imported cargo and on domestic 

shipments between ports. In 2009, the Treasury collected $1.125 billion in such taxes for this trust fund. 373 AMS, Impact of Panama Canal Expansion on the U.S. Intermodal System, 2009. 374 ACP. “Proposal for the Expansion of the Panama Canal Third Set of Locks Project.” 2006. 

<http://www.pancanal.com/eng/plan/documentos/propuesta/acp-expansion-proposal.pdf> 375 Ibid.; ACP, “Leaders of Multilateral Agencies and the Panama Canal Sign Agreement for $2.3 Billion to Finance 

the Canal Expansion Program.” Press Releases, December 9, 2008. <http://www.pancanal.com/eng/pr/pressreleases/2008/12/09/pr307.html>. 376 ACP. “Proposal for the Expansion of the Panama Canal Third Set of Locks Project.” 2006. 

<http://www.pancanal.com/eng/plan/documentos/propuesta/acp-expansion-proposal.pdf>. 377 Ibid. 378 DOT. America’s Ports and Intermodal Transportation System, MARAD, January 2009. 379 Ibid. 380 San Pedro Bay Ports Clean Air Action Plan. www.cleanairactionplan.org. 381 America’s Ports and Intermodal Transportation System, MARAD, January 2009. 382 Alameda Corridor Transportation Authority. www.acta.org. 383 Ibid. 384 PierPASS. <www.pierpass.org>. 385 DOT, Maritime Administration, U.S. Water Transportation Statistical Snapshot 386 From Census AES filer to promote Census AES New Foreign Trade Regulations Workshop 387 Federal Maritime Commission. <www.fmc.gov>. 388 Ibid. 389 Ibid. 390 Ocean Shipping Reform Act, Section 11c 391 Federal Maritime Commission. <www.fmc.gov>. 
553

 392 U.S. Census Bureau, Foreign Trade Regulations, Title 15 CFR Part 30 Subpart A Section 30.7 (b). 393 MARAD, America’s Ports and Intermodal Transportation Systems, January 2009. 394 Texas Transportation Institute. A Modal Comparison of Domestic Freight Transportation Effects on the General 

Public, March 2009. <http://www.waterwayscouncil.org/study/public%20study.pdf> 395 Truck: AMS, U.S. Grain Truck Market Advisory Report. 

 Rail: Quarterly average of posted tariff rates for selected grain origin/destination pairs, AMS, Grain 

Transportation Report, Table 7, tariff rates and fuel surcharges for all grains, all selected routes. 

 Barge: AMS, Grain Transportation Report, Table 9, rates through St. Louis, MO. 

 Ocean Bulk: AMS, Grain Transportation Report, Figure 17. Rates represent U.S. Pacific Northwest to Japan 

trade route. 

 Ocean Container: Containerization International. Rates represent U.S. West Coast to Asia trade route. 

<http://www.ci-online.co.uk> 396 Ibid. 397 Ibid. 398 CRS Report for Congress. Grain Transport: Modal Trends and Infrastructure Implications, January 5, 2005. 

<http://www.nationalaglawcenter.org/assets/crs/RL32720.pdf> 399 DOT, Federal Highway Administration, Freight Analysis Framework (FAF) Version 2.2. 400 American Association of State Highway and Transportation Officials, Freight Rail Bottom Line Report, undated. 401 http://www.uschamber.com/publications/reports/0804transportationchallenge 402 Cambridge Systematics, National Rail Freight Infrastructure Capacity and Investment Study, September 2007. 403 Laurits R. Christensen Associates, Inc., Supplemental Report to the U.S. Surface Transportation Board on 

Capacity and Infrastructure Investment, March 2009. 404 Ibid. 405 National Surface Transportation Infrastructure Financing Commission. Paying Our Way. A New Framework for 

Transportation Finance. Report of the National Surface Transportation Infrastructure Financing Commission. 

February 2009. 406 U.S. House of Representatives Committee on Transportation and Infrastructure. The Surface Transportation 

Reauthorization Act of 2009: A Blueprint for Investment and Reform. Washington, DC. June 18, 2009. 407 DOT. Press Release. DOT 82-09. Statement from U.S. Transportation Secretary Ray LaHood on the Highway 

Trust Fund. June 17, 2009. 408 MARAD, America’s Ports and Intermodal Transportation System. January 2009. 409 Ferguson, Allen R., U.S. Agricultural Interests and the Merger of the Burlington Northern and the Atchison, 

Topeka, and Santa Fe Railroads, July 1995, pg. 7. Report to USDA prepared by AFE, Inc., Silver Spring, MD. 410 Nelson, Michael A., Review and Analysis of Public Interest Considerations Associated with Rail “Bottleneck” 

Issues, Transportation/Management Consulting, prepared for Consumers United for Rail Equity, March 2008. 411 MARAD, America’s Ports and Intermodal Transportation System, January 2009