BEFORE THE 

SURFACE TRANSPORTATION BOARD 

_________________________________ 

STB EX PARTE NO. 658 

THE 25TH ANNIVERSARY OF THE STAGGERS RAIL ACT OF 1980: 

A REVIEW AND LOOK AHEAD 

______________________________________ 

COMMENTS OF THE 

U.S. DEPARTMENT OF AGRICULTURE 

_____________________________________ 

Bill Hawks 

 Under Secretary 

 Marketing and Regulatory Programs 

 U.S. Department of Agriculture 

 Washington, D.C. 20250 

Date: October 19, 2005 
2

AUTHORITY AND INTEREST

 The Secretary of Agriculture is charged with the responsibility under the Agricultural 

Adjustment Act of 1938 and the Agricultural Marketing Act of 1946 to represent the interests 

of agricultural producers and shippers in improving transportation services and facilities by, 

among other things, initiating and participating in Surface Transportation Board (Board) 

proceedings involving rates, charges, tariffs, practices, and services. 

USDA represents U.S. farmers and agricultural shippers, and the vitality of their 

livelihood is our primary interest. Our interest is in preserving an efficient and competitive 

transportation sector that serves U.S. agriculture effectively. 

BACKGROUND

 The Department of Agriculture thanks the Board for initiating this public hearing to 

provide a forum for the expression of views on the impact, effectiveness, and future of the 

Staggers Act. 

By 1976, one-third of the railroads in the United States were bankrupt or nearly 

bankrupt, due in part to decades of industry regulation. As a result, railroads were unable to 

efficiently manage their operations and effectively compete with waterway and emerging air 

and motor carrier transportation. 

The Staggers Rail Act of 1980 (Staggers Act) significantly reduced regulation in all 

phases of railroad operations. Since enactment of the Staggers Act, economic and market 

conditions affecting the rail industry have changed greatly. Instead of 33 major railroads 

competing in the early 1980s, the rail industry has consolidated to only 7 major railroads 
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operating in the United States. Rather than bankruptcy, the major railroads are now financially 

healthy. And, recent demand for rail transportation has been robust and has set records for 

several years in a row. 

Today, the future facing the major railroads is dramatically different than when 

Staggers was passed: 

• The Department of Transportation's (DOT) Federal Highway Administration Office of 

Freight Management projects an increase in freight traffic of 69 percent from 1998 to 

2020 for rail carriers.1

• Today, major railroads are constrained more by insufficient capacity than by the excess 

capacity they faced before Staggers. 

• Current and expected future demands on railroads, capacity constraints, as well as 

greatly increased fuel costs give railroads much more incentive to increase rates – to 

support needed investments in infrastructure, or face rationing service to their 

customers. 

In view of the changing circumstances of railroads, now is an appropriate time to 

evaluate the future of the Staggers Act and its ability to be the sole vehicle for all issues and all 

parties in rail industry transportation. The railroad industry, shippers, and competing 

transportation modes now face quite different challenges than when the Staggers Act was 

enacted. All transportation modes are increasingly congested and in need of major capacity 

investments. The funding of these transportation investments likely will require creative 

 

1

 Department of Transportation, Federal Highway Administration, Office of Freight Management, Freight News: 

Freight Analysis Framework, October 2002. 
4

solutions. Fuel prices have risen to extremely high levels and likely will remain high for the 

foreseeable future. Therefore, the most fuel-efficient transportation modes, such as railroads 

and waterways, will remain critically important in the movement of agricultural commodities. 

And, concerns about the environment will favor more environmentally-friendly transportation 

modes such as rail and water. 

OVERALL BENEFITS OF THE STAGGERS ACT

 Economists generally agree that railroad deregulation has been successful in a broad 

overall context. Economic analysis also has shown that both railroads and shippers have 

realized significant economic benefits since enactment of the Staggers Act. 

The Staggers Act allowed railroads much greater freedom to meet the competitive 

pressures placed on them by other freight modes, expedited rail abandonment procedures, and 

reduced the time required to process merger applications. The Staggers Act also permitted 

railroads to enter into contracts with shippers and enabled railroads to invest in plant and 

equipment with a greater degree of certainty that such investments would be profitable. 

Railroads have been able to innovate in ways that were previously stifled by 

regulations. As a result, shippers now benefit from the cost savings due to the use of doublestack intermodal movements and shuttle trains. 

Finally, railroads were able to cut costs much more rapidly due to more managerial 

freedom. This cost-cutting was achieved by abandonment and spin-off of rail lines, reduction 

of excess labor, longer hauls, and more aggressive use of technologies to obtain efficiencies. 
5

As a result, railroad profitability has increased through efficiency and productivity, resulting in 

better maintained infrastructure, which in turn increased service reliability and safety. 

Shipper benefits from railroad deregulation include preservation of railroad service, rate 

savings and, in many cases, improved service. Short line railroads have been able to operate 

profitably on many rail lines abandoned by the major railroads and have generally provided 

more individualized service to shippers. Benefits, however, have not been distributed 

uniformly across or within commodities or communities. The distribution of benefits has 

tended to favor grain producers in regions with higher levels of intermodal competition.2

 

AGRICULTURE RELIES HEAVILY ON RAIL SERVICE

Due to their numbers (many), size (small), and the nature of their products 

(homogeneous with many substitutes) individual agricultural producers of grain and oilseed 

crops are considered “price-takers.” That is, they have little or no ability to influence the price 

received for their products, and therefore, are unable to pass increases in costs forward to 

buyers. Instead, these producers tend to absorb cost increases. Consequently, increases in 

transportation costs typically result in decreased producer prices and, ultimately, lower 

incomes as producers absorb the increased transportation cost. In turn, lower producer 

incomes can adversely affect the ability of individual producers to borrow funds and 

potentially reduce economic prosperity in rural areas. 

 

2

 John Bitzan, 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. 
6

To compete effectively in increasingly competitive world markets, U.S. farmers must 

have access to efficient, reliable and cost-competitive transportation. The rates agricultural 

shippers pay for rail transportation must be at a level that promotes, rather than penalizes, 

American competitiveness in world agricultural markets. High transportation costs hinder the 

competitive position of U.S. agricultural products in highly competitive export markets. 

Because U.S. farmers produce more than our country can consume, the ability to export surplus 

production is extremely important. The ability to export excess production supports domestic 

grain and agricultural product prices, enhancing the vitality of rural economies. 

USDA research shows that transportation often comprises about 40 percent of the final 

landed cost of commodities at destination. Thus, transportation is critical to maintaining a 

competitive position in global markets. This point has been illustrated vividly in the past six 

weeks as the United States experienced what is bound to be declared as one of the worst 

natural disasters in its history, with hurricane Katrina followed by hurricane Rita in the Gulf. 

The interconnectivity of rail with barge transportation became amplified within a matter of 

days following these events, and continues to challenge our ability to move grain just as this 

fall's harvest begins to get underway. 

AGRICULTURAL SHIPPERS’ CONCERNS

Despite the overall success of the Staggers Act, agricultural shippers have concerns 

regarding decreased rail-to-rail competition, the declining rail share of grain transportation, rail 

capacity constraints, the allocation of rail capacity, and rail rates. 
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Rail-to-rail competition

One of the key assumptions underlying the deregulation of the rail industry was that 

there would be sufficient competition, which would improve allocative and technical 

efficiency. Thus, the authors of the Staggers Act of 1980 and the Interstate Commerce 

Commission Termination Act of 1995 (ICCTA) included the preservation of effective 

competition as one of the rail transportation policy goals of the United States. Not only does 

effective competition promote reasonable rates and minimize the need for regulatory control, 

but it also encourages the efficient management of railroads. 

In many agricultural production regions of the Nation, truck and barge transportation 

provide adequate competition to constrain rail prices. However, barge transportation is not 

available to those agricultural producers located in the western portions of the Plains States, 

and truck transportation is not cost-effective due to the long distances to market. Thus, for 

agricultural producers located in those regions, competition -- including rail-to-rail competition 

-- must be preserved and promoted for effective competition. 

Since enactment of the Staggers Act, rail consolidation has reduced rail-to-rail 

competition. Even though a large majority of grain shippers have never had access to more 

than one railroad, the loss of access to nearby grain shippers located on competing railroads 

and increased geographic reach of the remaining railroads means that many farmers have lost 

the benefits of geographic competition. 

Rail consolidation also has led to a sharp reduction in competitive routes and options 

for agricultural shippers. In some cases connecting gateways to other markets have been 
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closed by railroads. In other cases, railroads have limited economic access to less distant 

markets and markets on the lines of other railroads through differential freight prices. 

Declining railroad share of the grain transportation market

Agricultural producers are concerned about the declining railroad share of the grain 

transportation market. In 1980, railroads hauled nearly 50 percent of grain to market. By 

2000, the railroad share of grain hauled to market was down to only 32 percent.3 Most of the 

loss in market share went to trucks. Yet rail continues to be particularly important in the Plains 

States of Montana, North Dakota, Kansas, Oklahoma, and Texas, where more than 50 percent 

of the grain produced is hauled by rail.4

Rail capacity

Rail capacity for agricultural products has been extremely tight during the last three 

years, for a number of reasons, both agricultural and non-agricultural. Non-agricultural factors 

include increased demand for most commodities due to economic expansion, the expansion of 

international trade, increased demand for coal due to high natural gas prices, high fuel prices, 

and new hours of service (trucking) regulations increasing rail intermodal demand. 

Agricultural factors include strong grain export demand, high prices for agricultural crops 

during 2003, and back-to-back record or near-record grain harvests. In addition, railroads have 

faced capacity constraints, internal operational issues related to congestion and labor, and 

retirement of sizeable portions of their workforce. 

 

3

 Nick Marathon, Tamera VanWechel, and Kimberly Vachal, Transportation of U.S. Grains: A Modal Share 

Analysis, 1978-2000, U.S. Department of Agriculture, October 2004. 

4

 United States Grain Transportation Guide, U.S. Department of Agriculture, forthcoming. 
9

Agricultural producers need enough rail capacity to assure adequate rail service during 

moderate surges in rail transportation demand. This requires adequate investment in facilities 

and equipment as well as an adequate return on investment by the railroads. Investment for the 

long term, of course, requires the likelihood of continued demand to justify the investment in 

order to provide the return on the investment. The major railroads today appear to fall into two 

categories: (1) those that have invested in capacity and are now reaping the benefits and (2) 

those whose delayed investments in capacity have left them unprepared to adequately meet 

increases in demand for their services. 

Problems in rail car investment are illustrated with the issues facing privately-owned 

covered grain rail cars. On January 1, 2004, 65 percent of these covered hoppers were 

privately-owned (including leasing companies), and only 35 percent were owned by railroads.5

 

Although many of these cars are privately-owned because of reluctance of the railroads to 

invest, privately-owned rail cars are treated differently than those owned by the railroads. 

Specifically, the owners of those rail cars bear the risks and uncertainty of ownership, as well 

as the costs, and also must meet the requirements of the railroads. These are the burdens the 

railroads would have carried had they continued to own and operate the cars. Now, however, 

in addition to private ownership, many shippers also are being asked to share in the investment 

of track infrastructure to be assured of service. Looking forward, we must consider what can 

be done to encourage adequate investment in transportation infrastructure by both the railroads 

and private investors. The present example is just one illustration of a situation that is only 

 

5

 Railroad Equipment Report, 2004, Association of American Railroads. 
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contributing further to tensions between shippers and carriers in a capacity-constrained 

industry. 

Allocation of rail capacity

USDA believes that all agricultural shippers, even the smallest, should have reasonable 

access to rail capacity. Agricultural shippers have often complained to USDA regarding grain 

car allocations that seemingly favor shuttle shippers. The lack of adequate rail service to 

smaller grain shippers could reduce competition among grain shippers as well as place heavier 

costs on rural road systems. The common carrier obligation remains and should continue to be 

enforced. 

Rail rates

While deregulation did contribute to an overall decline in rates, as demand for service 

continues to increase and capacity is constrained railroads will be faced with limited choices in 

the near term. They can either raise rates, or ration service. Neither will be appealing to any of 

their customers. But those results -- higher rates or rationed service -- are economic realities of 

a market place where rates are not regulated, and the ability to appeal excessive rates is 

hampered by small shippers' inability to effectively use the Board's appeals process. 

The ability of agricultural shippers to cost-effectively appeal excessive rail rates is 

particularly important for agricultural producers because of the characteristics of the market in 

which they operate. Only coal shippers have been able to cost-effectively use the Stand-Alone 

Cost rate appeals procedures. Although the Board established small shipper rate appeals 

procedures ten years ago, they have not been used until this year. Smaller shippers have been 
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reluctant to use them due to uncertainty regarding how the rules would be applied, which 

would affect the cost-effectiveness of those appeals. 

Tariff rates on approximately 30 percent of farm product shipments exceed the 

jurisdictional threshold, which is a revenue-to-variable cost (R/VC) ratio of 180 percent. In 

regions of the country that are highly dependent upon rail service, many agricultural shippers 

consider their rail rates to be excessive because the R/VC ratio is much higher—sometimes 

exceeding 300 percent—than the 180 percent jurisdictional threshold. 

Today's economic demands on the railroad industry are likely to only add to the 

frustrations of shippers because of a lack of transparency in the rate appeals process and the 

costliness of the rate appeals procedures for small shippers. USDA urges all parties to 

cooperate in finding mutually agreeable solutions to these issues before they become irresolute 

problems that invite unnecessary intervention in the form of regulation or other compulsory 

requirements that would turn back progress that has been achieved in the market by Staggers. 

CONCLUSION

On the whole, the Staggers Act has been positive for both railroads and shippers. A 

dying rail industry revitalized itself and helped preserve rail service to many shippers that 

otherwise would have lost rail service. USDA recognizes the value of deregulation, which 

allows businesses with a financial interest, rather than government, to make economic 

decisions. But while deregulation has many benefits, it is not without costs. 

USDA has commented on several rail service issues that concern agricultural shippers. 

Although deregulation is beneficial in the long run, it has not been the successful vehicle to 
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address all of shippers’ issues with respect to rail service. Neither can legislation solve all 

problems in the market place. USDA does not advocate a return to the pre-Staggers regulation 

era. USDA supports its agricultural constituents as well as an effective and efficient 

transportation system. USDA encourages a careful and prudent review of the Staggers Act 

because many agricultural producers in the United States rely on rail transportation to move 

their products to market. Even when agricultural producers have a choice of cost-effective 

transportation modes, rail remains an integral part of moving products to market. It is 

extremely important that rail rates not be excessive and that rail service is available to even the 

smallest agricultural rail shippers. 

For all of the good that deregulation through Staggers has brought – to the economy, to 

local communities, to rail carriers and shippers, and to agricultural producers – the issues 

facing railroads and our agricultural producers and shippers today is manifested in considerable 

conflict that appears to be worsening as time goes by. Thus, USDA believes this 25-year 

review and look forward of the Staggers Act is critical. The issues that face railroads, shippers, 

and producers, and the business relationships among them, require an insightful, innovative, 

and vigorous approach -- just as the Staggers Act was 25 years ago. 

 Respectively submitted, 

 

 Bill Hawks 

 Under Secretary 

 Marketing and Regulatory Programs 

 U.S. Department of Agriculture 

 Washington, D.C. 20250 
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CERTIFICATE OF SERVICE

I, Barbara Robinson, certify that on this 12th day of October, 2005, I caused a copy of the 

foregoing document to be served by first-class mail, postage prepaid, on all parties of record in 

STB Ex Parte No. 658. 

________________________ 

Barbara Robinson 

Deputy Administrator 

Transportation and Marketing Programs 

 U.S. Department of Agriculture 

 Washington, D.C. 20250