45-855 Railroads, The First Big Business: Topic 11
Railroads Triumphant
Railroads During the Great Depression
World War II -- A Profitable Interlude
The Switch to Diesel Power
Bankruptcy of the Penn-Central
The Staggers Act of 1980
The End of the ICC
The Interstate Commerce Commission finally died on 31 December 1995 at the
insistence of the Republican Congress. The deregulation of the trucking industry
and the partial deregulation of the railroad industry by the 1980 Staggers Act had
largely eliminated the need for the ICC. The remaining functions of the ICC were
transferred to the
Surface Transportation Board within the Department
of Transportation.
The Surface Transportation Board (or "Surf Board" as it is known by those
who deal with it) is responsible for mergers, consolidations, and trackage rights.
Unlike airlines, the railroads were not fully deregulated so that they are not
subject to antitrust regulation by the Justice Department (mergers and
consolidations).
Railroads now operate mostly on contracts with shippers which specify
the price of the service rather than the old
tariff system with its published
fixed rates. The STB does not engage in tariff regulation -- the old system has
been junked -- rather it requires that the contracts that railroads reach with
shippers be in writing and be binding. Railroads are required to file contract
summaries only for agricultural products.
The STB controls entrance to the railroad business. If you want to
start a new railroad you must get an STB certificate. However, unlike the old
ICC regulation, the STB must approve an entrant unless it finds it "contrary to
the public interest". In other words, it is difficult to turn down an entrant.
The STB still controls
abandonments under the "public convenience and
necessity" standard. The STB can require a railroad to accept financial assistance
to continue the operation of a line or require the sale of it to another railroad
that will continue its operation.
The bottom line is that American Railroads are still regulated in terms
of entry,
exit, and
mergers, but
they now largely control their pricing.
Changes must be approved in advance by the STB and
if they are, the railroads are not subject to Antitrust action.
Railroad Capital Expenditure Since The Staggers Act of 1980
From 1980 to 2005 Class 1 Freight Railroads have spent more than $120,000,000.00
on capital improvements.
In addition, about $10 billion to $12 billion is spent each year on repair and
maintenance on infrastructure and equipment.
Total spending since 1980 has been about $360 billion (RT&S, April 2006, p. 5)
In 2006 Class 1 Railroads will spend more than $8 billion on new track, new equipment, and
improving infrastructure.
The $15 to $17 billion railroads typically spend each year on their infrastructure and
equipment is equal, on average, to approximately 45 percent of their operating revenue (RT&S,
April 1006, p. 5).
