Railroad Competitiveness

Regulatory reform in the 1970s and 1980s allowed railroads to better compete with trucks and barges for freight. As a result, the rail industry stemmed the decline in its share of the intercity freight market. Yet significant competitive challenges still face the industry. This report focuses on the federal laws that affect railroad labor costs and on the federal user fee policies that affect the costs of trucks and barges. Factors internal to the railroads, such as management, are not considered.

GAO found that: (1) reduced federal regulation has given railroads greater freedom to competitively price their services, but as the railroads have become more competitive, so have their competitors in the trucking and barge industries; (2) the Railroad Retirement Act of 1937, the Federal Employers' Liability Act, and the Railway Labor Act of 1926, which govern railroad employee benefits and labor relations, have resulted in higher overall labor costs; (3) if railroads could reduce their labor costs, they would be in a better position to competitively price their services and compete for intercity freight; (4) publicly financed interstate highways and waterways give the trucking and barge industries a competitive price advantage over railroads, since freight railroads maintain their own rights of way with minimal federal assistance, while trucks and barges use rights of way that the public helps to fund; and (5) rail rates could become increasingly attractive compared with truck or barge rates, if all modes operated under the same labor laws and were equally responsible for their rights of way.